<PAGE> 1
As filed with the Securities and Exchange Commission on _____________, 1995
Registration No. 33-________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
NATIONAL CITY BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
INDIANA 6710 35-1632155
(State or Other Jurisdiction (Primary Standard Industrial (IRS Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
227 MAIN STREET
P.O. BOX 868
EVANSVILLE, IN 47708
(812) 464-9800
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
MR. ROBERT A. KEIL COPIES OF COMMUNICATIONS TO:
PRESIDENT MARTIN D. WERNER, ESQ.
NATIONAL CITY BANCSHARES, INC. WERNER & BLANK CO., L.P.A.
227 MAIN STREET 7205 W. CENTRAL AVENUE
EVANSVILLE, IN 47705-0868 TOLEDO, OH 43617
(812) 464-9800 (419) 841-8051
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Approximate date of commencement of proposed sale of the securities
to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box:
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Class of Securities Amount to Offering Price Aggregate Offering Amount of
to be Registered be Registered Per Share(1) Price(1) Registration Fee(1)
- ------------------ ------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Common Stock 512,420 $36.30638929 $18,604,120 $6,415.26
</TABLE>
(1) The registration fee has been computed pursuant to Rule 457(f)(1) based on
the market price of Common Stock of United Financial Bancorp, Inc. as of
May 22, 1995. The proposed maximum offering price per share is determined
by dividing the proposed maximum aggregate offering price by the number of
shares to be registered.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Page 1 of _____ pages.
Exhibit Index on Page ____.
<PAGE> 2
NATIONAL CITY BANCSHARES, INC.
CROSS-REFERENCE SHEET
FORM S-4
<TABLE>
<CAPTION>
Heading in
Item of Form S-4 Prospectus and Proxy Statement
---------------- ------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front Outside Front Cover Page of
Cover Page of Prospectus Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back
Prospectus Cover Pages of Prospectus;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges, SUMMARY
and Other Information
4. Terms of the Transaction SUMMARY; PROPOSED MERGER;
DESCRIPTION AND COMPARISON OF
NCBE COMMON STOCK AND UNITED
COMMON STOCK; and INFORMATION
ABOUT NCBE
5. Pro Forma Financial Information PRO FORMA FINANCIAL
INFORMATION
6. Material Contracts with the Company Being Acquired SUMMARY; PROPOSED MERGER --
Terms of the Merger;
Resales of NCBE Stock;
MEETING INFORMATION--Vote
Required;
7. Additional Information Required for Reoffering by Not Applicable
Persons and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel EXPERTS
9. Disclosure of Commission Position on Indemnification Not Applicable
for Securities Act Liabilities
10. Information with Respect to S-3 Registrants SUMMARY; AVAILABLE
INFORMATION; INCORPORATION
BY REFERENCE; SELECTED
FINANCIAL DATA; PRO FORMA
FINANCIAL INFORMATION
11. Incorporation of Certain Information by Reference Inside Front Cover Page of Prospectus;
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE;
Summary -- Selected Financial Data; PRO
FORMA FINANCIAL INFORMATION
</TABLE>
B-1
<PAGE> 3
<TABLE>
<S> <C> <C>
12. Information with Respect to S-2 or S-3 Registrants Not Applicable
Heading in
Item of Form S-4 Prospectus and Proxy Statement
---------------- ------------------------------
13. Incorporation of Certain Information by Reference Not Applicable
14. Information with Respect to Registrants Other Than Not Applicable
S-3 or S-2 Registrants
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Companies Not Applicable
17. Information with Respect to Companies Other Than SUMMARY -- Vote Required --
S-2 or S-3 Companies INFORMATION
ABOUT UNITED;
18. Information if Proxies, Consents or Authorizations SUMMARY -- Meeting Information;
are to be Solicited INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE;
PROPOSED MERGER--Dissenters' Rights;
DESCRIPTION AND COMPARISON OF
NCBE COMMON STOCK AND UNITED
COMMON STOCK
19. Information if Proxies, Consents or Authorizations Not Applicable
are Not to be Solicited, or in an Exchange Offer
</TABLE>
B-1
<PAGE> 4
UNITED FINANCIAL BANCORP, INC.
619 Main Street
Vincennes, Indiana 47591
(812) 882-9310
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held on _______, 1995
Notice is hereby given that the Special Meeting of Stockholders (the
"Meeting") of United Financial Bancorp, Inc. ("United" or the "Company") will
be held at Beckes Student Union on the campus of Vincennes University, North
Second Street, Vincennes, Indiana on ______, 1995 at [10:00 A.M.].
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. A proposal to approve and adopt an Agreement and Plan of
Merger (the "Merger Agreement"), as of December 28, 1994, by and
between United and National City Bancshares, Inc. ("NCBE"), a copy of
which is included in the accompanying Proxy Statement-Prospectus as
Appendix A. As more fully described in the Proxy
Statement-Prospectus, the Merger Agreement provides for the Merger of
United with and into NCBE, with NCBE surviving the transaction.
Pursuant to the Merger Agreement and subject to certain exceptions,
all of the outstanding shares of United Common Stock will be converted
into shares of NCBE Common Stock in accordance with the Exchange Ratio
as defined in the Merger Agreement.
2. Such other matters as may properly come before the
Meeting, or any adjournments thereof. The Board of Directors is not
aware of any other business to come before the Meeting.
Notice is also given that United stockholders have the right to dissent
and demand an appraisal of the value of their shares in the event the Merger
Agreement is approved and consummated. The right of any dissenting shareholder
to receive the value of his shares through the statutory appraisal process is
contingent upon strict compliance with the procedures set forth in Section 262
of the Delaware General Corporation Law, the relevant portions of which are
attached as an Appendix to the accompanying Proxy Statement-Prospectus.
Any action may be taken on the foregoing proposal at the Meeting on
the date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on _______, 1995
are the stockholders entitled to vote at the Meeting, and any adjournments
thereof. A complete list of stockholders entitled to vote at the Meeting will
be available at the main office of the Company during the ten days prior to the
Meeting, as well as at the Meeting.
You are requested to complete and sign the enclosed Form of Proxy
which is solicited on behalf of the Board of Directors, and to mail it promptly
in the enclosed envelope. The Proxy will not be used if you attend and vote at
the Meeting in person.
By Order of the Board of Directors
Janice L. Beesley, President, Chief Executive
Officer and Director
Vincennes, Indiana
__________, 1995
________________________________________________________________________________
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF MAILED WITHIN THE UNITED STATES.
<PAGE> 5
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
UNITED FINANCIAL BANCORP, INC.
619 MAIN STREET
VINCENNES, INDIANA 47591
_______________________
PROSPECTUS
NATIONAL CITY BANCSHARES, INC.
COMMON STOCK
_______________________
This Prospectus of National City Bancshares, Inc. (NCBE) relates to
the shares of common stock of NCBE ("NCBE Common Stock") issuable to the
stockholders of United Financial Bancorp, Inc. ("United") upon consummation of
the proposed merger of NCBE and United (the "Merger"). NCBE and United have
entered into a Merger Agreement dated December 28, 1994, (the "Agreement").
The Agreement is attached as Appendix A and incorporated herein by reference.
THIS PROSPECTUS ALSO SERVES AS THE PROXY STATEMENT OF UNITED ("PROXY
STATEMENT-PROSPECTUS") FOR ITS SPECIAL MEETING OF STOCKHOLDERS (THE "SPECIAL
MEETING") TO BE HELD ON ___________,1995. SEE "MEETING INFORMATION."
If the proposed Merger is consummated, the stockholders of United will
receive shares of NCBE Common Stock in exchange for their shares of United
Common Stock held by them on the effective date of the Merger as set forth in
the Agreement. Pursuant to the terms of the Agreement, stockholders of United
will exchange each share of United Common Stock held by them on the effective
date of the Merger for NCBE Common Stock with a value of $44.40. The per share
value of NCBE Common Stock will be determined by reference to the average per
share price of one share of NCBE Common Stock for the twenty business days
prior to the effective time of the Merger, provided, however, that in the event
the average price of NCBE Common Stock is lower than $40.50 or higher than
$49.50 per share then the value utilized will be equal to such lower or upper
limit respectively.
The Merger is intended to be tax-deferred to United stockholders for
federal income tax purposes. For a more complete description of the Agreement
and terms of the Merger see "The PROPOSED MERGER."
This Proxy Statement-Prospectus and form of Proxy are first being
mailed to stockholders of United on or about ________________,1995.
_______________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
ANY SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
_______________________
The date of this Proxy Statement-Prospectus is ____________,1995.
1
<PAGE> 6
TABLE OF CONTENTS
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<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 5
SUMMARY 6
The Companies 7
Proposed Merger 7
Special Meeting Information 7
Vote Required 7
Reasons for the Merger; Recommendations of the Boards of Directors 7
Opinion of Financial Advisor 8
Effect on United Shareholders 8
Dissenters' Rights 8
Certain Federal Income Tax Consequences 8
Accounting Treatment 8
Effective Time of the Merger 8
Conditions to the Merger; Regulatory Approval 9
Dividend 9
Termination, Amendment and Waiver 9
Interests of Certain Persons in the Merger 9
Resales of NCBE Common Stock by Affiliates 10
Markets and Market Prices 10
Pending Acquisitions 12
Selected Financial Data 12
Comparative Per Share Data 22
MEETING INFORMATION 28
General 28
Date, Place and Time 28
Record Dates 28
Votes Required 28
Voting and Revocation of Proxies 28
Solicitation of Proxies 29
PROPOSED MERGER 29
Background and Reasons for the Merger 29
Recommendation of the United Board of Directors 31
Opinion of United's Financial Advisor 31
Terms of the Merger 31
Effective Time of the Merger 32
Surrender of United Certificates 32
Conditions to the Merger 33
Regulatory Approval 34
Conduct of Business Pending the Merger 34
Dividends 35
Termination, Amendment and Waiver 35
Management and Operations After the Merger 35
Interests of Certain Persons in the Merger 35
Effect on Employee Benefit Plans 36
Certain Federal Income Tax Consequences 36
Accounting Treatment 37
Expenses 37
Resale of NCBE Common Stock 37
Dissenters' Rights 38
</TABLE>
2
<PAGE> 7
Table of Contents (Continued)
<TABLE>
<S> <C>
PRO FORMA FINANCIAL DATA 39
DESCRIPTION AND COMPARISON OF NCBE COMMON STOCK
AND UNITED COMMON STOCK 47
General 47
Preemptive Rights 48
Voting 48
Cumulative Voting 49
Liquidation 49
Liability of Directors; Indemnification 49
Antitakeover Provisions 49
INFORMATION ABOUT NCBE 52
General 52
Competition 53
Certain Regulatory Considerations 53
Principal Holders of NCBE Common Stock 58
INFORMATION ABOUT UNITED 59
General 59
Properties 59
Litigation 59
Voting, Principal Stockholders and Management Information 59
Certain Relationships and Related Transactions 61
Competition 61
Employees 61
Financial Statements and Management's Discussion and Analysis of Financial Condition
and Results of Operations 61
Other Available Information 62
LEGAL OPINIONS
EXPERTS 62
STOCKHOLDER PROPOSALS 62
UNITED FINANCIAL ANNUAL REPORT FOR YEAR ENDED JUNE 30, 1994 F-1
UNITED FINANCIAL FORM 10QSB FOR QUARTER ENDED MARCH 31, 1995 F-47
</TABLE>
3
<PAGE> 8
TABLE OF CONTENTS (CONTINUED)
APPENDIX A
Agreement and Plan of Reorganization dated December 28, 1994
APPENDIX B
Support Agreement dated December 28, 1994
APPENDIX C
Opinion of United's Financial Advisor - Charles Webb & Co.
APPENDIX D
Delaware Law on Dissenters' Rights
4
<PAGE> 9
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION TO OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS AND, IF GIVEN
OR MADE, THE INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE THE SECURITIES OFFERED
HEREBY, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTIONS OR TO OR FROM ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR
PROXY IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROXY
STATEMENT-PROSPECTUS RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF UNITED OR NCBE
SINCE THE DATE OF THIS PROXY STATEMENT-PROSPECTUS.
AVAILABLE INFORMATION
NCBE is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located
at Room 1400, 75 Park Place, New York, New York 10007, and at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can also be obtained from the public reference section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
NCBE has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the NCBE Common Stock to be issued pursuant to the Merger described herein.
This Proxy Statement-Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits thereto, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
Such additional information may be obtained from the Commission's principal
office in Washington, D.C. Statements contained in this Proxy
Statement-Prospectus or in any document incorporated herein by reference as to
the contents of any contract or other document referred to herein or therein
are not necessarily complete, and in each instance where reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement or other document, each such statement is qualified in
all respects by such reference.
United is subject to the informational requirements of the Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements, and other information with the Commission. The
reports, proxy statements and other information can be inspected and copied at
the public reference facilities of the Commission, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission
located at Room 1400, 75 Park Place, New York, New York 10007, and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can also be obtained from the public
reference section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO
NCBE, EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST TO HAROLD A. MANN, SECRETARY, NATIONAL
CITY BANCSHARES, INC., 227 MAIN STREET, P.O. BOX 868, EVANSVILLE, INDIANA,
47705-0868 (TELEPHONE (812) 464-9675). TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUESTS SHOULD BE MADE PRIOR TO____________,1995.
The following documents previously filed with the Commission by NCBE
(Commission File No. 0-13585) are incorporated herein by reference:
(i) NCBE's Annual Report on Form 10-K for the year ended
December 31, 1994;
(ii) NCBE's Current Reports on Form 8-K dated January 5,
1995 and April 13, 1995.
(iii) NCBE's Quarterly Report on Form 10Q for the three
months ended March 31, 1995.
This Proxy Statement-Prospectus incorporates by reference documents of
United. Such documents (excluding exhibits not specifically incorporated by
reference) are available, without charge, to any person, including any
beneficial owner, to whom this Proxy Statement-Prospectus is delivered, upon
the written or oral request of such person, to T. Lynne Rump, Corporate
Secretary of the Company, 619 Main Street, Vincennes, Indiana, 47591 (telephone
(812) 882-9310). In order to ensure timely delivery of the documents prior to
the Special Meeting, any request should be made by _______, 1995.
The following documents previously filed with the Commission by United
(File No. 0-20374) pursuant to the Exchange Act, are incorporated herein by
reference:
5
<PAGE> 10
1. The Quarterly Report on Form 10-QSB of United for the quarter
ended March 31, 1995 (the "United 1995 10-QSB").
2. The Annual Report on Form 10-KSB of United for the fiscal year
ended June 30, 1994 (the "United 1994 10-KSB").
3. United's Registration Statement on Form 8-A dated July 7, 1992
and any amendments or updates filed for the purpose of updating
such descriptions.
All documents filed with the Commission by NCBE and United pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the Special Meetings shall be deemed to be incorporated
herein by reference and to be a part hereof from the date of such filing. Any
statement contained herein or in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for the purposes hereof to the extent that a statement contained herein or any
other subsequently filed document which also is, or is deemed to be,
incorporated herein by reference modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part hereof, except as so modified or superseded.
SUMMARY
The following summary is not intended to be a complete description of
the proposed Merger and is qualified in all respects by the more detailed
information contained in this Proxy Statement-Prospectus, the Exhibits hereto
and the documents incorporated by reference. As used in this Proxy
Statement-Prospectus, the terms NCBE and United refer to such corporations,
respectively, and where the context requires, such corporations and their
respective subsidiaries on a consolidated basis. All information concerning
NCBE included in this Proxy Statement-Prospectus has been provided by NCBE;
all information concerning United included in this Proxy Statement-Prospectus
has been provided by United.
THE COMPANIES
National City Bancshares, Inc. NCBE, an Indiana corporation whose
common stock is listed on the NASDAQ/National Market System ("NASDAQ/NMS"), is
a multibank holding company organized in 1985. The principal assets of NCBE
are its investments in The National City Bank of Evansville, Evansville,
Indiana; The Peoples National Bank of Grayville, Grayville, Illinois; The
Farmers and Merchants Bank, Fort Branch, Indiana; First Kentucky Bank, Sturgis,
Kentucky; Lincolnland Bank, Dale, Indiana; The State Bank of Washington,
Washington, Indiana; The Spurgeon State Bank, Spurgeon, Indiana; Pike County
Bank, Petersburg, Indiana; and The Bank of Mitchell, Mitchell, Indiana. The
existing banking subsidiaries of NCBE are sometimes collectively referred to
herein as the "NCBE Banks." NCBE's principal offices are located at 227 Main
Street, Evansville, Indiana 47705 (telephone (812) 464-9800). For additional
information concerning NCBE see "INFORMATION ABOUT NCBE." Additional
information concerning NCBE is included in the NCBE documents incorporated
herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Based on financial information as of March 31, 1995, upon completion
of the Merger NCBE will have approximately $834 million in consolidated assets
and approximately $101 million in consolidated equity capital on a pro forma
basis. See the pro forma financial information for the combined company under
"Pro Forma Financial Data." In addition, NCBE executed a definitive Agreement
and Plan of Reorganization to acquire White County Bank, Carmi, Illinois,
("White County") on December 12, 1994 and a definitive Agreement and Plan of
Reorganization to acquire First National Bank of Paoli, Paoli, Indiana
("Paoli") on April 11, 1995. White County is a Illinois state chartered
commercial bank with assets of $64 million as of March 31, 1995 and Paoli is a
national banking association with assets of $17 million as of March 31, 1995.
See "INFORMATION ABOUT NCBE - Pending Acquisitions."
United Financial Bancorp, Inc. United, is a thrift holding company
organized under Delaware law which owns all of the outstanding capital stock of
United Federal Savings Bank, Vincennes, Indiana ("United Bank"). United Bank
is a thrift institution whose principal business consists of attracting retail
deposits from the general public and investing those funds primarily in one- to
four-family residential mortgage loans, consumer loans, and, to a lesser
extent, commercial real estate, construction and commercial business loans
primarily in its market area. United Bank also purchases mortgage-backed
securities and loan participations, and invests in U.S. Government and agency
obligations and other permissible investments. United's main office is located
at 619 Main Street, Vincennes, Indiana, 47591 (telephone (812) 882-9310).
6
<PAGE> 11
Based upon financial information as of March 31, 1995, United had
total consolidated assets of approximately $110 million and total consolidated
equity of approximately $12 million.
PROPOSED MERGER
United and NCBE have entered into a Merger Agreement (the
"Agreement"), dated as of December 28, 1994, providing, among other things, for
the merger of United with and into NCBE (the "Merger"). See "The Proposed
Merger." Upon consummation of the Merger, all of the outstanding shares of
United Common Stock will be converted into shares of NCBE Common Stock in
accordance with the Exchange Ratio as defined in the Agreement. The Exchange
ratio will be determined by dividing the average price of one share of NCBE
Common Stock into $44.40. The Average Price is determined by the weighted
average (based upon the number of shares traded) of the high and low prices for
one share of NCBE Common Stock, as reported by the NASDAQ/NMS for the twenty
(20) business days immediately preceding the effective time of the Merger. In
the event the Average Price is higher than $49.50 per share or lower than
$40.50 per share then the Average Price will be $49.50 or $40.50, respectively.
The effect of the Exchange Ratio and Average Price definitions set forth in the
Agreement is to exchange each share of United Common Stock outstanding on the
effective date of the Merger for $44.40 worth of NCBE Common Stock, subject to
a floor and ceiling on the value assigned to NCBE Common Stock. The maximum
number of shares of NCBE issuable pursuant to the United Merger Agreement is
512,420 and the minimum number of shares issuable is 419,253.
No fractional shares of NCBE Common Stock will be issued in the Merger
and NCBE will pay cash, without interest, for any fractional share interests
resulting from the respective exchange ratios in accordance with the terms of
the Agreement. See "PROPOSED MERGER--Terms of the Merger." Each outstanding
share of NCBE Common Stock will not change by reason of the Merger.
SPECIAL MEETING INFORMATION
United Special Meeting The Special Meeting of United's stockholders
to consider and vote on the Agreement (the "Special Meeting") will be held
on_________1995, at ___ AM/PM., local time, at Beckes Student Union on the
campus of Vincennes University, North Second Street, Vincennes, Indiana. Only
holders of record of United Common Stock at the close of business on
__________,1995 (the "Record Date") will be entitled to vote at the Special
Meeting. At the Record Date there were outstanding and entitled to vote
________ shares of United Common Stock.
For additional information relating to the United Special Meeting, see
"SPECIAL MEETING INFORMATION."
VOTE REQUIRED
United. Approval of the Agreement by the United stockholders requires
the affirmative vote, in person or by proxy, of the holders of record of at
least a majority of the outstanding shares of United Common Stock. As of the
Record Date there were 459,361 shares of United Common Stock outstanding and
therefore a vote of 229,681 shares is required to approve the Agreement. Each
share of United Common Stock is entitled to one vote.
As of the Record Date, directors and executive officers of United and
their affiliates owned beneficially approximately__% of the shares of United
Common Stock outstanding on such date. Directors and executive officers of
United have agreed, in their capacities as shareholders pursuant to a Support
Agreement dated December 28, 1994 (the "Support Agreement"), to vote their
shares of United Common Stock for the Agreement subject to their fiduciary
duties, to use their best efforts to cause the Merger to be effected. The
Support Agreement is attached hereto as Appendix B.
As of the NCBE Record Date, directors and executive officers of NCBE
and their affiliates did not own, beneficially, any shares of United Common
Stock.
NCBE. Approval of the Agreement and the issuance of NCBE Common Stock
in the Merger by NCBE stockholders is not required.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The respective Boards of Directors of United and NCBE have each
approved the Agreement. The Board of Directors of NCBE has also authorized the
issuance of a sufficient number of shares of NCBE Common Stock in the Merger.
Each Board believes that the Merger is in the best interests of the
stockholders of its respective company. THE BOARD OF DIRECTORS
7
<PAGE> 12
OF UNITED UNANIMOUSLY RECOMMENDS A VOTE FOR THE AGREEMENT. See "PROPOSED
MERGER--Reasons for the Merger; Recommendations of the United Board of
Directors," for a discussion of the factors considered by the respective Boards
in reaching their decisions to approve the Merger Agreement and the
transactions contemplated thereby.
OPINION OF FINANCIAL ADVISOR
United's financial advisor, Charles Webb & Co. ("Webb"), has rendered
its opinion to the Board of Directors of United to the effect that the
consideration to be received by the stockholders of United upon consummation of
the United Merger is fair, from a financial point of view, to the holders of
United Common Stock. The opinion of Webb which is attached as Appendix C to
this Proxy Statement-Prospectus, sets forth the assumptions made, the matters
considered, and the limitations on the review undertaken in rendering such
opinion. See "PROPOSED MERGER--Opinion of United's Financial Advisor."
EFFECT ON UNITED STOCKHOLDERS
Each outstanding shares of United Common Stock on the effective date
of the Merger will be converted in the Merger into shares of NCBE Common Stock
as provided for in the Agreement, see "PROPOSED MERGER -- Terms of the Merger."
Thereafter, the rights of United stockholders will be governed by Indiana law
and the Articles of Incorporation, as amended, and Bylaws of NCBE. See
"COMPARISON OF STOCKHOLDER RIGHTS."
DISSENTERS' RIGHTS
Pursuant to Delaware Law, stockholders of United have appraisal rights
and can demand to be paid the fair cash value of their shares of United Common
Stock if they comply with the procedures of Section 262 of the Delaware General
Corporation Law (DGCL). The full text of Section 262 of the DGCL is attached
to this Proxy Statement as Appendix D. See "PROPOSED MERGER--Dissenters'
Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to qualify for federal income tax purposes as a
tax-free or tax-deferred reorganization. It is a condition to consummation of
the Merger that NCBE and United each receive an opinion of counsel that the
Merger will qualify as a tax-free or tax-deferred reorganization. Werner &
Blank Co., L.P.A. special counsel to NCBE has issued such opinion for the
benefit of NCBE, United and their respective stockholders. Such opinion will
not be binding on the Internal Revenue Service.
Stockholders of United will generally recognize no gain or loss for
federal income tax purposes on the exchange of their United Common Stock for
NCBE Common Stock except to the extent they receive cash as a result of the
exercise of their statutory rights to dissent to the Merger and cash received
in exchange for any fractional share interest resulting from the Exchange
Ratio. See "PROPOSED MERGER - Certain Federal Income Tax Consequences."
UNITED STOCKHOLDERS SHOULD READ CAREFULLY THE DISCUSSION SET FORTH
UNDER "PROPOSED MERGER - CERTAIN FEDERAL INCOME TAX CONSEQUENCES" AND ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF
THE MERGER UNDER FEDERAL, STATE, AND LOCAL AND ANY OTHER APPLICABLE TAX LAWS.
ACCOUNTING TREATMENT
NCBE anticipates that the Merger will be accounted for as a pooling of
interests. See "PROPOSED MERGER - Accounting Treatment."
EFFECTIVE TIME OF THE MERGER
The Agreement provides that the Merger will take place not later than
the first business day of the first or second calendar month after receipt of
the following approvals relating to the Merger (depending upon when such
approvals are received and waiting periods expire): (i) by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), by the
Office of Thrift Supervision ("OTS") and the expiration of any required waiting
periods following regulatory approval and (ii) by the stockholders of United,
unless another time is agreed upon in writing by the parties. Although there
can be no assurance, the Merger is expected to be consummated during the third
quarter of 1995.
8
<PAGE> 13
CONDITIONS TO THE MERGER; REGULATORY APPROVAL
The Merger is conditioned upon approval by the stockholders of United,
the OTS and upon satisfaction of other terms and conditions, including receipt
of assurance that the Merger will constitute tax-free or tax-deferred
reorganization and qualify as a pooling of interests for accounting purposes.
See "PROPOSED MERGER-Conditions to the Merger."
NCBE prepared applications and submitted them for filing with the
Federal Reserve Board under the provisions of the Federal Bank Holding Company
Act on March 6, 1995, and the OTS under the provisions of the Federal Home
Owners Loan Act on March 6, 1995. On April 13, 1995, the Federal Reserve Board
approved the application. No assurance can be given as to whether the various
regulatory approvals required to consummate the Merger will be received. See
"PROPOSED MERGER - Regulatory Approval."
DIVIDENDS
Under the Agreement, United is allowed to declare regular quarterly
cash dividends at rates and at times consistent with past practice. The
Agreement also provides that United and NCBE will cooperate with each other to
coordinate the record and payment dates of their dividends for the calendar
quarter in which the Merger occurs so that the United stockholders receive a
quarterly dividend from either their corporation or NCBE, but not from both
with respect to such calendar quarter. See "PROPOSED MERGER-Dividends."
TERMINATION, AMENDMENT AND WAIVER
The Merger may be terminated, among other reasons, (i) by mutual
consent of the Boards of Directors of NCBE and United at any time before the
Merger takes place, or (ii) by either NCBE or United if (a) the Merger has not
taken place by September 30, 1995, (b) NCBE does not receive all required
regulatory approvals relating to the Merger, (c) any suit, action or proceeding
is pending or overtly threatened seeking to prevent or inhibit the Merger, (d)
if any warranty or representation made by the other party is discovered to have
been untrue in any material respect, or (e) the other party commits one or more
material breaches of the Agreement. See "PROPOSED MERGER - Termination,
Amendment and Waiver."
NCBE and United may amend, modify or waive certain terms and
conditions of the Agreement. See "PROPOSED MERGER - Termination, Amendment and
Waiver."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In the Agreement NCBE has agreed to cause Janice L. Beesley, Chief
Executive Officer and a Director of United, to be appointed and elected as a
Director of NCBE. Subject to the fiduciary duty of the NCBE Board of
Directors, NCBE has agreed to cause the directorship of United to be continued
until at least January 1, 1996, including the election as Directors of United
all those persons serving in such capacity immediately prior to the Merger,
plus an additional member to be determined by NCBE following the effective time
of the Merger.
NCBE has also agreed to assume and maintain the nonqualified deferred
compensation plan for the Directors of United Bank who currently participate in
the plan, and to permit such Directors to continue to defer their Directors'
fees on a tax-deferred basis until June 30, 1998. After June 30, 1998, the
amount of United Bank Directors' fees that had been deferred by Janice L.
Beesley shall be paid to her as part of her annual salary. (See "PROPOSED
MERGER--Interest of Certain Persons in the Merger.")
9
<PAGE> 14
RESALES OF NCBE COMMON STOCK BY AFFILIATES
No restrictions on the sale or transfer of the shares of NCBE Common
Stock issued pursuant to the Merger will be imposed solely as a result of the
Merger, other than restrictions on the transfer of such shares issued to any
United stockholder who may be deemed to be an "affiliate" of United for
purposes of Rule 145 under the Securities Act. Directors, executive officers
and 10% stockholders are generally deemed to be affiliates for purposes of Rule
145.
Resales of NCBE Common Stock issued to "affiliates" of United have not
been registered under applicable securities laws in connection with the Merger.
Such shares may only be sold (a) under a separate registration by the
affiliates for distribution (which NCBE has not agreed to provide), (b)
pursuant to Rule 145 under the Securities Act, or (c) pursuant to another
exemption from registration requirements under the Securities Act. For NCBE to
be able to account for the Merger as a pooling of interests, pursuant to
Commission requirements, certain additional restrictions will be placed on
affiliates of United with respect to dispositions of NCBE Common Stock and
United Common Stock during the period beginning 30 days before the Merger and
ending when the results for 30 days of post-merger combined operations have
been published.
MARKETS AND MARKET PRICES
United
United's Common Stock is traded in the over-the-counter market and is
quoted on the National Association of Securities Dealers' Automated Quotations
(NASDAQ) Small Cap System under the symbol UNFB as well as in local newspapers
as over the counter stock transactions. From September 10, 1992, the date the
common stock first began trading, through March 31, 1995 the closing prices of
United Common Stock quoted on NASDAQ have ranged from $11.25 to $41.50 per
share. Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
The table below sets forth, for the periods indicated, the range of
high and low sale prices of United Common Stock and the respective dividends
declared per share for the first three quarters of the fiscal year ended June
30, 1995 and for each quarter of the fiscal year ended June 30 of 1994 and
1993. United Common Stock did not trade on the day prior to the public
announcement of the Merger.
10
<PAGE> 15
<TABLE>
<CAPTION>
United
--------------------------------------------------------------------
High Low Dividends Declared
---- --- ------------------
<S> <C> <C> <C>
Year-Ended
June 30,1993
- ------------
First Quarter* $12.75 $11.25 N/A
Second Quarter 14.25 11.50 N/A
Third Quarter 18.25 14.00 $.075
Fourth Quarter 17.50 16.25 .075
Year-Ended
June 30, 1994
- -------------
First Quarter 20.25 16.50 .075
Second Quarter 21.25 18.75 .075
Third Quarter 20.00 17.25 .075
Fourth Quarter 19.50 16.00 .075
Year-Ended
June 30, 1995
- -------------
First Quarter 21.25 18.00 .075
Second Quarter 39.75 20.25 .075
Third Quarter 41.50 37.50 .075
</TABLE>
* From September 10, 1993.
NCBE Markets and Market Prices and Equivalent Per Share Data
Shares of NCBE Common Stock are traded in the over-the-counter market
and are listed in NASDAQ/NMS under the symbol NCBE. The following table sets
forth the last reported sale price per share of NCBE Common Stock on the dates
indicated.
The equivalent per share price of United Common Stock at each
specified date represents the closing price of a share of NCBE Common Stock on
such date multiplied by the Exchange Ratio of .986667 share of NCBE for each
share of United, which assumes an "Average Price" of NCBE Common Stock of $45
per share.
11
<PAGE> 16
<TABLE>
<CAPTION>
EQUIVALENT PER SHARE INFORMATION
--------------------------------
NCBE UNITED
MARKET VALUE PER SHARE AT: COMMON STOCK COMMON STOCK
-------------------------- ------------ ------------
Per Share ($) Equivalent
------------- -----------
Per Share ($)
--------------
<S> <C> <C>
March 31, 1992 $29 1/2 $29.11
June 30, 1992 27 5/8 27.26
September 30, 1992 28 1/8 27.75
December 31, 1992 29 1/2 29.11
March 31, 1993 33 1/4 32.81
June 30, 1993 36 35.52
September 30, 1993 37 1/5 36.71
December 31, 1993 37 36.51
March 31, 1994 36 1/2 36.01
June 30, 1994 39 3/4 39.22
September 30, 1994 43 1/2 42.92
December 31, 1994 46 1/4 45.63
</TABLE>
On December 27, 1994, the date immediately preceding the public
announcement of the Merger, the reported last sales price of NCBE Common Stock
was $46 per share. There were no reported sales of United Common Stock on that
date. Stockholders are advised to obtain current market quotations for NCBE
Common Stock. No assurance can be given as to the market price of NCBE Common
Stock or United Common Stock at or, in the case of NCBE Common Stock, after the
Effective Time of the Merger.
On February 28, 1995, there were approximately 1,615 holders of record
of NCBE Common Stock and 445 holders of record of United Common Stock.
PENDING ACQUISITIONS
On December 12, 1994, NCBE executed a definitive Agreement and Plan of
Reorganization with White County Bank, Carmi, Illinois (the "White County
Agreement"). Pursuant to the terms of the White County Agreement stockholders
of White County will exchange all of the outstanding shares of White County
Common Stock on the effective date of the acquisition of White County by NCBE
(the "White County Merger") for 264,000 shares, in the aggregate, of NCBE.
White County is an Illinois state chartered commercial bank with assets and
total stockholders equity of $64 million and $7 million, respectively as of
March 31, 1995. It is expected that the White County Merger will be accounted
for as a pooling of interests and completed in the second or third quarter of
1995.
On April 11, 1995, NCBE executed a definitive Agreement and Plan of
Reorganization with First National Bank of Paoli, Paoli, Indiana (the "Paoli
Agreement"). Paoli will be merged with NCBE's affiliate bank located in
Mitchell, Indiana (the "Paoli Merger") and will thereafter be operated as a
branch office of The Bank of Mitchell. Pursuant to the terms of the Paoli
Agreement stockholders of Paoli will exchange all of the outstanding shares of
capital stock of Paoli for 60,606 shares of NCBE and $623,004 in cash. Paoli
is a national banking association with assets of $17 million and total
stockholders equity of $1.2 million as of March 31, 1995. It is expected that
the Paoli Merger will be accounted for as a purchase and completed during the
second or third quarter of 1995.
SELECTED FINANCIAL DATA
The following unaudited tables present selected historical financial
information and selected pro forma combined financial information for NCBE and
United. This information should be read in conjunction with the historical and
pro forma financial statements and notes thereto included elsewhere in or
incorporated by reference to this Prospectus-Proxy Statement. The pro forma
combined financial information gives effect to the Merger. The pro forma
combined financial information may not be indicative of the results that
actually would have occurred if the Merger had been in effect on the dates
indicated or which may be attained in the future. The pro forma combined
financial information has been prepared on the assumption that the Merger will
be accounted for under the pooling of interests method of accounting and also
sets forth information regarding the White County Merger and the Paoli Merger.
12
<PAGE> 17
SELECTED FINANCIAL DATA
HISTORICAL
NATIONAL CITY BANCSHARES, INC.
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 3 Months Ended
------------------------------------------- -----------------
1990 1991 1992 1993 1994 3/31/94 3/31/95
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NATIONAL CITY BANCSHARES, INC.
(Historical)
Income Statement Data:
Net Interest Income $27,097 $27,724 $28,773 $28,974 $30,681 $7,081 $8,221
Provision for Loan Losses 1,515 2,324 1,234 654 (5) (153) 18
Noninterest Income 4,164 4,728 5,229 5,532 4,465 895 1,284
Noninterest Expense 19,721 20,439 20,841 21,522 21,397 5,330 5,593
Net Income 7,022 7,030 8,200 8,374 9,063 1,901 2,570
Balance Sheet Data (period end):
Assets 789,595 765,451 731,080 717,139 731,764 701,678 724,082
Deposits 675,173 649,959 624,843 606,648 615,968 593,754 607,520
Loans, Net 406,635 401,035 412,317 431,230 479,798 433,937 488,934
Long-term Debt 6,139 2,888 1,161 541 0 432 0
Shareholders' Equity 69,175 74,139 79,772 85,901 86,119 86,067 89,027
Capital Ratios:
Equity to Assets Ratio 8.76% 9.69% 10.91% 11.98% 11.77% 12.27% 12.30%
Tier 1 Risk-based Capital Ratio 14.87% 15.70% 17.67% 18.52% 17.07% 18.37% 17.19%
Total Risk-based Capital Ratio 15.86% 16.71% 18.62% 19.36% 17.82% 19.21% 17.92%
Other Ratio:
Allowance for Loan Losses to
Underperforming Loans 59.56% 50.18% 67.69% 164.25% 272.95% 216.46% 316.67%
Allowance for Loan Losses $4,431 $4,639 $4,186 $3,791 $3,794 $3,840 $3,800
Underperforming Loans 7,440 9,244 6,184 2,308 1,390 1,774 1,200
</TABLE>
13
<PAGE> 18
SELECTED FINANCIAL DATA
HISTORICAL
WHITE COUNTY BANK
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 3 Months Ended
1990 1991 1992 1993 1994 3/31/94 3/31/95
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
WHITE COUNTY BANK (Historical)
Income Statement Data:
Net Interest Income $2,137 $2,228 $2,630 $2,443 $2,238 $553 $580
Provision for Loan Losses 322 206 0 (120) 0 0 0
Noninterest Income 127 198 166 144 (148) 36 26
Noninterest Expense 1,679 1,745 1,769 1,854 1,840 444 419
Net Income 172 388 838 663 215 103 132
Balance Sheet Data (period end):
Assets 66,948 66,957 66,779 65,745 64,679 66,260 63,699
Deposits 60,641 60,567 59,723 58,355 57,595 58,921 56,396
Loans, Net 22,980 22,199 19,953 19,592 21,822 19,306 22,300
Shareholders' Equity 5,540 5,851 6,526 6,997 6,688 7,052 6,925
Capital Ratios:
Equity to Assets Ratio 8.28% 8.74% 9.77% 10.64% 10.34% 10.64% 10.87%
Tier 1 Risk-based Capital Ratio 20.31% 21.89% 25.94% 27.91% 25.70% 28.12% 25.96%
Total Risk-based Capital Ratio 21.98% 23.76% 28.41% 30.19% 28.37% 30.66% 28.54%
Other Ratio:
Allowance for Loan Losses to Underperforming
Loans 18.05% 27.74% 66.21% 150.53% 166.82% 158.56% 253.05%
Allowance for Loan Losses $456 $501 $623 $572 $729 $639 $706
Underperforming Loans 2,526 1,806 941 380 437 403 279
</TABLE>
14
<PAGE> 19
SELECTED FINANCIAL DATA
HISTORICAL
UNITED FINANCIAL BANCORP, INC.
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 3 Months Ended
1990 1991 1992 1993 1994 3/31/94 3/31/95
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
UNITED FINANCIAL BANCORP, INC.
(Historical)
Income Statement Data:
Net Interest Income $2,485 $2,954 $3,110 $3,010 $3,089 $709 $844
Provision for Loan Losses 162 380 93 47 22 6 6
Noninterest Income 398 429 605 801 652 173 162
Noninterest Expense 2,305 2,370 2,416 2,501 2,887 644 646
Net Income 292 279 727 890 402 138 215
Balance Sheet Data (period end):
Assets 117,078 114,049 116,165 115,056 110,172 115,288 110,006
Deposits 104,957 102,480 99,967 95,730 90,744 95,958 89,982
Loans, Net 78,146 75,487 63,614 60,291 69,103 61,138 72,207
Long-term Debt 1,000 1,000 3,000 3,000 3,000 3,000 3,000
Shareholders' Equity 6,058 6,355 11,205 11,559 11,828 11,701 12,218
Capital Ratios:
Equity to Assets Ratio 5.17% 5.57% 9.65% 10.05% 10.74% 10.15% 11.11%
Tier 1 Risk-based Capital Ratio 9.58% 10.90% 21.24% 22.00% 21.47% 21.80% 21.48%
Total Risk-based Capital Ratio 9.94% 11.54% 22.07% 22.75% 22.15% 22.54% 22.14%
Other Ratio:
Allowance for Loan Losses to Underperforming
Loans 46.14% 109.12% 384.07% N/A 2506.67% N/A 6250.00%
Allowance for Loan Losses $227 $371 $434 $393 $376 $396 $375
Underperforming Loans 492 340 113 0 15 0 6
</TABLE>
15
<PAGE> 20
SELECTED FINANCIAL DATA
HISTORICAL
FIRST NATIONAL BANK OF PAOLI
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 3 Months Ended
1990 1991 1992 1993 1994 3/31/94 3/31/95
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
FIRST NATIONAL BANK OF PAOLI
(Historical)
Income Statement Data:
Net Interest Income $452 $504 $558 $614 $687 $160 $190
Provision for Loan Losses 18 8 30 15 6 2 1
Noninterest Income 44 53 106 86 100 25 23
Noninterest Expense 334 362 439 473 517 123 125
Net Income 136 172 179 155 182 48 60
Balance Sheet Data (period end):
Assets 11,695 12,618 13,899 15,596 16,529 16,192 16,616
Deposits 10,818 11,633 12,777 14,356 15,173 14,934 15,223
Loans, Net 6,265 7,175 8,414 9,911 9,822 9,853 10,712
Shareholders' Equity 746 860 986 1,088 1,184 1,101 1,220
Capital Ratios:
Equity to Assets Ratio 6.38% 6.82% 7.09% 6.98% 7.16% 6.80% 7.34%
Tier 1 Risk-based Capital Ratio 5.07% 5.92% 6.55% 6.62% 7.80% 6.67% 8.11%
Total Risk-based Capital Ratio 12.26% 11.84% 12.28% 11.72% 13.08% 11.79% 13.42%
Other Ratio:
Allowance for Loan Losses to Underperforming
Loans 239.47% 351.52% 373.53% 158.33% N/A 153.33% 201.47%
Allowance for Loan Losses $91 $116 $127 $133 $130 $138 $137
Underperforming Loans 38 33 34 84 0 90 68
</TABLE>
16
<PAGE> 21
SELECTED FINANCIAL DATA
PRO FORMA COMBINED
NATIONAL CITY BANCSHARES, INC. AND WHITE COUNTY BANK
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 3 Months Ended
1990 1991 1992 1993 1994 3/31/94 3/31/95
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NATIONAL CITY BANCSHARES, INC. AND WHITE
COUNTY BANK (Pro Forma Combined)
Income Statement Data:
Net Interest Income $29,234 $29,952 $31,403 $31,417 $32,919 $7,634 $8,801
Provision for Loan Losses 1,837 2,530 1,234 534 (5) (153) 18
Noninterest Income 4,291 4,926 5,395 5,676 4,317 931 1,310
Noninterest Expense 21,400 22,184 22,610 23,376 23,237 5,774 6,012
Net Income 7,194 7,418 9,038 9,037 9,278 2,004 2,702
Balance Sheet Data (period end):
Assets 856,543 832,408 797,859 782,884 796,443 767,938 787,781
Deposits 735,814 710,526 684,566 665,003 673,563 652,675 663,916
Loans, Net 429,615 423,234 432,270 450,822 501,620 453,243 511,234
Long-term Debt 6,139 2,888 1,161 541 0 432 0
Shareholders' Equity 74,715 79,990 86,298 92,898 92,807 93,119 95,952
Capital Ratios:
Equity to Assets Ratio 8.72% 9.61% 10.82% 11.87% 11.65% 12.13% 12.18%
Tier 1 Risk-based Capital Ratio 15.19% 16.04% 18.11% 19.01% 17.51% 18.88% 17.63%
Total Risk-based Capital Ratio 16.21% 17.10% 19.14% 19.93% 18.36% 19.80% 18.46%
Other Ratio:
Allowance for Loan Losses to Underperforming
Loans 49.04% 46.52% 67.49% 162.31% 247.56% 205.74% 304.67%
Allowance for Loan Losses $4,887 $5,140 $4,809 $4,363 $4,523 $4,479 $4,506
Underperforming Loans 9,966 11,050 7,125 2,688 1,827 2,177 1,479
</TABLE>
17
<PAGE> 22
SELECTED FINANCIAL DATA
PRO FORMA COMBINED
NATIONAL CITY BANCSHARES, INC. AND UNITED FINANCIAL BANCORP, INC.
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 3 Months Ended
1990 1991 1992 1993 1994 3/31/94 3/31/95
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NATIONAL CITY BANCSHARES, INC. AND UNITED
FINANCIAL BANCORP, INC. (Pro Forma
Combined)
Income Statement Data:
Net Interest Income $29,582 $30,678 $31,883 $31,984 $33,770 $7,790 $9,065
Provision for Loan Losses 1,677 2,704 1,327 701 17 (147) 24
Noninterest Income 4,562 5,157 5,834 6,333 5,117 1,068 1,446
Noninterest Expense 22,026 22,809 23,257 24,023 24,284 5,974 6,239
Net Income 7,314 7,309 8,927 9,264 9,465 2,039 2,785
Balance Sheet Data (period end):
Assets 906,673 879,500 847,245 832,195 841,936 816,966 834,008
Deposits 780,130 752,439 724,810 702,378 706,712 689,712 697,502
Loans, Net 484,781 476,522 475,931 491,521 548,901 495,075 561,141
Long-term Debt 7,139 3,888 4,161 3,541 3,000 3,432 3,000
Shareholders' Equity 75,233 80,494 90,977 97,460 97,947 97,768 101,245
Capital Ratios:
Equity to Assets Ratio 8.30% 9.15% 10.74% 11.71% 11.63% 11.97% 12.14%
Tier 1 Risk-based Capital Ratio 14.23% 15.16% 18.04% 18.88% 17.50% 18.73% 17.61%
Total Risk-based Capital Ratio 15.13% 16.13% 18.98% 19.71% 18.24% 19.55% 18.34%
Other Ratio:
Allowance for Loan Losses to Underperforming
Loans 58.72% 52.27% 73.37% 181.28% 296.80% 238.78% 346.19%
Allowance for Loan Losses $4,658 $5,010 $4,620 $4,184 $4,170 $4,236 $4,175
Underperforming Loans 7,932 9,584 6,297 2,308 1,405 1,774 1,206
</TABLE>
18
<PAGE> 23
SELECTED FINANCIAL DATA
PRO FORMA COMBINED
NATIONAL CITY BANCSHARES, INC., WHITE COUNTY BANK
AND UNITED FINANCIAL BANCORP, INC.
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 3 Months Ended
1990 1991 1992 1993 1994 3/31/94 3/31/95
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NATIONAL CITY BANCSHARES, INC., WHITE
COUNTY BANK AND UNITED FINANCIAL
BANCORP, INC. (Pro Forma Combined)
Income Statement Data:
Net Interest Income $31,719 $32,906 $34,513 $34,427 $36,008 $8,343 $9,645
Provision for Loan Losses 1,999 2,910 1,327 581 17 (147) 24
Noninterest Income 4,689 5,355 6,000 6,477 4,969 1,104 1,472
Noninterest Expense 23,705 24,554 25,026 25,877 26,124 6,418 6,658
Net Income 7,486 7,697 9,765 9,927 9,680 2,142 2,917
Balance Sheet Data (period end):
Assets 973,621 946,457 914,024 897,940 906,615 883,226 897,787
Deposits 840,771 813,006 784,533 760,733 764,307 748,633 753,898
Loans, Net 507,761 498,721 495,884 511,113 570,723 514,381 583,441
Long-term Debt 7,139 3,888 4,161 3,541 3,000 3,432 3,000
Shareholders' Equity 80,773 86,345 97,503 104,457 104,635 104,820 108,170
Capital Ratios:
Equity to Assets Ratio 8.30% 9.12% 10.67% 11.63% 11.54% 11.87% 12.05%
Tier 1 Risk-based Capital Ratio 14.53% 15.49% 18.43% 19.31% 17.88% 19.17% 17.99%
Total Risk-based Capital Ratio 15.48% 16.50% 19.43% 20.21% 18.71% 20.07% 18.81%
Other Ratio:
Allowance for Loan Losses to Underperforming
Loans 48.90% 48.38% 72.44% 176.93% 265.96% 223.93% 328.69%
Allowance for Loan Losses $5,114 $5,511 $5,243 $4,756 $4,899 $4,875 $4,881
Underperforming Loans 10,458 11,390 7,238 2,688 1,842 2,177 1,485
</TABLE>
19
<PAGE> 24
SELECTED FINANCIAL DATA
PRO FORMA COMBINED
NATIONAL CITY BANCSHARES, INC., WHITE COUNTY BANK
UNITED FINANCIAL BANCORP, INC. AND FIRST NATIONAL BANK OF PAOLI
(in thousands)
12/31/94
<TABLE>
<CAPTION>
NCBE,
PRO UNITED,
FORMA NCBE & WHITE COUNTY
NCBE PAOLI ADJUSTMENTS PAOLI PAOLI
---- ----- ----------- ----- ------------
<S> <C> <C> <C> <C> <C>
(Pro Forma Combined)
Income Statement Data:
Net Interest Income $30,681 $687 $31,368 $36,695
Provision for Loan Losses (5) 6 1 23
Noninterest Income 4,465 100 4,565 5,069
Noninterest Expense 21,397 517 146 22,060 26,787
Net Income 9,063 182 (146) 9,099 9,716
Balance Sheet Data (period end):
Assets 731,764 16,529 1,543 749,836 924,687
Deposits 615,968 15,173 631,141 779,480
Loans, Net 479,798 9,822 489,620 580,545
Long-term Debt 0 0 0 3,000
Shareholders' Equity 86,119 1,184 1,543 88,846 107,362
Capital Ratios:
Equity to Assets Ratio 11.77% 7.16% 11.85% 11.61%
Tier 1 Risk-based Capital Ratio 17.07% 7.80% 16.89% 17.71%
Total Risk-based Capital Ratio 17.82% 13.08% 17.73% 18.43%
Other Ratio:
Allowance for Loan Losses to Underperforming
Loans 272.95% N/A 282.30% 273.02%
Allowance for Loan Losses $3,794 $ 130 $3,924 $5,029
Underperforming Loans 1,390 0 1,390 1,842
</TABLE>
20
<PAGE> 25
SELECTED FINANCIAL DATA
PRO FORMA COMBINED
NATIONAL CITY BANCSHARES, INC., WHITE COUNTY BANK
UNITED FINANCIAL BANCORP, INC. AND FIRST NATIONAL BANK OF PAOLI
(in thousands)
3/31/95
<TABLE>
<CAPTION>
NCBE,
PRO UNITED,
FORMA NCBE & WHITE COUNTY,
NCBE PAOLI ADJUSTMENTS PAOLI PAOLI
---- ----- ----------- ----- -------------
<S> <C> <C> <C> <C> <C>
(Pro Forma Combined)
Income Statement Data:
Net Interest Income $8,221 $190 $8,411 $9,835
Provision for Loan Losses 18 1 19 25
Noninterest Income 1,284 23 1,307 1,495
Noninterest Expense 5,593 125 35 5,753 6,818
Net Income 2,570 60 (35) 2,595 2,942
Balance Sheet Data (period end):
Assets 724,082 16,616 1,507 742,205 915,910
Deposits 607,520 15,223 622,743 769,121
Loans, Net 488,934 10,712 499,646 594,153
Long-term Debt 0 0 0 3,000
Shareholders' Equity 89,027 1,220 1,507 91,754 110,897
Capital Ratios:
Equity to Assets Ratio 12.30% 7.34% 12.36% 12.11%
Tier 1 Risk-based Capital Ratio 17.19% 8.11% 16.89% 17.79%
Total Risk-based Capital Ratio 17.92% 13.42% 17.71% 18.61%
Other Ratio:
Allowance for Loan Losses to Underperforming
Loans 316.67% 201.47% 310.49% 323.12%
Allowance for Loan Losses $3,800 $137 $3,937 $5,018
Underperforming Loans 1,200 68 1,268 1,553
</TABLE>
21
<PAGE> 26
COMPARATIVE PER SHARE DATA
The following unaudited table sets forth certain unaudited historical
and pro forma combined per common share information for NCBE, and certain
historical and equivalent pro forma combined per common share information for
United. The data is derived from financial statements of NCBE and United
incorporated by reference or included elsewhere in this Prospectus and Proxy
Statement. The pro forma combined per common share information for NCBE and
the equivalent pro forma combined per common share information for United are
stated as if United had always been affiliated with NCBE, giving effect to the
proposed transaction under the pooling of interests method of accounting and
assume a conversion ratio of United Common Stock for NCBE Common Stock of
.986667:1 which has been based upon a $45 Average Price (as defined by the
Agreement) per share of NCBE Common Stock and a conversion ratio of 27.5 shares
of NCBE for each share of White County as it relates to the White County Merger
which will also be accounted for as a pooling of interests. In addition to the
historical information presented for Paoli information is presented on a pro
forma basis for the most recent period presented reflecting the effect of the
acquisition of Paoli and the accounting of such as a purchase. The information
presented below has been restated to reflect stock dividends and stock splits.
22
<PAGE> 27
SELECTED FINANCIAL DATA
PER SHARE DATA
HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 3 MONTHS ENDED
1990 1991 1992 1993 1994 3/31/94 3/31/95
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL PER SHARE DATA
NATIONAL CITY BANCSHARES, INC. (NCBE)
NET INCOME PER COMMON SHARE $1.87 $1.88 $2.19 $2.24 $2.45 $0.51 $0.70
CASH DIVIDENDS PAID PER COMMON SHARE 0.73 0.78 0.84 0.88 0.93 0.22 0.22
BOOK VALUE PER COMMON SHARE (AT PERIOD
END) 18.49 19.82 21.33 22.96 23.54 23.07 24.34
WHITE COUNTY BANK (WHITE COUNTY)
NET INCOME PER COMMON SHARE 17.92 40.42 87.28 69.08 22.35 10.73 13.75
CASH DIVIDENDS PAID PER COMMON SHARE 15.00 8.00 17.00 20.00 20.00 0.00 5.00
BOOK VALUE PER COMMON SHARE (AT PERIOD
END) 577.08 609.52 679.80 728.88 696.63 734.58 721.35
UNITED FINANCIAL BANCORP, INC. (UNITED)
NET INCOME PER COMMON SHARE N/A N/A 1.58 1.94 0.91 0.31 0.47
CASH DIVIDENDS PAID PER COMMON SHARE N/A N/A N/A 0.30 0.30 0.08 0.08
BOOK VALUE PER COMMON SHARE (AT PERIOD
END) N/A N/A 22.85 24.73 25.31 25.03 26.14
</TABLE>
ALL PER SHARE FIGURES IN THE ABOVE TABLE REPRESENT HISTORICAL
FINANCIAL INFORMATION.
23
<PAGE> 28
SELECTED FINANCIAL DATA
PER SHARE DATA
HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 3 MONTHS ENDED
---------------------------------------- ----------------
1990 1991 1992 1993 1994 3/31/94 3/31/95
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL PER SHARE DATA
FIRST NATIONAL BANK OF PAOLI (PAOLI)
NET INCOME PER COMMON SHARE $2.05 $2.55 $2.70 $2.19 $2.53 $0.75 $1.07
CASH DIVIDENDS PAID PER COMMON SHARE 0.00 0.00 0.00 0.00 0.00 0.00 0.00
CASH DIVIDENDS PAID PER PREFERRED SHARE 0.20 0.27 0.27 0.27 0.32 0.29 0.21
BOOK VALUE PER COMMON SHARE (AT PERIOD
END) 7.41 9.86 12.56 14.74 16.80 15.02 17.57
</TABLE>
24
<PAGE> 29
SELECTED FINANCIAL DATA
PER SHARE DATA
PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 3 MONTHS ENDED
1992 1993 1994 3/31/94 3/31/95
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED, NCBE, WHITE COUNTY PER NCBE
SHARE
NET INCOME PER COMMON SHARE $2.26 $2.26 $2.34 $0.50 $0.69
CASH DIVIDENDS PAID PER COMMON SHARE 0.84 0.88 0.93 0.22 0.22
BOOK VALUE PER COMMON SHARE (AT PERIOD END) 21.55 23.19 23.66 23.31 24.47
EQUIVALENT PRO FORMA COMBINED, NCBE, AND WHITE
COUNTY PER WHITE COUNTY SHARE
NET INCOME PER COMMON SHARE 62.06 62.03 64.45 13.75 18.98
CASH DIVIDENDS PAID PER COMMON SHARE 23.10 24.20 25.58 6.05 6.05
BOOK VALUE PER COMMON SHARE (AT PERIOD END) 592.63 637.73 650.65 641.03 672.93
PRO FORMA COMBINED, NCBE AND UNITED PER NCBE
SHARE
NET INCOME PER COMMON SHARE 2.12 2.20 2.28 0.49 0.68
CASH DIVIDENDS PAID PER COMMON SHARE 0.84 0.88 0.93 0.22 0.22
BOOK VALUE PER COMMON SHARE (AT PERIOD END) 21.54 23.19 23.78 23.33 24.58
EQUIVALENT PRO FORMA COMBINED, NCBE, AND UNITED
PER UNITED SHARE
NET INCOME PER COMMON SHARE 2.10 2.17 2.25 0.48 0.67
CASH DIVIDENDS PAID PER COMMON SHARE 0.83 0.87 0.92 0.22 0.22
BOOK VALUE PER COMMON SHARE (AT PERIOD END) 21.25 22.88 23.46 23.02 24.25
</TABLE>
ALL PER SHARE FIGURES ARE BASED UPON THE EXCHANGE RATIO OF 27.5 FOR 1 IN
CONNECTION WITH THE WHITE COUNTY MERGER AND .986667 FOR 1 IN CONNECTION WITH
THE MERGER AND REFLECT THE EFFECT OF BOTH THE WHITE COUNTY MERGER AND THE
MERGER ON A PRO FORMA BASIS.
25
<PAGE> 30
SELECTED FINANCIAL DATA
PER SHARE DATA
PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 3 MONTHS ENDED
1992 1993 1994 3/31/94 3/31/95
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED, NCBE, WHITE COUNTY AND
UNITED PER NCBE SHARE
NET INCOME PER COMMON SHARE $2.19 $2.22 $2.19 $0.48 $0.67
CASH DIVIDENDS PAID PER COMMON SHARE 0.84 0.88 0.93 0.22 0.22
BOOK VALUE PER COMMON SHARE (AT PERIOD END) 21.72 23.39 23.87 23.53 24.68
EQUIVALENT PRO FORMA COMBINED, NCBE, WHITE
COUNTY AND UNITED PER WHITE COUNTY SHARE
NET INCOME PER COMMON SHARE 60.23 61.05 60.23 13.20 18.43
CASH DIVIDENDS PAID PER COMMON SHARE 23.10 24.20 25.58 6.05 6.05
BOOK VALUE PER COMMON SHARE (AT PERIOD END) 597.30 643.23 656.43 647.08 678.70
EQUIVALENT PRO FORMA COMBINED, NCBE, WHITE
COUNTY AND UNITED PER UNITED SHARE
NET INCOME PER COMMON SHARE 2.16 2.19 2.16 0.47 0.66
CASH DIVIDENDS PAID PER COMMON SHARE 0.83 0.87 0.92 0.22 0.22
BOOK VALUE PER COMMON SHARE (AT PERIOD END) 21.43 23.08 23.55 23.22 24.35
</TABLE>
ALL PER SHARE FIGURES ARE BASED UPON THE EXCHANGE RATIO OF 27.5 FOR 1 IN
CONNECTION WITH THE WHITE COUNTY MERGER AND .986667 FOR 1 IN CONNECTION WITH
THE MERGER AND REFLECT THE EFFECT OF BOTH THE WHITE COUNTY MERGER AND THE
MERGER ON A PRO FORMA BASIS.
26
<PAGE> 31
SELECTED FINANCIAL DATA
PER SHARE DATA
PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 3 MONTHS ENDED MARCH 31, 1995
---------------------------- -----------------------------
<S> <C> <C>
PRO FORMA COMBINED, NCBE AND PAOLI PER NCBE SHARE
NET INCOME PER COMMON SHARE $2.41 $0.69
CASH DIVIDENDS PAID PER COMMON SHARE 0.93 0.22
BOOK VALUE PER COMMON SHARE (AT PERIOD END) 23.89 24.67
PRO FORMA COMBINED, NCBE, PAOLI, UNITED, AND WHITE COUNTY PER NCBE
SHARE
NET INCOME PER COMMON SHARE $2.15 $0.66
CASH DIVIDENDS PAID PER COMMON SHARE 0.93 0.22
BOOK VALUE PER COMMON SHARE (AT PERIOD END) 24.16 24.96
</TABLE>
ALL PER SHARE FIGURES ARE BASED UPON THE EXCHANGE RATIO OF 27.5 FOR
1 IN CONNECTION WITH THE WHITE COUNTY MERGER, .986667 FOR 1 IN
CONNECTION WITH THE MERGER AND THE ISSUANCE OF 60,606 SHARES OF
NCBE COMMON STOCK IN THE PAOLI MERGER AND REFLECT THE EFFECT OF THE
MERGERS ON A PRO FORMA BASIS.
27
<PAGE> 32
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of
United Common Stock in connection with the solicitation of proxies by the Board
of Directors of United for use at the Special Meeting to consider and vote upon
the approval of the Agreement and to transact such other business as may
properly come before the Special Meeting or any adjournments or postponements
thereof. Each copy of this Proxy Statement-Prospectus mailed to the holders of
United Common Stock is accompanied by a form of Proxy for use at the Special
Meeting.
This Proxy Statement-Prospectus is also furnished by NCBE to United
stockholders as a Prospectus in connection with the issuance by NCBE of shares
of NCBE Common Stock upon consummation of the Merger in accordance with the
Agreement. This Proxy Statement-Prospectus, the attached Notice, and the form
of Proxy enclosed herewith are first being mailed to stockholders of United on
or about_______, 1995.
DATE, PLACE AND TIME
The United Special Meeting: The Special Meeting will be held at
Beckes Student Union on the campus of Vincennes University, North Second
Street,, Vincennes, Indiana 47591 on _______________________,1995 at ___AM/PM.
RECORD DATES
United. The Board of Directors of United has fixed the close of
business on _______,1995, as the Record Date for the determination of the
holders of United Common Stock entitled to receive notice of and to vote at the
Special Meeting.
VOTES REQUIRED
United. As of the Record Date, there were 459,361 shares of United
Common Stock outstanding. Holders of United Common Stock are entitled to one
vote per share. Under applicable provisions of Delaware Law and the
Certificate of Incorporation of United, the affirmative vote of at least a
majority of the outstanding shares of United Common Stock is required to
approve the Agreement.
As of the Record Date, directors and executive officers of United and
their affiliates owned beneficially an aggregate of _______ shares of United
Common Stock or approximately ____% of the shares of United Common Stock
outstanding on such date. As of the Record Date, directors and executive
officers of United beneficially owned ______ shares (less than _____ of 1%) of
NCBE Common Stock. Directors and executive officers of United have agreed to
vote their shares of United Common Stock in favor of the Agreement, pursuant to
the Support Agreement.
As of the Record Date, there were options outstanding to purchase
8,049 shares of United Common Stock. These options are held by executive
officers of United and were granted to them under the terms of United's 1992
Stock Option Plan. It is expected that these options will be exercised for
shares of United Common Stock immediately prior to the effective time of the
Merger.
VOTING AND REVOCATION OF PROXIES
Shares of United Common Stock represented by a proxy properly signed
and received on or prior to the Special Meeting, unless subsequently revoked,
will be voted in accordance with the instructions thereon. IF A PROXY IS
SIGNED AND RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES OF
UNITED COMMON STOCK REPRESENTED BY SUCH A PROXY WILL BE VOTED FOR THE
AGREEMENT. any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before the proxy is voted by the filing of an
instrument revoking it or of a duly executed proxy bearing a later date with
the Secretary for United prior to or at the Special Meeting, or by
28
<PAGE> 33
voting in person at the special meeting. attendance at the Special Meetings
will not in and of itself constitute a revocation of a proxy.
The Board of Directors of United is not aware of any business to be
acted upon at the Special Meeting other than as described herein. If, however,
other matters properly come before the Special Meeting, or any adjournments or
postponements thereof, the person(s) appointed as proxies will have discretion
to vote or act thereon according to their best judgment.
Delaware law affords dissenters' rights to holders of United Common
Stock in connection with the Merger. For additional information regarding
dissenters' rights see "PROPOSED MERGER -Dissenters' Rights".
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees
of United who will not be specifically compensated for such services, may
solicit proxies from the stockholders of United personally or by telephone or
telegram or other forms of communication. Brokerage houses, nominees,
fiduciaries, and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for the reasonable
expenses incurred in doing so.
It is not anticipated that anyone will be specially engaged to solicit
proxies or that special compensation will be paid for that purpose. United
reserves the right to do so should it conclude that such efforts are needed.
United will bear its own expenses in connection with the solicitation of
proxies for its Special Meeting. See "PROPOSED MERGER -- Expenses."
HOLDERS OF UNITED COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO UNITED IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
PROPOSED MERGER
This section of the Proxy Statement-Prospectus describes certain
aspects of the proposed Merger. The following description does not purport to
be complete and is qualified in its entirety by reference to the Agreement
which is attached as Exhibit A to this Proxy Statement-Prospectus and is
incorporated herein by reference.
BACKGROUND AND REASONS FOR THE MERGER
United. On September 9, 1992, United Bank converted from a federally
chartered mutual savings bank to a federally chartered stock savings bank
through the sale and issuance of 460,000 shares of its Common Stock to United.
United sold 460,000 shares of common stock at a price of $10.00 per share to the
general public. United's prospectus dated July 14, 1992 ("Prospectus"),
disclosed its plan to use the proceeds of the offering (approximately $_____)
"for the payment of dividends and the possible repurchase of Common Stock." The
prospectus disclosed United Bank's plan to use the net proceeds of the offering
(approximately $_____) "to support and expand its financial services." United
Bank also disclosed that it "may use the proceeds to establish or acquire
additional branch offices and to engage in acquisitions, when and if
opportunities arise." The initial conversion from mutual to stock form included
the option of fundamental anti-takeover defenses.
Following the conversion, management of United Bank focused its
principal attention on expanding its geographical lending area to enhance
mortgage lending which had stagnated in the Vincennes market area. United
Bank utilized third-party originators and opened a mortgage origination office
in Evansville, Indiana. United Bank also acquired an insurance agency through
its wholly-owned subsidiary.
United attempted to interest institutional investors, research
analysts and market makers in United's Common Stock, and attempted to improve
the depth and liquidity of the trading market to better reflect United's
financial performance and the inherent long-term value of its common stock. in
order to enhance value for all
29
<PAGE> 34
stockholders, United's Board of Directors has taken various initiatives during
the past two years, including: payment of quarterly cash dividends and
establishment of a stock repurchase program.
On October 11, 1994, the Board of Directors of United met to discuss
an unsolicited indication of interest received from NCBE. At that time the
Board of Directors decided to pursue preliminary discussions with NCBE with a
view to obtaining additional information regarding a possible transaction. At
a meeting of the Board of Directors on November 16, 1994, Charles Webb &
Company was retained to act as a financial advisor with respect to the possible
sale of United and authorized management to negotiate the terms of a definitive
agreement with NCBE. The retention of Charles Webb & Company was publicly
announced.
The price proposed by NCBE was evaluated by Charles Webb & Co. and by
the Board of Directors, and was determined to be at or near the top of the
range of sale values that had been received for publicly traded thrifts, both
on book value and multiple of earnings basis. As such, the offer by NCBE was
determined to be compelling, and the Board determined to continue to negotiate
with NCBE. During that time, and after the public announcement of the
retention of Charles Webb & Co., another offer was discussed with another
institution. The offer was significantly less attractive than the NCBE offer
and was therefore not pursued.
During the following weeks, United and NCBE and their respective
financial and legal advisors engaged intermittently in negotiations concerning
the terms of a transaction and each institution performed due diligence on the
other. The United Board of Directors met on December 27, 1994 to consider the
terms so negotiated. Following presentations by Charles Webb & Company and
United's legal advisor, including summaries of financial and valuation
analyses, the terms of the proposed acquisition, regulatory and accounting
matters, the due diligence findings of United's management and advisors, and
Webb's oral opinion related to the fairness of the Merger to the shareholders
of United from a financial point of view, the United Board of Directors voted
unanimously to authorize the execution of the Merger Agreement for the reasons
described below.
In determining that the United Merger is in the best interests of
United and its stockholders, the United Board of Directors considered a number
of factors, including: (a) the business earnings and potential for future
growth and prospects of United and NCBE; (b) the potential operational and
managerial benefits that could be derived from the Merger; (c) the
consideration to be received by United stockholders in the merger in relation
to the book value and earnings of United; (d) the prices paid for United stock
in the open market; (e) the prices paid in similar combination transactions;
(f) the increased dividend rate; (g) the tax-free nature of the stock-for-stock
exchange; and (h) the comparatively greater liquidity that stockholders might
enjoy by being stockholders of a larger institution.
The Board of Directors also considered its belief that NCBE shared a
community banking philosophy that would benefit the employees, depositors and
customers of United Bank and the communities it serves and that the Merger
would allow United Bank to offer a diversity of products and services to its
customers. The Board of Directors did not assign any particular weight to each
of the factors considered.
NCBE. The Board of Directors of NCBE has concluded that the
merger would be in the best interests of NCBE and its stockholders. numerous
factors were considered by the Board of Directors of NCBE in approving and
recommending the terms of the Merger. These factors included information
concerning the financial condition, results of operations, and prospects of
NCBE and United; the capital adequacy of the resulting entity; the composition
of the businesses of the two organizations in the rapidly changing banking and
financial services industry; the historical and current market prices of each
company's stock and of certain other bank holding companies whose securities
are publicly traded; the relationship of the consideration to be paid in the
Merger to such market prices and to the book value and earnings per share of
United and the financial terms of certain other recent business combinations in
the banking industry.
The Board of Directors of NCBE believes that combining with United
which has established banking operations in Vincennes, Indiana is a natural and
desirable extension of NCBE'S market area. The Board of Directors of NCBE also
believes that the consolidation of resources by reason of the Merger will
enable the
30
<PAGE> 35
resulting organization to provide a wider and improved array of financial
services to customers and to achieve added flexibility in dealing with the
changing competitive environment in the financial services industry.
RECOMMENDATION OF THE UNITED BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF UNITED UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF UNITED VOTE FOR APPROVAL OF THE AGREEMENT.
OPINION OF UNITED'S FINANCIAL ADVISOR
The Board of Directors of United retained Charles Webb & Company
("Webb") to act as financial advisor and render a fairness opinion in
connection with the NCBE Merger. Webb has issued an opinion dated December 27,
1994 and confirmed on __________ [date of Proxy Statement-Prospect], that the
NCBE Merger is fair, from a financial point of view, to the stockholders of
United. The opinion is included as Appendix C to this Proxy
Statement-Prospectus.
Webb is an investment advisory firm that is engaged, among other
things, in the evaluation of thrift institutions and their securities, the
negotiation and structuring of merger and acquisition transactions, and other
financial advisory matters for thrift institutions.
Under the terms of its agreement with United, Webb will be paid a
success fee of one percent of the total fair market value received by the
United shareholders, to include the issuance of a fairness opinion to United's
shareholders. If the merger is consummated, it is estimated that the fees
received by Webb, will be approximately $207,530, of which $50,000 has already
been paid by United to Webb. United has also agreed to indemnify Webb against
certain liabilities under any applicable federal or state law, including
liabilities arising out of securities law.
In rendering its fairness opinion, Webb has relied among other things,
upon its evaluation of financial and other information supplied to it by
United, United Bank and NCBE. Prior to execution of the Agreement, Webb
studied financial and other business data supplied by United and United Bank,
including audited financial statements for the years ended June 30, 1993 and
1994 and subsequent financial statements (unaudited) for the quarter ended
September 30, 1994. In addition, Webb analyzed the proposal submitted by NCBE,
evaluated the prices of United and NCBE shares since the conversion of United
in September 1992, reviewed the financial and stock market data of other
savings and loan companies and holding companies in Indiana and other
Midwestern states and the financial terms of other recent transactions
involving mergers and acquisitions of savings and loan associations. With
particular regard to its analysis of comparable transactions, Webb considered
the nature and terms of ten merger and acquisition transactions involving
thrift and thrift holding companies which were pending or completed as of
December 27, 1994. These transactions involved publicly-traded thrift and
thrift holding company acquisition transactions which ranged in transaction
value from approximately $14 million to $26 million, compared to the estimated
transaction value of the United transaction of $20.7 million upon the signing
of the definitive agreement. Webb selected ten acquisition transactions which
they considered most closely comparable to United. A comparison of the terms
of the transactions involving these ten companies indicated that the
consideration to be paid for United's common stock under NCBE's proposal was
above the median level of the group as a multiple of price to book value, 173%
as compared to 147% for the group (range: 127% to 190%) and as a multiple of
price to earnings, the consideration was also above the median, 31.6x as
compared to 16.4x for the group (range: Not Meaningful through 26.5x). In
addition to the analysis of comparable merger and acquisition transactions and
the consideration of the audited financial statements of United and United Bank
for the fiscal year ended June 30, 1993 and 1994, Webb discussed with the
management and directors of United the outlook for the companies, considered
the regulatory environment applicable to United and United Bank and such other
matters as it determined to be relevant to the fairness opinion it has given.
TERMS OF THE MERGER
31
<PAGE> 36
At the Effective Time (as defined below), United will merge with NCBE
with the result that United Bank will become a wholly owned savings bank
subsidiary bank of NCBE. At the Effective Time, the directors and officers of
United Bank serving in such capacity immediately prior to the Effective Time
shall continue to be the directors and officers of United Bank. NCBE, as sole
stockholder, will add one additional person to represent its interest, to the
Board of Directors of United Bank. In addition, at the Effective Time, Janice
L. Beesley, the President and Chief Executive Officer of United will become a
member of the Board of Directors of NCBE.
At the Effective Time, all of the outstanding shares of United Common
Stock will be converted into shares of NCBE Common Stock in accordance with the
terms of the Agreement and the Exchange Ratio as defined by the Agreement. The
Exchange Ratio will be determined by dividing the Average Price of one share of
NCBE Common Stock into $44.40. The Average Price is determined by the weighted
average (based upon the number of shares traded) high and low prices for one
share NCBE Common Stock, as reported by the NASDAQ/NMS for the twenty (20)
business days immediately preceding the effective time of the Merger. In the
event the Average Price is higher than $49.50 per share or lower than $40.50
per share then the Average Price will be $49.50 or $40.50, respectively. The
effect of the Exchange Ratio and Average Price definitions set forth in the
Agreement is to exchange each share of United Common Stock outstanding on the
effective date of the Merger for $44.40 worth of NCBE Common Stock, subject to
a floor and ceiling on the value assigned to NCBE Common Stock. The maximum
number of shares of NCBE issuable pursuant to the Agreement is 512,420 and the
minimum number of shares issuable is 419,253.
No fractional shares of NCBE Common Stock will be issued in the
Merger. Rather, each holder of United Common Stock who otherwise would have
been entitled to a fraction of a share of NCBE Common Stock shall receive in
lieu thereof cash, without interest, in an amount determined by multiplying the
fractional share interest to which such holder would otherwise be entitled by
the Average Price.
EFFECTIVE TIME OF THE MERGER
Subject to satisfaction or waiver of all other conditions contained
in the Agreement, the Merger, will become effective on the first business day
of the next calendar month after the later to occur of (i) approval of the
Agreement by the Federal Reserve Board, the OTS, and (ii) approval of the
Merger by the stockholders of United. The Merger will become effective on the
first day of the second calendar month following the events specified in (i)
and (ii) above if the last of such events occurs after the twentieth of the
month. An earlier date may be specified by NCBE or another time may be agreed
upon in writing by the parties. Upon the filing of executed aRticles of
Merger, with the Secretary of State in Delaware and Indiana the Merger will
become effective at such time as is specified in the Articles of Merger (the
"Effective Time"). Subject to the conditions contained in the Agreement, the
Effective Time is currently expected to occur during the third quarter of 1995.
SURRENDER OF UNITED CERTIFICATES
As soon as practicable after the Effective Time of the Merger NCBE is
required by the Agreement to mail to each holder of record of United Common
Stock a letter of transmittal and instructions for use in surrendering such
holder's United Common Stock certificates.
UNITED STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL
THEY RECEIVE A LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM NCBE.
Upon surrender to NCBE of one or more certificates of United Common
Stock together with a properly completed letter of transmittal, NCBE will issue
and deliver to the holder of record of United Common Stock, a certificate
representing the number of shares of NCBE Common Stock to which the holder is
entitled and, where applicable, a check for the amount representing any
fractional share interest.
All NCBE Common Stock issued pursuant to the Agreement will be deemed
issued as of the Effective Time. No dividends or other distributions declared
with respect to NCBE Common Stock payable to former holders of United Common
Stock, pursuant to the Merger and payable to the holders thereof after the
Effective Time shall
32
<PAGE> 37
be paid until such holder surrenders such holder's United Common Stock
certificates. Subject to the effect of applicable laws, after the surrender
and exchange of such certificates, the holder of certificates for shares of
NCBE Common Stock into which the shares of United Common Stock shall have been
converted shall be entitled to receive any dividends or other distributions,
but without any interest, which previously became payable by NCBE with respect
to the shares of United Common Stock represented by such certificate or
certificates.
In the case of any lost, stolen or destroyed United Common Stock
certificate NCBE will issue a new certificate representing shares of NCBE
Common Stock and a check for the cash into which a fractional share of United
Common Stock shall have been converted only if NCBE receives: (i) evidence to
the reasonable satisfaction of NCBE that such certificate has been lost,
wrongfully taken or destroyed, (ii) such indemnity agreement as reasonably may
be requested by NCBE to save it harmless, and (iii) evidence satisfactory to it
of ownership of United Common Stock for which the certificate has been lost,
wrongfully taken or destroyed.
After the Effective Time, there will be no further registration of
transfers on the stock transfer books of NCBE of shares of United Common Stock
and any such shares presented to NCBE for transfer will be canceled and
exchanged for certificates representing shares of NCBE Common Stock and cash in
lieu of any fractional share interest as provided in the Agreement.
CONDITIONS TO THE MERGER
The United Merger will occur only if the Agreement is approved by the
requisite vote of the stockholders of United. Consummation of the Merger is
subject to the satisfaction of certain other conditions, unless waived to the
extent waiver is permitted by applicable law. Such conditions include, but are
not limited to, the following: (i) the receipt of all necessary regulatory
approvals, including the approval of the OTS; (ii) the effectiveness of the
Registration Statement registering the shares of NCBE to be issued in the
Merger, and the absence of a stop order suspending such effectiveness or
proceedings seeking a stop order; (iii) the absence of a temporary restraining
order, injunction or other order of any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the Merger;
(iv) the continued accuracy of representations and warranties by United and
NCBE regarding, among other things, the organization of the parties, financial
statements, capitalization, pending and threatened litigation, enforceability
of the Agreement and compliance with law and tax matters; (v) the performance
by United and NCBE in all material respects of each of the obligations required
to be performed by them under the Agreement; (vi) the receipt by United and
NCBE and the continuing effectiveness of opinion of counsel as to certain
federal income tax consequences of the respective Merger; (vii) the receipt of
all consents or approvals from third parties required under agreements for
consummation of the Merger other than those agreements for which failure to
obtain such consents or approval would not have a material adverse effect on
United; (viii) that no event shall have occurred, which, in the reasonable
opinion of NCBE and its auditors, would prevent the Merger from being accounted
for as a pooling of interests; (ix) the absence of any material adverse change
since September 30, 1994, in the financial condition, results of operation or
business of United and NCBE in each case, together with their respective
subsidiaries taken as a whole; (x) the absence of any material action, suit or
proceeding commenced against United and NCBE with respect to the Merger seeking
to restrain, enjoin, prevent, change or rescind the transaction contemplated by
the Agreements or questioning the validity or legality of any such transaction;
(xi) the receipt by United and NCBE of opinions of counsel as provided in the
Agreement; (xii) the receipt by United of an opinion, from its financial
advisor, dated within two days of the Proxy Statement-Prospectus, that the
Merger is fair to the holders of United Common Stock from a financial point of
view; and (xiii) that not more than five percent of the voting power of the
issued and outstanding shares of United Common Stock shall have taken steps, at
the time the Merger shall become effective, to perfect their rights as
dissenting shareholders under Delaware law.
The consummation of the Merger is conditioned upon the determination
that the Merger will be accounted for under the pooling of interests method of
accounting. NCBE is required to dispose of approximately 76,000 shares of its
common stock for the purpose of removing any taint that might cause the
transaction not to qualify for pooling treatment. See "PROPOSED MERGER -
Accounting Treatment". Either party may terminate the transaction in the event
it is determined that the Merger would not so qualify. If either party commits
a willful breach, which is not cured within 10 days of a demand for cure, the
breaching party must pay a termination fee of $1,000,000. In the event the
Merger did not qualify for pooling accounting treatment, but the parties
determined to consummate the Merger and to waive the condition, the Merger
33
<PAGE> 38
would not be consummated without a resolicitation of the vote of stockholders
of United. In such an event, the revised pro forma financial information would
be materially different than those presented elsewhere herein.
In addition, unless waived, each party's obligation to consummate the
Merger is subject to performance by the other party of its obligations under
the respective Agreement and the receipt of certain certificates from the other
party.
REGULATORY APPROVAL
The Merger is subject to prior approval by the Federal Reserve Board
under the Bank Holding Company Act of 1956, as amended ("BHC Act"), which
requires that the Federal Reserve Board take into consideration the financial
and managerial resources and future prospects of the respective institutions
and the convenience and needs of the communities to be served. The BHC Act
prohibits the Federal Reserve Board from approving the Merger if it would
result in a monopoly or be in furtherance of any combination or conspiracy to
monopolize or to attempt to monopolize the business of banking in any part of
the United States, or if its effect in any section of the country may be
substantially to lessen competition or to tend to create a monopoly, or if it
would in any other manner be a restraint of trade, unless the Federal Reserve
Board finds that the anti-competitive effects of the Merger are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the communities to be served. The Federal
Reserve Board has the authority to deny an application if it concludes that the
combined organization would have an inadequate capital position.
Under the BHC Act, the Merger may not be consummated until the 30th
day following the date of Federal Reserve Board approval, during which time the
United States Department of Justice may challenge the Merger on antitrust
grounds. The commencement of an antitrust action would stay the effectiveness
of the Federal Reserve Board's approval unless a court specifically orders
otherwise. The BHC Act provides for the publication of notice and public
comment on the application and authorizes the regulatory agency to permit
interested parties to intervene in the proceedings.
NCBE filed an application with the Federal Reserve Bank of St. Louis
(the "Federal Reserve Bank") on March 6, 1995, seeking approval of the Merger,
and on April 13, 1995, such application was approved..
In addition the Merger must be approved by the OTS under the
provisions of the Home Owners' Loan Act (HOLA). NCBE filed an application
seeking approval of the OTS on March 4, 1995.
The approvals of the Federal Reserve Board and the OTS are not to be
interpreted as the opinion of these regulatory authorities that the Merger is
fair to the stockholders of United from a financial point of view or that those
regulatory authorities have considered the adequacy of the terms of the Merger.
An approval by such regulatory authorities in no way constitutes an endorsement
or a recommendation of the Merger by the Federal Reserve Board or the OTS.
There can be no assurance that the Department of Justice will not
challenge the Merger or if such a challenge is made, as to the result thereof.
Other than the regulatory approvals described herein and required
compliance with certain federal and state securities laws by NCBE in connection
with its issuance of shares of NCBE Common Stock in connection with the Merger
with which NCBE will comply, NCBE and United are not aware of any other
governmental approvals or actions that are required for consummation of the
Merger except as described above. Should any other approval or action be
required, it is presently contemplated that such approval or action would be
sought. There can be no assurance that any such approval or action, if needed,
could be obtained and, if such approvals or actions are obtained, there can be
no assurance as to the timing thereof.
CONDUCT OF BUSINESS PENDING THE MERGER
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<PAGE> 39
Under the Agreement United and NCBE are generally obligated to (and to
cause their respective subsidiaries to) operate their respective businesses
only in the usual and ordinary course consistent with past practices; use
reasonable efforts to keep in force current insurance coverage; refrain from
any change in their methods of accounting or certain other policies and refrain
from taking any action that would adversely affect or delay regulatory approval
of the Agreement; give the other party and its representatives access to
information concerning its affairs as may be reasonably requested; and with
respect to United refrain from paying cash dividends except in amounts and on
dates consistent with past practice.
DIVIDENDS
Under the Agreement, United may pay regular cash dividends at dates
and in amounts consistent with past practices and not to exceed the per share
rate paid in the prior calendar year. The Agreement provides that United and
NCBE shall cooperate with each other to coordinate the record and payment dates
of their dividends for the quarter in which the Effective Time occurs so that
the United stockholders receive a quarterly dividend from either their
respective institution or NCBE but not from both with respect to such quarter.
TERMINATION, AMENDMENT AND WAIVER
The Agreement may be terminated at any time prior to the Effective
Time whether before or after approval of the matters presented by the
stockholders of United: (i) by mutual consent of the Boards of Directors of
United and NCBE; (ii) by either party to the Merger if all required regulatory
approvals are not received; (iii) by the Board of Directors of either party if
there has been a willful breach of any representation, warranty, covenant or
agreement by the other party which is not cured after 10 days' written notice;
(iv) by either party if the required vote of stockholders is not recieved; (v)
by United if the average price of NCBE is less than $38 per share; or (vi) by
the Board of Directors of either party if the Merger is not consummated before
September 30, 1995;
The Agreement may not be amended except in writing signed on behalf of
both parties, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of United. At any time prior to
the Effective Time, either party to the Agreement may, to the extent legally
allowed, extend the time for performance of any of the obligations of the other
party, waive any inaccuracies in representations and warranties of the other
and waive compliance with any of the agreements or conditions of the Agreement.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
As a result of the Merger, United will become a wholly owned
subsidiary of NCBE. NCBE expects to continue to operate United at its present
location. Immediately after the Effective Time of Merger, the Board of
Directors of United shall be comprised of all those persons serving as a
director of United immediately prior to the Effective Time of the Merger, plus
one additional person to be added to the Board of Directors of United by NCBE.
In addition, at the effective time of the Merger, Ms. Janice L. Beesley,
President and Chief Executive Officer of United will become a member of the
Board of Directors of NCBE.
The Agreement requires, as a condition precedent to NCBE's obligation
to close the Merger, that on or prior to the effective time of the Merger the
employment contracts between United and each of Janice L. Beesley, G. Jeffrey
Palmer and Patrick W. Lenahan shall have expired or been terminated without
liability to United. It is expected that such condition will be met on or
prior to the effective date of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, executive officers and directors of United are
or may be deemed to be the beneficial owners of less than 1% of the
outstanding shares of NCBE Common Stock and executive officers and directors of
NCBE beneficially own no shares of United Common stock. Certain executive
officers of United hold options to purchase 8,049 shares of United Common Stock
at a price of $10 per share. These options were granted to such persons in
connection with United's 1992 Stock Option Plan. It is expected that all such
options will be exercised immediately prior to the effective date of the
Merger.
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<PAGE> 40
EFFECT ON EMPLOYEE BENEFIT PLANS
United. The Agreement provides that each employee of United will be
eligible to participate in the employee benefit plans of NCBE subject to the
rights of NCBE to amend or terminate any such plans in its discretion. With
regard to the Employee's Savings and Profit Sharing Plan of NCBE, and, in the
event of the merger of the Financial Institutions Retirement Fund pension plan
sponsored by United with NCBE's pension plan, the Plan for Pensions of NCBE,
employees of United will be given credit for their years of service with United
in determining eligibility and vesting.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of the anticipated federal
income tax consequences of the Merger to holders of NCBE Common Stock and
United Common Stock and to NCBE and United. The summary is not a complete
description of the federal income tax consequences of the Merger. Each
stockholder's individual circumstances may affect the tax consequences of the
Merger to such stockholder.
Neither NCBE nor United has requested or will receive an advance
ruling from the Internal Revenue Service (the "Service") as to the tax
consequences of the Merger. With respect to the Merger, NCBE and United have
received an opinion from special counsel to NCBE, Werner & Blank Co., L.P.A.
This tax opinion is based upon certain representations made by NCBE and United
and upon the current law and the current judicial and administrative
interpretations thereof. This opinion will not be binding on the service or
any court. Consequently, there can be no assurance that the tax consequences
set forth below will continue as described herein, nor can any assurance be
given that the issues discussed below will not be challenged by the Service,
or, if so challenged, will be decided favorably to the parties to the Merger or
their stockholders.
Subject to the foregoing, the opinions of Werner & Blank Co., L.P.A.,
are substantially as follows:
(i) Since the merger of United with and into NCBE qualifies
as a statutory merger under applicable federal law, the Merger will
qualify as a "reorganization" within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code");
(ii) No gain or loss will be recognized by United or NCBE
upon merger of United with and into NCBE;
(iii) No gain or loss will be recognized by the United
stockholders who exchange, pursuant to the Merger, their shares of
United Common Stock solely for shares of NCBE Common Stock;
(iv) The federal income tax basis of the NCBE Common Stock to
be received by the United stockholders in Merger, including fractional
share interests, will be the same as the federal income tax basis of
such United Common Stock surrendered therefor;
(v) The holding period of the NCBE Common Stock to be
received by the United stockholders in the Merger will include the
period during which the United Common Stock surrendered was held as a
capital asset on the Effective Date of the Merger;
(vi) The payment of cash in lieu of fractional share
interests of NCBE Common Stock will be treated as if the fractional
shares were distributed as part of the Merger and then were redeemed
by NCBE. These cash payments will be treated as having been received
as distributions in full payment in exchange for the stock redeemed as
provided in Section 302(a) of the Code; and
(vii) Where a United stockholder dissents to the Merger, and
such stockholder receives solely cash in exchange for his or her
United Common Stock, such cash will be treated as having been received
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<PAGE> 41
by such stockholder as a distribution in redemption of his or her
shares subject to the provisions and limitations of Section 302 of the
Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE HAS NOT BEEN
VERIFIED WITH THE INTERNAL REVENUE SERVICE AND IS BASED UPON THE FEDERAL
INTERNAL REVENUE CODE AS IN EFFECT ON THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS WITHOUT CONSIDERATION OF ANY STATE LAWS OR THE PARTICULAR
FACTS OR CIRCUMSTANCES OF ANY UNITED STOCKHOLDER.
ACCOUNTING TREATMENT
The Agreement provides that consummation of the Merger is conditioned
upon the receipt by NCBE of assurances, satisfactory to it, that the Merger
qualifies for accounting treatment as a pooling of interests if consummated in
accordance with the Agreement. In addition, the Agreement provides that
United may elect to terminate the Merger in the event pooling of interest
accounting will not be applied to the Merger. Under the pooling of interests
method of accounting, the historical basis of the assets and liabilities of
NCBE and United will be combined at the effective time and carried forward at
their previously recorded amounts, and the stockholders' equity accounts of
United and NCBE's will be consolidated on NCBE's balance sheet. Income and
other financial statements of NCBE issued after consummation of the Merger will
be restated retroactively to reflect the consolidated operations of NCBE and
United as if the Merger had taken place prior to the periods covered by such
financial statements.
For the Merger to qualify as a pooling of interests for accounting
purposes, substantially all (90% or more) of the outstanding United Common
Stock must be exchanged for NCBE Common Stock. All parties have agreed not to
take any action which would disqualify the Merger from pooling of interests
treatment by NCBE.
Additionally, in order for the Merger to be accounted for under the
pooling of interests method of accounting, NCBE must, prior to consummation of
the proposed Merger dispose of certain "tainted treasury shares" purchased by
it during 1994. NCBE expects to dispose of such shares in its pending
acquisition of Paoli which will be accounted for as a purchase transaction and
to account for the Merger as a pooling.
In the event NCBE elects to terminate the Merger for failure to
qualify for pooling of interests method of accounting, NCBE is required,
pursuant to the terms of the Agreement, to pay United a termination fee of
$1,000,000.
EXPENSES
The Agreement provides that whether or not the Merger is consummated,
all costs and expenses incurred in connection with the Agreement and the
transactions contemplated therein shall be paid by the party incurring such
expense.
RESALE OF NCBE COMMON STOCK
The shares of NCBE Common Stock to be issued in the Merger to holders
of United Common Stock have been registered under the Securities Act and may be
freely traded by holders of United Common Stock who, at the Effective Time, are
not "affiliates" of United (and who are not affiliates of NCBE at the time of
the proposed resale). Directors, executive officers, and 10% stockholders of
United are generally deemed to be affiliates under the Securities Act.
Pursuant to the Agreement, NCBE must have received from each affiliate of
United a written undertaking to the effect that (a) he or she will not sell or
dispose of NCBE Common Stock acquired in the Merger other than in accordance
with the Securities Act, except under (i) a separate registration statement for
distribution (which NCBE has not agreed to provide), or (ii) Rule 145
promulgated thereunder by the SEC, or (iii) some other exemption from
registration; and (b) he or she will not otherwise dispose of the NCBE Common
Stock or otherwise reduce his or her market risk relative to the NCBE Common
Stock within 30 days prior to the Effective Time of the
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<PAGE> 42
Merger or prior to the publication by NCBE of an earnings statement covering at
least 30 days of combined operations after the Effective Time.
DISSENTERS' RIGHTS
Pursuant to the provisions of Section 262 of the Delaware Law
("Section 262"), any stockholder of United objecting to the Merger who complies
with the provisions of Section 262 and who has neither voted in favor of the
Merger nor consented thereto in writing shall be entitled to an appraisal by
the Delaware Court of Chancery of the fair value of such stockholder's shares
of United Common Stock. In order to avail himself of such right, a stockholder
must file with United, at or prior to the Special Meeting, a written demand for
appraisal of his shares, and must not vote in favor thereof. A proxy or vote
against approval of the Merger Agreement and the Merger shall not constitute a
demand. IT SHOULD BE REMEMBERED THAT IN THE ABSENCE OF INSTRUCTIONS TO VOTE
AGAINST THE MERGER, SHARES OF UNITED COMMON STOCK REPRESENTED BY PROXIES WILL
BE VOTED IN FAVOR THEREOF AND, THEREFORE, A STOCKHOLDER'S FAILURE TO VOTE
AGAINST APPROVAL OF THE MERGER SHALL CONSTITUTE A WAIVER OF SUCH STOCKHOLDER'S
APPRAISAL RIGHTS. If the Merger is consummated, within 10 days after the
Effective Date, NCBE will notify any stockholder so demanding an appraisal who
has not voted in favor of the Merger that the Merger has become effective.
Within 120 days after the Effective Date, any stockholder who has
complied with the procedures discussed above and is entitled to appraisal
rights may file a petition in the Delaware Court of Chancery demanding a
determination of the value of the shares of United Common Stock owned by such
stockholder. Notwithstanding the foregoing, at any time within 60 days after
the Effective Date, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered in the Merger Agreement. Within
120 days after the Effective Date, any stockholder who has complied with the
above requirements shall, upon written request, be entitled to receive from
NCBE, a statement setting forth the aggregate number of shares of United Common
Stock not voted in favor of the Merger and with respect to which demands for
appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the requesting stockholder
within 10 days after his written request for such a statement is received by
NCBE, or within 10 days after expiration of the period for delivery of demands
for appraisal, whichever is later.
Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon NCBE, which shall within 20 days after such
service file in the office of the Delaware Register in Chancery in which the
petition was filed a duly verified list containing the names and addresses of
all of United's stockholders who have demanded payment for their shares of
United Common Stock and with whom agreements as to the value of their shares
have not been reached by NCBE. The Delaware Register in Chancery, if so
ordered by the court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to NCBE, and to the
stockholders shown of the list at the addresses therein stated. Such notice
shall also be given by one or more publications at least one week before the
day of the hearing, in a newspaper of general circulation published in the City
of Wilmington, Delaware, or such publication as the Delaware Court of Chancery
deems advisable. The forms of the notices by mail and by publication shall be
approved by the Delaware Court of Chancery and the costs thereof shall be borne
by NCBE.
At the hearing on such petition, the Delaware Court of Chancery shall
determine the stockholders of United who have complied with the provisions of
Section 262 and who have become entitled to appraisal rights. The Delaware
Court of Chancery may require the stockholders who have demanded an appraisal
for their shares of United Common Stock and who hold United Common Stock
represented by certificates to submit their certificates of United Common Stock
to the Delaware Register in Chancery for notation thereon of the pendency of
the appraisal proceedings, and if any stockholder fails to comply with such
direction, the Delaware Court of Chancery may dismiss the proceedings as to
such stockholders.
After determining the stockholders of United entitled to an appraisal,
the Delaware Court of Chancery shall appraise the shares of United Common
Stock, determining their fair value exclusive of any element of value arising
from the accomplishment or expectation of the Merger, together with a fair rate
of interest, if any, to be paid upon the amount determined to be the fair
value. The court shall direct the payment of the fair value of the shares,
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<PAGE> 43
together with interest, if any, by NCBE, to the stockholders entitled thereto.
The costs of the proceeding may be determined by the Delaware Court of Chancery
and imposed upon the parties as the Delaware Court of Chancery deems equitable
under the circumstances.
THE FOREGOING SUMMARY OF SECTION 262 DOES NOT PURPORT TO BE COMPLETE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTION 262 AND THE OTHER
PROVISIONS OF THE DELAWARE LAW. THE FAILURE OF A STOCKHOLDER OF UNITED TO
FOLLOW THE PROCEDURES SET FORTH IN SECTION 262 WILL TERMINATE SUCH
STOCKHOLDER'S APPRAISAL RIGHTS. AS A CONSEQUENCE, EACH STOCKHOLDER OF UNITED
WHO DESIRES TO EXERCISE SUCH RIGHTS SHOULD REVIEW SECTION 262 AND FOLLOW ITS
PROVISIONS. THE COMPLETE TEXT OF THE RELEVANT PROVISIONS OF SECTION 262 ARE
ANNEXED TO THIS PROXY STATEMENT AS APPENDIX D.
PRO FORMA FINANCIAL DATA
The following unaudited Pro Forma Combined Condensed Balance Sheets as
of December 31, 1994 and March 31, 1995, and the Pro Forma Combined Condensed
Statements of Income for each of the three-year period ended December 31, 1994,
and the three months ended March 31, 1994 and 1995, gives effect to the Merger
based on the historical consolidated financial statements of NCBE and United
under the assumptions and adjustments set forth in the accompanying notes to
the pro forma financial statements.
The Pro Forma Condensed Balance Sheet assumes the Merger was
consummated on the dates indicated, and the Pro Forma Condensed Statements of
Income assume that the United Merger was consummated on January 1 of each
period presented. The pro forma statements may not be indicative of the
results that actually would have occurred if the Merger had been in effect on
the dates indicated or which may be obtained in the future. The pro forma
financial statements should be read in conjunction with NCBE's historical
financial statements and the related notes thereto incorporated by reference
herein and united's historical financial statements and the related notes
thereto included elsewhere in this Proxy Statement-Prospectus. Additionally,
the Pro Forma financial statements reflect the effect of NCBE's acquisition of
White County Bank, Carmi, Illinois for all periods presented and First National
Bank of Paoli for the most recent period shown. The White County Merger will
be accounted for as a pooling of interests and the Paoli Merger will be
accounted for as a purchase. See "INFORMATION ABOUT NCBE-Pending
Acquisitions."
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<PAGE> 44
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NCBE and
White County
White Pro Forma Pro Forma Pro Forma
NCBE County Adjustments Combined United Adjustments
---- ------ ----------- --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $36,343 $2,336 $38,679 $2,700
Federal funds sold 2,550 2,550 500
Interest bearing deposits in
other banks 5,116 5,116 7,790
Investment securities 184,519 36,385 220,904 26,371
Loans 483,592 22,551 506,143 69,479
Less allowance for loan losses (3,794) (729) (4,523) (376)
-------- ------- ------- -------- -------- --------
Net loans 479,798 21,822 $0 501,620 69,103 $0
Premises and equipment, net 10,504 376 10,880 1,609
Goodwill 1,174 1,174
Other assets 14,310 1,210 15,520 2,099
-------- ------- ------- -------- -------- --------
Total assets 731,764 64,679 0 796,443 110,172 0
======== ======= = ======== ======== =
LIABILITIES
Noninterest-bearing deposits 85,340 6,895 92,235 2,013
Interest-bearing deposits 530,628 50,700 581,328 88,731
-------- ------- ------- -------- -------- --------
Total deposits 615,968 57,595 0 673,563 90,744 0
Federal funds purchased and
securities sold under
agreements to repurchase 21,610 21,610 3,519
Notes payable 2,675 2,675 3,000
Other liabilities 5,392 396 5,788 1,081
-------- ------- ------- -------- -------- -
Total liabilities 645,645 57,991 0 703,636 98,344 0
-------- ------- - -------- -------- -------
SHAREHOLDERS' EQUITY
Preferred stock 0 0 0 0
Common stock 12,194 960 (80) 13,074 5 1,532
Capital surplus 33,113 1,540 80 34,733 4,188 (1,935)
Retained earnings 43,008 4,520 47,528 8,104
Shares held in the treasury (389) 389
Shares held by management
retention plan (14) 14
Net unrealized losses on
securities available
for sale (2,196) (332) (2,528) (66) _
-------- ------- ------- -------- --------
Total shareholders' equity 86,119 6,688 0 92,807 11,828 0
-------- ------- - -------- -------- -
Total liabilities and
shareholders' equity $731,764 $64,679 $0 $796,443 $110,172 $0
======== ======= = ======== ======== =
<CAPTION>
NCBE,
NCBE, White
White County,
NCBE and County NCBE and United and
United and United Paoli Paoli
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
Combined Combined Paoli Adjustments Combined Combined
--------- ----------- ----- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $39,043 $41,379 $768 $(623) $36,488 $41,524
Federal funds sold 500 3,050 625 625 3,675
Interest bearing deposits in
other banks 12,906 12,906 898 6,014 13,804
Investment securities 210,890 247,275 4,000 (85) 188,434 251,190
Loans 553,071 575,622 9,952 493,544 585,574
Less allowance for loan losses (4,170) (4,899) (130) (3,924) (5,029)
-------- -------- ------- ------ -------- --------
Net loans 548,901 570,723 9,822 489,620 580,545
Premises and equipment, net 12,113 12,489 252 60 10,816 12,801
Goodwill 1,174 1,174 2,191 3,365 3,365
Other assets 16,409 17,619 164 14,474 17,783
-------- -------- ------- ------ -------- --------
Total assets 841,936 906,615 16,529 1,543 749,836 924,687
======== ======== ======= ====== ======== ========
LIABILITIES
Noninterest-bearing deposits 87,353 94,248 2,041 87,381 96,289
Interest-bearing deposits 619,359 670,059 13,132 543,760 683,191
-------- -------- ------- -------- --------
Total deposits 706,712 764,307 15,173 631,141 779,480
Federal funds purchased and
securities sold under
agreements to repurchase 25,129 25,129 0 21,610 25,129
Notes payable 5,675 5,675 0 2,675 5,675
Other liabilities 6,473 6,869 172 5,564 7,041
-------- -------- ------- -------- --------
Total liabilities 743,989 801,980 15,345 660,990 817,325
-------- -------- ------- -------- --------
SHAREHOLDERS' EQUITY
Preferred stock 0 0 400 (400) 0 0
Common stock 13,731 14,611 47 155 12,396 14,813
Capital surplus 35,366 36,986 853 1,672 35,638 39,511
Retained earnings 51,112 55,632 (116) 116 43,008 55,632
Shares held in the treasury 0 0 0 0 0
Shares held by management
retention plan 0 0 0 0 0
Net unrealized losses on
securities available
for sale (2,262) (2,594) 0 (2,196) (2,594)
-------- -------- ------- ------ -------- --------
Total shareholders' equity 97,947 104,635 1,184 1,543 88,846 107,362
-------- -------- ------- ------ -------- --------
Total liabilities and
shareholders' equity $841,936 $906,615 $16,529 $1,543 $749,836 $924,687
======== ======== ======= ====== ======== ========
</TABLE>
40
<PAGE> 45
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1992
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NCBE,
NCBE and NCBE and White County
White County United and United
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
NCBE White County Adjustments Combined United Adjustments Combined Combined
---- ------------ ----------- -------- ------ ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $37,922 $2,190 $40,112 $6,628 $44,550 $46,740
Interest on deposits 1,915 3 1,918 714 2,629 2,632
Interest on federal funds sold 1,423 67 1,490 84 1,507 1,574
Interest on investment securities 12,993 2,688 15,681 1,623 14,616 17,304
--------- ------ ---- --------- ------- ---- --------- ---------
Total interest income 54,253 4,948 $ 0 59,201 9,049 $ 0 63,302 68,250
INTEREST EXPENSE:
Interest on deposits 24,355 2,318 26,673 5,624 29,979 32,297
Interest on borrowings 1,125 0 1,125 315 1,440 1,440
--------- ------ ---- --------- ------- ---- --------- ---------
Total interest expense 25,480 2,318 0 27,798 5,939 0 31,419 33,737
--------- ------ - --------- ------- - --------- ---------
NET INTEREST INCOME 28,773 2,630 0 31,403 3,110 0 31,883 34,513
Provision for loan losses 1,234 0 1,234 93 1,327 1,327
--------- ------ ---- --------- ------- ---- --------- ---------
Net interest income after
provision for loan losses 27,539 2,630 0 30,169 3,017 0 30,556 33,186
Noninterest income 5,229 166 5,395 605 5,834 6,000
Noninterest expense 20,841 1,769 22,610 2,416 23,257 25,026
--------- ------ ---- --------- ------- ---- --------- ---------
Income before income taxes 11,927 1,027 0 12,954 1,206 0 13,133 14,160
Income taxes 3,727 189 3,916 479 4,206 4,395
--------- ------ ---- --------- ------- ---- --------- ---------
NET INCOME $8,200 $838 $ 0 $9,038 $727 $ 0 $8,927 $9,765
========= ====== = ========= ======= = ========= =========
Net income per common share $2.19 $87.28 $1.58
Pro forma net income per common
share $2.26 $2.12 $2.19
AVERAGE SHARES OUTSTANDING 3,741,124 9,600 4,005,124 460,000 4,202,302 4,466,302
CONVERSION RATIO 27.5 0.986667
</TABLE>
41
<PAGE> 46
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NCBE,
NCBE and NCBE and White County
White County United and United
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
NCBE White County Adjustments Combined United Adjustments Combined Combined
---- ------------ ----------- -------- ------ ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $36,320 $1,822 $38,142 $5,364 $41,684 $43,506
Interest on deposits 1,003 1,003 628 1,631 1,631
Interest on federal funds sold 915 45 960 93 1,008 1,053
Interest on investment
securities 10,250 2,417 12,667 1,719 11,969 14,386
--------- ------ ------ --------- ------- ----- --------- ----------
Total interest income 48,488 4,284 $ 0 52,772 7,804 $ 0 56,292 60,576
INTEREST EXPENSE:
Interest on deposits 19,009 1,841 20,850 4,408 23,417 25,258
Interest on borrowings 505 0 505 386 891 891
--------- ------ ------ --------- ------- ----- --------- ----------
Total interest expense 19,514 1,841 0 21,355 4,794 0 24,308 26,149
--------- ------ - --------- ------- - --------- ----------
NET INTEREST INCOME 28,974 2,443 0 31,417 3,010 0 31,984 34,427
Provision for loan losses 654 (120) 534 47 701 581
--------- ------ ------ --------- ------- ----- --------- ----------
Net interest income after
provision for loan losses 28,320 2,563 0 30,883 2,963 0 31,283 33,846
Noninterest income 5,532 144 5,676 801 6,333 6,477
Noninterest expense 21,522 1,854 23,376 2,501 24,023 25,877
--------- ------ ------ --------- ------- ----- --------- ---------
Income before income taxes
and cumulative effect of
change in accounting
principle 12,330 853 0 13,183 1,263 0 13,593 14,446
Income taxes 3,956 242 4,198 453 4,409 4,651
--------- ------ ------ --------- ------- ----- --------- ---------
Income before cumulative
effect of change in
accounting principle 8,374 611 0 8,985 810 0 9,184 9,795
Cumulative effect on
prior years of change
in accounting principal 0 52 52 80 80 132
--------- ------ ------ --------- ------- ----- --------- ---------
NET INCOME $8,374 $663 $ 0 $9,037 $890 $ 0 $9,264 $9,927
========= ====== ====== ========= ======= ===== ========= =========
Income before cumulative
effect of change in
accounting principle per
common share $2.24 $63.65 $1.76
Net income per common share 2.24 69.08 1.94
Pro forma income before
cumulative effect of change
in accounting principle
per common share $2.24 $2.18 $2.19
Pro forma net income per
common share 2.26 2.20 2.22
AVERAGE SHARES OUTSTANDING 3,742,427 9,600 4,006,427 459,370 4,203,605 4,467,605
CONVERSION RATIO 27.5 0.986667
</TABLE>
42
<PAGE> 47
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NCBE and
White
County
White Pro Forma Pro Forma Pro Forma
NCBE County Adjustments Combined United Adjustments
---- ------ ----------- --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $38,110 $1,804 $39,914 $5,183
Interest on deposits 392 392 841
Interest on federal funds sold 355 49 404 119
Interest on investment securities 10,374 2,212 12,586 1,329
------- ------ ------ ------- ------
Total interest income 49,231 4,065 $ 0 53,296 7,472 $ 0
INTEREST EXPENSE:
Interest on deposits 17,838 1,827 19,665 3,984
Interest on borrowings 712 0 712 399
------- ------ ------ ------- ------
Total interest expense 18,550 1,827 0 20,377 4,383 0
------- ------ - ------- ------ -
NET INTEREST INCOME 30,681 2,238 0 32,919 3,089 0
Provision for loan losses (5) 0 (5) 22
------- ------ ------ ------- ------
Net interest income after
provision for loan losses 30,686 2,238 0 32,924 3,067 0
Noninterest income 4,465 (148) 4,317 652
Noninterest expense 21,397 1,840 23,237 2,887
------- ------ ------ ------- ------
Income before income taxes 13,754 250 0 14,004 832 0
Income taxes 4,691 35 4,726 430
------- ------ ------- ------
NET INCOME 9,063 215 0 9,278 402 0
======= ====== = ======= ====== =
NET INCOME ASSIGNED TO
PREFERRED SHAREHOLDERS $ 0 $ 0
NET INCOME FOR COMMON
SHAREHOLDERS $9,063 $215 $ 0 $9,278 $402 $ 0
Net income per common share 2.45 22.35 0.91
Pro forma net income per 2.34
common share
AVERAGE SHARES OUTSTANDING 3,694,650 9,600 3,958,650 439,690
CONVERSION RATIO FOR
COMMON STOCK 27.5
CONVERSION RATIO FOR
PREFERRED STOCK
<CAPTION>
NCBE,
NCBE, Wayne
White County,
NCBE and County NCBE and United and
United and United Paoli Paoli
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
Combined Combined Paoli Adjustments Combined Combined
--------- ----------- ----- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $43,293 $45,097 $933 $39,043 $46,030
Interest on deposits 1,233 1,233 75 467 1,308
Interest on federal funds sold 474 523 41 396 564
Interest on investment securities 11,703 13,915 155 10,529 14,070
------- ------- ----- ----- ------- -------
Total interest income 56,703 60,768 1,204 0 50,435 61,972
INTEREST EXPENSE:
Interest on deposits 21,822 23,649 517 18,355 24,166
Interest on borrowings 1,111 1,111 0 712 1,111
------- ------- ----- ----- ------- -------
Total interest expense 22,933 24,760 517 0 19,067 25,277
------- ------- ----- ----- ------- -------
NET INTEREST INCOME 33,770 36,008 687 0 31,368 36,695
Provision for loan losses 17 17 6 1 23
------- ------- ----- ----- ------- -------
Net interest income after
provision for loan losses 33,753 35,991 681 0 31,367 36,672
Noninterest income 5,117 4,969 100 4,565 5,069
Noninterest expense 24,284 26,124 517 146 22,060 26,787
------- ------- ----- ----- ------- -------
Income before income taxes 14,586 14,836 264 (146) 13,872 14,954
Income taxes 5,121 5,156 82 4,773 5,238
------- ------- ----- ----- ------- -------
NET INCOME $ 9,465 $ 9,680 $ 182 $(146) $ 9,099 $ 9,716
======= ======= ===== ===== ======= =======
NET INCOME ASSIGNED TO
PREFERRED SHAREHOLDERS $ 64 $ 64 $ 64
NET INCOME FOR COMMON
SHAREHOLDERS $9,465 $9,680 118 $(146) 9,035 9,652
Net income per common share 2.53
Pro forma net income per 2.28 2.19 2.41 2.15
common share
AVERAGE SHARES OUTSTANDING 4,155,828 4,419,828 46,667 3,755,256 4,480,434
CONVERSION RATIO FOR
COMMON STOCK 0.986667
CONVERSION RATIO FOR
PREFERRED STOCK 3.3
</TABLE>
43
<PAGE> 48
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NCBE and
White
County
White Pro Forma Pro Forma Pro Forma
NCBE County Adjustments Combined United Adjustments
---- ------ ----------- --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $26,204 $1,657 $27,861 $2,965
Federal funds sold 800 1,500 2,300
Interest bearing deposits in
other banks 4,031 4,031 5,616
Investment securities 179,654 36,857 216,511 25,361
Loans 492,734 23,006 515,740 72,582
Less allowance for loan losses (3,800) (706) (4,506) (375)
-------- ------- --- -------- -------- ---
Net loans 488,934 22,300 $ 0 511,234 72,207 $ 0
Premises and equipment, net 11,033 402 11,435 1,590
Goodwill 1,123 1,123
Other assets 12,303 983 13,286 2,267
-------- ------- --- -------- -------- ---
Total assets 724,082 63,699 0 787,781 110,006 0
======== ======= === ======== ======== ===
LIABILITIES
Noninterest-bearing deposits 78,734 6,692 85,426 2,392
Interest-bearing deposits 528,786 49,704 578,490 87,590
-------- ------- --- -------- -------- ---
Total deposits 607,520 56,396 0 663,916 89,982 0
Federal funds purchased and
securities sold under
agreements to repurchase 19,085 19,085 3,394
Notes payable 2,103 2,103 3,000
Other liabilities 6,347 378 6,725 1,412
-------- ------- --- -------- -------- ---
Total liabilities 635,055 56,774 0 691,829 97,788 0
-------- ------- --- -------- -------- ---
SHAREHOLDERS' EQUITY
Preferred stock 0 0 0
Common stock 12,193 960 (80) 13,073 5 1,532
Capital surplus 33,102 1,540 80 34,722 3,998 (1,556)
Retained earnings 44,774 4,604 49,378 8,286
Shares held in the treasury (13) 13
Shares held by management
retention plan (11) 11
Net unrealized losses on
securities available for sale (1,042) (179) (1,221) (47)
-------- ------- --- -------- -------- ---
Total shareholders' equity 89,027 6,925 0 95,952 12,218 0
-------- ------- --- -------- -------- ---
Total liabilities and
shareholders' equity $724,082 $63,699 $0 $787,781 $110,006 $0
======== ======= === ======== ======== ===
<CAPTION>
NCBE,
NCBE, White
White County,
NCBE and County NCBE and United and
United and United Paoli Paoli
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
Combined Combined Paoli Adjustments Combined Combined
--------- ----------- ----- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $29,169 $30,826 $526 $(623) $26,107 $30,729
Federal funds sold 800 2,300 350 1,150 2,650
Interest bearing deposits in
other banks 9,647 9,647 500 4,531 10,147
Investment securities 205,015 241,872 4,104 (19) 183,739 245,957
Loans 565,316 588,322 10,849 503,583 599,171
Less allowance for loan losses (4,175) (4,881) (137) (3,937) (5,018)
-------- -------- ------- ------ -------- --------
Net loans 561,141 583,441 10,712 499,646 594,153
Premises and equipment, net 12,623 13,025 250 60 11,343 13,335
Goodwill 1,123 1,123 2,089 3,212 3,212
Other assets 14,570 15,553 174 12,477 15,727
-------- -------- ------- -------- --------
Total assets 834,088 897,787 16,616 1,507 742,205 915,910
======== ======== ======= ====== ======== ========
LIABILITIES
Noninterest-bearing deposits 81,126 87,818 1,911 80,645 89,729
Interest-bearing deposits 616,376 666,080 13,312 542,098 679,392
-------- -------- ------- -------- --------
Total deposits 697,502 753,898 15,223 622,743 769,121
Federal funds purchased and
securities sold under
agreements to repurchase 22,479 22,479 19,085 22,479
Notes payable 5,103 5,103 2,103 5,103
Other liabilities 7,759 8,137 173 6,520 8,310
-------- -------- ------- -------- --------
Total liabilities 732,843 789,617 15,396 650,451 805,013
-------- -------- ------- -------- --------
SHAREHOLDERS' EQUITY
Preferred stock 0 0 400 (400) 0 0
Common stock 13,730 14,610 47 155 12,395 14,812
Capital surplus 35,544 37,164 853 1,672 35,627 39,689
Retained earnings 53,060 57,664 (80) 80 44,774 57,664
Shares held in the treasury 0 0 0 0
Shares held by management
retention plan 0 0 0 0
Net unrealized losses on
securities available for sale (1,089) (1,268) (1,042) (1,268)
-------- -------- ------- ----- -------- --------
Total shareholders' equity 101,245 108,170 1,220 1,507 91,754 110,897
-------- -------- ------- ----- -------- --------
Total liabilities and
shareholders' equity $834,088 $897,787 $16,616 $1,507 $742,205 $915,910
======== ======== ======= ====== ======== ========
</TABLE>
44
<PAGE> 49
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(UNAUDITED)
MARCH 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NCBE and
White County
White Pro Forma Pro Forma Pro Forma
NCBE County Adjustments Combined United Adjustments
---- ------ ----------- --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $8,719 $418 $9,137 $1,247
Interest on deposits 133 133 49
Interest on federal funds sold 253 10 263 26
Interest on investment securities 2,386 563 2,949 492
------ ---- ---- ------ ------ ----
Total interest income 11,491 991 $ 0 12,482 1,814 $ 0
INTEREST EXPENSE:
Interest on deposits 4,292 438 4,730 1,007
Interest on borrowings 118 118 98
------ ---- ---- ------ ------ ----
Total interest expense 4,410 438 0 4,848 1,105 0
------ ---- - ------ ----- -
NET INTEREST INCOME 7,081 553 0 7,634 709 0
Provision for loan losses (153) (153) 6
------ ---- ---- ------ ------ ----
Net interest income after
provision for loan losses 7,234 553 0 7,787 703 0
Noninterest income 895 36 931 173
Noninterest expense 5,330 444 5,774 644
------ ---- ---- ------ ------ ----
Income before income taxes 2,799 145 0 2,944 232 $ 0
Income taxes 898 42 940 94
------ ---- ---- ------ ------ ----
NET INCOME $1,901 $103 $ 0 $2,004 $ 138 $ 0
====== ==== = ====== ====== =
NET INCOME ASSIGNED TO
PREFERRED SHAREHOLDERS
NET INCOME FOR COMMON
SHAREHOLDERS $1,901 $103 $ 0 $2,004 $138 $ 0
Net income per common share 0.51 10.73 0.31
Pro forma net income per
common share 0.50
AVERAGE SHARES OUTSTANDING 3,739,626 9,600 4,003,626 438,179
CONVERSION RATIO FOR COMMON
STOCK 27.5
CONVERSION RATIO FOR
PREFERRED STOCK
<CAPTION>
NCBE,
White
NCBE, County,
NCBE and White County NCBE and United and
United and United Paoli Paoli
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
Combined Combined Paoli Adjustments Combined Combined
--------- ----------- ----- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 9,966 $10,384 $232 $8,951 $10,616
Interest on deposits 182 182 20 153 202
Interest on federal funds sold 279 289 6 259 295
Interest on investment securities 2,878 3,441 23 2,409 3,464
------- ------- ---- ---- ------- -------
Total interest income 13,305 14,296 281 0 11,772 14,577
INTEREST EXPENSE:
Interest on deposits 5,299 5,737 121 4,413 5,858
Interest on borrowings 216 216 0 118 216
------- ------- ---- ---- ------- -------
Total interest expense 5,515 5,953 121 0 4,531 6,074
------- ------- ---- ---- ------- -------
NET INTEREST INCOME 7,790 8,343 160 0 7,241 8,503
Provision for loan losses (147) (147) 2 (151) (145)
------- ------- ---- ---- ------- -------
Net interest income after
provision for loan losses 7,937 8,490 158 0 7,392 8,648
Noninterest income 1,068 1,104 25 920 1,129
Noninterest expense 5,974 6,418 123 36 5,489 6,577
------- ------- ---- ---- ------- -------
Income before income taxes 3,031 3,176 60 (36) 2,823 3,200
Income taxes 992 1,034 12 0 910 1,046
------- ------- ---- ---- ------- -------
NET INCOME $ 2,039 $ 2,142 $ 48 $(36) $ 1,913 $ 2,154
======= ======= ==== ==== ======= =======
NET INCOME ASSIGNED TO
PREFERRED SHAREHOLDERS $ 13 $ 13 $ 13
NET INCOME FOR COMMON
SHAREHOLDERS $ 2,039 $ 2,142 35 $(36) 1,900 2,141
Net income per common share 0.75
Pro forma net income per
common share 0.49 0.48 0.50 0.47
AVERAGE SHARES OUTSTANDING 4,200,804 4,464,804 46,667 3,800,232 4,525,410
CONVERSION RATIO FOR COMMON
STOCK 0.986667
CONVERSION RATIO FOR
PREFERRED STOCK 3.3
</TABLE>
45
<PAGE> 50
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(UNAUDITED)
MARCH 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NCBE and
White
County
White Pro Forma Pro Forma Pro Forma
NCBE County Adjustments Combined United Adjustments
---- ------ ----------- --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $10,734 $ 492 $11,226 $1,456
Interest on deposits 52 52 23
Interest on federal funds sold 145 48 193 3
Interest on investment securities 2,693 527 3,220 472
------- ------ ----- ------- ------ ----
Total interest income 13,624 1,067 $ 0 14,691 1,954 $ 0
INTEREST EXPENSE:
Interest on deposits 5,191 487 5,678 1,011
Interest on borrowings 212 212 99
------- ------ ----- ------- ------ ----
Total interest expense 5,403 487 0 5,890 1,110 0
------- ------ - ------- ------ -
NET INTEREST INCOME 8,221 580 0 8,801 844 0
Provision for loan losses 18 18 6
------- ------ --- ------- ------ ---
Net interest income after
provision for loan losses 8,203 580 0 8,783 838 0
Noninterest income 1,284 26 1,310 162
Noninterest expense 5,593 419 6,012 646
------- ------ ------- ------ ----
Income before income taxes 3,894 187 0 4,081 354 0
Income taxes 1,324 55 1,379 139
------- ------ --- ------- ------ ----
NET INCOME $ 2,570 $ 132 $ 0 $ 2,702 $ 215 $ 0
======= ====== = ======= ====== =
NET INCOME ASSIGNED TO
PREFERRED SHAREHOLDERS
NET INCOME FOR COMMON
SHAREHOLDERS $ 2,570 $ 132 $ 0 $ 2,702 $ 215 $ 0
Net income per common share 0.70 13.75 0.47
Pro forma net income per 0.69
common share
AVERAGE SHARES OUTSTANDING 3,658,985 9,600 3,922,985 458,033
CONVERSION RATIO FOR COMMON
STOCK 27.5
CONVERSION RATIO FOR
PREFERRED STOCK
<CAPTION>
NCBE,
NCBE, White
White County,
NCBE and County NCBE and United and
United and United Paoli Paoli
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
Combined Combined Paoli Adjustments Combined Combined
--------- ----------- ----- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $12,190 $12,682 $255 $10,989 $12,937
Interest on deposits 75 75 9 61 84
Interest on federal funds sold 148 196 9 154 205
Interest on investment securities 3,165 3,692 66 2,759 3,758
-------- -------- ------- ---- -------- ---------
Total interest income 15,578 16,645 339 0 13,963 16,984
INTEREST EXPENSE:
Interest on deposits 6,202 6,689 149 5,340 6,838
Interest on borrowings 311 311 0 212 311
-------- -------- ------- ---- -------- ---------
Total interest expense 6,513 7,000 149 0 5,552 7,149
-------- -------- ------- ---- -------- ---------
NET INTEREST INCOME 9,065 9,645 190 0 8,411 9,835
Provision for loan losses 24 24 1 19 25
-------- -------- ------- ---- -------- ---------
Net interest income after
provision for loan losses 9,041 9,621 189 0 8,392 9,810
Noninterest income 1,446 1,472 23 1,307 1,495
Noninterest expense 6,239 6,658 125 35 5,753 6,818
-------- -------- ------- ---- -------- ---------
Income before income taxes 4,248 4,435 87 (35) 3,946 4,487
Income taxes 1,463 1,518 27 0 1,351 1,545
-------- -------- ------- ---- -------- ---------
NET INCOME $ 2,785 $ 2,917 $ 60 $(35) $ 2,595 $ 2,942
======== ======== ======= ==== ======== =========
NET INCOME ASSIGNED TO
PREFERRED SHAREHOLDERS $ 10 $ 10 $ 10
NET INCOME FOR COMMON
SHAREHOLDERS $ 2,785 $ 2,917 50 $(35) 2,585 2,932
Net income per common share 1.07
Pro forma net income per 0.68 0.67 0.69 0.66
common share
AVERAGE SHARES OUTSTANDING 4,120,163 4,384,163 46,667 3,719,591 4,444,769
CONVERSION RATIO FOR COMMON
STOCK 0.986667
CONVERSION RATIO FOR
PREFERRED STOCK 3.3
</TABLE>
46
<PAGE> 51
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The "Pro Forma Combined" balance sheet information gives effect to the
Merger and the probable merger with White County and Paoli, as if they
had been consummated on January 1 of each year with respect to the Pro
Forma Statements of Income for which presentation is indicated. The
Pro Forma information reflects the Merger accounted for as a pooling
of interests transaction whereby the historical cost basis of assets,
liabilities and equity is retained for financial statement purposes.
The Pro Forma adjustments for the Paoli Merger reflect the application
of the purchase method of accounting whereby assets and liabilities
are recorded at fair value.
2. The conversion of outstanding shares of NCBE Common Stock is reflected
using the exchange ratio of 27.5 shares of NCBE Common Stock for each
existing share of White County Common Stock and .986667 shares of NCBE
Common Stock for each existing shares of United Common Stock. The
Paoli Merger, for the periods indicated, is reflected on the basis of
60,606 shares of NCBE Common Stock issued in connection with the Paoli
Merger and the payment of $623,004 in cash paid in connection with the
Paoli Merger. This results in outstanding shares of NCBE Common Stock
on a pro forma basis as follows:
Pro forma giving effect to the Merger 461,178 shares
Pro forma giving effect to the White County Merger 264,000 shares
Pro forma giving effect to the Merger and White County Merger 725,178
shares
Pro forma giving effect to the Paoli Merger 60,606 shares
Pro forma giving effect to the Merger, the White County Merger and the
Paoli Merger 785,784 shares.
In connection with the Merger the aggregate number of shares issuable
is determined by reference to the Average Price of NCBE Common Stock.
For these purposes, the "Average Price" shall mean the weighted
average (based upon the number of shares traded) of the high and low
price of NCBE Common Stock as reported by the NASDAQ/NMS for the 20
business days immediately preceding the effective date of the Merger.
The Merger provides for an exchange of NCBE Common Stock valued at
$44.40 utilizing the Average Price of NCBE Common Stock. The minimum
number of shares of NCBE Common Stock issuable in the Merger is
419,253 and the maximum number of shares is 512,420. For purposes of
the Pro Forma financial statements presented herein, the number of
shares issuable in the transaction has been based upon a $45 average
price. As provided for in the Agreement, the aggregate number of
shares of NCBE Common Stock issuable in the White County Merger is
264,000. In connection with the White County Merger, in the event
the Average Price of NCBE Common Stock is less than $38.00 or more
than $48.00, either party to the White County Merger may elect to
terminate the Merger or renegotiate. In connection with the Paoli
Merger the Paoli Agreement calls for the issuance of 60,606 shares of
NCBE Common Stock plus the payment of $623,004 in cash in exchange for
all of the capital stock of Paoli.
DESCRIPTION AND COMPARISON OF NCBE COMMON STOCK
AND UNITED COMMON STOCK
GENERAL
NCBE is an Indiana corporation governed by and subject to the
Indiana Business Corporation Law ("IBCL"). United is a Delaware corporation
organized under and governed by the provisions of the Delaware General
Corporation Law ("DGCL"). If the proposed Merger is consummated, stockholders
of United who receive NCBE Common Stock will become stockholders of NCBE and,
as such, their rights as stockholders will be governed by the IBCL and by
NCBE's Articles, Bylaws and other corporate documents. The rights of holders
of shares of United Common Stock differ in certain respects from the rights of
holders of NCBE Common Stock. A summary of the material differences between
the respective rights of United from that of NCBE stockholders is set forth
below.
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As of the date of the Agreement NCBE was authorized to issue 5,000,000
shares of $3.33 1/3 par value common stock ("NCBE Common Stock"). As of
February 28, 1995, NCBE had 3,658,650 shares of NCBE Common Stock issued and
outstanding, which left 1,341,350 shares available for future issuance. At the
1995 Annual meeting of Stockholders, NCBE Stockholders approved an increase in
the total authorized shares of NCBE Common Stock to 10,000,000 and approved the
elimination of the reference to "par value" thereby converting all shares to no
par value. The amendment to NCBE's Articles of Incorporation will have no
effect on the determination of the number of shares of NCBE Common Stock
issuable in the Merger, the White County Merger or the Paoli Merger. NCBE
expects to issue a minimum of 419,253 shares and a maximum of 512,420 shares to
stockholders of United, approximately 264,000 shares to stockholders of White
County, and 60,606 to stockholders of Paoli.
The authorized Common Stock of United consists of 2,000,000 shares of
Common Stock, $0.01 par value per share, of which 459,361 are issued and
outstanding as of the Record Date and 500,000 shares of authorized preferred
stock none of which are issued or outstanding as of the Record Date.
NCBE Common Stock is traded on the national over-the-counter market
under the symbol "NCBE" and is quoted on the NASDAQ/NMS. Currently four (4)
brokerage firms provide a primary market in NCBE Common Stock. Trading volume
in NCBE Common Stock for the twelve months ended December 31, 1994, was 425,367
shares. United Common Stock is traded in the over-the-counter market and is
quoted on the NASDAQ/NMS Small Cap System. Trading volume in United Common
Stock for the twelve months ended December 31, 1994, was 497,809 shares.
United Common Stock trades under the symbol UNFB. Currently 3 brokerage
firms provide a primary market in United's Common Stock.
While there are a substantial number of similarities between the NCBE
Common Stock and the United Common Stock, the rights of stockholders of United
will be different after the Effective Date of the Merger. Stockholders will be
affected by differences in the Articles of Incorporation and Bylaws of NCBE and
United and differences in Indiana law governing NCBE as an Indiana corporation
and United as a Delaware corporation. Listed below are the more important
attributes of the NCBE Common Stock and the differences, if any from the United
Common Stock.
DIVIDENDS
Holders of NCBE Common Stock are entitled to dividends out of funds
legally available therefor, as governed by the IBCL, and if declared by the
Board of Directors. The amount and timing of dividends on NCBE Common Stock is
subject to the earnings of its subsidiaries and the amounts available for
payment of dividends by such subsidiaries under various state and federal
banking laws and regulations. Generally, dividends from NCBE's banking
subsidiaries are restricted to net profits of the current year plus the
preceding two years less dividends paid.
PREEMPTIVE RIGHTS
Pursuant to the IBCL, stockholders of NCBE do not have the preemptive
right to subscribe to additional shares of common stock when issued by NCBE.
Similarly, stockholders of United currently do not have preemptive rights
pursuant to the provisions of the DGCL. Preemptive rights permit a stockholder
to purchase their pro rata share of any offering by the company, subject to
certain exceptions and limitations as provided by law.
VOTING
On all matters to properly come before stockholders, each share of
stock of the NCBE and United entitles the holder thereof to one vote, except,
with respect to NCBE stockholders only, for the right to vote cumulatively in
the election of Directors, and except, with respect to NCBE only, for the
effect of certain "super vote" requirements regarding business combinations
contained in the Articles of Incorporation of NCBE (see "Cumulative Voting" and
"Antitakeover Provisions"). The affirmative vote of the holders of a majority
of the outstanding NCBE Common Stock is required to amend the Articles of
Incorporation of NCBE, except the amendment of Article IX, Section 6 which
provision requires an eighty percent (80%) vote in certain business combination
transactions, which
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amendment requires the affirmative vote of the holders of eighty percent (80%)
of the NCBE Common Stock. In general, the affirmative vote by the holders of a
majority of United Common Stock is required to amend the United Certificate of
Incorporation.
CUMULATIVE VOTING
Stockholders of NCBE have the right to vote cumulatively in the
election of Directors. In cumulative voting, a stockholder may cumulate a
number of votes equal to the number of directors to be elected times the number
of shares held by the stockholder and cast all of such votes for one nominee
for director, or allocate such votes among the nominees as the stockholder sees
fit. Cumulative voting rights afford stockholders controlling a minority stock
position the opportunity to have representation on the Board of Directors.
Stockholders of United do not have the right to vote cumulatively in the
election of directors.
LIQUIDATION
Holders of NCBE stock are entitled to a pro rata distribution of the
corporation's assets upon liquidation. Holders of United are afforded similar
rights.
LIABILITY OF DIRECTORS; INDEMNIFICATION
Under their respective Articles of Incorporation NCBE and United may
indemnify present or past directors, officers, employees or agents to the full
extent permitted by law.
Under the IBCL an Indiana corporation may indemnify an individual made
a party to a proceeding because such individual is or was a director against
liability incurred in the proceeding if the individual acted in good faith,
reasonably believed his or her conduct was in the corporation's best interest
(or in certain cases at least not opposed to the corporation's best interests)
and, in the case of any criminal proceeding, the individual had no reasonable
cause to believe the individual's conduct was unlawful. Unless limited by its
Articles of Incorporation, under the IBCL a corporation must indemnify a
director who is wholly successful, on the merits or otherwise, in the defense
of any proceeding to which the director was a party because the director is or
was a director of the corporation against reasonable expenses incurred by the
director in connection with the proceeding.
Under the provisions of the DGCL directors of United are entitled to
similar rights of indemnification.
ANTITAKEOVER PROVISIONS
Indiana Law - NCBE
Under the provisions of Chapter 43 of the IBCL, any 10% stockholder of
an Indiana corporation is prohibited for a period of five years from completing
a business combination with a 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% stockholder may not consummate a business
combination unless all provisions of the Articles of Incorporation of the
Corporation are complied with and a majority of the disinterested stockholders
approve the transaction or all stockholders receive a price per share
determined in accordance with the business combinations provision of Indiana
law.
In addition to the business combinations provision, Chapter 42 of the
IBCL 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. Chapter 42 of the IBCL (commonly known as the "Indiana
Control Share Acquisitions Statute"), restricts the voting rights of certain
shares ("control shares") that, except for Chapter 42 of the IBCL would have
voting power, of an issuing public corporation that, when added to all other
shares of such corporation owned by a person, would entitle that person,
immediately after the acquisition of such shares, to exercise or direct the
exercise of the voting power of
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such corporation in the election of directors within any of the following
ranges of voting power: (a) one-fifth or more but less than one-third of all
voting power; (b) one-third or more but less than a majority of all voting
power; and (c) a majority or more of all voting power (a "control share
acquisition"). The voting rights of such control shares are restricted to
those rights granted by a resolution approved by the holders of a majority of
the outstanding voting shares, excluding the voting shares owned by the
acquiring stockholder and certain other "interested shares," including shares
owned by officers of the issuing corporation and employees of the issuing
corporation that are also directors of the issuing corporation. This provision
may also have the effect of discouraging premium bids for outstanding shares.
Delaware Law - United
Section 203 of the DGCL, which applies to United, regulates
transactions with major stockholders after they become major stockholders.
Section 203 prohibits a Delaware corporation from engaging in mergers,
dispositions of 10% or more of its assets, issuances of stock and other
transactions ("business combinations") with a person or group that owns 15% or
more of the voting stock of the corporation (an "interested stockholder"), for
a period of three years after the interested stockholder crosses the 15%
threshold. These restrictions on transactions involving an interested
stockholder do not apply if (a) before the interested stockholder owned 15% or
more of the voting stock, the board of directors approved the business
combination or the transaction that resulted in the person or group becoming an
interested stockholder; (b) in the transaction that resulted in the person or
group becoming an interested stockholder, the person or group acquired at least
85% of the voting stock other than stock owned by insider directors and certain
employee stock plans; (c) after the person or group became an interested
stockholder, the board of directors and at least two-thirds of the voting stock
other than stock owned by the interested stockholder approves the business
combination or (d) certain competitive bidding circumstances exist.
NCBE Articles of Incorporation
NCBE's Articles of Incorporation contain two provisions which can be
characterized as antitakeover in nature. These provisions are summarized
below:
Supermajority Vote Requirement Provision
The affirmative vote of at least eighty percent (80%) of the
outstanding capital stock of NCBE is required to effectuate a merger or
consolidation of NCBE with another corporation, or an acquisition of NCBE by
another corporation without the approval of NCBE's Board of Directors.
Advantages. This provision of NCBE's Articles of Incorporation is
designed primarily to discourage or make more difficult a takeover
attempt or acquisition which the Board of Directors of NCBE does not
feel is in the best interests of the stockholders of NCBE. Under
Indiana corporation law, approval by the simple majority of the
outstanding capital stock of NCBE would be required to approve a
merger, consolidation, or acquisition of NCBE by another corporation
which has the approval of the Board of Directors of NCBE. The Board
of Directors and management of NCBE feel that the provisions requiring
an increased percentage of stockholder approval of a merger,
consolidation, or acquisition of NCBE by another corporation, which
NCBE's Board of Directors has not approved, is in the interest of
stockholders because it will require broader stockholder consent and,
therefore, increase discussion and understanding of any such proposal.
Disadvantages. It must be noted that another effect would be that
management may obtain a veto power over a merger, consolidation or
acquisition regardless of whether the transaction is desired by or
beneficial to a majority of the stockholders and would assist
management in retaining their present positions. Another effect would
be to give the holders of a minority of the shares a veto power
regarding a merger, consolidation, or acquisition which the Board of
Directors has not approved. Further, the Supermajority Vote
Requirement Provision may have the practical effect of providing
management of NCBE with the ability to veto certain merger or
consolidation transactions, based solely on the difficulty in
obtaining
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eighty percent (80%) share representation at the stockholder meeting
called to vote upon the proposed merger or consolidation. For the
1994, 1993 and 1992 annual meetings of NCBE 77.37%, 70.41%, and
73.09%, of the outstanding shares were represented in person or by
proxy at the respective annual meetings. Based upon the exchange rate
applicable to the Merger, assuming average of the maximum and minimum
NCBE shares issuable in the Merger, had the transaction been
consummated at December 31, 1994, the executive officers and directors
of NCBE and United as a group, would have the power to vote
approximately 10.79% of the outstanding shares of NCBE on a pro forma
basis.
Classified Board Provision
NCBE currently has in operation, a rotating election system for
electing its Board of Directors. All of the Directors of United are similarly
elected by their stockholders to serve three-year terms. NCBE directors are
elected to a designated class and shall serve until the expiration of the term
for which they are elected, and until their successors have been duly elected
and qualified. Each of the three (3) classes has a three (3) year term.
Advantages. The rotating system for Directors is applicable to
every election of NCBE directors rather than only to an election
involving an attempt to take over NCBE. As a result of this rotating
election provision for Directors, acquisition of control of NCBE's
Board of Directors will take two years, since only one-third of NCBE's
Board is elected each year to a three-year term.
Disadvantages. As a result of the rotating board system, it will be
more difficult for stockholders to change the majority of directors,
even when the reason for the change may be the performance of the
present directors.
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Authorized Shares
The availability of authorized and unissued shares for future issuance by NCBE
may be deemed to have an antitakeover effect. As of the date of this Proxy
Statement-Prospectus, NCBE had 10,000,000 authorized shares available for
future issuance. NCBE's Articles of Incorporation and Bylaws currently contain
no other provisions that were intended to be or could fairly be considered as
antitakeover in nature or effect. The authorized and unissued shares are
available for issuance free of stockholders' preemptive rights and thereby
could be issued into "friendly hands" to dilute the ownership of an individual
or corporation that has acquired shares of NCBE and intends to conduct an
acquisition of NCBE that is deemed to be undesirable by the Board of Directors
of NCBE. These provisions are not the result of management's knowledge of any
effort to obtain control of NCBE by any means. Further, the Board of Directors
has no intention to amend the Articles of Incorporation or Bylaws to add any
additional antitakeover provisions.
INFORMATION ABOUT NCBE
GENERAL
NCBE, through its affiliates, operates offices in Vanderburgh,
Warrick, Gibson, Spencer, Lawrence, Pike, and Daviess Counties in Indiana,
Webster and Union Counties in Kentucky, and White County in Illinois. NCBE is
a multi-bank holding company which, as of the date hereof, owned all the
outstanding common stock of The National City Bank of Evansville, Evansville,
Indiana ("National City Bank"); The Peoples National Bank of Grayville,
Grayville, Illinois ("Grayville"); The Farmers and Merchants Bank, Fort Branch,
Indiana ("Farmers"); First Kentucky Bank, Sturgis, Kentucky ("First");
Lincolnland Bank, Dale, Indiana ("Lincolnland"); The State Bank of Washington,
Washington, Indiana ("Washington"); The Spurgeon State Bank, Spurgeon, Indiana
("Spurgeon"); Pike County Bank, Petersburg, Indiana ("Pike County"); and The
Bank of Mitchell, Mitchell, Indiana ("Mitchell") (hereinafter sometimes
referred to collectively as the "NCBE Banks"). In addition NCBE operates a
non-banking subsidiary engaged in leasing activities, NCBE Leasing Corp.
National City Bank operates nine (9) branches in Indiana, First Kentucky Bank,
(hereinafter referred to as "First") operates a main office and branches in
Sturgis, Morganfield and Poole, Kentucky. Lincolnland Bank operates four (4)
branches in Spencer County, Indiana. Mitchell operates a main office and a
branch in Mitchell and Bedford, Indiana. Spurgeon operates a branch in Arthur,
Indiana. Washington operates a branch in Odon, Indiana. The remaining NCBE
Banks operate a main office location and no branch locations. At March 31,
1995, NCBE and its subsidiaries had consolidated total assets of approximately
$724 million, consolidated total deposits of approximately $608 million and
consolidated total equity of approximately $89 million.
NCBE, through its banking affiliates offers a broad range of banking
services to the commercial, industrial and consumer market segments which it
serves. Services include commercial, real estate and personal loans, checking,
savings and time deposits and other customer services such as safe deposit
facilities. NCBE does not have any foreign operations, assets or investments.
NCBE's lead bank, National City Bank was chartered as a national
banking association in 1922 under the name, The National City Bank of
Evansville. National City Bank is regulated by the Office of the Comptroller
of the Currency ("OCC") and its deposits are insured by the Federal Deposit
Insurance Corporation to the extent permitted by law and, as a subsidiary of
NCBE, is regulated by the Federal Reserve Board. Each of NCBE's other banking
affiliates is also subject to supervision and regulation by the Federal Reserve
Board as well as being subject to supervision and regulation, either by its
state regulatory agency responsible for state chartered banks or by the Office
of the Comptroller of the Currency for national banks. Farmers, First,
Lincolnland, Washington, Spurgeon, Pike County, and Mitchell are additionally
subject to supervision and regulation by the Federal Deposit Insurance
Corporation ("FDIC") as state nonmember banks.
THIS PROXY STATEMENT-PROSPECTUS, AS MAILED TO STOCKHOLDERS OF UNITED
IS ACCOMPANIED BY NCBE'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1994 (THE "NCBE 1994 ANNUAL REPORT"). ADDITIONAL INFORMATION
CONCERNING NCBE IS CONTAINED IN DOCUMENTS INCORPORATED IN THIS PROXY STATEMENT
BY
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REFERENCE. THESE DOCUMENTS, INCLUDING THE NCBE 1994 ANNUAL REPORT, ARE
AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO HAROLD A. MANN, NATIONAL CITY
BANCSHARES, INC., 227 MAIN STREET, P.O. BOX 868, EVANSVILLE, IN 47705-0868. IN
ORDER TO ASSURE TIMELY DELIVERY OF THESE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY _____________, 1995.
COMPETITION
The commercial banking and trust business in the market areas served
by the NCBE Banks is very competitive. NCBE and the NCBE Banks are all in
competition with commercial banks located in their own service areas. Some
competitors of NCBE and its banks are substantially larger than any one of the
NCBE Banks. In addition to local bank competition, the NCBE Banks compete with
larger commercial banks located in metropolitan areas, savings banks, savings
and loan associations, credit unions, finance companies and other financial
institutions for loans and deposits.
CERTAIN REGULATORY CONSIDERATIONS
The following is a summary of certain statutes and regulations
affecting NCBE and its subsidiaries. This summary is qualified in its entirety
by such statutes and regulations.
NCBE
NCBE is a registered bank holding company under the Bank Holding
Company Act as amended, ("BHC Act") and as such is subject to regulation by the
Federal Reserve Board. A bank holding company is required to file with the
Federal Reserve Board quarterly reports and other information regarding its
business operations and those of its subsidiaries. A bank holding company and
its subsidiary banks are also subject to examination by the Federal Reserve
Board.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before acquiring substantially all the
assets of any bank or bank holding company or ownership or control of any
voting shares of any bank or bank holding company, if, after such acquisition,
it would own or control, directly or indirectly, more than five percent (5%) of
the voting shares of such bank or bank holding company. Bank holding companies
are also prohibited from acquiring shares of any bank located outside the state
in which the operations of the bank holding company's banking subsidiaries are
principally conducted unless such an acquisition is specifically authorized by
a statute of the state in which the bank whose shares are to be acquired is
located. However, the BHC Act does not place territorial restrictions on the
activities of nonbank subsidiaries of a bank holding company.
In approving acquisitions by bank holding companies of companies
engaged in banking-related activities, the Federal Reserve Board considers
whether the performance of any such activity by a subsidiary of the holding
company reasonably can be expected to produce benefits to the public, such as
greater convenience, increased competition, or gains in efficiency, which
outweigh possible adverse effects, such as over concentration of resources,
decrease of competition, conflicts of interest, or unsound banking practices.
Bank holding companies are restricted in, and subject to, limitations
regarding transactions with subsidiaries and other affiliates.
In addition, bank holding companies and their subsidiaries are
prohibited from engaging in certain "tie in" arrangements in connection with
any extensions of credit, leases, sales of property, or furnishing of services.
NCBE Subsidiaries
NCBE operates two national banks, including National City Bank and
Grayville. As national banks these banks are supervised and regulated by the
OCC, and subject to laws and regulations applicable to national banks.
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In addition to its national bank subsidiaries, NCBE operates six (6)
Indiana state chartered banks (Farmers, Lincolnland, Washington, Spurgeon, Pike
and Mitchell) and a Kentucky state chartered bank (First). As state banks,
they are supervised and regulated by their state banking supervisor and the
FDIC as their primary federal banking regulatory agency.
Capital
The Federal Reserve Board, OCC, and FDIC require banks and holding
companies to maintain minimum capital ratios.
The Federal Reserve Board has adopted final "risk-adjusted" capital
guidelines for bank holding companies. The new guidelines became fully
implemented as of December 31, 1992. The OCC and FDIC have adopted
substantially similar risk-based capital guidelines. These ratios involve a
mathematical process of assigning various risk weights to different classes of
assets, then evaluating the sum of the risk-weighted balance sheet structure
against NCBE's capital base. The rules set the minimum guidelines for the
ratio of capital to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) at 8%. At least half of the
total capital is to be composed of common equity, retained earnings, and a
limited amount of perpetual preferred stock less certain goodwill items ("Tier
1 Capital"). The remainder may consist of a limited amount of subordinated
debt, other preferred stock, or a limited amount of loan loss reserves. At
December 31, NCBE's consolidated risk-adjusted Tier 1 Capital and total
capital, as defined by the regulatory agencies based on the fully phased in
1992 guidelines, were 17.1% and 17.8% of risk-weighted assets, respectively,
well above the 4% and 8% minimum standards mandated by the regulatory agencies.
In addition, the federal banking regulatory agencies have adopted
leverage capital guidelines for banks and bank holding companies. Under these
guidelines, banks and bank holding companies must maintain a minimum ratio of
three percent (3%) Tier 1 Capital (as defined for purposes of the year-end 1992
risk-based capital guidelines) to total assets. The Federal Reserve Board has
indicated, however, that banking organizations that are experiencing or
anticipating significant growth, are expected to maintain capital ratios well
in excess of the minimum levels. As of December 31, NCBE's core leverage ratio
was 11.8%, well above the regulatory minimum.
Regulatory authorities may increase such minimum requirements for all
banks and bank holding companies or for specified banks or bank holding
companies. Increases in the minimum required ratios could adversely affect
NCBE and the NCBE Banks, including their ability to pay dividends.
Additional Regulation
NCBE Banks are also subject to federal regulation as to such matters
as required reserves, limitation as to the nature and amount of its loans and
investments, regulatory approval of any merger or consolidation, issuance or
retirement of their own securities, limitations upon the payment of dividends
and other aspects of banking operations. In addition, the activities and
operations of NCBE Banks are subject to a number of additional detailed,
complex and sometimes overlapping laws and regulations. These include state
usury and consumer credit laws, state laws relating to fiduciaries, the Federal
Truth-in-Lending Act and Regulation Z, the Federal Equal Credit Opportunity Act
and Regulation B, the Fair Credit Reporting Act, the Truth in Savings Act, the
Community Reinvestment Act, anti-redlining legislation and antitrust laws.
Dividend Regulation
The ability of NCBE to obtain funds for the payment of dividends and
for other cash requirements is largely dependent on the amount of dividends
which may be declared by the NCBE Banks. Generally, NCBE Banks may not declare
a dividend, without the approval of the appropriate federal and state
regulatory agencies, if the total of dividends declared by such subsidiary bank
in a calendar year exceeds the total of its net profits for that year combined
with its retained profits of the preceding two years.
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Government Policies and Legislation
The policies of regulatory authorities, including the OCC, Federal
Reserve Board, FDIC and the Depository Institutions Deregulation Committee,
have had a significant effect on the operating results of commercial banks in
the past and are expected to do so in the future. An important function of the
Federal Reserve System is to regulate aggregate national credit and money
supply through such means as open market dealings in securities, establishment
of the discount rate on member bank borrowings, and changes in reserve
requirements against member bank deposits. Policies of these agencies may be
influenced by many factors, including inflation, unemployment, short-term and
long-term changes in the international trade balance and fiscal policies of the
United States government.
The United States Congress has periodically considered and adopted
legislation which has resulted in further deregulation of both banks and other
financial institutions, including mutual funds, securities brokerage firms and
investment banking firms. No assurance can be given as to whether any
additional legislation will be adopted or as to the effect such legislation
would have on the business of NCBE or the NCBE Banks.
In addition to the relaxation or elimination of geographic
restrictions on banks and bank holding companies, a number of regulatory and
legislative initiatives have the potential for eliminating many of the product
line barriers presently separating the services offered by commercial banks
from those offered by nonbanking institutions. For example, Congress recently
has considered legislation which would expand the scope of permissible business
activities for bank holding companies (and in some cases banks) to include
securities underwriting, insurance services and various real estate related
activities as well as allowing interstate branching.
Deposit Insurance
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted in 1991. Among other things, FDICIA, requires federal
bank regulatory authorities to take "prompt corrective action" with respect to
banks that 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 Federal Reserve Board, the OCC and the FDIC have adopted
regulations to implement the prompt corrective action provisions of FDICIA,
effective December 19, 1992. 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
(total capital to risk-weighted assets) of 10% or greater, a Tier 1 risk-based
capital ratio (Tier 1 Capital to risk-weighted assets) of 6% or greater, and a
Tier 1 leverage capital ratio (Tier 1 Capital to total assets) 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 of 4% or
greater, and (generally) a Tier 1 leverage capital ratio of 4% or greater, and
the institution does not meet the definition of a "well capitalized"
institution. 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.
If an "undercapitalized" bank fails to submit an acceptable plan, it is treated
as if it is significantly undercapitalized. "Significantly undercapitalized"
banks may be subject to a number of requirements and restrictions, including
orders to sell sufficient voting stock to become adequately capitalized,
requirements to reduce total assets, and cessation of receipt of deposits from
correspondent banks. "Critically undercapitalized" institutions may not,
beginning 60 days after becoming "critically undercapitalized," make any
payment of principal or interest on their subordinated debt.
NCBE and each of the NCBE Banks currently exceed the regulatory
definition of a "well capitalized" financial institution.
As an FDIC-insured institution, each of the NCBE Banks is required to
pay deposit insurance premium assessments to the FDIC. Pursuant to FDICIA, the
FDIC adopted a transitional risk-based assessment system,
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effective January 1, 1993, under which all insured depository institutions are
placed into one of nine categories and assessed insurance premiums, ranging
from .23% to .31% of deposits, based upon their level of capital and
supervisory evaluation. Institutions classified as well-capitalized (as
defined by the FDIC) and considered healthy pay the lowest premium while
institutions that are less than adequately capitalized (as defined by the FDIC)
and considered of substantial supervisory concern pay the highest premium. Risk
classification of all insured institutions is made by the FDIC for each
semiannual assessment period.
On June 17, 1993, the FDIC issued regulations establishing a permanent
risk-based assessment system. These regulations took effect October 1, 1993,
and were first used to determine assessments for the assessment period
commencing January 1, 1994. Although the FDIC previously requested comments on
whether the range of risk-based premiums should be expanded so that
institutions posing the least risk to the deposit insurance funds would pay
less than .23% of deposits and institutions posing the highest risk would pay
more than .31% of deposits, the FDIC did not change the premium range and the
permanent risk-based assessment system adopted by the FDIC is substantially the
same as the transitional system. During 1994, the NCBE Banks were assessed at
the rate of .23% of deposits under the transitional assessment system.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of NCBE is not aware of any activity or
condition that could result in termination of the deposit insurance of the NCBE
Banks.
Recent Legislation
On September 29, 1994, the Reigle/Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Act") was signed into law.
This Interstate Act effectively permits nationwide banking. The Interstate Act
provides that one year after enactment, adequately capitalized and adequately
managed bank holding companies may acquire banks in any state, even in those
jurisdictions that currently bar acquisitions by out-of-state institutions,
subject to deposit concentration limits. The deposit concentration limits
provide that regulatory approval by the Federal Reserve Board may not be
granted for a proposed interstate acquisition if after the acquisition, the
acquiror on a consolidated basis would control more than 10% of the total
deposits nationwide or would control more than 30% of deposits in the state
where the acquiring institution is located. The deposit concentration state
limit does not apply for initial acquisitions in a state and in every case, may
be waived by the state regulatory authority. Interstate acquisitions are
subject to compliance with the Community Reinvestment Act ("CRA"). States are
permitted to impose age requirements not to exceed five years on target banks
for interstate acquisitions. States are not allowed to opt-out of interstate
banking.
Branching between states may be accomplished either by merging
separate banks located in different states into one legal entity, or by
establishing de novo branches in another state. Consolidation of banks is not
permitted until June 1, 1997, provided that the state has not passed
legislation "opting-out" of interstate branching. If a state opts-out prior to
June 1, 1997, then banks located in that state may not participate in
interstate branching. A state may opt-in to interstate branching by bank
consolidation or by de novo branching by passing appropriate legislation
earlier than June 1, 1997. Interstate branching is also subject to a 30%
statewide deposit concentration limit on a consolidated basis, and a 10%
nationwide deposit concentration limit. The laws of the host state regarding
community reinvestment, fair lending, consumer protection (including usury
limits) and establishment of branches shall apply to the interstate branches.
De novo branching by an out-of-state bank is not permitted unless the
host state expressly permits de novo branching by banks from out-of-state. The
establishment of an initial de novo branch in a state is subject to the same
conditions as apply to initial acquisition of a bank in the host state other
than the deposit concentration limits.
56
<PAGE> 61
Effective one year after enactment, the Interstate Act permits bank
subsidiaries of a bank holding company to act as agents for affiliated
depository institutions in receiving deposits, renewing time deposits, closing
loans, servicing loans and receiving payments on loans and other obligations. A
bank acting as agent for an affiliate shall not be considered a branch of the
affiliate. Any agency relationship between affiliates must be on terms that are
consistent with safe and sound banking practices. The authority for an agency
relationship for receiving deposits includes the taking of deposits for an
existing account but is not meant to include the opening or origination of new
deposit accounts. Subject to certain conditions, insured savings associations
which were affiliated with banks as of June 1, 1994, may act as agents for such
banks. An affiliate bank or savings association may not conduct any activity as
an agent which such institution is prohibited from conducting as principal. If
an interstate bank decides to close a branch located in a low or
moderate-income area, it must comply with additional branch closing notice
requirements. The appropriate regulatory agency is authorized to consult with
community organizations to explore options to maintain banking services in the
affected community where the branch is to be closed.
To ensure that interstate branching does not result in taking deposits
without regard to a community's credit needs, the regulatory agencies are
directed to implement regulations prohibiting interstate branches from being
used as "deposit production offices." The regulations to implement its
provisions are due by June 1, 1997. The regulations must include a provision to
the effect that if loans made by an interstate branch are less than fifty
percent of the average of all depository institutions in the state, then the
regulator must review the loan portfolio of the branch. If the regulator
determines that the branch is not meeting the credit needs of the community, it
has the authority to close the branch and to prohibit the bank from opening new
branches in that state.
When the interstate banking provisions become effective in one year,
NCBE will have enhanced opportunities to acquire banks in any state subject to
approval by the appropriate federal and state regulatory agencies. When the
interstate branching provisions become effective in June 1997, NCBE will have
the opportunity to consolidate its affiliate banks to create one legal entity
with branches in more than one state should management decide to do so, or to
establish branches in different states, subject to any state opt-out
provisions. The agency authority permitting NCBE affiliate banks to act as
agents for each other in accepting deposits or servicing loans should make it
more convenient for customers of one NCBE bank to transact their banking
business at an NCBE affiliate in another state provided that operations are in
place to facilitate these out of state transactions.
On November 18, 1993, the FDIC, together with the Federal Reserve, the
OCC and the Office of Thrift Supervision (the "OTS"), published for comment
proposed rules implementing the FDICIA requirement that the federal banking
agencies establish operational and managerial standards to promote the safety
and soundness of federally insured depository institutions. The proposal would
establish standards for internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, and compensation, fees and benefits. In general, the standards set
forth in the proposal consist of the goals to be achieved in each area, and
each institution would be responsible for establishing its own procedures to
achieve those goals. Additionally, the proposal would establish a maximum
permissible ratio of classified assets to capital and a minimum required
earnings ratio. If an institution failed to comply with any of the standards
set forth in the proposal, the institution would be required to submit to its
primary federal regulator a plan for achieving and maintaining compliance.
Failure to submit an acceptable plan, or failure to comply with a plan that has
been accepted by the appropriate regulator, would constitute grounds for
further enforcement action. Based upon a review of the proposal, management of
the Bank believes that the proposal, if adopted in substantially the form
proposed, will not have a material adverse effect on the Bank
Proposed Legislation
Pursuant to FDICIA, on September 14, 1993, the FDIC, together with the
Federal Reserve and the Office of the Comptroller of the Currency (the "OCC"),
issued a joint proposal to amend their risk-based capital standards to take
into account interest rate risk ("IRR") exposure. The proposed rule would
generally require banks to quantify their level of IRR exposure using a
measurement system developed by the regulators that weights a bank's assets,
liabilities and off-balance sheet positions by risk factors designed to reflect
the approximate change in each instrument's value that would result from
specified changes in interest rates (a 200 basis point increase and decline in
rates under the proposal). Any bank with a level of IRR exposure in excess of a
specified threshold (1% of total
57
<PAGE> 62
assets under the proposal) would be required to maintain additional capital
against its IRR exposure. Although it is not presently possible to predict
whether, or in what form, the proposal will be adopted, assuming IRR capital
rules were to be adopted in substantially the form proposed, management of the
Bank does not anticipate that such rules would have a material adverse effect
on the Bank's ability to maintain compliance with applicable capital
requirements.
On December 21, 1993, the FDIC, together with the Federal Reserve, the
OCC and the OTS issued proposed new regulations under the Community
Reinvestment Act ("CRA"). Under the proposal, an institution's performance in
meeting the credit needs of its entire community, including low and moderate
income areas, as required by the CRA, would generally be evaluated under three
tests: the "lending test," which would consider the extent to which the
institution makes loans in the low and moderateincome areas of its market; the
"service test," which would consider the extent to which the institution makes
branches accessible to low and moderate income areas of its market and provides
other services that promote credit availability; and the "investment test,"
which would consider the extent to which the institution invests in community
and economic development activities. Based upon a review of the proposal,
management of the Bank does not anticipate that the proposal, if adopted
substantially as proposed, would adversely affect the Bank.
In addition to the above, there have been proposed a number of
legislative and regulatory proposals designed to strengthen the federal deposit
insurance system and to improve the overall financial stability of the U.S.
banking system. It is impossible to predict whether or in what form these
proposals may be adopted in the future, and if adopted, what their effect would
be on NCBE.
PRINCIPAL HOLDER OF NCBE COMMON STOCK
The following table sets forth information concerning the number of
shares of NCBE Common Stock held as of February 28, 1995, by each stockholder
who is known to NCBE management to have been the beneficial owners of more than
five percent of the outstanding shares of NCBE Common Stock as of that date:
<TABLE>
<CAPTION>
Name and Address of Shares Beneficially Percent
Beneficial Owner(1) Owned(2) of Class(3)
- -------------------- ---------------------- -----------
<S> <C> <C>
Mr. Edgar Mulzer 219,338 6.00%
401 10th Street
Tell City, IN 47586
</TABLE>
58
<PAGE> 63
INFORMATION ABOUT UNITED
GENERAL
United is a Delaware general business corporation and a registered
thrift holding company with its main office located in Vincennes, Indiana.
United Bank is a federal savings bank and a wholly owned subsidiary of United.
United Bank operates its main office at 619 Main Street, Vincennes, Indiana, a
single branch office located at 1390 West Broadway, Princeton, Indiana and a
mortgage loan origination office at 4847 East Virginia, Suite D, Evansville,
Indiana.
The principal business of United Bank consists of attracting retail
deposits from the general public and investing those funds primarily in one to
four family residential mortgage loans, consumer loans, and, to a lesser
extent, commercial real estate, construction and commercial business loans
primarily in its market area. United Bank also purchases mortgage-backed
securities and loan participations, and invests in U.S. Government and agency
obligations and other permissible investments.
United Bank's revenues are derived primarily from interest on mortgage
loans, mortgage-backed securities, investments and consumer loans, gains on
sales of mortgage loans, income from service charges and loan originations,
loan servicing fee income and income from the sale of mutual funds, insurance
products, annuities and discount brokerage services through its service
corporation subsidiary.
PROPERTIES
United owns no real or personal property of a material nature other
than its main office, branch location, the furniture, fixtures and equipment
used in its banking business and certain real property located at 102 N. 3rd
Street, Vincennes, Indiana, which loaction was formerly a branch office of
United Bank. The main office of United is located at 619 Main Street,
Vincennes, Indiana and its branch office is located at Princeton, Indiana.
United owns the land and buildings on which its main office and branch office
are located, free and clear of any major encumbrances.
LITIGATION
There is no pending litigation of a material nature in which United is
a party or to which any of its property is subject. Further, there is no
material legal proceeding in which any director, executive officer, principal
stockholder or affiliate of United, or any associate of any such director,
executive officer, principal stockholder or affiliate, is a party or has a
material interest adverse to United. None of the ordinary routine litigation
in which United is involved is expected to have a material adverse effect on
the financial condition, results of operations or business of United.
VOTING, PRINCIPAL STOCKHOLDERS AND MANAGEMENT INFORMATION
Holders of record of United Common Stock at the close of business on
____________1995, will be entitled to vote at the special meeting of
stockholders on ________, and any adjournment of that meeting. As of ______,
there were 459,361 shares of United Common Stock issued and outstanding. Each
share of United Common Stock is entitled to one vote on each matter presented
for stockholder action.
The following table sets forth information concerning the number of
shares of United Common Stock held as of _________, by each stockholder who is
known to United management to have been the beneficial owners of more than five
percent of the outstanding shares of United Common Stock as of that date:
59
<PAGE> 64
<TABLE>
<CAPTION>
Shares Beneficially
owned at Percent
Beneficial Owners May __, 1995 of Class
----------------- ------------ --------
<S> <C> <C>
SoGen International Fund, Inc. 25,000(3) 5.60%
Societe Generale Touche Remnant Corporation
50 Rockefeller Plaza
New York, New York 10020
</TABLE>
(1) As reported by First Save Associates, L.P. ("First Save"),
Second First Save Associates, L.P. ("Second First Save") and First Manhattan
Co. in a statement dated September 10, 1992 on Schedule 13D under the
Securities Exchange Act of 1934. First Save reported sole voting and
investment power as to 25,000 shares. Second First Save reported sole voting
and investment power as to 16,500 shares. First Manhattan Co., the General
Partner of First Save and Second First Save, was a party to the Schedule 13D
but did not report the ownership of any shares.
(2) As reported by John Hancock Mutual Life Insurance Company
("JHMLICO"), John Hancock Subsidiaries, Inc. ("JHSI"), The Berkley Financial
Group, John Hancock Advisors, Inc. ("JHA") and John Hancock Freedom Regional
Bank Fund ("FRB") in a statement dated February 3, 1994 on Schedule 13G under
the Securities Exchange Act of 1934. JHA is the investment advisor to FRB and,
as such, reported sole voting and dispositive power as to all of the shares
owned by FRB. The principal business offices of JHMLICO and JHSI are located
at John Hancock Place, P.O. Box 111, Boston, Massachusetts 02117.
(3) As reported by SoGen International Funds, Inc. ("SoGen") and its
investment advisor, Societe Generale Touche Remnant Corporation ("Societe") in
a statement dated February 12, 1993 on Schedule 13G under the Securities
Exchange Act of 1934. SoGen and Societe reported shared voting and investment
power as to all of the shares owned by them.
The following table shows certain information concerning the number of
shares of United Common Stock held as of __________, by each director of United
and by all of United's directors and executive officers as a group:
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially owned at Percent
Name May __, 1995(1) of Class
---- --------------- --------
<S> <C> <C>
John H. Harrison 3,479 0.76%
Ralph J. Jacqmain, M.D. 12,504 2.72
Robert E. Vincent 7,729 1.68
</TABLE>
60
<PAGE> 65
<TABLE>
<S> <C> <C>
Janice L. Beesley 18,365 4.00
George D. Gardner 7,504 1.63
John H. Bobe 12,479 2.72
Horace A. Foncannon, Jr. 5,768 1.26
Joseph M. Vieck 7,479 1.63
All officers and directors (14 persons) as a group 90,470(2) 19.69%
</TABLE>
(1) Includes shares held directly, as well as shares subject to
options granted and vested under the Stock Option Plan, shares allocated and
votable under the Company's Management and Recognition and Retention Plan
("MRP") and shares held by family members, with respect to which shares the
listed individuals or group members may be deemed to have sole voting and
investment powers.
(2) This amount includes shares held directly as well 2,070 votable
shares which have been allocated to individual officer accounts but which have
not vested pursuant to the MRP, and shares held in retirement accounts, in a
fiduciary capacity or by certain family members, with respect to which shares
the respective directors and officers may be deemed to have sole voting and
investment power.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors and executive officers of United and their associates are
customers of and have had transactions with United from time to time in the
ordinary course of business. Such transactions have been made on substantially
the same terms, including interest rates and collateral on loans, as those
prevailing at the time for comparable transactions with other persons and did
not and will not involve more than the normal risk of collectibility or present
other unfavorable features. Similar transactions may be expected to take place
in the ordinary course of business in the future.
COMPETITION
The principal markets in which United competes is Knox and Gibson
Counties, Indiana. For deposits and loans United competes with other banks,
savings institutions, credit unions, finance companies, factoring companies,
insurance companies, governmental agencies and other financial institutions.
EMPLOYEES
At March 31, 1995, United had 47 full time equivalent employees.
United is not a party to any collective bargaining agreement and employee
relations are considered to be excellent by United management.
UNITED'S FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
United Common Stock is registered under the provisions of section 12g
of the Exchange Act. As such United files reports containing financial and
other information with the Commission. Annually, United files an Annual Report
on Form 10-KSB and quarterly United files a Quarterly Report on Form 10-QSB
with the Commission containing certain required financial statements and other
financial information as well as a discussion regarding such information
prepared by management. Contained in this Proxy Statement-Prospectus beginning
at page F-1 is United's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1994 and Quarterly Report on Form 10-QSB as of and for the nine months
ended March 31, 1995.
61
<PAGE> 66
OTHER AVAILABLE INFORMATION
In addition to the financial information referred to above, United
files other information with the Commission as required by section 12g of the
Exchange Act and the Rules of the Commission promulgated thereunder. Copies of
any information filed by United with the Commission is available upon request
by any stockholder made to Ms. Janice L. Beesley, President, United Financial
Bancorp, Inc., 619 Main Street, Vincennes, Indiana 47591 (812) 882-9310, or
may be inspected and copied at the public reference facilities of the
Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at Room 1400, 75 Park Place, New
York, New York 10007, and at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can also
be obtained from the public reference section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
LEGAL OPINIONS
Certain legal matters in connection with the Merger will be passed
upon for NCBE by Werner & Blank Co., L.P.A., Toledo, Ohio and Statham, Johnson
and McCray, Evansville, Indiana and for United by Silver, Freedman & Taff,
L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements of NCBE as of December 31, 1994
and 1993 and for each of the three years in the period ended December 31, 1994
incorporated in this Proxy Statement-Prospectus by reference from NCBE Annual
Report on Form 10-K have been audited by McGladrey & Pullen, LLP or Gaither,
Koewler, Rohlfer, Luckett & Co. (now known as Gaither Rutherford & Co., LLP
"Gaither"), independent auditors, as stated in their reports which are
incorporated herein by reference, and have been so incorporated in reliance
upon reports of such firms given upon their authority as experts in accounting
and auditing. Gaither was dismissed as NCBE's auditors on March 23, 1993.
The Board of Directors of NCBE engaged McGladrey & Pullen as NCBE's auditors as
of such date. There were no disagreements between NCBE and its former
accountants with regards to any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
The consolidated financial statements of United as of June 30, 1994
and 1993, and for each of the three years in the periods then ended, included in
this Proxy Statement-Prospectus have been audited by Crowe, Chizek & Company
independent auditors, as stated in their report which is contained herein
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in NCBE's proxy materials for
the NCBE 1996 Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the main office of NCBE, 227 Main
Street, P.O. Box 868, Evansville, Indiana 47705-0868, no later than November
23, 1995. Any such proposals shall be subject to the requirements of the proxy
rules adopted under the Securities Exchange Act of 1934, as amended.
United will hold a 1995 Annual Meeting of Stockholders only if the
Merger is not consummated before the time of such meeting, which is presently
expected to be held in October 1995. In such event, any stockholder who wishes
to present a proposal for inclusion in the proxy materials for the 1995 Annual
Meeting of Stockholders must comply with the rules and regulations of the SEC
then in effect. As disclosed in United's proxy statement for its 1994 Annual
Meeting of Stockholders, any such proposal must have been received by United
not later than May 19, 1995.
62
<PAGE> 67
TABLE OF CONTENTS
[PHOTO]
Highlights....................... 1
People........................... 7
Discussion....................... 11
Independent Auditor's Report..... 25
MCMXCIV
_____________
ANNUAL REPORT F-1
<PAGE> 68
CHAIRMAN'S LETTER
At our two-year anniversary as a public company, we reviewed the journey we
have taken over the last five years, and the milestones along the way. Our
decision to change the form of ownership of this lending institution and create
a holding company came after painstaking efforts to prepare the business for
our new owners.
Then came record levels of mortgage refinances, new mortgage banking activity,
the expansion of mortgage markets, and the acquisition of an insurance agency
to enlarge subsidiary markets. We completed a stock repurchase plan, and
continued to pay dividends in each of the fiscal quarters.
We are proud of this company's condition -- how we have carefully shaped it
and managed it before, during and now in the aftermath of delivering this
company and its results to its shareholders. The financial services industry
requires flexibility and vision to navigate efficiently and effectively. It
is our earnest endeavor to carefully steer that course to preserve the
condition of your company, and to provide an acceptable return on your
investment.
Sincerely,
Horace A. Foncannon, Jr.
Horace A. Foncannon, Jr.
Chairman of the Board
HIGHLIGHTS
__________
2 F-2
<PAGE> 69
PRESIDENT'S LETTER
It is our pleasure to provide you United Financial Bancorp's second annual
report. Our efforts this year resulted in net income of $740,000 or $1.65 per
share. A required change in the method of accounting for income taxes
resulted in an $80,000 ($.18 per share) positive adjustment to income.
Although a decline from last year, 1994's earnings were at their second
highest level in five years.
The Company's most significant accomplishments this year were the expansion of
our mortgage origination operations to the Evansville, Indiana market, an
integral part of our strategic plan to geographically broaden our lending
reach; and the acquisition of the Rose Insurance Agency in Princeton, Indiana
in March, 1994, supporting our growth objectives for the Bank's financial
services subsidiary, UniFed Inc. These carefully planned expansions were
essential reinvestments that are intended to improve the future earnings
potential of the Bancorp.
The most significant challenge facing the Bancorp during 1994 arose from the
changing interest rate environment, and resulted in a revision of certain
asset/liability management strategies. Gains realized on the sale of long-term
fixed rate mortgage loans, particularly during the first half of the year,
positively affected non-interest income. However, the continued mortgage loan
refinancing activity resulted in lower yields on the Bank's mortgage loan
portfolio and a modest decline in average loans outstanding. In response to
the rising interest rate conditions that developed in the latter half of the
year, management elected to retain certain longer
(continued)
HIGHLIGHTS
__________
3 F-3
<PAGE> 70
PRESIDENT'S LETTER
term fixed rate mortgage loans in its portfolio. Management believes
this decision will result not only in improved yields from the Bank's loan
portfolio, but in an increase in average loans as well, which should result in
higher levels of interest income in the future.
United Financial Bancorp stock began the year selling at $16.50 per share and
closed at $19.25 per share on June 30, 1994, a notable increase for only our
second year as a public company. In December, 1993, United Financial Bancorp
completed a stock repurchase program which resulted in an increase in the
equity per share of outstanding stock. Additionally, United Financial Bancorp
paid its sixth consecutive quarterly dividend to our shareholders, and a
seventh was declared after the end of the fiscal year. The repurchase program,
coupled with the dividend payments, illustrates our continued efforts to
support and enhance the value of United Financial Bancorp stock for our
shareholders.
In looking forward, low interest rate strategies have now given way to rising
interest rate strategies as we focus on increasing our net interest margin to
enhance earnings while closely monitoring the Bank's interest rate risk and
credit risk positions. Paralleling these efforts is the increased attention
given to expense control as another means of improving earnings. The
announcement of the consolidation of our operations in Vincennes during the
second quarter of fiscal 1995, confirms our intention to improve efficiencies
without sacrificing quality service to our customers.
(continued)
HIGHLIGHTS
__________
4 F-4
<PAGE> 71
PRESIDENT'S LETTER
Strategies focusing on the non-interest sensitive sectors of our business
gained heightened attention and resources during fiscal 1994, and we plan to
continue these efforts during 1995. We believe that supportive financial
services such as insurance and investments will be an integral part of banking
in the future.
Management has embraced the challenges of a changing banking culture and stands
ready with the velopmental resources to enhance our product offerings to
compete effectively in a more diversified banking environment.
Our priorities have not changed. We continue to focus on delivering efficient
and personal services to our customers, while enhancing the value of our
company to our shareholders. Customer and shareholder satisfaction are our
most fundamental objectives.
We thank you for your continued support of United Financial Bancorp.
Sincerely,
Janice L. Beesley
Janice L. Beesley
President & CEO
HIGHLIGHTS
__________
5 F-5
<PAGE> 72
SELECTED CONSOLIDATED FINANCIAL INFORMATION
For the years ended June 30
<TABLE>
<CAPTION>
SELECTED FINANCIAL CONDITION DATA: 1990 1991 1992 1993 1994
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets ............................................... $ 119,932 $ 116,715 $ 112,113 $ 116,498 $ 112,846
Loans receivable and loans held for sale, net .............. 78,698 78,047 68,380 59,358 62,688
Mortgage-backed securities ................................. 6,666 7,140 12,252 15,382 9,930
Investment securities ...................................... 12,456 12,714 9,924 14,677 17,655
Deposits ................................................... 107,830 105,554 99,756 97,368 93,641
Total borrowings............................................ 5,109 3,974 4,859 6,613 6,514
Shareholders' equity ....................................... 6,013 6,260 6,675 11,614 11,827
Book value per share (in dollars) .......................... $ N/A $ N/A $ N/A $ 25.25 $ 26.89
<CAPTION>
SELECTED OPERATIONS DATA: 1990 1991 1992 1993 1994
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total interest income ...................................... $ 11,536 $ 11,121 $ 9,842 $ 8,393 $ 7,436
Total interest expense ..................................... 9,078 8,379 6,807 5,255 4,540
--------- --------- --------- --------- ---------
Net interest income ........................................ 2,458 2,742 3,035 3,138 2,896
Provision for loan losses .................................. 68 265 135 39 39
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses ........ 2,390 2,477 2,900 3,099 2,857
Service charges and fees ................................... 70 84 128 114 135
Gain (loss) on sale of investments ......................... 29 52 51 15 -
Other non-interest income .................................. 309 265 311 574 669
--------- --------- --------- --------- ---------
Total non-interest income .................................. 408 401 490 703 804
Total non-interest expense ................................. 2,324 2,397 2,541 2,492 2,556
--------- --------- --------- --------- ---------
Income before income taxes and cumulative effect
of change in accounting method ........................... 474 481 849 1,310 1,105
Income tax expense ......................................... 164 234 433 464 445
--------- --------- --------- --------- ---------
Income before cumulative effect of accounting change ....... 310 247 416 846 660
Cumulative effect of accounting change ..................... - - - - 80
--------- --------- --------- --------- ---------
Net income ................................................. $ 310 $ 247 $ 416 $ 846 $ 740
========= ========= ========= ========= =========
Earnings per common share ..................................
Income before effect of accounting change .................. N/A N/A N/A $ 1.84 $ 1.47
Effect of accounting change ................................ - - - - 0.18
--------- --------- --------- --------- ---------
Net income ................................................. N/A N/A N/A $ 1.84 $ 1.65
========= ========= ========= ========= =========
<CAPTION>
OTHER DATA: 1990 1991 1992 1993 1994
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Return on average assets ................................... 0.26% 0.21% 0.36% 0.74% 0.64%
Return on average equity ................................... 5.28 4.09 6.46 8.21 6.29
Average equity-to-assets ratio ............................. 4.84 5.07 5.60 8.87 10.21
Interest rate spread information:
Average during period .................................... 1.99 2.22 2.54 2.39 2.20
Net interest margin (1) .................................... 2.12 2.40 2.74 2.77 2.58
Average interest-earning assets to average
interest-bearing liabilities ............................. 101.66 102.48 103.18 108.21 109.51
Non-performing assets to total assets at
end of period (2) ........................................ 1.35 0.71 0.50 0.21 0.17
Net charge-offs to average total loans ..................... 0.08 0.10 0.05 0.14 0.07
Allowance for loan losses to total loans, net .............. 0.20 0.44 0.64 0.65 0.61
Average interest-earning assets to average total assets .... 95.65 96.09 96.49 97.53 97.40
Non-interest expense to average assets ..................... 1.92 2.01 2.22 2.15 2.22
Number of full service offices ............................. 3 3 3 3 3
</TABLE>
(1) Net income divided by average interest-earning assets.
(2) Non-performing assets, as presented above, include non-accrual loans, loans
contractually past due more than ninety days and real estate owned.
HIGHLIGHTS
__________
6 F-6
<PAGE> 73
PEOPLE
F-7
<PAGE> 74
BOARD OF DIRECTORS
UNITED FINANCIAL BANCORP, INC.
[PHOTO]
RALPH J. JACQMAIN
M.D., Physician
GEORGE D. GARDNER
President of Dexter Gardner & Son, Inc.
JOHN H. BOBE
President of McCormick, Inc.
JANICE L. BEESLEY
President & CEO
JOSEPH M. VIECK
President of Chris Vieck Farms, Inc.
JOHN H. HARRRISON
President of Harrison Associates, Inc.
ROBERT E. VINCENT
Secretary of I-V Coaches, Inc.
HORACE A. FONCANNON, JR.
Chairman of the Board
PEOPLE
__________
8 F-8
<PAGE> 75
DIRECTORS EMERTIUS
UNITED FEDERAL SAVINGS BANK
[PHOTO]
WALTER L. MADDEN
Retired President of E. Bierhaus & Sons
GERALD J. MINDERMAN
Retired Postmaster
M. JUNE CURRY
Retired Officer of the Bank
[not pictured]
ALBERT ROSENBERG
President of Alberts
[not pictured]
PEOPLE
__________
9 F-9
<PAGE> 76
EXECUTIVE OFFICERS
UNITED FEDERAL SAVINGS BANK
[PHOTO]
ANN M. DILLON
Vice President
WILLIAM TERRY ALLEN
Controller
CATHERINE M. MYERS
Vice President
JAMES L. BEESLEY
President & CEO
PATRICK W. LENAHAN
Vice President
& Assistant Secretary
G. JEFFREY PALMER
Vice President
& Assistant Secretary
PEOPLE
__________
10 F-10
<PAGE> 77
DISCUSSION
F-11
<PAGE> 78
MANAGEMENT'S DISCUSSION
[PHOTO]
United Financial Bancorp, Inc. holding company for United Federal Savings Bank,
recorded net income of $740,000 for the year ended June 30, 1994, a 12.5%
decline from the same period in 1993 when net income was $846,000, but a 77.9%
increase over the year ended June 30, 1992 when net income was $416,000.
Earnings per share for the year ended June 30, 1994 were $1.65, compared to
$1.84 for the year ended June 30, 1993. (Earnings per share were not
applicable prior to the conversion to a stock form of organization in
September, 1992.) Net income for 1994 included an $80,000 ($.18 per share)
non-recurring benefit which resulted from the Company's adoption of a new
method of accounting for income taxes, and net income for 1993 included a
$35,000 tax refund attributable to a capital loss carryback related to the
liquidation of another asset.
On December 21, 1993, United Financial Bancorp completed a stock repurchase
program during which five percent (5%) of the Company's outstanding shares were
purchased at a total cost of $463,000. The repurchased shares became treasury
shares to be used primarily for the issuance of shares in connection with the
exercise of stock options. At its completion, the repurchase program reduced
the number of outstanding shares from 460,000 to 437,000.
In addition, United Financial Bancorp paid dividends of $.075 per share on July
30, 1993, October 29, 1993, January 28, 1994, and April 29, 1994. At June 30,
1994, United Financial Bancorp had paid six consecutive dividends, and a
seventh was declared following the end of the fourth quarter payable on July
29, 1994.
Earnings for the year ended June 30, 1994 were impacted primarily by a
reduction in net interest income. Through the first six months of the fiscal
year, interest rates reached their lowest levels in 20 years. Deposits
continued to reprice at lower levels, reducing the Bank's cost of funds.
Concurrently, mortgage refinancing activity continued at a record pace. In
accordance with the Bank's strategies for interest rate risk management, long
term mortgage loans were sold in the secondary market, to minimize the future
effects of a mortgage loan portfolio heavily concentrated in long term, low
interest rate loans. The sale of long term mortgage loans resulted in lower
interest income, but positively impacted other income as the Bank recognized
increased revenues from the gains on loan sales.
During the second six months of the year ended June 30, 1994, mortgage interest
rates climbed by as much as 30%, and refinancing activity declined
significantly. Mortgage loan volume declined, but interest rates reached levels
that resulted in management's careful review and revision of the Bank's
strategy. The Bank continued to sell long term fixed rate mortgages in the
secondary market, but determined that all adjustable mortgages, balloon
mortgages and fixed rate mortgages with terms of 15
DISCUSSION
__________
12 F-12
<PAGE> 79
MANAGEMENT'S DISCUSSION
years or less would be retained in the Bank's portfolio. Management's
willingness to strategically reposition quickly in response to changing
economic and interest rate conditions contributes to the Bank's overall ability
to generate and improve earnings, as well as to compete effectively.
A continuation of the Bank's efforts to maintain low levels of non-performing
loans resulted in substantially the same provision for loan losses for
the year ended June 30, 1994 as in the prior year. Additionally, expenses
incurred for real estate owned as the result of foreclosures were notably
reduced for the year ended June 30, 1994 from the prior year.
The Bank's financial services subsidiary, UniFed, Inc., continued to positively
impact the Bank's income during the year ended June 30, 1994. UniFed's
annuities and securities divisions took advantage of an overall low interest
rate environment, as alternative investments were more aggressively pursued
by customers looking for higher returns. The property and casualty division
experienced a decline in annual premium volume due to the withdrawal from its
marketing area of one of its major insuring companies, but growth in the agency
force in the last half of the fiscal year significantly increased new premium
volume to somewhat offset the volume decline. Property and casualty premium
volume growth is expected to continue as a result of the addition of
experienced agency staff.
The Bank also moved to expand UniFed's geographic markets during the year by
acquiring an insurance agency located in Gibson County in March, 1994. Agency
development, in terms of personnel, product base, and market are the key
elements of the Bank's plan to improve UniFed's contribution to net income.
As part of the ongoing effort to reduce operational expenses, the Bank
announced on July 15, 1994 that the Third & Busseron Streets office in downtown
Vincennes would be closed in mid-October, 1994, completing a long range plan of
consolidation of operations in Vincennes. Concurrently, the Bank is expanding
drive-through facilities at both the 7th & Main Streets office and the
Princeton office to better accommodate customer traffic. The Bank continues to
evaluate ways to provide more efficient service delivery.
United Financial Bancorp's assets at June 30, 1994 were $112,846,000, a decline
of $3,652,000 from June 30, 1993. The decline in assets was due in large part
to savings deposit outflow which occurred as a result of historically low
interest rates, and the Bank's pricing strategies within this framework.
The Bank's tangible capital at June 30, 1994 was $10,682,000 or 9.56% of
assets, substantially exceeding the federal requirement of 1.50%. Core capital
at June 30, 1994 was also $10,682,000, or 9.56% of assets, exceeding the
federal requirement of 3.00%. Risk-based capital was $11,056,000, or 20.38% of
assets, more than twice the federal requirement of 8.00%.
As management develops strategies and tactics for the future, three primary
objectives will be served: (1) improving net income, (2) improving net
interest margin, and (3) the further development of the financial services
subsidiary to produce future non-interest sensitive earnings. Additionally,
the Bank will continue to emphasize the aggressive management of delinquent
loans, maintaining low levels of non-performing loans.
The principal asset of United Financial Bancorp, Inc. is the outstanding stock
of the Bank, its wholly owned subsidiary. The scope of the activities of
United Financial Bancorp has heretofore consisted primarily of the activities
of the Bank and its subsidiary, UniFed, Inc.
DISCUSSION
__________
13 F-13
<PAGE> 80
NET INTEREST INCOME
Net interest income is the primary component of the Bancorp's net earnings. It
is the result of the difference between the average yield earned on loans,
mortgage-backed securities and investments, and the average rate paid on
deposits and borrowings. It is further impacted by the relative amounts of
these assets and liabilities.
Interest income declined by 11.4% to $7,436,000 for the year ended June 30,
1994, from $8,393,000 for the year ended June 30, 1993, and $9,842,000 for the
year ended June 30, 1992. A major component of the decline was the
repositioning of assets to maintain the necessary liquidity to fund record loan
volume, resulting from mortgage purchase and refinance activity. Assets were
placed in shorter-term, lower-yielding investments to provide for maximum
flexibility and accessibility in responding to loan demand.
During the first three quarters of the year ended June 30, 1994, substantially
all newly originated and refinanced fixed-rate mortgages with terms of ten
years and longer were sold in the secondary market. The Bank's objective was to
minimize the interest rate risk associated with long term loans held in the
Bank's portfolio. The immediate earnings impact was the profit from the sale of
mortgage loans, and the income generated by the reinvestment of the proceeds
from those sales. The longer term impact is reflected in a reduction in the
yield of the mortgage loan portfolio.
Additionally, the Bank's mortgage-backed securities portfolio also experienced
the effect of increased mortgage refinancing activity. The Bank received
$5,463,000 from mortgage-backed security paydowns during the year, resulting in
a decline in interest income from mortgage-backed securities.
The Bank employed three primary strategies to offset the decline in interest
income: (l) the managed growth of the consumer loan portfolio, (2) the managed
growth of the commercial loan portfolio, and (3) the revision of the Bank's
mortgage banking policy in the last fiscal quarter, to retain certain
fixed-rate mortgage loans with terms up to 15 years.
Concentrated focus was given to identifying and securing consumer and
commercial loan opportunities that met the Bank's income objectives while
controlling credit risk. The result was an increase in the total consumer loan
portfolio to $8.9 million at June 30, 1994, from $7.8 million at June 30, 1993,
and $5.3 million at June 30, 1992. The commercial loan portfolio grew to $2.1
million from $400,000 at the same time last year. The Bank will continue its
efforts to positively impact interest income through the carefully managed
growth of the consumer and commercial loan portfolios.
In April, 1994, the Bank completed an extensive reevaluation of its interest
rate risk management strategies with regard to the retention of mortgage loans
in the Bank's loan portfolio. In light of the general rise in interest rate
levels, the Bank determined that retaining in its loan portfolio all adjustable
rate mortgages, balloon mortgages, and fixed-rate mortgages with terms of 15
years and less, would positively impact interest income, without impacting
interest rate risk beyond acceptable limits. Previously, fixed rate loans with
terms of 10 years and less were retained. During the year ended June 30, 1994,
the Bank originated total mortgage loans of $47,958,000, of which $34,348,000
were sold in the secondary market. This compares with $30,968,000 originated in
1993, of which $22,234,000 were sold. At June 30, 1994, mortgage loans
receivable were $49.5 million, up from June 30, 1993 when mortgage loans
receivable were $49.3 million, but down from June 30, 1992 when mortgage loans
receivable were $61.7 million. Growth in the portfolio in 1994 was concentrated
in the last quarter of the fiscal year.
Interest expense for the year ended June 30,
DISCUSSION
__________
14 F-14
<PAGE> 81
NET INTEREST INCOME
1994 declined from the same period last year as deposits matured and repriced
at lower interest rates. The Bank's asset/liability management strategies
produced a deposit pricing framework that maintained a competitive posture in
the markets served, but the overall low interest rate environment continued to
impact savings deposits, which declined during the year. Interest expense
declined by 13.6% to $4,541,000 for the year ended June 30, 1994, from
$5,255,000 for the year ended June 30, 1993, and $6,807,000 for the year ended
June 30, 1992. Management anticipates that the Bank will not experience the
same decline in interest expense in the future as has occurred over the past
three years. Efforts to develop and improve deposit product offerings to
attract and maintain sources of low cost funds, will serve to minimize the
potential impact of rising interest rate trends.
The result of the factors influencing interest income and expense was a decline
in net interest income of 7.7% to $2,896,000 for the year ended June 30, 1994,
from $3,138,000 in 1993, and $3,035,000 in 1992. The Bancorp's net
interest margin, net interest income divided by average interest-earning
assets, declined to 2.58% for the year ended June 30, 1994, from 2.77% for
1993, and 2.74% for 1992.
Although net interest income declined modestly during 1994, after a nominal
increase between 1992 and 1993, management believes that the strategies of
focusing lending efforts on higher yielding commercial and consumer loans,
and also retaining mortgage loans with slightly longer terms, and consequently
higher rates, will increase interest income in the future.
The following table presents for the periods indicated the total dollar amount
of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. The table does not reflect
any tax equivalent adjustments. Average balances for the year ended June 30,
1992 are monthly average balances. Average balances for the years ended June
30, 1993 and 1994 are daily average balances.
For the year ended June 30:
<TABLE>
<CAPTION>
1992 1993
---------------------------------- ---------------------------------
AVERAGE INTEREST AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD OUTSTANDING EARNED/ YIELD
BALANCE PAID RATE BALANCE PAID RATE
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable .......................... $ 74,514 $ 7,411 9.95% $ 64,057 $ 5,864 9.15%
Mortgage-backed and related securities..... 10,101 797 7.89 14,692 986 6.71
Certificates of deposit.................... 8,164 504 6.17 10,739 463 4.31
Investment and other securities
Short term money market.................. 7,278 317 4.36 9,008 262 2.91
Taxable.................................. 10,112 780 7.71 14,418 801 5.56
Nontaxable............................... 497 33 6.64 327 17 5.20
-------- ------- ----- -------- ------- ------
Total interest-earning assets.............. 110,666 9,842 8.89 113,241 8,393 7.41
-------- ------- ----- -------- ------- ------
Interest-Bearing Liabilities:
Savings deposits........................... 20,032 890 4.44 23,139 715 3.09
Time deposits.............................. 82,200 5,598 6.81 76,209 4,205 5.52
FHLB advances.............................. 1,905 151 7.93 3,000 237 7.90
Repurchase agreements & other borrowings... 3,117 168 5.39 2,301 98 4.26
-------- ------- ----- -------- ------- ------
Total interest-bearing liabilities....... 107,254 6,807 6.35 104,649 5,255 5.02
-------- ------- ----- -------- ------- ------
Net interest income; interest rate spread.... $ 3,035 2.54% $ 3,138 2.39%
======= ===== ======= ======
Net earning assets/net yield on average
interest-earning assets...................... $ 3,412 2.74% $ 8,592 2.77%
======== ===== ======== ======
Average interest-earning assets to
average interest-bearing liabilities......... 103.18% 108.21%
======== ========
<CAPTION>
1994
----------------------------------
AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD
BALANCE PAID RATE
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-Earning Assets:
Loans receivable .......................... $ 61,251 $ 5,098 8.32%
Mortgage-backed and related securities..... 13,030 819 6.29
Certificates of deposit.................... 11,942 479 4.01
Investment and other securities
Short term money market................. 9,696 295 3.04
Taxable................................. 15,709 726 4.62
Nontaxable.............................. 496 19 3.83
-------- ------- -----
Total interest-earning assets............. 112,124 7,436 6.63
-------- ------- -----
Interest-Bearing Liabilities:
Savings deposits.......................... 25,376 650 2.56
Time deposits............................. 70,416 3,490 4.96
FHLB advances............................. 3,000 238 7.93
Repurchase agreements & other borrowings.. 3,599 162 4.50
-------- ------- -----
Total interest-bearing liabilities...... 102,391 4,540 4.43
-------- ------- -----
Net interest income; interest rate spread... $ 2,896 2.20%
======= =====
Net earning assets/net yield on average
interest-earning assets.................... $ 9,733 2.58%
======== =====
Average interest-earning assets to
average interest-bearing liabilities....... 109.51%
========
</TABLE>
DISCUSSION
__________
15 F-15
<PAGE> 82
NET INTEREST INCOME
The following schedule presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the change related to
changes in outstanding balances and those due to changes in interest rates. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in volume (i.e.,
changes in volume multiplied by old rate) and (2) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume which cannot be segregated have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
1992 VS. 1993 1993 VS. 1994
For the year ended June 30: ------------------------------------ ----------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
VOLUME RATE TOTAL VOLUME RATE TOTAL
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable........................$ (987) $ (560) $ (1,547) $ (249) $ (517) $ (766)
Mortgage-backed and related securities.. 322 (133) 189 (107) (60) (167)
Certificates of deposit................. 134 (175) (41) 50 (34) 16
Investment and other securities
Short term money market.......... 65 (120) (55) 21 12 33
Taxable.......................... 276 (255) 21 68 (143) (75)
Nontaxable....................... (10) (6) (16) 7 (5) 2
---------- ---------- ---------- --------- ---------- ----------
Total interest-earning assets.........$ (200) $(1,249) (1,449) $ (210) $ (747) (957)
========== ========== ---------- ========= ========== ----------
Interest-Bearing Liabilities:
Savings deposits........................$ 124 $ (299) (175) $ 65 $ (130) (65)
Time deposits........................... (387) (1,006) (1,393) (307) (408) (715)
FHLB advances........................... 87 (1) 86 0 1 1
Repurchase agreements and
other borrowings...................... (39) (31) (70) 58 6 64
---------- ---------- ---------- --------- ---------- ----------
Total interest-bearing liabilities............$ (215) $(1,337) (1,552) $ (184) $ (531) (715)
========== ========== ---------- ========= ========== ----------
Net interest income................................................... $ 103 $ (242)
========== ==========
</TABLE>
The following table presents the weighted average yields on loans, investments
and other interest-earning assets; the weighted average rates paid on savings
deposits and borrowings; and the resultant interest rate spread at June 30,
1994.
<TABLE>
<S> <C>
Weighted average yield on:
Loans receivable.................................................. 7.97%
Mortgage-backed securities........................................ 6.56
Investment securities and other interest-earning assets........... 4.72
Combined weighted average yield on interest-earning assets........ 6.77
Weighted average rate paid on:
Savings deposits and NOW accounts................................. 2.55
Time deposits..................................................... 4.89
Total............................................................. 4.25
Borrowings........................................................ 6.17
Other interest-bearing liabilities................................ -
Combined weighted average rate paid on interest-bearing
liabilities..................................................... 4.38
Spread............................................................ 2.39%
</TABLE>
DISCUSSION
----------
16 F-16
<PAGE> 83
ASSET QUALITY
The Bank achieved record low levels of non-performing loans at June
30, 1993, and worked successfully during the year ended June 30, 1994 to
maintain the same posture. Total non-performing loans at June 30, 1994 were
$33,000, or .05% of total loans. There were no non-performing consumer,
commercial, or construction loans at June 30, 1994.
The following table illustrates the notable reduction of non-performing loans
over the last five years.
<TABLE>
<CAPTION>
As of June 30:
1990 1991 1992 1993 1994
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family........... $ 630 $ 182 $ 212 $ 1 $ 33
Commercial real estate........ - - - - -
Construction.................. - - - - -
Consumer...................... 142 61 16 3 -
Commercial business........... - - - - -
------ ------- ------- ------ -------
Total...................... 772 243 228 4 33
------ ------- ------- ------ -------
Accruing loans delinquent 90 days
or more:
One- to four-family........... - - - - -
Commercial real estate........ - - - - -
Construction.................. - - - - -
Consumer...................... - 8 10 14 -
Commercial business........... - - - - -
------ ------- ------- ------ -------
Total...................... - 8 10 14 -
------ ------- ------- ------ -------
Total non-performing loans.... $ 772 $ 251 $ 238 $ 18 $ 33
====== ======= ======= ====== =======
Non-performing loans as:
A percentage of
total loans............... 0.98% 0.32% 0.35% 0.03% 0.05%
====== ======= ======= ====== =======
A percentage of total assets.. 0.64% 0.22% 0.21% 0.02% 0.03%
====== ======= ======= ====== =======
</TABLE>
The Bank works carefully to manage asset quality as one of its means of
moderating the provision for loan losses. As a result of the Bank's continued
emphasis on asset quality, the Bank's provision for loan losses for the year
ended June 30, 1994, was unchanged from last year. Net charge-offs for
the year ended June 30, 1994 were $45,000, down $43,000 from the year ended
June 30, 1993 when net charge-offs were $88,000. The Bank's total allowance for
loan losses at June 30, 1994 was $385,000, or .61% of total loans, and
represented 1167% of non-performing loans. The following table provides a
summary of the Bank's allowance for loan loss activity for the past five years.
DISCUSSION
----------
17 F-17
<PAGE> 84
ASSET QUALITY
<TABLE>
<CAPTION>
As of June 30: 1990 1991 1992 1993 1994
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period....... $ 158 $ 158 $ 343 $ 440 $ 391
Charge-offs:
One- to four-family............... 64 56 19 81 24
Commercial real estate............ - - - - -
Construction...................... - - - - -
Consumer.......................... 4 14 37 14 29
Commercial business............... - 10 - - -
------ ------- ------- ------- -------
68 80 56 95 53
------ ------- ------- ------- -------
Recoveries:
Consumer.......................... - - 4 - 4
One- to four-family............... - - 14 7 4
------ ------- ------- ------- ------
- - 18 7 8
------ ------- ------- ------- -------
Net charge-offs...................... 68 80 38 88 45
Additions charged to operations...... 68 265 135 39 39
------ ------- ------- ------- -------
Balance at end of period............ $ 158 $ 343 $ 440 $ 391 $ 385
====== ======= ======= ========= ========
Ratio of net charge-offs during
the period to average loans
outstanding during the period....... 0.08% 0.10% 0.05% 0.14% 0.07%
====== ======= ======= ========= ========
Allowance for loan losses to total
loans at end of period.............. 0.20% 0.44% 0.64% 0.65% 0.61%
====== ======= ======= ========= ========
Allowance for loan losses to
non-performing loans at end
of period........................... 20.53% 136.67% 184.71% 2,172.36% 1,166.67%
====== ======= ======= ========= ========
</TABLE>
The Bank continues to evaluate regularly the adequacy of loan loss allowances
in relation to the quality and type of its loans. As the composition of the
Bank's loan portfolio changes, focused attention is given to maintaining the
adequacy of loan loss allowances based on the risk associated with different
types of loan activity.
Asset quality is also reflected in the amount of the Bank's Real Estate Owned
('REO'). The Bank was successful in reducing its REO by 29% during 1994, to
$164,000 at June 30, 1994, from $232,000 at June 30, 1993, and $322,000 at June
30, 1992.
REAL ESTATE OWNED
<TABLE>
<CAPTION>
As of June 30: 1992 1993 1994
<S> <C> <C> <C>
Acquired through foreclosure...... $ 271,000 $ 19,000 $ 28,000
In judgement...................... 20,000 202,000 47,000
In process of foreclosure......... 31,000 11,000 89,000
---------- ---------- ----------
$ 322,000 $ 232,000 $ 164,000
========== ========== ==========
</TABLE>
DISCUSSION
----------
18 F-18
<PAGE> 85
OTHER INCOME
For the year ended June 30, 1994, non-interest income grew 14.4%, to $804,000
from $703,000 in 1993, which was a $213,000 (43.5%) increase from 1992. Growth
was predominantly driven by increased mortgage banking revenues. Profits from
the sale of mortgage loans during the year ended June 30, 1994, were
concentrated primarily in the first nine months of the fiscal year when
mortgage interest rates reached their lowest level in 20 years and refinancing
activity was at its peak. The Bank's loan servicing portfolio grew from $30.1
million at June 30, 1993, to $53.0 million for the year ended June 30, 1994. As
the Bank changed its asset/liability management strategy in response to rising
interest rates, and as a general decline in mortgage loan volume occurred
because of rising interest rates, proceeds from loan sales began to decline as
fewer mortgage loans were delivered to the secondary market. It continues to be
management's strategy to sell fixed rate mortgage loans with terms in excess of
15 years, and to retain the servicing of those loans, providing a future stream
of non-interest income. Expansion of the Bank's geographic markets during the
1994 fiscal year will be a vital element in providing mortgage origination
volume to serve both non-interest income and interest income objectives.
Subsidiary activities generated commission income of $220,000 for the year
ended June 30, 1994, a 7.1 % decline from last year's $237,000, but a 22.3%
increase from the year ended June 30, 1992. UniFed, Inc. is the Bank's wholly
owned financial services subsidiary, offering investment and insurance products
such as annuities, mutual funds and a discount brokerage service, as well as
personal and commercial lines of property and casualty insurance. In 1993,
UniFed was notified that one of its main insuring companies was discontinuing
their personal lines property and casualty business in UniFed's geographic
territory. A portion of UniFed's property and casualty business was cancelled,
as it consisted of mono-line automobile insurance, for which the agency could
not provide insuring alternatives. The decline in commission income was the
result of this occurrence.
Management views UniFed as a valuable source of non-interest sensitive income.
Because of its strategic importance, the Bank expanded subsidiary activities
during the year ended June 30, 1994, by acquiring an insurance agency in the
Gibson County market. Continued agent development in both Knox and Gibson
Counties is the critical element in recognizing the full earnings potential of
UniFed, and will be the focus of management's attention and resources going
forward.
DISCUSSION
__________
19 F-19
<PAGE> 86
EXPENSES
OTHER EXPENSES
Non-interest expense for the year ended June 30, 1994, increased 2.6% to
$2,556,000 from $2,492,000 for 1993, but was only $15,000 (.6%) higher than in
1992. Salaries and employee benefits were up 4.2% for the year, due primarily
to staff expansion, as the Bank established a mortgage origination office in
the Evansville market, and acquired the insurance agency in Gibson County.
Deposit insurance expenses were higher for the year ended June 30, 1994 over
1993, but down from 1992 due to a decrease in the Bank's deposit base. Deposit
insurance expenses for the year ended June 30, 1993, were positively impacted
by a non-recurring FDIC premium credit related to the secondary reserve
previously maintained with the former FSLIC.
As part of its ongoing efforts to control operational expenses, the Bank will
complete its long-range plan of consolidation of its two Vincennes offices
during the second quarter of the 1995 fiscal year. Management anticipates an
annual cost savings of $50,000 to $75,000, and the eventual sale of the
building will convert a non-earning asset into an income-producing asset.
INCOME TAXES
The cumulative effect of the Bank's adoption of a required change in accounting
methods for income taxes resulted in an $80,000 positive adjustment to 1994
income. Income tax expense was $446,000 for the year ended June 30, 1994, down
from the prior year when income tax expense was $464,000. Tax expense for the
year ended June 30, 1993, was reduced by a $35,000 tax refund attributable to a
capital loss carryback related to the liquidation of another asset.
DISCUSSION
__________
20 F-20
<PAGE> 87
ASSET LIABILITY MANAGEMENT
The Bank's asset/liability management strategy is designed to control interest
rate risk, minimizing the Bank's exposure to fluctuations in interest rates. It
is a dynamic strategy that is reviewed monthly and actively managed to be
responsive to changes in the economic climate.
The Office of Thrift Supervision provides a Net Portfolio Value ("NPV")
approach to the quantification of interest rate risk which the Bank utilizes,
to some extent, in its development of asset/liability management strategies.
This method calculates the difference between the present value of expected
cash flows from assets and the present value of expected cash flows from
liabilities, as well as, cash flows from off-balance sheet contracts.
The Bank also utilizes interest rate "gap" analysis in its evaluation of
interest rate risk. Interest rate "gap" is the difference between the amount of
interest-earning assets and the amount of interest-bearing liabilities that
will be available to reprice within a given period of time. Analysis of
interest rate gap provides a measurement of interest rate risk, or the extent
to which changes in interest rates will affect the Bank's net interest income.
The Federal Home Loan Bank (FHLB) of Indianapolis provides the Bank interest
rate sensitivity gap information on a quarterly basis which the Bank utilizes
in its evaluation and management efforts. Information provided by the FHLB is
not the sole basis of strategies devised nor decisions made with regard to
managing interest rate risk. The interest rate sensitivity gap information is
generally provided by the FHLB 90 to 180 days following the end of the quarter
for which the information was developed. Information provided herein is for the
quarter ended March 31, 1994, because it is the most recent available from the
FHLB.
At March 31, 1994, total interest-bearing liabilities repricing within one year
exceeded total interest-earning assets repricing in the same period by
$19,675,000, which represented a negative cumulative one-year gap ratio of
17.25%.
The following table sets forth the anticipated repricing or maturity of the
Bank's assets and liabilities as of March 31, 1994, based on these significant
assumptions:
- - Fixed-rate certificate accounts will not be withdrawn prior to
maturity.
- - Passbook accounts and money market deposit accounts are assumed to be
withdrawn immediately.
- - Adjustable rate mortgage loans on one- to four-family residential
properties, and all other mortgage loans on non-one- to four- family
residential properties, are assumed to repay at a rate of 15.00% per
year and the amortized balances are shown as being due in the period
during which the interest rates are next subject to change.
- - Fixed-rate one- to four-family loans with terms to maturity of five
years or less are assumed to prepay at a rate of 8.60% per year;
loans with remaining terms to maturity of over five years will prepay
annually as follows:
<TABLE>
<CAPTION>
MORTGAGE LOAN PREPAYMENT
INTEREST RATE ASSUMPTIONS
<S> <C>
Less than 8%.................... 8.60%
8% to 8.99% .................... 9.40%
9% to 9.99% .................... 15.40%
10% to 10.99% .................. 24.20%
11% or higher .................. 36.00%
</TABLE>
(The prepayment rates are based on the prepayment assumptions published by the
FHLB of Indianapolis as of March 31, 1994)
The effect of these assumptions is to quantify the dollar amount of items that
are interest-sensitive and can be repriced within
DISCUSSION
__________
21 F-21
<PAGE> 88
ASSET LIABILITY MANAGEMENT
each of the periods indicated. Such repricing can occur in one of three ways:
(l) the rate of interest to be paid on an asset or liability may adjust
periodically on the basis of an index; (2) an asset or liability such as
mortgage loans may amortize, permitting reinvestment of cash flows at the
then-prevailing interest rates; or (3) an asset or liability may mature,
at which time the proceeds can be reinvested at current market rates. The table
does not necessarily indicate the impact of general interest rate movements on
the Bank's net interest yield because the repricing of certain assets and
liabilities is subject to competitive and other pressures beyond the Bank's
control. Consequently, certain assets and liabilities identified as maturing or
otherwise repricing within a stated period may mature or reprice at different
times and at different volumes.
Certain shortcomings are inherent in the method of analysis presented. For
example, although certain assets and liabilities may have similar maturities or
periods to reprice in, they may react in different degrees to changes in market
interest rates. 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. Certain assets, such as
adjustable rate mortgage loans, have features which restrict changes in
interest rates on a short term basis and over the life of the asset. In the
event of a change in interest rates, prepayment and early withdrawal levels
would likely deviate significantly from those assumed in calculating the table.
Finally, the ability of many borrowers to service their debt may decrease in
the event of an interest rate increase.
The following table sets forth the interest rate sensitivity of the Bank's
assets and liabilities and certain associated weighted average yields and costs
at March, 31, 1994 on the basis of the factors and assumptions set forth
herein.
MATURING OR REPRICING
<TABLE>
<CAPTION>
TOTAL
0-3 4-12 WITHIN OVER 1-3 OVER 3-5 OVER 5
MONTHS MONTHS ONE YEAR YEARS YEARS YEARS TOTAL
AMOUNT AMOUNT AMOUNT RATE AMOUNT AMOUNT AMOUNT AMOUNT
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate loans......................... $ 956 $ 3,968 $ 4,924 7.23% $ 8,639 $ 5,391 $24,446 $ 43,400
Adjustable rate loans.................... 2,199 14,393 16,592 7.45 1,392 21 175 18,180
Investments.............................. 12,774 13,695 26,469 4.68 19,815 1,891 - 48,175
-------- -------- -------- ----- -------- -------- ------- --------
Total interest-earning assets........ 15,929 32,056 47,985 5.90 29,846 7,303 24,621 109,755
-------- -------- -------- ----- -------- -------- ------- --------
INTEREST-BEARING LIABILITIES
Savings deposits and NOW accounts........ 26,500 - 26,500 2.52 - - - 26,500
Time deposits............................ 13,739 26,738 40,477 3.97 18,573 - 10,498 69,548
-------- -------- -------- ----- -------- ------- ------- ---------
Total deposits........................ 40,239 26,738 66,977 3.40 18,573 - 10,498 96,048
-------- -------- -------- ----- -------- ------- ------- ---------
FHLB advances............................ - - - - 1,000 - 2,000 3,000
Other borrowings......................... 683 - 683 4.06 2,922 - - 3,605
-------- -------- -------- ----- -------- ------- ------- ---------
Total interest-bearing liabilities.... 40,922 26,738 67,660 3.40 22,495 - 12,498 102,653
-------- -------- -------- ----- -------- ------- ------- ---------
Interest-earning assets less
interest-bearing liabilities............ $(24,993) $ 5,318 $(19,675) 2.50% $ 7,351 $ 7,303 $12,123 $ 7,102
======== ======== ======== ===== ======== ======= ======= =========
Difference as a percent of
interest-earning assets................. (156.90)% 16.59% (41.00)% 24.63% 100.00% 49.24% 6.47%
======== ======== ======== ======== ======= ======= =========
Cumulative interest rate
sensitivity gap......................... $(24,993) $(19,675) $(19,675) $(12,324) $(5,021) $7,102
======== ======== ======== ======== ======= =======
Cumulative interest rate sensitivity
gap as a percent of total assets at
March 31, 1994.......................... (21.91)% (17.25)% (17.25)% (10.80)% (4.40)% 6.23%
======== ======== ======== ======== ======= =======
</TABLE>
DISCUSSION
----------
22 F-22
<PAGE> 89
LIQUIDITY AND CAPITAL RESOURCES
United Financial Bancorp's primary source of funds is dividends from the Bank.
The Bank's primary sources of funds include deposits, the payment of loan
principal and interest (including mortgage-backed securities), sales of
mortgage loans and, to a lesser extent, advances from the Federal Home Loan
Bank of Indianapolis, and the sale or maturation of investment securities.
While maturing investments are predictable, deposit flows and loan payments are
influenced by interest rates, general economic conditions, and competition,
making them less predictable. The Bank has established a pricing framework that
is consistent with its asset/liability objectives, and also sensitive to local
market conditions. When necessary, the Bank may supplement deposits with less
expensive alternative sources of funds.
Federal regulations require the Bank to maintain a minimum level of liquid
assets. The current requirement is 5% of net withdrawable deposit accounts and
borrowings payable in one year or less. Liquid assets, for purposes of
this ratio, include cash, certain time deposits, U.S. government and certain
corporate securities and other obligations generally having maturities of less
than five years. The Bank has historically maintained its liquidity ratio at
levels in excess of those required. At June 30, 1994, the Bank's liquid assets
totaled $22.4 million, resulting in a liquidity ratio of 24.0%. As the Bank
continues to retain certain mortgage loans in its portfolio, liquidity could be
adversely impacted. The Bank will be focusing on the growth of retail deposits
with terms of two to four years to meet future liquidity needs.
The primary investing activities of the Bank are the origination of loans and
the purchase of mortgage backed investments and investment securities. During
the year ended June 30, 1994, the Bank originated $57 million of new loans.
This compares to $39 million in loan originations in 1993, and $18 million
in 1992. Unlike the last three years, originations were not offset entirely by
loan sales and loan payments and prepayments. Net loans increased to $61.6
million for the year ended June 30, 1994, from $58.2 million in 1993. Purchases
of investment securities and mortgage backed investments totaled $7.7 million
for the year ended June 30, 1994, as compared to $18.1 million in the prior
year.
The primary financing activities of the Bank include customer deposit and
repurchase agreement transactions. Financing activities utilized a net total of
approximately $4.4 million during the year ended June 30, 1994. This compares
to approximately $4 million provided during the same period in 1993, which
included the issuance of common stock, and approximately $5 million utilized
during 1992, which included a $2 million borrowing from the Federal Home Loan
Bank of Indianapolis.
Certificates of deposit scheduled to mature in one year or less at June 30,
1994 totaled $40.7 million. Management believes that a significant portion of
such deposits will remain with the Bank.
The Bank's capital currently consists of $4,600 in common stock, $4.2 million
in additional paid-in capital, and $8.1 million in retained earnings. At June
30, 1994, the Bank had tangible and core capital ratios of 9.56%, which were
8.06% and 6.56% in excess of their respective requirements. The Bank also had a
risk based capital ratio of 20.38%. which exceeded the 8.00% requirement by
12.38%
DISCUSSION
__________
23 F-23
<PAGE> 90
EFFECT OF NEW ACCOUNTING STANDARDS
In May, 1993, the FASB issued FAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities. "FAS No. 115 becomes effective for fiscal years
beginning after December 15, 1993, and addresses the accounting and reporting
for investments in equity securities that have readily determinable fair
values, and for all investments in debt securities. Debt securities that the
enterprise has the positive intent and ability to hold to maturity are
classified as held-to-maturity securities and reported at amortized cost. Debt
and equity securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities and reported
at fair value, with unrealized gains and losses included in earnings. Debt and
equity securities that are classified as neither held-to-maturity securities or
trading securities, are classified as available-for-sale securities and
reported at fair value, with unrealized gains and losses excluded from earnings
and reported in a separate component of shareholders' equity. Management
intends to implement FAS No. 115 during the first quarter of the 1995 fiscal
year, and its adoption is expected to have no materially adverse effect on its
consolidated financial statements.
In May, 1993, the FASB issued Statement 114, "Accounting by Creditors for
Impairment of a Loan. "Statement 114 becomes effective for fiscal years
beginning after December 15, 1994, with earlier adoption allowed, and requires
that an impaired loan be measured based on the present value of expected future
cash flows discounted at the effective interest rate of the loan. A loan is
considered impaired when it is probable that a creditor will be unable to
collect all interest and principal payments as scheduled in the loan agreement.
Increases in the present value of the expected future cash flows from period to
period that are attributable to the passage of time are reported as interest
income accrued on the loan. United has not determined the impact of the rule on
its consolidated financial statements, but does not believe it will have a
materially adverse effect.
DISCUSSION
__________
24 F-24
<PAGE> 91
FINANCIALS
F-25
<PAGE> 92
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated statements of financial condition
of United Financial Bancorp, Inc. as of June 30, 1993 and 1994 and the related
consolidated statements of operations, cash flows and changes in shareholders'
equity for each of the three years in the period ended June 30, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial condition of United Financial
Bancorp, Inc. as of June 30, 1993 and 1994, and the results of its operations
and its cash flows for each of the three years in the period ended June 30,
1994 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes during the year ended
June 30, 1994.
Crowe, Chizek & Company
Crowe, Chizek & Company
Indianapolis, Indiana
August 5, 1994
FINANCIALS
__________
26 F-26
<PAGE> 93
UNITED FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1993 and 1994
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
ASSETS
Cash and due from banks ............................................................. $ 1,200,326 $ 1,258,889
Short-term money market investments ................................................. 9,906,324 5,222,147
------------ ------------
Cash and cash equivalents (Note 1) ................................................ 11,106,650 6,481,036
Interest bearing time deposits with financial institutions .......................... 12,172,000 12,331,000
Investment securities (market value of $15,127,144 and $17,361,901) (Note 2) ........ 14,677,233 17,553,899
Mortgage-backed securities (market value of $14,693,577 and $8,933,575) (Note 3)..... 14,391,264 8,939,502
Securities held for sale (Note 1) ................................................... 990,474 1,090,981
Loans held for sale (Note 1) ........................................................ 1,205,111 1,045,742
Loans receivable - net (Notes 4, 5 and 10) .......................................... 58,152,822 61,641,980
Office properties and equipment - net (Notes 1 and 6) ............................... 1,569,759 1,498,071
Federal Home Loan Bank stock, at cost ............................................... 780,900 780,900
Accrued interest receivable (Note 7) ................................................ 749,219 672,360
Real estate owned (Note 8) .......................................................... 232,088 163,783
Other assets ........................................................................ 470,179 646,323
------------ ------------
$116,497,699 $112,845,577
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits (Note 9) ................................................................ 97,368,309 93,641,426
Advances from Federal Home Loan Bank (Note 10) ................................... 3,000,000 3,000,000
Repurchase agreements (Note 11) .................................................. 3,613,056 3,514,430
Accrued interest payable ......................................................... 163,574 172,398
Advances from borrowers for taxes and insurance .................................. 247,363 233,857
Accrued income taxes ............................................................. 13,330 22,260
Deferred income taxes (Note 13) .................................................. 65,042 969
Other liabilities ................................................................ 412,946 433,153
------------- -------------
Total liabilities ............................................................. 104,883,620 101,018,493
Commitments and contingent liabilities (Note 16)
Shareholders' equity (Note 1)
Preferred stock ($.01 par value - 500,000 shares authorized; and 0 issued)...... - -
Common stock ($.01 par value - 2,000,000 shares authorized and 460,000 shares
issued) ....................................................................... 4,600 4,600
Additional paid-in capital....................................................... 4,225,372 4,196,779
Retained earnings - substantially restricted (Note 12) .......................... 7,451,959 8,056,830
Shares held in the treasury, 0 and 20,183 shares, at cost ....................... - (406,687)
Shares held by management retention plan (Note 14) .............................. (67,852) (24,438)
------------ ------------
Total shareholders' equity ................................................... 11,614,079 11,827,084
------------ ------------
$116,497,699 $112,845,577
============ ============
</TABLE>
See accompanying notes to the financial statements.
FINANCIALS
__________
27 F-27
<PAGE> 94
UNITED FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ................................................. $ 7,410,842 $ 5,863,885 $ 5,097,856
Interest on short-term money market investments ............................ 316,572 262,462 295,438
Interest on interest-bearing time deposits with financial institutions...... 504,131 463,515 479,001
Interest on mortgage-backed securities ..................................... 796,973 986,260 819,489
Interest and dividends on investments
Taxable ................................................................. 779,989 800,526 725,656
Non taxable ............................................................. 33,415 17,056 18,916
------------ ------------- ------------
9,841,922 8,393,704 7,436,356
INTEREST EXPENSE
Interest on deposits (Note 9) .............................................. 6,487,972 4,920,351 4,140,543
Interest on repurchase agreements and other borrowed money ................. 168,018 98,511 162,212
Interest on Federal Home Loan Bank advances ................................ 151,174 236,525 237,800
------------- ------------- -------------
6,807,164 5,255,387 4,540,555
------------- ------------- -------------
NET INTEREST INCOME .......................................................... 3,034,758 3,138,317 2,895,801
Provision for loan losses (Note 5) ........................................... 134,868 39,583 39,127
------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES .......................... 2,899,890 3,098,734 2,856,674
OTHER INCOME
Service charges and fees ................................................... 128,321 114,033 134,879
Mortgage banking revenues .................................................. 116,069 302,639 403,799
Insurance product commissions .............................................. 180,292 237,343 220,442
Net gain on sale of investments (Notes 1 and 2) ............................ 50,911 14,624 -
Other income ............................................................... 13,970 34,445 45,333
------------- ------------- -------------
489,563 703,084 804,453
OTHER EXPENSES
Salaries and employee benefits (Note 14) ................................... 970,006 1,087,406 1,132,710
Occupancy and equipment expense (net) ...................................... 312,421 287,626 281,327
Computer service expense ................................................... 189,611 211,833 203,961
Deposit insurance assessment ............................................... 260,471 212,095 257,230
Net expense of other real estate ........................................... 70,469 65,485 6,624
Loss on other asset ........................................................ 198,000 - -
Other operating expenses ................................................... 539,716 627,495 674,072
------------- ------------- -------------
2,540,694 2,491,940 2,555,924
------------- ------------- -------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING METHOD ...................................................... 848,759 1,309,878 1,105,203
Income tax expense (Note 13) ................................................ (433,193) (464,201) (445,567)
------------- ------------- -------------
Income before cumulative effect of change in accounting method .............. 415,566 845,677 659,636
Cumulative effect of changing to a different method of
accounting for income taxes (Note 1) ...................................... - - 80,000
------------- ------------- -------------
NET INCOME .................................................................. $ 415,566 $ 845,677 $ 739,636
============= ============= =============
Per share data (Note 15)
Income before cumulative effect of change in accounting method ............ $ N/A $ 1.84 $ 1.47
Cumulative effect of change in accounting method ......................... N/A - 0.18
------------- ------------- -------------
Net income ............................................................. $ N/A $ 1.84 $ 1.65
============= ============= =============
</TABLE>
FINANCIALS
__________
28 F-28
<PAGE> 95
UNITED FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
NET
UNREALIZED
LOSS ON SHARES HELD SHARES HELD BY
ADDITIONAL MARKETABLE IN THE MANAGEMENT
COMMON PAID-IN RETAINED EQUITY TREASURY RETENTION
STOCK CAPITAL EARNINGS SECURITIES AT COST PLAN TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1991....... $ - $ - $ 6,259,716 $ (18,107) $ - $ - $ 6,241,609
Net income.................... - - 415,566 - - - 415,566
Change in valuation allowance
for marketable
equity securities............ - - - 18,107 - - 18,107
-------- ---------- ----------- ---------- --------- -------- ------------
Balance at June 30, 1992 - - 6,675,282 - - - 6,675,282
Issuance of common stock
(Note 1)................... 4,600 4,225,372 - - - - 4,229,972
Formation of Management
Recognition and Retention
Plan (Note 14)............... - - - - - (131,100) (131,100)
Amortization expense.......... - - - - - 63,248 63,248
Net income.................... - - 845,677 - - - 845,677
Cash dividends
paid ($.15/share)............ - - (69,000) - - - (69,000)
-------- ---------- ----------- ---------- --------- -------- ------------
Balance at June 30, 1993...... 4,600 4,225,372 7,451,959 - - (67,852) 11,614,079
Repurchase of 23,000 shares... - - - - (463,450) - (463,450)
Issuance of 2,817
shares (Note 14)............. - (28,593) - - 56,763 - 28,170
Amortization expense.......... - - - - - 43,414 43,414
Net income.................... - - 739,636 - - - 739,636
Cash dividends paid
($.30/share)................. - - (134,765) - - - (134,765)
-------- ---------- ----------- ---------- --------- -------- ------------
Balance at June 30, 1994...... $ 4,600 $4,196,779 $ 8,056,830 $ - $(406,687) $(24,438) $ 11,827,084
======== ========== =========== ========== ========= ======== ============
</TABLE>
See accompanying notes to the financial statements.
FINANCIALS
----------
29 F-29
<PAGE> 96
UNITED FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
1992 1993 1994
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income............................................. $ 415,566 $ 845,677 $ 739,636
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization........................ 188,656 214,456 175,534
Net amortization on investments...................... 33,389 144,949 104,341
Sale of security held for sale....................... - 2,410,000 -
Gain on sale of investments.......................... (50,911) (14,624) -
Provision for loan losses............................ 134,868 39,583 39,127
Loss on other asset.................................. 198,000 - -
Gain on sale of loans................................ (51,464) (234,879) (286,097)
Loans originated for sale, net of sales proceeds..... (155,581) (328,059) 445,466
Deferred loan fees................................... (41,176) (39,308) 12,838
Net (gain) loss on sale of other real estate owned... 8,031 (2,222) (24,320)
Change in assets and liabilities
Accrued interest receivable........................ 89,963 17,616 76,859
Other assets....................................... (164,650) (245,715) (176,144)
Accrued interest payable........................... (121,155) (17,076) 8,824
Other liabilities.................................. 19,848 104,675 (34,936)
------------- -------------- --------------
Net cash from operating activities............... 503,384 2,895,073 1,081,128
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of investment securities...... 5,874,640 - -
Purchase of investment securities.................... (7,130,964) (12,399,904) (7,742,775)
Proceeds from maturities of investment securities.... 4,025,000 5,340,000 4,650,000
Purchase of mortgage-backed securities............... (7,932,451) (5,695,894) -
Proceeds from the sale of mortgage-backed securities. 1,390,412 - -
Proceeds from maturities of mortgage-backed
securities......................................... 1,486,779 2,332,736 5,463,023
Net change in interest-bearing time deposits
with financial institutions........................ 1,714,990 (3,952,820) (159,000)
Change in net loans receivable....................... 9,949,085 9,536,361 (3,560,461)
Purchase of property and equipment................... (14,417) (31,488) (60,432)
Proceeds from sale of real estate owned.............. 83,235 140,486 111,963
------------- -------------- --------------
Net cash from investing activities................. 9,446,309 (4,730,523) (1,297,682)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits............................... (5,797,917) (2,387,522) (3,726,883)
Additional borrowings from Federal Home Loan Bank.... 2,000,000 - -
Net change in repurchase agreements.................. (1,115,296) 1,754,280 (98,626)
Net change in advances from borrowers for
taxes and insurance................................. (20,849) (8,583) (13,506)
Dividends paid....................................... - (69,000) (134,765)
Net proceeds from sale of common stock............... - 4,229,972 -
Repurchase of common stock........................... - - (463,450)
Proceeds from exercise of stock options.............. - - 28,170
------------- -------------- --------------
Net cash from financing activities................. (4,934,062) 3,519,147 (4,409,060)
------------- -------------- --------------
Net change in cash and cash equivalents................. 5,015,631 1,683,697 (4,625,614)
Cash and cash equivalents at beginning of year.......... 4,407,322 9,422,953 11,106,650
------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR................ $9,422,953 $11,106,650 $ 6,481,036
============= ============== ==============
</TABLE>
FINANCIALS
----------
30 F-30
<PAGE> 97
UNITED FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest................................................ $ 6,928,319 $ 5,272,463 $ 4,531,731
Income taxes............................................ 430,150 470,500 420,710
Noncash investing activities
Real estate acquired in settlement of loans............. 435,012 298,310 441,211
Origination of loans to facilitate sale of real estate.. 447,025 282,480 192,484
</TABLE>
See accompanying notes to the financial statements.
FINANCIALS
__________
31 F-31
<PAGE> 98
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1992, 1993 and 1994
------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements as of and for the
years ended June 30, 1993 and 1994 include the accounts of United Financial
Bancorp, Inc. (Bancorp) and its wholly-owned subsidiary, United Federal Savings
Bank of Vincennes (Bank) and the Bank's wholly-owned subsidiary, Unifed, Inc.
The consolidated financial statements as of June 30, 1992 and for the year then
ended include the accounts of the Bank and Unifed, Inc. All significant
intercompany accounts and transactions have been eliminated.
Stock Issuance and Conversion: On September 9, 1992, pursuant to a Plan of
Conversion adopted February 13, 1992, the Bancorp completed the issuance of
460,000 shares of common stock, at a price of $10 per share, raising net
proceeds of $4.2 million. In accordance with its Plan of Conversion, $2.8
million of the proceeds were utilized to purchase 100% of the stock of the Bank
in conjunction with its conversion from a mutual to a stock form of
organization. The transaction was accounted for in a manner similar to the
pooling of interests method of accounting for a business combination.
Accordingly, the assets and liabilities of the Bank are presented in these
consolidated financial statements at historical cost.
Description of Business: Bancorp operates primarily in
the financial services industry which accounts for more than 90% of its
revenues, assets and net income. The Company generates mortgage and consumer
loans and receives deposits from customers located throughout a ten county area
in southwestern Indiana and southeastern Illinois (particularly Knox and Gibson
Counties in Indiana). A substantial portion of the loan portfolio is secured
by single and multi-family mortgages. Unifed sells, as agent, insurance and
annuity products to its customers.
Statement of Cash Flows: For purposes of the statement of cash flows, cash and
cash equivalents include cash on hand, amounts due from banks and short-term
investments. The Bancorp reports net cash flows for customer loan and deposit
transactions and for investments in time deposits with other financial
institutions.
Investment and Mortgage-Backed Securities: Investment and mortgage-backed
securities are stated at cost adjusted for amortization of premiums and
accretion of discounts, both computed on the level yield method. Premium
amortization is deducted from and discount accretion is added to income. Gains
and losses are determined by the use of the specific identification method and
are reflected in operations at the time of sale. Investment and
mortgage-backed securities are not adjusted to the lower of cost or market
because the Bancorp has the ability and management intends to hold these
securities to maturity.
Pending Change in Accounting Policies: Bancorp plans to adopt Financial
Accounting Standard No. 115 (FAS 115), as required, on July 1, 1994. This new
accounting standard changes the method of accounting for investment securities.
Upon adoption of FAS 115, securities which may be sold to manage interest rate
risk, liquidity or for similar purposes will be classified as
available-for-sale and carried at market value, and the unrealized holding gain
or loss will be reported, net of tax, as a separate component of shareholders'
equity. The impact on the consolidated financial statements upon adoption of
FAS 115 will be to increase shareholders' equity by $3,000.
Securities Held for Sale: Marketable equity securities and mortgage-backed
securities which are designated as "high risk mortgage-backed securities", in
accordance with regulations promulgated by the Office of Thrift Supervision,
are designated as "held for sale" and are carried at the lower of cost or
market value. At June 30, 1994, this category included an equity investment
with a book value of $99,996 and three mortgage-backed securities that were
designated as "high risk" with a book value of $990,985. The market value of
these securities was approximately $1,036,000 and $1,092,000 at June 30, 1993
and 1994, respectively. A held for sale security was sold during 1992
generating gross proceeds of $2,410,000 and a gross gain of $14,624.
Loans Held for Sale: The Bancorp sells a portion of its mortgage loan
production in the secondary market. Whenever loan cost exceeds market value on
a net aggregate basis, a valuation reserve is recorded and such loans are
carried at the lower of cost or market. No adjustment to reduce the carrying
value of such loans was necessary at June 30, 1993 or 1994.
Recognition of Income on Loans: Interest income on mortgage loans and consumer
loans is accrued over the term of the loans. Unearned interest on some home
improvement loans is recognized as income over the term of the loans on a level
yield method. Loan fees, net of direct loan origination costs, are deferred
and recognized over the life of the loan as an adjustment to interest income
using a method which approximates a level yield. Loans are placed on
non-accrual status when the collection of interest becomes doubtful.
FINANCIALS
__________
32 F-32
<PAGE> 99
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1992, 1993 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is recorded. Increases to the allowance are recorded
by a provision for loan losses charged to expense. Estimating the risk of loss
and the amount of loss on any loan is necessarily subjective. Accordingly, the
allowance is maintained by management at a level considered adequate to cover
possible losses that are currently anticipated based on past loss experience,
general economic conditions, information about specific borrower situations
including their financial position and collateral values, and other
factors and estimates which are subject to change over time. While management
may periodically allocate portions of the allowance for specific problem loan
situations, the whole allowance is available for any loan charge-offs that
occur. A loan is charged-off by management as a loss when deemed
uncollectible, although collection efforts continue and future recoveries may
occur.
Real Estate Owned: Real estate acquired through foreclosure or
deed-in-lieu-of-foreclosure is stated at the lower of cost (fair value at the
time of foreclosure) or fair value less estimated costs to sell. Future
declines in value, if any, are charged to operations through a provision for
loss on real estate owned. The costs of holding the real estate are charged to
operations while major improvements that increase fair value are capitalized.
Office Properties and Equipment: Office properties and equipment are stated at
cost less accumulated depreciation. Depreciation is computed by straight-line
and accelerated methods, with useful lives of twenty-five to forty years for
buildings and three to ten years for furniture and equipment. Maintenance and
repairs are charged to expense as incurred, and improvements are capitalized.
Pension Plan: The Bank maintains, through the Financial Institutions
Retirement Fund, a non-contributory pension plan for all full-time employees.
The Bank's policy is to fund pension costs accrued.
Change in Accounting for Income Taxes: Effective July 1, 1993, the Corporation
adopted Financial Accounting Standard No. 109, 'Accounting for Income Taxes',
which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and
tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates. Income tax expense
is the tax payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities. The $80,000 cumulative
effect of the accounting change on years prior to July 1, 1993 is included in
1994 net income.
Income Taxes: Deferred tax liabilities and assets are determined at each
balance sheet date. They are measured by applying enacted tax laws to future
amounts that will result from differences in the financial statement and tax
bases of assets and liabilities. Recognition of deferred tax assets is limited
by the establishment of a valuation allowance to adjust deferred tax assets to
the net amount that is more likely than not to be realized. In years prior to
1994, the Corporation recorded tax expense based on the effect of timing
differences on taxable income during the year the timing differences arose or
reversed.
Financial Statement Presentation: Certain items in the 1992 and 1993
consolidated financial statements have been reclassified to correspond with
1994 presentation. These reclassifications had no impact on net income or
equity.
FINANCIALS
__________
33 F-33
<PAGE> 100
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1992, 1993 and 1994
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated market values of investment
securities at June 30, 1993 and 1994 are as follows:
<TABLE>
<CAPTION>
1993
----------------------------------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED ESTIMATED MARKET
AMORITIZED COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S. government
corporations and agencies................................. $ 13,726,128 $ 421,860 $ (23,233) $ 14,124,755
Obligations of states and political subdivisions............ 250,000 - - 250,000
Corporate securities........................................ 701,105 51,284 - 752,389
--------------- ------------- -------------- ----------------
$ 14,677,233 $ 473,144 $ (23,233) $ 15,127,144
=============== ============= ============== ================
</TABLE>
<TABLE>
<CAPTION>
1994
----------------------------------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED ESTIMATED MARKET
AMORITIZED COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S. government
corporations and agencies................................. $ 15,991,004 $ 86,998 $ (287,752) $ 15,790,250
Obligations of states and political subdivisions............ 750,000 - (13,637) 736,363
Corporate securities........................................ 812,895 22,393 - 835,288
--------------- --------------- --------------- ----------------
$ 17,553,899 $ 109,391 $ (301,389) $ 17,361,901
=============== =============== =============== ================
</TABLE>
The amortized cost and estimated market value of investment
securities at June 30, 1994, by contractual maturity, are shown
below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED MARKET
AMORTIZED COST VALUE
<S> <C> <C>
Due in one year or less.......................... $ 5,024,143 $ 5,020,399
Due after one year through five years............ 11,980,480 11,801,073
Due after five years through ten years........... 549,276 540,429
-------------- --------------
$ 17,553,899 $ 17,361,901
============== ==============
</TABLE>
Information about sales of investment securities and mortgage-
backed investments is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Gross proceeds................. $ 7,265,052 $ - $ -
Gross gains.................... 98,492 - -
Gross losses................... 47,581 - -
</TABLE>
Sales initiated during 1992 were part of a plan designed by
Management in response to the decline of market interest rates to
historically low levels. Long-term fixed rate investments were
sold and replaced with short and intermediate term investments,
thus restructuring the maturity profile of the Bank's investment
portfolio and enhancing its ability to manage interest rate risk
in the future.
Investment securities with a book value of approximately
$4,123,000 and $4,173,000 at June 30, 1993 and 1994, respectively,
were pledged to secure outstanding repurchase agreements.
FINANCIALS
----------
34 F-34
<PAGE> 101
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1992, 1993 and 1994
NOTE 3 - MORTGAGE-BACKED SECURITIES
At June 30, 1993 and 1994, the amortized cost and estimated
market value of mortgage-backed securities were as follows:
<TABLE>
<CAPTION>
1993
-----------------------------------------------------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED ESTIMATED MARKET
AMORTIZED COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Issued by U.S. Government agencies........ $ 14,240,656 $ 338,345 $ (36,466) $ 14,542,535
Issued by other financial intermediaries.. 150,608 434 - 151,042
------------------- ----------------- ------------------ ------------------
$ 14,391,264 $ 338,779 $ (36,466) $ 14,693,577
=================== ================= ================== ==================
<CAPTION>
1994
-----------------------------------------------------------------------------------------
GROSS UNREALIZED GROSS UNREALIZED ESTIMATED MARKET
AMORTIZED COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Issued by U.S. Government agencies........ $ 8,921,388 $ 78,563 $ (84,509) $ 8,915,442
Issued by other financial intermediaries.. 18,114 19 - 18,133
------------------- ----------------- ------------------ ------------------
$ 8,939,502 $ 78,582 $ (84,509) $ 8,933,575
=================== ================= ================== ==================
</TABLE>
At June 30, 1994, the amortized cost of mortgage-backed
securities is net of $51,535 in discounts and $38,676 in
premiums.
NOTE 4 - LOANS RECEIVABLE
Loans receivable consisted of the following:
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Real estate mortgage loans secured by one-to-four family residences............. $ 46,908,387 $ 47,495,927
Real estate mortgage loans secured by other properties.......................... 2,353,737 2,045,262
Real estate contracts........................................................... 823,612 565,540
Loans on savings accounts....................................................... 885,404 778,993
Home improvement loans.......................................................... 364,765 360,969
Consumer loans.................................................................. 5,141,375 6,754,991
Commercial loans................................................................ 391,468 2,050,865
Equity lines of credit.......................................................... 1,759,420 2,030,849
--------------------- ----------------------
Gross loans receivable.................................................. 58,628,168 62,083,396
Unearned interest and discounts................................................. (75,084) (34,745)
Deferred loan fees, net......................................................... (9,238) (22,076)
Allowance for loan losses (Note 5).............................................. (391,024) (384,595)
--------------------- ----------------------
Loans receivable - net.................................................... $ 58,152,822 $ 61,641,980
===================== ======================
</TABLE>
FINANCIALS
----------
35 F-35
<PAGE> 102
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1992, 1993 and 1994
NOTE 4 - LOANS RECEIVABLE (Continued)
The above totals for real estate mortgage loans secured by
one-to-four family residences include loan participations sold
(net) as follows:
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Gross loans outstanding.............. $ 30,987,260 $ 53,001,291
Sold to the FHLMC.................... (29,210,701) (51,984,264)
Sold to others....................... (1,540,003) (844,427)
------------------ -------------------
Loan participations sold (net).... $ 236,556 $ 172,600
================== ===================
</TABLE>
At June 30, 1994 the balance of loans sold with recourse was
$236,443.
Certain of the Company's officers, directors, principal
shareholders, and their associates were loan customers of the
bank. At June 30, 1993 and 1994, loans to these individuals
totaled $46,365 and $572,723, respectively.
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as
follows:
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Beginning balance...................................... $ 343,050 $ 439,620 $ 391,024
Provision for losses charged to operations............. 134,868 39,583 39,127
Loan charge-offs....................................... (55,917) (94,816) (53,425)
Recoveries............................................. 17,619 6,637 7,869
------------------- ------------------ ------------------
Ending balance......................................... $ 439,620 $ 391,024 $ 384,595
=================== ================== ==================
</TABLE>
At June 30, 1992, 1993 and 1994, non-accrual loans totaled
approximately $228,000, $4,000 and $33,000, respectively.
Interest income recognized on these loans was approximately
$13,000, $0 and $2,000 for the years ended June 30, 1992, 1993 and
1994. Interest that would have been earned, had the loans been
accruing at their contractual rates, was approximately $21,000,
$1000 and $4,000, respectively.
NOTE 6 - OFFICE PROPERTIES AND EQUIPMENT
A summary of office properties and equipment is as follows:
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Land.................................... $ 272,030 $ 272,030
Office buildings and improvements....... 2,063,145 2,068,568
Furniture and equipment................. 672,276 725,547
------------------- -------------------
3,007,451 3,066,145
Less accumulated depreciation
and amortization...................... 1,437,692 1,568,074
------------------- -------------------
$ 1,569,759 $ 1,498,071
=================== ===================
</TABLE>
FINANCIALS
----------
36 F-36
<PAGE> 103
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1992, 1993 and 1994
NOTE 7 - ACCRUED INTEREST RECEIVABLE
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Accrued interest receivable consists of:
Interest bearing time deposits with financial institutions ...................... $ 26,470 $ 29,749
Investment securities ........................................................... 267,037 241,301
Mortgage-backed securities ...................................................... 102,458 50,455
Securities held for sale ........................................................ 5,729 6,495
Loans ........................................................................... 347,525 344,360
-------- --------
$749,219 $672,360
======== ========
</TABLE>
NOTE 8 - REAL ESTATE OWNED
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Real estate owned consisted of the following:
Real estate acquired through foreclosure........................................... $ 19,403 $ 27,597
Real estate in judgement........................................................... 201,407 47,481
Real estate in process of foreclosure.............................................. 11,278 88,705
-------- --------
$232,088 $163,783
======== ========
</TABLE>
NOTE 9 - DEPOSITS
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Deposits are summarized as follows:
Demand deposit accounts.......................................................... $15,622,592 $16,621,849
Passbook savings................................................................. 8,413,683 8,967,403
Certificates of deposit.......................................................... 73,332,034 68,052,174
----------- -----------
$97,368,309 $93,641,426
=========== ===========
</TABLE>
FINANCIALS
__________
37 F-37
<PAGE> 104
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1992, 1993 and 1994
NOTE 9 - DEPOSITS (Continued)
Deposit balances by interest rate are summarized as follows:
<TABLE>
<CAPTION> 1993 1994
<S> <C> <C>
Noninterest-bearing accounts .................................. $ 1,719,614 $ 1,748,931
----------- -----------
NOW accounts and MMDA's 2.50 - 3.80% .......................... 13,902,978 14,872,918
----------- -----------
Passbook savings - 2.75% ...................................... 8,067,062 8,590,455
3.00 - 3.50% ............................... 346,621 376,948
----------- -----------
8,413,683 8,967,403
----------- -----------
Certificates of deposit
2.55 - 3.49% .............................................. 20,937,515 21,391,375
3.50 - 5.50% .............................................. 23,123,949 25,267,544
5.51 - 6.75% .............................................. 11,850,908 9,485,713
6.76 - 8.75% .............................................. 13,907,147 8,990,687
8.76 - 10.75% ............................................. 3,412,515 2,816,855
10.76 -12.75% ............................................. 100,000 100,000
----------- -----------
73,332,034 68,052,174
----------- -----------
$97,368,309 $93,641,426
=========== ===========
Weighted-average interest rate of certificates of deposit...... 5.16% 4.89%
=========== ===========
</TABLE>
At June 30, 1993 and 1994, certificates of deposit had the following maturities:
<TABLE>
<CAPTION> 1993 1994
<S> <C> <C>
Within one year............................................... $42,565,920 $40,694,788
Within two years.............................................. 13,107,261 11,507,418
Within three years............................................ 7,898,311 5,328,243
Beyond three years............................................ 9,760,542 10,521,725
----------- -----------
$73,332,034 $68,052,174
=========== ===========
</TABLE>
The aggregate amount of certificates of deposit in denominations of $100,000 or
more was approximately $8,833,000 and $8,824,000 at June 30, 1993 and 1994,
respectively.
An analysis of interest expense on deposit accounts is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
NOW accounts and MMDA's...................... $ 599,646 $ 474,211 $ 423,064
Passbook savings............................. 290,077 241,187 226,793
Certificates of deposit...................... 5,598,249 4,204,953 3,490,686
---------- ---------- ----------
$6,487,972 $4,920,351 $4,140,543
========== ========== ==========
</TABLE>
FINANCIALS
__________
38 F-38
<PAGE> 105
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1992, 1993 and 1994
NOTE 10 - ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank of Indianapolis are as follows:
<TABLE>
<CAPTION>
MATURITY DATE INTEREST RATE 1993 1994
<S> <C> <C> <C>
May 27, 1996................. 8.50% $ 1,000,000 $ 1,000,000
February 5, 2002............. 7.64% 2,000,000 2,000,000
----------- -----------
$ 3,000,000 $ 3,000,000
</TABLE> =========== ===========
Both advances are secured by a blanket collateral agreement on the Bank's
qualified mortgage loans and investments. No principal payments are required
prior to maturity.
NOTE 11 - REPURCHASE AGREEMENTS
The Bank enters into retail repurchase agreements with its customers. Such
agreements, essentially, represent borrowings by the Bank from its customers and
are accounted for as such. The Bank pledges certain of its investment
securities as collateral for those borrowings and those securities are held in a
collateral pool by an independent custodian. The following presents information
about the Bank's repurchase agreements at and for the years ended June 30, 1993
and 1994:
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
At June 30,
Weighted average interest rate of the agreements... 4.59% 4.67%
Book value of securities pledged as collateral..... $ 4,123,000 $ 4,173,000
Market value of securities pledged as collateral... $ 4,162,000 $ 4,097,000
For the year ended June 30,
Maximum month end balance outstanding.............. $ 3,637,000 $ 3,617,000
Average balance outstanding........................ $ 2,301,000 $ 3,584,000
Weighted average rate paid on agreements........... 4.28% 4.50%
</TABLE>
The investments pledged include U.S. Treasury and Agency investments. The
terms of the agreements offered by the Bank range from daily rollover
agreements to a maximum term of one year.
NOTE 12 - RESTRICTIONS ON AVAILABILITY OF RETAINED EARNINGS
At the time of its conversion to a stock form of organization, the Bank
established a liquidation account in an amount equal to its total net worth as
of the date of the latest statement of financial condition appearing in the
final prospectus, which was $6,537,308. The liquidation account is maintained
for the benefit of eligible depositors who continue to maintain their accounts
at the Bank after the conversion. The liquidation account declines annually to
the extent that eligible depositors have reduced their qualifying deposits.
Subsequent increases will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation, each eligible
depositor will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held. The balance allocated to the liquidation account is
not available for payment of dividends.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
(FIRREA) places regulatory and examination responsibility with the Office of
Thrift Supervision, and insurance of deposit accounts is the responsibility
of the Federal Deposit Insurance Corporation (FDIC) which also has examination
authority. Under FIRREA, savings institutions insured by the FDIC must meet
three regulatory capital requirements. If a requirement is not met, regulatory
authorities may take legal or administrative actions, including restrictions on
growth or operations or, in extreme cases, seizure.
FINANCIALS
----------
39 F-39
<PAGE> 106
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1992, 1993 AND 1994
NOTE 12 - RESTRICTIONS ON AVAILABILITY OF RETAINED EARNINGS (Continued)
At June 30, 1994, under these capital
requirements, the Bank had: (dollars in thousands)
<TABLE>
<CAPTION>
% OF APPLICABLE
AMOUNT ASSETS
<S> <C> <C>
Tangible capital................ $ 10,682 9.56%
Requirement..................... 1,676 1.50
---------- -----
Excess.......................... $ 9,006 8.06%
========== =====
Core capital.................... $ 10,682 9.56%
Requirement..................... 3,352 3.00
---------- -----
Excess.......................... $ 7,330 6.56%
========== =====
Risk based capital.............. $ 11,056 20.38%
Requirement..................... 4,340 8.00
---------- -----
Excess.......................... $ 6,716 12.38%
========== =====
</TABLE>
Risk based capital differs from tangible/core capital due to the inclusion of
$374,000 of general loss reserves which qualify as supplemental capital, as
defined by regulation.
FIRREA also includes restrictions on loans to one borrower, on certain types of
investments and loans, on loans to officers, directors, and principal
shareholders, on brokered deposits, and on transactions with affiliates.
FIRREA modified the Qualified Thrift Lender (QTL) test on July 1, 1991 to
require that approximately 70% of assets be maintained in housing-related
finance and other specified areas. This percentage was subsequently reduced
to 65% by the Federal Deposit Insurance Corporation Improvement Act. If the
QTL test is not met, limits are placed on growth, branching, new investments,
FHLB advances, and dividends, or the Company must convert to a commercial bank
charter. Management anticipates continuing compliance with the QTL test.
NOTE 13 - INCOME TAXES
An analysis of the income tax provision is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Current income tax expense $453,458 $447,601 $429,640
Deferred income tax (benefit) (20,265) 16,600 15,927
-------- -------- --------
$433,193 $464,201 $445,567
======== ======== ========
</TABLE>
Income tax expense applicable to securities transactions was approximately
$19,000, $5,000 and $-0- for 1992, 1993 and 1994, respectively.
Principal components of the deferred income tax provision are the tax effects of
timing differences related to the loan loss provision and to loan fee
recognition. No individual components are significant.
FINANCIALS
----------
40 F-40
<PAGE> 107
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1992, 1993 AND 1994
NOTE 13 - INCOME TAXES (Continued)
The difference between the financial statement income tax provision and amounts
computed using the statutory federal tax rate of 34% is reconciled as follows:
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Income tax provision computed at statutory rate ................................... $288,578 $445,359 $375,769
Benefit of capital loss carryback ................................................. - (35,290) -
Add (subtract) tax effect of
Tax exempt income ............................................................... (11,361) (5,799) (6,431)
Non deductible expense .......................................................... 2,434 870 965
Provision for losses on loans and real estate owned ............................. 115,905 12,703 -
Tax bad debt deduction .......................................................... (27,333) (33,861) -
State tax (net of federal tax benefit) .......................................... 67,486 78,362 67,131
Other ........................................................................... (2,516) 1,857 8,133
-------- -------- --------
$433,193 $464,201 $445,567
======== ======== ========
</TABLE>
The net deferred tax liability reflected in the June 30, 1994 consolidated
balance sheet is comprised of the following components:
<TABLE>
<S> <C>
Deferred tax assets from:
Provision for loan losses ................................... $ 37,628
Deferred compensation plans ................................. 28,976
Other ....................................................... 10,030
--------
76,634
Deferred tax liabilities for:
FHLB stock dividends ........................................ (70,508)
Other........................................................ (7,095)
--------
(77,603)
Valuation allowance for deferred tax assets ................... -
--------
$ (969)
========
</TABLE>
The Bank has qualified under provisions of the Internal Revenue Code which
permit it to deduct from taxable income a provision for bad debts in excess of
the provision for such losses charged against income in the financial
statements, if any. This portion of retained earnings is considered to be
restricted because if, in the future, it is used for any purpose other than to
absorb bad debt losses, federal income taxes would be imposed at the then
applicable rates. In accordance with FAS No. 109, the Bank has not recorded a
tax liability for $2,861,000 of the tax reserve which accumulated prior to
January 1, 1988. At current tax rates, the tax due on that amount would total
$973,000.
FINANCIALS
__________
41 F-41
<PAGE> 108
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1992, 1993 and 1994
NOTE 14 - BENEFIT PLANS
The Bank provides a non-contributory pension plan through the Financial
Institutions Retirement Fund covering all full-time employees. As a
multiple-employer plan, separate actuarial valuations are not made with respect
to the Bank, nor are the plan assets so segregated. The Bank's policy is to
fund pension costs accrued. The market value of the plan's total assets
exceeded the total plan vested benefits as of June 30, 1993 and 1994. There
was no contribution due to the retirement fund for either year because of the
Retirement Fund's full funding status.
In November 1992, the Bancorp's shareholders approved a Stock Option Plan which
reserved 46,000 shares of Common Stock for granting options to directors and
officers of the Companies. Under the terms of the plan, options would be
granted at values not less than the fair market value of the shares at the date
of the grant. Options must be exercised within ten years of grant. Effective
September 9, 1992, the date the conversion was consummated, there were 30,410
options granted at a price of $10 per share. During 1994, there were 2,817
options exercised. No new options were granted.
In conjunction with the completion of the conversion, the Bancorp established a
Management Recognition and Retention Plan that awarded 13,110 shares of stock
to certain officers and directors of the Bank. The stock awarded under the
plan is restricted as to certain rights at the time of issuance. These
restrictions are removed over a two year period for directors and a four
year period for officers. The cost of these shares is amortized, using an
accelerated method, over the vesting periods described above.
NOTE 15 - EARNINGS PER SHARE
Earnings per common share have been computed based on the weighted average
number of shares outstanding during the year presented. The number of shares
used in the computation of earnings per common share was 460,000 for 1993 and
448,957 for 1994. The unexercised stock options discussed in Note 14 were not
materially dilutive and, accordingly, were not considered in computing earnings
per share.
NOTE 16 - COMMITMENTS AND CONTINGENT LIABILITIES
The Bank, in the ordinary course of business, has loans, commitments and
contingent liabilities, such as guarantees, commitments to extend credit, etc.,
which are not reflected in the accompanying consolidated balance sheets. The
Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments is represented by the contractual amounts of
those instruments. The Bank uses the same credit policy to make such
commitments as it uses for on-balance-sheet items.
These financial instruments are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1993 JUNE 30, 1994
<S> <C> <C>
Commitments to sell fixed rate loans ....................... $2,550,000 $1,345,650
Commitments to make fixed rate loans ....................... 3,448,000 2,537,075
Commitments to make adjustable rate loans .................. - 467,470
Unused portions of lines of credit ......................... 1,978,000 2,928,730
</TABLE>
Commitments to make fixed rate loans are, generally, for 30 days. Rates on the
above fixed rate loan commitments range between 6.99% and 8.25% for June 30,
1993 and between 8.875% and 3.99% for June 30, 1994.
Since many commitments to make loans expire without being used, the amounts do
not necessarily represent future cash commitments. Collateral obtained upon
exercise of the commitment is determined using management's credit evaluation of
the borrower, and may include accounts receivable, inventory, property, land and
other items.
The Bank is required to maintain a deposit balance with the Federal Reserve of
$125,000 at June 30, 1994.
FINANCIALS
__________
42 F-42
<PAGE> 109
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1992, 1993 and 1994
NOTE 17 - PARENT COMPANY FINANCIAL STATEMENTS
The condensed financial statements of the Bancorp are as follows:
CONDENSED BALANCE SHEETS
As of June 30:
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
ASSETS
Cash in subsidiary bank.................. $ 99,855 $ 17,462
Investment in subsidiary bank............ 10,305,848 10,681,586
Investments.............................. 1,183,678 1,040,625
Other assets............................. 18,882 82,782
------------- --------------
$11,608,263 $ 11,822,455
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities........................ $ (5,816) $ (4,629)
Shareholders' equity..................... 11,614,079 11,827,084
------------- --------------
$11,608,263 $ 11,822,455
============= ==============
<CAPTION>
CONDENSED STATEMENTS OF INCOME
For the year ended June 30: 1993 1994
<S> <C> <C>
INCOME
Dividends from bank subsidiary $ 113,000 $ 421,500
Interest income 37,690 44,743
Other income - 3,398
------------- --------------
Total income 150,690 469,641
Operating expenses 143,407 143,508
------------- --------------
INCOME BEFORE INCOME TAX EXPENSE
AND EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARY 7,283 326,133
Applicable income tax benefit 41,910 37,765
------------- --------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARY 49,193 363,898
Equity in undistributed income of subsidiary 676,421 375,738
------------- --------------
NET INCOME $ 725,614 $ 739,636
============= ==============
</TABLE>
FINANCIALS
----------
43 F-43
<PAGE> 110
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1992, 1993 and 1994
NOTE 17 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended June 30: 1993 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 725,614 $ 739,636
Adjustments to reconcile net income to cash.............
Equity in undistributed income of subsidiary.......... (676,421) (375,738)
Amortization expense (net)............................ 82,679 61,474
Change in other assets................................ (149,982) (63,900)
Change in other liabilities........................... (5,816) 1,187
-------------- --------------
Net cash from operating activities.................. (23,926) 362,659
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in short-term investments.................... - (77,571)
Purchase of investments................................. (1,433,109) (331,436)
Maturity of investments................................. 230,000 534,000
-------------- --------------
Net cash from investing activities.................. (1,203,109) 124,993
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock................................ 4,229,972 -
Exercise of stock options............................... - 28,170
Repurchase of common stock.............................. - (463,450)
Dividends paid.......................................... (69,000) (134,765)
Investment in subsidiary................................ (2,834,082) -
-------------- --------------
Net cash from financing activities.................. 1,326,890 (570,045)
-------------- --------------
Net change in cash......................................... 99,855 (82,393)
Cash at beginning of year.................................. - 99,855
-------------- --------------
CASH AT END OF YEAR........................................ $ 99,855 $ 17,462
============== ==============
</TABLE>
FINANCIALS
----------
44 F-44
<PAGE> 111
SHAREHOLDER INFORMATION
ANNUAL MEETING
The annual meeting of shareholders of United Financial Bancorp, Inc. will be
conducted October 19, 1994 at 10:00 a.m. at the Beckes Student Union on the
campus of Vincennes University, North Second Street in Vincennes, Indiana.
ANNUAL REPORT ON FORM 10-K
Shareholders may obtain, without charge, a copy of the annual report on Form
10-K filed by United Financial Bancorp, Inc. with the Securities and Exchange
Commission. Please direct your requests to Investor Relations, United Financial
Bancorp, Inc., P.O. Box 1217, Vincennes, IN 47591.
STOCK TRADING INFORMATION
United Financial Bancorp, Inc. common stock is traded in the over-the-counter
market and is quoted on the National Association of Securities Dealers'
Automated Quotations (NASDAQ) Small Cap System under the symbol UNFB. The
listing found in most newspaper financial sections is UtdFnBc. On June 30,
1994, there were 439,817 shares of common stock issued and outstanding, which
were held of record by approximately 475 shareholders. This does not include
the number of persons whose stock is in nominee or 'street name' accounts
through brokers.
The following table sets forth, for the period shown, the high and low prices
of the common stock. The prices reflect inter-dealer quotations without retail
mark-up, mark-down, or commissions and do not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
FISCAL QUARTER DIVIDEND DECLARED
ENDED HIGH LOW (PER SHARE)
<S> <C> <C> <C>
SEPTEMBER 30, 1992
(FROM SEPTEMBER 10).............. $12.75 $11.25
DECEMBER 31, 1992.................. $14.25 $11.50
MARCH 31, 1993..................... $18.25 $14.00 $.075
JUNE 30, 1993...................... $17.50 $16.25 $.075
SEPTEMBER 30, 1993................. $20.25 $16.50 $.075
DECEMBER, 31, 1993................. $21.25 $18.75 $.075
MARCH 31, 1994..................... $20.00 $17.25 $.075
JUNE 30, 1994...................... $19.50 $16.00 $.075
</TABLE>
TRANSFER AGENT SPECIAL COUNSEL
Bank One, Indianapolis, NA Silver, Freedman & Taff
Bank One Center/Tower 1100 New York Avenue, N.W.
111 Monument Circle - Suite 1611 Washington, D.C. 20005
Indianapolis, Indiana 46204
1-800-753-7107
GENERAL COUNSEL
ACCOUNTANTS Kimmell & Cummings
Crowe, Chizek and Company 112 N. 7th St.
2100 Market Tower Vincennes, Indiana 47591
10 West Market Street
Indianapolis, Indiana 46204
F-45
<PAGE> 112
UNITED FINANCIAL BANCORP, INC.
______________________________
619 Main Street
Vincennes, Indiana 47591
(812) 882-9310
F-46
<PAGE> 113
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1995
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from _____ to ______
Commission file number 0-20374
UNITED FINANCIAL BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 35-1857891
(State of incorporation) (I.R.S. Employer
Identification No.)
P.O. Box 1217, Vincennes, Indiana
(Address of principal executive office)
47591
(Zip Code)
812-882-9310
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 31, 1995
----- -----------------------------
common stock, .01 par value 459,361
Transitional Small Business Disclosure Format: Yes ____ No X
Page 1 of 15
F-47
<PAGE> 114
FORM 10-Q
INDEX
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Statements of Condition 3
Consolidated Statements of Income 4-5
Consolidated Statements of Changes in
Stockholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-13
Part II. Other information:
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Page 2 of 15
F-48
<PAGE> 115
PART I, FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENT
UNITED FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
ASSETS 1995 1994
-------- --------
<S> <C> <C>
Cash and due from banks $ 1,219 $ 1,259
Short term money market investments 2,475 5,222
--------- ---------
3,694 6,481
Interest bearing deposits 5,499 12,331
Available for sale (AFS) securities (Note 2) 6,275 1,091
Investment securities 19,086 26,494
Loans held for sale 566 1,046
Loans 71,404 62,027
Allowance for loan losses (375) (385)
--------- ---------
Net loans 71,029 61,642
Premises & equipment 1,590 1,498
Accrued interest receivable 649 672
Other assets 1,589 1,427
Real estate owned 29 164
--------- ---------
Total assets $ 110,006 $ 112,846
========= =========
LIABILITIES
Deposits:
Demand $ 13,683 $ 16,622
Savings 7,972 8,968
Time 68,327 68,052
--------- ---------
89,982 93,642
Repurchase agreements 3,394 3,514
Federal Home Loan Bank advances 3,000 3,000
Accrued interest payable 210 172
Other liabilities 1,202 691
--------- ---------
97,788 101,019
SHAREHOLDERS' EQUITY
Common stock, .01 par value; 2,000,000 shares
authorized, 460,000 shares issued 5 5
Additional paid-in capital 3,998 4,197
Retained earnings 8,286 8,057
Shares held by management recognition plan (11) (25)
Less: Treasury stock 639 and 20,183 shares
- at cost (13) (407)
Net unrealized loss on AFS securities (47) --
--------- ---------
12,218 11,827
========= =========
Total Liabilities & Shareholders' Equity $ 110,006 $ 112,846
========= =========
</TABLE>
See notes to consolidated financial statements
Page 3 of 15
F-49
<PAGE> 116
PART I, FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENT
UNITED FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands except Per Share Amounts)
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
March 31, March 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $1,447 $1,247 $4,115 $3,844
Interest on short term investments 35 75 139 211
Interest and dividends on investments
Taxable 465 485 1,480 1,514
Nontaxable 7 7 21 12
------ ------ ------ ------
1,954 1,814 5,755 5,581
Interest expense
Interest on deposits 1,011 1,007 2,990 3,142
Interest on repurchase agreements
and other borrowings 40 40 122 122
Interest on FHLB advances 59 58 178 179
------ ------ ------ ------
1,110 1,105 3,290 3,443
------ ------ ------ ------
Net interest income 844 709 2,465 2,138
Provision for loan losses 6 6 16 33
------ ------ ------ ------
838 703 2,449 2,105
------ ------ ------ ------
Other income
Service charges and fees 34 34 103 97
Mortgage banking revenues 39 80 118 354
Commission income 80 48 222 152
Net gain on sale of investments 0 0 0 0
Other income 9 11 31 33
------ ------ ------ ------
162 173 474 636
------ ------ ------ ------
Other expenses
Salaries and employee benefits 297 293 887 831
Occupancy and equipment expense 76 72 224 205
Computer service expense 54 51 153 152
Deposit insurance assessment 61 64 187 193
Net expense of other real estate 3 (9) 26 (7)
Other operating expenses 155 173 752 521
------ ------ ------ ------
646 644 2,229 1,895
------ ------ ------ ------
</TABLE>
(CONTINUED)
Page 4 of 15
F-50
<PAGE> 117
PART I, FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENT
UNITED FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Continued)
(Dollars in Thousands except Per Share Amounts)
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
March 31, March 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before income taxes and cumulative
effect of accounting change 354 232 694 846
Income tax provision 139 94 365 336
------ ------ ------ ------
Income before cumulative effect of
accounting change 215 138 329 510
Cumulative effect of changing to a new
method of accounting for income taxes
(Note 3) - - - 80
------ ------ ------ ------
Net income $ 215 $ 138 $ 329 $ 590
====== ====== ====== ======
Earnings per share (Note 4):
Primary
Income before cumulative effect of
accounting change $ .47 $ .31 $ .73 $ 1.10
Cumulative effect of accounting change - - - .17
------ ------ ------ ------
Net income $ .47 $ .31 $ .73 $ 1.27
====== ====== ====== ======
Fully Diluted
Income before cumulative effect of
accounting change $ .47 $ .31 $ .73 $ 1.10
Cumulative effect of accounting change - - - .17
------ ------ ------ ------
Net income $ .47 $ .31 $ .73 $ 1.27
====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements
Page 5 of 15
F-51
<PAGE> 118
PART I, FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENT
UNITED FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994-95 1993-94
------- -------
<S> <C> <C>
Balance, June 30 $ 11,827 $ 11,614
Net income 329 590
Amortization of cost of management
recognition plan 14 34
Dividends (100) (102)
Purchase of treasury stock --- (463)
Change in net unrealized loss on
AFS securities (47) ---
Stock options exercised 195 28
--------- ---------
Balance, March 31 $ 12,218 $ 11,701
========= =========
</TABLE>
See notes to consolidated financial statements
Page 6 of 15
F-52
<PAGE> 119
PART I, FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENT
UNITED FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine months ended
March 31,
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 329 $ 590
Adjustments to reconcile net income to cash
from operating activities 915 (377)
------- --------
Net cash from operating activities 1,244 213
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment
and mortgage-backed securities 4,904 6,921
Purchase of investment and mortgage-backed
securities (2,783) (5,089)
Net change in loans (9,290) (1,251)
Change in interest-bearing deposits 6,832 618
Property and equipment expenditures (197) (33)
Proceeds from sale of real estate owned 15 71
------- --------
Net cash from investing activities (519) 1,237
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits (3,660) (1,410)
Change in repurchase agreements (120) (8)
Net change in advances from borrowers for taxes
and insurance 173 95
Dividends paid (100) (102)
Purchase of treasury stock --- (463)
Stock options exercised (19,544 and 2,817 shares) 195 28
------- --------
Net cash from financing activities (3,512) (1,860)
------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,787) (410)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,481 11,107
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,694 $ 10,697
======= ========
</TABLE>
See notes to consolidated financial statements
Page 7 of 15
F-53
<PAGE> 120
PART I, FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
1. Accounting Principles
With the exception of adopting required accounting changes (See Note 2), the
significant accounting policies followed by United Financial Bancorp, Inc. (the
"Bancorp") and its consolidated subsidiary, United Federal Savings Bank, for
interim financial reporting are consistent with the accounting policies
followed for annual financial reporting. All adjustments which are, in the
opinion of management, necessary for a fair presentation of the results for the
periods reported have been included in the accompanying unaudited consolidated
financial statements and all such adjustments are of a normal recurring nature.
2. Changes in Accounting Method
Effective July 1, 1994, the Company changed its accounting for debt and equity
securities to adopt new accounting guidance - Financial Accounting Standard No.
115, "Accounting for Certain Investments in Debt and Equity Securities".
Accordingly, securities were classified into held-to-maturity and
available-for-sale categories. Investment securities are those which the
Company has the positive intent and ability to hold to maturity, and are
reported at amortized cost. Available-for-sale securities are those which the
Company may decide to sell, if needed, for liquidity, asset-liability
management, or other reasons. Available-for-sale securities are reported at
fair value, with unrealized gains or losses included as a separate component of
equity, net of tax.
The effect of adopting this new accounting guidance was to increase equity at
July 1, 1994 by $3,000.
During the nine months ended March 31, 1995, there were no sales of
available-for-sale securities. During this period, the net unrealized holding
gain decreased $50,000 to a net unrealized holding loss at March 31, 1995 of
$47,000. There were no sales or transfers of securities classified as
held-to-maturity.
Prior to July 1, 1994, securities designated as available-for-sale were deemed
held-for-sale under then-existing regulations.
Realized gains or losses are determined based on the amortized cost of the
specific security sold.
Effective July 1, 1993, the Bancorp adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), "Accounting for Income Taxes." The adoption of
FAS 109 changed the method of accounting
Page 8 of 15
F-54
<PAGE> 121
PART I, FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
UNITED FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(Continued)
for income taxes from the deferred method to an asset and liability approach
which requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of assets and liabilities. The effect on previously
recorded deferred tax amounts at that date is reflected in the statement of
income as the cumulative effect of the accounting change. The result of
adopting the new standard in 1993 was an increase to net income of $80,000.
3. Earnings per Share
Primary and fully diluted earnings per share are based on the weighted average
number of shares of common stock outstanding during the period, adjusted for
the effect of common stock equivalents. The stock options outstanding are
considered common stock equivalents. Weighted average shares outstanding are
increased by the number of shares issuable under the options, assuming full
exercise, and reduced by the number of shares that could, hypothetically, be
reacquired using the proceeds from the exercise of those options. The weighted
average number of shares outstanding for the nine and three month periods ended
March 31, 1995 were 440,200 and 452,039, respectively. The weighted average
number of shares outstanding for the nine and three month periods ended March
31, 1994 were 451,993 and 438,179, respectively. The following table presents
the number of shares used to compute earnings per share for the periods
indicated:
<TABLE>
<CAPTION>
Fully
Primary Diluted
------- -------
<S> <C> <C>
Quarter ended March 31, 1995 458,033 458,100
Quarter ended March 31, 1994 450,477 450,477
Nine month period ended March 31, 1995 449,606 450,262
Nine month period ended March 31, 1994 464,902 464,902
</TABLE>
4. Proposed Sale of the Bancorp
On December 28, 1994, the Bancorp(UNFB) executed a merger agreement with
National City Bancshares, Inc. of Evansville, Indiana(NCBE). Subject to
certain limitations, the agreement provides for each share of the Bancorp to be
exchanged for shares of National City Bancshares with a value, as defined in
the agreement, determined by an exchange ratio calculated by dividing $44.40
per UNFB share by the average price of NCBE common stock. The average price of
the NCBE common stock will be based on the high and low price as reported on
the NASDAQ Market System for the 20 trading days prior to the closing of the
merger within a price range of $40.50 and $49.50. Consummation of the
transaction requires the approval of the Bancorp's shareholders and various
regulatory agencies and is subject to certain conditions.
Page 9 of 15
F-55
<PAGE> 122
PART I, FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNITED FINANCIAL BANCORP, INC.
March 31, 1995
FINANCIAL CONDITION:
At March 31, 1995, total assets were $110.0 million, a decrease of $2.8 million
from June 30, 1994. Maturities of investment securities funded growth in the
Bank's loan portfolio as well as a 3.9% decline in deposits.
Effective July 1, 1994, the Bancorp adopted Financial Accounting Standard No.
115, "Accounting for Certain Investments in Debt and Equity Securities" (See
Note 2). In adopting this new method of accounting, the Bancorp designated all
U.S. Treasury obligations and an investment unit trust with an approximate cost
of $100,000, as available-for-sale. All other investments were designated as
held-to-maturity. There were no securities identified as trading securities.
At March 31, 1995, the market value of securities identified as
available-for-sale was $78,000 less than their amortized cost, resulting in the
carrying value of these securities being reduced by that amount and the
recording of a $47,000 net unrealized loss as a reduction of shareholders'
equity.
RESULTS OF OPERATIONS:
Net income for the nine months ended March 31, 1995 was $329,000 or $.73 per
share, compared to $590,000 or $1.27 per share for the same period last year.
The decline was substantially due to $283,000 of non-recurring expenses
associated with United Financial Bancorp's pending acquisition by National City
Bancshares, Inc. of Evansville, Indiana, incurred in the quarter ended December
31, 1994, some of which were not deductible for income tax purposes. Effective
July 1, 1993, the Bancorp adopted FAS No.109 (see Note 3), a new method for
accounting for income taxes. The cumulative effect of adopting FAS No.109 was
an $80,000 positive impact on earnings for the nine month period ended March
31, 1994.
Total interest income was $5,755,000 for the nine month period
ended March 31, 1995, up 3.1% compared to $5,581,000 for the nine month period
ended March 31, 1994. This increase in interest income was due primarily to
the retention of new loans originated during the period with terms of 15 years
or less. The retention of these loans increased loans outstanding $9,377,000,
up 15.1% from June 30, 1994. These loans were funded by maturities of
investment securities and interest-bearing deposits with financial
institutions, as well as funds formerly deposited in short-term accounts. The
rates at which these loans were made were higher than the maturing investments
used to fund them, resulting in the increase in interest income. Total
interest expense for the nine months ended March 31, 1995 was $3,290,000, a
decrease of 4.4%, or $153,000 from $3,443,000 for the same period in 1994.
This was due to a decline in the Bank's deposits as management sought to
control the cost of funds. Interest on deposits declined 4.8% to $2,990,000
for the nine month period ended March 31, 1995 from $3,142,000 for the same
period last year. The increase in interest
Page 10 of 15
F-56
<PAGE> 123
PART I, FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNITED FINANCIAL BANCORP, INC.
March 31, 1995
(Continued)
income, coupled with the decrease in interest expense, resulted in an increase
in net interest income to $2,465,000 for the nine months ended March 31, 1995,
up 15.3% from $2,138,000 for the same period last year. The Bancorp's net
interest margin increased to 3.05% for the nine month period ended March 31,
1995 from 2.53% for the nine months ended March 31, 1994.
The provision for loan losses was $16,000 for the nine month period ended March
31, 1995 compared to $33,000 for the same period last year. At March 31, 1995
the Bancorp had $6,000 in non-performing loans. Real estate owned was $29,000
at March 31, 1995, down from $164,000 at June 30, 1994. For the nine month
period ended March 31, 1994, the Bank recorded net charge-offs of only $25,000.
Management believes the current balance in the loan loss reserve is adequate.
The adequacy of the loan loss reserve, evaluated on a quarterly basis by
management, is impacted by the economy, changes in real estate values and
interest rates, the relative mix of the Bank's loan portfolio and management's
expectations about the future.
In total, other income decreased $162,000, or 25.5%, from $636,000 for the nine
months ended March 31, 1994 to $474,000 for the same period in 1995. Mortgage
banking revenues for the nine months ended March 31, 1995 were $118,000 as
compared to $354,000 for the nine month period ended March 31, 1994. This
decrease resulted primarily from two factors. First, beginning in April 1994,
management decided to retain substantially all fixed rate loans with original
terms of less than 15 years (as well as bi-weekly payment loans) in the Bank's
portfolio. Prior to that time, substantially all fixed rate loans with terms
of ten years or more were sold in the secondary market. In addition, as
interest rates began to increase during 1994, loan origination volume, in
general, declined and consumer preference shifted somewhat toward adjustable
rate products, all of which are retained in the Bank's loan portfolio.
Currently, substantially all newly originated fixed-rate mortgage loans (except
for bi-weekly loans) with terms of 15 years or more have been sold in the
secondary market. At March 31, 1995, the Bancorp had $566,000 of loans held
for sale. This decrease was somewhat off-set by commission income increasing
to $222,000 for the nine month period ended March 31, 1995 from $152,000 for
the same period last year. This increase was due primarily to the acquisition
of the Rose Insurance Agency in March 1994 by Unifed, Inc. and the addition of
an experienced insurance agent in May 1994.
In total, other expenses increased $334,000, or 17.6%, for the nine month
period ended March 31, 1995 as compared to the same period in 1993. Salaries
and employee benefits increased 6.7%, from $831,000 for the nine months ended
March 31, 1994, to $887,000 for the same period this year. This increase was
due to normal salary increases for employees and the addition of staff in
Unifed, Inc. Occupancy
Page 11 of 15
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<PAGE> 124
PART I, FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNITED FINANCIAL BANCORP, INC.
March 31, 1995
(Continued)
and equipment expense increased 9.3%, to $224,000, for the nine month period
ended March 31, 1995, due in part to the loss of rental income from the branch
office closed during the period. Other operating expenses increased from
$521,000 for the nine month period ended March 31, 1994 to $752,000 for the
same period ended March 31, 1995. This increase was due primarily to $283,000
in expenses relating directly to the pending merger of United Financial
Bancorp, Inc. with National City Bancshares, Inc. (See Note 4). The expenses
included legal and professional fees for the Bancorp's counsel and other
advisors. Certain of these fees are contingent upon the consummation of the
sale of the Bancorp, but have been currently accrued based on management's
expectation that they will, ultimately, be payable. Without these expenses,
other operating expenses would have been $469,000, or 10.0% less than for the
same period last year. This $52,000 decline was due primarily to a general
reduction in expenses, including expenses incurred primarily to generate
certain loan originations.
Interest income for the quarter ended March 31, 1995 increased to $1,954,000,
up 7.7% for the same quarter last year. This increase was due to management's
decision to retain mortgage loans with terms of 15 years or less originated in
the period April 1994 through January 1995 in the portfolio where, in the same
period last year, these loans would have been sold in the secondary market. By
retaining these loans, the Bank was able to increase interest income as assets
earning a lower interest rate, such as short-term investments and interest
bearing accounts with financial institutions were redeployed in higher earning
mortgage loans. In January 1995, management determined that volume of loans
had reached the desired level and re-instituted the policy of selling new loans
originated with terms of 15 years or longer in the secondary market. Interest
expense remained relatively unchanged from the quarter ended March 31, 1994 to
the same quarter in 1995. Although rates paid on deposits with the Bank
increased from the quarter ended March 31, 1994 to the quarter ended March 31,
1995, a decline in the balance of deposits over the same period of time
resulted in little increase in expense.
Other income for the quarter ended March 31, 1995 declined 6.4%, to $162,000
compared to $173,000 for the same quarter last year. The decline in mortgage
banking revenues from $80,000 for the quarter ended March 31, 1994 to $39,000
for the same quarter this year was somewhat off-set by a 66.7% increase in
commissions to $80,000, up from $48,000 for the same quarter a year ago.
Other expenses increased $2,000 for the period ended March 31, 1995 from the
same quarter last year. Increases in salaries and employee benefits, occupancy
and equipment, and net expenses of other real estate owned were somewhat
off-set by a 10.4% decline in other operating expenses to $155,000, down from
$173,000 for the quarter ended March 31, 1994. This was due, in large part, to
a
Page 12 of 15
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<PAGE> 125
PART I, FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNITED FINANCIAL BANCORP, INC.
March 31, 1995
(Continued)
general reduction in expenses, including expenses incurred to generate loan
originations.
LIQUIDITY:
The Bancorp's liquidity is a measurement of its ability to raise cash when
needed without an adverse impact on earnings. Primary sources of asset
liquidity are securities maturing within one year and all time or demand
deposits in banks. Federal regulations require the Bank to maintain minimum
levels of liquid assets. The current regulation requires the maintenance of
liquid assets totalling at least 5% of net withdrawable savings deposits and
borrowings payable on demand or in one year or less. At March 31, 1995, the
Bank's liquid assets (as defined) totalled $14.5 million or 15.8%.
CAPITAL RESOURCES:
The Bancorp's equity totalled $12,218,000 at March 31, 1995, compared to
$11,827,000 at June 30, 1994. The majority of the change came from $329,000
net income recorded for the nine month period ended March 31, 1995. During the
nine month period ended March 31, 1995, 19,544 options were exercised, which
increased equity by $195,000. At March 31, 1995, 8,049 options remained
outstanding. Federally insured savings associations, such as the Bank, are
required to maintain minimum levels of regulatory capital. The regulations
currently require tangible capital (as defined) to total assets (as defined) to
be at least 1.5%, core capital (as defined) to total assets (as defined) to be
at least 3%, and risk-based capital (as defined) to risk-based assets (as
defined) to be at least 8.0%. At March 31, 1995, the Bank's capital ratios
were as follows:
<TABLE>
<CAPTION>
Amount % of
(in thousands) Applicable Assets
-------------- -----------------
<S> <C> <C>
Tangible capital $ 10,944 10.04 %
Requirement 1,636 1.50
-------- -----
Excess $ 9,308 8.54 %
======== =====
Core capital $ 10,944 10.04 %
Requirement 3,271 3.00
-------- -----
Excess $ 7,673 7.04 %
======== =====
Risk based capital $ 11,298 19.79 %
Requirement 4,568 8.00
-------- -----
Excess $ 6,730 11.79 %
======== =====
</TABLE>
Tangible and core capital differ from risk based capital due to the inclusion
of $354,000 of general loan loss reserve.
Page 13 of 15
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<PAGE> 126
PART II, OTHER INFORMATION
UNITED FINANCIAL BANCORP, INC.
March 31, 1995
Item 1. LEGAL PROCEEDINGS
The Bancorp is not a party to any pending legal proceedings before any court,
regulatory and administrative agency or other tribunal. Further, the Bancorp
is not aware of any litigation which is threatened against it in any court,
regulatory and administrative agency or other tribunal.
As part of its ordinary course of business, the Bank is party to several
lawsuits involving a variety of claims and in the collection of delinquent
accounts. All such litigation is incidental to the Bank's business. No
litigation is pending or threatened against the Bank in which the Bank faces
potential loss or exposure which would have a material effect upon the
financial condition of the Bank. The Bancorp and the Bank are not involved in
any administrative or judicial proceedings arising under any Federal, State, or
local provisions which have been enacted or adopted to regulate the discharge
of materials into the environment or otherwise relating to the protection of
the environment.
Item 2. CHANGES IN SECURITIES
None to be reported.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None to be reported.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None to be reported.
Item 5. OTHER INFORMATION
None to be reported.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits - None to be reported.
B. Form 8-K - An 8-K, dated January 5, 1995, announced that, on December 28,
1994, a definitive agreement had been reached for National City Bancshares,
Inc. to acquire the Registrant.
Page 14 of 15
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<PAGE> 127
PART II, OTHER INFORMATION
UNITED FINANCIAL BANCORP, INC.
SIGNATURES
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 thereunto duly authorized.
UNITED FINANCIAL BANCORP, INC.
(Registrant)
Date May 5, 1995 Janice L. Beesley
------------ ---------------------------------
Janice L. Beesley, President
(Principal Executive Officer)
Date May 5, 1995 W. Terry Allen
------------ ---------------------------------
W. Terry Allen
Treasurer (Principal Financial and
Accounting Officer)
Page 15 of 15
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<PAGE> 128
APPENDIX A
MERGER AGREEMENT
This is a MERGER AGREEMENT dated December 28, 1994, between National
City Bancshares, Inc. (hereinafter called "NCBE") and United Financial Bancorp,
Inc. (hereinafter called "United").
WITNESSETH:
NCBE is a corporation duly organized under the laws of the State of
Indiana. Its principal office is located at 227 Main Street, Evansville,
Vanderburgh County, Indiana. As of September 30, 1994, NCBE had authorized
capital stock consisting of 5,000,000 shares of common stock, par value $3.33
1/3 per share, ("NCBE Common Stock") of which a total of 3,693,254 shares were
issued and outstanding and none were shares of treasury stock owned by NCBE.
NCBE owns all of the outstanding capital stock of The National City Bank of
Evansville, Evansville, Indiana; The Peoples National Bank of Grayville,
Grayville, Illinois; The Farmers and Merchants Bank, Fort Branch, Indiana,
First Kentucky Bank, Sturgis, Kentucky; Lincolnland Bank, Dale, Indiana; The
State Bank of Washington, Washington, Indiana; The Spurgeon State Bank,
Spurgeon, Indiana; Pike County Bank, Petersburg, Indiana; and The Bank of
Mitchell, Mitchell, Indiana, (hereinafter referred to as "NCBE Banks") and NCBE
Leasing Corp., Evansville, Indiana; and
United is a corporation duly organized under the laws of the State of
Delaware. Its principal office is located at 619 Main Street, Vincennes,
Indiana. As of September 30, 1994, United had authorized capital stock
consisting of: (i) 2,000,000 authorized shares of common stock, $.01 par value
per share ("United Common Stock"), of which (a) 440,712 shares were issued and
outstanding; and (b) 19,288 were shares of treasury stock owned by United, and
(ii) 500,000 shares of preferred stock, none of which were either issued and
outstanding or were shares of treasury stock owned by United. United owns all
of the outstanding capital stock of
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United Federal Savings Bank of Vincennes, a federal savings bank, (hereinafter
referred to as "United Bank").
The Board of Directors of NCBE and the Board of Directors of United,
respectively, have unanimously approved the entering into of this Merger
Agreement and have authorized the execution and delivery of this Merger
Agreement. From and after the time the merger of United into NCBE shall become
effective, the "Merger" as defined in Section 1 of this Merger Agreement, and
as and when required by this Merger Agreement, NCBE will issue shares of NCBE
Common Stock in exchange for all of the issued and outstanding shares of United
Common Stock in accordance with the provisions hereinafter set forth. It is
understood by each of the parties hereto that NCBE seeks to acquire United and
all of the operating assets of United including United Bank and the entities
and assets which United or United Bank own or may acquire prior to the time the
Merger shall become effective, through the Merger of United with and into NCBE
under the charter of NCBE. At the effective time of the Merger United Bank will
remain an independent operating subsidiary of NCBE. The parties will exert
their best efforts to obtain such regulatory approvals and to complete such
other actions as are necessary or appropriate to effect the Merger.
In consideration of mutual covenants and premises herein contained,
NCBE and United hereby make this Merger Agreement and prescribe the terms and
conditions of the Merger and the mode of carrying the Merger into effect as
follows:
1. Merger. Subject to the terms and conditions hereinafter set forth,
United shall be merged with and into NCBE under the Articles of
Incorporation of NCBE pursuant to and in accordance with the
applicable provisions of the laws of the States of Indiana and
Delaware.
2. Name. The name of the surviving corporation (hereinafter called the
"Surviving Corporation" whenever reference is made to it as of the
time the Merger shall become effective, as hereinafter provided, or
thereafter) shall be "National City Bancshares, Inc."
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3. Business. The business of NCBE as the Surviving Corporation shall be
that of a financial institution holding company. The Surviving
Corporation shall exist by virtue of, and be governed by the laws of
the State of Indiana, shall have its registered office in Indiana at
227 Main Street, Evansville, Vanderburgh County, Indiana and shall
have its principal office at that same location.
4. Effective Time of Merger: Articles of Merger. The Merger shall
become effective upon the filing of the appropriate Articles of Merger
with the appropriate state authorities (the "time the Merger shall
become effective") in accordance with applicable provisions of the
laws of the States of Indiana and Delaware.
The Articles of Incorporation of NCBE in effect immediately prior to
the time the Merger shall become effective, shall be the Articles of
Incorporation of the Surviving Corporation, and the Bylaws of NCBE in
effect immediately prior to the time the Merger shall become
effective, shall be the Bylaws of the Surviving Corporation.
5. Effect of Merger. At the time the Merger shall become effective, the
separate corporate existence of United and NCBE, respectively, shall,
in accordance with applicable provisions of the laws of the State of
Indiana and the State of Delaware, be merged into and continued in
NCBE as the Surviving Corporation with the effect as provided by
Section 23-1-40-6 of the Indiana Business Corporation Law and the
provisions of Section 252 of the Delaware General Business Corporation
Law.
6. Liabilities upon Merger. The Surviving Corporation shall be
responsible for all of the liabilities and obligations of each of the
corporations so merged in the same manner and to the same extent as if
such single corporation had itself incurred the same or contracted
therefore.
7. Conversion of Shares.
(a) At the time the Merger shall become effective;
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(i) All of the outstanding shares of United Common Stock,
other than Dissenting Shares (as defined in Section
11 hereof), shall be converted into and exchanged for
shares of NCBE Common Stock (or cash for fractional
shares) in accordance with the Exchange Ratio (as
defined herein). In determining the total number of
shares of NCBE Common Stock to be issued to
shareholders of United, the value of each share of
NCBE Common Stock shall be the average price per
share of NCBE Common Stock for the twenty business
days immediately preceding the effective date of the
Merger (the "Average Price"). For purposes hereof,
Average Price shall be based upon information
reported by the NASDAQ National Market System, and
shall mean with respect to NCBE Common Stock, the
quotient resulting from: (a) the sum of the product
of; (i) the numerical average of the reported high
and low price per share, for each of the twenty
business days immediately preceding the effective
date of the Merger; times (ii) the total number of
shares of NCBE Common Stock traded on each of such
business days, respectively; divided by (b) the
aggregate number of shares traded during such twenty
business day period, provided that should the Average
Price be less than $40.50 per share, then $40.50 per
share shall be utilized as the Average Price. Should
the Average Price be more than $49.50 per share, then
$49.50 shall be utilized as the Average Price.
(ii) Notwithstanding the foregoing, the dollar amounts and
the 10% range set forth in the preceding two
sentences shall be appropriately adjusted to reflect
any recapitalization, reorganization, split-up,
merger, consolidation, exchange, stock or other
dividend or distribution (other than regular
quarterly cash dividends) made, declared or effective
on a pro-rata basis
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with respect to all issued and outstanding NCBE
Common Stock (a "Stock Adjustment") arising between
the date hereof and the time the Merger becomes
effective. Provided however, that in the event a
Stock Adjustment (as herein defined) occurs during
the trading days described above then the trading
days for the period prior to the Stock Adjustment
will be eliminated in calculating the Average Price.
(iii) The outstanding shares of United Common Stock other
than Dissenting Shares shall, at the time the Merger
shall become effective, automatically and without any
act or deed on the part of the holder thereof be
converted into and exchangeable for (x) newly issued,
fully paid and non-assessable whole shares of NCBE
Common Stock at the Exchange Ratio and (y) cash in
lieu of any fractional shares of NCBE Common Stock as
provided in Section 7(b) hereof. The "Exchange
Ratio" means the number resulting from dividing
$44.40 by the Average Price, rounded to the sixth
decimal place, appropriately adjusted for any stock
dividends or stock splits with respect to United
Common Stock after the date of this Merger Agreement.
(iv) Each of the shares of United Common Stock, if any,
held by United in its treasury immediately prior to
the time the Merger shall become effective shall be
canceled; and
(v) The shares of NCBE Common Stock issued and
outstanding immediately prior to the time the Merger
shall become effective shall continue to be issued
and outstanding shares of the Surviving Corporation.
(b) No fractional shares or scrip representing fractional shares
of NCBE Common Stock will be issued by NCBE in connection with
the Merger, but in lieu thereof, any holder of United Common
Stock shall, upon surrender of the certificate or certificates
formerly representing such United Common Stock, be paid cash,
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<PAGE> 133
without interest, by NCBE for such fractional share(s). The
cash paid for fractional shares shall be based upon the
Average Price.
(c) As soon as practicable after the time the Merger shall become
effective, and subject to the provisions set forth above
relating to the fractional shares, the Trust Department of The
National City Bank of Evansville, will distribute to the
former holders of United Common Stock in exchange for and upon
surrender for cancellation by such holders of a certificate or
certificates formerly representing shares of United Common
Stock the certificate(s) for newly issued, fully paid and non-
assessable shares of NCBE Common Stock in accordance with the
Exchange Ratio and any cash payment in lieu of fractional
shares. Each certificate formerly representing United Common
Stock (other than certificates representing Dissenting
Shares) shall be deemed for all purposes to evidence the
ownership of the number of whole shares of NCBE Common Stock
and cash for fractional share interests in NCBE Common Stock
into which such shares have been converted pursuant to the
Exchange Ratio. Certificates representing shares of United
Common Stock held by a shareholder of United, shall be
aggregated together in determining the fractional share for
which such shareholder shall receive cash as provided for
herein. Until surrender of the certificate or certificates
formerly representing shares of United Common Stock, the
holder thereof shall not be entitled to receive any dividend
or other payment or distribution payable to holders of NCBE
Common Stock. Upon such surrender (or in lieu of surrender
other provisions reasonably satisfactory to NCBE as are made
as set forth herein below), there shall be paid to the person
entitled thereto the aggregate amount of dividends or other
payments or distributions (in each case without interest)
which became payable after the time the Merger shall become
effective on the whole shares of NCBE Common Stock represented
by
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<PAGE> 134
the certificates issued upon such surrender and exchange or in
accordance with such other provisions, as the case may be.
Certificates formerly representing shares of United Common
Stock surrendered for cancellation by each shareholder
entitled to exchange shares of United Common Stock for shares
of NCBE Common Stock by reason of the Merger shall be
accompanied by such customary instruments of transfer as NCBE
may reasonably require, provided, however, that if there be
delivered to NCBE by any person who is unable to produce any
such certificate formerly representing shares of United Common
Stock for transfer (i) evidence to the reasonable satisfaction
of NCBE that any such certificate has been lost, wrongfully
taken or destroyed, and (ii) such indemnity agreement as
reasonably may be requested by NCBE to save it harmless, and
(iii) evidence to the reasonable satisfaction of NCBE that
such person is the owner of the shares theretofore represented
by each certificate claimed by him to be lost, wrongfully
taken or destroyed and that he is the person who would be
entitled to present each such certificate and to receive
shares of NCBE Common Stock pursuant to this Merger Agreement,
then NCBE, in the absence of actual notice to it that any
shares theretofore represented by any such certificate have
been acquired by a bona fide purchaser, shall deliver to such
person the certificate(s) representing shares of NCBE Common
Stock which such person would have been entitled to receive
upon surrender of each such lost, wrongfully taken or
destroyed certificate representing shares of United Common
Stock.
8. Board of Directors. The Board of Directors of NCBE as constituted at
the time the Merger shall become effective and Janice L. Beesley shall
serve as the Board of Directors of NCBE as the Surviving Corporation.
The Board of Directors of NCBE will, at the time the Merger shall
become effective, appoint and elect Janice L. Beesley as a Director
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of NCBE for the longest term available under NCBE's Articles of
Incorporation and Bylaws.
9. Discussions with Others. United or its officers, directors or agents
will not directly or indirectly, solicit, authorize, initiate or
encourage submission of, any proposal, offer, tender offer or exchange
offer from any person relating to any liquidation, dissolution,
recapitalization, merger, consolidation or acquisition or purchase of
all or a substantial portion of the assets or deposits of, or any
material equity interest in, United or any of its wholly-owned
subsidiaries or other similar transaction or business combination
involving United or any of its wholly-owned subsidiaries while this
Agreement is pending, unless the Board of Directors of United shall
have determined, after consultation with United's outside counsel,
that there is a reasonable likelihood that the Board of Directors of
United has a fiduciary duty to do so (or to authorize or direct the
United's officers or agents to do so), (a) participate in any
negotiations in connection with or in furtherance of any of the
foregoing, (b) permit any person other than NCBE and its
representatives to have any access to the facilities of, or (c)
furnish to any person other than NCBE and its representatives any non-
public information with respect to, United or any of its wholly-owned
subsidiaries in connection with or in furtherance of any of the
foregoing. United shall promptly notify NCBE if any such proposal or
offer, or any inquiry from or contact with any person with respect
thereto, is made, and shall promptly provide NCBE with such
information regarding the identity of the person making such proposal,
offer, inquiry or contact as NCBE may reasonably request. Nothing
herein shall be deemed to prohibit United or its Board of Directors
from complying with Rules 14d-9 and 14e-2 under the Securities
Exchange Act of 1934 (the "1934 Act") or with any other applicable
laws, regulations or directives of any public authority, or from
making any disclosure to the United's shareholders which, in the
judgment of its Board of Directors, may be required under applicable
law.
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10. Undertakings of the Parties. NCBE and United further agree as
follows:
(a) Subject to the fiduciary duty of the United Board of
Directors, this Merger Agreement shall be submitted to the
shareholders of United and, if required, to the shareholders
of NCBE, for approval and adoption at separate meetings to be
called and held in accordance with law and the Articles or
Certificate of Incorporation and Bylaws of United and NCBE.
(b) NCBE and United will cooperate in the preparation of
applications to the Board of Governors of the Federal Reserve
System (the "Board") and The Office of Thrift Supervision (the
"OTS") and to any other state or federal regulatory agency
which may be required to facilitate the Merger. For the
purpose (i) of holding meetings of shareholders of United and
NCBE, if required, to approve this Merger Agreement and the
Merger and (ii) of registering with the Securities and
Exchange Commission ("SEC") and with applicable state
securities authorities the NCBE Common Stock to be issued as
contemplated by this Merger Agreement, the parties hereto
shall cooperate in the preparation of an appropriate
registration statement (such registration statement, together
with all and any amendments and supplements thereto, being
herein referred to as the "Registration Statement"), which
shall include a prospectus/proxy statement satisfying all
applicable requirements of the Securities Act of 1933 (the
"1933 Act"), the 1934 Act, applicable state securities laws
and the rules and regulations thereunder (such
prospectus/proxy statement, together with any and all
amendments or supplements thereto, being herein referred to as
the "Prospectus/Proxy Statement"). United shall have the
right to review and approve such Registration Statement prior
to filing with the SEC. NCBE shall promptly file the
Registration Statement with the SEC and applicable state
securities agencies. NCBE shall use reasonable efforts to
cause the Registration Statement to become effective under the
1933
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<PAGE> 137
Act and applicable state securities laws at the earliest
practicable date. United authorizes NCBE to utilize in the
Registration Statement information concerning United, its
wholly-owned subsidiaries, and its securities provided to NCBE
for the purpose of inclusion in the Prospectus/Proxy
Statement. NCBE shall advise United promptly when the
Registration Statement has become effective and of any
supplements or amendments thereto, and NCBE shall furnish
United with copies of all such documents. Prior to the time
the Merger shall become effective or the termination of this
Merger Agreement, each party shall consult with the other with
respect to any material (other than the Prospectus/Proxy
Statement) that might constitute a "prospectus" relating to
the Merger within the meaning of the 1933 Act.
(c) Each party will assume and pay all of its fees and expenses
incurred by it incident to the negotiation, preparation and
execution of this Merger Agreement, obtaining of the requisite
regulatory and shareholder consents and approvals and all
other acts incidental to, contemplated by or in pursuance of
this Merger Agreement. NCBE shall promptly prepare and file
at no expense to United: (i) any and all required regulatory
applications necessary in connection with the transactions
contemplated by this Merger Agreement; and (ii) the
Registration Statement. NCBE will also take any action
required to be taken under any applicable state securities or
"Blue Sky" laws in connection with the Merger.
(d) All information furnished by one party to another party in
connection with this Merger Agreement and the transactions
contemplated hereby will be kept confidential by such other
party and will be used only in connection with this Merger
Agreement and the transactions contemplated hereby, except to
the extent that such information: (i) is already known to
such other party when received; (ii) thereafter becomes
lawfully obtainable from other sources; or (iii) is required
to
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<PAGE> 138
be disclosed in any document filed with the SEC, the Board, or
any other governmental agency or authority (the "Confidential
Information"). In the event that this Merger Agreement is
terminated, each party will return to the other party or
destroy any documents received by it from the other party that
contain any such Confidential Information.
(e) After (i) receipt of the Board's and the OTS's prior approval,
(ii) the approval of the shareholders of United and, if
required NCBE, as provided in Section 10(a) has occurred; and
(iii) the regulatory waiting period(s) have expired, NCBE
shall designate the date as of which NCBE desires the Merger
to become effective and the time the Merger shall become
effective shall occur at the time and on the date so
designated, consistent with the terms of Section 4 hereof.
However, any date so specified shall not be later than either
(a) the first of the month immediately following the month in
which the last of the events described above (i-iii) occurs if
said event occurs before the twenty-first day of such month or
(b) the first day of the second month immediately following
such month if the last of the events described above occurs
after the twentieth day of such month.
(f) Subject to the terms and conditions of this Merger Agreement,
NCBE and United each agree that, subject to applicable laws
and, in the case of United only, to the fiduciary duties of
its Directors, each will promptly take or cause to be taken
all action, and promptly do or cause to be done all things
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the Merger and
other transactions contemplated by this Merger Agreement.
(g) As soon as practicable following the time the Merger shall
become effective, eligible employees of United and United
Bank shall be entitled to participate in all employee benefit
plans of NCBE. For purposes of eligibility and vesting in:
(i)
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the NCBE Employees' Profit Sharing Plan ("NCBE Profit Plan")
and, (ii) in the event of the merger of the Financial
Institutions Retirement Fund ("FIRF") pension plan sponsored
by United (the "United Pension Plan") with the NCBE's
Employees' Plan for Pensions (the "NCBE Pension Plan"), the
NCBE Pension Plan, employees of United and United Bank shall
be given credit for their years of service as employees of
United or United Bank. Subject to the foregoing, and provided
that the United Pension Plan is merged with the NCBE Pension
Plan, employees of United and United Bank shall begin to
accrue credit for benefit accruals under the NCBE Pension Plan
at the earliest entry date (January 1 or July 1) following the
effective time of the Merger without offset or reduction for
the benefits they had accrued under the United Pension Plan.
In the event that the United Pension Plan is terminated at the
direction of NCBE as hereinafter provided for, employees of
United shall, for purposes of eligibility, vesting and benefit
accrual under the NCBE Pension Plan, be considered new
employees of NCBE. In the event that such employees shall not
commence accruing credit for benefit accrual purposes upon the
commencement of employment with NCBE, then they shall continue
to accrue benefits under the United Pension Plan, if entitled,
until such time as they shall be entitled to commence the
accrual of benefits under the NCBE Pension Plan without offset
or reduction for the benefits they had accrued under the
United Pension Plan.
(h) At the request of NCBE, United shall, prior to the time the
Merger shall become effective, take such actions as shall be
necessary or desirable to cause the United Pension Plan and
the FIRF Thrift Plan sponsored by United and United Bank (the
"United 401(k) Plan") to be terminated at or after the
effective date of Merger and/or be merged with the NCBE
Pension Plan and the NCBE Profit Plan, respectively, in
accordance with the applicable requirements of ERISA. In all
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events, the United and United Bank employees who participate
in the United Pension Plan and/or the United 401(k) Plan shall
incur no reduction in their account balance or accrued benefit
or lose any rights or benefits they had accrued under the
United Pension Plan and/or the United 401(k) Plan prior to
such termination or merger. In the event that the United
Pension Plan and the NCBE Pension Plan are not merged and
employees of United are considered new employees of NCBE on
the effective date of the Merger for purposes of determination
of eligibility and vesting under the NCBE Pension Plan, then
the United Pension Plan shall, subject to the provisions of
ERISA, be continued in effect for the employees of United and
United Bank (solely with respect to those persons employed as
of the effective date of the Merger) until such persons are
eligible on the basis of length of service to accrue benefits
under the NCBE Pension Plan on the same basis as the
employees of NCBE.
(i) Subject to the fiduciary duty of the NCBE Board of Directors,
NCBE undertakes to cause, immediately after the effective
date of the Merger the continuance as Directors of United Bank
to January, 1996, with at least the same compensation and
benefits, subject to any retirement policies of NCBE or United
Bank as in effect as of the date of this Agreement, all those
persons serving as Directors of such bank immediately prior to
the effective time of the Merger, plus one additional person
to be named by NCBE may be added to the Board of Directors of
United Bank.
(j) NCBE will maintain "current public information" within the
meaning of Rule 144 for three (3) years following the
effective date.
(k) NCBE, United, and their Directors and Executive Officers shall
not cause any transactions in NCBE Common Stock during the 20
business days immediately preceding the effective date of the
Merger.
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(l) NCBE shall assume and maintain the non-qualified deferred
compensation plan for the directors of United Bank who
currently participate in the aforesaid plan and shall permit
such directors who currently participate in such plan to
continue to defer their directors' fees on a tax-deferred
basis in the same amount currently being deferred until June
30, 1998. After June 30, 1998, the amount of United Bank
directors' fees that had been deferred by Janice Beesley shall
be paid to her as part of her annual salary.
(m) NCBE shall, at such time as is recommended by its accountants,
McGladrey and Pullen, sell approximately 75,000 shares of its
common stock acquired by it during 1994, pursuant to its stock
repurchase program. NCBE shall use its best efforts to cause
such sale to remove any "taint" attached to such shares which
taint may make pooling of interest accounting for the Merger
unavailable.
(n) United shall use its best efforts to cause the termination of
the United Bank employment contacts with Janice L. Beesley, G.
Jeffrey Palmer and Patrick W. Lenahan at or immediately prior
to the effective time of the Merger.
11. Dissenting Shareholders. Holders of United Common Stock who do not
vote their shares in favor of the Merger and otherwise comply in all
respects to perfect dissenters' rights with respect to their shares
("Dissenting Shares"), will be entitled to dissenters' or appraisal
rights, if any, pursuant to and solely upon strict compliance with,
the applicable provisions of Delaware law.
12. Tax Opinion. NCBE, for the benefit of the United shareholders shall
obtain a written opinion of Werner & Blank Co., L.P.A. to the effect
that:
(a) The statutory merger of United with and into NCBE will
constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code;
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(b) No gain or loss will be recognized by United or NCBE as a
consequence of the transactions herein contemplated;
(c) No gain or loss will be recognized by the shareholders of
United on the exchange of their shares of United Common Stock
for shares of NCBE Common Stock (disregarding for this purpose
any cash received for fractional share interests to which they
may be entitled);
(d) The federal income tax basis of the NCBE Common Stock received
by the shareholders of United Common Stock for their shares of
United Common Stock will be the same as the federal income tax
basis of the United Common Stock surrendered in exchange
therefor; and
(e) The holding period of the NCBE Common Stock received by a
shareholder of United for his shares of United Common Stock
will include the period for which the United Common Stock
exchanged therefor was held, provided the exchanged United
Common Stock was held as a capital asset by such shareholder
on the date of the exchange.
13. Representations and Warranties of NCBE. NCBE represents and warrants
to United as follows:
(a) NCBE is a corporation duly organized and validly existing
under the laws of the State of Indiana, is a registered bank
holding company under the Bank Holding Company Act of 1956, as
amended, and is qualified to do business in the State of
Indiana, together with all other jurisdictions where it is
both required to so qualify and the failure to so qualify
would have a Material Adverse Effect on NCBE. For purposes of
this Merger Agreement, the term "Material Adverse Effect"
means, with respect to either NCBE or United, any condition,
event, change or occurrence that has caused a material adverse
change in the business, operations, results of operations or
financial condition of such entity and its wholly-owned
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subsidiaries on a consolidated basis, but shall not include
(i) an adverse change with respect to, or effect on, such
entity or its wholly-owned subsidiaries resulting from a
change in law, rule, regulation, generally accepted accounting
principles or regulatory accounting principles (as such would
apply to the financial statements of such entity), (ii) an
adverse change with respect to, or effect on, such entity
resulting from expenses incurred in connection with this
Agreement or the transactions contemplated hereby, or (iii) an
adverse change with respect to, or effect on, such entity or
its wholly-owned subsidiaries resulting from any other matter
affecting federally insured depository institutions or their
holding companies, regulated mortgage lenders or mortgage
originators generally, including (without limitation) judicial
decisions, changes in general economic conditions and changes
in prevailing interest and deposit rates. NCBE has full power
and authority (including all licenses, franchises, permits and
other governmental authorizations which are legally required)
to engage in the businesses and activities now conducted by
it. As of September 30, 1994, the authorized capital stock of
NCBE consisted of 5,000,000 shares of common stock, par value
$3.33 1/3 per share of which a total of 3,693,254 shares were
issued and outstanding and no shares were held by NCBE as
treasury stock. All of said shares of capital stock are fully
paid and nonassessable and are not issued in violation of the
preemptive rights of any shareholder. There are no
outstanding options, warrants or commitments of any kind
relating to NCBE's capital stock.
(b) NCBE has furnished to United copies of the following financial
statements relating to NCBE and its consolidated subsidiaries:
(i) the audited Consolidated Balance Sheets of NCBE as of
December 31, 1993 and 1992 and the Consolidated Statements of
Income, Shareholders' Equity and Statements of Cash Flows for
the years ended December 31, 1993, 1992, and 1991, together
with the notes thereto,
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and (ii) the unaudited Consolidated Balance Sheet of NCBE as
of September 30, 1994, and the unaudited Consolidated
Statements of Income and Shareholders' equity for the period
then ended. Each of the aforementioned financial statements
was prepared in accordance with generally accepted accounting
principles, consistently applied and is true and correct in
all material respects and together present fairly the
consolidated financial position and results of operations of
NCBE as of the dates and for the periods therein set forth
(subject, in the case of such interim financial statements, to
normal year-end audit adjustments and to the absence of
footnotes), except for the effect of the pending acquisition
of White County Bank, Carmi, Illinois, pursuant to the terms
of an Agreement and Plan of Reorganization dated December 12,
1994. Such financial statements do not, as of the dates
thereof, include any material asset or omit any material
liability, absolute or contingent, or other fact, the
inclusion or omission of which renders such financial
statements, in light of the circumstances under which they
were made, misleading in any material respect. Since December
31, 1993, NCBE has not suffered a Material Adverse Effect.
(c) The Board of Directors of NCBE has authorized execution of
this Merger Agreement and approved the merger of United and
NCBE as contemplated by this Merger Agreement. NCBE has all
requisite power and authority to enter into this Merger
Agreement and NCBE has the authority to consummate the
transactions contemplated hereby. This Merger Agreement
constitutes the valid and legally binding obligation of NCBE
and this Merger Agreement and the consummation hereof has been
duly authorized and approved on behalf of NCBE by all
requisite corporate action. Provided the required approvals
are obtained from the Board and OTS, neither the execution and
delivery of this Merger Agreement nor the consummation of the
Merger will conflict with, result in the breach of, constitute
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a default under or accelerate the performance provided by the
terms of any law, or any rule or regulation of any
governmental agency or authority or any judgment, order or
decree of any court or other governmental agency to which NCBE
may be subject, any contract, agreement or instrument to which
NCBE is a party or by which NCBE is bound or committed, or the
Articles of Incorporation or Bylaws of NCBE, or constitute an
event which with the lapse of time or action by a third party,
could, to the best of NCBE's knowledge, result in the default
under any of the foregoing or result in the creation of any
lien, charge or encumbrance upon any of the assets or
properties of NCBE or upon any of the stock of NCBE, except,
however, in the case of contracts, agreements or instruments,
such defaults, conflicts or breaches which either (i) will be
cured or waived prior to the time the Merger becomes
effective, or (ii) if not so cured or waived would not, in the
aggregate, have a Material Adverse Effect on NCBE.
(d) There is no litigation, action, suit, investigation or
proceeding pending or, to the best of its knowledge after due
inquiry of its executive officers, threatened, against or
affecting NCBE or its wholly-owned subsidiaries or involving
any of their respective properties or assets, at law or in
equity, before any federal, state, municipal, local or other
governmental authority, involving a material amount which, if
resolved adversely to the interest of NCBE or its
subsidiaries, would materially affect the consolidated
financial condition or operations of NCBE and its wholly-owned
subsidiaries or its ability to perform under this Merger
Agreement, and to the best of its knowledge and belief after
due inquiry of its executive officers, no one has asserted and
no one has reasonable or valid grounds on which it reasonably
can be expected that anyone will assert any such claims
against NCBE or its wholly-owned subsidiaries based upon the
wrongful action or
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inaction of NCBE or its subsidiaries or any of their
respective officers, directors or employees.
(e) At the time the Merger shall become effective and on such
subsequent date when the former shareholders of United
surrender their United share certificates for cancellation,
the shares of NCBE Common Stock to be received by shareholders
of United will have been duly authorized and validly issued by
NCBE, will be fully paid and nonassessable, and the
Registration Statement and all amendments with respect thereto
shall have been declared effective by the SEC with respect to
the shares of NCBE Common Stock to be received by the
shareholders of United.
(f) NCBE has not incurred and will not incur directly or
indirectly any liability for brokerage, finders', agents' or
investment bankers' fees or commissions in connection with
this Merger Agreement or the transactions contemplated
thereby.
(g) The Employees' Savings and Profit Sharing Plan of National
City Bancshares, Inc. and the Plan for Pensions of National
City Bancshares, Inc. (hereinafter referred to collectively as
the "plans") which purports to be a qualified plan under
Section 401(a) of the Internal Revenue Code is so qualified
and is in compliance in all material respects with the
applicable requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). All material
notices, reports and other filings required under applicable
law to be given or made to or with any governmental agency
with respect to the plans have been timely filed or delivered
where failure to file will result in a penalty or result in
disqualification of the plan. NCBE has no knowledge either of
any circumstances which would adversely affect the
qualifications of the plans or their compliance with the
applicable requirements of ERISA, or of any "reportable event"
(as such term is defined in Section 4043(b) of ERISA) or any
"prohibited transaction" (as such term is defined in Section
406 of ERISA and Section 4975(c) of the Internal
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Revenue Code) which has occurred since the date on which said
section became applicable to the plans. The plans which are
defined benefit plans within the meaning of ERISA meet the
minimum funding standards set forth in the Internal Revenue
Code and ERISA.
(h) NCBE has filed all reports, forms and registration statements
(collectively, "SEC Documents") required to be filed by it
pursuant to the 1933 Act, as amended, and the 1934 Act, as
amended for periods ending after January 1, 1985, and such SEC
Documents complied in all material respects with the 1933 Act
and the 1934 Act and all applicable rules and regulations
promulgated thereunder (the "SEC Laws"). NCBE has delivered
to United copies of the Annual Report on Form 10-K filed with
the Securities and Exchange Commission by NCBE for its fiscal
years ended December 31, 1993, 1992, and 1991 including
exhibits and all documents incorporated by reference therein,
and the proxy materials disseminated by NCBE to its
shareholders in connection with the 1994 Annual Meeting of
Shareholders of NCBE; such Annual Report and proxy materials
do not misstate a material fact or omit to state a material
fact necessary in order to make the statements contained
therein, in light of the circumstances under which they are
made, not misleading.
(i) Since December 31, 1993, each of NCBE and its subsidiaries has
conducted business only in the ordinary course, and has
preserved its corporate existence, business and goodwill
intact, except for the sale during 1994, by NCBE of its
interest in its non-bank subsidiary, Ayer-Wagoner-Deal
Insurance Agency, Inc., and the merger of two of its wholly
owned subsidiary banking corporations, namely, Poole Deposit
Bank and Farmers State Bank, which merger was effective
December 1, 1994.
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(j) NCBE and the NCBE Banks each have good and marketable title to
all assets and properties, whether real or personal, tangible
or intangible, including without limitation the capital stock
of the NCBE Banks and all other assets and properties
reflected as owned by it or them in NCBE's Balance Sheet of
September 30, 1994, or acquired subsequent thereto (except to
the extent that such assets and properties have been disposed
of for fair value in the ordinary course of business since
September 30, 1994) subject to no liens, mortgages, security
interests, encumbrances, pledges or charges of any kind,
except: (i) those items that secure liabilities that are
reflected in said Balance Sheet; (ii) statutory liens for
taxes not yet delinquent; and (iii) minor defects and
irregularities in title and encumbrances which do not
materially impair the use thereof for the purposes for which
they are held; and such liens, mortgages, security interests,
encumbrances and charges which are not in the aggregate,
material to the assets and properties of NCBE. NCBE or the
NCBE Banks as lessee has the contractual right under valid
leases to occupy, use, possess and control all material
property leased by NCBE or the NCBE Banks.
(k) To the best of its knowledge after due inquiry of its
executive officers, NCBE and the NCBE Banks have complied with
all laws, regulations and orders applicable to them and to the
conduct of their businesses, including without limitation, all
statutes, rules and regulations pertaining to the conduct of
banking activities except for possible technical violations
which together with any penalty which results therefrom are or
will be of no material consequence to either NCBE or the NCBE
Banks. Neither NCBE nor any of the NCBE Banks are the subject
of, nor a party to, any regulatory action or agreement such as
letter agreements, memorandum of understanding, cease and
desist orders or like agreements. Neither NCBE nor the NCBE
Banks are in default under, and no event has
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occurred which, with the lapse of time or action by a third
party, could, to the best of NCBE's knowledge after due
inquiry of its executive officers, result in the default under
the terms of any judgment, decree, order, writ, rule or
regulation of any governmental authority or court, whether
federal, state or local and whether at law or in equity, where
the default(s) could reasonably be expected to have a Material
Adverse Effect on NCBE.
(l) NCBE has duly filed all federal, state, county and local
income, excise, real and personal property and other tax
returns and reports (including, but not limited to, social
security, withholding, unemployment insurance, and sales and
use taxes) required to have been filed by NCBE up to the date
hereof (excluding any return or report for which a current
valid extension is in effect. To the best of the knowledge
and belief of NCBE after due inquiry of its executive
officers, all such returns are true and correct in all
material respects, and NCBE has paid or, prior to the time the
Merger shall become effective, will pay all taxes, interest
and penalties shown on such return or reports or claimed
(other than those claims being contested in good faith and
which have been disclosed to United) to be due to any federal,
state, county, local or other taxing authority, and there is,
and at the time the Merger shall become effective will be, no
basis known to the executive officers of NCBE for any
additional claim or assessment which might result in a
Material Adverse Effect on NCBE, and for which an adequate
reserve has not been established. To the best of its
knowledge and belief after due inquiry of its executive
officers, NCBE has paid or made adequate provision in its
financial statements or its books and records for all taxes
payable in respect of all periods ending as of the date
thereof. To the best of its knowledge and belief after due
inquiry of its executive officers, NCBE has, or at the time
the Merger shall become effective will have, no material
liability for any taxes, interest or
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penalties of any nature whatsoever, except for those taxes
which may have arisen up to the time the Merger shall become
effective in the ordinary course of business and are properly
accrued on the books of NCBE as of the time the Merger shall
become effective.
(m) To the best of its knowledge and belief, but without having
undertaken an environmental audit or investigation, NCBE has
no knowledge of any underground storage tanks, any hazardous
substances, hazardous waste, pollutant or contaminant,
including, but not limited to, asbestos (except as previously
disclosed to United in a letter of even date herewith), PCB's
or urea formaldehyde, having been generated, released into,
stored or deposited over, upon or below (in storage tanks or
otherwise) any real property currently or to be owned or
leased by NCBE or any of its wholly-owned subsidiaries, or
into any water systems on or below the surface any real
property currently or to be owned or leased by NCBE or any of
its wholly-owned subsidiaries from any source whatsoever. As
used in this Merger Agreement, the terms "hazardous
substance," "hazardous waste," "pollutant" and "contaminant"
mean any substance, waste pollutant or contaminant included
within such terms under any applicable Federal, state or local
statute or regulation.
(n) NCBE and the NCBE Banks have in effect insurance coverage with
reputable insurance underwriters, which in respect of amounts,
premiums, types and risksinsured, constitutes reasonably
adequate coverage against all risks customarily insured
against by companies comparable in size and operation to NCBE
and the NCBE Banks.
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14. Representations and Warranties of United. United represents and
warrants to NCBE as follows:
(a) United is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware, is a
registered savings and loan holding company under the Home
Owners' Loan Act, as amended. United has full power and
authority (including all licenses, franchises, permits and
other governmental authorizations which are legally required)
to engage in the businesses and activities now conducted by
it. As of the date of this Merger Agreement, the authorized
capital stock of United consists of; (i) 2,000,000 shares of
common stock with $.01 par value, of which a total of 440,712
shares are issued and outstanding and of which 19,288 are
shares of treasury stock owned by United, and (ii) 500,000
shares of preferred stock, none of which are either issued and
outstanding or are shares of treasury stock owned by United.
All of said shares of capital stock are fully paid and
nonassessable and are not issued in violation of the
preemptive rights of any shareholder. There are no
outstanding options, warrants or commitments of any kind
relating to United's capital stock except options to purchase
26,698 shares of United Common Stock at a price of $10.00 per
share issued pursuant to United's 1992 Stock Option and
Incentive Plan adopted in 1992.
(b) United has furnished to NCBE copies of all its audited
financial statements relating to United and its subsidiaries,
as of June 30, 1994 and 1993 and for each of the fiscal years
ended June 30, 1994, 1993, and 1992. United has furnished to
NCBE copies of all financial statements relating to United and
its subsidiaries, as filed with the appropriate regulatory
agencies, as of and for the interim period ended September 30,
1994. Each of the aforementioned financial statements is
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prepared in accordance with generally accepted accounting
principles or applicable regulatory accounting principles
applicable to the United Bank, consistently applied and is
true and correct in all material respects and together
present fairly the consolidated financial position and results
of operations of United as of the dates and for the periods
therein set forth (subject, in the case of such interim
financial statements, to normal year-end adjustments and the
absence of footnotes). Such financial statements do not, as of
the dates thereof, include any material asset or omit any
material liability, absolute or contingent, or other fact, the
inclusion or omission of which renders such financial
statements, in light of the circumstances under which they
were made, misleading in any material respect, except for
certain contingent liabilities which are disclosed in United's
letter to NCBE of even date herewith. Since June 30, 1994,
United has not suffered a Material Adverse Effect.
(c) The Board of Directors of United has authorized execution of
this Merger Agreement. Subject to the approval by the OTS and
the shareholders of United, United has all requisite power and
authority to enter in this Merger Agreement. United owns all
of the shares of United Bank. United has the authority to
consummate the transactions contemplated hereby, provided all
required corporate and regulatory approvals are obtained, so
that neither the execution and delivery of this Merger
Agreement nor the consummation of the Merger will conflict
with, result in the breach of, constitute a default under or
accelerate the performance provided by the terms of any law,
or any rule or regulation of any governmental agency or
authority or any judgment, order or decree of any court or
other governmental agency to which United may be subject, any
contract, agreement or instrument to which United is a party
or by which United is bound or committed, or the Certificate
of Incorporation or Bylaws of United, or
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constitute an event which with the lapse of time or action by
a third party, could, to the best of United's knowledge,
result in the default under any of the foregoing or result in
the creation of any lien, charge, encumbrance upon any of the
assets, property or capital stock of United, except, however,
in the case of contracts, agreements or instruments, such
defaults, conflicts or breaches which either (i) will be cured
or waived prior to the time the Merger becomes effective, or
(ii) if not so cured or waived would not, in the aggregate,
have a Material Adverse Effect on United.
(d) Other than as disclosed on the United Document List there is
no litigation, action, suit, investigation or proceeding
pending or, to the best of its knowledge after due inquiry of
its executive officers, overtly threatened, against or
affecting United or its wholly-owned subsidiaries or involving
any of their respective properties or assets, at law or in
equity, before any federal, state, municipal, local or other
governmental authority, involving a material amount which, if
resolved adversely to the interest of United would materially
affect the consolidated financial condition or operations of
United and its wholly-owned subsidiaries on a consolidated
basis, and/or its ability to perform under this Merger
Agreement, and to the best of its knowledge and belief after
due inquiry its executive officers, no one has asserted and no
one has reasonable or valid ground on which it reasonably can
be expected that anyone will assert any such claims against
United or its wholly-owned subsidiaries based upon the
wrongful action or inaction of United or its subsidiaries or
any of their respective officers, directors or employees.
(e) Each of United and its wholly owned subsidiaries have good and
marketable title to all assets and properties, whether real or
personal, tangible or intangible, including without limitation
the capital stock of its wholly-owned subsidiaries and all
other assets and properties reflected as owned by it or them
in United's Balance
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Sheet of September 30, 1994, or acquired subsequent thereto
(except to the extent that such assets and properties have
been disposed of for fair value in the ordinary course of
business since September 30, 1994) subject to no liens,
mortgages, security interests, encumbrances, pledges or
charges of any kind, except: (i) those items that secure
liabilities that are reflected in said Balance Sheet; (ii)
statutory liens for taxes not yet delinquent; and (iii) minor
defects and irregularities in title and encumbrances which do
not materially impair the use thereof for the purposes for
which they are held; and such liens, mortgages, security
interests, encumbrances and charges are not in the aggregate,
material to the assets and properties of United on a
consolidated basis. Each of United and its wholly-owned
subsidiaries, as lessee has the contractual right under valid
leases to occupy, use, possess and control all material
property leased by them.
(f) To the best of its knowledge after due inquiry of United and
its executive officers, United and its wholly-owned
subsidiaries have complied with all laws, regulations and
orders applicable to them and to the conduct of their
businesses, including without limitation, all statutes, rules
and regulations pertaining to the conduct of United Bank
banking activities except for possible technical violations
which together with any penalty which results therefrom are or
will be of no material consequence to United and its
wholly-owned subsidiaries. Neither United nor any of its
wholly-owned subsidiaries is the subject of nor a party to,
any regulatory actions or agreement such as letter agreements,
memorandum of understanding, cease and desist order or like
agreements. United and its wholly-owned subsidiaries are not
in default under, and no event has occurred which, with the
lapse of time or action by a third party, could, to the best
of United's knowledge after due inquiry of its executive
officers, result in the default under the terms of any
judgment, decree, order, writ, rule or regulation of any
governmental
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authority or court, whether federal, state or local and
whether at law or in equity, where the default(s) could
reasonably be expected to have a Material Adverse Effect on
United.
(g) Except as disclosed in United's letter to NCBE of even date
herewith, receipt of which is acknowledged by NCBE, United has
not, since September 30, 1994, to the date hereof: (i) issued
or sold any of its capital stock or any corporate debt
securities; (ii) granted any option for the purchase of
capital stock; (iii) declared or set aside or paid any
dividend or other distribution in respect of its capital stock
except as permitted pursuant to the terms of this agreement
or, directly or indirectly, purchased, redeemed or otherwise
acquired any shares of such stock; (iv) incurred any
obligation or liability (absolute or contingent), except for
obligations reflected in this Merger Agreement and for
obligations or liabilities incurred in the ordinary course of
business; (v) mortgaged, pledged or voluntarily subjected to
lien or encumbrance (other than statutory liens for taxes not
yet delinquent) any of its assets or properties; (vi)
discharged or satisfied any material lien or encumbrance or
paid any material obligation or liability (absolute or
contingent), other than the current portion of any long term
liabilities which became due after September 30, 1994, current
liabilities included in its financial statements as of
September 30, 1994, current liabilities incurred since the
date thereof in the ordinary course of business and
liabilities incurred in carrying out the transactions
contemplated by this Merger Agreement; (vii) sold, exchanged
or otherwise disposed of any of its material capital assets
outside the ordinary course of business; (viii) made any
extraordinary officers' salary increase or wage increase,
entered into any employment contract with any officer or
salaried employee or, instituted any employee welfare, bonus,
stock option, profit-sharing, retirement or similar plan or
arrangement; (ix) suffered any damage, destruction
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or loss, whether or not covered by insurance, materially and
adversely affecting its business, property or assets or waived
(except for fair consideration) any rights of value which are
material in the aggregate, considering its business taken as a
whole; or (x) entered or agreed to enter into any agreement or
arrangement granting any preferential right to purchase any of
its assets, properties or rights or requiring the consent of
any party to the transfer and assignment of any material
portion of such assets, properties or rights.
(h) Except as set forth in the United Document List attached to
United's letter to NCBE of even date herewith, receipt of
which is acknowledged by NCBE, neither United nor any of its
wholly-owned subsidiaries is a party to or bound by any
written or oral: (i) employment or consulting contract which
is not terminable by it on 60 days or less notice, (ii)
employee bonus, deferred compensation, pension, stock bonus or
purchase, profit-sharing, retirement or stock option plan,
(iii) other employee benefit or welfare plan, or (iv) other
executory material agreements which in any case obligate it to
make any payment(s) which in the aggregate exceed $10,000 per
year except for contracts terminable on 60 days notice. All
such pension, stock bonus or purchase, profit-sharing, defined
benefit and retirement plans set forth under the caption
"Qualified Plans" in the United Document List (hereinafter
referred to collectively as the "plan") are qualified plans
under Section 401(a) of the Internal Revenue Code and in
compliance in all material respects with ERISA. All material
notices, reports and other filings required under applicable
law to be given or made to or with any governmental agency
with respect to the plans have been timely filed or delivered
where failure to file would result in a penalty of $25,000
and/or result in disqualification of the plan. United has no
knowledge either of any circumstances which would adversely
affect the qualification of the plans or their compliance with
ERISA, or
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of any unreported "reportable event" (as such term is defined
in Section 4043(b) of ERISA) or, except as indicated in the
United Document List attached to United's letter to NCBE of
even date herewith, any "prohibited transaction" (as such
term is defined in Section 406 of ERISA and Section 4975(c) of
the Internal Revenue Code) which has occurred since the date
on which said sections became applicable to the plans. Each
plan that is a defined benefit pension plan meets the minimum
funding standards set forth in the Internal Revenue Code and
ERISA.
(i) United has duly filed all federal, state, county and local
income, excise, real and personal property and other tax
returns and reports (including, but not limited to, social
security, withholding, unemployment insurance, and sales and
use taxes) required to have been filed by United up to the
date hereof (excluding any return or report for which a
current valid extension is in effect). Except as set forth in
United's letter to NCBE of even date herewith, receipt of
which is acknowledged by NCBE, to the best of the knowledge
and belief of United after due inquiry of its executive
officers, all such returns are true and correct in all
material respects, and United has paid or, prior to the time
the Merger shall become effective, will pay all taxes,
interest and penalties shown on such return or reports or
claimed (other than those claims being contested in good faith
and which have been disclosed to NCBE) to be due to any
federal, state, county, local or other taxing authority, and
there is, and at the time the Merger shall become effective
will be, no basis known to the executive officers of United
for any additional claim or assessment which might result in a
Material Adverse Effect on United and for which an adequate
reserve has not been established. To the best of
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its knowledge and belief after due inquiry of its executive
officers, United has paid or made adequate provision in its
financial statements or its books and records for all taxes
payable in respect of all periods ending as of the date
thereof. To the best of its knowledge and belief after due
inquiry of its executive officers, United has, or at the time
the Merger shall become effective will have, no material
liability for any taxes, interest or penalties of any nature
whatsoever, except for those taxes which may have arisen up to
the time the Merger shall become effective in the ordinary
course of business and are properly accrued on the books of
United as of the time the Merger shall become effective.
(j) To the best of its knowledge and belief, but without having
undertaken an environmental audit or investigation, United has
no knowledge of any underground storage tanks, any hazardous
substances, hazardous waste, pollutant or contaminant,
including, but not limited to, asbestos (except as previously
disclosed to NCBE in a letter of even date herewith), PCB's or
urea formaldehyde, having been generated, released into,
stored or deposited over, upon or below (in storage tanks or
otherwise) any real property currently or to be owned or
leased by United or any of its wholly-owned subsidiaries, or
into any water systems on or below the surface any real
property currently or to be owned or leased by United or any
of its wholly-owned subsidiaries from any source whatsoever.
(k) United or United Bank has in effect insurance coverage with
reputable insurance underwriters, which in respect of amounts,
premiums, types and risks in insured, constitutes reasonably
adequate coverage against all risks customarily insured
against companies comparable in size and operation to United
or United Bank.
(l) Except as set forth in the United Document List, United has
not incurred and will not incur any liability for brokerage,
finders', agents', or investment bankers' fees or commissions
in connection with this Merger Agreement or the transactions
contemplated hereby.
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15. Action by United Pending Effective Time. United agrees that from the
date of this Merger Agreement until the time the Merger shall become
effective or this Merger Agreement is properly terminated, except with
prior written permission of NCBE:
(a) United will not declare or pay any dividends or make any
distributions other than regular cash dividends, payable at
such times and in amounts consistent with past practice and
not to exceed the per share rate paid in the prior calendar
year, provided, however, that shareholders of United may for
any given quarter, receive a dividend attributable to that
quarter only from NCBE or United, but not from both. NCBE and
United agree to cooperate to coordinate the record and payment
dates of their cash dividend for the quarter in which the
Merger becomes effective so that the United shareholders
receive a quarterly dividend from either United or NCBE but
not from both with respect to such quarter. If, prior to the
consummation of the Merger, United shall declare a stock
dividend or make distributions upon or subdivide, split up,
reclassify or combine its shares of common stock in any
security convertible into its common stock, appropriate
adjustment or adjustments will be made in the foregoing per
share dividend rate.
(b) United will not issue, sell, grant any option for, or acquire
for value any shares of its capital stock or otherwise effect
any change in connection with its capitalization except in
connection with the exercise of stock options which are
outstanding on the date hereof.
(c) Except as otherwise set forth in or contemplated by this
Merger Agreement, United will use its best efforts to (i)
carry on its businesses in substantially the same manner as
heretofore conducted; (ii) keep in full force and effect
insurance comparable in amount and scope of coverage to that
now maintained by it; and (iii) maintain and preserve its
business organization intact.
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(d) United will not: (i) enter into any transaction other than in
the ordinary course of business or voluntarily incur or agree
to incur any material obligation or liability except
liabilities incurred and obligations entered into in the
ordinary course of business; (ii) change its or United Bank's
lending, investment, liability management and other material
United Bank banking policies in any material respect except in
accordance with prudent banking practices after consultation
with NCBE; (iii) except for customary periodic increases
consistent with prior practice, grant any individual, general
or uniform increase in the rates of pay of employees or make
any significant increase in its staff size; (iv) incur or
commit to any capital expenditures other than (x) in the
ordinary course of business (which in no event shall include
the establishment of new branches and such other facilities or
any capital expenditures for any purpose which exceed 1% of
United's combined capital, surplus and undivided profit
accounts as of June 30, 1994) or (y) in connection with
emergency repairs or replacements; or (v) permit any other
corporation to be merged or consolidated with and into it or
acquire all of the assets of any other corporation or person.
(e) United will not change its methods of accounting in effect at
June 30, 1994, except as required by changes in generally
accepted or regulatory accounting principles and concurred in
by United's independent auditors, or change any of its methods
of reporting income and deductions for Federal income tax
purposes from those employed in the preparation of United's
Federal income tax returns for the taxable year ending June
30, 1994, except for changes required by law.
(f) United will afford NCBE, its officers and other authorized
representatives, reasonable access to all books, records, tax
returns, leases, contracts and documents of United and its
wholly-owned subsidiaries and will furnish to NCBE such
information with respect to the assets and business of United
and its wholly-
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owned subsidiaries as NCBE may from time to time reasonably
request in connection with this Merger Agreement and the
transactions contemplated hereby.
(g) United will promptly advise NCBE in writing of all material
actions taken by the directors and shareholders of United,
furnish NCBE with copies of all interim financial statements
of United as they become available, and keep NCBE fully
informed concerning all developments which in the opinion of
United may have a material effect upon the business,
properties or condition (either financial or otherwise) of
United.
16. Action by NCBE Pending Effective Time. NCBE agrees that from the date
of this Agreement until the time the Merger shall become effective or
this Merger Agreement is properly terminated:
(a) NCBE will carry on its business in substantially the same
manner as heretofore conducted except as otherwise set forth
in or contemplated by this Merger Agreement, and NCBE will
keep in full force and effect insurance comparable in amount
and scope of coverage to that now maintained by it and use its
best efforts to maintain and preserve its business
organization intact. United acknowledges that, in the
ordinary course of its business as a bank holding company,
NCBE from time-to-time, enters into an agreement(s) to acquire
by merger, stock purchase or like means, another financial
institution or its holding company.
(b) NCBE will not change its methods of accounting in effect at
December 31, 1993, except as required by changes in generally
accepted or regulatory accounting principles as concurred in
by NCBE's independent auditors, or change any of its methods
of reporting income and deductions for Federal income tax
purposes from those employed in the preparation of the Federal
income tax returns of NCBE Banks for the taxable year ending
December 31, 1993, except for changes
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required by law or take any action which could jeopardize the
tax free nature of the Merger or the pooling of interests
accounting treatment for the Merger.
(c) NCBE will promptly advise United in writing of all material
corporate actions taken by the directors of NCBE, furnish
United with copies of interim financial statements of NCBE and
all reports, schedules and statements filed by or delivered to
NCBE pursuant to the 1934 Act and the rules and regulations
promulgated thereunder, as they become available, and keep
United fully informed concerning all developments which in the
opinion of NCBE may have a material effect upon the business,
properties or condition (either financial or otherwise) of
NCBE.
(d) NCBE will afford United, its officers and other authorized
representatives, reasonable access to all books, records, tax
returns, leases, contracts and documents of NCBE and its
wholly-owned subsidiaries and will furnish to United such
information with respect to the assets and business of NCBE
and its wholly-owned subsidiaries as United may from time to
time reasonably request in connection with this Merger
Agreement and the transactions contemplated hereby.
(e) NCBE shall knowingly take no action, nor knowingly fail to
take any action which reasonably may be taken by it, to
prevent or disqualify the Merger from being accounted for as a
pooling of interests.
17. Notification of Certain Matters.
(a) Each party shall give prompt notice to the other party of (i)
the occurrence or failure to occur of any event or the
discovery of any information, which occurrence, failure or
discovery would be likely to cause any representation or
warranty on its part contained in this Merger Agreement to be
untrue, inaccurate or incomplete in any material respect after
the date hereof or, in case of any representation or warranty
given as of a specific date, would be likely to cause
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any such representation on its part contained in this Merger
Agreement to be untrue, inaccurate or incomplete in any
material respect as of such specific date and (ii) any
material failure of such party to comply with or satisfy any
covenant or agreement to be complied with or satisfied by it
hereunder.
(b) From time to time prior to the time the Merger shall become
effective, each party shall promptly supplement or amend any
of its representations and warranties which apply to the
period after the date hereof by delivering a letter to the
other party with respect to any matter hereafter arising which
would render any such representation or warranty after the
date of this Merger Agreement materially inaccurate or
incomplete as a result of such matter arising. Such
supplement or amendment to a party's representations and
warranties contained in any such letter shall be deemed to
have modified the representations and warranties of the
disclosing party, and no such supplement or amendment, or the
information contained in any such letter, shall constitute a
breach of a representation or warranty of the disclosing
party; provided that no such supplement or amendment may cure
any breach of a covenant or agreement of a party. Within 20
days after receipt of such supplement or amendment (or if cure
is promptly commenced by the disclosing party, but is not
effected within the Cure Period (as defined below)), the
receiving party may exercise its right to terminate this
Agreement pursuant to Section 27(e) hereof if the information
in such supplement or amendment together with the information
in any or all of the supplements or amendments previously
provided by the disclosing party indicate that the disclosing
party has suffered or is reasonably likely to suffer a
Material Adverse Effect which either has not or cannot be
cured within 30 days after disclosure to the receiving party
(the "Cure Period").
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18. Affiliate Letters. United shall obtain and deliver to NCBE as
promptly as practicable after (and shall use its reasonable best
efforts to obtain and deliver within five days after) the date hereof
a signed representation letter substantially in the form of Exhibit A
hereto from each executive officer and director of United and each
shareholder of United who may reasonably be deemed an "affiliate" of
United within the meaning of such term as used in Rule 145 under the
1933 Act and for purposes of qualifying for pooling of interests
accounting treatment for the Merger, and shall obtain and deliver to
NCBE a signed representation letter substantially in the form of
Exhibit A from any person who becomes an executive officer or director
of United or any shareholder who becomes such an "affiliate" after the
date hereof as promptly as practicable after (and shall use its
reasonable best efforts to obtain and deliver within five days after)
such person achieves such status. NCBE shall likewise use its best
efforts to secure letters or commitments from its affiliates to
satisfy pooling-of-interest accounting requirements.
19. Indemnification
(a) From and after the time the Merger becomes effective, NCBE
shall indemnify, defend and hold harmless each person who is
now, or has been at any time prior to the date hereof or who
becomes prior to the time the Merger becomes effective, an
officer, director, employee or agent of United or any of its
wholly-owned subsidiaries (the "Indemnified Parties") against
all losses, claims, damages, costs, expenses (including
attorney's fees), liabilities or judgments or amounts that are
paid in settlement (which settlement shall require the prior
written consent of NCBE, which consent shall not be
unreasonably withheld) of or in connection with any claim,
action, suit, proceeding or investigation (a "Claim") in which
an Indemnified Party is, or is threatened to be made, a party
or a witness based in whole or in part on or arising in whole
or in part out of the fact that such person is or was a
director, officer, employee or agent of United or any of its
wholly-owned
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subsidiaries if such Claim pertains to any matter or fact
arising, existing or occurring on or prior to the time the
Merger shall become effective (including, without limitation,
the Merger and other transactions contemplated by this Merger
Agreement), regardless of whether such Claim is asserted or
claimed prior to, at or after the time the Merger shall become
effective (the "Indemnified Liabilities") to the fullest
extent permitted by NCBE's Articles of Incorporation and
Bylaws or applicable law whichever shall be greater. Any
Indemnified Party wishing to claim indemnification under this
Section 19(a), upon learning of any Claim, shall notify NCBE
(but the failure so to notify NCBE shall not relieve it from
any liability which NCBE may have under this Section 19(a)
except to the extent such failure prejudices NCBE) and shall
be entitled to receive advances of costs and expenses from
NCBE upon delivery to NCBE of any undertaking required by
applicable law relating to the obligation of the Indemnified
Party to reimburse NCBE for such advances in certain
circumstances. The obligations of NCBE described in this
Section 19(a) shall continue in full force and effect, without
any amendment thereto, for a period of not less than six years
from the time the Merger shall become effective; provided,
however, that all rights to indemnification in respect of any
Claim asserted or made within such period shall continue until
the final disposition of such Claim; and provided further that
nothing in this Section 19(a) shall be deemed to modify
applicable law regarding indemnification of former officers
and directors.
(b) From and after the time the Merger shall become effective, the
directors, officers and employees of United or any of its
wholly-owned subsidiaries who become directors, officers or
employees of NCBE or any NCBE wholly-owned subsidiary
including United Bank, shall also have indemnification rights
with prospective application. The prospective indemnification
rights shall consist of such rights to
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which directors, officers and employees of NCBE are entitled
under the provisions of the Articles of Incorporation, Bylaws
or similar governing documents of NCBE and the NCBE
wholly-owned subsidiaries, as in effect from time to time
after the time the Merger becomes effective, as applicable,
and provisions of applicable law as in effect from time to
time after the time the Merger shall become effective.
(c) If requested by United at any time prior to the effective time
of the Merger, from and after the effective time of the
Merger, NCBE shall use its best efforts to cause United Bank
and any successor thereto to maintain directors and officers
liability insurance comparable to that being maintained by
United Bank on the date hereof, or continue the existing
insurance being maintained by United Bank, for the benefit of
the current and former directors and officers of United Bank
for a period of at least three years after the time the Merger
becomes effective, which insurance shall provide coverage for
acts and omission occurring on or prior to the time the Merger
shall become effective; provided, further, that officers and
directors of United Bank may be required to make application
and provide customary representations and warranties to NCBE's
or United Bank's insurance carrier for the purpose of
obtaining such insurance.
(d) The contractual obligations of NCBE provided under Sections
19(a), 19(b) and 19(c) hereof are intended to benefit, and be
enforceable against NCBE directly by, the Indemnified Parties,
and shall be binding on all successors of NCBE.
20. Conditions to Obligations of NCBE. The obligations of NCBE under this
Merger Agreement are subject, unless waived by NCBE, to the
satisfaction of the following conditions on or prior to the time the
Merger shall become effective:
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(a) There shall not have been occurred an event or series of
events which has resulted or is likely to result in a Material
Adverse Effect on United from September 30, 1994, to the time
the Merger shall become effective.
(b) United shall not have paid cash dividends from the date hereof
to the time the Merger shall become effective except as
permitted under section 15(a) this Merger Agreement.
(c) All representations by United contained in this Merger
Agreement shall be true in all material respects at, or as of,
the time the Merger shall become effective as though such
representations were made at and as of said date, except for
changes contemplated by the Merger Agreement and except also
for representations as of a specified time other than the time
the Merger shall become effective, which shall be true in all
material respects at such specified time.
(d) NCBE shall have received the opinion of legal counsel for
United, dated the time the Merger shall become effective,
substantially to the effect set forth in Exhibit B hereto.
(e) United shall have performed or satisfied in all material
respects all agreements, covenants and conditions required by
this Merger Agreement to be performed or satisfied by it at or
prior to the time the Merger shall become effective.
(f) At the time the Merger shall become effective, no suit, action
or proceeding shall be pending or overtly threatened before
any court or other governmental agency by the federal or state
government in which it is sought to restrain or prohibit the
consummation of the Merger, and no other suit, action or
proceeding shall be pending or overtly threatened and no
liability or claim shall have been asserted against United or
United Bank which NCBE shall in good faith determine, with
advice of counsel: (i) has a reasonable likelihood of being
successfully
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prosecuted and (ii) if successfully prosecuted, would result
in a Material Adverse Effect on United.
(g) Holders of United Common Stock who are entitled to exercise in
the aggregate not more than 5% of the voting power of the
issued and outstanding United Common Stock as of the time the
Merger shall become effective shall have taken steps to
perfect their rights as dissenting shareholders pursuant to
the provisions of Section 262 of the Delaware General Business
Corporation Law so that if, at the time the Merger shall
become effective, holders of more than 5% of such shares shall
have taken such steps, NCBE may, at its option, refuse to
consummate the Merger.
(h) United shall have furnished NCBE certificates, signed on its
behalf by the Chairman or President and the Secretary or an
Assistant Secretary of United and dated the time the Merger
shall become effective, to the effect that to the best of
their knowledge, after due inquiry, the conditions described
in Paragraphs (b), (c), and (f) of this Section 20 have been
fully satisfied.
(i) No event shall have occurred which, in the reasonable opinion
of NCBE and concurred in by McGladrey & Pullen, would prevent
the Merger from being accounted for as a pooling of interests.
(j) The employment contracts between United Bank and Janice L.
Beesley, G. Jeffrey Palmer and Patrick W. Lenahan shall have
expired or have been terminated, without liability to United
or United Bank, at or prior to the effective time of the
Merger.
21. Conditions to Obligations of United. The obligations of United under
this Merger Agreement are subject, unless waived by United, to the
satisfaction on or prior to the time the Merger shall become effective
of the following conditions:
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(a) There shall not have occurred an event or series of events
which has or is likely to result in a Material Adverse Effect
on NCBE from September 30, 1994, to the time the Merger shall
become effective.
(b) All representations by NCBE contained in this Merger Agreement
shall be true in all material respects at, or as of, the time
the Merger shall become effective as though such
representations were made at and as of said date, except for
changes contemplated by this Merger Agreement, and except also
for representations as of a specified time other than the time
the Merger shall become effective, which shall be true in all
material respects at such specified time.
(c) United shall have received the opinions of Counsel for NCBE
dated the time the Merger shall become effective substantially
to the effect set forth in Exhibit C hereto and in section 12
hereto.
(d) NCBE shall have performed or satisfied in all material
respects all agreements and covenants required by this Merger
Agreement to be performed or satisfied by it at or prior to
the time the Merger shall become effective.
(e) At the time the Merger shall become effective, no suit, action
or proceeding shall be pending or overtly threatened before
any court or other governmental agency of the federal or state
government in which it is sought to restrain, prohibit or set
aside consummation of the Merger and no other suit, action or
proceeding shall be pending or overtly threatened and no
liability or claim shall have been asserted against NCBE which
United shall in good faith determine, with advice of counsel:
(i) has a reasonable likelihood of being successfully
prosecuted; and (ii) if successfully prosecuted, would result
in a Material Adverse Effect on NCBE.
(f) NCBE shall have furnished United a certificate, signed by the
Chairman or President and by the Secretary or Assistant
Secretary of NCBE and dated the time the Merger shall become
effective to the effect that to the best of their knowledge
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after due inquiry the conditions described in Paragraphs (a),
(b), and (e) of this Section 21 have been fully satisfied.
(g) United shall have received a written opinion of Charles Webb
and Co., dated within two days of the date of the
Prospectus/Proxy Statement, reasonably satisfactory in
substance to the United Board of Directors, to the effect that
the Merger is fair to the holders of United common stock from
a financial point of view, and such opinion shall not have
been withdrawn prior to the conclusion of the United
shareholders' meeting.
(h) No event shall have occurred which would prevent the Merger
from being accounted for as a pooling of interests.
22. Conditions to Obligations of All Parties. In addition to the
provisions of Sections 20 and 21 hereof, the obligations of NCBE and
United to cause the transactions contemplated herein to be consummated
shall be subject to the satisfaction of the following conditions on or
prior to the time the Merger shall become effective:
(a) The parties hereto shall have received all necessary approvals
of governmental agencies and authorities of the transactions
contemplated by this Merger Agreement and each of such
approvals shall remain in full force and effect at the time
the Merger shall become effective and such approvals and the
transactions contemplated thereby shall not have been
contested by any federal or state governmental authority by
formal proceeding, or contested by any other third party by
formal proceeding which the Board of Directors of the party
asserting a failure of a condition under this Section 22(a)
shall in good faith determine, with the advice of counsel:
(i) has a reasonable likelihood of being successfully
prosecuted and (ii) if successfully prosecuted, would
materially and adversely affect the benefits hereunder
intended for such party. It is understood that, if any such
contest is brought by formal proceedings, NCBE may, but shall
not be
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obligated to, answer and defend such contest. NCBE shall
notify United promptly upon receipt of all necessary
governmental approvals.
(b) The Registration Statement shall have become effective by an
order of the SEC, the shares of NCBE Common Stock to be
exchanged in the Merger shall have been qualified or exempted
under all applicable state securities laws, and there shall
have been no stop order issued or threatened by the SEC that
suspends or would suspend the effectiveness of the
registration statement, and no proceeding shall have been
commenced, pending or overtly threatened for such purpose.
(c) This Merger Agreement shall have been duly adopted, ratified
and confirmed by the requisite affirmative votes of the
shareholders of United and, if required, NCBE.
(d) NCBE and United shall have received the opinion called for
pursuant to Section 12 of this Merger Agreement and there
shall exist as of, at or immediately prior to the time the
Merger shall become effective no facts or circumstances which
would render such opinion inapplicable in any respect to the
transactions to be consummated hereunder.
23. Nonsurvival of Representations and Warranties. The respective
representations and warranties of NCBE and United set forth shall not
survive the time the Merger shall become effective, provided, however,
that all agreements or covenants of a party contemplated to be
performed after the time the Merger becomes effective shall survive.
24. Governing Law. This Merger Agreement shall be construed and
interpreted according to the applicable laws of the State of Indiana,
except to the extent that federal or Delaware law controls.
25. Assignment. This Merger Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, but neither
this Merger Agreement nor any of the rights, interest, or
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obligations hereunder shall be assigned by either of the parties
hereto without the prior written consent of the other party; provided,
however, that NCBE shall not engage in a transaction pursuant to which
its shareholders exchange NCBE common stock for securities or property
of another party whether by statutory share exchange, merger,
consolidation, reorganization or the sale of substantially all the
assets of NCBE without concurrently therewith assigning to the
acquiring or surviving party, all of the obligations of NCBE under
this Agreement.
26. Satisfaction of Conditions.
NCBE agrees to use its best effort to obtain satisfaction of the
conditions insofar as they relate to NCBE, and United agrees to use
its best efforts to obtain the satisfaction of the conditions insofar
as they relate to United.
27. Termination. This Merger Agreement may be terminated prior to the
time the Merger becomes effective as follows:
(a) by mutual consent of NCBE and United, if the Board of
Directors of each so determines by vote of a majority of the
members of its entire Board;
(b) by either NCBE or United, if any of the conditions to such
party's obligation to consummate the transactions contemplated
in this Merger Agreement shall have become impossible to
satisfy;
(c) by either NCBE or United, if this Merger Agreement is not duly
approved by the requisite vote of shareholders of United and
NCBE, if required, in each case a meeting of shareholders (or
any adjournment thereof duly called and held for such
purpose);
(d) by either NCBE or United, if the Merger does not become
effective on or before September 30, 1995 (unless the failure
to consummate the Merger by such date shall be due to the
action or failure to act of the party seeking to terminate
this Merger Agreement);
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(e) by NCBE or United as provided in Section 17(b) hereof;
(f) by United if the Average Price is less than $38.00 as
recalculated for each Stock Adjustment;
(g) by United if its Board of Directors shall determine, after
consultation with United's independent financial advisor and
outside counsel, that the failure to terminate this Merger
Agreement could reasonably be found to constitute a breach of
its fiduciary duties; or
(h) by either NCBE or United, if the other party hereto commits a
willful breach which is not cured within 10 days after receipt
by the breaching party of written demand for cure by the
nonbreaching party. For purposes of this Merger Agreement, a
"willful breach" means a knowing and intentional violation by
a party of any of its covenants, representations, warranties,
agreements or obligations under this Merger Agreement.
Any party desiring to terminate this Merger Agreement shall give
written notice of such termination and the reasons therefor to the
other party.
28. Effect of Termination.
(a) In the event this Merger Agreement is properly terminated
pursuant to Section 27(a)-(f), then neither party shall have
any liability to the other party.
(b) In the event this Merger Agreement is properly terminated
pursuant to Section 27(g), then within ten (10) days after
written demand by NCBE, United shall pay to NCBE in
immediately available funds, a termination fee of $500,000.
(c) In the event this Merger Agreement is properly terminated by
either party pursuant to Section 27(h), then within ten (10)
days after written demand by the terminating party, the party
that has willfully breached this Merger Agreement shall pay to
the terminating party, in immediately available funds,
$1,000,000 as agreed upon liquidated damages.
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<PAGE> 174
(d) The confidentiality provisions of Section 10(d) hereof shall
survive any termination of this Merger Agreement.
29. Waivers Amendments. Any of the provisions of this Merger Agreement
may be waived at any time by the party which is, or the shareholders
of which are, entitled to the benefit thereof, by resolution of the
Board of Directors of such party. This Merger Agreement may be
amended or modified in whole or in part by an agreement in writing
executed in the same manner (but not necessarily by the same person)
as this Merger Agreement and which makes reference to this Merger
Agreement, pursuant to a resolution, adopted by the Boards of
Directors of the respective parties, provided, however, such amendment
or modification may be made in this manner by the respective Boards of
Directors of NCBE and United at anytime prior to a favorable vote of
such party's shareholders, but may be made after a favorable vote by
the shareholders of such party, only if, in the opinion of its Board
of Directors, such amendment or modification will not have any
material adverse effect on the benefits intended under this Merger
Agreement for the shareholders of such party and will not require
resolicitation of any proxies from such shareholders.
30. Entire Agreement. This Agreement supersedes any other agreement,
whether written or oral, that may have been made or entered into by
NCBE and United or by any officer or officers of such parties relating
to the acquisition of the business or the capital stock of United by
NCBE. Except for the letters specified in this Merger Agreement and
of even date herewith, this Agreement constitutes the entire agreement
by the parties, and there are no agreements or commitments except as
set forth herein and therein.
31. Captions; Counterparts. The captions in this Merger Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Merger
Agreement. This Merger Agreement may be executed in several
counterparts, each of which shall constitute one and the same
instrument.
A-47
<PAGE> 175
32. Notices. All notices and other communications hereunder shall be
deemed to have been duly given if forwarded by a nationally recognized
overnight courier service. All notices and other communications
hereunder given to any party shall be communicated to the remaining
party to this Merger Agreement by mail in the same manner as herein
provided.
a) If to NCBE, to:
Mr. Robert A. Keil
President
National City Bancshares, Inc.
227 Main Street, P.O. Box 868
Evansville, Indiana 47705-0868
With copies to:
Martin D. Werner, Esq.
Werner & Blank Co., L.P.A.
7205 W. Central Avenue
Toledo, Ohio 43617
(b) If to United, to:
Ms. Janice L. Beesley
President
United Financial Bancorp, Inc.
619 Main Street
Vincennes, IN 47591
With copies to:
Jeffrey M. Werthan, Esq.
Silver Freedman & Taff
1100 New York Avenue, N.W.
Washington, D.C. 20005
33. Publicity. NCBE and United agree to consult with and obtain the
consent of the other, prior to any media release or other public
disclosures as to the matters covered by this Merger Agreement, except
as may be required by law.
A-48
<PAGE> 176
IN WITNESS WHEREOF, this Merger Agreement has been executed the day
and year first above written.
ATTEST: National City Bancshares, Inc.
/s/ Robert A. Keil By: /s/ John D. Lipppert
- -------------------------------------- ------------------------------
By: Robert A. Keil John D. Lippert, Chairman,
----------------------------------- and Chief Executive Officer
Its: President
----------------------------------
ATTEST: United Financial Bancorp, Inc.
/s/ Horace A. Foncannan, Jr. By: /s/ Janice L. Beesley
- -------------------------------------- -----------------------------------
By: Horace A. Foncannan, Jr. Janice L. Beesley, President and
----------------------------------- Chief Executive Officer
Its: Chairman
----------------------------------
A-49
<PAGE> 177
APPENDIX B
SUPPORT AGREEMENT
THIS IS A SUPPORT AGREEMENT (the "Agreement"), dated as of December
__, 1994, between National City Bancshares, Inc. ("NCBE"), and each of the
individuals or entities listed on Schedule A attached hereto (collectively, the
"Selling Shareholders").
WHEREAS, each of the Selling Shareholders owns beneficially and of
record the number of shares of common stock, $.01 par value ("Shares"), of
United Financial Bancorp. ("United"), listed opposite such Selling
Shareholder's name on Schedule A hereto;
WHEREAS, the Selling Shareholders hold in the aggregate 71,521 Shares
which constitute 16.23% of the outstanding capital stock of United;
WHEREAS, the Selling Shareholders propose to cause United to enter
into an Merger Agreement between NCBE and United (the "Merger Agreement") to be
dated of even date herewith pursuant to which United shall be merged into NCBE
(the "Merger"), and each outstanding share of capital stock of United will be
converted into the right to receive shares of NCBE common stock, par value
$3.33 1/3 (the "NCBE Common Stock");
WHEREAS, as a condition to entering into the Merger Agreement, NCBE
has requested that the Selling Shareholders agree, and the Selling Shareholders
have agreed, to support the Merger;
NOW, THEREFORE, to induce NCBE to enter into a Merger Agreement, the
parties hereto agree as follows:
1. Covenants of Selling Shareholders. Each of the Selling
Shareholders, severally and not jointly, covenants as follows:
(a) Restrictions on Transfer. Absent the consent of NCBE or as
otherwise required by law, during the term of this Agreement, such Selling
Shareholder shall not pledge, hypothecate, grant a security interest in, sell,
transfer or otherwise dispose of or encumber any of the Shares owned by him or
her and will not enter into any agreement, arrangement or understanding which
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<PAGE> 178
(i) restricts, (ii) establishes a right of first refusal to, or (iii) otherwise
relates to the transfer or voting of the Shares owned by such Selling
Shareholder.
(b) Other Restrictions. During the term of this Agreement, such
Selling Shareholder shall not solicit inquiries or proposals or initiate any
discussions or negotiations leading to any acquisition or purchase of all or a
substantial portion of the assets or stock of United or United Bank, a wholly
owned subsidiary of United (the "Bank"), or any merger or consolidation of
United or the Bank with any third party, without the prior written consent from
NCBE.
(c) Voting Agreement. Each of the Selling Shareholders shall vote
his or her Shares (as set forth on Schedule A hereto) in favor of the Merger
and the transactions contemplated thereby, and shall, subject to their
fiduciary duty, use his or her best efforts to cause the Merger to be effected.
2. Termination. This Agreement shall terminate upon the earlier of
the following: (i) September 30, 1995; (ii) the termination of the Merger
Agreement; or (iii) the consummation of the Merger.
3. Governing Law. This Agreement shall in all respects be governed
by and construed under the laws of the State of Indiana, all rights and
remedies being governed by such laws.
4. Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of, and shall be enforceable by, the parties hereto and
their respective personal representatives, successors and assigns, except that
neither party may transfer or assign any of its respective rights or
obligations hereunder without the prior written consent of the other party.
5. Counterparts. For convenience of the parties hereto, this
Agreement may be executed in several counterparts, each of which shall be
deemed an original, all of which together shall constitute one and the same
instrument.
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<PAGE> 179
IN WITNESS WHEREOF, NCBE and the Selling Shareholders have caused this
Agreement to be duly executed as of the day and year first above written.
National City Bancshares, Inc.
By:
-------------------------------
SELLING SHAREHOLDERS
Janice L. Beesley
----------------------------------
Horace A. Foncannon
----------------------------------
John H. Bobe
----------------------------------
George D. Gardner
----------------------------------
John H. Harrison
----------------------------------
Ralph J. Jacqmain
----------------------------------
Joseph M. Vieck
----------------------------------
Robert E. Vincent
----------------------------------
G. Jeffrey Palmer
----------------------------------
Patrick W. Lenahan
----------------------------------
T. Lynne Rump
----------------------------------
Ann M. Dillon
----------------------------------
Cathrine M. Myers
----------------------------------
W. Terry Allen
----------------------------------
B-3
<PAGE> 180
SCHEDULE A
LIST OF SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
Name No. of Shares
---- -------------
<S> <C>
Janice L. Beesley 14,140
President & CEO
Horace A. Foncannon 3,979
Chairman of the Board
John H. Bobe, Director 10,690
George D. Gardner, Director 5,690
John H. Harrison 1,690
Ralph J. Jacqmain, M.D., Director 10,690
Joseph M. Vieck, Director 5,690
Robert E. Vincent, Director 7,729
G. Jeffrey Palmer 4,053
Vice President & Asst. Secretary
Patrick W. Lenahan 5,670
Vice President & Asst. Secretary
T. Lynne Rump 800
Vice President & Secretary
Ann M. Dillon 500
Vice President
Catherine M. Myers 200
Vice President
W. Terry Allen 0
Vice President & Controller
Total Shares* 71,521
% of Outstanding Shares* 16.23%
</TABLE>
*Does not include oustanding unexercised options.
<PAGE> 181
Appendix C
Opinion of Charles Webb & C0.
[CHARLES WEBB & COMPANY LETTERHEAD]
December 27, 1994
Board of Directors
United Financial Bancorp, Inc.
619 Main Street
Vincennes, IN 47519
Dear Board of Directors:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the shareholders of
United Financial Bancorp, Inc. Vincennes, IN ("UNFB"), of the financial terms
of a merger proposal whereby UNFB shall merge ("Merger") with and into National
City Bancshares, Inc., Evansville, IN ("NCBE"). We have not been requested to
opine as to, and our opinion does not in any matter address UNFB's underlying
business decision to proceed with or effect the Merger.
Pursuant to the Merger Agreement ("the Agreement") at the Effective Time of the
Merger, NCBE will issue shares of NCBE Common Stock in exchange for all the
issued and outstanding shares of UNFB Common Stock (440,712 shares as of the
date of the Agreement). Prior to the Effective Time, any outstanding stock
options issued pursuant to the 1992 Stock Option and Incentive Plan (26,698
shares as of the date of the Agreement) shall be converted into UNFB Common
Stock. All of the outstanding shares of UNFB Common Stock at the Effective Time
shall be, converted by operation of the Merger, into NCBE Common Stock
determined by dividing $44.40 by the Average Price as defined in the Agreement
(the "Merger Consideration"). The complete terms of the proposed transaction
are described in the Agreement dated December 22, 1994 by and among NCBE and
UNFB and this summary is qualified in its entirety by reference thereto. A copy
of the Agreement will be attached as an Exhibit to the Proxy Statement and
Prospectus of UNFB which will be provided to UNFB's shareholders.
Charles Webb & Company, as part of its investment banking business, is
continuously engaged in the evaluation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings and
distributions of listed and unlisted securities. We are familiar with the
market for common stocks of publicly traded Midwest-based banks, thrifts and
bank and thrift holding companies.
On November 16, 1994, you engaged us to advise UNFB and its shareholders as to
the fairness of the Merger from a financial perspective. Prior to your
execution of the Agreement with NCBE, we studied financial and other business
data supplied to us by UNFB including audited financial statements for the year
ended June 30, 1994, and subsequent financial statements (unaudited) for the
quarter ended September 30, 1994 and certain other information. We discussed
with the senior management and the boards of directors of UNFB and its
wholly-owned subsidiary United Federal Savings Bank of Vincennes ("United"),
the current position and prospective outlook for UNFB and United, the
possibility of obtaining other acquisition proposals, and the board's reasons
for seeking affiliation and merger. We considered historical quotations and the
prices of recorded transactions in UNFB's common stock since its conversion
from mutual to stock form and public offering in September 1992. We reviewed
financial and stock market data of other thrifts, particularly in the Midwest
region, and the financial and structural terms of several other recent
transactions involving savings and loan mergers and acquisitions or proposed
changes of control of comparably situated companies.
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<PAGE> 182
United Finanical Bancorp, Inc.
December 27, 1994
Page 2
For NCBE, we reviewed the audited financial statements for the year ended
December 31, 1993, and subsequent financial statements (unaudited) for the
quarters ended March 31, 1994, June 30, 1994 and September 30, 1994 and certain
other information. We discussed with the senior management (certain members of
the senior management group are also members of the board of directors) of
NCBE, the current position and prospective outlook for NCBE and its
wholly-owned subsidiaries, including NCBE's reasons for seeking an affiliation
and merger. We considered historical quotations and the prices of recorded
transactions in NCBE's common stock over the past three years. Further, for
comparative purposes, we reviewed financial and stock merger data of other bank
holding companies, particularly in the Midwest region.
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of material furnished to us by UNFB and NCBE
and the material otherwise made available to us, including information from
published sources, and we have not made any independent effort to verify such
data. With respect to the financial forecasts we received for UNFB, we assumed
(with your consent) that they have been reasonably prepared on bases reflecting
the best currently available estimates and judgment of UNFB's management.
In addition, we have not made or obtained any independent appraisals or
evaluations of the assets or liabilities, and potential and/or contingent
liabilities of UNFB or NCBE. We have further relied on the assurances of
management of UNFB and NCBE that they are not aware of any facts that would
make such information inaccurate or misleading. We express no opinion on
matters of a legal, regulatory, tax or accounting nature or the ability of the
Merger as set forth in the Agreement to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to UNFB or the ability to consummate the Merger. Our opinion is
based on the market, economic and other relevant considerations as they exist
and can be evaluated on the date hereof.
We have acted as financial advisor to UNFB in connection with the Merger and
will receive a fee for such services, a majority of which is contingent upon
the consummation of the Merger. In addition, UNFB has agreed to indemnify us
for certain liabilities arising out of rendering this opinion. We have also
performed various investment banking services for UNFB in the past and have
received customary fees for such services.
Based upon and subject to the foregoing, as outlined in the foregoing
paragraphs and based on such other matters as we considered relevant, it is our
opinion that as of the date hereof the financial terms of the proposed merger
as set forth in the Agreement, are fair to the shareholders of UNFB from a
financial point of view.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent. It is understood that
this letter is directed solely to the Board of Directors of UNFB in its
consideration of the Agreement, and is not intended to be and does not
constitute a recommendation to any shareholder as to how such shareholder
should vote with respect to the Merger.
Very truly yours,
/s/ Charles Webb & Company
Charles Webb & Company
C-2
<PAGE> 183
Appendix D
Dissenters' Statute
DELAWARE GENERAL CORPORATION LAW
Section 262. APPRAISAL RIGHTS.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger of consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior
to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsection (b) or (c) hereof
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of
this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote
on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or 253 of this title, the surviving or resulting
corporation, either before the effective date of the merger or
consolidation or within 10 days thereafter, shall notify each of the
stockholders entitled to appraisal rights of the effective date of the
merger or consolidation and that appraisal rights are available for any
or all of the shares of the constituent corporation, and shall include
in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to
the stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights may, within
20 days after the date of mailing of the notice, demand in writing from
the surviving or resulting corporation the appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the petition
shall be accompanied by such a duly verified list. The Register in Chancery,
if so ordered by the Court, shall give notice of the time and place fixed for
the hearing of such petition by registered or certified mail to the surviving
or resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
D-1
<PAGE> 184
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section, and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this State
or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
his demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-2
<PAGE> 185
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Chapter 37 of the Indiana General Corporation Law provides that
Indiana corporations may indemnify an individual made a party to any
threatened, pending, or completed action, suit or proceeding whether civil,
criminal, administrative or investigative, because the individual is or was a
director, officer, employee or agent of the corporation, against liability
incurred in the proceeding if the person: (i) acted in good faith and (ii) the
individual believes his conduct was in the corporation's best interest or was
not opposed to the corporation's best interest.
Chapter 37 further provides that a corporation shall indemnify an
individual who was fully successful on the merits or otherwise in any
proceeding to which the director, officer, employee or agent was a party
because the individual was or is a director, officer, employee or agent of the
corporation, for reasonable expenses incurred by the director in connection
with the proceeding. Chapter 37 also provides that a corporation may purchase
and maintain insurance on behalf of the individual who is or was a director,
officer, employee or agent of the corporation or who, while a director,
officer, employee or agent of the corporation is or was serving at the request
of the corporation as a director, officer, partner, trustee, employer or agent
of another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or other enterprises, against liability asserted against
or incurred by the individual in that capacity or arising from the individual
status as a director, officer, employee, or agent.
Registrant maintains a directors' and officers' liability insurance
policy, including bank reimbursement, for the purpose of providing
indemnification to its directors and officers in the event of such a
threatened, pending or completed action.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS
The exhibits filed pursuant to this Item 21 immediately follow the
Exhibit Index. The following is a description of the applicable exhibits
required for Form S-4 provided by Item 601 of Regulation S-K.
Exhibit Number Description
- -------------- -----------
(1) Not Applicable.
(2) The Agreement and Plan of Merger by and between National
City Bancshares, Inc. and United Financial Bancorp, Inc.
dated December 28, 1994, is attached hereto as Exhibit.
Part II page 1
<PAGE> 186
Exhibit Number Description
- -------------- -----------
(3) Articles of Incorporation and Bylaws.
A. A copy of Registrant's most recent amended
Articles of Incorporation adopted at the
Annual Meeting of Stockholders are attached
hereto as an exhibit.
B. A copy of the Bylaws of the Registrant as
currently in effect was filed with the
Commission as an exhibit to Registrant's Annual
Report on Form 10-K for the year ended December
31, 1994 filed in March, 1995.
(4) Instruments defining the rights of security holders,
including indentures.
A. Instruments defining the rights of security
holders are included in the Articles of
Incorporation and Bylaws.
(5) Opinion of Werner & Blank Co., L.P.A., regarding
National City Bancshares, Inc. Common Stock, and Consent
(6) Not Applicable.
(7) Not Applicable.
(8) Opinion of Werner & Blank Co., L.P.A., regarding certain
tax matters, and Consent.
(9) Not Applicable.
(10) Material Contracts, None.
(11) Not Applicable.
(12) Not Applicable.
(13) Registrant's Annual Report to security holders for the
year ended December 31, 1994.
(14) Not Applicable.
Part II page 2
<PAGE> 187
(15) Not Applicable
(16) Not Applicable.
Exhibit Number Description
- -------------- -----------
(21) List of the subsidiaries of the Registrant and their
jurisdictions of incorporation or organization as of
December 31, 1994 is presented in Registrant's Annual
Report on form 10-K incorporated herein by reference.
(22) None.
(23) Consents of Experts and Counsel.
A. Consent of Gaither, Rutherford & Co., LLP
B. Consent of McGladrey & Pullen LLP
C. Consent of Geo S. Olive & Co., LLP.
D. Consent of Crowe, Chizek and Company
E. Consent of Werner & Blank Co., L.P.A. (the
consent is contained in that firm's opinions
filed as Exhibits (5) and (8)).
F. Consent of Charles Webb & Co.
(24) Power of Attorney.
(25) Not Applicable.
(26) Not Applicable.
(27) Not Applicable.
(28) Not Applicable.
(29) Not Applicable.
(99) Additional Exhibits.
A. Form of Letter to Shareholders of United
Financial Bancorp, Inc.
B. Form of Proxy to be delivered to Shareholders
of United Financial Bancorp, Inc.
Part II page 3
<PAGE> 188
ITEM 22. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes as follows:
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or
events arising after the Effective Date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to the
information set forth in the Registration
Statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) 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 that is incorporated by reference in this
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.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to officers,
directors, 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
Part II page 4
<PAGE> 189
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 that matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by
it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
B. The undersigned Registrant hereby undertakes to respond to requests
for information that are incorporated by reference into the
Prospectus/Proxy Statement 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 the documents
filed subsequent to the Effective Date of this Registration Statement
through the date of responding to the request.
C. 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 this Registration Statement when it became
effective.
Part II page 5
<PAGE> 190
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Evansville, State of Indiana, this 2nd day of
June, 1995.
National City Bancshares, Inc.
/s/ John D. Lippert
------------------------------------
John D. Lippert
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 2nd day of June, 1995.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ John D. Lippert
- ----------------------------------
John D. Lippert Chairman and Chief Executive Officer
and Director (Principal Executive Officer)
/s/ Robert A. Keil
- -------------------------------------------
Robert A. Keil President and Director
/s/ Harold A. Mann
- ----------------------------------
Harold A. Mann Secretary/Treasurer
(Principal Accounting Officer)
Michael F. Elliott* Director
Mrs. N. Keith Emge* Director
Donald G. Harris* Director
Ronald G. Reherman* Director
Laurence R. Steenberg* Director
</TABLE>
*By: /s/ John D. Lippert
---------------------
John D. Lippert
Attorney-in-Fact
Part II page 6
<PAGE> 191
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Page #
- ----------- ------
<S> <C> <C>
3.A Articles of Incorporation
--------
5.0 Opinion of Werner & Blank Co., L.P.A. regarding
National City Bancshares, Inc.; Common Stock and Consent
--------
5.1 Opinion of Werner & Blank Co., L.P.A., Attorneys,
regarding certain tax matters and Consent
--------
13.0 Registrant's Annual Report to Security Holders for the
year ended December 31, 1994
--------
23.A Consent of Gaither Rutherford & Co., LLP
--------
23.B. Consent of McGladrey & Pullen, LLP
--------
23.C. Consent of Geo S. Olive & Co., LLP
--------
23.D. Consent of Crowe, Chizek and Company
23.E. Consent of Werner & Blank, Co., LPA (see Exhibit 5 and 5.1)
23.F. Consent of Charles Webb & Co.
--------
24.0 Power of Attorney
--------
99.A Form of Letter to Shareholders United Financial Bancorp, Inc
--------
99.B Form of Notice of Special Meeting of
Shareholders United Financial Bancorp, Inc
--------
99.C Form of Proxy to be delivered
to shareholders United Financial Bancorp, Inc
</TABLE>
<PAGE> 1
EXHIBIT TO S-4
REGISTRATION STATEMENT
EXHIBIT 3-A
<PAGE> 2
ARTICLES OF INCORPORATION
OF
NATIONAL CITY BANCSHARES, INC.
The undersigned incorporator or incorporators, desiring to form a
corporation (hereinafter referred to as the "Corporation") pursuant to the
provisions of:
[x] Indiana General Corporation Act
as amended (hereinafter referred to as the "Act"), execute the following
Articles of Incorporation:
ARTICLE I
NAME
The name of the Corporation is National City Bancshares, Inc.
ARTICLE II
PURPOSES
The purposes for which the Corporation is formed are: To engage in
any lawful act or activity for which corporations may be formed under the
Indiana General Corporation Act and The Bank Holding Company Act of 1956, as
amended, and to possess all other rights and powers authorized by the laws of
the State of Indiana, and the laws of the United States of America applicable
to bank holding companies and the regulations of the Board of Governors of the
Federal Reserve System.
ARTICLE III
PERIOD OF EXISTENCE
The period during which the Corporation shall continue is perpetual.
<PAGE> 3
ARTICLE IV
RESIDENT AGENT AND PRINCIPAL OFFICE
Section 1. Resident Agent. The name and address of the
Corporation's Agent for service of process is:
Mr. Harold A. Mann
227 Main Street
Evansville, Indiana 47708
Section 2. Principal Office. The post office address of the
principal office of the Corporation is:
227 Main Street
Evansville, Indiana 47708
ARTICLE V
AUTHORIZED SHARES
NUMBER OF SHARES
The total number of shares which the Corporation is to have authority to issue
is 10,000,000, all of which the Corporation designates as without par value.
TERMS OF SHARES (IF ANY)
Shares of the Corporation may be redeemed by the Corporation at the direction
of a vote of a majority of the Board of Directors meeting at a regularly or
specially called meeting for said purpose.
Furthermore, the Corporation, through its Board of Directors, shall have the
power to purchase, hold, sell, and transfer the shares of its own capital stock
provided that it does not use its funds or property for the purchase of its own
shares of capital stock when such use will cause any impairment of its capital,
except when otherwise permitted by law, and provided further that shares of its
own capital stock belonging to it are not voted upon directly, or indirectly.
<PAGE> 4
ARTICLE VI
REQUIREMENTS PRIOR TO DOING BUSINESS
The Corporation will not commence business until consideration of the
value of at least $1,000 (One Thousand Dollars) has been received for the
issuance of shares.
ARTICLE VII
DIRECTOR(S)
Section 1. Number of Directors: The initial Board of Directors is
composed of 14 member(s). The number of directors may be from time to time
fixed by the Bylaws of the Corporation at any number. In the absence of a Bylaw
fixing the number of directors, the number shall be 14.
Section 2. Names and Post Office Addresses of the Directors: The
names and post office addresses of the initial Board of Directors of the
Corporation are:
<TABLE>
<CAPTION>
Name Number and Street or Building City State Zip Code
---- ----------------------------- ---- ----- --------
<S> <C> <C> <C> <C>
Gilbert E. Betulius Denzer Road, R.R. 13 Evansville IN 47712
Donald B. Cox 4029 Fairfax Road Evansville IN 47710
Wilfred O. Doerner 960 St. Michael Court Evansville IN 47715
Victor R. Gallagher 431 S. Rotherwood Avenue Evansville IN 47714
C. Mark Hubbard 3400 Robin Place Evansville IN 47712
Edgar P. Hughes Riverside 1, Apt. 505, Evansville IN 47708
101 Court Street
R. Eugene Johnson 6840 Arcadian Highway Evansville IN 47715
Edwin F. Karges, Jr. 1106 Harrelton Court Evansville IN 47715
John D. Lippert 3636 Elmridge Drive Evansville IN 47711
John Lee Newman 717 S. Boeke Road Evansville IN 47714
Laurence R. Steenberg 5688 Cliftmore Drive Evansville IN 47630
C. Wayne Worthington 3023 Oak Hill Road Evansville IN 47711
George A. Wright 6001 Lincoln Avenue Evansville IN 47715
Mrs. N. Keith Emge 7108 E. Chestnut Street Evansville IN 47715
</TABLE>
Section 3. Qualifications of Directors (if any):
Directors of this Corporation who serve as directors of any subsidiary
banking corporation may hold shares in this Corporation as qualifying shares
entitling such director(s) to serve in the capacity as a director of such
subsidiary banking corporation.
<PAGE> 5
ARTICLE VIII
INCORPORATOR(S)
The name and post office address of the incorporator of the Corporation
is:
<TABLE>
<CAPTION>
Name Number and Street or Building City State Zip Code
---- ----------------------------- ---- ----- --------
<S> <C> <C> <C> <C>
Mr. Harold A. Mann 227 Main Street Evansville IN 47708
</TABLE>
ARTICLE IX
PROVISIONS FOR REGULATION OF BUSINESS
AND CONDUCT OF AFFAIRS OF CORPORATION
("Powers" of the Corporation, its directors or shareholders)
(Attach additional pages, if necessary)
Section 1. Capital Structure.
The Board of Directors of the Corporation is hereby authorized to fix
and determine and to vary the amount of working capital of the Corporation, to
determine whether any and, if any, what part of its surplus, however created or
arising, shall be used or disposed of or declared in dividends or paid to
shareholders, and, without action by the Shareholders, to use and apply such
surplus or any part thereof at any time or from time to time in the purchase or
acquisition of shares of any class, voting trust certificates for shares,
bonds, debentures, notes script, warrants, obligations, evidences of
indebtedness of the Corporation or other securities of the Corporation, to such
extent or amount and in such manner and upon such terms as the Board of
Directors of the Corporation shall deem expedient to the extent not prohibited
by law.
Section 2. Reliance on Books of the Corporation.
Each officer, director or member of any committee designated by the
Board of Directors of the Corporation shall, in the performance of his duties,
be fully protected in relying in good faith upon the books of accounts or
reports made to the Corporation by any of its officers or employees or by an
independent public accountant or by an appraiser selected with reasonable care
by the Board of Directors of the Corporation or by any such committee or in
relying in good faith upon other records of the Corporation.
Section 3. Indemnification.
The Corporation shall have the power to indemnify its present and past
directors, officers, employees, or agents, and such other persons as it shall
have the powers to indemnify, to the full
<PAGE> 6
extent permitted under, and subject to the limitations of, Title 23 of the
Indiana General Corporation Act.
The Corporation may, upon the affirmative vote of a majority of its
Board of Directors, purchase insurance for the purpose of indemnifying its
directors, officers, employees and agents to the extent that such
indemnification is allowed in the statute mentioned above.
Any indemnification as above provided (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification is proper in the circumstances because it
meets the standard set out in the statute above-mentioned. Such determination
shall be made (a) by the Board of Directors, by a majority vote of a quorum
consisting of directors who are not parties to such action, suit or proceeding;
or (b) if such quorum is not obtainable, or even if obtainable, if majority
vote of disinterested directors so directs, by independent legal counsel in a
written opinion stating that such director, officer, employee or agent has met
such standards of conduct, or (c) by a majority vote of a quorum of the
shareholders of the Corporation consisting of shareholders who are not parties
to such action, suit or proceeding.
Section 4. Voting Rights.
Each shareholder shall be entitled to one vote for each share of stock
standing in his name on the books of the Corporation.
Each shareholder shall have the right to cumulate such voting power as
he possesses when electing directors, and to give one candidate as many votes
as the number of directors to be elected multiplied by the number of his votes
equals, or to distribute his votes on the same principle among two or more
candidates, as he sees fit.
Section 5. Classes of Directors.
The Bylaws of the Corporation may provide, that the Directors shall be
divided into two (2) or more classes whose terms of office shall expire at
different times, but no term shall continue longer than three (3) years.
Section 6. Voting Rights on Business Combinations.
Any merger, consolidation, or acquisition of this Corporation by
another corporation without this Corporation's Board of Directors' approval,
shall require the affirmative approval of the holders of eighty percent (80%)
of the issued and outstanding common shares of stock of the Corporation and
eighty percent (80%) of the issued and outstanding preferred shares or other
class of shares, regardless of limitations or restrictions on the voting power
thereof, entitled to vote at a meeting duly called for such purposes.
Irrespective of any other provisions of these Articles, this Section 6 may be
amended at any regular meeting or at a Special Meeting called for that purpose
by the affirmative vote of the holders of receipt of shares entitling them to
exercise eighty percent (80%) of the voting power on such proposal.
<PAGE> 7
ARTICLE 10
Except as otherwise restricted in Article IX, these Articles may be
amended at any regular meeting or at a special meeting called for that purpose
by the affirmative vote of the holders of record of shares entitling them to
exercise a majority of the voting power on such proposal.
<PAGE> 1
EXHIBIT TO S-4
REGISTRATION STATEMENT
EXHIBIT 5
<PAGE> 2
May 26, 1995
Board of Directors
National City Bancshares, Inc.
227 Main Street
Evansville, IN 47708
RE: S-4 Registration Statement for Shares of National City Bancshares, Inc.
Common Stock
Gentlemen:
We have acted as counsel to National City Bancshares, Inc. (the "Company") in
connection with the preparation of its S-4 Registration Statement to be filed
on or about May 26, 1995 with the Securities and Exchange Commission, for the
purpose of registering shares of the Company to be issued to shareholders of
United Financial Bancorp, Inc., pursuant to the terms and conditions of an
Agreement and Plan of Merger dated December 28, 1994 (the "Agreement"). In
connection with the filing of the Registration Statement, we are providing this
opinion as to the shares to be registered under the Securities Act of 1933 and
issued in connection with the Agreement.
We are of the opinion that the shares of common stock of the Company are duly
authorized, and when issued in accordance with the terms of the Agreement, will
be validly issued, fully paid and nonassessable.
This opinion is intended solely for your use and other than its inclusion in
the Registration Statement of the Company and referenced to it in the
Prospectus issued in connection therewith, may not be quoted, circulated or
copied without our express prior written consent.
Very truly yours,
Werner & Blank Co., L.P.A.
<PAGE> 1
EXHIBIT TO S-4
REGISTRATION STATEMENT
EXHIBIT 5.1
<PAGE> 2
May 22, 1995
Board of Directors
National City Bancshares, Inc.
227 Main Street
Evansville, IN 47708
and
Board of Directors
United Financial Bancorp, Inc.
619 Main Street
Vincennes, IN 47591
Gentlemen:
You have requested our opinion as to the federal income tax consequences of the
transactions contemplated by a certain Merger Agreement dated December 28,
1994, by and between United Financial Bancorp, Inc. ("United") and National
City Bancshares, Inc. ("NCBE"), hereinafter referred to as the "Agreement."
Our opinion is made in reliance upon and is limited to the following facts and
circumstances:
FACTS
United is a corporation organized under the laws of the State of Delaware, and
is located in Vincennes, Indiana.
NCBE is an Indiana corporation and a registered bank holding company located in
Evansville, Indiana. NCBE is a multibank holding company.
NCBE and United have only common shares outstanding. United is to be merged
into NCBE, under the Articles of Incorporation of NCBE and in compliance with
applicable Indiana law and Delaware law.
Each share of United outstanding on the effective date of the transaction will
be converted into shares of common stock of NCBE as provided by the Agreement.
The effect of the consummation of the transaction and the exchange of shares
will be that shareholders of United will become shareholders of NCBE, and NCBE
will own, in addition to its current banking affiliates, all of the outstanding
common stock of United Federal Savings Bank, Vincennes, Indiana, a wholly owned
subsidiary of United.
The business of United and NCBE (and affiliates) will continue substantially
unchanged after the effective date of the transaction.
<PAGE> 3
No fractional shares will be issued in the transaction. In lieu thereof,
holders otherwise entitled to receive such fractional shares will be issued
cash.
We are not aware and have been advised by the management of United that they
have no knowledge of any plan or intention on the part of shareholders of
United to sell or otherwise dispose of an amount of the NCBE shares to be
received in the transaction, which could reduce United's shareholders ownership
of NCBE shares after the merger of United and NCBE to shares having an
aggregate value as of the date of the transaction, of less than fifty percent
(50%) of the value of all the formerly outstanding shares of United as of the
same date.
The transaction will be carried out pursuant to and in accordance with all
applicable corporate and banking laws relating to the transaction. On the
effective date, NCBE will succeed to all assets of United and will be liable
for the liabilities of United then existing or arising as a result of the
transactions.
Following the consummation of the transaction resulting in the merger of United
with and into NCBE, NCBE will continue to operate the business of United and
its existing affiliates in substantially the same manner.
Arms-length negotiations were carried on between the management of NCBE and
management of United which led to the Agreement and fixed the terms of the
transactions. Consideration was given to both financial and nonfinancial
factors involved in the transaction and the business benefits from the
transaction were discussed and considered by the parties.
In the opinion of the management of NCBE and United, its employees and
customers will benefit from the affiliation. It is also expected that the
transaction will better enable the resulting corporation to compete with other
financial institutions.
OPINION
Based upon the above, it is our opinion that the Agreement will have the
following federal income tax consequences:
1. The merger of United with and into NCBE will constitute a "Statutory
Merger" within the meaning of Section 368(a)(1)(A) of the Internal Revenue
Code of 1986, as amended, (the "Code") and United and NCBE will each be a
"party to a reorganization" within the meaning of Section 368(b).
2. No gain or loss will be recognized by United as a result of the transfer of
its assets to and the assumption of its liabilities by NCBE. Sections
361(a) and 357(a) of the Code.
3. No gain or loss will be recognized by United's shareholders who exchanged
their respective shares solely for NCBE shares. Section 354(a) of the
Code.
4. The basis of the NCBE shares received by United's shareholders in exchange
for their shares will be the same as the basis in the shares exchanged
therefor, respectively. Section 358(a) of the Code.
<PAGE> 4
5. The holding period of the NCBE shares received by United's shareholders
will include the period during which shares exchanged therefor were held,
provided such shares were held as a capital asset. Section 1223(1) of the
Code.
6. The payment of cash in lieu of fractional shares for the purpose of
mechanically rounding off the fractions resulting from the exchange, will,
in each instance, constitute a distribution not essentially equivalent to a
dividend within the meaning of Section 302(b)(1) of the Code. The amount
received will be treated as a distribution in full payment in exchange for
the shareholders' fractional share of interest under Section 302(a) of the
Code.
7. Gain or loss will be recognized by each United's shareholder who dissents
and receives only cash in exchange for all of the shares owned by them.
This letter is solely for your information and use, and except: (i) for its
reliance upon by NCBE, United and their respective stockholders; (ii) filing
with the Office of Thrift Supervision in conection with its approval of the
transactions contemplated by the Agreement; and (iii) to the extent that such
may be referred to in the Registration Statement and filed with the Securities
and Exchange Commission as an exhibit to same, it is not to be used,
circulated, quoted or otherwise referred to for any other purpose, or relied
upon by any other person, for whatever reason without our prior written
consent.
Very truly yours,
/s/ Werner & Blank, Co., LPA
Werner & Blank Co., L.P.A.
<PAGE> 1
EXHIBIT TO S-4
REGISTRATION STATEMENT
EXHIBIT 13
1994 Annual Report of National City Bancshares, Inc.
<PAGE> 2
FINANCIAL REVIEW
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
As of and for the year ended December 31
------------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net interest income $ 30,681 $ 28,974 $ 28,773 $ 27,724 $ 27,097
Provision for loan losses (5) 654 1,234 2,324 1,515
Noninterest income 4,465 5,532 5,229 4,728 4,164
Noninterest expense 21,397 21,522 20,841 20,439 19,721
------------ ----------- ----------- ------------ ------------
Income before income taxes 13,754 12,330 11,927 9,689 10,025
Income taxes 4,691 3,956 3,727 2,659 3,003
------------ ----------- ----------- ------------ ------------
Net income $ 9,063 $ 8,374 $ 8,200 $ 7,030 $ 7,022
============ =========== =========== ============ ============
PER COMMON SHARE
Net income $ 2.45 $ 2.24 $ 2.19 $ 1.88 $ 1.87
Book value 23.54 22.96 21.33 19.82 18.49
Cash dividends declared by
National City Bancshares, Inc. 0.93 0.88 0.84 0.78 0.73
TOTALS AT YEAR END
Loans $ 483,592 $ 435,021 $ 416,503 $ 405,674 $ 411,066
Allowance for loan losses 3,794 3,791 4,186 4,639 4,431
Securities 184,519 175,762 183,398 203,531 224,616
Total assets 731,764 717,139 731,080 765,451 789,595
Deposits 615,968 606,648 624,843 649,959 675,173
Shareholders' equity 86,119 85,901 79,772 74,139 69,175
SELECTED FINANCIAL RATIOS
Net income to average assets 1.27% 1.18% 1.12% 0.93% .90%
Net income to average equity 10.53 10.15 10.67 9.86 10.46
Cash dividend payout 37.96 39.29 38.36 41.49 39.04
Average equity to average assets 12.06 11.60 10.53 9.41 8.61
Tangible equity to tangible assets 11.62 11.80 10.71 9.46 8.51
Total capital to risk-weighted assets 17.80 19.36 18.62 16.72 15.86
OTHER DATA
Number of shares 3,658,142 3,741,257 3,740,678 3,740,476 3,741,342
Number of shareholders 1,620 1,556 1,541 1,462 1,476
Number of full-time equivalent employees 374 388 401 419 ,424
Weighted average number of common
shares outstanding 3,694,650 3,742,427 3,741,124 3,743,865 3,746,249
</TABLE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
FINANCIAL REVIEW 1
MESSAGE TO SHAREHOLDERS 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3
REPORT ON MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS 14
INDEPENDENT AUDITOR'S REPORT 15
FINANCIAL STATEMENTS 16
NOTES TO FINANCIAL STATEMENTS 21
OFFICIAL ORGANIZATION 30
SHAREHOLDER INFORMATION 32
</TABLE>
1
<PAGE> 3
Message to Shareholders
March 13, 1995
National City Bancshares, Inc. achieved its highest earnings in 1994. Per
share net income was $2.45 compared to $2.24 in 1993, a significant 9.4%
increase. Net income for the year totaled $9,063,000 compared to $8,374,000
earned in 1993. The most commonly accepted measurement of a bank holding
company's profitability is return on average assets, or R.O.A. Your
Corporation's R.O.A. was 1.27% last year, up from 1.18% the previous year.
Both percentages are considered excellent.
Corporate assets are sound. The loan portfolios among our nine banks are
"clean" as a result of our continued high underwriting standards. The
allowance for loan and lease losses at the corporate level was 273% of
underperforming loans, up 66% from the prior year. The banks' investment
accounts are also high grade.
The Corporation's subsidiary banks' loan portfolio grew an impressive
$48,571,000 during the year, up 11.2% from 1993. We anticipate continued loan
growth during 1995. Of course, lending is the Corporation's main source of
income.
Capital, your investment in the company, remains one of the highest in the
country as a percentage of assets. At December 31, 1994, it was 11.77% of
assets.
Your stock has grown in market value; price per share increased 25% during the
past year, from $37.00 to $46.25. During the same period, 425,000 shares were
traded on the The Nasdaq Stock Market. Management continues to believe stock
price enhancement is one of our more significant duties as corporate officers.
As a result of updating the Corporation's Strategic Plan last spring, the Board
of Directors has been restructured to provide more efficiency and less
redundance in our organization. The Board will operate with fewer members,
allowing us to be more proactive and reactive to the ever-changing banking
environment. We want to thank our previous Board members who have served so
well over the years. It is without question, this group of individuals brought
our holding company to its present place of prominence among the Midwest's
finest bank holding companies.
Many noteworthy, well-deserved promotions took place among our family of banks.
Equally important, many of our officers and employees retired. We, once again,
offer our congratulations and thanks for a job well done to all those affected.
After careful study and exhaustive research, it was determined by management,
with the concurrence of the Board of Directors, that a subsidiary leasing
company be established to help complete our mission as a full service financial
corporation. NCBE Leasing Corp. began operation on November 1, 1994.
The Boards of Directors of Farmers State Bank, Sturgis, Kentucky, and Poole
Deposit Bank, Poole, Kentucky, concluded they could best serve their respective
markets by combining the two banks into a new bank known as First Kentucky
Bank, headquartered in Sturgis, Kentucky. This merger became effective
December 1, 1994. In addition to the branch in Poole, First Kentucky Bank has
received permission from the Bank's supervisory agencies to establish a branch
office in Morganfield, the county seat of Union County, Kentucky.
As previously announced, we are in the process of completing mergers of two
banks into our holding company. The first announced was White County Bank,
Carmi, Illinois--a $65 million community bank located within our area of
operation. We expect this merger to be completed in the next few months. The
second merger, announced in December 1994, is United Federal Savings Bank,
owned by United Financial Bancorp, Inc. in Vincennes, Indiana. United is a
$110 million bank which operates with a thrift charter. This merger is also
moving through the regulatory approval process. Both additions to the
Corporation will strengthen our presence in the tri-state region.
Our management team, through continued planning, is well prepared to carry out
many profit enhancement projects during 1995. However, we are aware of
possible factors such as interest rate changes and government regulations,
which could have a dramatic effect on the "bottom line." We, as a Corporation,
are alert and able to react quickly in the event our plans must be changed due
to uncontrollable circumstances.
In conclusion, please avail yourself of the remainder of this report. We think
you will find the schedules and narrative informative and helpful in evaluating
your investment in National City Bancshares, Inc.
/s/ John D. Lippert
John D. Lippert
Chairman of the Board and
Chief Executive Officer
/s/ Robert A. Keil
Robert A. Keil
President, Chief Financial Officer
and Chief Administrative Officer
[PHOTO]
SENIOR MANAGEMENT
Seated left to right:
Robert A. Keil, President & CFO
Benjamin W. Bloodworth, Executive Vice President
Standing left to right:
John D. Lippert, Chairman & CEO
Nancy G. Epperson, Human Resources Director
Michael F. Elliott, Executive Vice President
Harold A. Mann, Secretary, Treasurer, & CAO
Byron W. Jett, Senior Vice President (not pictured)
2
<PAGE> 4
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Dollar Amounts Other Than Share Data in Thousands)
INTRODUCTION
The discussion and analysis which follows is presented to assist in the
understanding and evaluation of the financial condition and results of
operations of National City Bancshares, Inc. and its subsidiaries as presented
in the following consolidated financial statements and related notes. The text
of this review is supplemented with various financial data and statistics. All
information has been retroactively restated to include bank acquisitions
accounted for using the pooling of interests method and to give effect to stock
dividends.
BUSINESS DESCRIPTION
National City Bancshares, Inc. (NCBE) is an Indiana corporation established in
1985 to engage in the business of a bank holding company. Based in Evansville,
Indiana, NCBE has ten wholly owned subsidiaries, nine commercial banks serving
nineteen towns and cities with a total of twenty-eight banking centers and a
leasing corporation. Each subsidiary, its locations, number of offices, year
founded, date of merger, and size in assets and equity is shown below.
<TABLE>
<CAPTION>
12/31/94 (millions)
SUBSIDIARY Number of Year --------------------
Principal and Other Cities Offices Founded Date of Merger Assets Equity
- -------------------------------------------- ------- ------- ---------------- ------ ------
<S> <C> <C> <C> <C> <C>
THE NATIONAL CITY BANK OF EVANSVILLE 10 1850 May 6, 1985 $343 $36
Evansville, Chandler, and Newburgh, Indiana
THE PEOPLES NATIONAL BANK OF GRAYVILLE 1 1937 May 16, 1988 41 5
Grayville, Illinois
THE FARMERS AND MERCHANTS BANK 1 1896 January 30, 1989 40 5
Fort Branch, Indiana
FIRST KENTUCKY BANK 3 1916 November 30, 1990 89 11
Sturgis and Poole, Kentucky
LINCOLNLAND BANK 5 1904 December 17, 1993 103 13
Dale, Chrisney, Grandview,
Hatfield, and Rockport, Indiana
THE BANK OF MITCHELL 3 1882 December 17, 1993 41 3
Mitchell and Bedford, Indiana
PIKE COUNTY BANK 1 1900 December 17, 1993 28 3
Petersburg, Indiana
THE SPURGEON STATE BANK 2 1921 December 17, 1993 20 2
Spurgeon and Arthur, Indiana
THE STATE BANK OF WASHINGTON 2 1910 December 17, 1993 46 4
Washington and Odon, Indiana
NCBE LEASING CORP. 1 1994 November 1, 1994 - -
Evansville, Indiana
</TABLE>
The Corporation's subsidiary banks provide a wide range of financial services
to the communities they serve in Southwestern Indiana, Western Kentucky and
Southeastern Illinois. These services include various types of deposit
accounts; safe deposit boxes; safekeeping of securities; automated teller
machines; consumer, mortgage, and commercial loans; mortgage loan sales and
servicing; letters of credit; accounts receivable management (financing,
accounting, billing, and collecting); and complete personal and corporate trust
services. All banks are members of the Federal Deposit Insurance Corporation.
3
<PAGE> 5
Management's Discussion and Analysis
of Financial Condition and Results of Operations Continued
(Dollar Amounts Other Than Share Data in Thousands)
FINANCIAL CONDITION
Highlights for 1990 through 1994 are presented in the financial review on page
1. An average balance sheet and analysis of net interest income is provided on
page 13. Earnings per share have increased every year since the Corporation
was formed in 1985. A higher net interest margin and continued cost controls
contributed to the 1994 earnings per share of $2.45, an increase of $.21, or
9%. Sixty-two percent of 1994 earnings were retained, increasing the book
value per share $0.58 to $23.54 and resulting in a very strong ratio of average
equity capital to average assets of 12.06%. We are not aware of any current
recommendations by the regulatory authorities which, if they were to be
implemented, would have a material effect on our operations, capital resources,
or liquidity.
Average earning assets and average assets increased 0.5% and 0.3%,
respectively, in 1994, compared to 2.8% and 2.6% decreases in 1993. During
1994 average federal funds sold decreased $20,094, or 65.9%, and
interest-bearing deposits in banks decreased $13,364, or 60.5%. Average
securities increased $8,297, or 4.6%. All types of securities increased except
U.S. Governments and agencies. The largest increase in average securities was
in other securities, which increased $9,125, or 54.5%. Average loans increased
$28,191, or 6.6%. Commercial, consumer, and mortgage loans had significant
increases, with the largest being $10,173, or 5.8%, in average mortgage loans.
A strong loan demand and lower interest rates contributed to the growth of the
loan portfolio. The change in earning asset mix was intended and resulted in
improved earnings in 1994 and a continued strong condition to begin 1995.
An increase of $9,858, or 5.5%, in average savings and interest-bearing
checking accounts was more than offset by a decrease of $12,511, or 4.3%, in
average certificates of deposit and other time deposits, caused by declining
interest rates. Average federal funds purchased and securities sold under
agreements to repurchase increased $3,447, or 26.7%. Average
noninterest-bearing deposits increased $3,580, or 4.7%. It is the
Corporation's philosophy to only increase deposits if they are needed to fund
loan growth.
SECURITY PORTFOLIO
Average securities comprised 28.5% of the 1994 average earning assets compared
to 27.4% and 27.9% in 1993 and 1992, respectively. They represent the second
largest component after loans. The Corporation holds various types of
securities, including mortgage-backed securities. Inherent in mortgage-backed
securities is prepayment risk, which occurs when borrowers prepay their
obligations due to market fluctuations and rates. In an effort to reduce this
risk, management closely monitors the amount of mortgage-backed securities
contained in the portfolio. The Corporation has no securities by any issuer,
with the exception of the U. S. Government, exceeding 10% of shareholders'
equity. The Corporation manages the quality and risk of securities through its
Asset/Liability Committee, which recommends and monitors the overall security
portfolio approved by the Corporation's Board of Directors. Among other
things, the investment policy establishes guidelines for the level, type,
quality, and mix of securities appropriate for the portfolio. The security
portfolio at December 31, 1994, included $2,950 in structured notes, which were
comprised of $2,450 in multi-coupon step-up notes that have a price volatility
comparable to a callable U.S. Government agency of like maturity and $500 in a
capped floating rate note that will mature within one year. These securities
have risk characteristics which are well within the constraints of the
non-structured securities held in the security portfolio.
As of December 31, 1993, the Corporation adopted Financial Accounting Standards
Board Statement No. 115. For 1994 and 1993, securities classified as held to
maturity are carried at amortized cost, and those classified as available for
sale are carried at fair value. For 1992, debt securities were carried at
amortized cost and equity securities were carried at the lower of cost or
market.
The available-for-sale securities included unrealized losses of approximately
$3,648 and unrealized gains of $52 at December 31, 1994. The fair value of
held-to-maturity securities was $72,815, reflecting unrealized losses of $1,643
and unrealized gains of $770. At December 31, 1994, the Corporation's
available-for-sale securities included $29,638 in mortgage-backed securities,
or 26.7% of the available-for-sale portfolio. The held-to-maturity portfolio
contained $4,475 in mortgage-backed securities or 6% of the held-to-maturity
portfolio. The weighted average maturity of the available-for-sale and
held-to-maturity portfolios at December 31, 1994, was 3.7 years and 4.4 years,
respectively. The weighted average maturity of the available-for-sale and the
held-to-maturity portfolios at December 31, 1993, was 3.8 years and 4.2 years,
respectively.
The following is a three-year analysis of the year-end balances in the security
portfolio and an analysis of the maturities and weighted average yields as of
December 31, 1994. The weighted average yields on obligations of state and
political subdivisions that are tax-exempt have been computed on a
federal-tax-equivalent basis using a 34.3% tax rate.
4
<PAGE> 6
SECURITY PORTFOLIO
<TABLE>
<CAPTION>
Carrying Value at December 31
----------------------------------------------------------------------------------
1994 1993 1992
---------------------------- ------------------------ -------
HELD TO AVAILABLE Held to Available
MATURITY FOR SALE Maturity For Sale
-------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Debt Securities:
U. S. Treasury securities $ 3,502 $ 23,230 $ 9,101 $ 19,071 $ 36,110
U. S. Government agencies 4,932 48,722 9,762 63,500 82,020
Taxable municipals 2,530 - 1,646 - 696
Tax-exempt municipals 40,418 - 38,148 - 38,390
Corporate securities 17,831 6,721 10,769 1,122 6,144
Mortgage-backed securities 4,475 29,638 4,614 15,457 18,349
------- --------- ------- -------- ---------
Total debt securities 73,688 108,311 74,040 99,150 181,709
Equity securities - 2,520 - 2,572 1,689
------- --------- ------- -------- ---------
Total securities $73,688 $110,831 $74,040 $101,722 $ 183,398
======= ========= ======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
MATURITY ANALYSIS
DECEMBER 31, 1994 After 1 Year After 5 Years
but but
Within 1 Year Within 5 Years Within 10 Years After 10 Years Total
----------------- -------------- ----------------- --------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES CLASSIFIED AS
HELD TO MATURITY:
U. S. Treasury securities $ 3,002 4.10% $ 500 4.27% $ - - $ - - $ 3,502 4.12%
U. S. Government agencies 306 6.24% 2,993 7.51% 1,087 4.16% 546 3.89% 4,932 6.29%
Taxable municipals 550 5.06% 1,300 6.10% 680 7.19% - - 2,530 6.17%
Tax-exempt municipals 3,638 7.80% 11,949 8.87% 16,754 9.65% 8,077 9.39% 40,418 9.20%
Corporate securities 3,551 5.24% 13,362 5.36% 918 4.22% - - 17,831 5.28%
------- ------- ------- ------ --------
Total maturing securities $11,047 5.77% $30,104 6.95% $19,439 8.94% $8,623 8.96% 69,213 7.61%
======= ======= ======= ======
Mortgage-backed securities 4,475 7.78%
--------
Total securities $ 73,688 7.62%
========
SECURITIES CLASSIFIED AS
AVAILABLE FOR SALE:
U. S. Treasury securities $ 5,058 4.58% $17,673 6.64% $ 499 7.76% $ - - $ 23,230 6.21%
U. S. Government agencies 16,496 4.94% 28,229 6.02% 3,997 5.16% - - 48,722 5.59%
Corporate securities - - 5,673 5.79% 1,048 5.22% - - 6,721 5.70%
------- ------- ------- ------ --------
Total maturing securities $21,554 4.86% $51,575 6.21% $ 5,544 5.41% $ - - 78,673 5.78%
======= ======= ======= ======
Mortgage-backed securities 29,638 5.85%
Equity securities 2,520 6.56%
--------
Total securities $110,831 5.82%
========
</TABLE>
LOANS
Each subsidiary bank has competent lending officers who follow loan policies
approved by their boards of directors. These policies are compatible with the
Corporation's loan policy approved by its Board of Directors. The lending
policies address risks associated with each type of lending, collateralization,
loan-to-value ratios, loan concentrations, insider lending, and other pertinent
matters. These functions are monitored by subsidiary and corporate loan review
personnel and by the loan committees of the boards of directors for compliance
and loan quality. Close loan administration and high credit standards minimize
credit risk, as evidenced by the ratio of underperforming loans to total loans.
Highly speculative loans are prohibited, and the normal loan-to-value ratio is
a minimum of 80% for real estate loans. The loan portfolio contains no foreign
loans. All real estate loans, and in excess of 95% of commercial and consumer
loans, are secured.
5
<PAGE> 7
Management's Discussion and Analysis
of Financial Condition and Results of Operations Continued
(Dollar Amounts Other Than Share Data in Thousands)
LOANS CONTINUED
The Corporation's loan portfolio is well diversified by type of loan, industry,
and geographic location, which minimizes economic risk. The loan portfolio
contained 30% commercial loans, 51% real estate loans (primarily residential),
and 19% consumer loans at December 31, 1994. The Corporation's affiliate banks
lend to customers in various industries including manufacturing, agricultural,
health and other services, transportation, mining, wholesale, and retail.
Commercial loans increased dramatically in 1994 due to a general increase in
business among the communities the Corporation's banks serve. Management feels
little risk is associated with this growth because most of the borrowers are
long-standing customers who increased their lines of credit for expansion and
inventory purposes. Consumer loans also grew appreciably as a direct result of
increased automobile sales. Strict underwriting standards, as evidenced by
negligible loan losses, should minimize future losses on these loans.
Agriculture in our trade area was profitable for the second straight year,
allowing credit "clean up" and pay down on agriculture-related credit while
also increasing outstandings. The Corporation's banks do not make loans for
land speculation or other high credit risk farm ventures. The increase in real
estate lending was a direct result of lower interest rates during most of 1994.
This portfolio is mostly comprised of single-family, owner-occupied housing.
Guidelines for mortgage lending were followed, advances did not exceed 80% of
appraised value, and the customer's ability to repay was closely scrutinized.
At December 31, 1994, there was no concentration of credit risk from borrowers
engaged in the same or similar industries exceeding 10% of total loans.
Geographic diversification is provided by the Corporation's policy to extend
credit to customers in its geographic market areas in and around its subsidiary
banks' nineteen cities located in Southwestern Indiana, Southeastern Illinois,
and Western Kentucky.
The following is a five-year summary of the loan portfolio and an analysis of
the loan maturities and rate sensitivities at December 31, 1994.
LOAN PORTFOLIO AT YEAR END, FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Real estate loans $ 247,596 $ 236,037 $ 222,606 $ 212,453 $ 204,873
Loans to financial institutions - 50 50 500 1,227
Loans for purchasing/carrying securities - - 350 350 350
Agricultural loans 22,952 22,188 20,167 21,386 20,402
Commercial and industrial loans 110,280 95,254 92,313 78,819 80,252
Economic development loans and
other obligations of state
and political subdivisions 12,529 9,649 9,400 11,443 13,161
Consumer loans 89,033 72,822 74,808 81,351 94,438
All other loans 1,419 1,156 1,638 5,708 5,096
--------- --------- --------- --------- ---------
Total loans - gross 483,809 437,156 421,332 412,010 419,799
Less: unearned income 217 2,135 4,829 6,336 8,733
--------- --------- --------- --------- ---------
Total loans - net of unearned income 483,592 435,021 416,503 405,674 411,066
Less: allowance for loan losses 3,794 3,791 4,186 4,639 4,431
--------- --------- --------- --------- ---------
Total loans - net $ 479,798 $ 431,230 $ 412,317 $ 401,035 $ 406,635
========= ========= ========= ========= =========
</TABLE>
LOAN MATURITIES AND RATE SENSITIVITIES AT DECEMBER 31, 1994
ON AGRICULTURAL, COMMERCIAL, AND TAX-EXEMPT LOANS
<TABLE>
<CAPTION>
After 1
Year But
Within Within Over 5
1 Year 5 Years Years Total
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
Rate sensitivities:
Fixed rate loans $ 19,476 $ 25,831 $12,974 $ 58,281
Variable rate loans 86,068 692 537 87,297
-------- -------- ------- ---------
Subtotal $105,544 $ 26,523 $13,511 145,578
======== ======== =======
Percent of subtotal 72.50% 18.22% 9.28%
Nonaccrual loans 183
--------
Total loans net of unearned income $145,761
========
</TABLE>
6
<PAGE> 8
UNDERPERFORMING ASSETS
Underperforming assets consist of nonaccrual securities and loans, restructured
loans, 90 days past due loans, and other real estate held. Nonaccrual
securities are those which have defaulted on interest payments. Nonaccrual
loans are loans on which interest recognition has been suspended because of
doubts as to the borrower's ability to repay principal or interest. Loans are
generally placed on nonaccrual status after becoming 90 days past due if the
ultimate collectibility of the loan is in question. Loans which are current,
but for which serious doubt exists about repayment ability, may also be placed
on nonaccrual status. Restructured loans are loans where the terms have been
changed to provide a reduction or deferral of principal or interest because of
the borrower's financial position. Past-due loans are accruing loans that are
contractually past due ninety days or more as to interest or principal
payments. Other real estate held represents properties obtained for debts
previously contracted. Management is not aware of any loans which have not
been disclosed that represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity or capital resources, or represent material credits about which
management is aware of any information which causes management to have serious
doubt as to the ability of such borrower to comply with loan repayment terms.
The following summarizes the underperforming assets as of December 31:
UNDERPERFORMING ASSETS AT YEAR END, FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Underperforming loans:
Nonaccrual $ 734 $ 1,958 $ 2,758 $ 3,832 $ 3,073
Restructured 134 76 1,902 1,860 2,119
90 days past due 522 274 1,524 3,552 2,248
------- ------- ------- -------- --------
Total underperforming loans 1,390 2,308 6,184 9,244 7,440
Nonaccrual municipal securities - 81 182 104 -
Other real estate held 605 688 3,300 3,195 3,182
------- ------- ------- -------- --------
Total $ 1,995 $ 3,077 $ 9,666 $ 12,543 $ 10,622
======= ======= ======= ======== ========
</TABLE>
Past due 90 days or more, nonaccrual, and restructured loans were 0.3% of total
loans at the end of 1994, compared to 0.5% at the end of 1993. Of the loans in
these categories, $757, or 54.5%, were secured by real estate at the end of
1994, compared to $1,460, or 63.3%, at the end of 1993. Additional interest
income that would have been recorded, if nonaccrual and restructured loans had
been current and in accordance with their original terms, was $92, $145, and
$307 in 1994, 1993, and 1992, respectively. The interest recognized on
nonaccrual loans was approximately $36, $13, and $89 in 1994, 1993, and 1992,
respectively. Other real estate held at the end of 1992 included properties
valued at $2,011 which were sold with The National City Bank of Evansville
holding the mortgages.
In addition to those loans classified as underperforming, management was
closely monitoring loans of approximately $15,952 and $15,923 as of the end of
1994 and 1993, respectively, for the borrowers' abilities to comply with
present loan repayment terms.
RISK MANAGEMENT
As of December 31, 1994, management considered the allowance for loan losses
adequate to provide for potential losses. Management reviews delinquent and
problem loans weekly. Loans which are judged uncollectible are charged off on
a timely basis. The allowance for loan losses is reviewed quarterly in order
to evaluate and maintain its adequacy based on a thorough analysis of the
entire loan portfolio. Some of the factors used in this review include current
economic conditions and forecasts, risk by type of loan, previous loan loss
experience, and evaluation of specific borrowers and collateral. The
Corporation and its banks closely monitor loan portfolios using models designed
in part by regulatory agencies.
Total loans charged off during 1994 decreased $782, or 56%, and recoveries were
$275, or 78%, greater than in 1993. During the past three years, net
charge-offs and underperforming assets have reduced significantly, allowing for
reduced provision for loan losses. This has resulted in a reduced ratio of
allowance to loans and a significant increase in the ratio of allowance to
underperforming loans. The provision for loan losses was decreased for 1994
and 1993 as a result of receiving payments on loans which had been allocated
for in previous quarterly evaluations or previously charged off and improved
loan quality as evidenced by the significant reductions in underperforming
loans and in charge-offs in both periods.
7
<PAGE> 9
Management's Discussion and Analysis
of Financial Condition and Results of Operations Continued
(Dollar Amounts Other Than Share Data in Thousands)
RISK MANAGEMENT CONTINUED
The following is a five-year analysis of loan loss experience and allocation of
allowance for loan losses:
SUMMARY OF LOAN LOSS EXPERIENCE
Analysis of the Allowance for Loan Losses
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Allowance for loans losses, January 1 $ 3,791 $ 4,186 $ 4,639 $ 4,431 $ 4,412
Loans charged off:
Commercial 221 1,099 1,495 1,573 1,125
Real estate 235 27 551 343 188
Consumer 163 275 367 498 490
-------- -------- --------- --------- --------
Total 619 1,401 2,413 2,414 1,803
-------- -------- --------- --------- --------
Recoveries on charged-off loans:
Commercial 135 210 428 181 93
Real estate 63 27 75 53 147
Consumer 429 115 223 64 67
-------- -------- --------- --------- --------
Total 627 352 726 298 307
-------- -------- --------- --------- --------
Net charge-offs (8) 1,049 1,687 2,116 1,496
Provision for loan losses (5) 654 1,234 2,324 1,515
-------- -------- --------- --------- --------
Allowance for loans losses, December 31 $ 3,794 $ 3,791 $ 4,186 $ 4,639 $ 4,431
======== ======== ========= ========= ========
Total loans at year end $483,592 $435,021 $ 416,503 $ 405,674 $411,066
Average loans $455,079 $426,888 $ 415,182 $ 407,489 $408,385
As a percent of year-end loans:
Net charge-offs 0.00% 0.24% 0.41% 0.52% 0.36%
Provision for loans losses 0.00% 0.15% 0.30% 0.57% 0.37%
Year-end allowance balance 0.78% 0.87% 1.01% 1.14% 1.08%
As a percent of average loans:
Net charge-offs 0.00% 0.25% 0.41% 0.52% 0.37%
Provision for loan losses 0.00% 0.15% 0.30% 0.57% 0.37%
Year-end allowance balance 0.83% 0.89% 1.01% 1.14% 1.09%
Allowance for loan losses as a percent
of underperforming loans 272.95% 164.25% 67.69% 50.18% 59.56%
</TABLE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES AT DECEMBER 31
<TABLE>
<CAPTION>
Loan Type Allowance Applicable to Percent of Loans to Total Gross Loans
- --------- ---------------------------------------------- -------------------------------------------
1994 1993 1992 1991 1990 1994 1993 1992 1991 1990
-------- -------- ------- -------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 1,687 $ 1,379 $ 1,754 $ 2,131 $ 1,727 30% 29% 29% 29% 29%
Real estate 520 508 799 769 296 51 54 53 51 49
Consumer 420 502 452 416 505 19 17 18 20 22
-------- -------- ------- -------- ------- --- --- --- --- ---
Allocated 2,627 2,389 3,005 3,316 2,528 100% 100% 100% 100% 100%
Unallocated 1,167 1,402 1,181 1,323 1,903 === === === === ===
-------- -------- ------- -------- -------
Total $ 3,794 $ 3,791 $ 4,186 $ 4,639 $ 4,431
======== ======== ======= ======== =======
</TABLE>
8
<PAGE> 10
DEPOSITS
The Corporation's Asset/Liability Committee manages the deposits of its banks
to best utilize short-term and long-term benefits of deposit growth. Average
deposits decreased $3,158, or 0.5%, during 1994. Average time deposits of
$100,000 or more decreased $2,346, or 4.1%. Time deposits of $100,000 or more
increased $19,377, or 36.2%, during 1994. Of this increase, $8,250 was
deposited to collateralize a standby letter of credit. Time deposits of
$100,000 or more are from local depositors and are not brokered deposits. They
are not considered to present an undue risk, and their averages have remained
at less than 10% of average total assets during the past three years.
The following is a three-year summary of average deposit balances and rates.
Also presented is a comparative analysis of time deposits of $100,000 or more.
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
1994 1993 1992
------------------------ ------------------------- -----------------------
AMOUNT RATE Amount Rate Amount Rate
--------- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $ 79,999 - $ 76,419 - $ 72,778 -
Money market accounts 52,898 2.59% 56,983 2.75% 53,992 3.41%
Interest-bearing demand 120,758 2.31% 114,654 2.48% 106,704 3.16%
Savings 69,052 2.64% 65,298 2.80% 58,198 3.43%
Time deposits of $100,000
or more 54,893 4.57% 57,239 3.43% 54,044 4.71%
Other time deposits 224,577 4.16% 234,742 4.60% 271,178 5.38%
--------- --------- ---------
Total $ 602,177 $ 605,335 $ 616,894
========= ========= =========
</TABLE>
TIME DEPOSITS OF $100,000 OR MORE AT DECEMBER 31
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Maturing:
3 months or less $ 34,347 $ 20,662 $ 24,219
Over 3 to 6 months 19,767 16,714 9,198
Over 6 to 12 months 7,871 4,477 5,917
Over 12 months 10,884 11,639 7,943
--------- --------- ---------
Total $ 72,869 $ 53,492 $ 47,277
========= ========= =========
</TABLE>
CAPITAL RESOURCES
At the end of 1994, shareholders' equity totaled $86,119, an increase of $218,
or 0.3%, over 1993, after declared cash dividends of $3,430 and after $2,964
for the repurchase of 75,000 common shares under the buy-back program initiated
in March 1994 for future stock dividends. The equity to asset ratio on an
average basis was 12.1% and 11.6% for 1994 and 1993, respectively. The
dividend payout ratio for 1994 was 38.0% compared to 39.3% in 1993. There are
no material commitments for capital expenditures.
Guidelines for minimum capital levels have been established by the Federal
Reserve Board. Tier 1 (core) capital consists of shareholders' equity less
goodwill, other identifiable intangible assets, and unrealized losses on
marketable equity securities. Total capital consists of Tier 1 capital plus
allowance for loan losses. Regulatory minimum capital levels are 3% for the
leverage ratio which is defined as Tier 1 capital as a percentage of total
assets less goodwill and other identifiable intangible assets; 4% for Tier 1
capital to risk-weighted assets; and 8% for total capital to risk-weighted
assets. The Corporation has, by far, exceeded each of these levels. Its
leverage ratio was 11.8% and 11.7%; Tier 1 capital to risk-weighted assets was
16.9% and 18.5%; and total capital to risk-weighted assets was 17.8% and 19.4%
at the end of 1994 and 1993, respectively. In addition, each of its subsidiary
banks has exceeded the capital guidelines established by bank regulators.
SHORT-TERM BORROWINGS
Federal funds purchased are borrowings from other financial institutions
maturing daily. Repurchase agreements are secured transactions with customers.
Repurchase agreements generally mature within six months. Notes payable U.S.
Treasury are demand notes created by treasury tax and loan account funds
transfers. Short-term borrowings increased $5,719, or 30.8%, during 1994. All
types of short-term borrowings decreased during 1994, except federal funds
purchased, with the largest decrease being in notes payable U.S. Treasury,
which decreased $2,718, or 50.4%. A detailed analysis of these three types of
borrowings follows:
9
<PAGE> 11
Management's Discussion and Analysis
of Financial Condition and Results of Operations Continued
(Dollar Amounts Other Than Share Data in Thousands)
SHORT-TERM BORROWINGS AT DECEMBER 31
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Federal funds purchased $ 10,575 $ - $ 1,275
Securities sold under agreements to repurchase 11,035 13,173 14,179
Notes payable U. S. Treasury 2,675 5,393 4,275
-------- -------- --------
Total $ 24,285 $ 18,566 $ 19,729
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Securities
Federal Sold Under
Funds Agreements Notes Payable
Purchased to Repurchase U. S. Treasury
--------- ------------- --------------
<S> <C> <C> <C>
1994
AVERAGE AMOUNT OUTSTANDING $ 5,300 $ 11,071 $ 2,096
MAXIMUM AMOUNT AT ANY MONTH END 19,450 14,849 4,783
WEIGHTED AVERAGE INTEREST RATE:
DURING YEAR 4.81% 3.40% 3.81%
END OF YEAR 5.64% 4.55% 5.20%
1993
Average amount outstanding $ 427 $ 12,497 $ 3,567
Maximum amount at any month end 2,233 15,532 8,568
Weighted average interest rate:
During year 3.48% 3.06% 2.82%
End of year - 2.93% 2.76%
1992
Average amount outstanding $ 1,141 $ 21,083 $ 3,755
Maximum amount at any month end 3,645 24,537 9,000
Weighted average interest rate:
During year 3.29% 3.86% 3.40%
End of year 3.02% 4.00% 2.81%
</TABLE>
LIQUIDITY
The liquidity of a banking institution reflects the ability to provide funds to
meet loan requests, to accommodate possible outflows in deposits, and to take
advantage of interest rate market opportunities. Funding of loan requests,
providing for liability outflows, and management of interest rate fluctuations
require continuous analysis in order to match maturities of specific categories
of short-term and long-term loans and investments with specific types of
deposits and borrowings. Bank liquidity is thus normally considered in terms
of the nature of mix of the banking institution's sources and uses of funds.
For National City Bancshares, Inc., the primary sources of short-term liquidity
have been federal funds sold, interest-bearing deposits in banks, and U.S.
Government and agency securities available for sale. In addition to these
sources, short-term liquidity is provided by maturing loans and securities.
The balance between these sources and needs to fund loan demand and deposit
withdrawals is closely monitored by the Corporation's asset/liability
management program and by each subsidiary bank to provide liquidity without
penalizing earnings. The increased loan demand throughout the year was funded
by primary assets, federal funds sold, and U.S. Government and agency
securities available for sale. However, management remains comfortable with
the shift in earning assets, mainly because of the deposits following from
loans and a continued shortening of loan maturities. Additionally, the
Corporation's underwriting standards for its mortgage loan portfolio is in
accordance with standards established by government housing agencies; and
thereby, a portion of the mortgage loan portfolio could be sold to provide
additional liquidity. At December 31, 1994 and 1993, respectively, federal
funds sold were $0 and $42,224, interest-bearing deposits in banks were $5,116
and $13,578, and U.S. Government and agency securities available for sale were
$71,952 and $82,571.
These sources and other liquid assets also provide long-term liquidity needs.
Long-term liquidity is managed in the same way, only with longer maturities, to
provide for future needs while maintaining interest margins. In excess of
$6,732 was available to the Corporation at December 31, 1994, from dividends by
subsidiaries without prior regulatory approval. Note 11 to the financial
statements in this report provides more detail about restrictions on dividends
from subsidiaries. These dividends provide liquidity for the Corporation. The
Corporation has no material long-term commitments.
10
<PAGE> 12
INTEREST RATE SENSITIVITY
Management of liquidity must be coordinated with interest rate management. The
following "Interest Rate Sensitivity Analysis" schedule shows assets and
liabilities which are maturing at various periods in time and which will be
subject to repricing. Money market accounts are shown in the shortest period,
and savings accounts are shown in the longest period presented.
Interest-bearing demand accounts are divided between the shortest and longest
periods based on the historical pattern of the interest rate sensitivity of the
account. Variable rate interest-earning assets and interest-bearing
liabilities are distributed based on repricing opportunities while fixed rate
interest-earning assets and interest-bearing liabilities are distributed based
on contractual maturity. No adjustments were made for projected prepayment
assumptions or for projected response to changes in market interest rates.
Liabilities to be repriced in three months or less and on a cumulative basis
through one year exceed assets to be repriced in the same time periods. In
times of rising interest rates, this will reduce net interest margin and thus
the earnings of the banks, as liabilities will be repriced at higher rates
while matching assets remain at their old lower rates until maturity. In times
of falling interest rates, this will increase net interest margin and thus the
earnings of the banks. Interest rate levels cannot be predicted at any future
point in time; therefore, it is in our best interest to match maturities of
assets and liabilities so that the gap will be as close to zero as possible.
This can be accomplished by shortening maturities of investment purchases
and/or purchasing investments where the rates adjust every thirty to ninety
days. While more liabilities than assets are subject to repricing within three
months, we believe our asset/liability management program allows adequate
reaction time for changes in rates as they occur, maximizing the potential
positive effect of an increase in interest rates.
Corporate asset liability gap positions are targeted at plus or minus 10% at
the six-month and one-year horizons. At December 31, 1994, all subsidiary
banks were within, or close to, their targeted spreads. The cumulative gap
position through one year of negative $24,722 at the end of 1994 was 3.4% of
total assets, a relatively balanced position in the opinion of management.
Management believes interest-bearing liabilities are driven by changes in the
Corporation's assets.
INTEREST RATE SENSITIVITY ANALYSIS AT DECEMBER 31, 1994
<TABLE>
<CAPTION>
Over Over
3 Months 1 Year
3 Months through through Over
or Less 1 Year 5 Years 5 Years Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans - net of unearned income
(excluding nonaccrual) $ 149,857 $ 96,698 $ 146,954 $ 89,349 $ 482,858
Securities (excluding nonaccrual) 18,534 24,430 95,674 45,881 184,519
Interest-bearing
deposits in banks 1,085 2,077 1,954 - 5,116
--------- --------- --------- --------- ---------
Total earning assets 169,476 123,205 244,582 135,230 672,493
--------- --------- --------- --------- ---------
RATE-SENSITIVE LIABILITIES:
Interest-bearing liabilities:
Interest-bearing demand 51,793 - - 72,122 123,915
Money market and other savings 47,256 - - 66,713 113,969
Time deposits of $100,000 or more 34,347 27,638 10,345 539 72,869
Other time 50,763 81,421 80,054 7,637 219,875
Borrowed funds 21,572 2,613 100 - 24,285
--------- --------- --------- --------- ---------
Total interest-bearing liabilities 205,731 111,672 90,499 147,011 554,913
Noninterest-bearing demand - - - 85,340 85,340
--------- --------- --------- --------- ---------
Total rate-sensitive liabilities 205,731 111,672 90,499 232,351 640,253
--------- --------- --------- --------- ---------
INTEREST SENSITIVITY GAP (36,255) 11,533 154,083 (97,121)
CUMULATIVE GAP (36,255) (24,722) 129,361 32,240
</TABLE>
CHANGES IN NET INTEREST INCOME
(Interest on a Federal-Tax-Equivalent Basis)
<TABLE>
<CAPTION>
1994 COMPARED TO 1993 1993 Compared to 1992
-------------------------------------- -----------------------------------------
CHANGE DUE TO A Change Due to a
CHANGE IN Change in
--------------------- -----------------------
VOLUME RATE TOTAL CHANGE Volume Rate Total Change
------- ------ ------------ ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest income increase (decrease)
Loans $ 2,380 $ (573) $ 1,807 $ 1,004 $ (2,649) $ (1,645)
Securities 505 (383) 122 (550) (2,193) (2,743)
Other short-term investments (1,308) 137 (1,171) (797) (623) (1,420)
------- ------ ------- ------- -------- --------
Total interest income 1,577 (819) 758 (343) (5,465) (5,808)
------- ------ ------- ------- -------- --------
Interest expense increase (decrease)
Deposits (230) (941) (1,171) (546) (4,800) (5,346)
Borrowings 71 136 207 (361) (259) (620)
------- ------ ------- ------- -------- --------
Total interest expense (159) (805) (964) (907) (5,059) (5,966)
------- ------ ------- ------- -------- --------
Net interest income increase (decrease) $ 1,736 $ (14) $ 1,722 $ 564 $ (406) $ 158
======= ====== ======= ======= ======== ========
</TABLE>
11
<PAGE> 13
Management's Discussion and Analysis
of Financial Condition and Results of Operations Continued
(Dollar Amounts Other Than Share Data in Thousands)
RESULTS OF OPERATIONS
Net income increased $689, or 8.2%, in 1994 and increased $174, or 2.1%, in
1993. Income also increased during both years on a per-share basis. Due to
increased net interest margins, net interest income increased $1,707, or 5.9%,
in 1994 and increased $201, or 0.7%, in 1993. The provision for loan losses
has decreased during both years due to high loan quality.
Changes in net interest income for the last two years are presented in the
preceding schedule with dollar changes allocated to rate and volume variances.
The combined rate-volume variances are included in the total volume variances.
In addition to this schedule, on page 13 is a three-year balance sheet analysis
on an average basis and an analysis of net interest income, setting forth (i)
average assets, liabilities, and shareholders' equity; (ii) interest income
earned on interest-earning assets and interest expense incurred on
interest-bearing liabilities; (iii) average yields earned on interest-earning
assets and average rates incurred on interest-bearing liabilities; (iv) the net
interest margin (i.e. the average yield earned on interest-earning assets less
the average rate incurred on interest-bearing liabilities); and (v) the net
yield on interest-earning assets (i.e. net interest income divided by average
interest-earning assets). Nonaccrual loans are included in the average
balances shown on the three-year balance sheet analysis and in the average
balances used to compute the volume variances in the changes in net interest
income.
A summary analysis of operations and return on equity and assets is provided in
a five-year financial review on page 1. The following discussion of results of
operations is on a federal-tax-equivalent basis. Average loans increased 6.6%
during 1994, compared to an increase of 2.8% during 1993. Loan income
increased 4.9% in 1994 and decreased 4.3% in 1993. The average yield on loans
decreased slightly from 8.58% in 1993 to 8.44% in 1994, a direct result of
lower interest rates. Average securities increased 4.6% in 1994 and decreased
4.6% in 1993. Securities income increased 1.1% during 1994 and decreased 19.4%
during 1993. The yield on securities decreased from 6.30% in 1993 to 6.06% in
1994. Average earning assets were approximately the same from 1992 through
1994 while income increased 1.5% during 1994 and decreased 10.4% during 1993.
The average yield on total earning assets increased from 7.56% in 1993 to 7.64%
in 1994. Net interest income in 1994 increased mainly due to an increase in
volume of earning assets.
Average total interest-bearing deposits decreased during both 1994 and 1993.
The average cost of interest-bearing deposits decreased from 4.48% in 1992 to
3.59% in 1993 and 3.42% in 1994. Rate was the stronger factor during 1994 and
1993, and the larger changes were recorded in 1993.
In 1994 and 1993 the increase in net interest income due to volume was stronger
than the decrease due to rate, resulting in a $1,722 and $158 increase in net
interest income in 1994 and 1993, respectively.
As reported in the financial statements, noninterest income and noninterest
expense decreased during 1994 but increased during 1993. These changes are
discussed in detail in the next two sections.
NONINTEREST INCOME
Noninterest income for 1994 decreased $1,067, or 19.3%, from 1993, compared to
an increase of $303, or 5.8%, for 1993 over 1992. Service charges on deposit
accounts, the largest item in this category, decreased $5, or 0.3%, during
1994, and increased $14, or 0.7%, during 1993. Trust income decreased $45, or
3.5%, during 1994, compared to a $74, or 5.4%, decrease during 1993. These
changes are due to fluctuations in the number of estates each year. Other
service charges and fees decreased $119, or 10.8%, during 1994 and increased
$167, or 17.9%, during 1993. Included in security gains and losses were
write-downs of $164, $54, and $100 during 1994, 1993, and 1992, respectively,
to reflect a decline in value of certain securities deemed to be other than
temporary under regulatory guidelines. During 1993 some of these securities
were sold for a $303 recovery. The other types of noninterest income decreased
$71 during 1994 and increased $80 during 1993.
NONINTEREST EXPENSE
Noninterest expense decreased $125, or 0.6%, during 1994, compared to an
increase of $681, or 3.3%, during 1993. The expense of salaries and other
employee benefits increased $439, or 3.9%, in 1994 and increased $410, or 3.8%,
in 1993. Occupancy expense of bank premises increased $27, or 1.7%, during
1994 compared to an increase of $58, or 3.7%, during 1993. Furniture and
equipment expense increased $127, or 8.0%, and $83, or 5.5%, during 1994 and
1993, respectively. The FDIC assessment increased $2, or 0.1%, during 1994 and
decreased $59, or 4.1%, during 1993 due to a decrease in deposits. Other types
of noninterest expenses decreased $720, or 12.7%, and increased $189, or 3.4%,
during 1994 and 1993, respectively. Included in 1994 and 1993, respectively,
were $183 and $372 in merger and acquisition expense.
12
<PAGE> 14
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------- --------------------------- ------------------------------
AVERAGE INTEREST YIELD/ Average Interest Yield/ Average Interest Yield/
BALANCES & FEES COST Balances & Fees Cost Balances & Fees Cost
-------- ------- ------- -------- ------- ------ -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Interest-bearing deposits
in banks $ 8,714 $ 392 4.50% $ 22,078 $ 1,003 4.54% $ 33,619 $ 1,915 5.70%
Federal funds sold 10,394 355 3.42% 30,488 915 3.00% 40,793 1,423 3.49%
Securities:
U. S. Government and agency 122,051 6,469 5.30% 124,797 6,763 5.42% 130,919 9,017 6.89%
State and municipal - taxable 2,426 150 6.18% 1,095 79 7.23% 752 46 6.16%
State and municipal - nontaxable 39,924 3,570 8.94% 38,500 3,604 9.36% 37,492 3,622 9.66%
Other 25,883 1,341 5.18% 16,758 962 5.74% 20,720 1,466 7.08%
-------- ------- -------- ------- -------- -------
Securities before market
value adjustment 190,284 11,530 6.06% 181,150 11,408 6.30% 189,883 14,151 7.45%
Market value adjustment (837) - -
-------- -------- --------
Total securities 189,447 181,150 189,883
Loans:
Commercial 178,849 14,881 8.32% 170,187 13,207 7.76% 166,850 14,181 8.50%
Consumer 81,060 7,614 9.39% 72,485 7,433 10.25% 69,544 7,940 11.42%
Real estate mortgage 184,740 14,981 8.11% 174,567 15,076 8.64% 168,095 15,090 8.98%
Economic development and
other municipal loans 10,430 936 8.97% 9,649 889 9.23% 10,553 1,029 9.75%
Bankers' acceptances and
term federal funds sold - - - - - - 140 10 6.91%
-------- ------- -------- ------- -------- -------
Total loans 455,079 38,412 8.44% 426,888 36,605 8.58% 415,182 38,250 9.21%
-------- ------- -------- ------- -------- -------
Total earning assets 663,634 $50,689 7.64% 660,604 $49,931 7.56% 679,477 $55,739 8.20%
======= ======= =======
NON-EARNING ASSETS:
Allowance for possible loan
losses (3,830) (4,194) (4,403)
Cash and due from banks 28,232 28,895 26,568
Premises and equipment 10,218 10,166 10,207
Other assets 14,891 15,557 18,034
-------- -------- --------
TOTAL ASSETS $713,145 $711,028 $729,883
======== ======== ========
INTEREST-BEARING LIABILITIES:
Savings and
interest-bearing demand $189,810 $ 4,611 2.43% $179,952 $ 4,672 2.60% $164,902 $ 5,362 3.25%
Money market accounts 52,898 1,371 2.59% 56,983 1,568 2.75% 53,992 1,840 3.41%
Certificates of deposit and
other time 279,470 11,856 4.24% 291,981 12,769 4.37% 325,222 17,153 5.27%
-------- ------- -------- ------- -------- -------
Total interest-bearing deposits 522,178 17,838 3.42% 528,916 19,009 3.59% 544,116 24,355 4.48%
Federal funds purchased and
securities sold under
agreements to repurchase 16,371 632 3.86% 12,924 397 3.07% 22,224 851 3.83%
Other borrowings 2,096 80 3.82% 3,701 108 2.91% 6,270 274 4.38%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 540,645 $18,550 3.43% 545,541 $19,514 3.58% 572,610 $25,480 4.45%
======= ======= =======
NONINTEREST-BEARING
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Noninterest-bearing demand
deposits 79,999 76,419 72,778
Other liabilities 6,462 6,606 7,622
Shareholders' equity 86,039 82,462 76,873
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $713,145 $711,028 $729,883
======== ======== ========
Interest income/earning assets $50,689 7.64% $49,931 7.56% $55,739 8.20%
Interest expense/earning assets 18,550 2.80% 19,514 2.95% 25,480 3.75%
------- ------- -------
Net interest income/earning
assets $32,139 4.84% $30,417 4.60% $30,259 4.45%
======= ======= =======
</TABLE>
Note: Average volume includes nonaccrual loans.
Income is on a federal-tax-equivalent basis using a 34.3% tax rate for
1994 and 34% for 1993 and 1992.
Loans are classified by department.
13
<PAGE> 15
REPORT ON MANAGEMENT'S RESPONSIBILITY FOR
FINANCIAL STATEMENTS
March 13, 1995
The Management of National City Bancshares, Inc. is responsible for the
preparation, integrity, and objectivity of the consolidated financial
statements and other financial information presented in this Annual Report.
The financial reports have been prepared in accordance with generally accepted
accounting principles and properly reflect the effects of amounts that are
based on the best judgments and estimates made by Management.
The Corporation maintains a system of internal controls which, in the opinion
of Management, provides reasonable assurance that its financial records can be
relied on in the preparation of financial statements and that its assets are
safeguarded against loss or unauthorized use. The careful selection and
training of qualified personnel, the use of written policies and procedures,
and an audit program carried out by a professional staff of internal auditors
contribute to the effectiveness of this system.
The 1994 and 1993 consolidated financial statements of the Corporation have
been audited by McGladrey & Pullen, LLP, independent certified public
accountants. Prior years were audited by other independent certified public
accountants. These audits were conducted in accordance with generally accepted
auditing standards and included a review of the financial controls and such
other procedures and tests of the accounting records as they considered
necessary under the circumstances.
The Audit Committee of the Board of Directors, composed solely of directors who
are not officers or employees of the Corporation, meets regularly with the
internal auditor and with the independent certified public accountants, and
Management, when appropriate, to review auditing, accounting, reporting, and
internal control matters. Both the internal and external auditors have direct
and private access to the Audit Committee.
/s/ John D. Lippert /s/ Robert A. Keil
John D. Lippert Robert A. Keil
Chairman of the Board and President, Chief Financial Officer,
Chief Executive Officer and Chief Administrative Officer
14
<PAGE> 16
Independent Auditor's Report
MCGLADREY & PULLEN, LLP
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
To the Shareholders and Board of Directors
National City Bancshares, Inc.
Evansville, Indiana
We have audited the accompanying consolidated statements of financial position
of National City Bancshares, Inc. and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of income, shareholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
National City Bancshares, Inc. and subsidiaries as of December 31, 1994 and
1993, and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
The consolidated financial statements of National City Bancshares, Inc., for
the year ended December 31, 1992, prior to the restatement for the 1993 pooling
of interests, and the separate financial statements of the other companies
included in the 1992 restated consolidated financial statements were audited by
other auditors whose reports expressed unqualified opinions on those
statements. We audited the combination of the accompanying consolidated
statements of income, shareholders' equity, and cash flows for the year ended
December 31, 1992, after restatement for the 1993 pooling of interests; in our
opinion, such consolidated financial statements have been properly combined.
/s/ McGladrey & Pullen, LLP
Champaign, Illinois
January 18, 1995
15
<PAGE> 17
Consolidated Statements of Financial Position
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
December 31
-------------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks $ 36,343 $ 29,885
Interest-bearing deposits in banks 5,116 13,578
Securities held to maturity (fair value: 1994 - $72,815; 1993 - $76,945) 73,688 74,040
Securities available for sale 110,831 101,722
Federal funds sold - 42,224
Loans - net of allowance for loan losses of $3,794 in 1994 and $3,791 in 1993 479,798 431,230
Premises and equipment 10,504 10,439
Other real estate owned 605 688
Income earned but not collected 8,262 7,242
Income taxes receivable 31 80
Deferred income taxes 575 -
Other assets 6,011 6,011
-------- --------
TOTAL ASSETS $731,764 $717,139
======== ========
LIABILITIES
Deposits:
Noninterest-bearing demand $ 85,340 $ 81,385
Interest-bearing:
Savings, daily interest checking, and money market accounts 237,884 244,292
Time deposits of $100,000 or more 72,869 53,492
Other time 219,875 227,479
-------- --------
Total deposits 615,968 606,648
Federal funds purchased and securities sold under agreements to repurchase 21,610 13,173
Notes issued to the U.S. Treasury 2,675 5,393
Guaranteed bank loan of Employee Stock Ownership Plan - 541
Dividends payable 805 823
Accrued interest payable 2,414 2,324
Income taxes payable 215 95
Deferred income taxes - 1,379
Other liabilities 1,958 862
-------- --------
Total liabilities 645,645 631,238
-------- --------
COMMITMENTS, CONTINGENCIES, AND CREDIT RISK
SHAREHOLDERS' EQUITY
Common stock - $3.33 1/3 par value:
1994 1993
--------- ---------
Shares authorized 5,000,000 5,000,000
Shares outstanding 3,658,142 3,741,257 12,194 12,471
Capital surplus 33,113 36,128
Retained earnings 43,008 37,375
Unrealized gain (loss) on securities available for sale (2,196) 468
Employee Stock Ownership Plan obligation guaranty - (541)
-------- --------
Total shareholders' equity 86,119 85,901
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $731,764 $717,139
======== ========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
16
<PAGE> 18
Consolidated Statements of Income
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31
---------------------------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $37,480 $35,715 $37,221
Nontaxable 630 605 701
Interest and dividends on securities:
Taxable 7,959 7,803 10,529
Nontaxable 2,415 2,447 2,464
Interest on federal funds sold 355 915 1,423
Interest on deposits in banks 392 1,003 1,915
------- ------- -------
Total interest income 49,231 48,488 54,253
------- ------- -------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 2,511 1,965 2,513
Interest on other deposits 15,327 17,044 21,842
Interest on federal funds purchased and
securities sold under agreements to repurchase 632 397 851
Interest on funds borrowed 80 108 274
------- ------- -------
Total interest expense 18,550 19,514 25,480
------- ------- -------
NET INTEREST INCOME 30,681 28,974 28,773
Provision for loan losses (5) 654 1,234
------- ------- -------
Net interest income after provision for loan losses 30,686 28,320 27,539
------- ------- -------
NONINTEREST INCOME
Trust income 1,247 1,292 1,366
Service charges on deposit accounts 1,983 1,988 1,974
Other service charges and fees 980 1,099 932
Security gains (losses) (170) 657 541
Other 425 496 416
------- ------- -------
Total noninterest income 4,465 5,532 5,229
------- ------- -------
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 11,721 11,282 10,872
Occupancy expense 1,640 1,613 1,555
Furniture and equipment expense 1,714 1,587 1,504
Assessments of the Federal Deposit Insurance Corporation 1,365 1,363 1,422
Other 4,957 5,677 5,488
------- ------- -------
Total noninterest expense 21,397 21,522 20,841
------- ------- -------
Income before income taxes 13,754 12,330 11,927
Income taxes 4,691 3,956 3,727
------- ------- -------
NET INCOME $ 9,063 $ 8,374 $ 8,200
======= ======= =======
EARNINGS PER SHARE $ 2.45 $ 2.24 $ 2.19
======= ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
17
<PAGE> 19
Consolidated Statements of Shareholders' Equity
(Dollar Amounts Other Than Share Data in Thousands)
For the Years Ended
December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
Employee
Unrealized Stock
Gain (Loss) Ownership
on Securities Plan
Common Common Capital Retained Available Obligation
Shares Stock Surplus Earnings For Sale Guaranty
--------- ------- ------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1991 3,614,007 $12,047 $32,635 $30,254 $ (39) $(758)
--------- ------- ------- ------- ------- -----
Net income - - - 8,200 - -
Cash dividends declared - - - (2,634) - -
Stock dividend of 5% declared 126,587 422 3,502 (3,924) - -
Repurchase of outstanding shares (20,050) (67) (499) - - -
Shares issued in Dividend
Reinvestment Program 20,134 67 501 - - -
Change in unrealized gain (loss)
on securities - - - - (44) -
Employee Stock Ownership Plan
note payment - - - - - 109
--------- ------- ------- ------- ------- -----
BALANCES AT DECEMBER 31, 1992 3,740,678 12,469 36,139 31,896 (83) (649)
--------- ------- ------- ------- ------- -----
Net income - - - 8,374 - -
Cash dividends declared - - - (2,895) - -
Payment for fractional shares
for merger and stock dividends (355) (1) (14) - - -
Repurchase of outstanding shares (18,333) (61) (589) - - -
Shares issued in Dividend
Reinvestment Program 19,267 64 592 - - -
Change in unrealized gain (loss)
on securities - - - - 551 -
Employee Stock Ownership Plan
note payment - - - - - 108
--------- ------- ------- ------- ------- -----
BALANCES AT DECEMBER 31, 1993 3,741,257 12,471 36,128 37,375 468 (541)
--------- ------- ------- ------- ------- -----
Net income - - - 9,063 - -
Cash dividends declared - - - (3,430) - -
Repurchase of outstanding shares (102,343) (341) (3,696) - - -
Shares issued in Dividend
Reinvestment Program 19,228 64 681 - - -
Change in unrealized gain (loss)
on securities - - - - (2,664) -
Employee Stock Ownership Plan
note payment - - - - - 541
--------- ------- ------- ------- ------- -----
BALANCES AT DECEMBER 31, 1994 3,658,142 $12,194 $33,113 $43,008 $(2,196) $ -
========= ======= ======= ======= ======= =====
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
18
<PAGE> 20
Consolidated Statements of Cash Flows
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31
----------------------------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,063 $ 8,374 $ 8,200
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,411 1,378 1,261
Amortization 2,608 2,411 1,803
Provision for loan losses (5) 654 1,234
Write-down of securities and other assets 189 147 535
Securities losses (gains) 6 (711) (641)
(Gain) on sale of premises and equipment (148) (30) (74)
(Gain) loss on sale of other real estate owned (11) 48 184
(Gain) on sale of subsidiary (8) - -
Increase (decrease) in deferred taxes (241) 218 (126)
Changes in assets and liabilities:
(Increase) decrease in income earned but not collected (1,020) 725 1,431
(Increase) decrease in other assets (374) (241) (388)
Increase (decrease) in accrued interest payable 90 (482) (1,630)
Increase (decrease) in other liabilities 1,257 (634) 579
-------- -------- --------
Net cash flows provided by operating activities 12,817 11,857 12,368
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits in banks 8,464 15,899 12,551
Proceeds from maturities of securities held to maturity 21,096 66,761 90,066
Proceeds from maturities of securities available for sale 56,745 - -
Proceeds from sales of securities - 14,087 28,021
Proceeds from sales of securities available for sale 1,999 - -
Purchases of securities held to maturity (22,369) (73,790) (98,849)
Purchases of securities available for sale (73,108) - -
(Increase) decrease in federal funds sold 42,224 2,427 9,725
(Increase) decrease in loans made to customers (48,468) (18,039) (14,174)
Capital expenditures (1,653) (1,344) (1,361)
Proceeds from sale of other real estate owned 274 960 933
Proceeds from sale of premises and equipment 206 29 84
Cash transferred to buyer in sale of subsidiary (68) - -
-------- -------- --------
Net cash flows provided by (used in) investing activities (14,658) 6,990 26,996
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 9,320 (18,195) (25,116)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 8,437 (2,281) (7,174)
Net proceeds (payments) on notes issued to the U.S. Treasury (2,718) 1,118 (4,758)
Payments on other borrowings - (512) (1,618)
Dividends paid (3,448) (2,629) (2,634)
Repurchase of common stock (4,037) (650) (566)
Sale of common stock 745 641 568
-------- -------- --------
Net cash flows provided by (used in) financing activities 8,299 (22,508) (41,298)
-------- -------- --------
Net increase (decrease) in cash and due from banks 6,458 (3,661) (1,934)
Cash and due from banks at beginning of year 29,885 33,546 35,480
-------- -------- --------
Cash and due from banks at end of year $ 36,343 $ 29,885 $ 33,546
======== ======== ========
</TABLE>
Consolidated Statements of Cash Flows are continued on the following page.
19
<PAGE> 21
Consolidated Statements of Cash Flows Continued
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31
------------------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 18,460 $ 19,996 $ 27,107
Income taxes 4,763 4,108 424
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING & FINANCING ACTIVITIES
Change in allowance for unrealized gain (loss)
on securities available for sale $ (4,377) $ 864 $ (44)
Change in deferred taxes attributable to securities
available for sale 1,713 (313) -
Employee Stock Ownership Plan obligation guaranty note payment 541 108 109
Other real estate acquired in settlement of loans 205 484 1,693
Loans originated on sales of other real estate owned - 2,011 -
Sale of subsidiary:
Loan receivable $ 300
========
Assets disposed of, principally intangible assets,
premises and equipment, and cash 333
Liabilities assumed by buyer, principally accounts payable (41)
Gain on sale of subsidiary 8
--------
$ 300
========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
20
<PAGE> 22
Notes to Consolidated Financial Statements
(Dollar Amounts Other Than Share Data in Thousands)
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
National City Bancshares, Inc. (Corporation) is a holding company whose
subsidiaries operate in the commercial banking industry. The accounting and
reporting policies of the Corporation conform to generally accepted accounting
principles and to general practices within the banking industry. The following
is a description of the more significant of these policies.
BASIS OF CONSOLIDATION - The accompanying consolidated financial statements
include the accounts of the Corporation and its wholly-owned subsidiaries: The
National City Bank of Evansville, The Peoples National Bank of Grayville, The
Farmers and Merchants Bank, First Kentucky Bank, Lincolnland Bank, The Bank of
Mitchell, Pike County Bank, The Spurgeon State Bank, The State Bank of
Washington, and NCBE Leasing Corp. All significant intercompany transactions
and balances have been eliminated.
CASH FLOWS - For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks. Interest-bearing deposits in
banks, regardless of maturity, are considered short-term investments.
TRUST ASSETS - Property held for customers in fiduciary or agency capacities,
other than trust cash on deposit at the bank, is not included in the
accompanying consolidated financial statements since such items are not assets
of the Corporation or its subsidiaries.
SECURITIES - Securities classified as held to maturity are those securities the
banks have both the intent and ability to hold to maturity regardless of
changes in market conditions, liquidity needs, or changes in general economic
conditions. These securities are carried at cost adjusted for amortization of
premium and accretion of discount, computed by the interest method over their
contractual lives.
Securities classified as available for sale are those securities that the banks
intend to hold for an indefinite period of time, but not necessarily to
maturity. Any decision to sell a security classified as available for sale
would be based on various factors, including significant movements in interest
rates, changes in the maturity mix of assets and liabilities, liquidity needs,
regulatory capital considerations, and other similar factors. Securities
available for sale are carried at fair value. Unrealized gains or losses are
reported as increases or decreases in shareholders' equity, net of the related
deferred tax effect. Realized gains or losses, determined on the basis of the
cost of specific securities sold, are included as a component of net income.
LOANS - Loans are stated at the principal amount outstanding, less unearned
interest income and an allowance for loan losses. Unearned income on
installment loans is recognized as income based on the sum-of-the-months digits
method which approximates the interest method. Interest income on
substantially all other loans is credited to income based on the principal
balances of loans outstanding.
The Corporation's policy is to discontinue the accrual of interest income on
any loan when, in the opinion of management, there is reasonable doubt as to
the timely collectibility of interest or principal. Nonaccrual loans are
returned to accrual status when, in the opinion of management, the financial
position of the borrower indicates there is no longer any reasonable doubt as
to the timely collectibility of interest and principal.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is maintained at a
level believed adequate by management to provide for known and inherent risks
in the loan portfolio. The allowance is based upon a continuing evaluation of
the risk characteristics of the loan portfolios, past loan loss experience, and
current economic conditions. The continuing review considers such factors as
the financial condition of the borrower, fair market value of the collateral,
and other considerations which, in management's opinion, deserve current
recognition in estimating loan losses. Loans which are deemed to be
uncollectible are charged to the allowance. The provision for loan losses and
recoveries are credited to the allowance.
PREMISES AND EQUIPMENT - Premises and equipment are carried at cost less
accumulated depreciation. Provisions for depreciation are charged to operating
expense over the useful lives of the assets, computed principally by the
straight-line method.
OTHER REAL ESTATE OWNED - Property acquired in settlement of loans is recorded
at the lower of the current estimated fair value less estimated costs to sell
or the fair value at the time of foreclosure. Management periodically reviews
each property for changes in market conditions or other developments which may
result in a reduction of the carrying value of the property. Reductions of the
carrying values and costs associated with holding the properties are charged to
operating expenses.
INCOME TAXES - The Corporation and its subsidiaries file a consolidated Federal
income tax return with each organization computing its taxes on a separate
company basis. The provision for income taxes is based on income as reported
in the financial statements, with deferred income taxes provided on the
differences between the basis of assets and liabilities for financial and
income tax purposes. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion, or all of the deferred tax assets, will not be realized. Deferred tax
assets and liabilities are adjusted for effects of changes in tax laws and
rates on the date of enactment.
21
<PAGE> 23
Notes to Consolidated Financial Statements Continued
(Dollar Amounts Other Than Share Data in Thousands)
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
EARNINGS PER SHARE - Earnings per share is computed by dividing net income by
the weighted average number of shares outstanding giving effect to stock
dividends. The weighted average number of shares used in computing earnings
per share are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C>
3,694,650 3,742,427 3,741,124
</TABLE>
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSION - The Corporation is
recognizing the transition obligation using the straight-line method over the
plan participants' average future service period of twenty years. Management
does not expect this obligation to increase.
PENSION BENEFITS - The Corporation maintains a noncontributory pension plan in
which substantially all employees are eligible to participate upon the
completion of one year of service.
ACCOUNTING BY CREDITORS FOR THE IMPAIRMENT OF A LOAN -
Financial Accounting Standards Board Statement No. 114, "Accounting by
Creditors for the Impairment of a Loan," defines a loan as impaired if, based
on current information and events, it is probable that the bank will not be
able to collect all amounts (principal and interest) due in accordance with the
terms of the agreement. The statement requires financial institutions to take
into account the expected loss of interest income when valuing nonperforming
loans. When a loan is considered impaired, this rule involves the discounting
of a loan's future cash flows by using the loan's contractual interest rate
adjusted for any deferred loan fees or costs, premiums, or discounts. The
Corporation will be required to adopt Statement 114 for the year ending
December 31, 1995.
In October 1994, the Financial Accounting Standards Board issued Statement No.
118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures," which amended FAS 114 to allow a creditor to use existing methods
of recognizing interest income on impaired loans.
The Corporation believes the adoption of FAS 114 and its amendment, FAS 118,
will not have a material impact on the consolidated financial statements.
AUTHORIZED SHARES - Data for 1992 has been restated to reflect the increase
from 3,500,000 to 5,000,000 in authorized shares approved at the Corporation's
1993 Annual Meeting of Shareholders.
Note 2. CASH AND DUE FROM BANKS
Aggregate cash and due from bank balances of $8,398 and $9,279 as of December
31, 1994 and 1993, respectively, were maintained in satisfaction of statutory
reserve requirements of the Federal Reserve Bank.
Note 3. SECURITIES
Amortized cost and fair values of securities classified as held to maturity are
as follows:
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Government
and agency
securities $ 8,434 $ 3 $ 171 $ 8,266
State and municipal
securities:
Taxable 2,530 14 97 2,447
Nontaxable 40,418 706 617 40,507
Corporate securities 17,831 2 581 17,252
Mortgage-backed
securities 4,475 45 177 4,343
--------- ------- ------- --------
$ 73,688 $ 770 $ 1,643 $ 72,815
========= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ------- --------- --------
<S> <C> <C> <C> <C>
U.S. Government
and agency
securities $ 18,863 $ 49 $ 135 $ 18,777
State and municipal
securities:
Taxable 1,646 68 - 1,714
Nontaxable 38,148 2,702 30 40,820
Corporate securities 10,769 47 37 10,779
Mortgage-backed
securities 4,614 243 2 4,855
-------- ------- ------- --------
$ 74,040 $ 3,109 $ 204 $ 76,945
======== ======= ======= ========
</TABLE>
The amortized cost and fair value of securities classified as available for
sale are as follows:
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Government
and agency
securities $ 73,398 $ 31 $ 1,477 $ 71,952
Corporate securities 6,936 - 215 6,721
Mortgage-backed
securities 31,362 21 1,745 29,638
--------- ------- ------- --------
111,696 52 3,437 108,311
Equity securities 2,731 - 211 2,520
--------- ------- ------- --------
$ 114,427 $ 52 $ 3,648 $110,831
========= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Government
and agency
securities $ 81,495 $ 1,152 $ 76 $ 82,571
Corporate securities 1,115 7 - 1,122
Mortgage-backed
securities 15,663 73 279 15,457
--------- ------- ------- --------
98,273 1,232 355 99,150
Equity securities 2,668 - 96 2,572
--------- ------- ------- --------
$ 100,941 $ 1,232 $ 451 $101,722
========= ======= ======= ========
</TABLE>
22
<PAGE> 24
The amortized cost and fair value of the securities as of December 31, 1994, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because certain securities may be called or prepaid
without penalties.
MATURITY SCHEDULE OF SECURITIES HELD TO MATURITY:
<TABLE>
<CAPTION>
December 31, 1994 Amortized Cost Fair Value
----------------- -------------- ----------
<S> <C> <C>
Less than 1 year $11,047 $10,943
1 year to 5 years 30,104 29,590
5 years to 10 years 19,439 19,547
Over 10 years 8,623 8,392
Mortgage-backed
securities 4,475 4,343
------- -------
Total $73,688 $72,815
======= =======
</TABLE>
MATURITY SCHEDULE OF DEBT SECURITIES AVAILABLE FOR SALE:
<TABLE>
<CAPTION>
December 31, 1994 Amortized Cost Fair Value
----------------- -------------- ----------
<S> <C> <C>
Less than 1 year $ 21,708 $ 21,554
1 year to 5 years 52,918 51,575
5 years to 10 years 5,708 5,544
Mortgage-backed
securities 31,362 29,638
-------- --------
Total $111,696 $108,311
======== ========
</TABLE>
Proceeds from sales of securities available for sale in 1994 were $1,999.
Proceeds from sales of securities, prior to the adoption of FAS 115, were
$14,087 and $28,021 in 1993 and 1992, respectively.
Securities gains and (losses) can be summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Gross realized gains $ 7 $ 865 $ 683
Gross realized losses (13) (154) (42)
Recognized losses
not yet realized (164) (54) (100)
------ ------ ------
Total $(170) $ 657 $ 541
====== ====== ======
</TABLE>
Securities pledged as collateral for public deposits and for other purposes
as required or permitted by law as of December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Fair value $47,976 $50,901
Amortized cost 49,205 50,300
</TABLE>
Note 4. LOANS
A summary of loans as of December 31 follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Real estate loans $247,596 $236,037
Agricultural loans 22,952 22,188
Commercial and industrial loans 110,280 95,254
Economic development loans and
other obligations of state and
political subdivisions 12,529 9,649
Consumer loans 89,033 72,822
All other loans 1,419 1,206
--------- ---------
Total loans - gross 483,809 437,156
Unearned income on loans (217) (2,135)
--------- ---------
Total loans - net of
unearned income 483,592 435,021
Allowance for loan losses (3,794) (3,791)
--------- ---------
Total loans - net $479,798 $431,230
========= =========
</TABLE>
As of December 31, 1994 and 1993, the accrual of interest was discontinued or
renegotiated on loans in the amount of $804 and $2,034, respectively. If
these loans had been current according to original loan terms, additional
gross income in the amount of $92 and $145 would have been recorded in 1994
and 1993, respectively.
In the normal course of business, the banks make loans to their executive
officers and directors, and to companies and individuals affiliated with
officers and directors of the banks and the Corporation. In the opinion of
management, these loans were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated parties. The activity in these loans during 1994
is as follows:
<TABLE>
<S> <C>
Balance as of January 1, 1994 $10,520
New loans 7,457
Repayments (6,458)
-------
Balance as of December 31, 1994 $11,519
=======
</TABLE>
Note 5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows during the three
years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Balance at beginning
of year $3,791 $ 4,186 $ 4,639
Provision for loan losses (5) 654 1,234
Recoveries 627 352 726
Loans charged off (619) (1,401) (2,413)
------- ------- -------
Balance at end of year $3,794 $ 3,791 $ 4,186
======= ======= =======
</TABLE>
23
<PAGE> 25
Notes to Consolidated Financial Statements Continued
(Dollar Amounts Other Than Share Data in Thousands)
Note 6. PREMISES AND EQUIPMENT
Premises and equipment as of December 31 consist of:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Land $ 1,223 $ 1,052
Buildings 11,833 11,698
Equipment 9,667 9,169
Leasehold improvements 1,281 1,342
------- -------
Total cost 24,004 23,261
Less accumulated depreciation 13,500 12,822
------- -------
Net premises and equipment $10,504 $10,439
======= =======
</TABLE>
Note 7. INCOME TAXES
Effective January 1, 1993, the Corporation adopted Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future. The deferred tax assets and liabilities are computed based on enacted
tax laws and rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to an amount expected to be realized.
Income tax expense is the tax payable or refundable for the period plus or
minus the change during the period in deferred tax assets and liabilities. For
years prior to 1993, deferred income taxes were recognized for timing
differences between financial statement and taxable income.
The adoption of FAS 109 did not have a material effect on the 1993 financial
statements.
The components of income tax expense for the years ended December 31 follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Federal:
Current $3,934 $2,830 $3,000
Deferred (294) 60 (90)
------- ------- -------
Total 3,640 2,890 2,910
------- ------- -------
State:
Current 998 908 853
Deferred 53 158 (36)
------- ------- -------
Total 1,051 1,066 817
------- ------- -------
Total income
tax expense $4,691 $3,956 $3,727
======= ======= =======
</TABLE>
A reconciliation of income tax in the statement of income, with the amount
computed by applying the statutory rate of 35% in 1994 and 34% in 1993 and
1992, is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Federal income tax
computed at
the statutory rates $ 4,814 $ 4,192 $ 4,055
Adjusted for effect of:
Nontaxable
municipal interest (1,066) (1,043) (981)
Nondeductible
expenses 333 233 66
Investment tax
credit - - (11)
State income taxes, net
of federal benefit 683 704 539
Benefit of income taxed
at lower rates (100) - -
Change in deferred tax
asset valuation allowance (71) - -
Other differences 98 (130) 59
-------- -------- --------
Total income
tax provision $ 4,691 $ 3,956 $ 3,727
======== ======== ========
</TABLE>
The portion of the tax provision relating to realized security gains and losses
amounted to $(2), $245, and $212 for 1994, 1993, and 1992, respectively.
The net deferred tax asset (liability) in the accompanying balance sheet
includes the following amounts of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Deferred tax liability $(2,062) $(2,254)
Deferred tax asset 2,637 946
Valuation allowance for
deferred tax assets - (71)
-------- --------
Net deferred tax
asset (liability) $ 575 $(1,379)
======== ========
</TABLE>
The tax effects of principal temporary differences are shown in the following
table:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Allowance for loan losses $ 1,112 $ 778
Property acquired in settlement of loans - 50
Direct financing and leveraged leases 4 (90)
Prepaid pension cost (1,425) (1,253)
Fixed assets (637) (586)
Securities 1,400 (312)
State net operating loss carryforwards 57 71
Other 64 34
-------- --------
Net temporary differences 575 (1,308)
Valuation allowance - (71)
-------- --------
Net deferred tax asset (liability) $ 575 $(1,379)
======== ========
</TABLE>
24
<PAGE> 26
Note 8. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table reflects a comparison of the carrying amounts and fair
values of financial instruments of the Corporation and its subsidiary banks at
December 31:
<TABLE>
<CAPTION>
1994 1993
-------------------------- --------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Assets:
Cash and
short-term
investments $ 41,459 $ 41,459 $ 85,687 $ 85,687
Securities 184,519 183,646 175,762 178,667
Loans - net of
allowance 478,505 465,891 430,727 449,364
Liabilities:
Deposits 615,968 607,551 606,648 607,935
Short-term debt 24,285 24,285 18,566 18,566
</TABLE>
The above fair value information was derived using the information described
below for the groups of instruments listed. It should be noted the fair values
disclosed in this table do not represent market values of all assets and
liabilities of the Corporation and, thus, should not be interpreted to
represent a market or liquidation value for the Corporation. In addition, the
carrying value for loans above differs from that reported elsewhere due to the
exclusion of capital leases receivable of $1,293 and $503 in 1994 and 1993,
respectively.
CASH AND SHORT-TERM INVESTMENTS - Cash and short-term investments include cash
and due from banks, interest-bearing deposits in banks, and federal funds sold.
For cash and short-term investments, the carrying amount is a reasonable
estimate of fair value.
SECURITIES - For securities, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
LOANS - For certain homogeneous categories of loans, such as some residential
mortgages, fair value is estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities.
DEPOSITS - The fair value of demand deposits, savings accounts, money market
deposits, and variable rate certificates of deposit is the amount payable on
demand at the reporting date. The fair value of other time deposits is
estimated using the rates currently offered for deposits of similar remaining
maturities.
SHORT-TERM DEBT - Rates currently available to the Corporation for debt with
similar terms and remaining maturities are used to estimate fair value of
existing debt. These instruments adjust on a periodic basis and thus the
carrying amount represents fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT - The fair value of
commitments is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels of
interest rates and the committed rates. The fair value of guarantees and
letters of credit is based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date. Because all commitments and
standby letters of credit reflect current fees and interest rates, no
unrealized gains or losses are reflected in the summary of fair values.
Note 9. COMMITMENTS, CONTINGENCIES, AND CREDIT RISK
Most of the business activity of the Corporation and its subsidiaries is
conducted with customers located in the immediate geographical area of their
offices. These areas, comprised of Southwestern Indiana, Western Kentucky and
Southeastern Illinois, are dependent on the agribusiness, and to a lesser
degree, energy economic sectors. While the Corporation maintains a diversified
loan portfolio, approximately $46,477 and $45,395 of the Corporation's loans
were directly related to the agricultural sector as of December 31, 1994 and
1993, respectively.
The Corporation and its subsidiaries evaluate each credit request of their
customers in accordance with established lending policies. Based on these
evaluations and the underlying policies, the amount of required collateral (if
any) is established. Collateral held varies but may include negotiable
instruments, accounts receivable, inventory, property, plant and equipment,
income producing properties, residential real estate, and vehicles. The
lenders' access to these collateral items is generally established through the
maintenance of recorded liens or, in the case of negotiable instruments,
possession.
25
<PAGE> 27
Notes to Consolidated Financial Statements Continued
(Dollar Amounts Other Than Share Data in Thousands)
Note 9. COMMITMENTS, CONTINGENCIES, AND CREDIT RISK CONTINUED
The Corporation and its subsidiaries are parties to legal action which arise in
the normal course of their business activities. In the opinion of management,
the ultimate resolution of these matters is not expected to have a material
effect on the financial position or on the results of operations of the
Corporation and its subsidiaries.
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The
contract or notional amounts of those instruments reflect the extent of
involvement the Corporation has in particular classes of financial instruments.
The Corporation's exposure to credit loss, in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
and standby letters of credit, is represented by the contractual notional
amount of those instruments. The Corporation uses the same credit policies in
making commitments and conditional obligations as it does for other on-balance
sheet instruments. Financial instruments whose contract amounts represent
credit risk at December 31 follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Commitments to
extend credit $77,576 $73,031
Standby letters
of credit 16,274 2,511
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit written are conditional commitments issued by the
banks to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers.
The Corporation does not engage in the use of interest rate swaps, futures,
forwards, or option contracts.
Note 10. DIVIDEND REINVESTMENT PLAN
The Corporation established a Dividend Reinvestment Plan for its shareholders
in 1989. The Plan permits the issuance of previously authorized and unissued
shares or the repurchase of outstanding shares for reissuance. As of December
31, 1994, 61,880 shares of authorized but unissued common stock were reserved
for Plan requirements.
Note 11. RESTRICTIONS ON DIVIDENDS FROM SUBSIDIARIES
The principal source of income for the Corporation is dividends from its
subsidiary banks. Banking regulations impose restrictions on the ability of
subsidiaries to pay dividends to the Corporation. The limitation is generally
based on net income less dividends paid for the three years in the period ended
December 31, 1994. At December 31, 1994, regulatory approval would have been
required for aggregate dividends in excess of approximately $6,732. The amount
of dividends that could be paid is further restricted by the limitations of
sound and prudent banking principles.
Note 12. EMPLOYEE RETIREMENT PLANS
The Corporation maintains a noncontributory pension plan in which substantially
all employees are eligible to participate upon the completion of one year of
service. No company contribution or funding was required in any of the years
reported here. The assets of the pension plan primarily consist of corporate
obligations and equity securities. The plan does not hold any equity
securities of the Corporation.
In establishing the amounts reflected in the financial statements, the
following significant assumption rates were used:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Discount rate 8.0% 7.5%
Increase in compensation rate 5.0% 5.0%
Expected long-term rate of return 9.0% 9.0%
</TABLE>
The following summary reflects the plan's funded status and the amounts
reflected on the Corporation's financial statements.
26
<PAGE> 28
Actuarial present value of benefit obligations at December 31 are:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Accumulated benefit obligation
including vested benefits
of $3,562, $4,214, and $5,063
in 1994, 1993, and 1992 $(3,757) $(4,466) $(5,259)
Effects of projected future
compensation levels (1,795) (2,433) (2,026)
------- ------- -------
Projected benefit obligation
for service rendered to date (5,552) (6,899) (7,285)
Plan assets at fair value 9,669 12,182 11,699
------- ------- -------
Plan assets in excess of
projected benefit obligation 4,117 5,283 4,414
Unrecognized net loss (gain)
from past experience
different from that assumed
and effects of changes in
assumptions 257 (1,189) (512)
Prior service cost not yet
recognized in net periodic
pension cost (116) 22 25
Unrecognized net asset at
January 1, 1987, being
recognized over 11.11
years from that date (728) (962) (1,195)
------- ------- -------
Prepaid pension cost
included in other assets $ 3,530 $ 3,154 $ 2,732
======= ======= =======
</TABLE>
Net periodic pension cost (credit) included the following components for the
years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost - benefits
earned during the period $ 450 $ 425 $ 407
Interest cost on projected
benefit obligation 483 483 513
Return on assets (500) (693) (681)
Net amortization and deferral (809) (637) (808)
------- ------- -------
Net periodic pension
cost (credit) $ (376) $ (422) $ (569)
======= ======= =======
</TABLE>
The Corporation also maintains a savings and profit-sharing plan for
substantially all employees who have completed one year of service. Employees
may voluntarily contribute to the plan. The company's contribution to the plan
is an amount equal to 7% of the net income before income taxes at the
discretion of the Board of Directors. Company contributions were $1,017, $628,
and $617 during 1994, 1993, and 1992, respectively.
As the result of previous mergers and subsequent amendment of the Corporation's
pension and profit-sharing plans to include employees of the other subsidiary
banks, retirement plans previously maintained by those banks have been
terminated or frozen.
The plans have been amended to comply with requirements of the Employee
Retirement Income Security Act of 1974 and the Tax Reform Act of 1986.
Sure Financial Corporation maintained a profit-sharing 401(k) plan for
substantially all employees of its subsidiaries. Contributions to the plan
were $116 and $123 during 1993 and 1992, respectively. This plan was merged
into the Corporation's savings and profit-sharing plan during 1994.
Lincolnland Bancorp, Inc. maintained an Employee Stock Ownership Plan in which
substantially all employees were eligible to participate. Contributions to the
plan were made at the discretion of the Board of Directors and amounted to $88
and $175 for 1993 and 1992, respectively. This plan was terminated during
1994. The Employee Stock Ownership Trust obligation, which was guaranteed by
the Corporation, was reflected as a liability and shareholders' equity was
reduced by the same amount. The obligation was reduced by $108 and $109 in
principal repayments in 1993 and 1992, respectively. In addition, the plan
paid interest amounting to $31 and $38 during 1993 and 1992, respectively.
Note 13. GUARANTEED BANK LOAN OF EMPLOYEE STOCK OWNERSHIP PLAN
In accordance with the consensus reached on issue number 89-10 of the Financial
Accounting Standards Board's Emerging Issues Task Force, the Corporation
recorded the debt of the Employee Stock Ownership Plan as an increase in
liabilities and a reduction of shareholders' equity. This debt was guaranteed
by the Corporation and was paid in full during 1994.
27
<PAGE> 29
Notes to Consolidated Financial Statements Continued
(Dollar Amounts Other Than Share Data in Thousands)
Note 14. UNAUDITED INTERIM FINANCIAL DATA
The following table reflects summarized quarterly data for the periods
described (unaudited):
<TABLE>
<CAPTION>
1994
--------------------------------------------------------------------
December September June March
31 30 30 31
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Interest income $ 12,990 $ 12,606 $ 12,144 $ 11,491
Interest expense 5,015 4,649 4,476 4,410
------------ ------------ ------------- ------------
Net interest income 7,975 7,957 7,668 7,081
Provision for
loan losses 32 16 100 (153)
Noninterest income 1,097 1,251 1,222 895
Noninterest expense 5,458 5,255 5,354 5,330
------------ ------------ ------------- ------------
Income before
income taxes 3,582 3,937 3,436 2,799
Income taxes 1,305 1,365 1,123 898
------------ ------------ ------------- ------------
Net income $ 2,277 $ 2,572 $ 2,313 $ 1,901
============ ============ ============= ============
Earnings
per share $ .62 $ .70 $ .62 $ .51
</TABLE>
<TABLE>
<CAPTION>
1993
--------------------------------------------------------------------
December September June March
31 30 30 31
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Interest income $ 11,998 $ 12,010 $ 12,328 $ 12,152
Interest expense 4,670 4,784 4,899 5,161
------------ ------------ ------------- ------------
Net interest income 7,328 7,226 7,429 6,991
Provision for
loan losses 88 128 243 195
Noninterest income 1,551 1,266 1,262 1,453
Noninterest expense 5,639 5,168 5,412 5,303
------------ ------------ ------------- ------------
Income before
income taxes 3,152 3,196 3,036 2,946
Income taxes 1,078 1,064 936 878
------------ ------------ ------------- ------------
Net income $ 2,074 $ 2,132 $ 2,100 $ 2,068
============ ============ ============= ============
Earnings
per share $ .56 $ .57 $ .56 $ .55
</TABLE>
Note 15. PENDING ACQUISITIONS
On December 12, 1994, the Corporation entered into a definitive agreement to
acquire White County Bank, a $65 million in assets bank located in Carmi,
Illinois. Subject to regulatory approval and the shareholders of White County
Bank, the Corporation will exchange 264,000 shares of its common stock with the
White County Bank shareholders.
On December 28, 1994, the Corporation entered into a definitive agreement to
acquire United Financial Bancorp, Inc., which is a holding company for a $110
million in assets savings bank in Vincennes, Indiana. Subject to regulatory
approval and the shareholders of United Financial Bancorp, Inc., the
Corporation will exchange between 419,202 and 512,420 shares of its common
stock with the United Federal Bancorp, Inc. shareholders.
Consummation of each transaction is subject to its being accounted for as a
pooling of interests, which will require the Corporation to take actions
related to disposition of shares acquired by the Corporation during 1994.
Note 16. FINANCIAL INFORMATION OF PARENT COMPANY
Condensed financial data for National City Bancshares, Inc. (parent company
only) are as follows:
CONDENSED STATEMENTS OF
FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
--------------------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Cash on hand and in banks $ 204 $ 1,157
Investment in bank subsidiaries 81,258 83,542
Securities purchased under
agreements to resell 3,100 -
Note receivable 300 -
Property and equipment 498 694
Income taxes receivable 181 83
Other assets 1,657 1,873
---------- ----------
TOTAL ASSETS $ 87,198 $ 87,349
========== ==========
LIABILITIES
Notes payable $ - $ 541
Dividends payable 805 823
Deferred income taxes 88 81
Other liabilities 186 3
---------- ----------
Total liabilities 1,079 1,448
---------- ----------
SHAREHOLDERS' EQUITY
Common stock 12,194 12,471
Capital surplus 33,113 36,128
Retained earnings 43,008 37,375
Unrealized gain (loss) on securities
available for sale (2,196) 468
Employee Stock Ownership
Plan obligation guaranty - (541)
---------- ----------
Total shareholders' equity 86,119 85,901
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 87,198 $ 87,349
========== ==========
</TABLE>
28
<PAGE> 30
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years
Ended December 31
------------------------------------------------
1994 1993 1992
--------- --------- --------
<S> <C> <C> <C>
Dividends from subsidiaries $ 9,175 $ 6,530 $ 4,882
Other income 822 474 371
--------- --------- --------
Total income 9,997 7,004 5,253
--------- --------- --------
Interest expense - 152 289
Other expenses 1,683 1,451 911
--------- --------- --------
Total expenses 1,683 1,603 1,200
--------- --------- --------
Income before income taxes
and equity in undistributed
earnings of subsidiaries 8,314 5,401 4,053
Income tax benefit (129) (230) (181)
--------- --------- --------
Income before equity in
undistributed earnings of
subsidiaries 8,443 5,631 4,234
Equity in undistributed
earnings of subsidiaries 620 2,743 3,966
--------- --------- --------
Net income $ 9,063 $ 8,374 $ 8,200
========= ========= ========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years
Ended December 31
------------------------------------------------
1994 1993 1992
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 9,063 $ 8,374 $ 8,200
Adjustments to
reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 513 525 493
Undistributed earnings of
subsidiaries (620) (2,743) (3,966)
(Gain) on sale of subsidiary (8) - -
Increase (decrease) in
deferred taxes 7 2 (9)
Changes in assets and liabilities:
(Increase) decrease in
other assets (166) (291) 100
Increase (decrease) in
other liabilities 183 16 (33)
--------- -------- ---------
Net cash flows provided
by operating activities 8,972 5,883 4,785
--------- -------- ---------
</TABLE>
<TABLE>
<CAPTION>
For the Years
Ended December 31
---------------------------------------------------------------
1994 1993 1992
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds from maturities of
securities available for sale $ 1,997 $ - $ -
Purchase of securities
available for sale (1,997) - -
Capital expenditures (47) (349) (134)
Proceeds from sale of premises
and equipment 14 - -
Investment in subsidiary (52) - -
(Increase) in securities
purchased under agreements
to resell (3,100) - -
-------- ------- --------
Net cash flows provided
by (used in) investing
activities (3,185) (349) (134)
-------- ------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES
Dividends paid (3,448) (2,629) (2,634)
Payments on notes payable - (2,515) (2,001)
Repurchase of common stock (4,037) (650) (566)
Sale of common stock 745 641 568
-------- ------- --------
Net cash flows (used in)
financing activities (6,740) (5,153) (4,633)
Net increase (decrease) in
cash and due from banks (953) 381 18
Cash and due from banks
at beginning of year 1,157 776 758
-------- ------- --------
Cash and due from banks
at end of year $ 204 $ 1,157 $ 776
======== ======= ========
SUPPLEMENTAL DISCLOSURE
OF NONCASH INVESTING
ACTIVITIES
Change in unrealized
gain (loss) on
securities available
for sale, net $ (2,664) $ 551 $ (44)
Employee Stock Ownership
Plan obligation guaranty
note payment 541 108 109
Sale of subsidiary:
Loan receivable 300 - -
</TABLE>
29
<PAGE> 31
Official Organization
National City Bancshares, Inc. and Subsidiaries
NATIONAL CITY
BANCSHARES, INC.
EVANSVILLE, INDIANA
BOARD OF DIRECTORS
Donald B. Cox
Michael F. Elliott
Mrs. N. Keith Emge
Michael D. Gallagher
Donald G. Harris
Edgar P. Hughes
R. Eugene Johnson, Esq.
Robert A. Keil
John D. Lippert
John Lee Newman
Ronald G. Reherman
Laurence R. Steenberg
C. Wayne Worthington
George A. Wright
SENIOR OFFICERS
John D. Lippert
Robert A. Keil
Benjamin W. Bloodworth
Michael F. Elliott
Harold A. Mann
Nancy G. Epperson
Byron W. Jett
THE BANK OF MITCHELL
MITCHELL, INDIANA
BOARD OF DIRECTORS
Robert J. Burton
Dana J. Dunbar
Max D. Elliott
C. Wayne Hatfield
Dr. James F. King
E. Joseph Kremp
John E. Yager, Jr.
Randall L. Young
SENIOR OFFICER
Randall L. Young
THE FARMERS AND
MERCHANTS BANK
FORT BRANCH, INDIANA
BOARD OF DIRECTORS
Roger M. Duncan
Harvey J. Hirsch
Michael J. Hirsch
Marlene A. Obert
Cletus M. Oing
James A. Pfister
Barbara A. Wilson
SENIOR OFFICERS
James A. Pfister
Barbara A. Wilson
FIRST KENTUCKY BANK
STURGIS, KENTUCKY
BOARD OF DIRECTORS
Garland Certain
Charles Hamilton Floyd
Charles L. Pryor
Joseph W. Sprague
Slaton Sprague
William R. Sprague
James D. Syers
James B. Vaughn
I. Dix Winston, Jr.
Joe Woodring
POOLE ADVISORY BOARD
Eugene R. Bradley
Garland Certain
William B. Norment, Jr., Esq.
James B. Vaughn
Wayne L. Willson
SENIOR OFFICER
Garland Certain
LINCOLNLAND BANK
DALE, INDIANA
BOARD OF DIRECTORS
Eric Ayer, Esq.
Benjamin W. Bloodworth
Narl Conner
Donald E. Kirkland
Edgar Mulzer
Albert W. Raven
Wm. Stephen Schroer
Lon Youngblood
SENIOR OFFICERS
Edgar Mulzer
Wm. Stephen Schroer
Donald E. Kirkland
Albert W. Raven
Scott K. Neff
THE NATIONAL CITY
BANK OF EVANSVILLE
EVANSVILLE, INDIANA
BOARD OF DIRECTORS
Donald B. Cox
Michael F. Elliott
Michael D. Gallagher
Dr. H. Ray Hoops
Edgar P. Hughes
R. Eugene Johnson, Esq.
John D. Lippert
John Lee Newman
Edward E. Peyronnin
Peter L. Stevenson, M.D.
C. Wayne Worthington
George A. Wright
SENIOR OFFICERS
John D. Lippert
Michael F. Elliott
Thomas L. Austerman
Benjamin W. Bloodworth
Paul N. Hocking
Thomas R. Lampkins
Larry J. Northernor
30
<PAGE> 32
THE PEOPLES NATIONAL
BANK OF GRAYVILLE
GRAYVILLE, ILLINOIS
BOARD OF DIRECTORS
Lyndle Barnes, Jr.
John C. Blood, Jr.
Benjamin W. Bloodworth
Sam Broster
Richard L. Elliott
Victor R. Gallagher, Jr.
William H. Mitchell
Joseph M. Siegert
Herbert W. Sutter
SENIOR OFFICER
Lyndle Barnes, Jr.
PIKE COUNTY BANK
PETERSBURG, INDIANA
BOARD OF DIRECTORS
Max D. Elliott
Michael F. Elliott
Denver Gladish
John L. Hayes
Karl O. Schafer
John E. Yager, Jr.
SENIOR OFFICER
Max D. Elliott
THE SPURGEON
STATE BANK
SPURGEON, INDIANA
BOARD OF DIRECTORS
Roger M. Duncan
Max D. Elliott
Michael F. Elliott
Anthony P. Uebelhor
John E. Yager, Jr.
SENIOR OFFICER
Roger M. Duncan
THE STATE BANK OF WASHINGTON
WASHINGTON, INDIANA
BOARD OF DIRECTORS
John P. Cavanaugh
Max D. Elliott
Michael F. Elliott
Harry W. Hanson, Esq.
John L. Hayes
E. Joseph Kremp
Dr. Jerry D. McClarren
Harvey W. Pinney
SENIOR OFFICERS
Harvey W. Pinney
Patricia A. Paul
NCBE LEASING CORP.
EVANSVILLE, INDIANA
BOARD OF DIRECTORS
Benjamin W. Bloodworth
Michael D. Gallagher
Dr. H. Ray Hoops
Charles J. Kelly, Jr.
John Lee Newman
SENIOR OFFICERS
Benjamin W. Bloodworth
Charles J. Kelly, Jr.
Harold A. Mann
[PHOTO]
BANK MANAGEMENT
Seated left to right: Lyndle Barnes, Jr., President & CEO, The Peoples National
Bank of Grayville
Wm. Stephen Schroer, President & CEO, Lincolnland Bank
Randall L. Young, President & CEO, The Bank of Mitchell
Thomas L. Austerman, Executive Vice President, The National City Bank of
Evansville
Standing left to right: James A. Pfister, President & CEO, The Farmers and
Merchants Bank
Roger M. Duncan, President & CEO, The Spurgeon State Bank
Harvey W. Pinney, President & CEO, The State Bank of Washington
Garland Certain, President & CEO, First Kentucky Bank
Max D. Elliott, President & CEO, Pike County Bank
31
<PAGE> 33
Shareholder Information
STOCK AND DIVIDEND INFORMATION
The common stock of the Corporation trades on
The Nasdaq Stock Market under the symbol: NCBE.
The following table lists the stock price for the past two years and dividend
information for the Corporation's common stock.
<TABLE>
<CAPTION>
Range of Stock Price Dividend
--------------------
Quarter Low High Declared
------- ------- ------ --------
<S> <C> <C> <C>
1993
1st $29.00 $34.00 $0.22
2nd 32.50 37.25 0.22
3rd 35.00 37.50 0.22
4th 35.00 37.50 0.22
1994
1ST $34.50 $37.00 $0.22
2ND 35.00 41.00 0.22
3RD 39.75 43.50 0.22
4TH 41.75 46.25 0.27
</TABLE>
DIVIDEND REINVESTMENT PLAN
As a service to its shareholders, the Corporation provides an easy way for a
shareholder to acquire additional shares of National City Bancshares, Inc.
common stock through its DIVIDEND REINVESTMENT PLAN. The plan allows a
shareholder to purchase this stock without brokerage fees using dividends and
additional voluntary cash investments. For information about this plan, a
shareholder can contact the Corporation's TRANSFER AGENT.
MARKET MAKERS
The following firms make a market in the
stock of National City Bancshares, Inc.:
The Ohio Company
J. J. B. Hilliard, W. L. Lyons, Inc.
Raffensperger, Hughes & Co.
Herzog, Heine, Geduld, Inc.
FOR FURTHER INFORMATION
The Corporation's
TRANSFER AGENT and REGISTRAR is
The National City Bank of Evansville
Trust Department
227 Main Street
P. O. Box 868
Evansville, IN 47705-0868
Telephone (812) 464-9665
The Corporation's
HEADQUARTERS is located at
National City Bancshares, Inc.
227 Main Street
P. O. Box 868
Evansville, IN 47705-0868
Telephone (812) 464-9677
ALL SUBSIDIARY BANKS OF NATIONAL CITY BANCSHARES, INC.
ARE MEMBERS OF THE FEDERAL DEPOSIT INSURANCE CORPORATION.
[RECYCLED LOGO] THIS REPORT IS PRINTED ENTIRELY ON RECYCLED PAPER.
32
<PAGE> 1
EXHIBIT TO S-4
REGISTRATION STATEMENT
EXHIBIT 23.A
<PAGE> 2
Consent of Independent Certified Public Accountants
As independent certified public accountants, we hereby consent to (1) the
inclusion in this Form S-4 of our Report (Gaither Koewler Rohlfer Luckett & Co.
as predecessor the Gaither Rutherford & Co.) dated January 13, 1993, on the
consolidated financial statements of National City Bancshares, Inc., 1992, for
the year ended December 31, 1992, and (2) the incorporation of our report
included in this Form S-4 into the Corporation's previously filed Registration
Statement Commission file No.0-13585.
As independent certified public accountants, we hereby consent to the inclusion
in the Registration Statement on Form S-4 relating to the proposed merger with
United Financial Bancorp, Inc. of our report (Gaither Koewler Rohlfer
Luckett & Co., as predecessor to Gaither Rutherford & Co.) dated
January 22, 1993, on the consolidated financial statements of Lincolnland
Bancorp, Inc., for the year ended December 31, 1992.
/s/ Gaither Rutherford & Co., LLP
Gaither Rutherford & Co., LLP
Certified Public Accountants
Evansville, Indiana
May 24, 1995
<PAGE> 1
EXHIBIT TO S-4
REGISTRATION STATEMENT
EXHIBIT 23.B
<PAGE> 2
Consent of McGladrey & Pullen, LLP
As independent public accountants, we hereby consent to the use in the
Registration s Statement on Form S-4 relating to the proposed merger of United
Financial Bancorp, Inc., with and into National City Bancshares, Inc., of our
report dated January 16, 1995, which appears on page 15 of the annual report to
stockholders of National City Bancshares, Inc. We also consent to the
reference to our Firm under the caption of "Expert" in the Registration
Statement.
/s/ McGladrey & Pullen LLP
Champaign, Illinois
May 31, 1995
<PAGE> 1
EXHIBIT TO S-4
REGISTRATION STATEMENT
EXHIBIT 23.C
<PAGE> 2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in Form S-4 of National City
Bancshares, Inc., regarding the registration of common stock of National City
Bancshares, Inc., to be issued to the stockholders of United Financial Bancorp,
Inc., Vincennes, Indiana, of our report dated February 19, 1993, on the
consolidated statements of income, changes in stockholders' equity and cash
flows of Sure Financial Corporation for the year ended December 31, 1992, from
Form S-4 (33-69050) of National City Bancshares, effective November 5, 1993.
/s/ Geo S. Olive & Co., LLP
Geo. S. Olive & Co., LLP
Indianapolis, Indiana
May 24, 1995
<PAGE> 1
EXHIBIT TO S-4
REGISTRATION STATEMENT
EXHIBIT 23.D
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement of
National City Bancshares, Inc. on Form S-4 of our report dated August 5, 1994
on the June 30, 1994 consolidated financial statements of United Financial
Bancorp, Inc. which report is included in the 1994 Annual Report on Form 10KSB
of United Financial Bancorp, Inc. We also consent to the reference to us under
the heading "Experts" in the Prospectus, which is part of this Registration
Statement.
Crowe, Chizek and Company
Indianapolis, Indiana
May 30, 1995
<PAGE> 1
EXHIBIT TO S-4
REGISTRATION STATEMENT
EXHIBIT 23.F
<PAGE> 2
CONSENT OF CHARLES WEBB & CO., LPA
[CHARLES WEBB & COMPANY LETTERHEAD]
June 2, 1995
Board of Directors
United Financial Bancorp, Inc.
619 Main Street
Vincennes, IN 47591
We hereby consent to the use of our firm's name in the Form S-4 Registration
Statement, and any amendments thereto, for National City Bancshares, Inc., and
to the inclusion of, summary of and references to our Fairness Opinion in such
filings including the Proxy Statement - Prospectus of United Financial Bancorp,
Inc.
Very truly yours,
/s/ Patricia A. McJoynt
Patricia A. McJoynt
Executive Vice President
<PAGE> 1
EXHIBIT TO S-4
REGISTRATION STATEMENT
EXHIBIT 24
<PAGE> 2
POWERS OF ATTORNEY
DIRECTORS OF NATIONAL CITY BANCSHARES, INC.
Know all men by these presents that each person whose name is signed
below has made, constituted and appointed, and by this instrument does make,
constitute and appoint John D. Lippert or Robert A Keil, or either one of them
acting alone, his true and lawful attorney with full power of substitution and
resubstitution to affix for him and in his name, place and stead, as
attorney-in-fact, his signature as director or officer, or both, of National
City Bancshares, Inc., an Indiana corporation (the "Company"), to a
Registration Statement on Form S-4 or other form registering under the
Securities Act of 1933, common stock to be issued in connection with the
acquisition of United Financial Bancorp, Inc. by the Company, and to any and
all amendments, post effective amendments and exhibits to that Registration
Statement, and to any and all applications and other documents pertaining
thereto, giving and granting to such attorney-in-fact full power and authority
to do and perform every act and thing whatsoever necessary to be done in the
premises, as fully as he might or could do if personally present, and hereby
ratifying and confirming all that said attorney-in-fact or any such substitute
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed at
Evansville, Indiana, this 22nd day of March, 1995.
/s/ Mrs. N. Keith Emge
/s/ Michael F. Elliott
/s/ Donald G. Harris
/s/ Laurence R. Steenberg
/s/ Ronald G. Reherman
<PAGE> 1
EXHIBIT TO S-4
REGISTRATION STATEMENT
EXHIBIT 99.A
<PAGE> 2
(UNITED FINANCIAL BANCORP, INC. LETTERHEAD)
Dear Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders of United
Financial Bancorp, Inc. ("United"), to be held at the main office of United at
Beckes Student Union on the campus of Vincennes University, North Second
Street, Vincennes, Indiana, on ______________, 1995 at _______ local time.
The purpose of the meeting is to consider and vote upon approval of an
Agreement and Plan of Merger dated December 28, 1994, by and between United and
National City Bancshares, Inc., Evansville, Indiana. If the proposed
transaction is consummated, shares of United Common Stock will be converted
into shares of National City Bancshares, Inc. Common Stock as described in the
accompanying Prospectus-Proxy Statement. After completion of the transaction
United Federal Savings Bank of Vincennes would operate as a wholly owned
subsidiary of National City Bancshares, Inc.
Your Board of Directors believes that the proposed transaction is in the best
interests of United and its shareholders and has unanimously approved the
proposed Agreement. Attached are a Notice of the meeting and a Proxy
Statement-Prospectus containing information about the proposed transaction and
National City Bancshares, Inc. Whether or not you plan to attend the meeting,
please mark, sign, date and promptly return the enclosed proxy.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSED MERGER.
Very truly yours,
<PAGE> 1
EXHIBIT TO S-4
REGISTRATION STATEMENT
EXHIBIT 99.B
<PAGE> 2
UNITED FINANCIAL BANCORP, INC.
619 Main Street
Vincennes, Indiana 47591
(812) 882-9310
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held on _______, 1995
Notice is hereby given that the Special Meeting of Stockholders (the
"Meeting") of United Financial Bancorp, Inc. ("United" or the "Company") will
be held at Beckes Student Union on the campus of Vincennes University, North
Second Street, Vincennes, Indiana on ______, 1995 at [10:00 A.M.].
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. A proposal to approve and adopt an Agreement and Plan of
Merger (the "Merger Agreement"), as of December 28, 1994, by and
between United and National City Bancshares, Inc. ("NCBE"), a copy of
which is included in the accompanying Proxy Statement-Prospectus as
Appendix A. As more fully described in the Proxy
Statement-Prospectus, the Merger Agreement provides for the Merger of
United with and into NCBE, with NCBE surviving the transaction.
Pursuant to the Merger Agreement and subject to certain exceptions,
all of the outstanding shares of United Common Stock will be converted
into shares of NCBE Common Stock in accordance with the Exchange Ratio
as defined in the Merger Agreement.
2. Such other matters as may properly come before the
Meeting, or any adjournments thereof. The Board of Directors is not
aware of any other business to come before the Meeting.
Any action may be taken on the foregoing proposal at the Meeting on
the date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on _______, 1995
are the stockholders entitled to vote at the Meeting, and any adjournments
thereof. A complete list of stockholders entitled to vote at the Meeting will
be available at the main office of the Company during the ten days prior to the
Meeting, as well as at the Meeting.
You are requested to complete and sign the enclosed Form of Proxy
which is solicited on behalf of the Board of Directors, and to mail it promptly
in the enclosed envelope. The Proxy will not be used if you attend and vote at
the Meeting in person.
By Order of the Board of Directors
Janice L. Beesley, President, Chief
Executive Officer and Director
Vincennes, Indiana
__________, 1995
________________________________________________________________________________
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF MAILED WITHIN THE UNITED STATES.
________________________________________________________________________________
<PAGE> 1
EXHIBIT TO S-4
REGISTRATION STATEMENT
EXHIBIT 99.C
<PAGE> 2
PROXY
PROXY FOR SPECIAL MEETING OF UNITED FINANCIAL BANCORP, INC.
VINCENNES, INDIANA
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned shareholder of
United Financial Bancorp, Inc., do hereby nominate, constitute, and
appoint__________,_________and___________, or any one of them (with full power
of substitution for me and in my name, place and stead) to vote all the common
stock of said Corporation, standing in my name on its books on ________, 1995,
at the Special Meeting of its shareholders to be held at the main office of the
Corporation at Beckes Student Union on the campus of Vincennes University,
North Second Street, on _______, 1995, at __ a.m./p.m. local time, or any
adjournments thereof with all the powers the undersigned would possess if
personally present as follows:
1. To ratify, confirm, approve and adopt an Agreement and Plan of Merger
dated December 28, 1994, (the "Agreement") by and between United and
National City Bancshares, Inc., an Indiana corporation and bank
holding company ("NCBE"), with such agreement providing for, among
other things, the merger of United with and into NCBE. Each
outstanding share of United Common Stock will be converted into NCBE
Common Stock in accordance with the terms of the Agreement. As a
result of the proposed merger, United will become a wholly owned
subsidiary of NCBE.
[ ] For [ ] Against [ ] Abstain
2. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.
This proxy confers authority to vote "FOR" the propositions listed
above unless "AGAINST" or "ABSTAIN" is indicated. If any other business is
presented at said meeting, this proxy shall be voted in accordance with the
recommendations of management. All shares represented by properly executed
proxies will be voted as directed.
The Board of Directors recommends a vote "FOR" the propositions. THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS and may be revoked prior
to its exercise by either written notice or personally at the meeting or by a
subsequently dated proxy.
Date:_______________________, 1995 _______________________________
_______________________________ (L.S.)
(Signature(s) of
Shareholder(s))
(When signing as Attorney, Executor, Administrator, Trustee, or Guardian,
please give full title. If more than one Trustee, all should sign. All joint
owners must sign.)
