<PAGE>
As filed with the Securities and Exchange Commission on October 14, 1998
Registration No. 333-_____
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 6711 35-1632155
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
227 MAIN STREET
P.O. BOX 868
EVANSVILLE, INDIANA 47705-0868
(812) 464-9677
(Address, including zip code and telephone number, including area code, of
Registrant's principal executive offices)
-----------------------------
ROBERT A. KEIL
NATIONAL CITY BANCSHARES, INC.
227 MAIN STREET
P.O. BOX 868
EVANSVILLE, INDIANA 47705-0868
(812) 464-9677
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------------------
COPIES TO:
DAVID C. WORRELL EDWARD B. CROSLAND, JR.
BAKER & DANIELS KUTAK ROCK
300 NORTH MERIDIAN STREET SUITE 1000
SUITE 2700 1101 CONNECTICUT AVENUE, N.W.
INDIANAPOLIS, INDIANA 46204 WASHINGTON, D.C. 20036-4364
(317) 237-0300 (202) 828-2400
-----------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES
TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________________
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class Maximum Maximum Amount of
of Securities to be Amount to be Offering Price Aggregate Registration
Registered Registered Per Unit Offering Price Fee
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without 212,663 (1) (2) $4,218,000 (2) $1,245
par value
- -------------------------------------------------------------------------------
</TABLE>
(1) Based on the maximum number of shares of National City Bancshares, Inc.
Common Stock that may be issued in the Merger.
(2) Calculated pursuant to Rule 457(f)(2) under the Securities Act of 1933
based on the book value per share of the common stock of Princeton Federal
Bank, fsb, as of June 30, 1998.
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>
[Princeton Federal Bank, fsb Letterhead]
SPECIAL MEETING OF SHAREHOLDERS
A MERGER PROPOSAL -- YOUR
VOTE IS VERY IMPORTANT
The Board of Directors of Princeton Federal Bank, fsb ("PFB"), has
unanimously approved a merger with a to-be-formed subsidiary of National City
Bancshares, Inc. ("NCBE"), a $1.8 billion multi-bank holding company
headquartered in Evansville, Indiana.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR TO
SHAREHOLDERS AND IS IN THEIR BEST INTERESTS. THE BOARD OF DIRECTORS
THEREFORE UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE AND ADOPT THE
MERGER AGREEMENT AND THE RELATED AMENDMENT TO PFB'S FEDERAL STOCK CHARTER. A
VOTE OF THE NCBE SHAREHOLDERS IS NOT REQUIRED TO APPROVE THE MERGER.
PFB is calling a Special Meeting of shareholders at which you are being asked
to approve and adopt the merger agreement. The affirmative vote of the
holders of at least two-thirds of the outstanding shares of PFB common stock
is required to approve the merger agreement.
You are also being asked to approve and adopt an amendment to PFB's Federal
Stock Charter to permit the consummation of the merger. The affirmative vote
of the holders of a majority of the outstanding shares is required to approve
the charter amendment.
If the merger is completed, each share of PFB common stock will be converted
into 0.7424 shares of NCBE common stock. The issuance of NCBE common stock
in the merger is expected to be tax-free for federal income tax purposes.
The date, time and place of the Special Meeting:
November __, 1998
11:00 a.m.
Princeton Federal Bank, fsb
208 North Jefferson Street
Princeton, Kentucky
The attached Proxy Statement/Prospectus provides you with detailed
information about the proposed merger. In addition, you may obtain other
information about NCBE from documents filed with the Securities and Exchange
Commission. We encourage you to read this entire document carefully.
Whether or not you plan to attend the Special Meeting, please take the time
to vote by completing and mailing the enclosed proxy card to us. If you
sign, date and mail your proxy without indicating how you wish to vote, your
proxy will count as a vote in favor of the approval and adoption of the
merger agreement. If you fail to return your proxy, the effect will be a vote
against the merger. YOUR VOTE IS VERY IMPORTANT.
ON BEHALF OF THE BOARD OF DIRECTORS OF PFB, I URGE YOU TO VOTE "FOR" THE
PROPOSALS RELATING TO THE MERGER AND THE RELATED CHARTER AMENDMENT.
W.D. WADLINGTON
President and
Chief Executive Officer
<PAGE>
TO THE SHAREHOLDERS OF PRINCETON FEDERAL BANK, fsb
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held
__________, November __, 1998
Princeton Federal Bank, fsb
208 North Jefferson Street
Princeton, Kentucky 42445
The Board of Directors of Princeton Federal Bank, fsb ("PFB"), asks you to
attend this Special Meeting to vote on the following:
1. PROPOSED MERGER. Shareholders will be asked to approve and adopt the
Agreement and Plan of Reorganization dated May 22, 1998 (the "Merger
Agreement"), relating to the merger of PFB with a to-be-formed
subsidiary of National City Bancshares, Inc. ("NCBE"). In the merger,
PFB shareholders will receive 0.7424 shares of NCBE common stock for
each share of PFB common stock. The Merger Agreement is attached as
Appendix A to the accompanying Proxy Statement/Prospectus.
2. CHARTER AMENDMENT. Shareholders will be asked to approve and
adopt an amendment to PFB's Federal Stock Charter, deleting
Section 8.A. (Beneficial Ownership Limitation) in its entirety,
contingent on the consummation of the transactions contemplated
by the Merger Agreement.
3. OTHER BUSINESS. Shareholders will also consider and vote on any
other matters that properly come before the Special Meeting or
any adjournments or postponements.
You are entitled to notice of and to vote at the Special Meeting (or any
adjournments or postponements of it) if you were a PFB shareholder at the
close of business on October __, 1998.
By Order of the Board of Directors,
Larry R. Mansfield, Secretary
October __, 1998
Princeton, Kentucky
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE CHARTER AMENDMENT.
THE PROXY STATEMENT/PROSPECTUS DESCRIBES YOUR RIGHTS TO DISSENT FROM THE
MERGER AND THE PROCEDURES YOU MUST FOLLOW TO EXERCISE THOSE RIGHTS.
WE INVITE YOU TO ATTEND THE SPECIAL MEETING. IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED. PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY IN
THE ACCOMPANYING POSTAGE-PAID ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY
VOTE IN PERSON, WHICH WILL REVOKE YOUR SIGNED PROXY. YOU MAY ALSO REVOKE
YOUR PROXY AT ANY TIME BEFORE THE VOTING THEREOF AT THE SPECIAL MEETING.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE>
PRINCETON FEDERAL BANK, fsb
PROXY STATEMENT FOR SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD
NOVEMBER _____, 1998
------------------------------
NATIONAL CITY BANCSHARES, INC.
PROSPECTUS
FOR UP TO 212,663 SHARES OF COMMON STOCK
National City Bancshares, Inc. ("NCBE") proposes to acquire Princeton
Federal Bank, fsb ("PFB"), through the merger into PFB of NCBE Interim Bank,
fsb, a to-be-formed interim savings bank subsidiary of NCBE ("Interim").
The parties cannot complete the merger unless PFB's shareholders approve
the Agreement and Plan of Reorganization dated May 22, 1998. PFB
shareholders will vote on the Agreement and Plan of Reorganization and a
related amendment of PFB's Federal Stock Charter at a Special Meeting of
Shareholders of PFB on November ___, 1998. This Proxy Statement/Prospectus
is being furnished to PFB shareholders in connection with the Board of
Directors of PFB's solicitation of proxies for use at the Special Meeting.
In the merger, PFB shareholders will receive 0.7424 shares of NCBE's
common stock for each of PFB common stock they own. This Proxy
Statement/Prospectus is also a Prospectus of NCBE relating to the shares of
common stock NCBE will issue in the merger.
NCBE's common stock trades on the Nasdaq National Market Tier of the
Nasdaq Stock Market under the symbol "NCBE".
THE "RISK FACTORS" SECTION OF THIS PROXY STATEMENT/PROSPECTUS (BEGINNING
ON PAGE 7 LISTS SOME OF THE FACTORS YOU SHOULD CONSIDER IN EVALUATING THE
MERGER.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the NCBE common stock to be issued in the merger or
determined if this Proxy Statement/Prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
Proxy Statement/Prospectus dated October __, 1998, and first mailed
to shareholders on October __, 1998.
<PAGE>
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT NCBE THAT IS NOT INCLUDED IN OR DELIVERED WITH
THIS DOCUMENT. THE INCORPORATED INFORMATION IS AVAILABLE WITHOUT CHARGE TO
PFB SHAREHOLDERS UPON WRITTEN OR ORAL REQUEST. REQUESTS SHOULD BE DIRECTED
AS FOLLOWS:
NATIONAL CITY BANCSHARES, INC.
P.O. BOX 868
EVANSVILLE, INDIANA 47705-0868
ATTN: STEPHEN C. BYELICK, JR.
PH.: 812-464-9864
TO OBTAIN TIMELY DELIVERY, PLEASE REQUEST THE INFORMATION NO LATER THAN
NOVEMBER __, 1998.
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT
THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Summary Comparative Historical and Combined
Per Share Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Risks Associated with Acquisitions. . . . . . . . . . . . . . . . . . .7
Impact of Interest Rate Changes . . . . . . . . . . . . . . . . . . . .7
Credit Risk and Loan Concentration. . . . . . . . . . . . . . . . . . .7
Regulatory Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Exposure to Local Economic Conditions . . . . . . . . . . . . . . . . .8
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Risks Relating to Year 2000 Issue . . . . . . . . . . . . . . . . . . .8
Status of NCBE as a Bank Holding
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . .9
SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Date, Time, Place and Purpose . . . . . . . . . . . . . . . . . . . . .9
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Voting and Revocation of Proxies. . . . . . . . . . . . . . . . . . . 10
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . 10
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Background of the Merger. . . . . . . . . . . . . . . . . . . . . . . 11
Reasons for the Merger. . . . . . . . . . . . . . . . . . . . . . . . 11
Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Recommendation of PFB's Board
of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Closing and Effective Time. . . . . . . . . . . . . . . . . . . . . . 15
Conversion of PFB Common. . . . . . . . . . . . . . . . . . . . . . . 15
Procedures for Exchange of Certificates . . . . . . . . . . . . . . . 16
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 16
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Representations and Warranties. . . . . . . . . . . . . . . . . . . . 18
Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Conditions to the Merger. . . . . . . . . . . . . . . . . . . . . . . 20
Termination and Waiver. . . . . . . . . . . . . . . . . . . . . . . . 20
No Solicitation; Fees and Expenses. . . . . . . . . . . . . . . . . . 20
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . 21
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . 22
Resale of NCBE Common . . . . . . . . . . . . . . . . . . . . . . . . 22
Interests of Certain Persons in the Merger. . . . . . . . . . . . . . 23
RELATED CHARTER AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . 24
SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . 25
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 26
COMPARATIVE STOCK PRICES
AND DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
INFORMATION CONCERNING NCBE. . . . . . . . . . . . . . . . . . . . . . . . 34
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . 34
Year 2000 Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . . . . . 37
INFORMATION CONCERNING PFB . . . . . . . . . . . . . . . . . . . . . . . . 38
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Selected Financial Data of PFB. . . . . . . . . . . . . . . . . . . . 39
Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 39
New Accounting Standards. . . . . . . . . . . . . . . . . . . . . . . 47
Other Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
<PAGE>
DESCRIPTION OF NCBE CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . 58
Authorized Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 58
NCBE Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
NCBE Preferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Certain Provisions of Articles of Incorporation
and By-Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Certain Provisions of the IBCL. . . . . . . . . . . . . . . . . . . . 59
Transfer Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
COMPARISON OF SHAREHOLDER RIGHTS . . . . . . . . . . . . . . . . . . . . . 59
Classified Board of Directors . . . . . . . . . . . . . . . . . . . . 59
Business Combinations . . . . . . . . . . . . . . . . . . . . . . . . 59
Removal of Directors. . . . . . . . . . . . . . . . . . . . . . . . . 61
Amendments to Articles of Incorporation . . . . . . . . . . . . . . . 61
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Special Meetings of Shareholders. . . . . . . . . . . . . . . . . . . 61
Control Share Acquisitions. . . . . . . . . . . . . . . . . . . . . . 62
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Limitation of Liability of Directors. . . . . . . . . . . . . . . . . 63
Authorization of Preferred Shares . . . . . . . . . . . . . . . . . . 63
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
WHERE YOU CAN FIND MORE INFORMATION . . . . . . . . . . . . . . . . . . . 64
INDEX TO PFB FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . .F-1
APPENDIX A - Agreement and Plan of
Reorganization dated as of May 22, 1998
between National City Bancshares, Inc. and
Princeton Federal Bank, fsb . . . . . . . . . . . . . . . . . . . . .A-1
APPENDIX B - Fairness Opinion and
Reaffirmation of Professional
Bank Services, Inc. B-1
APPENDIX C - Excerpts of Federal Law
Concerning Appraisal Rights of Dissenting
Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . .C-1
APPENDIX D - Section 8 of PFB's
Federal Stock Charter . . . . . . . . . . . . . . . . . . . . . . . .D-1
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL PFB SHAREHOLDERS RECEIVE IN THE MERGER?
A: In the merger, NCBE will issue 0.7424 shares of its common stock for each
outstanding share of PFB common stock.
The actual value of the shares of NCBE common stock to be issued in the
merger cannot be determined at this time, since it will depend on the value
at the time the merger becomes effective. The last reported sales price on
October __, 1998 for NCBE common stock as reported by the Nasdaq Stock
Market was $______. If the merger became effective on October __, 1998,
the value of 0.7424 shares of NCBE common stock would have been $________.
Q: WHY IS PFB PROPOSING TO MERGE WITH NCBE?
A: The PFB Board of Directors has determined that the merger is fair to, and
in the best interests of, PFB and its shareholders. The resulting
financial institution should be in an enhanced competitive position.
Economies of scale in the operation of the resulting institution are
expected to be achieved through the merger. PFB's shareholders should
benefit from their investment in a larger, more competitive and efficient
organization and, possibly, from a more liquid market for the NCBE common
stock issued in the merger.
Q: WHAT ARE THE TAX CONSEQUENCES TO PFB SHAREHOLDERS?
A: No gain or loss for federal income purposes should be recognized by you on
the shares of NCBE Common Stock you receive in the merger. To review the
tax consequences in greater detail, see page 21.
Q: WHY DOES PFB'S FEDERAL STOCK CHARTER NEED TO BE AMENDED?
A: Under Section 8.A. of PFB's Federal Stock Charter, no person can acquire
beneficial ownership of more than 10% of PFB's common stock until May 9,
1999. Accordingly, PFB's Board of Directors is recommending an amendment
to Section 8.A. (contingent on consummation of the merger with NCBE) which
will permit the merger to be completed.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy in the enclosed return envelope as soon as
possible, so that your shares may be represented at the special PFB
shareholders' meeting. The PFB Board of directors unanimously recommends
that you vote FOR approval of the merger agreement and the related charter
amendment.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, NCBE will send you written instructions
for exchanging your share certificates.
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: Neither PFB nor NCBE expects any changes in its dividend policies before
the merger. After the merger, the NCBE annualized dividend rate is
expected to be $______ per share.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working towards completing the merger as quickly as possible. We
hope to complete the merger by November 30, 1998.
1
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ CAREFULLY THIS
ENTIRE DOCUMENT AND THE DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE "WHERE
YOU CAN FIND MORE INFORMATION" ON PAGE 64. WE HAVE INCLUDED PAGE REFERENCES
IN PARENTHESES TO DIRECT YOU TO A MORE COMPLETE DESCRIPTION OF THE TOPICS
PRESENTED IN THIS SUMMARY.
PARTIES TO THE MERGER
NATIONAL CITY BANCSHARES, INC.
227 MAIN STREET
EVANSVILLE, INDIANA 47708
(812) 464-9677
National City Bancshares, Inc. is an Indiana corporation that owned, as
of August 31, 1998, 15 financial institution subsidiaries. These
subsidiaries provide a wide range of banking services in the tri-state area
of Indiana, Kentucky and Illinois surrounding Evansville, Indiana. As of
June 30, 1998 (and as restated to give effect to acquisitions accounted for
as poolings of interests and consummated through August 31, 1998), NCBE had
total consolidated assets of $1.8 billion, total loans of $1.3 billion, total
deposits of $1.4 billion and total shareholders' equity of $187.1 million.
PRINCETON FEDERAL BANK, fsb
208 NORTH JEFFERSON STREET
PRINCETON, KENTUCKY 42445
(502) 365-3556
Princeton Federal Bank, fsb, is a federal stock savings bank. As of
June 30, 1998, PFB had total assets of $31.2 million, net loans of $22.7
million, total deposits of $22.3 million, and total shareholders' equity of
$4.2 million. PFB has one banking office in Princeton, Kentucky.
SPECIAL MEETING OF PFB SHAREHOLDERS
MEETING INFORMATION (See page 9).
The Special Meeting of PFB shareholders will be held at the office of
PFB located at 208 North Jefferson Street, Princeton, Kentucky on November _,
1998, at 11:00 a.m., local time. On the record date, there were 270,204
shares of PFB common stock outstanding. The minimum required vote for
approval of the merger agreement is 180,136 shares and for approval of the
related charter amendment is 135,203 shares.
If you owned shares of PFB common stock as of the close of business on
October __, 1998, the record date, you are entitled to vote. You will have
one vote for each share you owned on the record date.
SECURITY OWNERSHIP OF MANAGEMENT
As of the close of business on the record date, the directors and
executive officers of PFB and their affiliates beneficially owned _____
shares of PFB common stock (excluding shares underlying stock options), or
_____%, of all outstanding shares entitled to vote on the merger. As of the
close of business on the record date, the directors and executive officers
of NCBE and their affiliates did not beneficially own any shares of PFB
common stock.
SUMMARY OF THE MERGER
THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT, AS IT
IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
OPINION OF FINANCIAL ADVISOR TO PFB (See page 12).
Professional Bank Services, Inc. ("PBS") issued an opinion to PFB's
Board of Directors that the merger consideration to be issued in the merger
is fair to PFB shareholders from a financial perspective. PBS has reaffirmed
its opinion as of the date of this Proxy Statement/Prospectus. A copy of the
opinion, along with a letter dated the date of this Proxy
Statement/Prospectus in which PBS reaffirms its opinion, appear as Appendix B.
RECOMMENDATION OF PFB BOARD OF DIRECTORS (See page 15).
The PFB Board of Directors believes that the merger is in the best
interests of PFB shareholders and unanimously recommends that PFB
shareholders vote FOR approval of the merger agreement.
2
<PAGE>
CONDITIONS TO THE MERGER (See page 20).
PFB and NCBE will not complete the merger unless:
-- PFB shareholders and regulatory authorities approve it;
-- No legal restrictions prohibit it; and
-- NCBE's legal counsel provides a satisfactory opinion concerning the
tax treatment of the merger.
NCBE will not have to complete the merger unless:
-- PFB's representations in the merger agreement remain accurate;
-- PFB's financial condition does not change materially; and
-- NCBE can account for the merger as a "pooling of interests."
PFB will not have to complete the merger unless:
-- NCBE's representations in the merger agreement remain accurate;
-- NCBE's financial condition does not change materially; and
-- The NCBE shares to be issued in the merger are listed on the Nasdaq
National Market.
TERMINATION OF THE MERGER AGREEMENT (See page 20).
The merger agreement may be terminated and the merger abandoned before or
after PFB shareholders approve the merger agreement:
-- by mutual consent of PFB and NCBE;
-- by PFB if PFB or its Board of Directors accepts or approves a
"Competing Transaction";
-- by PFB, if any of the conditions to its obligation to consummate the
merger have not been satisfied by February 28, 1999; or
-- by NCBE, if any of the conditions to its obligation to consummate the
merger have not been satisfied by February 28, 1999.
REIMBURSEMENT OF EXPENSES (See page 20).
In the merger agreement, PFB agreed not to seek any "Competing Transaction"
for an acquisition of PFB except where required by fiduciary duties of PFB's
Board of Directors. A Competing Transaction includes any of the following:
-- an offer by another person to acquire 25% or more of PFB's common
stock;
-- a proposal for a merger, consolidation, share exchange, business
combination or similar transaction involving PFB; or
-- a proposal for a sale, lease, exchange, transfer, or other disposition
of 25% or more of the assets of PFB.
If the merger agreement is terminated under certain circumstances in
connection with a Competing Transaction, PFB will reimburse NCBE's expenses
incurred in the merger up to $150,000.
REGULATORY APPROVALS (See page 16).
The merger is subject to approval by the Board of Governors of the
Federal Reserve System and the Office of Thrift Supervision. All required
regulatory approvals have been received.
ACCOUNTING TREATMENT (See page 22).
NCBE expects to account for the merger as a "pooling of interests."
This means that NCBE will carry forward PFB's assets, liabilities and income
in NCBE's consolidated financial statements and that no goodwill will be
recognized in the transaction.
FEDERAL INCOME TAX CONSEQUENCES (See page 21).
The merger is intended to qualify as a tax-free reorganization for
federal income tax purposes. No
3
<PAGE>
gain or loss will be recognized by PFB shareholders upon receipt of NCBE
shares.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO YOU.
DISSENTERS' RIGHTS (See page 17).
Under federal law, PFB shareholders can demand the fair value of their
PFB shares in cash if they deliver a written demand for payment and do not
vote in favor of the merger agreement. Appendix C contains the relevant
portions of law.
RELATED CHARTER AMENDMENT (See page 24).
At the Special Meeting, you will also be asked to amend Section 8 of
PFB's Federal Stock Charter deleting Section 8.A. (Beneficial Ownership
Limitation) in its entirety, contingent upon consummation of the merger. The
PFB Board of Directors unanimously recommends that PFB shareholders vote FOR
approval of the charter amendment.
RISK FACTORS RELATING TO NCBE COMMON
(See page 7).
An investment in NCBE common stock involves risks, including those
described in this document.
STOCK PRICE DATA
(See page 33).
The following table sets forth as of May 21, 1998 (the last trading day
before the public announcement of the proposed acquisition), the last sale
price per share for the NCBE common stock, and the pro forma equivalent for a
share of PFB common stock. There is no public trading market for PFB common
stock.
<TABLE>
<CAPTION>
PRO FORMA
PFB
NCBE PFB COMMON
COMMON COMMON STOCK
STOCK STOCK EQUIVALENT
----- ----- ----------
<S> <C> <C> <C>
Price Per Share
(as of May 21, 1998) $37.625 N/A $27.933
</TABLE>
COMPARISON OF SHAREHOLDER RIGHTS
(See page 59).
NCBE is an Indiana corporation and PFB is a federal stock savings bank.
Each operates under different laws and governing documents. The rights of
PFB shareholders are different from NCBE shareholders in several respects,
including limitations on business combinations, provisions for removal of
directors, authorization of preferred stock and other matters.
4
<PAGE>
SUMMARY COMPARATIVE HISTORICAL AND COMBINED PER SHARE DATA
The following summary tables present selected comparative per share data
on (i) a historical basis for NCBE and PFB, (ii) a pro forma combined basis
per share of NCBE common stock, giving effect to the Merger and (A) as of
June 30, 1998 the Other Pooling Acquisitions (defined as acquisitions pending
as of August 31, 1998, which are expected to be accounted for as poolings of
interests, see "INFORMATION CONCERNING NCBE--Recent Developments") and (B)
for all prior periods, the Other Pooling Acquisitions, (iii) an equivalent
pro forma basis per share of PFB common stock, giving effect to the Merger
only, and (iv) an equivalent pro forma basis per share, giving effect to the
Merger and the Other Pooling Acquisitions. As further described in
"INFORMATION CONCERNING NCBE--Recent Developments", from January 1, 1998
through August 31, 1998, NCBE has acquired the Mayfield Branch and Bank of
Illinois in Mt. Vernon in transactions accounted for as purchases (the
"Purchase Transactions") and Illinois One Bank, National Association, Trigg
County Farmers Bank, Community First Bank of Kentucky and Community First
Bank, N.A., in transactions accounted for as poolings of interests (the
"Completed Pooling Acquisitions"). The Purchase Transactions are not
individually or in the aggregate considered material to NCBE from a financial
statement presentation standpoint, and the pro forma data does not include
the Purchase Transactions (except to the extent they are reflected in NCBE's
six month information). The historical data for NCBE have been restated to
include the results of the Completed Pooling Acquisitions. The data presented
are not necessarily indicative of the results of the future operations of the
combined organization or the actual results that would have occurred if the
Merger or the Other Pooling Acquisitions had been consummated prior to the
periods indicated. The data presented should be read in conjunction with the
more detailed information and financial statements included herein or
incorporated by reference in this Proxy Statement/Prospectus and with the
unaudited pro forma financial statements included elsewhere in this Proxy
Statement/Prospectus. See "WHERE YOU CAN FIND MORE INFORMATION," "SELECTED
FINANCIAL DATA," "INFORMATION CONCERNING PFB" and "INDEX TO PFB FINANCIAL
STATEMENTS."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE:
NCBE:
Basic $0.92 $0.90 $1.76 $1.57 $1.36
Diluted 0.91 0.89 1.74 1.56 1.36
PFB:
Basic 0.43 0.57 1.08 0.35 1.03
Diluted 0.41 0.54 1.03 0.34 0.97
NCBE pro forma (all Other Pooling
Acquisitions and PFB):
Basic 0.88 0.92 1.73 1.54 1.34
Diluted 0.87 0.91 1.71 1.54 1.34
PFB equivalent pro forma
(NCBE only) (1):
Basic 0.68 0.67 1.31 1.17 1.01
Diluted 0.68 0.66 1.29 1.16 1.01
PFB equivalent pro forma (all Other Pooling
Acquisitions and NCBE) (1):
Basic 0.65 0.68 1.28 1.14 0.99
Diluted 0.65 0.68 1.27 1.14 0.99
DIVIDENDS PER COMMON SHARE:
NCBE 0.33 0.29 0.59 0.55 0.35
PFB 1.21 1.00 1.00 0.90 0.70
PFB equivalent pro forma (1) 0.25 0.22 0.44 0.41 0.26
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
BOOK VALUE PER COMMON SHARE:
NCBE $13.85 $13.34
PFB 15.61 16.19
NCBE pro forma (all Other Pooling
Acquisitions and PFB) 13.97 13.45
PFB equivalent pro forma (NCBE only) (1) 10.28 9.90
PFB equivalent pro forma (all Other Pooling
Acquisitions and NCBE) (1) 10.37 9.99
</TABLE>
(1) Equivalent pro forma per share data represents the pro forma per share data
for NCBE multiplied by 0.7424, the number of shares of NCBE common stock to
be issued in the merger for each share of PFB common stock.
6
<PAGE>
RISK FACTORS
IN CONSIDERING WHETHER TO APPROVE THE MERGER AGREEMENT, PFB SHAREHOLDERS
SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER INFORMATION CONTAINED AND
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS, THE FOLLOWING
RISK FACTORS. CERTAIN CAPITALIZED TERMS USED IN THIS SECTION ARE DEFINED IN
OTHER SECTIONS OF THIS PROXY STATEMENT/PROSPECTUS.
RISKS ASSOCIATED WITH ACQUISITIONS
NCBE has grown significantly as a result of acquisitions. Since January
1, 1995, NCBE has completed numerous acquisitions of financial institutions
or their branches. As the banking industry continues to consolidate, NCBE
expects to pursue other acquisitions. NCBE is currently a party to
definitive agreements relating to four pending acquisitions. See
"INFORMATION CONCERNING NCBE--Recent Developments." NCBE's pending
acquisitions are subject to various conditions, including shareholder and
regulatory approval. No assurance can be given that the pending acquisitions
will be consummated.
The future profitability of NCBE will depend upon management's ability
to improve the profitability of acquired institutions and to realize expected
operational synergies. Acquisitions involve numerous risks, including
difficulties in assimilating operations of the acquired company, diversion of
management's attention from other business concerns, risks of entering new
geographic markets, loss of key employees of the acquired company and
assumption of undisclosed liabilities. Future acquisitions may result in
dilutive issuances of equity securities, the incurrence of additional debt
and the amortization of expenses related to goodwill and intangible assets,
any of which could have a material adverse effect on NCBE. In addition, as
consolidation of the banking industry continues, the competition for suitable
acquisition candidates will increase. NCBE competes with other banking
companies for acquisition opportunities and many of these competitors have
greater financial resources and acquisition experience than NCBE.
IMPACT OF INTEREST RATE CHANGES
NCBE derives its results of operations from its subsidiaries' operations
and depends principally on net interest income, which is the difference
between interest earned on loans and investments and interest expense paid on
deposits and other borrowings.
Like other financial institutions, NCBE's interest income and interest
expense are affected by general, regional and local economic conditions and
by the policies of regulatory authorities, including the monetary policies of
the Federal Reserve Board. While management has taken measures intended to
manage the risks of operating in a changing interest rate environment, there
can be no assurance that such measures will effectively avoid undue interest
rate risk.
CREDIT RISK AND LOAN CONCENTRATION
As a lender, NCBE is exposed to the risk that its customers will be
unable to repay their loans according to their terms and that the collateral
securing the payment of their such loans (if any) may not be sufficient to
assure repayment. Credit losses could have a material adverse effect on
NCBE's operating results.
A primary risk facing NCBE, and financial institutions in general, is
credit risk, that is, the risk of losing principal and interest due to a
borrower's failure to perform according to the terms of the borrower's loan
agreement. As of June 30, 1998, NCBE's total loan portfolio was approximately
$1.3 billion or 70.2% of its total assets. The three largest components of
the loan portfolio are real estate loans, $717 million or 55.2% of total
loans, commercial and industrial loans, $408 million or 31.4% of total loans,
and consumer loans, $175 million or 13.4% of total loans. NCBE's credit risk
with respect to its consumer installment loan portfolio and commercial loan
portfolio relates principally to the general creditworthiness of individuals
and businesses within its local market area. NCBE's credit risk with respect
to its real estate mortgage and construction loan portfolio relates
principally to the general creditworthiness of individuals and the value of
real estate serving as security for the repayment of the loans.
7
<PAGE>
REGULATORY RISKS
The banking industry is heavily regulated. These regulations are
primarily intended to protect depositors and the FDIC, not NCBE shareholders
or other creditors. Regulations affecting financial institutions are
undergoing continuous change, and the ultimate effect of such changes cannot
be predicted. Regulations and laws affecting NCBE and its subsidiaries may be
modified at any time, and new legislation affecting financial institutions
may be proposed and enacted. There is no assurance that such modifications or
new laws will not materially and adversely affect the business, condition or
operations of NCBE and its subsidiaries.
EXPOSURE TO LOCAL ECONOMIC CONDITIONS
The success of NCBE and its subsidiaries depends to a certain extent
upon the general economic conditions of the local geographic markets they
serve. Unlike larger banks which are more geographically diversified, NCBE's
subsidiaries provide financial and banking services to customers in the
tri-state area of Indiana, Kentucky and Illinois surrounding Evansville,
Indiana. No assurance can be given concerning the economic conditions that
will exist in such markets.
COMPETITION
NCBE's subsidiaries face substantial competition for deposit, credit and
trust relationships, as well as other sources of funding in the communities
they serve. Competing providers include other national and state banks,
thrifts and trust companies, insurance companies, mortgage banking
operations, credit unions, finance companies, money market funds and other
financial and nonfinancial companies which may offer products functionally
equivalent to those offered by NCBE's subsidiaries. Competing providers may
have greater financial resources than NCBE and offer services within and
outside the market areas served by NCBE's subsidiaries.
RISKS RELATING TO YEAR 2000 ISSUE
Many existing computer programs were designed to use only two digits to
identify a year in the date field without considering the impact of the
upcoming change in the century. If not corrected, many computer applications
could fail or create erroneous results by or at the year 2000. NCBE is
committed to a plan for achieving compliance with the risks created by the
"Year 2000" problem. Management believes that the expenditures required to
bring NCBE systems into compliance will not have a materially adverse effect
on NCBE's financial condition or future performance. However, the Year 2000
problem is pervasive and complex and can potentially effect any computer
process. In addition, the efforts of NCBE and its subsidiaries with respect
to Year 2000 compliance are subject to examination by banking regulatory
agencies. An adverse rating could result in the delay or deferral of
regulatory applications seeking approval of acquisitions or such approvals
may only be given subject to additional conditions. See "INFORMATION
CONCERNING NCBE - Year 2000 Issue."
STATUS OF NCBE AS A BANK HOLDING COMPANY
NCBE is a legal entity separate and distinct from its subsidiaries,
although the principal source of NCBE's cash revenues is dividends from its
subsidiaries. The right of NCBE to participate in the assets of any
subsidiary upon the subsidiary's liquidation, reorganization or otherwise
will be subject to the claims of the subsidiary's creditors, which will take
priority except to the extent that NCBE may itself be a creditor with a
recognized claim. NCBE's principal source of funds is dividends received
from its banking subsidiaries. Regulations limit the amount of dividends
without prior approval. During 1998, the subsidiaries may pay approximately
$3.3 million plus any 1998 net profits to NCBE without prior regulatory
approval.
8
<PAGE>
FORWARD-LOOKING STATEMENTS
This document, and the documents that have been incorporated herein by
reference (see, "WHERE YOU CAN FIND MORE INFORMATION" on page 64), include
forward-looking statements about NCBE that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
future results of operations of NCBE after the Merger, set forth under
"QUESTIONS AND ANSWERS ABOUT THE MERGER," "SUMMARY," "RISK FACTORS" and those
preceded by, followed by or that otherwise include the words "believes,"
"expects," "anticipates," "intends," "estimates" or similar expressions. For
those statements, NCBE claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
NCBE and PFB participate in the financial services industry, which is
characterized by competition and consolidation. You should understand that
the factors discussed under "Risk Factors" on page 7, in addition to those
discussed elsewhere in this document and the documents which are incorporated
by reference, could affect the future financial results of NCBE and could
cause actual results to differ materially from those expressed in
forward-looking statements contained or incorporated by reference in this
document.
SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE
This Proxy Statement/Prospectus is being furnished to holders of PFB's
common stock, par value $0.01 per share ("PFB Common"), in connection with
the solicitation of proxies by the Board of Directors of PFB for use at the
Special Meeting to be held at the office of PFB located at 208 North
Jefferson Street, Princeton, Kentucky, on November __, 1998, at 11:00 a.m.,
local time, and at any adjournment or postponement thereof. At the Special
Meeting, the shareholders of PFB will be asked to consider and vote upon (i)
the approval and adoption of the Agreement and Plan of Reorganization dated
May 22, 1998 (the "Merger Agreement") with National City Bancshares, Inc.
("NCBE") relating to the merger (the "Merger") of PFB with NCBE Interim Bank,
fsb, a to-be-formed interim savings bank subsidiary of NCBE ("Interim"); and
(ii) an amendment of Section 8 of PFB's Federal Stock Charter, deleting
Section 8.A. (Beneficial Ownership Limitation) in its entirety contingent
upon consummation of the Merger (the "Charter Amendment").
RECORD DATE
The Board of Directors of PFB has fixed October __, 1998, as the record
date for determining the shareholders of PFB entitled to receive notice of
and to vote at the Special Meeting (the "Record Date"). As of the close of
business on the Record Date, there were 270,204 shares of PFB Common issued
and outstanding. Only holders of PFB Common of record at the close of
business on the Record Date are entitled to notice of and to vote at the
Special Meeting. No shares of PFB Common can be voted at the Special Meeting,
unless the record holder is present in person or represented by proxy at the
Special Meeting.
VOTE REQUIRED
The presence, in person or by proxy, of holders of a majority of the
issued and outstanding shares of PFB Common entitled to vote on the Record
Date, or 135,103 shares, is necessary to constitute a quorum at the Special
Meeting. The affirmative vote of the holders of at least two-thirds of the
issued and outstanding shares of PFB Common, or 180,136 shares, is required
to approve the Merger Agreement and the transactions contemplated thereby.
The affirmative vote of the holders of at least a majority of the issued and
outstanding shares of PFB Common or 135,103 shares is required to approve the
Charter Amendment. Each holder of PFB Common is entitled to one vote per
share of PFB Common held at the close of business on the Record Date.
9
<PAGE>
VOTING AND REVOCATION OF PROXIES
Proxies for use at the Special Meeting accompany this Proxy
Statement/Prospectus. A shareholder may use his or her proxy if he or she is
unable to attend the Special Meeting in person or wishes to have his or her
shares voted by proxy even if he or she does attend the Special Meeting.
Shares of PFB Common represented by a proxy properly signed and returned to
PFB at, or prior to, the Special Meeting, unless subsequently revoked, will
be voted at the Special Meeting in accordance with instructions thereon. If
a proxy is properly signed and returned without voting instructions indicated
on the proxy, any shares of PFB Common represented by such proxy will be
voted FOR approval of the Merger Agreement and the Charter Amendment. Any
proxy given pursuant to this solicitation may be revoked at any time before
the vote on the matters to be considered at the Special Meeting by filing
with the Secretary of PFB a written revocation or a duly executed proxy
bearing a later date. All written notices of revocation and other
communications with respect to revocation of PFB proxies should be addressed
to Princeton Federal Bank, fsb, 208 North Jefferson Street, Princeton,
Kentucky 42445, Attention: Corporate Secretary. A holder of PFB Common who
previously signed and returned a proxy and who elects to attend the Special
Meeting and vote in person may withdraw his or her proxy at any time before
it is exercised by giving notice of such revocation to the Secretary of PFB
at the Special Meeting and voting in person by ballot at the Special Meeting;
however, attendance at the Special Meeting will not in and of itself
constitute a revocation of the proxy.
PFB intends to count holders of shares of PFB Common present in person
at the Special Meeting but not voting, and holders of shares of PFB Common
for which PFB has received proxies but with respect to which holders of
shares have abstained, as present at the Special Meeting for purposes of
determining the presence or absence of a quorum for the transaction of
business. Brokers may give a proxy to vote the shares they hold in street
name for customers only if they receive specific instructions from such
customers. Since the affirmative vote of the holders of at least two-thirds
of the issued and outstanding shares of PFB Common is required to approve and
adopt the Merger Agreement, abstentions and shares not voted or for which
customers do not provide specific voting instructions will have the effect of
a vote against the Merger Agreement.
If sufficient proxies are not obtained to approve and adopt the Merger
Agreement, the persons named as proxies in the enclosed form of proxy intend
to propose and vote for one or more adjournments or postponements of the
Special Meeting to permit further solicitation of proxies voting in favor of
the Merger Agreement. No proxy that is voted against the proposal to approve
and adopt the Merger Agreement will be voted in favor of any such adjournment
or postponement.
SOLICITATION OF PROXIES
In addition to solicitation of proxies from shareholders of PFB Common
by use of the mail, proxies also may be solicited personally or by telephone
by directors, officers and employees of PFB, who will not be specifically
compensated for such services.
NCBE has agreed to bear the entire cost of printing this Proxy
Statement/Prospectus and all filing fees paid to the Securities and Exchange
Commission (the "SEC") and other regulatory filing fees incurred in
connection with the Merger.
THE MERGER
GENERAL
This section of the Proxy Statement/Prospectus describes certain aspects
of the proposed Merger, including the principal provisions of the Merger
Agreement. The following information is qualified in its entirety by
reference to the other information contained elsewhere in this Proxy
Statement/Prospectus, including the Appendices hereto and the documents
incorporated herein by reference. A copy of the Merger Agreement (excluding
the Disclosure Schedule
10
<PAGE>
thereto) is attached hereto as Appendix A and is incorporated by reference in
this Proxy Statement/Prospectus. Included as Exhibit A in Appendix A is the
Merger Agreement to be entered into between Interim and PFB and joined in by
NCBE (the "Interim Merger Agreement") relating to the merger of Interim into
PFB. Shareholders of PFB are urged to read Appendix A in its entirety.
BACKGROUND OF THE MERGER
In August 1997, the PFB Board of Directors considered strategic
alternatives to enhance shareholder value, including the possible acquisition
of PFB by a larger financial institution.
During September 1997, PFB was contacted by NCBE and another financial
institution, both of which indicated they desired to make an acquisition
proposal. In response thereto, PFB contacted PBS regarding representation of
PFB in any acquisition.
In November 1997, PFB reviewed with PBS proposals from two financial
institutions, including NCBE, to acquire PFB. The Board of Directors of PFB
determined to proceed with NCBE, subject to the satisfactory resolution of
certain accounting issues. PBS was instructed to negotiate certain financial
terms with NCBE, and the parties began exchanging documents and other
information and conducting on-site due diligence.
In March 1998, NCBE completed its due diligence review of PFB.
Thereafter, the companies' representatives negotiated the terms and
conditions of a definitive Merger Agreement.
On May 21, 1998, the PFB Board of Directors received a fairness opinion
of PBS (see -- "Fairness Opinion") and approved the Merger Agreement.
REASONS FOR THE MERGER
The PFB Board has approved the Merger Agreement and determined that the
Merger is fair to, and in the best interests of, PFB and its shareholders.
In reaching its determination, the PFB Board consulted with its financial
advisor with respect to the financial aspects and fairness of the Merger.
The PFB Board of Directors also considered a number of additional
factors in approving the Merger Agreement, including the following:
(i) The difficulty of achieving appropriate levels of profitability
and growth necessary for continued independence in view of the increasing
competition and regulatory burdens affecting smaller financial
institutions.
(ii) The financial advice rendered by PFB's financial advisor that
the Merger Consideration is fair, from a financial point of view, to the
PFB shareholders. See "--Fairness Opinion."
(iii) The expectation that the Merger will constitute a nontaxable
transaction for PFB's shareholders (other than those shareholders, if
any, who exercise dissenters' rights of appraisal under federal law).
See "--Certain Federal Income Tax Consequences."
(iv) The larger asset size of NCBE, which enables NCBE to support the
staff and technology necessary to offer products and services currently not
offered by PFB. The resulting financial institution should be in an
enhanced competitive position. PFB's shareholders should benefit from
their investment in a larger, more competitive and efficient organization
and possibly from a more liquid market for the NCBE Common acquired in the
Merger. The PFB Board also believes that, as a result of NCBE's size and
its customer service orientation, PFB's customers and market area will
benefit from the Merger.
(v) The employment prospects for the employees of PFB at NCBE.
11
<PAGE>
The PFB Board did not assign any specific weight or priority to the factors
it considered.
FAIRNESS OPINION
GENERAL. Professional Bank Services, Inc. ("PBS") was engaged by PFB to
advise the Board of Directors as to the fairness of the Merger Consideration,
from a financial perspective, to be paid by NCBE to PFB's shareholders. PBS
is a bank consulting firm with offices in Louisville, Chicago, Nashville and
Washington, D.C. Investment Bank Services, Inc. ("IBS") was retained to serve
as PFB's investment banker in order to evaluate and facilitate the possible
sale of PFB. As part of its investment banking business, PBS is regularly
engaged in reviewing the fairness of financial institution acquisition
transactions from a financial perspective and in the valuation of financial
institutions and other businesses and their securities in connection with
mergers, acquisitions, estate settlements, and other transactions. Neither
PBS nor any of its affiliates has a material financial interest in PFB or
NCBE. PBS and IBS were selected to advise the Board of Directors based upon
their familiarity with Kentucky financial institutions and knowledge of the
financial institution industry as a whole.
PBS performed certain analyses described herein and discussed the range
of values for PFB resulting from such analyses with the Board of Directors in
connection with PBS's advice as to the fairness of the consideration to be
paid by NCBE.
A Fairness Opinion of PBS was delivered to the Board of Directors on May
21, 1998, at a special meeting of the Board of Directors. A copy of the
Fairness Opinion, which includes a summary of the assumptions made and
information analyzed in deriving the Fairness Opinion, together with a letter
dated the date of this Proxy Statement/Prospectus reaffirming such opinion
are attached as Appendix B and should be read in their entirety.
In arriving at its Fairness Opinion, PBS reviewed certain publicly
available business and financial information relating to PFB and NCBE. PBS
considered certain financial and stock market data of PFB and NCBE, compared
that data with similar data for certain other publicly-held bank and thrift
holding companies and considered the financial terms of certain other
comparable thrift transactions that had recently been effected. PBS also
considered such other information, financial studies, analyses and
investigations, and financial, economic and market criteria that it deemed
relevant. In connection with its review, PBS did not independently verify the
foregoing information and relied on such information as being complete and
accurate in all material respects. Financial forecasts prepared by PBS were
based on assumptions believed by PBS to be reasonable and to reflect
currently available information. PBS did not make an independent evaluation
or appraisal of the assets of PFB or NCBE. PBS took into consideration the
results of indications of interest from other financial institutions
concerning their interest in affiliation with PFB. PBS reviewed the
correspondence and information received from such financial institutions
regarding an interest in a merger or acquisition of PFB. PBS reviewed all
offers received by PFB.
As part of preparing this Fairness Opinion, PBS performed a due
diligence review of NCBE. As part of the due diligence, PBS reviewed the
following items: minutes of the Board of Directors Meeting from January 17,
1996 through January 21, 1998; reports filed with the Securities and Exchange
Commission by NCBE on forms 10-K, 8-K and 10-Q for the years ended December
31, 1995, 1996, 1997 and year to date 1998; reports of independent auditors
and management letters and response thereto, for the year ended December 31,
1996; the most recent analysis and calculation of allowance for loan and
lease losses for each subsidiary bank; internal loan review reports;
investment portfolio activity reports; asset quality reports; Uniform Holding
Company Report for NCBE for December 31, 1996 and 1997; December 31, 1997
Reports of Condition and Income and September 30, 1997 Uniform Bank or Thrift
Performance Report for each subsidiary bank; discussion of pending
litigation, the Year 2000 issue and other issues with senior management of
NCBE.
PBS reviewed and analyzed the historical performance of PFB, as set
forth in: PFB's Annual Reports as of December 31, 1996 and 1997; December 31,
1997 Consolidated Reports of Condition and Income filed by PFB with the OTS;
December 31, 1997 Uniform Thrift Performance Report of PFB; and the premises
and other fixed assets of PFB. PBS reviewed and tabulated statistical data
regarding the loan portfolio, securities portfolio and other performance
12
<PAGE>
ratios and statistics. Financial projections were prepared and analyzed as
well as other financial studies, analyses and investigations as deemed
relevant for the purposes of this opinion. In reviewing the aforementioned
information, PBS took into account its assessment of general market and
financial conditions, experience in other transactions and knowledge of the
banking industry generally.
In connection with rendering the Fairness Opinion and preparing its
various written and oral presentations to the Board of Directors, PBS
performed a variety of financial analyses, including those summarized herein.
The summary does not purport to be a complete description of the analyses
performed by PBS in this regard. The preparation of a Fairness Opinion
involves various assumptions as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances, and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, notwithstanding the separate factors
summarized below, PBS believes that its analyses must be considered as a
whole and that selecting portions of its analyses and factors could create an
incomplete view of the evaluation process underlying its Fairness Opinion. In
performing its analyses, PBS made numerous assumptions with respect to
industry performance, business and economic conditions and other matters,
many of which are beyond PFB's or NCBE's control. The analyses performed by
PBS are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses.
In addition, analyses relating to the values of businesses do not purport to
be appraisals or to reflect the process by which businesses actually may be
sold.
ACQUISITION COMPARISON ANALYSIS. PBS reviewed thrift acquisition
transactions in Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan,
Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and
Wisconsin (the "Midwest Region"). There were 207 thrift acquisition
transactions in the Midwest Region announced since 1990 for which detailed
financial information was available. The purpose of the analysis was to
obtain an evaluation range based on these Midwest Region thrift acquisition
transactions. Median multiples of earnings and book value implied by the
comparable transactions were utilized in obtaining a range for the
acquisition value of PFB. In addition to reviewing recent Midwest Region
thrift transactions, PBS performed separate comparable analyses for
acquisition of Midwest Region thrifts which, like PFB, had an equity-to-asset
ratio between 12.5% and 15.0%, assets less than $50.0 million, a return on
equity between 6.0% and 8.0%, a return on average assets between .90% and
1.10%, were located in Kentucky, or were announced since January 1, 1996.
Median values for the 207 Midwest Region acquisitions expressed as multiples
of both book value and earnings were 1.42X and 16.90X, respectively. The
median multiples of book value and earnings for acquisition of Midwest Region
thrifts with equity-to-asset ratios between 12.5% and 15.0% were 1.33X and
20.42X, respectively. For acquisitions of Midwest Region thrifts with assets
less than $50.0 million, the median multiples of book value and earnings were
1.28X and 23.54X, respectively. Median multiples for Midwest Region thrifts
with a return on equity between 6.0% and 8.0% were 1.45X and 19.32X,
respectively. For acquisitions of Midwest Region thrifts with a return on
average assets between 0.90% and 1.10%, the median multiples of book value
and earnings were 1.53X and 14.48X, respectively. The median multiples of
book value and earnings for the acquisition of thrifts located in Kentucky
were 1.28X and 16.42X, respectively. In those transactions which were
announced since January 1, 1996, the median multiples of book value and
earnings were 1.52X and 24.52X, respectively.
In the proposed transaction, PFB shareholders will receive 0.7424 shares
of NCBE common stock per share of PFB common stock. On May 21, 1998, the
closing price for NCBE common stock on the National Association of Securities
Dealers Automated Quotation Systems was $38.75 per share. Using this average
price of $38.75 per share of NCBE common stock, the proposed consideration to
be received represents an aggregate value of $8,240,653 or $28.77 per share
of PFB common stock. This represents a multiple of PFB's March 31, 1998
adjusted book value and multiple of annualized adjusted earnings for the six
months ending March 31, 1998 of 1.76X and 23.08X, respectively.
The market value of the proposed transaction's percentile ranking was
prepared and analyzed with respect to the above Midwest Region comparable
group. Compared to all Midwest Region thrift transactions, the acquisition
value ranked in the 82nd percentile as a multiple of book value and in the
76th percentile as a multiple of earnings. Compared to Midwest Region thrift
transactions where the acquired institution had an equity-to-asset ratio
between 12.5% and 15.0%, the acquisition value ranked in the 100th percentile
as a multiple of book value and in the 81st percentile as a multiple of
earnings. For Midwest Region thrift transactions where the acquired
institution had less than $50.0 million
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in assets, the acquisition value ranked in the 91st percentile as a multiple
of book value and in the 50th percentile as a multiple of earnings. For
Midwest Region thrift transactions where the acquired institution had a
return on equity between 6.0% and 8.0%, the acquisition value ranked in the
93rd percentile as a multiple of book value and in the 82nd percentile as a
multiple of earnings. For Midwest Region thrift transactions where the
acquired institution had a return on average assets between 0.90% and 1.10%,
the acquisition value ranked in the 77th percentile as a multiple of book
value and the 86th percentile as a multiple of earnings. For transactions
where the acquired institution was located in Kentucky, the acquisition value
ranked in the 83rd percentile as a multiple of book value and in the 64th
percentile as a multiple of earnings. For Midwest Region thrift transactions
that have been announced since January 1, 1996, the acquisition value ranked
in the 69th percentile as a multiple of book value and in the 49th percentile
as a multiple of earnings.
ADJUSTED NET ASSET VALUE ANALYSIS. PBS reviewed PFB's balance sheet
data to determine the amount of material adjustments required to the
stockholder's equity of PFB based on differences between the market value of
PFB's assets and their value reflected on PFB's financial statements. PBS
determined that two adjustments were warranted. Shareholders' equity was
decreased by $137,000 for the tax effected depreciation in the
held-to-maturity investment securities portfolio. PBS also reflected a value
of the non-interest bearing demand deposits of $172,000. The adjusted net
asset value was determined to be $16.48 per share of PFB common stock.
DISCOUNTED EARNINGS ANALYSIS. A dividend discount analysis was
performed by PBS pursuant to which a range of stand-alone values of PFB was
determined by adding the present value of estimated future dividend streams
that PFB could generate over a five-year period beginning in 1998 and ending
in 2002, and the present value of the "terminal value" of PFB's book value at
the end of the year 2002. The "terminal value" of PFB's book value at the end
of the five-year period was determined by applying a multiple of 1.42 times
the terminal year's projected ending book value. The 1.42X multiple
represents the median price paid as a multiple of book value for all Midwest
Region thrift transactions since 1990.
Dividend streams and terminal values were discounted to present values
using a discount rate of 12%. This rate reflects assumptions regarding the
required rate of return of holders or buyers of common stock. The value of
PFB, determined by adding the present value of the total cash flows, was
$18.99 per share. In addition, using the five-year projection as a base, a
twenty-year projection was prepared assuming an annual growth rate of 7% and
assuming return on assets reaches 1.50% by year eleven and remains constant
thereafter. Dividends also were assumed to be 50% of income for all of the
years of the analysis. This long-term projection resulted in a value of
$17.11 per share.
SPECIFIC ACQUISITION ANALYSIS. PBS valued PFB based on an acquisition
analysis assuming a "break-even" earnings scenario to an acquiror which
factored in price, current interest rates and amortization of the premium
paid. Based on this analysis, an acquiring institution would pay $21.30 per
share of common stock, assuming they were willing to accept no impact to
their net income in the initial year. If an overhead reduction of 10% were
assumed, an acquiring company would pay $22.52 per share of common stock.
This analysis was based on a funding cost of 6.5% adjusted for taxes,
amortization of the acquisition premium over 15 years and a projected
earnings level for PFB of $357,000 in 1998.
The Fairness Opinion is directed only to the question of whether the
consideration to be received by PFB's shareholders under the Acquisition
Agreement is fair and equitable from a financial perspective and does not
constitute a recommendation to any PFB shareholder to vote in favor of the
Merger. No limitations were imposed on PBS regarding the scope of its
investigation or otherwise by PFB or any of its affiliates.
Based on the results of the various analyses described above, PBS
concluded that the consideration to be received by PFB's shareholders under
the Acquisition Agreement is fair and equitable from a financial perspective
to the shareholders of PFB.
Pursuant to the terms of its agreement with PBS and IBS, PFB expects to
pay to PBS and IBS fees totaling 1.00% of the total consideration received.
In addition, PBS and IBS will be reimbursed for out-of-pocket expenses. Based
on a NCBE stock price of $38.75 per share, for example, PBS would receive
fees in the amount of approximately $82,400
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for all services performed in connection with the sale of PFB and the
rendering of the Fairness Opinion. In addition, PFB has agreed to indemnify
PBS and IBS and their directors, officers and employees, from liability in
connection with the Merger, and to hold PBS and IBS harmless from any losses,
actions, claims, damages, expenses or liabilities related to any PBS' or IBS'
acts or decisions made in good faith and in the best interest of PFB.
RECOMMENDATION OF PFB'S BOARD OF DIRECTORS
For the reasons described above, the Board of Directors of PFB believes
that the affiliation through the Merger of PFB with NCBE is in the best
interest of PFB and its shareholders and in the best interest of the
customers and communities that the Bank serves.
THE PFB BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF PFB
COMMON VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
Certain members of the management and Board of Directors of PFB have
interests in the Merger that are in addition to the interests of shareholders
of PFB generally. See "-- Interests of Certain Persons in the Merger."
CLOSING AND EFFECTIVE TIME
The Merger Agreement provides that, unless otherwise agreed and assuming
all conditions have been satisfied or waived, the closing of the Merger (the
"Closing") will be held on the date fixed by agreement of NCBE and PFB as
soon as practicable following the date on which all required approvals are
received and any required waiting periods have expired.
If the Merger Agreement is approved by the requisite vote of PFB
shareholders, all other conditions of the Merger Agreement are satisfied or
waived and the Closing is held, the Merger will become effective (the
"Effective Time") upon endorsement of the Articles of Combination by the
Secretary of the Office of Thrift Supervision ("OTS"). It is presently
contemplated that the Effective Time will occur during the fourth quarter of
1998. The Merger Agreement may be terminated by either party if, among other
things, the Closing does not occur on or before February 28, 1999. See
"--Termination and Waiver."
CONVERSION OF PFB COMMON
As a result of the Merger, each share of PFB Common issued and
outstanding immediately before the Effective Time, other than shares whose
holders have properly exercised their dissenters' rights under OTS
regulations, will be converted into the right to receive 0.7424 NCBE's common
shares, without par value ("NCBE Common"), and cash in lieu of fractional
shares as specified in the Merger Agreement.
The actual value of NCBE Common to be issued in the Merger cannot be
determined at this time since it will depend upon the value at the time the
merger is closed. The last reported sales price on October __, 1998 for NCBE
Common as reported by the Nasdaq Stock Market was $______. If the Merger was
closed on October __, 1998, the value of 0.7424 shares of NCBE Common would
have been $______.
No fractional shares of NCBE Common will be issued in the Merger and, in
lieu thereof, holders of shares of PFB Common who would otherwise be entitled
to a fractional interest of a share of NCBE Common (after taking into account
all shares of PFB Common held by such holder) will be paid an amount in cash
equal to the product of such fractional interest and the average of the means
between the highest and lowest per share trading prices for NCBE Common
reported by the Nasdaq National Market for the ten (10) trading days ended on
or prior to the fifth business day prior to the Closing. The shares of NCBE
Common to be issued in the Merger and cash paid in lieu of fractional
interests are referred to as the "Merger Consideration."
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PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of PFB Common into the right to receive the Merger
Consideration will occur by operation of law at the Effective Time. After
the Effective Time, certificates that represented shares of PFB Common before
the Effective Time will be deemed, for all corporate purposes other than the
payment of dividends and other distributions on such shares, to evidence
ownership of and entitlement to receive such shares of NCBE Common. Within
five (5) business days after the Effective Time, an exchange agent appointed
by NCBE (the "Exchange Agent") will send a transmittal letter and
instructions to each record holder of certificates for PFB Common whose
shares were converted into the right to receive the Merger Consideration,
advising such holder of the number of shares of NCBE Common such holder is
entitled to receive pursuant to the Merger Agreement, the amount of cash such
holder is due in lieu of a fractional share of NCBE Common, and the
procedures for surrendering PFB stock certificates in exchange for a
certificate for the number of whole shares of NCBE Common, and a check for
the cash amount (if any) such holder is entitled to receive in lieu of a
fractional share. The letter of transmittal will also specify that delivery
will be effected, and risk of loss and title to the certificates for PFB
Common will pass, only upon proper delivery of the certificates for PFB
Common to the Exchange Agent. The letter of transmittal will be in such form
and have such other provisions as the Merger Agreement contains and as NCBE
may reasonably specify. After the receipt by the Exchange Agent of a
holder's certificates for PFB Common, together with a duly executed letter of
transmittal and any other required documents, the Exchange Agent will deliver
to such holder the Merger Consideration such holder is entitled to receive
under the Merger Agreement. SHAREHOLDERS OF PFB ARE REQUESTED NOT TO
SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE THE LETTER OF
TRANSMITTAL. Unless and until the certificates for PFB Common are
surrendered, together with a duly executed letter of transmittal and any
other required documents, dividends or other distributions on the shares of
NCBE Common issuable with respect to such PFB Common, and cash payments for
fractional shares which would otherwise be payable will not be delivered to
the holders of such certificates. In such case, upon surrender of the
certificates for PFB Common, together with a letter of transmittal duly
executed and any other required documents, there will be delivered cash
payment for fractional shares and any dividends or other distributions on
such shares of NCBE Common with a record date following the Effective Time
that became payable between the Effective Time and the time of such
surrender. No interest on any such cash payment or dividends will accrue or
be paid.
If a certificate for PFB Common has been lost, the Exchange Agent will
issue the Merger Consideration properly upon receipt of an affidavit as to
such loss, and an indemnity agreement, if required by NCBE.
REGULATORY APPROVALS
NCBE agreed, in the Merger Agreement, to file all regulatory
applications to obtain the requisite regulatory approvals for the Merger.
The Merger cannot proceed in the absence of such regulatory approvals.
The Merger is subject to approval by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). The BHC Act provides that
the Federal Reserve Board may not approve any transaction (i) that would
result in a monopoly, or that would 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 (ii) the effect of which in any section
of the country may be substantially to lessen competition, or to tend to
create a monopoly, or that in any other manner would be in restraint of
trade, unless the Federal Reserve Board finds that the anticompetitive
effects of the proposed transaction 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. In conducting its review of any
application for approval, the Federal Reserve Board is required to consider
the financial and managerial resources and future prospects of the company or
companies and the banks concerned, and the convenience and needs of the
communities to be served. Under the BHC Act as interpreted by the Federal
Reserve Board and the courts, the Federal Reserve Board may deny any
application if it determines that the financial or managerial resources of
the acquiring bank holding company are inadequate.
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The Merger is also subject to approval by the OTS under the Bank Merger
Act, as amended (the "Merger Act"). The OTS will evaluate the merger
application under standards substantially the same as those applicable under
the BHC Act as described above.
NCBE filed an application with the Federal Reserve Board on June 26,
1998 and filed an application with the OTS on June 29, 1998. The Federal
Reserve Board approved the acquisition on August 5, 1998. The OTS approved
the acquisition on August 28, 1998.
The Merger may not be consummated until 30 days following regulatory
approval, during which time the Department of Justice ("DOJ") may challenge
the Merger on antitrust grounds and seek the divestiture of certain assets
and liabilities. With the approval of the regulatory agencies and the DOJ,
the waiting period may be reduced to no less than fifteen days. The
commencement of an antitrust action by the DOJ would stay the effectiveness
of regulatory approval unless a court specifically orders otherwise. In
reviewing the Merger, the DOJ could analyze the effect of the Merger on
competition differently than the Federal Reserve Board or the OTS and, thus,
it is possible that the DOJ could reach a different conclusion regarding the
competitive effects of the Merger.
DISSENTERS' RIGHTS
The rights of PFB shareholders who choose to dissent from the Merger are
governed by the provisions of regulations of the OTS (12 C.F.R. Section
552.4), which are attached hereto as Appendix C.
Pursuant to 12 C.F.R. Section 552.14, any shareholder of PFB will have
the right to demand payment of the fair or appraised value of his PFB Common,
exclusive of any element of value arising from the expectation or
accomplishment of the Merger. This right requires that the exact procedure
specified by 12 C.F.R. Section 552.14 be followed by dissenting shareholders.
Any PFB shareholder who intends to dissent from the Merger (i) must,
before the vote on the Merger, deliver a writing to PFB identifying himself
and stating his intention to demand appraisal of and payment for his PFB
Common, and (ii) must not vote his PFB Common in favor of the Merger. The
delivery of a written demand must be in addition to and separate from any
proxy or vote against the Merger by the shareholder. Shareholders who do not
satisfy these requirements are not entitled to rights to demand payment for
their PFB Common. A vote in favor of the proposed Merger will constitute a
waiver of the shareholder's dissenters' rights and a vote against the
proposed Merger will not itself satisfy the notice requirements of the
dissenters' rights regulation.
If the Merger is approved by the required vote, PFB must deliver, within
ten (10) days after the Effective Time, a written notice to each shareholder
who has properly delivered a written objection to the Merger and has not
voted for the Merger. The notice must (i) include PFB's offer to pay a
specific price for the dissenter's shares deemed by PFB to be the fair value
for those shares, and (ii) state that, within sixty (60) days of the
Effective Time, a dissenter demanding appraisal and payment must file a
petition with the OTS, with a copy of such petition to PFB. The notice to
shareholders must also explain that any dissenter must submit to the transfer
agent his certificates of stock for notation that an appraisal and payment
have been demanded and that proceedings are pending. The notice must also be
accompanied by a balance sheet and statement of income of PFB, for a fiscal
year ending not more than sixteen (16) months before the date of notice,
together with the latest available interim financial statements.
If the dissenter and PFB agree on the fair value of the dissenter's
shares within sixty (60) days of the Effective Time, PFB or its successor
must pay that amount within ninety (90) days of the Effective Time.
If the dissenter and PFB do not agree, the dissenter must file a
petition with the OTS demanding a determination of the fair market value of
his shares. A copy of this petition must also be delivered to PFB. If the
dissenter fails to file the petition within this 60-day period the dissenter
will be deemed to have accepted the terms offered in the Merger. The
dissenter must also submit his stock certificate(s) to the transfer agent for
notation within this 60-day period, or else the dissenter forfeits his rights
under 12 C.F.R. Section 552.14.
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At any time within sixty (60) days after the Effective Time, a dissenter
may withdraw his demand for appraisal and accept the terms offered in the
Merger. Any shareholder who properly demands appraisal rights under 12
C.F.R. Section 552.14 cannot, thereafter, vote his shares for any purpose,
and will not be entitled to receive payment of dividends or other
distributions (unless the dividends or other distribution were determined
before the Effective Time), UNLESS the shareholder becomes unentitled to
appraisal and payment of appraisal value or is otherwise deemed to have
accepted the terms of the Merger Agreement.
The Director of the OTS will appoint appropriate staff or independent
appraisers to appraise the dissenter's shares to determine their fair market
value as of the Effective Time, excluding any value arising from the
consummation or the expectation of the Merger. If the Director concurs in
the valuation, the Director will direct PFB or its successor to pay the
appraised fair market value, plus interest from the Effective Time, to
dissenters upon surrender of the stock certificates representing the
dissenters' shares. Payment shall be made, together with interest from the
Effective Time, at a rate deemed equitable by the Director.
The Director will apportion and assess any costs and expenses of any
proceeding under 12 C.F.R. Section 552.14 as the Director sees fit, after
considering whether a party has acted arbitrarily, vexatiously, or not in
good faith.
If the holders of more than approximately 9% of the outstanding shares
of PFB Common properly exercise their dissenters' rights, the Merger would
not qualify as a "pooling of interests" for accounting and financial
reporting purposes, which qualification is a condition to the obligation of
NCBE to proceed with the Merger. See "-- Accounting Treatment."
THE FOREGOING SUMMARY DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE
PROVISIONS OF FEDERAL LAW RELATING TO THE RIGHTS OF DISSENTING SHAREHOLDERS
OF PFB, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPENDIX C.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties of the parties. The representations and warranties made by NCBE
relate to, among other things: (i) the organization and corporate power of
NCBE, the authorization, execution and delivery of the Merger Agreement and
the Merger Agreement's noncontravention of charter documents, material
agreements, laws and regulations; (ii) the absence of any requirement to
obtain the approval of NCBE's shareholders in connection with the Merger;
(iii) capitalization; (iv) the delivery and accuracy of reports filed by NCBE
under the Exchange Act; (v) the conformity of financial statements in such
reports to generally accepted accounting principles ("GAAP"); (vi) the
absence of any undisclosed material liabilities and any material adverse
change in NCBE's financial condition, results of operations or business;
(vii) the absence of any litigation, claim, investigation, or other
proceeding which, if adversely determined, would have a material adverse
effect; (viii) the authorization and nonassessability of the shares of NCBE
Common to be issued in the Merger; (ix) the absence of any circumstances that
would prevent the Merger from qualifying as a pooling of interests or as a
reorganization for federal income tax purposes; (x) the absence of any
factor, other than the "needs improvement" rating (which has since been
improved to "satisfactory") assigned to NCBE's Year 2000 compliance efforts,
that would adversely affect regulatory approval of the Merger; and (xi) the
absence of any untrue statements or omissions of material fact on the part of
NCBE in the Merger Agreement and related documents.
The representations and warranties made by PFB relate to, among other
things: (i) the organization and corporate power of PFB, the capitalization
of PFB; (ii) the authorization, execution and delivery of the Merger
Agreement and the Merger Agreement's noncontravention of charter documents of
PFB; (iii) ownership and organization of subsidiaries; (iv) delivery of
financial statements of PFB and the conformity of such financial statements
to GAAP; (v) the filing of tax returns and payment of taxes; (vi) contracts,
commitments or other agreements in excess of $50,000 to which PFB is a party;
(vii) ownership of real estate; (viii) the absence of any material adverse
change in the business financial condition, properties, results of operations
or capitalization of PFB; (ix) the absence of any litigation, claim,
investigation or other proceeding which, if adversely determined, would have
a material adverse effect on the business
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or financial condition of PFB and the absence of any investigations, actions
or other legal proceedings involving any director, officer or employee of
PFB; (x) insurance; (xi) substantial compliance with applicable laws and
regulations; (xii) the absence of any obligation to pay broker's or finder's
fees in connection with the Merger except to Professional Bank Services,
Inc.; (xiii) compliance of employee benefit plans with applicable laws, rules
and regulations; (xiv) labor-related matters; (xv) the absence of knowledge
of certain environmental related conditions or events; (xvi) the absence of
enforcement actions and other regulatory related matters; (xvii) the absence
of any circumstances that would prevent the Merger from qualifying as a
pooling of interests or as a reorganization for federal income tax purposes;
and (xviii) the absence of any untrue statements or omissions of material
fact on the part of PFB in the Merger Agreement and related documents.
COVENANTS
The Merger Agreement contains covenants that the parties will take or
refrain from taking certain actions prior to the Effective Time. As to NCBE,
these covenants include, among other things, agreements to: (i) file, at its
sole expense, and prepare all regulatory applications required to consummate
the Merger, keep PFB informed of the status of such applications and use its
best efforts to remedy any Year 2000 compliance issues raised by regulatory
agencies; (ii) file a Registration Statement on Form S-4 with the Commission
relating to the shares of NCBE Common to be issued in the Merger; (iii) use
its best efforts to list the shares of NCBE Common to be issued in the Merger
on the Nasdaq National Market; (iv) provide PFB with access during regular
business hours to books and records relating to NCBE's assets, properties,
operations and liabilities; (v) use its best efforts to complete the
formation of Interim and cause Interim to approve and enter into the Interim
Merger Agreement; (vi) not knowingly take any action that would adversely
affect the ability to account for the Merger as a pooling of interests or to
qualify as a reorganization for federal income tax purposes or that would
adversely affect regulatory approval of the Merger; (vii) notify PFB of any
event that may reasonably have a material adverse effect on NCBE or if NCBE
determines it may be unable to fulfill the conditions to the Merger; (viii)
indemnify PFB directors and officers for certain liabilities after the
Effective Time of the Merger (see "-- Interests of Certain Persons in the
Merger"); (ix) make available adequate current public information about NCBE
within the meaning of Rule 144(c) under the Securities Act; and (x) take
certain actions with respect to PFB's and NCBE's employee benefit and welfare
plans.
The covenants made by PFB include, among other things, agreements by PFB
to: (i) conduct its business in the ordinary course, not default in any
obligations under material contracts, maintain insurance and existing
business organization and relationships; and comply with applicable laws;
(ii) notify NCBE of any event that may have a material adverse effect on the
financial condition, operations, business or assets of PFB or would interfere
with PFB's ability to satisfy any conditions to its obligation to consummate
the Merger; (iii) not incur any obligation or liability other than in the
ordinary course of business, amend any material contract, acquire any
interest in another entity, sell or dispose of real property, expand or
enhance its data processing system, make any loan, commitment or line of
credit to a single borrower in excess of $500,000, make any capital
expenditures except for repairs, renewals or replacements in excess of
$25,000 individually or $100,000 in the aggregate, issue, sell or redeem any
capital stock of PFB, pay cash dividends on the PFB Common other than, if the
Effective Time occurs after December 31, 1998, an amount not to exceed PFB's
net income for the year ended September 30, 1998, amend the Charter or bylaws
of PFB (other than the Charter Amendment), enter into, amend or extend any
employment agreement, pay any extraordinary bonus, establishing any general
increase in salaries, compromise or settle a tax claim, open a new office,
close any existing office, or knowingly take any action that would adversely
affect the ability to account for the Merger as a pooling of interests; (iv)
not modify its practices relating to loans to directors, officers and
employees; (v) not knowingly violate any laws, regulations, judgments or
orders; (vi) maintain all books and records in accordance with GAAP; (vii)
provide NCBE with access during regular business hours to books and records
relating to PFB's assets, properties, operations and liabilities; (viii)
provide NCBE with copies of certain reports to the Board of Directors of PFB
and monthly financial statements and confer with NCBE on the general status
of ongoing operations; (ix) notify NCBE of any material change in operations
or certain complaints, investigations or threatened litigation; (x) furnish
NCBE with the information in PFB's possession that is required for any
regulatory applications in connection with the Merger; (xi) obtain and
deliver to NCBE at least 31 days prior to the Closing, an agreement from each
person who may reasonably be deemed an "affiliate" of PFB for purposes of
Rule 145 under the Securities Act, an agreement regarding compliance with
Rule 145
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and restricting transfers of NCBE Common following the Merger; (xii) cause a
special meeting of PFB shareholders to be held and recommend approval of the
Merger Agreement, the Merger and the Charter Amendment; (xiii) take certain
actions with respect to PFB's employee stock ownership plan; and (xiv)
execute the Interim Merger Agreement.
CONDITIONS TO THE MERGER
In addition to the approval of the Merger and the Charter Amendment by
PFB shareholders, the obligations of both parties to consummate the Merger
are subject to the satisfaction or waiver of certain other conditions,
including, among others: (i) that all required regulatory approvals have been
obtained; (ii) that no action or proceeding has been commenced to restrain
the Merger; (iii) the absence of any notice from any governmental agency
indicating that the Merger would violate any law; (iv) the effectiveness of
the Registration Statement and the absence of a stop order with respect
thereto; and (v) the receipt of an opinion of Baker & Daniels to the effect
that the Merger will constitute a tax-free reorganization.
The obligation of NCBE to consummate the Merger is further conditioned
on the following: (i) the continued accuracy in all material respects of the
representations and warranties of PFB in the Merger Agreement, the
performance or satisfaction in all material respects of all covenants to be
performed by PFB under the Merger Agreement, and the absence of any material
adverse change prior to Closing in the business, assets, properties,
financial condition or results of operations of PFB; (ii) the receipt of
opinions of counsel to PFB as to certain matters relating to PFB and the
Merger; and (iii) the determination by NCBE that the Merger may be accounted
for as a pooling of interests.
The obligation of PFB to consummate the Merger is further conditioned on
the following: (i) the continued accuracy in all material respects of the
representations and warranties of NCBE in the Merger Agreement, the
performance or satisfaction in all material respects of all covenants to be
performed by NCBE under the Merger Agreement and the absence of any material
adverse change prior to the Closing in the business assets, properties,
financial conditions of NCBE and its subsidiaries, taken as a whole; (ii) the
receipt of opinions of counsel to NCBE as to certain matters relating to NCBE
and the Merger; (iii) the listing on the Nasdaq Stock Market of the shares of
NCBE Common to be issued on the Merger; and (iv) the receipt, as of the date
of mailing this Proxy Statement/Prospectus of an opinion from its financial
advisor to effect that the Merger Consideration is fair, from a financial
viewpoint, to the PFB shareholders.
TERMINATION AND WAIVER
The Merger Agreement may be terminated and the Merger abandoned prior to
the Effective Time, before or after approval of the Merger Agreement by the
PFB shareholders: (i) by mutual consent of PFB and NCBE; (ii) by PFB if PFB
or its Board of Directors accepts or approves a "Competing Transaction";
(iii) by NCBE, if any of the conditions to its obligation to consummate the
Merger have not been satisfied by February 28, 1999; or (iv) by PFB, if any
of the conditions to its obligation to consummate the Merger have not been
satisfied by February 28, 1999.
PFB and NCBE may, by written instrument, amend or modify the Merger
Agreement in whole or in part, or waive compliance with any of the covenants
or conditions of the Merger Agreement, before or after approval of the Merger
Agreement by the PFB shareholders, to the extent authorized by applicable law.
NO SOLICITATION; FEES AND EXPENSES
The Merger Agreement prohibits PFB, and its officers, directors and
representatives, from soliciting or authorizing the solicitation of inquiries
or proposals from third parties regarding an acquisition of PFB or all or
substantially all of its assets, unless PFB's Board of Directors has
reasonably determined, based on the written advice of counsel, that the
failure to do so would breach its fiduciary duties. The foregoing
prohibition also extends to conducting discussions or negotiations with third
parties or furnishing confidential information to any person relating to an
acquisition proposal. PFB is required to communicate to NCBE the terms of
any such proposal.
20
<PAGE>
Except as described below or as otherwise expressly provided in the
Merger Agreement, each party is to pay its own fees and expenses incurred in
connection with the Merger, the Merger Agreement and the transactions
contemplated therein.
Upon the occurrence of a Triggering Event, PFB is required to reimburse
NCBE for all out-of-pocket expenses incurred by NCBE in connection with the
transactions contemplated by the Merger Agreement up to a maximum of
$150,000. "Triggering Event" means the termination of the Merger Agreement
for any reason other than certain specified conditions to the Merger and the
occurrence of any of the following events within one year: (i) PFB enters
into an agreement with a third party for a Competing Transaction; (ii) the
recommendation of a Competing Transaction by the PFB Board of Directors; or
(iii) the withdrawal or modification of the recommendation of the Merger
Agreement by the PFB Board of Directors following the announcement of a
Competing Transaction. "Competing Transaction" means any of the following
(other than the transactions contemplated by the Merger Agreement): (i) an
offer for 25% or more of the outstanding capital stock of PFB; (ii) a
proposal for a merger, consolidation, share exchange, business combination or
similar transaction involving PFB; or (iii) a proposal for the sale, lease,
exchange or other disposition of 25% or more of PFB's assets.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the Merger to certain PFB shareholders and does not purport
to be a complete analysis or listing of all potential tax considerations or
consequences relevant to a decision whether to vote for the approval of the
Merger Agreement. The discussion does not address all aspects of federal
income taxation that may be applicable to PFB shareholders in light of their
status or personal investment circumstances, nor does it address the federal
income tax consequences of the Merger that are applicable to PFB shareholders
subject to special federal income tax treatment including, without
limitation, foreign persons, insurance companies, tax-exempt entities,
retirement plans, dealers in securities, persons who acquired their PFB
Common pursuant to the exercise of employee stock options or otherwise as
compensation. In addition, the discussion does not address the effect of any
applicable state, local or foreign tax laws, or the effect of any federal tax
laws other than those pertaining to the federal income tax. As a result,
each PFB shareholder is urged to consult his or her own tax advisor to
determine the specific tax consequences of the Merger to such shareholder.
The discussion assumes that shares of PFB Common are held as capital assets
(within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"), at the Effective Time.
It is a condition to the Merger that as of the Closing the parties
receive an opinion from Baker & Daniels, counsel to NCBE ("Counsel"), to the
effect that, assuming the Merger occurs in accordance with the Merger
Agreement, the Merger will constitute a reorganization for federal income tax
purposes under Section 368(a) of the Code, with the following federal income
tax consequences:
(i) PFB shareholders will recognize no gain or loss as a result of
the exchange of their PFB Common solely for shares of NCBE Common pursuant
to the Merger, except with respect to cash received in lieu of fractional
share interests, if any, as discussed below.
(ii) The aggregate adjusted tax basis of the shares of NCBE Common
received by each PFB shareholder in the Merger (including any fractional
share of NCBE Common deemed to be received, as described in paragraph (iv)
below) will be equal to the aggregate adjusted tax basis of the shares of
PFB Common surrendered.
(iii) The holding period of the shares of NCBE Common received by
each PFB shareholder in the Merger (including any fractional share of NCBE
Common deemed to be received, as described in paragraph (iv) below) will
include the holding period of the shares of PFB Common exchanged therefor.
(iv) An PFB shareholder who receives cash in lieu of a fractional
share of NCBE Common will be treated as if the fractional share had been
received by such shareholder in the Merger and then redeemed by NCBE in
return for the cash amount. The receipt of such cash will cause the
recipient to recognize capital gain or loss equal
21
<PAGE>
to the difference between the amount of cash received and the portion of
such holder's adjusted tax basis in the shares of NCBE Common allocable
to the fractional share.
(v) Cash received by PFB shareholders exercising dissenters' rights
will be treated as (a) a distribution in full payment of such shares,
resulting in capital gain or loss, or (b) ordinary income, as the case may
be, depending upon such shareholder's individual situation.
Counsel's opinion will be subject to certain conditions and customary
assumptions and will rely upon various representations made by NCBE, PFB and
certain shareholders of PFB. If any of these representations or assumptions
is inaccurate, the tax consequences of the Merger could differ from those
described herein. Counsel's opinion will also be based upon the Code,
regulations proposed or promulgated thereunder, judicial precedent relating
thereto, and current administrative rulings and practice, all of which are
subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences discussed herein. An opinion of counsel,
unlike a private letter ruling from the Internal Revenue Service ("Service"),
has no binding effect. The Service could take a position contrary to
Counsel's opinion and, if the matter were litigated, a court could reach a
decision contrary to the opinion. Neither NCBE nor PFB has requested an
advance ruling as to the federal income tax consequences of the Merger, and
the Service is not expected to issue such a ruling.
Based upon the advice of Counsel, the parties believe that the Merger
will qualify as a reorganization for federal income tax purposes.
Accordingly, the material federal income tax consequences to a holder of PFB
Common will be as described in (i) through (v) above.
THE FOREGOING IS A GENERAL SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO SHAREHOLDERS OF PFB WITHOUT REGARD TO THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX SITUATION AND
STATUS. EACH SHAREHOLDER OF PFB SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX
LAWS AND THE POSSIBLE EFFECT OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Merger is expected to qualify as a "pooling of interests" for
accounting and financial reporting purposes. Under this method of
accounting, the assets and liabilities of NCBE and PFB will be carried
forward after the Effective Time into the consolidated financial statements
of NCBE at their recorded amounts, the consolidated income of NCBE will
include income of NCBE and PFB for the entire fiscal year in which the Merger
occurs, the separately reported income of NCBE and PFB for prior periods will
be combined and restated as consolidated income of NCBE, and no goodwill will
be recognized.
The Merger Agreement provides that a condition to the obligation of NCBE
to consummate the Merger is that NCBE determine that the Merger will qualify
as a pooling of interests. In the event such condition is not met, the
Merger would not be consummated unless the condition was waived by NCBE. As
of the date of this Proxy Statement/Prospectus, NCBE and PFB are not aware of
any existing facts or circumstances which would preclude the Merger from
qualifying as a pooling of interests.
The unaudited pro forma financial information contained in this Proxy
Statement/Prospectus has been prepared using the pooling of interests
accounting method to account for the Merger.
RESALE OF NCBE COMMON
The shares of NCBE Common issuable pursuant to the Merger will be freely
transferable under the Securities Act except for shares issued to any PFB
shareholder who may be deemed to be an "affiliate" of NCBE for purposes of
22
<PAGE>
Rule 144 under the Securities Act or an "affiliate" of PFB for purposes of
Rule 145 under the Securities Act. Persons who may be deemed to be
affiliates of PFB or NCBE generally include individuals who, or entities
which, control, are controlled by or are under common control with PFB or
NCBE and will include directors and certain officers of PFB and NCBE and may
include principal shareholders of PFB and NCBE, if any.
Rules 144 and 145 under the Securities Act will restrict the sale of
NCBE Common received in the Merger by affiliates and certain of their family
members and related interests. Generally, during the first year following
the Effective Time, those persons who are affiliates of PFB at the time of
the Special Meeting, provided they are not affiliates of NCBE at or following
the Effective Time, may publicly resell any NCBE Common received by them in
the Merger, subject to certain limitations as to, among other things, the
amount of NCBE Common sold by them in any three-month period and as to the
manner of sale. After the one year period, such affiliates may resell their
shares without such restrictions so long as there is adequate current public
information with respect to NCBE as required by Rule 144 under the Securities
Act.
The ability of affiliates to resell shares of NCBE Common received in
the Merger under Rule 144 or 145 under the Securities Act generally will be
subject to NCBE's having satisfied its Exchange Act reporting requirements
for specified periods prior to the time of sale. Affiliates also would be
permitted to resell shares of NCBE Common received in the Merger that have
been registered under the Securities Act or are otherwise exempt from the
Securities Act registration requirements.
Guidelines of the Commission regarding qualifying for the pooling of
interests method of accounting also limit sales of shares of the acquiring
and acquired company by affiliates of either company in a business
combination. Guidelines of the Commission indicate further that the pooling
of interests method of accounting will generally not be challenged on the
basis of sales by affiliates of the acquiring or acquired company if they do
not dispose of any of the shares of the corporation they own or shares of a
corporation they receive in connection with a merger during the period
beginning 30 days before the merger and ending when financial results
covering at least 30 days of post-merger operations of the combined entity
have been published.
The Merger Agreement provides that PFB will obtain and deliver to NCBE
an agreement from each person who may reasonably be deemed an affiliate of
PFB providing that such affiliate will not transfer any shares of NCBE Common
received in the Merger except in compliance with the Securities Act and in
compliance with the requirements described in the preceding paragraph
regarding the non-disposition of any shares of PFB Common or NCBE Common (or
any interest therein) during the period commencing 30 days prior to the
Effective Time through the date on which financial results covering at least
30 days of combined operations of NCBE and PFB after the Merger have been
published.
This Proxy Statement/Prospectus does not cover resales of shares of NCBE
Common received by any person who may be deemed to be an affiliate of PFB or
NCBE.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the PFB Board of Directors have certain interests in
the transactions contemplated by the Merger Agreement that are in addition to
their interests as PFB shareholders, including those referred to below.
NCBE has agreed to issue substitute nonqualified stock options for any
options to acquire shares of PFB Common that are outstanding and unexercised
immediately prior to the Effective Time. Messrs. Wadlington and Mansfield
hold options to acquire 12,431 and 3,818 shares of PFB Common, respectively.
However, all outstanding options are expected to be exercised prior to the
Effective Time.
NCBE has also agreed to honor the employment agreements between PFB and
Messrs. Wadlington and Mansfield, respectively, on their current terms and
conditions.
23
<PAGE>
NCBE has agreed to indemnify and hold harmless the present and former
directors, officers, employees and agents of PFB and the Bank against all
liabilities arising out of actions or omissions occurring at or prior to the
Effective Time to the fullest extent permitted by the regulations of the OTS,
the charter documents of PFB, including provisions relating to advancement of
expenses. NCBE has also agreed to pay the reasonable costs, including
attorneys' fees, that any indemnified person incurs in enforcing the
indemnity provisions of the Merger Agreement.
RELATED CHARTER AMENDMENT
Section 8.A. (Beneficial Ownership Limitation) of PFB's Federal Stock
Charter provides that, for five years from the date of consummation of the
conversion of PFB from the mutual to the stock form (i.e., until May 9,
1999), no person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of
PFB. As used in Section 8.A., the term "acquire" includes every type of
acquisition, whether effected by purchase, exchange, operation of law or
otherwise. As a result, Section 8.A. in its current form would not allow the
Merger to take place until May 9, 1999. Therefore, in connection with its
approval of the Merger Agreement, the Board of Directors has undertaken to
recommend to shareholders and use its best efforts to obtain shareholder
approval of an amendment of Section 8 in order to permit the consummation of
the Merger.
In accordance with applicable federal regulations, Section 8.A. was
included in PFB's Federal Stock Charter in connection with PFB's conversion
from the mutual to the stock form and became effective upon the completion of
such conversion. The provision was intended to reduce PFB's vulnerability to
takeover attempts during the period following conversion to stock from and to
assist in the orderly deployment of the proceeds from the sale of the PFB
Common in such conversion. The Board of Directors proposes to amend Section
8 of PFB's Federal Stock Charter to delete Section 8.A. in its entirety
effective at, and contingent upon, consummation of the Merger so that Section
8.A. will not prevent consummation of the Merger. If the Charter Amendment
is approved by the requisite vote of the shareholders, it will not become
effective until the consummation of the Merger. A copy of Section 8 of PFB's
Federal Stock Charter is attached hereto as Appendix D.
The Charter Amendment must be preliminarily approved by the OTS and then
approved by PFB's shareholders by the affirmative vote of at least a majority
of the total votes eligible to be cast at the Special Meeting. Such
amendment thereafter will become effective when filed with the OTS. PFB has
applied for and received OTS preliminary approval of the Charter Amendment.
In the event the Merger Agreement is not approved by PFB's shareholders, the
Merger Agreement is terminated or the Merger is otherwise not consummated,
the Board of Directors will not seek final effectiveness of the amendment to
Section 8 of the Federal Stock Charter.
The Board of Directors recommends a vote FOR the proposal to amend
Section 8 of PFB's Federal Stock Charter by deleting Section 8.A. (Beneficial
Ownership Limitation) effective at and contingent upon consummation of the
Merger.
24
<PAGE>
SELECTED FINANCIAL DATA
The following tables present selected supplemental consolidated
historical financial data for NCBE. The data have been restated to include
the results of acquisitions made through August 31, 1998 which have been
accounted for as poolings of interests. The data presented are derived from
the supplemental consolidated financial statements of NCBE and should be read
in conjunction with the more detailed information and financial statements
incorporated by reference in this Proxy Statement/Prospectus. See "WHERE YOU
CAN FIND MORE INFORMATION."
NCBE - HISTORICAL
(Dollar amounts other than per share data in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------- -----------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net interest income $ 35,920 $ 32,384 $ 66,083 $ 61,916 $ 56,418 $ 50,403 $ 47,190
Provision for loan losses 1,876 770 2,185 3,234 335 236 1,115
------- ------- ------- ------- ------- ------- -------
Net interest income 34,044 31,614 63,898 58,682 56,083 50,167 46,075
Noninterest income 7,800 5,952 12,214 10,730 8,961 6,793 8,094
Noninterest expense 23,926 20,133 42,759 38,223 36,636 35,917 35,124
------- ------- ------- ------- ------- ------- -------
Income before income taxes 17,918 17,433 33,353 31,189 28,408 21,043 19,045
Income taxes 5,485 5,365 9,770 9,960 9,668 7,002 5,913
------- ------- ------- ------- ------- ------- -------
Net income $ 12,433 $ 12,068 $ 23,583 $ 21,229 $ 18,740 $ 14,041 $ 13,132
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
PER SHARE DATA
Net income per share
Basic $ 0.92 $0.90 $ 1.76 $ 1.57 $ 1.36 $ 1.02 $ 0.95
Diluted 0.91 0.89 1.74 1.56 1.36 1.02 0.95
Book value 13.85 12.09 13.34 12.17 11.18 9.82 9.87
Cash dividends 0.33 0.29 0.59 0.55 0.35 0.30 0.26
SUMMARY OF FINANCIAL
CONDITION
Total assets $1,832,953 $1,553,391 $1,613,416 $1,468,426 $1,367,266 $1,240,258 $1,225,182
Securities 356,323 358,509 342,726 344,365 330,091 334,388 337,687
Loans, net 1,286,299 1,063,317 1,110,770 992,627 911,607 786,509 704,936
Deposits 1,420,321 1,200,159 1,226,123 1,159,639 1,101,179 1,052,403 1,045,404
Shareholders' equity 187,123 159,742 179,431 157,517 155,095 134,624 131,498
SELECTED FINANCIAL RATIOS
Net income to average assets 1.41% 1.60% 1.52% 1.51% 1.45% 1.15% 1.08%
Net income to average equity 13.73% 15.18% 14.12% 13.55% 12.55% 10.57% 9.99%
Cash dividend payout ratio 35.85% 31.96% 33.49% 33.42% 25.76% 28.90% 26.77%
Average equity to average assets 10.27% 10.55% 10.79% 11.14% 11.53% 10.92% 10.85%
Weighted average shares (basic) 13,485,787 13,346,924 13,393,573 13,561,441 13,818,720 13,764,145 13,869,519
Weighted average shares (diluted) 13,638,444 13,485,340 13,556,688 13,573,403 13,826,513 13,771,938 13,877,312
</TABLE>
25
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following tables contain unaudited pro forma condensed consolidated
financial statements including a balance sheet as of June 30, 1998, and
statements of earnings for the six months ended June 30, 1998 and the years
ended December 31, 1997, 1996, and 1995. These statements present
information for NCBE and on a pro forma combined basis giving effect to the
Merger (A) as of June 30, 1998 for the Other Pooling Acquisitions (defined as
acquisitions pending as of August 31, 1998 which are expected to be accounted
for as poolings of interests, see "INFORMATION CONCERNING NCBE -- Recent
Developments") and (B) for all prior periods, the Other Pooling Acquisitions.
As further described in "INFORMATION CONCERNING NCBE -- Recent
Developments," NCBE has consummated the Purchase Transactions and the
Completed Pooling Acquisitions. The Purchase Transactions are not
individually or in the aggregate considered material to NCBE from a financial
statement presentation standpoint, and the pro forma data do not include the
Purchase Transactions (except to the extent they are reflected in NCBE's six
month information). The historical data for NCBE have been restated to
include the results of the Completed Pooling Acquisitions. The data
presented are not necessarily indicative of the results of the future
operations of the combined organization or the actual results that would have
occurred if the Merger or Other Pooling Acquisitions had been consummated
prior to the periods indicated. The data presented should be read in
conjunction with the more detailed information and financial statements
included herein or incorporated by reference in this Proxy
Statement/Prospectus and with the unaudited pro forma financial statements
included elsewhere in this Proxy Statement/Prospectus. See "WHERE YOU CAN
FIND MORE INFORMATION," "SUMMARY COMPARATIVE HISTORICAL AND COMBINED PER
SHARE DATA," "SELECTED FINANCIAL DATA," "INFORMATION CONCERNING PFB" and
"INDEX TO PFB FINANCIAL STATEMENTS."
26
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS, OTHER THAN SHARE DATA)
<TABLE>
<CAPTION>
NCBE AND
OTHER
POOLING PRO FORMA
NCBE ACQUISITIONS PFB ADJUSTMENTS TOTAL
---- ------------ --- ----------- -----
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 61,850 $ 74,725 $ 672 $ 75,397
Time deposits in banks 1,397 1,397 1,397
Federal funds sold 4,115 21,128 260 21,388
Securities available for sale 356,323 406,557 6,936 413,493
Nonmarketable equity securities 13,100 15,361 15,361
Loans 1,286,299 1,538,629 22,738 1,561,367
Premises and equipment 41,180 45,713 294 46,007
Intangible assets 41,706 42,029 42,029
Other assets 26,983 30,935 332 31,267
----------- ----------- ------- ------- ----------
TOTAL ASSETS $ 1,832,953 $ 2,176,474 $31,232 $2,207,706
----------- ----------- ------- ------- ----------
----------- ----------- ------- ------- ----------
LIABILITIES
Deposits
Noninterest-bearing $ 175,951 $ 210,746 $ 817 $ 211,563
Interest-bearing 1,244,370 1,498,836 21,442 1,520,278
----------- ----------- ------- ------- ----------
Total deposits 1,420,321 1,709,582 22,259 1,731,841
----------- ----------- ------- ------- ----------
Short-term borrowings 73,247 78,486 78,486
Other borrowings 99,140 113,097 4,162 117,259
Guaranteed preferred beneficial interests in
NCBE's subordinated debenture 34,500 34,500 34,500
Dividends payable 2,040 2,040 2,040
Deferred income taxes 4,090 4,229 81 4,310
Other liabilities 12,492 14,733 195 14,928
----------- ----------- ------- ------- ----------
TOTAL LIABILITIES 1,645,830 1,956,667 26,697 1,983,364
----------- ----------- ------- ------- ----------
Common stock owned by ESOPs subject to put options 10,667 317 (10,984) (1)
EQUITY
Common stock 13,502 16,320 3 (273) (3) 16,050
Treasury stock (1,495) 1,495 (2)
Capital surplus 84,869 92,029 2,655 (1,222) (2) 93,462
Unearned ESOP shares (273) (54) (327)
Retained earnings 85,528 109,631 1,931 111,562
Common stock owned by ESOPs subject
to put options (10,667) (317) 10,984 (1)
Unrealized gain on securities available for sale 3,224 3,595 3,595
----------- ----------- ------- ------- ----------
TOTAL EQUITY 187,123 209,140 4,218 10,984 224,342
----------- ----------- ------- ------- ----------
TOTAL LIABILITIES AND EQUITY $1,832,953 $2,176,474 $31,232 $ 0 $2,207,706
----------- ----------- ------- ------- ----------
----------- ----------- ------- ------- ----------
</TABLE>
Proforma adjustment explanations:
(1) Shares of common stock held by the employee stock ownership plans ("ESOPs")
of Hoosier Hills Financial Corporation ("HHFC"), Princeton Federal Bank fsb
and Downstate Banking Co., subject to put options, will be exchanged for
shares of NCBE Common. The ESOPs will be terminated and the NCBE Common
will be distributed to the participants.
(2) Reflects the retirement of treasury shares reflected on the financial
statements of HHFC, 1st Bancorp Vienna, Inc. and Illinois One Bancorp, Inc.
(3) Reflects 16,050,056 shares of NCBE Common outstanding at June 30, 1998 at
$1.00 stated value.
27
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, OTHER THAN SHARE DATA)
<TABLE>
<CAPTION>
NCBE AND
OTHER POOLING
NCBE ACQUISITIONS PFB TOTAL
-------- --------------- -------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 55,926 $ 67,642 $ 1,239 $ 68,881
Interest and dividends on securities
Taxable 5,603 7,099 7,099
Tax-exempt 5,177 5,532 5,532
Interest on federal funds sold 233 477 477
Interest on other income 165 194 194
--------- ----------- ------- --------
TOTAL INTEREST INCOME 67,104 80,944 1,239 82,183
--------- ----------- ------- --------
INTEREST EXPENSE
Interest on deposits 25,805 31,922 670 32,592
Interest on short-term borrowings 1,231 1,264 1,264
Interest on other borrowings 4,148 4,666 4,666
--------- ----------- ------- --------
Total interest expense 31,184 37,852 670 38,522
--------- ----------- ------- --------
NET INTEREST INCOME 35,920 43,092 569 43,661
Provision for loan losses 1,876 2,135 12 2,147
--------- ----------- ------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 34,044 40,957 557 41,514
--------- ----------- ------- --------
NONINTEREST INCOME
Trust income 1,015 1,017 1,017
Service charges on deposit accounts 2,952 3,466 51 3,517
Other service charges and fees 1,911 2,031 2,031
Securities gains 1,060 1,045 1,045
Other 862 1,196 1,196
--------- ----------- ------- --------
TOTAL NONINTEREST INCOME 7,800 8,755 51 8,806
--------- ----------- ------- --------
NONINTEREST EXPENSE
Salaries, wages, and other
employee benefits 12,355 15,489 267 15,756
Occupancy expense 3,352 4,022 37 4,059
Other 8,219 10,004 142 10,146
--------- ----------- ------- --------
TOTAL NONINTEREST EXPENSE 23,926 29,515 446 29,961
--------- ----------- ------- --------
INCOME BEFORE INCOME TAXES 17,918 20,197 162 20,359
Income tax expense 5,485 6,253 51 6,304
--------- ----------- ------- --------
NET INCOME $ 12,433 $ 13,944 $ 111 $ 14,055
--------- ----------- ------- --------
--------- ----------- ------- --------
Earnings per share:
Basic $ 0.92 $ 0.88 $ 0.58 $ 0.88
Diluted 0.91 0.87 0.56 0.87
Weighted shares:
Basic 13,485,787 15,816,196 192,873(1) 16,009,069
Diluted 13,638,444 15,968,853 200,559(1) 16,169,411
</TABLE>
(1) Based on weighted average outstanding shares times 0.7424 exchange rate.
28
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, OTHER THAN SHARE DATA)
<TABLE>
<CAPTION>
NCBE AND
OTHER POOLING
NCBE ACQUISITIONS PFB TOTAL
-------- --------------- -------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 47,155 $ 58,012 $ 1,230 $ 59,242
Interest and dividends on securities:
Taxable 6,325 8,083 8,083
Tax-exempt 4,430 4,835 4,835
Interest on federal funds sold 326 467 467
Interest on other income 97 129 129
--------- ----------- ------- --------
TOTAL INTEREST INCOME 58,333 71,526 1,230 72,756
--------- ----------- ------- --------
INTEREST EXPENSE
Interest on deposits 21,872 27,722 635 28,357
Interest on short-term borrowings 1,610 1,650 1,650
Interest on other borrowings 2,467 2,873 2,873
--------- ----------- ------- --------
TOTAL INTEREST EXPENSE 25,949 32,245 635 32,880
--------- ----------- ------- --------
NET INTEREST INCOME 32,384 39,281 595 39,876
Provision for loan losses 770 1,021 12 1,033
--------- ----------- ------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 31,614 38,260 583 38,843
--------- ----------- ------- --------
NONINTEREST INCOME
Trust income 788 788 788
Service charges on deposit accounts 2,443 2,942 2,942
Other service charges and fees 1,538 1,692 1,692
Securities gains 619 621 621
Other 564 733 59 792
--------- ----------- ------- --------
TOTAL NONINTEREST INCOME 5,952 6,776 59 6,835
--------- ----------- ------- --------
NONINTEREST EXPENSE
Salaries, wages, and other
employee benefits 11,265 13,718 260 13,978
Occupancy expense 2,717 3,261 35 3,296
Other 6,151 7,596 130 7,726
--------- ----------- ------- --------
TOTAL NONINTEREST EXPENSE 20,133 24,575 425 25,000
--------- ----------- ------- --------
INCOME BEFORE INCOME TAXES 17,433 20,461 217 20,678
Income tax expense 5,365 6,335 76 6,411
--------- ----------- ------- --------
NET INCOME $ 12,068 $ 14,126 $ 141 $ 14,267
--------- ----------- ------- --------
--------- ----------- ------- --------
Earnings per share:
Basic $ 0.90 $ 0.92 $ 0.77 $ 0.92
Diluted 0.89 0.91 0.73 0.91
Weighted shares:
Basic 13,346,924 15,364,688 183,074 (1) 15,547,742
Diluted 13,485,340 15,504,084 191,974 (1) 15,695,058
</TABLE>
(1) Based on weighted average outstanding shares times 0.7424 exchange rate.
29
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, OTHER THAN SHARE DATA)
<TABLE>
<CAPTION>
NCBE AND
OTHER POOLING
NCBE ACQUISITIONS PFB TOTAL
---------- -------------- -------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $97,099 $116,613 $2,020 $118,633
Tax-exempt 990 990 990
Interest and dividends on securities:
Taxable 12,079 14,387 423 14,810
Tax-exempt 9,266 10,002 10,002
Interest on federal funds sold 751 1,006 1,006
Interest on other income 214 532 38 570
---------- --------- -------- ---------
TOTAL INTEREST INCOME 120,399 143,530 2,481 146,011
---------- --------- -------- ---------
INTEREST EXPENSE
Interest on deposits 45,418 55,668 1,079 56,747
Interest on short-term borrowings 3,370 3,257 3,257
Interest on other borrowings 5,528 6,619 202 6,821
---------- --------- -------- ---------
TOTAL INTEREST EXPENSE 54,316 65,544 1,281 66,825
---------- --------- -------- ---------
NET INTEREST INCOME 66,083 77,986 1,200 79,186
Provision for loan losses 2,185 2,667 21 2,688
---------- --------- -------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 63,898 75,319 1,179 76,498
---------- --------- -------- ---------
NONINTEREST INCOME
Trust income 1,956 1,927 1,927
Service charges on deposit accounts 5,476 6,387 6,387
Other service charges and fees 2,677 2,770 2,770
Securities gains 798 804 804
Other 1,307 1,778 106 1,884
---------- --------- -------- ---------
TOTAL NONINTEREST INCOME 12,214 13,666 106 13,772
---------- --------- -------- ---------
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 24,085 28,728 512 29,240
Occupancy expense 2,857 3,774 75 3,849
Furniture and equipment expense 2,847 2,972 2,972
Assessments of the Federal Deposit Insurance Corporation 294 285 21 306
Other 12,676 15,230 262 15,492
---------- --------- -------- ---------
TOTAL NONINTEREST EXPENSE 42,759 50,989 870 51,859
---------- --------- -------- ---------
Income before income taxes 33,353 37,996 415 38,411
Income tax expense 9,770 11,345 148 11,493
---------- --------- -------- ---------
NET INCOME $23,583 $26,651 $267 $26,918
---------- --------- -------- ---------
---------- --------- -------- ---------
Earnings per share:
Basic $1.76 $1.73 $1.46 $1.73
Diluted $1.74 $1.71 $1.39 $1.71
Weighted shares:
Basic 13,393,573 15,411,317 183,261 (1) 15,594,578
Diluted 13,556,688 15,574,432 192,025 (1) 15,766,457
(1) Based on weighted average outstanding shares times 0.7424 exchange rate.
</TABLE>
30
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NCBE AND
OTHER POOLING
NCBE ACQUISITIONS PFB TOTAL
---------- -------------- -------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $88,156 $104,926 $1,873 $106,799
Tax-exempt 749 749 749
Interest and dividends on securities:
Taxable 14,371 16,792 406 17,198
Tax-exempt 5,778 6,562 6,562
Interest on federal funds sold 737 942 942
Interest on other income 364 711 50 761
---------- --------- -------- ---------
TOTAL INTEREST INCOME 110,155 130,682 2,329 133,011
---------- --------- -------- ---------
INTEREST EXPENSE
Interest on deposits 41,980 51,272 1,079 52,351
Interest on short-term borrowings 2,459 2,381 2,381
Interest on other borrowings 3,800 4,544 121 4,665
---------- --------- -------- ---------
TOTAL INTEREST EXPENSE 48,239 58,197 1,200 59,397
---------- --------- -------- ---------
NET INTEREST INCOME 61,916 72,485 1,129 73,614
Provision for loan losses 3,234 3,684 12 3,696
---------- --------- -------- ---------
Net interest income after provision for loan losses 58,682 68,801 1,117 69,918
---------- --------- -------- ---------
NONINTEREST INCOME
Trust income 1,818 1,818 1,818
Service charges on deposit accounts 5,143 6,050 6,050
Other service charges and fees 2,407 2,581 2,581
Securities gains 69 21 21
Other 1,293 1,612 72 1,684
---------- --------- -------- ---------
TOTAL NONINTEREST INCOME 10,730 12,082 72 12,154
---------- --------- -------- ---------
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 21,185 25,336 510 25,846
Occupancy expense 2,855 3,641 98 3,739
Furniture and equipment expense 2,681 2,779 2,779
Assessments of the Federal Deposit Insurance Corporation 887 799 188 987
Other 10,615 12,908 248 13,156
---------- --------- -------- ---------
TOTAL NONINTEREST EXPENSE 38,223 45,463 1,044 46,507
---------- --------- -------- ---------
INCOME BEFORE INCOME TAXES 31,189 35,420 145 35,565
Income tax expense 9,960 11,265 61 11,326
---------- --------- -------- ---------
NET INCOME $21,229 $24,155 $84 $24,239
---------- --------- -------- ---------
---------- --------- -------- ---------
Earnings per share:
Basic $1.57 $1.55 $0.47 $1.54
Diluted $1.56 $1.55 $0.46 $1.54
Weighted shares:
Basic 13,561,441 15,583,322 178,539 (1) 15,761,861
Diluted 13,573,403 15,595,284 184,142 (1) 15,779,426
(1) Based on weighted average outstanding shares times 0.7424 exchange rate.
</TABLE>
31
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NCBE AND
OTHER POOLING
NCBE ACQUISITIONS PFB TOTAL
---------- -------------- -------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $76,879 $92,532 $1,669 $94,201
Tax-exempt 693 693 693
Interest and dividends on securities:
Taxable 15,586 17,923 391 18,314
Tax-exempt 3,660 4,404 4,404
Interest on federal funds sold 1,159 1,298 1,298
Interest on other income 697 697 52 749
---------- --------- -------- ---------
TOTAL INTEREST INCOME 98,674 117,547 2,112 119,659
---------- --------- -------- ---------
INTEREST EXPENSE
Interest on deposits 39,574 48,133 970 49,103
Interest on short-term borrowings 1,671 1,854 1,854
Interest on other borrowings 1,011 1,428 65 1,493
---------- --------- -------- ---------
TOTAL INTEREST EXPENSE 42,256 51,415 1,035 52,450
---------- --------- -------- ---------
NET INTEREST INCOME 56,418 66,132 1,077 67,209
Provision for loan losses 335 758 7 765
---------- --------- -------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 56,083 65,374 1,070 66,444
---------- --------- -------- ---------
NONINTEREST INCOME
Trust income 1,599 1,609 1,609
Service charges on deposit accounts 4,171 4,915 4,915
Other service charges and fees 1,814 1,932 1,932
Securities losses (72) (66) (66)
Other 1,449 1,727 90 1,817
---------- --------- -------- ---------
TOTAL NONINTEREST INCOME 8,961 10,117 90 10,207
---------- --------- -------- ---------
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 20,147 24,496 465 24,961
Occupancy expense 3,029 3,550 50 3,600
Furniture and equipment expense 2,543 2,724 2,724
Assessments of the Federal Deposit Insurance Corporation 1,474 1,761 50 1,811
Other 9,443 11,040 248 11,288
---------- --------- -------- ---------
TOTAL NONINTEREST EXPENSE 36,636 43,571 813 44,384
---------- --------- -------- ---------
INCOME BEFORE INCOME TAXES 28,408 31,920 347 32,267
Income tax expense 9,668 10,734 106 10,840
---------- --------- -------- ---------
NET INCOME $18,740 $21,186 $241 $21,427
---------- --------- -------- ---------
---------- --------- -------- ---------
Earnings per share:
Basic $1.36 $1.34 $1.38 $1.34
Diluted $1.36 $1.34 $1.31 $1.34
Weighted shares:
Basic 13,818,720 15,840,601 174,133 (1) 16,014,734
Diluted 13,826,513 15,848,394 184,142 (1) 16,032,536
(1) Based on weighted average outstanding shares times 0.7424 exchange rate.
</TABLE>
32
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
Shares of NCBE Common are traded on the Nasdaq National Market tier of the
Nasdaq Stock Market under the symbol "NCBE". The following table sets forth the
high and low sales prices of NCBE Common and cash dividends declared for the
periods indicated. Prices and dividends have been adjusted to reflect stock
dividends and splits. There is no established public trading market for the
shares of PFB Common.
<TABLE>
<CAPTION>
NCBE COMMON PFB COMMON
---------------------------------------------- ------------------------------------------
CASH CASH
DIVIDENDS DIVIDENDS
LOW HIGH DECLARED LOW (1) HIGH (1) DECLARED
----- ------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter $21.54 $27.10 $0.11 N/A N/A $0.90
Second Quarter 25.17 26.76 0.141/2 N/A N/A ---
Third Quarter 25.17 26.42 0.151/2 $17.50 $17.50 ---
Fourth Quarter 25.40 28.57 0.15 N/A N/A ---
1997
First Quarter 27.86 32.26 0.151/4 N/A N/A 1.00
Second Quarter 30.24 40.24 0.151/4 N/A N/A ---
Third Quarter 38.57 41.67 0.151/4 N/A N/A ---
Fourth Quarter 40.00 51.19 0.18 N/A N/A ---
1998
First Quarter 38.50 45.50 0.18 N/A N/A 1.21
Second Quarter 37.00 45.00 0.18 N/A N/A ---
Third Quarter 32.75 40.63 0.18 20.00 20.00 ---
Fourth Quarter (2)
____________
</TABLE>
(1) There is no established trading market for the PFB Common. Trades are
infrequent and conducted in private transactions. The table reflects the
only trades since January 1, 1996 as to which price information is known by
PFB management.
(2) Through October __, 1998.
On May 21, 1998, the last trading day before the public announcement of the
proposed acquisition, the closing sale price of NCBE Common was $37.625 per
share. Based upon the per share price of NCBE Common on such date, the
equivalent per share price of PFB Common would have been $27.933. The
equivalent per share price for PFB Common is calculated by multiplying the
specified closing sale price of NCBE Common by 0.7424, the number of shares of
NCBE Common to be issued for each share of PFB Common in the Merger.
On October __, 1998, the closing sale price of NCBE Common was $_______ per
share. Based on the per share price of NCBE Common on such date, the equivalent
per share price for PFB Common would have been $___________. The equivalent per
share price for PFB Common is calculated by assuming that each share of PFB
Common was converted into 0.7424 shares of NCBE Common.
As of October __, 1998, there were _____ and 115 holders of record of NCBE
Common and PFB Common, respectively.
Both NCBE and PFB depend upon dividends from their financial institution
subsidiaries to pay dividends to their shareholders. The ability of the
financial institution subsidiaries to pay such dividends is limited by
applicable banking laws and regulations.
Shareholders of PFB are advised to obtain current market quotations for
NCBE Common.
33
<PAGE>
INFORMATION CONCERNING NCBE
BUSINESS
NCBE was organized in 1985 to act as a bank holding company for The
National City Bank of Evansville ("NCB"), which remains NCBE's principal banking
subsidiary. As of August 31, 1998, NCBE owned 14 commercial banks, including
NCB, one savings bank, a leasing subsidiary and a property management company.
As of June 30, 1998 (and as restated to give effect to acquisitions accounted
for as poolings of interests and consummated through August 31, 1998), NCBE had
total consolidated assets of $1.8 billion, total loans of $1.3 billion, total
deposits of $1.4 billion and total shareholders' equity of $187.1 million.
NCBE's financial institution subsidiaries provide a wide range of banking
services in the tri-state area of Indiana, Kentucky, and Illinois surrounding
Evansville, Indiana.
RECENT DEVELOPMENTS
The following is a brief description of the acquisitions which either have
been completed since December 31, 1997 or are presently pending.
MAYFIELD BRANCH. On January 8, 1998, NCBE's subsidiary, First Kentucky
Bank, through an affiliate acquired the Mayfield, Kentucky Branch of Republic
Bank & Trust Company. First Kentucky Bank assumed deposit liabilities of
$65.7 million in consideration of a deposit premium of $4.6 million. First
Kentucky Bank also purchased the office facility and certain loans of the
branch.
BANK OF ILLINOIS IN MT. VERNON. On March 6, 1998, NCBE acquired Vernois
Bancshares, Inc., the holding company for Bank of Illinois in Mt. Vernon
("BOI"), an Illinois banking corporation with three offices in Mount Vernon,
Illinois. NCBE paid $27.5 million in cash for all of the outstanding stock of
the holding company. As of December 31, 1997, BOI had total assets of
$163.5 million, net loans of $109.3 million and total deposits of
$127.7 million. The acquisition was accounted for using the purchase method of
accounting and the results of operations of BOI will be included in NCBE's
consolidated results of operations from the date of acquisition.
The acquisitions of the Mayfield Branch and Bank of Illinois in Mt. Vernon are
referred to as the "Purchase Transactions."
ILLINOIS ONE BANK, NATIONAL ASSOCIATION. On May 31, 1998, NCBE acquired
Illinois One Bancorp., Inc. ("IOBI"), the holding company for Illinois One Bank,
National Association ("IOB"), a national banking association with offices in
Shawneetown, Elizabethtown and Golconda, Illinois. NCBE issued 572,737 shares
of NCBE Common in the transaction. As of March 31, 1998, IOB had total assets
of $87.8 million, and total shareholders' equity of $10.9 million. The
acquisition was accounted for as a pooling of interests.
TRIGG COUNTY FARMERS BANK. On August 31, 1998, NCBE acquired Trigg
Bancorp, Inc. ("TBI"), the holding company for Trigg County Farmers Bank
("TCFB"), a Kentucky banking corporation, which has three offices in Cadiz,
Kentucky. In the transaction, NCBE issued 736,278 shares of NCBE Common to
shareholders of TBI. As of June 30, 1998, TCFB had total assets of
$95.9 million and total shareholders equity of $8.8 million. The acquisition
was accounted for as a pooling of interests.
COMMUNITY FIRST BANK OF KENTUCKY AND COMMUNITY FIRST BANK, N.A. On
August 31, 1998, NCBE acquired Community First Financial, Inc. ("CFF"), the
holding company for Community First Bank of Kentucky, a Kentucky banking
corporation, which has two offices in Warsaw and Dry Ridge, Kentucky, and
Community First Bank, National Association, a national banking association,
which has six offices in Maysville, May's Lick and Mount Olivet, Kentucky and
Aberdeen and Ripley, Ohio. In the transaction, NCBE issued 1,432,202 shares of
NCBE Common to shareholders of CFF. As of June 30, 1998, CFF's subsidiary banks
had total assets of $133.4 million and total shareholders' equity of
$15.6 million. The acquisition was accounted for as a pooling of interests.
34
<PAGE>
The acquisitions of Illinois One Bank, National Association, Trigg County
Farmers Bank, Community First Bank of Kentucky and Community First Bank, N.A.
are referred to as the "Completed Pooling Acquisitions."
THE RIPLEY COUNTY BANK. On October 1, 1998, NCBE acquired Hoosier Hills
Financial Corporation ("HHFC"), the holding company for The Ripley County Bank
("RCB"), an Indiana banking corporation, which has offices in Milan, Osgood, and
Versailles, Indiana. NCBE issued 729,936 shares of NCBE Common in the
transaction. As of June 30, 1998, RCB had total assets of $112.3 million and
total shareholders' equity of $11.3 million. The acquisition will be accounted
for using the pooling of interests method of accounting.
FIRST STATE BANK OF VIENNA. On October 1, 1998, NCBE acquired 1st Bancorp
Vienna, Inc. ("Bancorp"), the holding company for First State Bank of Vienna
("FSBV"), an Illinois banking corporation with a single office in Vienna,
Illinois. NCBE issued 289,134 shares of NCBE Common in a transaction in which
Bancorp was merged into NCBE and FSBV was merged into IOB. As of June 30, 1998,
FSBV had total assets of $39.3 million and total shareholders' equity of
$5.0 million. The acquisition will be accounted for using the pooling of
interests method of accounting.
The acquisitions of The Ripley County Bank and First State Bank of Vienna are
referred to as the "Other Pooling Acquisitions."
BANK OF CRITTENDEN. NCBE is a party to an Agreement and Plan of Merger
dated June 30, 1998 with Commonwealth Commercial Corp. ("CCC"), the holding
company for Bank of Crittenden ("BC"), a Kentucky banking corporation with a
single office in Crittenden, Kentucky. The agreement relates to the acquisition
of CCC in a merger transaction in which approximately 190,000 shares of NCBE
Common are expected to be issued. As of June 30, 1998, BC had total assets of
$26.5 million and total shareholders' equity of $2.9 million. The acquisition
is subject to the approval of the Federal Reserve. NCBE expects to account for
the acquisition as an immaterial pooling of interests. The parties expect the
merger to close in the fourth quarter of 1998.
DOWNSTATE NATIONAL BANK. NCBE is a party to an Agreement and Plan of
Merger dated July 9, 1998, with Downstate Banking Co. ("DBC"), the holding
company for Downstate National Bank ("DNB"), which has one office in Brookport,
Illinois. The agreement relates to the acquisition of DBC in a merger
transaction in which approximately 107,100 shares of NCBE Common are expected to
be issued. DNB would concurrently merge into and become a branch of NCBE's
subsidiary, Illinois One Bank, National Association. As of June 30, 1998, DNB
had total assets of $22.0 million and total shareholders' equity of $1.4
million. The acquisition is subject to the approval of the Office of the
Comptroller of the Currency. NCBE expects to account for the acquisition as an
immaterial pooling of interests. The parties expect to close the merger in the
fourth quarter of 1998.
THE PROGRESSIVE BANK, NATIONAL ASSOCIATION. NCBE is party to an Agreement
and Plan of Merger dated July 14, 1998, with Progressive Bancshares, Inc.
("PBI"), the holding company for The Progressive Bank, National Association
("TPB"), which has four offices in Lexington, Lawrenceburg and Owingsville,
Kentucky. The agreement relates to the acquisition of PBI in a merger
transaction in which approximately 975,700 shares of NCBE Common would be
issued. As of June 30, 1998, TPB had total assets of $143.3 million, net loans
of $114.2 million, total deposits of $123.7 million, and total shareholders'
equity of $11.4 million. The acquisition is subject to regulatory approval and
the approval of the shareholders of PBI. The acquisition is expected to qualify
for the pooling of interests method of accounting. The parties expect to close
the merger in the fourth quarter of 1998.
The following is a description of a recent securities offering:
TRUST PREFERRED OFFERING. On March 30, 1998, NCBE Capital Trust I (the
"Trust"), an affiliate of NCBE, completed a $34.5 million public offering of its
cumulative trust preferred securities. The Trust used the proceeds of the
public offering and funds from NCBE to purchase $35.6 million principal amount
of subordinated debentures to be issued by NCBE. NCBE used the net proceeds
from the sale of its subordinated debentures to repay indebtedness incurred in
the acquisition of BOI discussed above.
35
<PAGE>
YEAR 2000 ISSUE
The Year 2000 poses a unique set of challenges to industries reliant on
information technology. As a result of methods employed by early programmers,
many software applications and operational programs may be unable to distinguish
the year 2000 from the year 1900. If not effectively addressed, this problem
could result in the production of inaccurate data, or, in the worst cases, the
inability of the systems to continue to function altogether. Financial
institutions are particularly vulnerable due to the industry's dependence on
electronic data processing systems.
NCBE is committed to a plan for achieving Year 2000 compliance. Management
believes that the expenditures required to bring systems into compliance will
not have a materially adverse effect on NCBE's performance. However, the Year
2000 problem is pervasive and complex and can potentially affect any computer
process. Accordingly, no assurance can be given that Year 2000 compliance can
be achieved without additional unanticipated expenditures and uncertainties that
might affect future financial results.
NCBE and its banking subsidiaries are subject to examination with respect
to their Year 2000 compliance by various state and federal agencies, including
the Federal Reserve Board, the Comptroller of the Currency, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, and state banking
agencies. If NCBE does not maintain its current "satisfactory" rating with
respect to its Year 2000 compliance efforts, NCBE will not qualify for expedited
processing of regulatory applications seeking approval of acquisitions or such
approvals may only be given subject to additional conditions. While management
expects to devote sufficient corporate resources to address regulatory concerns
in this area, there can be no assurance thereof.
36
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of NCBE Common
beneficially owned as of the Record Date by (i) each person or group of persons
known to NCBE to be the beneficial owner of more than five percent (5%) of the
issued and outstanding shares of NCBE Common and (ii) each director and
executive officer of NCBE. Also set forth below is such information adjusted
for the Merger (assuming the issuance of 212,663 shares of NCBE Common). Except
as otherwise noted, each person or group identified below holds sole voting and
sole investment power with respect to the shares identified as beneficially
owned.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE MERGER AFTER THE MERGER
------------------------ --------------------
NAME SHARES PERCENT SHARES PERCENT
- ---- ---------- ------- ------ -------
<S> <C> <C> <C> <C>
Janice L. Beesley 65,459(1) * 65,459 *
Ben L. Cundiff 416,976 3.1% 416,976 3.0%
Michael F. Elliott 341,122(2) 2.5% 341,122 2.5%
Susanne R. Emge 24,580(3) * 24,580 *
Donald G. Harris 12,095 * 12,095 *
H. Ray Hoops 1,015 * 1,015 *
Robert A. Keil 73,641(4) * 73,641 *
John D. Lippert 71,797(5) * 71,797 *
Ronald G. Reherman 9,105(6) * 9,105 *
Curtis D. Ritterling 7,901(7) * 7,901 *
Laurence R. Steenberg 29,402(8) * 29,402 *
Robert D. Vance 716,390(9) 5.3% 716,390 5.2%
Richard F. Welp 4,154(10) * 4,154 *
Stephen C. Byelick, Jr. 3,366(11) * 3,366 *
All directors and executive
officers as a group
(14 persons) 1,777,033(12) 13.1% 1,777,033 12.9%
____________
</TABLE>
* Less than 1%.
(1) Includes 28,218 shares with sole voting and investment power, 28,106 shares
with sole voting and investment power by spouse and 9,135 shares that may
be purchased pursuant to options exercisable within 60 days.
(2) Includes 271,121 shares with sole voting and investment power; 3,248 shares
with shared voting and investment power with spouse; and 66,753 shares
subject to options exercisable within 60 days.
(3) Includes 2,028 shares with sole voting and investment power; 14,894 shares
with shared voting and investment power with spouse; and 7,658 shares with
sole voting and investment power by spouse.
(4) Includes 12,138 shares with shared voting and investment powers with
spouse; and 61,503 shares subject to options exercisable within 60 days.
(5) Includes 15,695 shares with sole voting and investment power; 8,274 shares
with sole voting and investment power by spouse; and 47,828 shares subject
to options exercisable within 60 days.
(6) Includes 3,401 shares with sole voting and investment power; and
5,704 shares with shared voting and investment power with spouse.
(7) Includes 2,500 shares with sole voting and investment power; 151 shares
with shared voting and investment power with spouse; and 5,250 shares
subject to options exercisable within 60 days.
(8) All shares are held in trust for a limited partnership of which
Mr. Steenberg is a general partner with sole voting and investment power.
(9) Includes 705,326 shares with sole voting and investment power; and
11,064 shares with sole voting and investment power by spouse.
(10) Includes 1,960 shares with sole voting and investment power; and
2,194 shares with shared voting and investment power with spouse.
(11) Includes 216 shares with shared voting and investment power with spouse;
and 3,150 shares subject to options exercisable within 60 days.
(12) Includes 193,619 shares subject to options exercisable within 60 days.
37
<PAGE>
INFORMATION CONCERNING PFB
BUSINESS
PFB was founded in 1922 as a federally chartered mutual savings and loan
association. On May 9, 1994, PFB converted from a federal mutual savings and
loan association to a federal stock savings bank and adopted its current
corporate title. Net proceeds from the stock offering were $2.5 million.
As a federally chartered savings bank, PFB's deposits are insured by the
Savings Association Insurance Fund ("SAIF") administered by the Federal Deposit
Insurance Corporation ("FDIC") up to the applicable limits for each depositor.
PFB has, since 1935, been a member of the Federal Home Loan Bank ("FHLB") of
Cincinnati, which is one of the 12 district banks comprising the FHLB System.
PFB is subject to comprehensive examination, supervision and regulation by the
OTS and the FDIC. This regulation is intended primarily for the protection of
depositors.
The business of PFB primarily consists of attracting savings deposits
from the general public and investing such deposits in loans secured by
single-family residential area real estate mortgage loans, investment
securities, including U.S. Government and agency securities, interest-earning
deposits, mortgage derivative securities and mortgage-backed securities. PFB
also makes single-family residential/construction loans and multi-family and
commercial loans, as well as automobile and boat loans, home equity loans and
other consumer loans. PFB originates both fixed-rate and adjustable-rate
loans and emphasizes the origination of residential real estate mortgage
loans with adjustable interest rates and other assets which are more
responsive to changes in interest rates and which allow PFB to more closely
match the interest rate maturities of its assets and liabilities.
PFB's current business strategy includes (i) a continued emphasis on
originating adjustable-rate single-family mortgage loans and fixed-rate
short-term consumer loans; (ii) maintenance of its current portfolio of
low-risk investments, primarily in U.S. Government and agency securities such
as variable-rate and fixed-rate investment grade mortgage-backed securities
and mortgage derivative securities; and (iii) expanding PFB's share of the
banking business within its market area, which includes the Kentucky counties
of Caldwell and Lyon plus the city limits of Dawson Springs in Hopkins
County, Kentucky.
38
<PAGE>
SELECTED FINANCIAL DATA OF PFB
The selected consolidated data as of and for the two years ended
September 30, 1997 and 1996 have been derived from financial statements audited
by independent public accountants, whose report can be found elsewhere in this
Proxy Statement/Prospectus. This data should be read in conjunction with PFB's
Consolidated Financial Statements and the Notes thereto and "--Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
NINE MONTHS ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30,
(DOLLAR AMOUNTS OTHER THAN ----------------------- --------------------
PER SHARE DATA IN THOUSANDS) 1998 1997 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net interest income $870 $885 $1,178 $1,110
Provision for loan losses (18) (15) (21) (11)
Noninterest income 81 85 127 91
Noninterest expense 654 653 869 1,045
Income before income taxes 279 302 415 145
Income taxes 88 102 149 61
Net income $191 $200 $266 $84
PER COMMON SHARE
Basic Earnings $0.74 $0.81 $1.08 $0.35
Book value 16.78 16.76 17.07 16.71
Cash dividends declared 1.21 1.00 1.00 0.90
TOTALS
Net loans $22,738 $22,923 $23,076 $22,190
Allowance for loan losses 232 233 230 225
Securities 6,936 6,911 6,895 7,234
Total assets 31,232 31,660 31,711 30,942
Deposits 22,259 22,950 22,373 23,042
Stockholders' equity 4,218 4,151 4,232 4,188
SELECTED FINANCIAL RATIOS
Net income to average assets 0.80% 0.86% 0.85% 0.28%
Net income to average equity 5.64% 6.10% 6.06% 1.97%
Cash dividend payout 167.97% 130.50% 98.12% 281.25%
Average equity to average assets 14.10% 14.11% 14.05% 14.28%
Tangible equity to tangible assets 14.52% 13.83% 14.06% 14.11%
Total capital to risk weighted assets 23.81% 23.28% 23.66% 23.98%
OTHER DATA
Weighted average shares 256,730 245,980 246,849 240,489
Risk weighted assets $19,499 $19,814 $19,822 $19,191
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL. PFB's results of operations in recent years have reflected the
fundamental changes which have occurred in the regulatory, economic and
competitive environment in which savings institutions operate. PFB's results of
operations are primarily dependent on its net interest income, which is the
difference between interest income on interest-earning assets and interest
expense on interest-bearing liabilities. Interest income is a function of the
balances of interest-earning assets outstanding during the period and the yields
earned on such assets. Interest expense is a function of the amount of
interest-bearing liabilities outstanding during the period and the rates paid on
such liabilities. PFB also generates non-interest income, such as service
charges on transaction accounts and other fees. Net income is further affected
by the level of operating expenses, such as compensation, occupancy and
equipment expenses, professional and data processing services, federal deposit
insurance premiums and the establishment of loan loss reserves.
39
<PAGE>
The operations of PFB, and savings institutions generally, are
significantly influenced by general economic conditions and the monetary and
fiscal policies of governmental regulatory agencies. Deposit flows and costs
of funds are influenced by interest rates on competing investments and
prevailing market rates of interest. Lending activities are affected by the
demand for financing real estate and other types of loans, which in turn is
affected by the interest rates at which such financings may be offered and
other factors affecting loan demand and the availability of funds.
ASSET/LIABILITY MANAGEMENT. The basic components of a successful
asset/liability strategy are the monitoring and managing of interest rate
sensitivity of both the interest-earning assets and interest-bearing
liabilities portfolios. PFB has employed various strategies intended to
minimize the adverse effect of interest rate risk on future operations by
providing a better match between the interest rate sensitivity between its
assets and liabilities. In particular, PFB's strategies are intended to
stabilize net interest income for the long term by protecting its interest
rate spread against increases or decreases in interest rates. Such
strategies include the origination for PFB's portfolio of adjustable-rate
mortgage loans secured by one- to four-family residential real estate and the
origination of consumer and other loans with greater interest rate
sensitivities than long-term, fixed-rate residential mortgage loans. In
addition, PFB has used excess funds to invest in long-term adjustable-rate
mortgage-backed securities and adjustable-rate mortgage derivative securities
that are repriced monthly based on a cost-of-funds index.
PFB maintains a portfolio of mortgage-backed securities guaranteed by
the Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal National
Mortgage Association ("FNMA"). At June 30, 1998, the carrying value and
estimated market value of such securities were $1,650,000 and $1,646,000,
respectively. Mortgage-backed securities entitle PFB to receive a pro rata
portion of the cash flows from an identified pool of mortgages. Although
mortgage-backed securities generally offer lesser yields than the loans for
which they are exchanged, mortgage-backed securities present substantially
lower credit risk by virtue of the guarantees that back them, are more liquid
than individual mortgage loans, and may be used to collateralize borrowings
or other obligations of PFB. Further, since they are primarily
adjustable-rate and have relatively short terms, PFB's mortgage-backed
securities are helpful in limiting PFB's interest rate risk. See Note 4 of
Notes to Consolidated Financial Statements.
PFB also maintains a significant portfolio of mortgage derivative
securities such as collateralized mortgage obligations and real estate
mortgage investment conduits (collectively, "CMO/REMICs"). At June 30, 1998,
PFB maintained $4,051,000, or 13.0% of its total assets, in CMO/REMICs, with
$3,549,000 in adjustable-rate securities. All of the CMO/REMICs owned by PFB
are insured or guaranteed either directly or indirectly through
mortgage-backed securities underlying the obligations by either the FNMA,
FHLMC or Government National Mortgage Association. See Note 3 of Notes to
Consolidated Financial Statements.
There is no assurance that PFB will continue to be able to invest in
these securities at attractive yields. If interest rates decline or remain
at current low levels, PFB's interest income could be adversely affected.
INTEREST RATE SENSITIVITY ANALYSIS. The matching of assets and
liabilities may be analyzed by examining the extent to which such assets and
liabilities are "interest rate sensitive" and by monitoring an institution's
interest rate sensitivity "gap." An asset or liability is said to be
interest rate sensitive within a specific period if it will mature or reprice
within that period. The interest rate sensitivity gap is defined as the
difference between the amount of interest-earning assets maturing or
repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. A gap is
considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities, and is considered negative
when the amount of interest rate sensitive liabilities exceeds the amount of
interest rate sensitive assets. Generally, during a period of rising
interest rates, a negative gap would adversely affect net interest income
while a positive gap would result in an increase in net interest income,
while conversely during a period of falling interest rates, a negative gap
would result in an increase in net interest income and a positive gap would
negatively affect net interest income.
40
<PAGE>
The following table sets forth PFB's interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1997 which are
expected to mature or reprice in each of the time periods shown.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-----------------------------------------------------------------
ONE
YEAR OVER ONE OVER FIVE OVER TEN
OR LESS THROUGH THROUGH THROUGH
AMOUNT FIVE YEARS TEN YEARS TWENTY YEARS TOTAL
------- ---------- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
Interest Earning Deposits $ 710 $ -- $ -- $ -- $ 710
Federal Agency Securities 300 1,394 492 -- 2,186
Adjustable Rate 1-4 Family Loans 5,465 1,864 7,329
Fixed Rate 1-4 Family Mortgage Loans 1,094 2,879 1,036 749 5,758
Other Mortgage Loan-Adjustable Rate 1,322 -- -- -- 1,322
Other Mortgage Loans-Fixed Rate 174 459 165 120 918
Mortgage-Backed Securities 3,883 -- 502 -- 4,385
Consumer Loans 1,116 2,679 536 134 4,465
Commercial and Agriculture Loans 1,634 908 617 472 3,631
-------- ---------- --------- -------- -------
Total Interest Bearing Assets 15,698 10,183 3,348 1,475 30,704
NOW, Passbook and Money Market Accounts 2,070 4,774 -- -- 6,844
Certificates of Deposit 8,948 6,596 -- -- 15,544
Advances From the FHLB 4,500 4,500
Other Borrowed Money-ESOP Loan 74 -- -- -- 74
Total Interest Bearing Liabilities 15,592 11,370 -- -- 26,962
-------- ---------- --------- -------- -------
Interest Sensitivity Gap $ 106 $ (1,187) $ 3,348 $1,475 $ 3,742
-------- ---------- --------- -------- -------
-------- ---------- --------- -------- -------
Cumulative Gap $ 106 $ (1,081) $ 2,267 $3,742 $ 3,742
-------- ---------- --------- -------- -------
-------- ---------- --------- -------- -------
Ratio of Interest-Earning Assets to
Interest Bearing Liabilities 100.7% 89.6% N/A N/A 113.9%
-------- ---------- --------- -------- -------
-------- ---------- --------- -------- -------
Ratio of Cumulative Gap to
Total Assets 0.7% (4.2%) 7.8% 12.2% 12.2%
-------- ---------- --------- -------- -------
-------- ---------- --------- -------- -------
</TABLE>
The table above is based upon certain assumptions as to prepayment of loans
as provided to PFB by the OTS.
Management believes the positive one-year gap of 0.7% presents a modest
risk to net interest income margin should an increase occur in the current level
of interest rates. A conservative rate-gap policy provides a stable net
interest income margin. Accordingly, management emphasizes a structured balance
of rate spread by term to maturity and does not anticipate a change in such
objectives over the next year.
41
<PAGE>
Certain shortcomings are inherent in the method of analysis presented in
the table above. The data provided internally by PFB are derived from
information based on current prepayment rates on loans and decay rates on
savings. Use of other data derived solely from savings institutions serving
communities comparable to PFB's market area could lead to materially different
results. Further, although certain assets and liabilities may have similar
maturities or periods of repricing, they may react in different degrees to
changes in market interest rates. The interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest rates,
while interest rates on other types of assets and liabilities may lag behind
changes in interest rates. Certain assets, such as adjustable-rate mortgages,
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. For example, the 1.0% annual adjustment limits and
4.0% lifetime ceiling adjustment limits on PFB's adjustable-rate mortgage loans
have the effect of limiting the sensitivity of those loans to changes in market
interest rates. In the event of a change in interest rates, prepayment and
early withdrawal levels would deviate significantly from those assumed in
calculating the table. The ability of many borrowers to service their debt may
decrease in the event of an interest rate increase.
YIELDS EARNED AND RATES PAID. Net interest income is affected by (i)
the difference ("interest rate spread") between rates of interest earned on
interest-earning assets and rates of interest paid on interest-bearing
liabilities and (ii) the relative amounts of interest-earning assets and
interest-bearing liabilities. When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income. Savings institutions have traditionally used
interest rate spreads as a measure of net interest income. Another
indication of an institution's net interest income is its "net yield on
interest-earning assets" which is net interest income divided by average
interest-earning assets. The following table sets forth, for the three years
ended September 30, 1997, the weighted average yields earned on PFB's assets
and the weighted average interest rates paid on PFB's liabilities, together
with PFB's interest rate spread and net yield on interest-earning assets.
Average balances are derived from monthly balances. Management does not
believe that the use of monthly balances instead of daily balances has caused
any material difference in the information presented.
<TABLE>
<CAPTION>
At
September 30, Years Ended September 30,
------------ ----------------------------------
1997 1997 1996 1995
------------- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average yield on loan portfolio . . . . . . . . 8.91% 8.82% 8.78% 8.66%
Weighted average yield on investment securities. . . . . 6.28 6.16 6.48 5.50
Weighted average yield on interest-earning deposits. . . 5.30 3.26 3.22 4.69
Weighted average yield on mortgage derivative securities 5.91 6.00 5.97 6.27
Weighted average yield on mortgage-backed securities . . 6.71 6.27 6.18 5.96
Weighted average yield on all interest-earning assets 8.16 8.10 8.00 7.90
Weighted average rate paid on deposits . . . . . . . . . 4.78 4.72 4.72 4.50
Weighted average rate paid on borrowings . . . . . . . . 5.65 5.63 5.69 6.39
Weighted average rate paid on all interest-bearing
liabilities . . . . . . . . . . . . . . . . . . . . 4.91 4.84 4.80 4.58
Interest rate spread (difference between weighted
average rates paid on all interest-earning assets
and all interest-bearing liabilities). . . . . . . . . 3.25 3.26 3.20 3.32
Net yield on interest-earning assets (net interest income
as a percentage of average interest-earning assets). . 3.89 3.88 3.85 4.00
</TABLE>
42
<PAGE>
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS. The following table sets
forth certain information relating to PFB's average balance sheet and reflects
the average yield on assets and average cost of liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average monthly balance of assets or liabilities, respectively, for the
periods presented. Average balances are derived from monthly balances.
Management does not believe that the use of monthly balances instead of daily
balances has caused any material difference in the information presented.
Interest earned on loan portfolios is net of reserves for uncollected interest.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ---------------------------- -----------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- -------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loan receivable $22,897 $2,020 8.82% $21,341 $1,874 8.78% $19,263 $1,669 8.66%
Investment securities 2,531 156 6.16 2,146 139 6.48 1,999 110 5.50
Interest-earning deposits 522 17 3.26 932 30 3.22 747 35 4.69
Mortgage derivative
securities 4,100 246 6.00 4,101 245 5.97 4,101 257 6.27
Mortgage-backed
securities 319 20 6.27 372 23 6.18 403 24 5.96
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-earning
assets 30,369 2,459 8.10 28,892 2,311 8.00 26,513 2,095 7.90
Noninterest earning
assets 886 884 751
------- ------- -------
Total assets $31,255 $29,776 27,264
------- ------- -------
------- ------- -------
Interest-earning liabilities:
Deposits 22,881 1,079 4.72 22,868 $1,079 4.72 21,570 970 4.50
Borrowings 3,589 202 5.63 2,125 121 5.69 1,018 65 6.39
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities 26,470 1,281 4.84 24,993 1,200 4.80 22,588 1,035 4.58
Noninterest-bearing
liabilities 389 385 360
------- ------- -------
Total liabilities 26,859 25,378 22,948
Retained
earnings/stockholders'
equity 4,396 4,398 4,316
------- ------- -------
Total liabilities and
retained earnings $31,255 $29,776 $27,264
------- ------- -------
------- ------- -------
Net interest income $1,178 $1,111 $1,060
------ ------ ------
------ ------ ------
Interest rate spread 3.26% 3.20% 3.32%
----- ----- -----
----- ----- -----
Net yield on interest-
earning assets 3.88% 3.85% 4.00%
----- ----- -----
----- ----- -----
Ratio of average interest-
earnings assets to
average interest-bearing
liabilities 114.73% 115.60% 117.38%
------- ------- -------
------- ------- -------
</TABLE>
43
<PAGE>
Rate/Volume Analysis. The table below sets forth certain information
regarding changes in interest income and interest expense of PFB for the periods
indicated. For each category of interest-earning asset and interest-bearing
liability, information is provided on changes attributable to: (i) changes in
volume (changes in volume multiplied by old rate); and (ii) changes in rates
(change in rate multiplied by old volume). Changes in rate-volume (changes in
rate multiplied by the changes in volume) are allocated between changes in rate
and changes in volume.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------------------------
1996 vs. 1995 1997 vs. 1996
---------------------------------------- -------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------------------------- -------------------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
------ ---- ------ ----- ------ ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loan portfolio . . . . . . . . . . . . $180 $ 23 $ 2 $205 $137 $9 $1 $147
Investment securities. . . . . . . . . 8 19 1 28 25 (7) (1) 17
Interest-earning deposits. . . . . . . 9 (11) (3) (5) (13) -- -- (13)
Mortgage derivative securities . . . . -- (12) -- (12) -- 1 -- 1
Mortgage-backed securities. . . . . . . . . (2) 1 -- (1) (3) -- -- (3)
------ ---- ------ ----- ------ ----- ------ -----
Total interest-earning assets . . 195 20 -- 215 146 3 -- 149
------ ---- ------ ----- ------ ----- ------ -----
Interest expense:
Savings deposits . . . . . . . . . . . 58 48 3 109 1 (1) -- --
Borrowings and FHLB advances . . . . . 71 (7) (8) 56 83 (1) (1) 81
------ ---- ------ ----- ------ ----- ------ -----
Total interest-bearing
liabilities. . . . . . . . . 129 41 (5) 165 84 (2) (1) 81
------ ---- ------ ----- ------ ----- ------ -----
Change in net interest income . . . . . . . $ 66 $(21) $ 5 $ 50 $ 62 $5 $1 $ 68
------ ---- ------ ----- ------ ----- ------ -----
------ ---- ------ ----- ------ ----- ------ -----
</TABLE>
YEARS ENDED SEPTEMBER 30, 1997 AND 1996 -- COMPARISON OF FINANCIAL
CONDITION. PFB's total assets increased $797,000, or 2.5%, from $30,914,000 at
September 30, 1996 to $31,711,000 at September 30, 1997. The increase was
primarily due to cash received and invested from proceeds of $4,500,000 in
advances received from the FHLB of Cincinnati. Savings deposits decreased
$664,000, or 2.9%, from $23,036,000 at September 30, 1996 to $22,372,000 at
September 30, 1997. Net loans increased $887,000, or 4.0%, from $22,190,000 at
September 30, 1996 to $23,077,000 at September 30, 1997. Cash and investment
securities decreased $33,000, or 0.9%, from $3,548,000 at September 30, 1996 to
$3,515,000 at September 30, 1997. The decrease in cash and investment
securities was due primarily to the increase in net loans.
COMPARISON OF OPERATING RESULTS -- NET INCOME. Net income increased
$183,000, or 217.8%, from $84,000 in 1996 to $267,000 in 1997, primarily as a
result of lower SAIF deposit insurance premiums.
NET INTEREST INCOME. Net interest income increased $68,000, or 6.1%,
from $1,110,000 in 1996 to $1,178,000 in 1997. The increase in net interest
income was due primarily to an increase in total interest-bearing balances.
The average balance of interest earning assets increased from $28,892,000 in
1996 to $30,369,000 in 1997 and total interest-bearing liabilities increased
from $24,993,000 in 1996 to $26,470,000 in 1997. The average yield on
interest-earning assets increased from 8.00% in 1996 to 8.10% in 1997. The
average rate on interest-bearing liabilities increased from 4.80% in 1996 to
4.84% in 1997. The net interest margin increased from 3.20% in 1996 to 3.26%
in 1997, and the net yield on interest earning assets increased from 3.85% in
1996 to 3.88% in 1997.
Interest on loans receivable increased $146,000, or 7.8%, from $1,874,000
in 1996 to $2,020,000 in 1997, primarily as a result of an increase in the
average yield and average balance. The average yield increased from 8.78% in
1996 to 8.82% in 1997, and the average balance increased from $21,341,000 in
1996 to $22,897,000 in 1997.
44
<PAGE>
Interest on investment securities increased $17,000, or 12.2%, from
$139,000 in 1996 to $156,000 in 1997, primarily as a result of an increase in
the average yield and average balance. The average yield decreased from 6.48%
in 1996 to 6.16% in 1997.
Interest on interest-earning deposits decreased $13,000, or 43.3%, from
$30,000 in 1996 to $17,000 in 1997, primarily as a result of a decrease in the
average balance from $932,000 in 1996 to $522,000 in 1997.
Interest on mortgage-backed and related securities decreased minimally,
from $268,000 in 1996 to $266,000 in 1997, primarily due to a decrease in the
average balance from $4,473,000 in 1996 to $4,419,000 in 1997. The average
yield increased from 5.98% in 1996 to 6.02% in 1997, primarily due to adjustable
rate securities repricing at higher interest rates.
Interest expense on deposits did not change in 1997, from $1,079,000 in
1996. The average rate was 4.72% in both 1996 and 1997. The average balance
increased from $22,868,000 in 1996 to $22,881,000 in 1997.
Interest on borrowed money increased $81,000, or 67.1%, from $121,000 in
1996 to $202,000 in 1997, primarily as a result of an increase in the average
balance and average rate paid. The average balance increased from $2,125,000 in
1996 to $3,589,000 in 1997, primarily due to obtaining additional advances from
the FHLB of Cincinnati. The average rate paid on borrowed money decreased from
5.69% in 1996 to 5.63% in 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased $9,000,
or 42.9%, from $12,000 in 1996 to $21,000 in 1997, primarily due to increased
charge-offs. The allowance for loan losses as a percentage of total gross loans
decreased from 1.00% in 1996 to .98% in 1997.
NON-INTEREST INCOME. Non-interest income increased $37,000, or 40.7%, from
$91,000 in 1996 to $128,000 in 1997, primarily as a result of increased service
charges on deposit accounts and insurance premiums.
NON-INTEREST EXPENSE. Non-interest expense decreased $176,000, or
16.8%, from $1,045,000 in 1996 to $869,000 in 1997, primarily due to the
special one-time SAIF assessment in the amount of $139,000. Occupancy and
equipment expense decreased $23,000, or 23.5%, from $98,000 in 1996 to
$75,000 in 1997, primarily due to repairs to the main office in 1996.
FEDERAL INCOME TAXES. Federal income taxes increased $88,000, from $61,000
in 1996 to $149,000 in 1997, primarily as a result of the income before federal
income tax increasing from $170,000 in 1996 to $428,000 in 1997.
NINE MONTHS ENDED JUNE 30, 1998 AND 1997 -- COMPARISON OF FINANCIAL
CONDITION. Total assets increased $504,000, or 1.6%, from $31,711,000 at
September 30, 1997 to $31,232,000 at June 30, 1998. The increase was due
primarily to an increase in borrowed funds of $642,000. Net loans decreased
$338,000, or 1.5%, from $23,076,000 at September 30, 1997 to $22,738,000 at June
30, 1998.
COMPARISON OF OPERATING RESULTS -- NET INCOME. Net income decreased
$9,000, or 4.5%, from $200,000 for the nine months ended June 30, 1997 to
$191,000 for the nine months ended June 30, 1998.
NET INTEREST INCOME. Net interest income decreased by $15,000 or 1.7%,
from $885,000 for the nine months ended June 30, 1997 to $870,000 for the nine
months ended June 30, 1998. The decreased net interest income was due primarily
to the decrease in net interest margin from 3.88% for the nine months ended
June 30, 1997 to 3.77% for the nine months ended June 30, 1998.
INTEREST INCOME. Interest income increased $45,000, or 2.5%, from
$1,834,000 for the nine months ended June 30, 1997 to $1,879,000 for the nine
months ended June 30, 1998. The increase in interest income was caused
primarily by an increase in the average balance of interest earning assets
which more than offset the decrease in average yield. The
45
<PAGE>
increase in the average balance of interest-earning assets was due primarily
to a increase in loans receivable and investment securities. The decrease in
average yield on interest-earning assets was due primarily to lower interest
rates on new loans and other interest-earning investments.
INTEREST EXPENSE. Interest expense increased $60,000, or 6.3%, from
$949,000 for the nine months ended June 30, 1997 to $1,009,000 for the nine
months ended June 30, 1998. The increase was due to both an increase in the
average balance of and average rate on interest-bearing liabilities.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased $3,000,
or 20.0%, from $15,000 for the nine months ended June 30, 1997 to $18,000 for
the nine months ended June 30, 1998. The increase was due primarily to a
increase in the amount of loans being charged to the allowance for loan losses
and an increase in the amount of loans outstanding.
NON-INTEREST INCOME. Non-interest income decreased $4,000, or 4.7%, from
$85,000 for the nine months ended June 30, 1997 to $81,000 for the nine months
ended June 30, 1998. The increase was due primarily to decreased insurance
commissions on loans.
NON-INTEREST EXPENSE. Non-interest expense increased $1,000, or 0.2%, from
$653,000 for the nine months ended June 30, 1997 to $654,000 for the nine months
ended June 30, 1998. The increase in non-interest expense was due primarily to
the increase in other operating expenses.
FEDERAL INCOME TAXES. The federal income tax expense decreased $14,000, or
13.7%, from $102,000 for the nine months ended June 30, 1997 to $88,000 for the
nine months ended June 30, 1998. The decrease was due primarily to lower net
earnings before federal income tax.
LIQUIDITY. PFB is required by OTS regulations to maintain minimum levels
of specified liquid assets which are currently equal to 5% of deposits and
borrowings. PFB's liquidity ratio for the month of June 1998 was 7.99%, and its
regulatory liquidity was approximately $1,298,000 at June 30, 1998.
PFB's principal sources of funds for investments and operations are net
income, deposits from its primary market area, principal and interest payments
on loans, investments and mortgage-backed securities and proceeds from maturing
investment securities. Its principal funding commitments are for the
origination of loans and the payment of maturing deposits. Deposit accounts are
considered a primary source of funds supporting PFB's lending and investment
activities. Deposit accounts were approximately $22,259,000 at June 30, 1998.
PFB also uses the advances from the FHLB of Cincinnati as a source of funds; at
June 30, 1998 there were $4,142,000 in FHLB advances outstanding. See Note 10
of Notes to Consolidated Financial Statements.
PFB's most liquid assets are cash and cash equivalents, which are
short-term highly liquid investments with original maturities of less than
three months. The levels of such assets are dependent on PFB's operating,
financing and investment activities at any given time. PFB's cash and cash
equivalents totaled $832,000, $1,005,000, and $762,000 at June 30, 1998 and
at September 30, 1997 and 1996, respectively. The variations in levels of
cash and cash equivalents were influenced by deposit flows and anticipated
future deposit flows during the periods disclosed.
At June 30, 1998, PFB had no commitments to originate loans or purchase
investments other than loans in process in the amount of $67,000 and undisbursed
lines of credit in the amount of $355,000. Management believes that the
liquidity levels maintained are fully adequate to meet potential deposit
outflows, loan demand and normal operations. See Note 18 of Notes to
Consolidated Financial Statements.
PFB's capital ratios are substantially in excess of the current capital
requirements. At June 30, 1998, PFB's tangible and core capital amounted to
14.52% of adjusted total assets, or 13.02% and 11.52%, respectively, in
excess of PFB's
46
<PAGE>
current 1.5% tangible and 3.0% core capital requirements. Additionally, PFB's
risk-weighted assets ratio was 23.81% at June 30, 1998, or 15.81% in excess
of PFB's 8.0% risk-based capital requirement.
IMPACT OF INFLATION AND CHANGING PRICES. The consolidated financial
statements and related data presented herein have been prepared in accordance
with generally accepted accounting principles which require the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation.
Unlike most companies, the assets and liabilities of a financial
institution are primarily monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or in the same magnitude as the price of goods and
services, since such prices are affected by inflation. In the current interest
rate environment, liquidity and the maturity structure of PFB's assets and
liabilities are critical to the maintenance of acceptable performance levels.
YEAR 2000 RISK ASSESSMENT AND ACTION PLAN. PFB is aware of the current
concerns throughout the business community of reliance upon computer software
that does not properly recognize the Year 2000 in date formats, often
referred to as the "Year 2000 Problem." The Year 2000 Problem is the result
of software being written using two digits rather than four digits to define
the applicable year (i.e., "98" rather than "1998"). A failure by a business
to properly identify and correct a Year 2000 Problem in its operations could
result in system failures or miscalculations. In turn, this could result in
disruptions of operations, including among other things a temporary inability
to process transactions, or otherwise engage in routine business transactions
on a day-to-day basis.
Operations of PFB depend on the successful operation on a daily basis of
its computer software programs. PFB relies upon software purchased from
third-party vendors rather than internally generated software. In its
analysis of the software, and based upon its ongoing discussions with these
vendors, a plan of action has been put in place by PFB to minimize its risk
exposure to the Year 2000 Problem. As part of the plan, an oversight
committee has been set up to monitor vendor Year 2000 compliance and identify
systems and equipment. PFB's most significant vendor, which processes all
customer related data, has represented to PFB that it has completed its first
and second rounds of Year 2000 testing and that final testing is expected to
be completed prior to the end of 1998. In the event the Merger is not
consummated and such vendor is unable to perform as currently anticipated,
PFB has developed a contingency plan which would replace its computerized
customer related data operations with a manual system.
PFB also is educating and assisting customers in identifying their Year
2000 problems. PFB has developed policies and procedures to help identify
potential risks to PFB and to gain a better understanding of how its customers
are managing their own risks associated with the Year 2000 Problem. PFB has
completed a Year 2000 risk assessment of borrowers in excess of $100,000 and
depositors in excess of 5% of PFB's net worth and has determined that they
constitute a "low" Year 2000 risk (i.e., that they have a minimal reliance on
computers to conduct their businesses).
As of June 30, 1998, Year 2000 compliance costs have not been material.
PFB currently anticipates that its Year 2000 expenditures will total
approximately $40,000.
NEW ACCOUNTING STANDARDS
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. In June 1996, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES (SFAS 125). SFAS No. 125 requires that
liabilities and derivatives incurred or obtained by transferors as part of a
transfer of financial assets be initially measured at fair value, if
practicable. This statement also requires that servicing assets and other
retained interests in the transferred assets be measured by allocating the
previous carrying amount between the assets sold, if any, and retained
interests, if any, based on their relative fair values at the date of transfer.
SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is
47
<PAGE>
to be applied prospectively. However, in December 1996, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 127, DEFERRAL OF THE EFFECTIVE DATE OF CERTAIN PROVISIONS OF FASB
STATEMENT NO. 125. This statement defers for one year the effective date of
certain provisions of SFAS 125 relating to repurchase agreements, dollar-roll
transactions, deferred securities lending and similar transactions. The
effective date for all other transactions addressed by SFAS 125 is unchanged.
PFB adopted SFAS 125 as of January 31, 1997. The adoption of SFAS 125 did
not have a material impact on PFB's financial statements.
REPORTING OF COMPREHENSIVE INCOME. In June 1997, the FASB issued Statement
of Financial Accounting Standards No. 130, REPORTING OF COMPREHENSIVE INCOME
(SFAS 130), which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of financial statements. This statement also requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
This statement is effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
DISCLOSURE ABOUT SEGMENTS AND RELATED INFORMATION. In June 1997, the FASB
issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION (SFAS 131), which establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
stockholders. This statement also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
statement requires the reporting of financial and descriptive information about
an enterprise's reportable operating segments.
This statement is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. PFB believes that the adoption
of SFAS 131 will not have a significant impact on its financial statements and
disclosures as it operates in only one reportable segment.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS. The FASB recently issued SFAS
No. 132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
(SFAS 132), which changes current financial statement disclosure requirements
from those that were required under SFAS 87, EMPLOYERS' ACCOUNTING FOR PENSIONS,
SFAS 88, EMPLOYERS' ACCOUNTING FOR SETTLEMENTS AND CURTAILMENTS OF DEFINED
BENEFIT PENSION PLANS AND FOR TERMINATION BENEFITS, and SFAS 106, EMPLOYERS'
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS.
Some of the more significant effects of SFAS 132 are that it:
- Standardizes the disclosure requirements for pensions and other
postretirement benefits and presents them in one footnote.
- Requires that additional information be disclosed regarding
changes in the benefit obligation and fair values of plan assets.
- Eliminates certain disclosures that are no longer considered
useful, including general descriptions of the plans.
- Permits the aggregation of information about certain plans.
- Provides reduced disclosures requirements for nonpublic entities.
48
<PAGE>
SFAS 132 does not change the existing measurement or recognition provisions
of the above standards and is effective for fiscal years beginning after
December 15, 1997, though early application is permitted. PFB has not yet
adopted SFAS 132 but does not expect that adoption will have a material impact
on PFB's financial statements.
DERIVATIVES. On June 16, 1998, the FASB issued SFAS No. 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (SFAS 133). SFAS 133 requires
companies to record derivatives on the balance sheet as assets or liabilities at
fair value. Depending on the use of the derivative and whether it qualifies for
hedge accounting, gains or losses resulting from changes in the values of those
derivatives would either be recorded as a component of net income or as a change
in stockholders' equity. PFB is required to adopt this new standard January 1,
2000. Management has not yet determined the impact of this standard.
OTHER DATA
LOAN PORTFOLIO. PFB's primary source of income is interest on loans. Set
forth below is selected data relating to the composition of PFB's loan portfolio
on the dates indicated.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------- ------------------- -------------------- ------------------ ---------------------
Amount % Amount % Amount % Amount % Amount %
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of Loan:
Real estate loans --
Construction loans $206 0.88% $267 1.18% $171 0.84% $282 1.55% $337 2.00%
One-to-four- family
residential 12,880 54.99 13,050 57.63 12,691 62.48 12,155 66.79 11,808 70.13
Multi-family
residential -- -- --- -- -- -- -- -- 219 1.30
Non-residential 2,240 9.56 2,134 9.42 1,291 6.36 1,296 7.12 1,394 8.28
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total real
estate loans 15,326 65.43 15,451 68.24 14,153 69.68 13,733 75.46 13,758 81.71
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Consumer loans --
Automobiles and
boat loans 1,328 5.67 1,385 6.12 1,181 5.81 1,072 5.89 855 5.08
Savings account loans 550 2.35 522 2.31 465 2.29 279 1.53 269 1.60
Home improvement loans 427 1.82 401 1.77 323 1.59 202 1.11 193 1.15
Other consumer 2,160 9.22 1,917 8.47 1,830 9.01 1,239 6.81 840 4.99
Agricultural loans 1,426 6.09 945 4.17 453 2.23 431 2.37 176 1.05
Commercial loans 2,205 9.41 2,022 8.93 1,906 9.38 1,242 6.83 746 4.43
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total consumer and
other loans 8,096 34.56 7,192 31.76 6,158 30.32 4,465 24.54 3,079 18.29
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total gross loans 23,422 100.00% 22,643 100.00% 20,311 100.00% 18,198 100.00% 16,837 100.00%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Less:
Loans in process 34 148 90 222 267
Discounts and other 81 80 70 60 26
Loan loss reserve 230 225 215 210 170
------- ------- ------- ------- -------
Total $23,077 $22,190 $19,936 $17,706 $16,374
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
49
<PAGE>
LOAN MATURITY SCHEDULE. The following table sets forth certain information
at September 30, 1997 regarding the dollar amount of loans maturing in PFB's
portfolio based on their contractual terms to maturity, including scheduled
repayments of principal. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in one
year or less.
<TABLE>
<CAPTION>
Due during Due after 1 Due after 5 Due after 10
the year through 5 through 10 through 15 Due after 15
ending years after years after years after years after
September September September September September
30, 1998 30, 1997 30, 1997 30, 1997 30, 1997 TOTAL
-------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage (1) $ 600 $3,057 $4,407 $4,446 $2,781 $15,291
Consumer 856 2,134 1,279 196 -- 4,465
Commercial and agricultural 1,842 1,403 259 85 42 3,631
-------------------------------------------------------------------------------------------
TOTAL $3,298 $6,594 $5,945 $4,727 $2,823 $23,387
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>
(1) Includes construction loans less loans in process.
The following table sets forth at September 30, 1997, the dollar amount
of all loans due one year after September 30, 1997 which have predetermined
interest rates and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Predetermined Floating or
Rates Adjustable Rates
------------- ----------------
<S> <C> <C>
Real estate mortgage . . . . $ 7,395 $ 7,896
Consumer . . . . . . . . . . 4,465 --
Commercial and agricultural. 2,671 960
------------- ----------------
Total. . . . . . . . . . $ 14,531 $ 8,856
------------- ----------------
------------- ----------------
</TABLE>
50
<PAGE>
NON-PERFORMING LOANS AND OTHER PROBLEM ASSETS. The following table sets
forth information with respect to PFB's non-performing assets at the dates
indicated. PFB did not have any restructured loans within the meaning of
Statement of Financial Accounting Standards No. 15 at the indicated dates.
<TABLE>
<CAPTION>
At September 30,
At June 30, ------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on a
non-accrual basis: (1)
Real Estate:
Residential $-- $-- $-- $-- $-- $--
Commercial -- -- -- -- -- --
Commercial business -- -- -- -- -- --
Consumer -- -- -- -- -- --
-------- ------ ------ ------ ----- ------
Total $-- $-- $-- $-- $-- $--
-------- ------ ------ ------ ----- ------
-------- ------ ------ ------ ----- ------
Accruing loans which are
contractually past due 90
days or more:
Real Estate:
Residential $139 $124 $116 $181 $159 $119
Commercial -- 52 51 54 11 --
Commercial business -- -- -- -- -- --
Consumer 35 23 74 67 53 54
-------- ------ ------ ------ ----- ------
Total $174 $199 $241 $302 223 $173
-------- ------ ------ ------ ----- ------
-------- ------ ------ ------ ----- ------
Total of non-accrual
and 90 days past
due loans $174 $199 $241 $302 $223 $173
-------- ------ ------ ------ ----- ------
-------- ------ ------ ------ ----- ------
Percentage of total loans 0.75% 0.85% 1.06% 1.49% 1.23% 1.03%
-------- ------ ------ ------ ----- ------
-------- ------ ------ ------ ----- ------
Other non-performing
assets (2) $-- $21 $2 $-- $-- $--
-------- ------ ------ ------ ----- ------
-------- ------ ------ ------ ----- ------
</TABLE>
- ---------------
(1) Non-accrual status denotes loans on which, in the opinion of management,
the collection of additional interest is unlikely. Payments received on a
non-accrual loan are either applied to the outstanding principal balance or
recorded as interest income, depending on assessment of the collectibility
of the loan.
(2) Other non-performing assets represents property acquired by PFB through
foreclosure or repossession or accounted for as a foreclosure in-substance.
This property is carried at the lower of its fair market value or the
principal balance of the related loan, whichever is lower.
At September 30, 1997, there were no loans which were not classified as
non-accrual, 90 days past due or restructured but where known information about
possible credit problems of borrowers caused management to have serious concerns
as to the ability of the borrowers to comply with present loan repayment terms
and may result in disclosure as non-accrual, 90 days past due or restructured
amounted. At September 30, 1997, management was not aware of any loans not
currently classified as non-accrual, 90 days past due or restructured but which
may be so classified in the near future because of concerns over the borrower's
ability to comply with repayment terms.
Federal regulations require savings institutions to classify their assets
on the basis of quality on a regular basis. In addition, in connection with
examinations of such institutions, federal examiners have authority to identify
problem assets and, if appropriate, classify them. An asset is classified
substandard if it is determined to be inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
As a general rule, PFB will classify a loan as substandard if PFB can no longer
rely on the borrower's income as the primary source for repayment of the
indebtedness and must look to secondary sources such as guarantors or
collateral. An asset is classified as doubtful if full collection is highly
questionable or improbable. An asset is classified as loss if it is considered
uncollectible, even if a partial recovery could be expected in the future. The
regulations also provide for a special mention designation, described as assets
which do not currently expose a savings association to a sufficient
51
<PAGE>
degree of risk to warrant classification but do possess credit deficiencies
or potential weaknesses deserving management's close attention. Assets
classified as substandard or doubtful require a savings association to
establish general allowances for loan losses. If an asset or portion thereof
is classified loss, a savings association must either establish specific
allowances for loan losses in the amount of the portion of the asset
classified loss, or charge off such amount. Federal examiners may disagree
with an institution's classifications and amounts reserved. If a savings
institution does not agree with an examiner's classification of an asset, it
may appeal this determination to the OTS Regional Director. At September 30,
1997, PFB had $225,000 in assets classified as substandard, no loans
classified as doubtful or loss and no loans designated as special mention.
Management believes there is no single non-performing asset which presents
a significant risk to PFB.
ALLOWANCE FOR LOAN LOSSES. In originating loans, PFB recognizes that
credit losses will occur and that the risk of loss will vary with, among other
things, the type of loan being made, the creditworthiness of the borrower over
the term of the loan, general economic conditions and, in the case of a secured
loan, the quality of the security for the loan. It is management's policy to
maintain an adequate general allowance for loan losses based on, among other
things, the Bank's and the industry's historical loan loss experience,
evaluation of economic conditions and regular reviews of delinquencies and loan
portfolio quality. Further, after properties are acquired following loan
defaults, additional losses may occur with respect to such properties while PFB
is holding them for sale, and it is management's policy to maintain a separate
general allowance for additional losses on properties held by PFB as real estate
owned. PFB increases its allowances for loan losses and losses on real estate
owned by charging provisions for possible losses against PFB's income. Specific
reserves also are recognized against specific assets when warranted.
While PFB believes it has established its existing allowances for loan
losses in accordance with generally accepted accounting principles, there can be
no assurance that regulators, in reviewing PFB's loan portfolio, will not
request PFB to significantly increase its allowance for loan losses, thereby
negatively affecting PFB's financial condition and earnings.
52
<PAGE>
The following table analyzes activity in PFB's allowance for loan losses
for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended September 30,
June 30, -------------------------------------
1998 1997 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
Balance at beginning of period . . . . . . . $230 $225 $215 $210
------- ------- -------- -------
Loans charged-off:
Real estate - mortgage:
Residential. . . . . . . . . . . . . . . $10 $-- $-- $--
Commercial . . . . . . . . . . . . . . . 0 -- -- --
Real estate - construction . . . . . . . . 0 -- -- --
Commercial business and agricultural . . . 0 16 -- --
Consumer . . . . . . . . . . . . . . . . . 16 8 7 10
------- ------- -------- -------
Total charge-offs. . . . . . . . . . . . . . 26 24 7 10
Recoveries:
Real estate - mortgage:
Residential. . . . . . . . . . . . . . . 0 -- -- --
Commercial . . . . . . . . . . . . . . . 2 -- -- --
Real estate - construction . . . . . . . . 0 -- -- --
Commercial business and agricultural . . . 4 4 5 4
Consumer . . . . . . . . . . . . . . . . . 4 4 1 --
------- ------- -------- -------
Total recoveries . . . . . . . . . . . . . . 10 8 6 4
Net loans charged-off. . . . . . . . . . . . 16 16 1 6
------- ------- -------- -------
Provision for loan losses. . . . . . . . . . 18 21 11 11
------- ------- -------- -------
Balance at end of period . . . . . . . . . . $232 $230 $225 $215
------- ------- -------- -------
------- ------- -------- -------
Ratio of net charge-offs to average
loans outstanding during the period. . . . 0.07% 0.07% 0.004% 0.04%
------- ------- -------- -------
------- ------- -------- -------
</TABLE>
See Note 5 of Notes to Consolidated Financial Statements.
PFB evaluates the allowance for loan losses on a regular basis. At
September 30, 1997, the allowance was .99% of total net loans, compared to 1.00%
and 1.06% at September 30, 1996 and 1997, respectively. At June 30, 1998, the
allowance was 1.01% of total net loans.
53
<PAGE>
The following table sets forth a breakdown of the allowance for loan losses
by loan category at the dates indicated. Management believes that the allowance
can be allocated by category only on an approximate basis. These allocations
are not necessarily indicative of future losses and do not restrict the use of
the allowance to absorb losses in any loan category.
<TABLE>
<CAPTION>
Year Ended September 30,
At June 30, ----------------------------------------------------
1998 1997 1996 1995
------------------ ----------------- ---------------- ----------------
Percent of Percent of Percent of Percent
Loans in Loans in Loans in of Loans
Each Each Each in Each
Category Category Category Category
to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans
------ ------- ------ ------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate - mortgage:
Residential 1-4 family $37 55.32% $37 54.99% $34 57.63% $37 62.48%
Commercial - multi-family 49 7.35 53 9.56 42 9.42 32 6.36
Real estate - construction 2 0.25 2 0.88 2 1.18 2 0.84
Commercial business and
agricultural 80 15.66 78 15.50 78 13.10 78 11.61
Consumer 64 21.42 60 19.07 66 18.67 66 18.71
----- ------ ------ ------ ----- ------ ----- -------
Total allowance for loan losses $232 100.00% $230 100.00% $225 100.00% $215 100.00%
----- ------ ----- -----
----- ------ ----- -----
</TABLE>
INVESTMENT ACTIVITIES. PFB is required under federal regulations to
maintain a minimum amount of liquid assets equal to 5.0% of the net withdrawal
savings and current borrowings. It has generally been the Bank's policy to
maintain a liquidity portfolio in excess of regulatory requirements. At
September 30, 1997, PFB's liquidity ratio was 12.2% with the monthly average
being 13.2%. Liquidity levels may be increased or decreased depending upon the
yields on investment alternatives, management's judgment as to the
attractiveness of the yields then available in relation to other opportunities,
management's expectations of the level of yield that will be available in the
future and management's projections as to the short-term demand for funds to be
used in PFB's loan origination and other activities.
The general objectives of PFB's investment policy are to assure the safe
and sound investment of the assets of PFB, to provide sufficient liquidity
to meet operating and funding needs, and to comply with regulatory liquidity
requirements. All securities and investments are recorded on the books of
PFB in accordance with generally accepted accounting principles. PFB
purchases securities and investments solely for investments and not for any
sale or trading. All purchases of securities and investments conform to
PFB's interest rate risk policy. The type of investments allowed under the
investment policy are only those which qualify as liquid investments under
current regulations. These investments include the demand, overnight and
certificate of deposit accounts at the FHLB of Cincinnati. Investments may
be made in certificates of deposit and savings accounts in other financial
institutions insured by the FDIC so long as the total investment with accrued
interest does not exceed the $100,000 insurance limit per each institution.
Other investments allowed consist of direct U.S. government obligations and
other government agencies that have the full faith and credit backing of the
U.S. Government. At September 30, 1997, the investments qualifying as liquid
investment consisted of interest-earning deposits in the FHLB of Cincinnati
in the amount of $360,000 and U.S. Government Agency securities of $1,693,000.
Due to limited opportunities for loan originations in PFB's market area and
pursuant to its asset/liability management strategy, PFB has invested in
mortgage-backed securities and mortgage-derivative securities, or collateralized
mortgage obligations/real estate mortgage investment conduits ("CMO/REMICs").
At September 30, 1997, the total amount of investments in mortgage-backed
securities was $285,000, all of which were adjustable-rate securities. The
total amount of investment in CMO/REMICs at September 30, 1997, was $4,100,000,
with $3,598,000 in adjustable-rate securities (with an average yield of 5.9%)
and $502,000 in fixed-rate securities (with an average yield of 6.5%). The
adjustable-rate CMO/REMICs owned by PFB at September 30, 1997 are scheduled to
repay principal in accordance with a predetermined schedule, and pay interest
and reset monthly based on the 11th District cost-of-funds
54
<PAGE>
index and 10-year Treasury index. The securities have lifetime interest caps
of 10% and 9.5%. The fixed-rate CMO/REMICs owned by PFB at September 30, 1997
are short, average-life investments with remaining average lives ranging from
5 to 10 years. All fixed-rate CMO/REMICs are currently paying principal or
are scheduled to repay principal in accordance with a predetermined schedule.
CMOs and REMICs are securities derived by reallocating the cash flows
from mortgage-backed securities in order to create multiple classes, or
tranches, of securities with coupon rates and average lives that differ from
the underlying collateral as a whole. CMO/REMICs are subject to repayment by
the mortgagors of the underlying collateral at any time. Such prepayment may
subject the CMO/REMICs to yield and price volatility. To assess this
volatility, the Federal Financial Institutions Examination Council adopted a
policy in 1992, which has since been adopted by all principal regulatory
authorities, regarding the suitability of investment in certain mortgage
derivative securities. This policy establishes a three-part risk measurement
test for fixed-rate, and a one-part test for adjustable-rate, derivative
instruments. Securities failing any one of the tests when purchased are
deemed to be "unsuitable" investments and must be transferred into a
"trading" portfolio reported at market value. At September 30, 1997, all of
PFB's mortgage derivative securities in its investment portfolio met the
criteria established by the policy to be designated as non-high-risk
securities for continued classification as suitable investments. See Note 3
of Notes to Consolidated Financial Statements.
Prepayments in PFB's mortgage-backed and mortgage derivative securities
portfolios may be affected by declining and rising interest rate
environments. In a low and falling interest rate environment, prepayments
would be expected to increase. In such an event, PFB's fixed-rate securities
purchased at a premium price could result in actual yields to PFB that are
lower than anticipated yields. PFB's floating rate securities would be
expected to generate lower yields as a result of the effect of falling
interest rates on the indexes for determining payment of interest.
Additionally, the increased principal payments received may be subject to
reinvestment at lower rates. Conversely, in a period of rising rates,
prepayments would be expected to decrease, which would make less principal
available for reinvestment at higher rates. In a rising rate environment,
floating rate instruments would generate higher yields to the extent that the
indexes for determining payment of interest did not exceed the life-time
interest rate caps on the Bank's CMO/REMICs.
PFB purchases investment securities pursuant to an investment policy
established by the Board of Directors. The stated objective of the
investment policy is to assure the safe and sound investment of the Bank's
assets.
The carrying values and estimated market values of investment securities
at September 30, 1997 and 1996 are summarized in Note 2 of Notes to
Consolidated Financial Statements.
55
<PAGE>
The following table sets forth the scheduled maturities, carrying
values, market values and average yields for PFB's investment securities at
September 30, 1997.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Portfolio
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Market Average
Value Yield Value Yield Value Yield Value Yield Value Value Yield
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
securities:
U.S. government
and agency
securities $ 800 5.90% $ 893 5.86% $ 492 7.04% -- --% $ 2,185 $ 2,190 6.14%
Mortgage derivative
securities -- -- -- -- -- -- $4,100 5.91% 4,100 3,887 5.91
Federal funds sold 350 5.30% -- -- -- -- -- -- 350 350 5.30
Interest-earning
deposits and
certificates of
deposits 360 5.20% -- -- -- -- -- -- 360 360 5.20
FHLB of Cincinnati
stock -- -- -- -- -- -- 310 7.00% 310 310 7.00
------ ----- ------ ----- ----- ----- ------ ----- ----- ----- -----
TOTAL $1,510 5.59% 893 5.86% $ 492 7.04% $4,410 5.99% $ 7,305 $ 7,097 5.96%
------ ------ ----- ------ ----- -----
------ ------ ----- ------ ----- -----
</TABLE>
DEPOSITS. Deposits are attracted principally from within PFB's primary
market area through the offering of a broad selection of deposit instruments,
including passbook savings, NOW accounts, money market accounts and
certificates of deposit. Deposit account terms vary, with the principal
differences being the minimum balance required, the time periods the funds
must remain on deposit and the interest rate.
PFB's policies are designed primarily to attract deposits from local
residents rather than to solicit deposits from areas outside of its primary
market. PFB does not accept deposits from brokers due to the volatility and
rate sensitivity of such deposits. Interest rates paid, maturity terms,
service fees and withdrawal penalties are established by PFB on a periodic
basis. Determination of rates and terms are predicated upon funds acquisition
and liquidity requirements, rates paid by competitors, growth goals and
federal regulations.
The following table indicates the amount of PFB's certificates of
deposit and other time deposits of $100,000 or more by time remaining until
maturity at September 30, 1997.
<TABLE>
<CAPTION>
MATURITY PERIOD DEPOSITS
(In thousands)
<S> <C>
Three months or less. . . . . . . . $ 242
Over three through six months . . . 300
Over six through 12 months. . . . . 204
Over 12 months. . . . . . . . . . . 605
-------
Total . . . . . . . . . . . . . $ 1,351
-------
-------
</TABLE>
56
<PAGE>
The following table sets forth the average balances and interest rates
based on monthly balances for transaction accounts and time deposits for the
periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------------------------
1997 1996 1995
-------------------------------------------------------------------------------
Transaction Time Transaction Time Transaction Time
Deposits Accounts Deposits Accounts Deposits Accounts Deposits
- -------- ----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Average balance . . $ 7,184 $ 5,697 $7,361 $15,507 $7,732 $13,909
Average rate. . . . 2.75% 5.61% 2.78% 5.64% 2.83% 5.41%
</TABLE>
___________
(1) Transaction accounts include non-interest-bearing checking, NOW, passbook
and money market accounts.
SELECTED FINANCIAL RATIOS
<TABLE>
<CAPTION>
June 30,
----------------
1998 1997
----------------
(Annualized)
<S> <C> <C>
Return on assets (net income divided by average total assets). . . . . . . . . . 0.80% 0.86%
Return on equity (net income divided by average equity). . . . . . . . . . . . . 5.64% 6.10%
Equity-to-assets ratio (average equity divided by average total assets). . . . . 14.10% 14.11%
Interest rate spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.18% 3.35%
Net interest margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.77% 3.88%
</TABLE>
REGULATORY CAPITAL RATIOS
<TABLE>
<CAPTION>
At June 30, 1998 At September 30, 1997
---------------- ---------------------
% of % of
Amount Assets (1) Amount Assets (1)
------ ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tangible Capital $4,535 14.52% $4,460 14.06%
Core Capital 4,535 14.52% 4,460 14.06%
Risk Based Capital 4,643 23.81% 4,690 23.90%
</TABLE>
____________________
(1) Based on adjusted total assets for purposes of the tangible capital and
core capital requirements, and risk-weighted assets for purpose of the
risk-based capital requirement.
57
<PAGE>
DESCRIPTION OF NCBE CAPITAL STOCK
AUTHORIZED SHARES
NCBE's Articles of Incorporation presently authorize the issuance of
29,000,000 common shares, without par value ("NCBE Common"), and 1,000,000
preferred shares, without par value ("NCBE Preferred"). As of September 30,
1998, there were 13,527,887 shares of NCBE Common issued and outstanding and
no shares of NCBE Preferred issued and outstanding.
NCBE COMMON
The holders of NCBE Common are entitled to one vote for each share held
of record on all matters submitted to a vote of shareholders. Subject to
preferences that may be applicable to any outstanding NCBE Preferred, holders
of NCBE Common are entitled to receive ratably such dividends as may be
declared by the NCBE Board out of funds legally available therefor. In the
event of a liquidation or dissolution of NCBE, holders of NCBE Common are
entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any outstanding NCBE Preferred.
Holders of NCBE Common have no preemptive rights and have no rights to
convert their NCBE Common into any other securities. All of the outstanding
shares of NCBE Common are, and the shares of NCBE Common issued pursuant to
the Merger will be, duly authorized, validly issued, fully paid and
nonassessable.
NCBE PREFERRED
The NCBE Board is authorized to designate any series of NCBE Preferred
and the powers, preferences and rights of the shares of such series and the
qualifications, limitations or restrictions thereof without further action by
the holders of NCBE Common. As of the Record Date, no shares of NCBE
Preferred were issued or outstanding.
The NCBE Board may create and issue a series of NCBE Preferred with
rights, privileges or restrictions, and adopt a shareholder rights plan,
having the effect of discriminating against an existing or prospective holder
of such securities as a result of such security holder beneficially owning or
commencing a tender offer for a substantial amount of NCBE Common. One of
the effects of authorized but unissued and unreserved shares of capital stock
may be to render more difficult or discourage an attempt by a potential
acquiror to obtain control of NCBE by means of a merger, tender offer, proxy
contest or otherwise, and thereby protect the continuity of NCBE's
management. The issuance of such shares of capital stock may have the effect
of delaying, deferring or preventing a change in control of NCBE without any
further action by the shareholders of NCBE. NCBE has no present intention to
adopt a shareholder rights plan, but could do so without shareholder approval
at any future time.
CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION AND BY-LAWS
Certain provisions of NCBE's Articles of Incorporation and By-laws may
delay or make more difficult unsolicited acquisitions or changes of control
of NCBE. Such provisions could have the effect of discouraging third parties
from making proposals involving an unsolicited acquisition or change in
control of NCBE, although such proposals, if made, might be considered
desirable by a majority of NCBE's shareholders. Such provisions may also
have the effect of making it more difficult for third parties to cause the
replacement of the current management of NCBE without the concurrence of the
Board of Directors. These provisions include: (i) the classification of the
Board of Directors into three classes, each class serving "staggered" terms
of office of three years; (ii) the requirement that any business combination
be approved by the holders of 80% of the shares entitled to vote thereon,
unless the transaction has been approved by NCBE's Board of Directors; and
(iii) requirements for advance notice for making nominations at shareholders'
meetings. See "COMPARISON OF SHAREHOLDER RIGHTS."
58
<PAGE>
NCBE's By-laws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors. Although NCBE's By-laws do not give
the Board of Directors any power to approve or disapprove shareholder
nominations for the election of directors or proposals for action, they may
have the effect of precluding a contest for the election of directors or the
consideration of shareholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
proposals without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to NCBE and its shareholders.
CERTAIN PROVISIONS OF THE IBCL
NCBE is a corporation formed under the Indiana Business Corporation Law
(the "IBCL"). Certain provisions of the IBCL may delay, prevent or make more
difficult changes of control of NCBE. Such provisions also may have the
effect of preventing changes in the management of NCBE. It is possible that
such provisions could make it more difficult to accomplish transactions which
shareholders may otherwise deem to be in their best interests. See
"COMPARISON OF SHAREHOLDER RIGHTS -- Business Combinations" and "COMPARISON
OF SHAREHOLDER RIGHTS -- Control Share Acquisitions."
TRANSFER AGENT
Fifth Third Bank, Cincinnati, Ohio is the transfer agent for shares of
NCBE Common.
COMPARISON OF SHAREHOLDER RIGHTS
NCBE is a corporation formed under the IBCL. PFB is a federal stock
savings bank formed under the Home Owner's Loan Act, as amended, and related
rules and regulations of the OTS. The rights of holders of shares of NCBE
Common are governed by the IBCL and by NCBE's Articles of Incorporation and
Bylaws. The rights of holders of shares of PFB Common are governed by
federal law and by PFB's Federal Stock Charter and Bylaws. The rights of
shareholders of PFB differ in certain respects from the rights which they
would have as shareholders of NCBE. A summary of the material differences
between the respective rights of the shareholders of NCBE and PFB is set
forth below.
CLASSIFIED BOARD OF DIRECTORS
NCBE. The Articles of Incorporation and By-laws of NCBE divide the
Board of Directors into three classes, as nearly equal in number as possible,
with each class of directors serving a staggered term of three years. The
purpose of a classified Board of Directors is to promote stability and
continuity within the Board. However, a classified Board of Directors also
has the effect of decreasing the number of directors that may otherwise be
elected by holders of NCBE Common and, therefore, may have the effect of
precluding a contest for the election of directors or delay, prevent or make
more difficult changes in control of NCBE.
PFB. PFB also has a classified Board of Directors. The By-laws of PFB
provide for a Board of Directors of six members, with members in each of the
three classes of directors serving a three-year term of office.
BUSINESS COMBINATIONS
NCBE. Under the IBCL, a majority of the shares entitled to vote on a
proposed plan of merger or share exchange is required for approval unless any
class or series of shares is entitled to vote separately as a class on the
plan. However, the vote of the shareholders of the surviving corporation on
a plan of merger is not required if (i) the articles of incorporation of the
surviving corporation will not differ from its articles before the merger,
(ii) each shareholder of the surviving corporation whose shares were
outstanding immediately before the effective date of the merger will hold the
same proportionate number of shares held by all such shareholders (except for
shares of the surviving corporation
59
<PAGE>
received solely as a result of the shareholder's proportionate shareholdings
in the other corporations party to the merger), with identical designations,
preferences, limitations and relative rights, immediately after the merger,
(iii) the number of voting shares outstanding immediately after the merger,
plus the number of voting shares issuable as a result of the merger (either
by the conversion of securities issued pursuant to the merger or the exercise
of rights and warrants issued pursuant to the merger), will not exceed by
more than 20% the total number of voting shares of the surviving corporation
outstanding immediately before the merger, and (iv) the number of
participating shares outstanding immediately after the merger, plus the
number of participating shares issuable as a result of the merger (either by
the conversion of securities issued pursuant to the merger or the exercise of
rights and warrants issued pursuant to the merger), will not exceed by more
than 20% the total number of participating shares of the surviving
corporation outstanding immediately before the merger. NCBE's Articles of
Incorporation require the affirmative vote of 80% of the shares entitled to
vote on any merger, consolidation or acquisition of NCBE by another
corporation that is not approved by NCBE.
The IBCL also restricts the ability of a "resident domestic corporation"
to engage in any combination with an "interested shareholder" for five years
after the interested shareholder's date of acquiring shares unless the
combination or the purchase of shares by the interested shareholder on the
interested shareholder's date of acquiring shares is approved by the board of
directors of the resident domestic corporation before that date. If the
combination was not previously approved, the interested shareholder may
effect a combination after the five-year period only if such shareholder
receives approval from a majority of the disinterested shares or the offer
meets certain fair price criteria. A "resident domestic corporation" means
an Indiana corporation that has 100 or more shareholders. "Interested
shareholder" means any person, other than the resident domestic corporation
or its subsidiaries, who is (i) the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the outstanding voting shares of the
resident domestic corporation or (ii) an affiliate or associate of the
resident domestic corporation and at any time within the five-year period
immediately before the date in question was the beneficial owner of 10% or
more of the voting power of the outstanding shares of the resident domestic
corporation. The above provisions do not apply to a corporation that so
elects in an amendment to its articles of incorporation approved by a
majority of the disinterested shares. Such an amendment, however, would not
become effective for 18 months after its passage and would apply only to
stock acquisitions occurring after its effective date. NCBE's Articles of
Incorporation do not exclude it from the restrictions imposed by such
provisions.
PFB. Section 8.A. of PFB's Federal Stock Charter provides that, for
five years from the date of consummation of the conversion of PFB from the
mutual to stock form (i.e., until May 9, 1999), no person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than
10% of any class of an equity security of PFB. In connection with the Merger
Agreement, the Board of Directors of PFB is recommending to shareholders an
amendment to the Federal Stock Charter to delete Section 8.A. in its entirety
effective at, and contingent upon, consummation of the Merger. See "RELATED
CHARTER AMENDMENT."
The Home Owners' Loan Act provides that no company may acquire control
of a savings institution without the prior approval of OTS. Any company that
acquires such control becomes a "savings and loan holding company" subject to
registration, examination and regulation by OTS. Pursuant to OTS regulations
governing acquisitions of control, control of an insured institution is
conclusively deemed to have been acquired by, among other things, the
acquisition of more than 25% of any class of voting stock of an insured
institution or the ability to control the election of a majority of the
directors of an institution. Moreover, control is presumed to have been
acquired, subject to rebuttal, upon the acquisition of more than 10% of any
class of voting stock, or more than 25% of any class of stock, of an insured
institution, where certain enumerated "control factors" are also present in
the acquisition.
In addition to the foregoing restrictions, under the Change in Bank
Control Act, no person, acting directly or indirectly or in concert with one
or more other persons, may acquire control of a savings institution unless
the OTS has been given 60 days prior notice. Control is deemed to exist
under the presumptions set forth in the OTS regulations governing
acquisitions of control, as described in the preceding paragraph. In the
event a person or entity acquires 10% or more of any class of a savings
institution's stock, but does not trigger a presumption of control under the
OTS regulations, it is required to file an informational report with the OTS
disclosing its ownership.
60
<PAGE>
REMOVAL OF DIRECTORS
NCBE. Under the IBCL, directors may be removed in any manner provided
in the corporation's articles of incorporation. NCBE's Articles of
Incorporation provide that a member of the Board of Directors may be removed,
only for good cause and only at a meeting of the shareholders called
expressly for that purpose, by the affirmative vote of the holders of
outstanding shares representing at least sixty-six and two-thirds percent
(66-2/3%) of all the votes then entitled to be cast in an election of
directors.
PFB. Under PFB's Bylaws, any director may be removed for cause at a
meeting of shareholders called for such purpose, by the holders of a majority
of all votes then entitled to be cast in an election of directors. If less
than the entire board is to be removed, no director may be removed if the
votes cast against removal would be sufficient to elect a director if voted
on a cumulative basis.
AMENDMENTS TO ARTICLES OF INCORPORATION
NCBE. The IBCL provides that, unless a greater vote is required under a
specific provision of the IBCL or by a corporation's articles of
incorporation or its board of directors, a corporation may amend its articles
of incorporation upon the affirmative vote of the holders of a greater number
of shares cast in favor of the amendment than the holders of shares cast
against the amendment, unless the amendment would create dissenters' rights
in which case a favorable vote of the holders of a majority of the
outstanding shares is required. Under the IBCL, a corporation's board of
directors may condition its submission of a proposed amendment to the
shareholders of the corporation on any basis, including the requirement of
the affirmative vote of holders of a greater percentage of the voting shares
of the corporation than otherwise would be required under the IBCL. NCBE's
Articles of Incorporation provide that any amendment to the provisions
concerning business combinations must be approved by the holders of eighty
percent (80%) of the outstanding voting shares.
PFB. PFB's Federal Stock Charter provides that it may be amended only
if the amendment is first proposed by PFB's Board of Directors, then
preliminarily approved by the OTS, and thereafter approved by the holders of
a majority of the outstanding shares of PFB Common Stock. The Bylaws of PFB
may be amended by the vote of either a majority of the Board of Directors or
the holders of a majority of the outstanding shares of PFB Common Stock.
VOTING RIGHTS
NCBE. Holders of shares of NCBE Common are entitled to one vote per
share on all matters to be voted upon by the shareholders.
PFB. On all matters other than the election of directors, holders of
shares of PFB Common are entitled to one vote per share on all matters to be
voted upon by the shareholders. Until May 9, 1999, PFB shareholders are not
entitled to cumulative voting on election of directors. Cumulative voting
means a shareholder may cast a number of votes equal to the number of shares
owned multiplied by the number of directors to be elected for one or more
nominees.
SPECIAL MEETINGS OF SHAREHOLDERS
NCBE. The IBCL provides that a corporation with more than 50
shareholders must hold a special meeting of shareholders on demand of its
board of directors or the persons specifically authorized to do so by the
corporation's articles or by-laws. NCBE's Articles of Incorporation and
By-laws provide that the Chairman of the Board of Directors, the President,
or a majority of the Board of Directors may call a special meeting of
shareholders. Further, a special meeting of the shareholders will be called
upon the receipt of a written request describing in reasonable detail the
purposes of the meeting from the holders of shares representing at least
eighty percent (80%) of all the votes entitled to be cast (so long as NCBE
has more than 50 shareholders) on any issue proposed to be considered at the
proposed special meeting.
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<PAGE>
PFB. PFB's Bylaws provide that special meetings of the shareholders may
be called at any time, for any stated purpose or purposes, by the Chairman of
the Board, the President, a majority of the Board of Directors or the holders
of 10% or more of all the outstanding shares. However, until May 9, 1999,
special meetings of stockholders called to consider matters relating to
changes in control or amendment of PFB's Federal Stock Charter may only be
called by the Board of Directors.
CONTROL SHARE ACQUISITIONS
NCBE. Pursuant to the IBCL, an "acquiring person" who makes a "control
share acquisition" in an "issuing public corporation" may not exercise voting
rights on any "control shares" unless such voting rights are conferred by a
majority vote of the disinterested shareholders of the issuing corporation at
a special meeting of such shareholders held upon the request and at the
expense of the acquiring person. Unless otherwise provided in a
corporation's articles of incorporation or by-laws before a control share
acquisition has occurred, in the event that control shares acquired in a
control share acquisition are accorded full voting rights and the acquiring
person acquires control shares with a majority or more of all voting power,
all shareholders of the issuing corporation have dissenters' rights to
receive the fair value of their shares. "Control shares" means shares
acquired by a person that, when added to all other shares of the issuing
public corporation owned by that person or in respect of which that person
may exercise or direct the exercise of voting power, would otherwise entitled
that person to exercise voting power of the issuing public corporation in the
election of directors within any of the following ranges: (i) one-fifth or
more but less than one-third, (ii) one-third or more but less than a majority
or (iii) a majority or more. "Control share acquisition" means, subject to
certain exceptions, the acquisition, directly or indirectly, by any person of
ownership of, or the power to direct the exercise of voting power with
respect to, issued and outstanding control shares. Shares acquired within 90
days or pursuant to a plan to make a control share acquisition are considered
to have been acquired in the same acquisition. "Issuing public corporation"
means a corporation which is organized in Indiana, has 100 or more
shareholders, its principal place of business, its principal office or
substantial assets within Indiana and either (i) more than 10% of its
shareholders resident in Indiana, (ii) more than 10% of its shares owned by
Indiana residents or (iii) 10,000 shareholders resident in Indiana. The
above provisions do not apply if, before a control share acquisition is made,
the corporation's articles of incorporation or by-laws (including a board
adopted by-law) provide that said provisions do not apply. NCBE's Articles
of Incorporation and By-laws do not exclude NCBE from the restrictions
imposed by such provisions. Further, NCBE's Articles of Incorporation opt
into a provision of the IBCL that allows NCBE to redeem an acquiring person's
control shares under certain circumstances, including the person's failure to
file an acquiring person statement regarding the control shares.
PFB. There is no comparable provision under federal law.
INDEMNIFICATION
NCBE. Pursuant to the IBCL, NCBE is obligated to indemnify certain
officers and directors in connection with liabilities arising from legal
proceedings resulting from such person's service to NCBE in certain
circumstances. NCBE may also voluntarily undertake to indemnify certain
persons acting on NCBE's behalf in certain circumstances. The IBCL provides
for mandatory indemnification of directors and officers of Indiana
corporations and permissive indemnification of directors, officers, employees
and agents of corporations who are made parties to proceedings as a result of
their relationship with such corporation. The IBCL also applies to
individuals who are serving at such corporation's request as directors,
officers, employees and agents of such corporation's subsidiaries. The IBCL
requires corporations, unless limited by their articles of incorporation, to
indemnify any director or officer against reasonable expenses incurred in
connection with any proceeding to which such person was a party if the
individual is wholly successful on the merits. The IBCL authorizes
corporations to indemnify any director, officer, employee or agent against
liability incurred in such a proceeding generally if the individual's conduct
was in good faith and the individual reasonably believed, in the case of
conduct in the individual's official capacity, that his or her conduct was in
the corporation's best interests and in all other cases that his or her
conduct was not opposed to the best interests of such corporation. The IBCL
further authorizes any court of competent jurisdiction, unless the articles
of incorporation provide otherwise, to order indemnification generally if the
court determines a director or officer of a corporation is entitled to
mandatory indemnification or is otherwise fairly and reasonably entitled to
indemnification in view of all the
62
<PAGE>
relevant circumstances. The IBCL also authorizes corporations to advance
reasonable expenses in advance of final disposition of a proceeding generally
if the individual affirms in writing a good faith belief that he satisfies
the standard of conduct for permissive indemnification, the individual
undertakes in a signed writing to repay the advance if it is determined he
does not satisfy the standard of conduct for permissive indemnification and
the corporation determines that the facts then known do not preclude
indemnification. Finally, the IBCL authorizes further indemnification to the
extent that the corporation may provide in its articles of incorporation,
by-laws, a resolution of the board of directors or the shareholders or any
other authorization, whenever adopted, after notice, by a majority vote of
holders of all the voting shares then issued and outstanding. NCBE's Articles
of Incorporation do not contain provisions altering the statutory provisions.
PFB. PFB is required by OTS regulations to indemnify its directors,
officers and employees against legal and other expenses incurred in defending
lawsuits brought against them by reason of the performance of their official
duties. Indemnification may be made to such person only if final judgment on
the merits is in his favor or, in the case of (i) settlement, (ii) final
judgment against him or (iii) final judgment in his favor, other than on the
merits, if a majority of the directors of PFB determines that he was acting
in good faith within the scope of his employment or authority as he could
reasonably have perceived it under the circumstances and for a purpose he
could have reasonably believed under the circumstances was in the best
interest of PFB or its stockholders. If a majority of the directors of PFB
concludes that in connection with an action any person ultimately may become
entitled to indemnification, the directors may authorize payment of
reasonable costs and expenses arising from defense or settlement of such
action.
LIMITATION OF LIABILITY OF DIRECTORS
NCBE. The IBCL provides that a director is not liable for any action
taken as a director, or any failure to act, unless the director has breached
or failed to perform the duties of the director's office in compliance with
the IBCL and the breach or failure to perform constitutes willful misconduct
or recklessness. Subject to this standard, a director who votes for or
assents to distributions in violation of the IBCL is personally liable to the
corporation for the amount of the illegal distribution and is entitled to
contribution from the other directors who voted for or assented to such
distribution and the shareholders who received the distribution. NCBE's
Articles of Incorporation do not contain any provisions that would alter the
statutory provisions.
PFB. There is no comparable limitation under federal law.
AUTHORIZATION OF PREFERRED SHARES
NCBE. NCBE's Articles of Incorporation authorize NCBE to issue up to
1,000,000 preferred shares, without par value, in multiple series, without
further shareholder approval. Prior to issuance, NCBE's Board would set the
preferred shares' voting rights (which may be limited or unlimited), dividend
or distribution rights, rights to priority in relation to common shares or
other series of preferred shares, redemption or conversion prices,
liquidation preferences, and sinking fund provisions. NCBE currently has no
preferred shares outstanding. Depending upon the terms of the preferred
shares issued, such issuance may result in the dilution of the voting rights
of common shareholders and in holders of preferred shares with preferences
and other rights superior to rights of holders of common shares. The
authorized preferred shares may also be viewed as having possible
anti-takeover effects, because the shares could be used in the adoption of a
shareholder rights plan or other defensive measures.
PFB. PFB's Federal Stock Charter authorizes PFB to issue up to 500,000
shares of serial preferred stock, par value $0.01 per share, without further
shareholder approval.
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<PAGE>
LEGAL MATTERS
The legality of the securities offered hereby and certain tax
consequences of the Merger will be passed upon by Baker & Daniels,
Indianapolis, Indiana. Certain matters on behalf of PFB in connection with
the Merger will be passed upon by Kutak Rock, Washington, D.C.
EXPERTS
The consolidated and supplemental consolidated financial statements of
NCBE and subsidiaries as of December 31, 1997 and 1996 and each of the two
years in the two-year period ended December 31, 1997, incorporated by
reference to NCBE's Current Report on Form 8-K dated October 9, 1998, have
been audited by PricewaterhouseCoopers LLP, independent certified public
accountants, as set forth in their report and incorporated herein by
reference. The consolidated and supplemental statements of income,
shareholders' equity and cash flows of NCBE and its subsidiaries for the year
ended December 31, 1995 incorporated by reference to NCBE's Current Report on
Form 8-K dated October 9, 1998, have been audited by McGladrey & Pullen, LLP,
independent certified public accountants, as set forth in their report and
incorporated herein by reference. The financial statements referred to above
are incorporated herein by reference in reliance upon such reports and upon
the authority of such firms as experts in auditing and accounting.
The consolidated financial statements of PFB as of September 30, 1997
and 1996 and the years then ended, included in this Proxy
Statement/Prospectus have been audited by Thurman, Campbell & Co., certified
public accountants, as set forth in their report thereon appearing elsewhere
herein and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
NCBE files annual, quarterly and current reports, proxy statements and
other information with the SEC. Shareholders may read and copy any reports,
statements or other information that NCBE files at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. NCBE's public filings are also available from commercial
document retrieval services and at the Internet web site maintained by the
SEC at http://www.sec.gov.
NCBE has filed a Registration Statement to register with the SEC the
shares of NCBE common stock to be issued to shareholders in the Merger. This
Proxy Statement/Prospectus is a part of that Registration Statement and
constitutes a prospectus of NCBE, as well as a proxy statement of PFB for the
Special Meeting.
As allowed by SEC rules, this Proxy Statement/Prospectus does not
contain all the information that shareholders can find in the Registration
Statement or the exhibits to the Registration Statement.
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<PAGE>
The SEC allows NCBE to "incorporate by reference" information into this
Proxy Statement/Prospectus, which means that it can disclose important
information to shareholders by referring them to another document filed
separately with the SEC. The information incorporated by reference is deemed
to be part of this Proxy Statement/Prospectus. This Proxy
Statement/Prospectus incorporates by references the documents set forth below
that NCBE has previously filed with the SEC. These documents contain
important information about NCBE and its financial condition.
<TABLE>
<CAPTION>
NCBE SEC Filings (File No. 0-13585) Period or Date Filed
---------------------------------- --------------------
<S> <C>
Annual Report on Form 10-K and 10-K/A. . . . . . Year ended December 31, 1997
Quarterly Report on Form 10-Q . . . . . . . . . Quarter ended March 31, 1998
Current Reports on Form 8-K. . . . . . . . . . . Filed March 11, April 30, May 27,
June 9, August 7, and October 9, 1998
Proxy Statement. . . . . . . . . . . . . . . . . Filed April 22, 1998
</TABLE>
Additional documents that NCBE may file with the SEC between the date of
this Proxy Statement/Prospectus and the date of the Special Meeting are also
incorporated by reference. These include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, as well as proxy statements.
NCBE has supplied all information contained or incorporated by reference
in this Proxy Statement/Prospectus relating to NCBE, and PFB has supplied all
information relating to PFB.
Copies of any of these documents may be obtained from NCBE or the SEC or
the SEC's Internet web site described above. Documents incorporated by
reference are available from NCBE without charge, excluding all exhibits
unless NCBE has specifically incorporated by reference an exhibit in this
Proxy Statement/Prospectus, by requesting them in writing or by telephone
from NCBE at the following address:
National City Bancshares, Inc.
P. O. Box 868
Evansville, IN 47705-0868
Attention: Stephen C. Byelick, Jr.
Telephone: (812) 464-9864
Please request documents by November __, 1998 to ensure receipt before
the Special Meeting.
PFB SHAREHOLDERS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE THEIR
SHARES AT THE SPECIAL MEETING. NO ONE HAS BEEN AUTHORIZED TO PROVIDE ANY
INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. PFB SHAREHOLDERS SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF
ANY DATE OTHER THAN THAT DATE, AND NEITHER THE MAILING OF THIS PROXY
STATEMENT/PROSPECTUS TO SHAREHOLDERS NOR THE ISSUANCE OF NCBE COMMON STOCK IN
THE MERGER WILL CREATE ANY IMPLICATION TO THE CONTRARY.
65
<PAGE>
INDEX TO PFB FINANCIAL STATEMENTS
Page
AUDITED FINANCIAL STATEMENTS:
Independent Auditor's Report. . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Financial Condition as of
September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income for the years ended
September 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended September 30, 1997, 1996 and 1995 . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended
September 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . F-8
UNAUDITED FINANCIAL STATEMENTS:
Consolidated Statements of Condition as of June 30, 1998 and
September 30, 1997. . . . . . . . . . . . . . . . . . . . . . . . . F-29
Consolidated Statements of Income for the nine-month periods
ended June 30, 1998 and 1997. . . . . . . . . . . . . . . . . . . . F-30
Consolidated Statement of Cash Flows for the nine-month periods
ended June 30, 1998 and 1997 and 1995 . . . . . . . . . . . . . . . F-31
Notes to Unaudited Consolidated Financial Statements. . . . . . . . . F-32
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Princeton Federal Bank
and Subsidiary
We have audited the accompanying consolidated statements of financial
condition of Princeton Federal Bank and Subsidiary as of September 30, 1997
and 1996, and the related statements of income, changes in stockholders'
equity, and cash flows for each of the three years in the three year period
ended September 30, 1997. These consolidated financial statements are the
responsibility of Princeton Federal Bank's management. Our responsibility is
to express an opinion on these consolidated 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 audits 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 Princeton Federal Bank and Subsidiary as of September 30, 1997 and 1996,
and the consolidated results of their operations and their cash flows for
each of the three years in the three-year period ended September 30, 1997,
in conformity with generally accepted accounting principles.
Princeton, Kentucky
October 24, 1997
F-2
<PAGE>
PRINCETON FEDERAL BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Cash and due from banks $ 1,005,144 $ 761,909
Investment securities, at cost (estimated
market value of $2,516,853 in 1997 and
$2,754,714 in 1996) 2,509,817 2,785,702
Mortgage-backed securities, at cost (estimated
market value of $4,167,128 in 1997 and
$4,149,897 in 1996) 4,385,534 4,447,990
Loans receivable, net 23,076,563 22,190,065
Accrued interest receivable 312,490 312,298
Other repossessed assets 21,327 1,560
Premises and equipment, (net of accumulated
depreciation of $340,193 in 1997 and
$305,382 in 1996) 307,388 293,241
Other assets 58,280 97,243
Cash restricted for deferred compensation plan 34,654 24,650
------------ -----------
Total assets $ 31,711,197 $30,914,658
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits $ 22,372,947 $23,036,311
Borrowed funds 4,574,000 3,110,000
Advances from borrowers for taxes and insurance 731 1,898
Income tax payable 27,375 15,542
Deferred income tax liability 51,114 19,361
Accrued interest payable 124,132 119,614
Accrued expenses and other liabilities 101,030 246,139
------------ -----------
Total liabilities 27,251,329 26,548,865
------------ -----------
Common Stock owned by ESOP (subject
to put option) 227,530 177,576
Stockholders' equity:
Common stock $.01 par value per share;
1,000,000 shares authorized, 261,326
shares issued and outstanding at
September 30, 1997 and September 30, 1996
respectively 2,613 2,613
Additional paid-in capital 2,525,428 2,504,061
Employee stock ownership trust obligation ( 74,000) ( 110,000)
Nonvested shares of Management Recognition Plan ( 42,608) ( 63,912)
Retained earnings, substantially restricted 2,048,435 2,033,031
Common Stock owned by ESOP (subject
to put option) ( 227,530) ( 177,576)
------------ -----------
Total stockholders' equity 4,232,338 4,188,217
------------ -----------
Total liabilities and
stockholders' equity $ 31,711,197 $ 30,914,658
------------ -----------
------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
PRINCETON FEDERAL BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Interest income:
Loans receivable:
First mortgage loans $ 1,397,859 $ 1,292,302 $ 1,204,527
Consumer and other loans 622,091 581,249 464,014
Investment securities 155,944 138,902 109,864
Mortgage-backed and related
securities 266,760 268,055 281,222
Other interest earning assets 17,291 30,304 35,382
----------- ----------- -----------
Total interest income 2,459,945 2,310,812 2,095,009
----------- ----------- -----------
Interest expense:
Deposits 1,079,194 1,079,359 969,500
Borrowed funds 202,264 121,046 64,724
----------- ----------- -----------
Total interest expense 1,281,458 1,200,405 1,034,224
----------- ----------- -----------
Net interest income 1,178,487 1,110,407 1,060,785
Provision for loan losses ( 21,000) ( 11,439) ( 10,664)
----------- ----------- -----------
Net interest income after
provision for loan losses 1,157,487 1,098,968 1,050,121
----------- ----------- -----------
Noninterest income:
Dividends 21,162 19,429 17,276
Gain on foreclosed real estate 2,999
Gain on sale of other repossessed assets 200
Gain on sale of fixed assets 10,146 500 15,325
Other 96,205 71,064 75,323
----------- ----------- -----------
Total noninterest income 127,513 90,993 111,123
----------- ----------- -----------
----------- ----------- -----------
Noninterest expense:
General and administrative:
Compensation and benefits 511,056 510,403 465,793
Occupancy and equipment 74,976 98,324 49,897
SAIF deposit insurance 21,356 188,481 50,275
Other (Note 17) 262,129 247,879 248,320
----------- ----------- -----------
Total noninterest expenses 869,517 1,045,087 814,285
----------- ----------- -----------
Income before provision for
federal income taxes 415,483 144,874 346,959
----------- ----------- -----------
Income tax expense 148,953 60,541 106,385
----------- ----------- -----------
Net income $ 266,530 $ 84,333 $ 240,574
----------- ----------- -----------
----------- ----------- -----------
Basic net income per share $ 1.08 $ 0.35 $ 1.03
----------- ----------- -----------
----------- ----------- -----------
Diluted income per share $ 1.03 $ 0.34 $ 0.97
----------- ----------- -----------
----------- ----------- -----------
Basic weighted average number
of shares outstanding 246,849 240,489 234,554
----------- ----------- -----------
----------- ----------- -----------
Diluted weighted average number
of shares outstanding 258,655 248,036 248,036
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
PRINCETON FEDERAL BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Years Ended September 30, 1997 and 1996 and 1995
<TABLE>
<CAPTION>
Additional Employee Nonvested Retained Common
Paid Stock Shares in Earnings Stock
Common In Ownership Management Substantially Owned
Stock Capital Obligation Plan Restricted By ESOP Total
------- ---------- ---------- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' equity
October 1, 1994 $ 2,613 $2,468,935 $( 188,510) $( 106,519) $ 2,100,530 $ (92,918) $ 4,184,131
Net income 240,574 240,574
Dividends paid at
$0.70 per share ( 170,264) ( 170,264)
ESOP shares earned 11,482 27,510 (27,510) 11,482
Market value adjustment
of ESOP shares
Management recognition
plan shares vested
20 percent 21,304 21,304
------- ---------- ---------- ---------- ------------- ------------ -----------
Balance September
30, 1995 2,613 2,480,417 ( 161,000) ( 85,215) 2,170,840 (120,428) 4,287,227
Net income 84,333 84,333
Dividend paid at
$0.90 per share ( 222,142) ( 222,142)
ESOP shares earned 23,644 51,000 (51,000) 23,644
Market value adjustment
of ESOP shares (6,148) ( 6,148)
Management recognition
plan shares vested
20 percent 21,303 21,303
------- ---------- ---------- ---------- ------------- ------------ -----------
Balance September
30, 1996 2,613 2,504,061 ( 110,000) ( 63,912) 2,033,031 (177,576) 4,188,217
Net income 266,530 266,530
Dividend paid at
$1.00 per share ( 251,126) ( 251,126)
ESOP shares earned 21,367 36,000 (36,000) 21,367
Market value adjustment
of ESOP shares (13,954) ( 13,954)
Management recognition
plan shares vested
20 percent 21,304 21,304
------- ---------- ---------- ---------- ------------- ------------ -----------
Balance September
30, 1997 $ 2,613 $2,525,428 $( 74,000) $( 42,608) $ 2,048,435 $ (227,530) $ 4,232,338
------- ---------- ---------- ---------- ------------- ------------ -----------
------- ---------- ---------- ---------- ------------- ------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
PRINCETON FEDERAL BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 266,530 $ 84,333 $ 240,574
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 39,736 32,549 20,462
Amortization of premiums and discounts, net ( 2,534) ( 4,043) 776
Amortization of deferred loan fees ( 22,889) ( 23,793) ( 17,177)
Provisions for losses, net 21,000 11,439 10,664
Deferred taxes 31,753 45,896 ( 2,495)
Stock dividends ( 20,900) ( 19,200) ( 17,100)
(Gains) losses on sale of real estate ( 2,999)
(Gains) losses on sale of other repossessed assets, net ( 200)
(Gains) losses on sale of fixed assets ( 500) ( 15,325)
Market value adjustments included in pension costs 21,367 23,644 11,482
Amortization of management recognition plan 21,304 21,303 21,304
(Increase) decrease in:
Federal income tax refund receivable 27,014 2,100 3,844
Interest receivable ( 193) ( 38,678) ( 82,568)
Other assets 28,959 19,287 20,187
Increase (decrease) in:
Current income tax payable ( 11,833) ( 52,422) 29,427
Interest payable 4,518 ( 3,498) 32,522
Other liabilities ( 148,455) 101,450 22,316
------------ ------------ -----------
Net cash provided by operating activities 255,377 199,867 275,694
------------ ------------ -----------
Cash flows from investing activities:
Loans made to customers ( 905,935) ( 2,243,051) ( 2,270,345)
Purchase of investments securities ( 979,688)
Proceeds from maturities of investment securities 300,000 500,000
Purchase of mortgage-backed securities and related
securities ( 172,407)
Proceeds from maturities of mortgage-backed and
related securities 61,773 93,537 58,450
Proceeds from sale of real estate owned 3,500 35,000
Proceeds from sale of repossessed assets 1,560 11,030
Proceeds from sale of fixed assets 500 18,617
Purchase of fixed assets ( 53,883) ( 100,437) ( 60,509)
------------ ------------ -----------
Net cash (used) by investing activities ( 596,485) ( 2,725,639) ( 2,380,164)
------------ ------------ -----------
</TABLE>
F-6
<PAGE>
PRINCETON FEDERAL BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 1997, 1996 and 1995
(Continued)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits ( 663,364) 1,210,150 418,009
Prepayment of long-term debt ( 36,000) ( 51,000) ( 40,020)
Principal payments on ESOP 36,000 51,000 27,510
Proceeds from new long-term debt 1,500,000 1,600,000 1,400,000
Net increase (decrease) in mortgage escrow funds ( 1,167) ( 2,038) ( 19,748)
Cash dividends paid on stock ( 251,126) ( 222,142) ( 170,264)
------------ ------------ ----------
Net cash provided by financing activities 584,343 2,585,970 1,615,487
------------ ------------ ----------
Net increase (decrease) in cash 243,235 60,198 ( 488,983)
Cash, beginning of year 761,909 701,711 1,190,694
------------ ------------ ----------
Cash, end of year $ 1,005,144 $ 761,909 $ 701,711
------------ ------------ ----------
------------ ------------ ----------
Supplemental Disclosures:
Cash paid for:
Interest on deposits, advances,
and other borrowings $ 1,266,679 $ 1,189,815 $ 1,002,851
------------ ------------ ----------
------------ ------------ ----------
Income taxes $ 102,000 $ 76,000 $ 91,000
------------ ------------ ----------
------------ ------------ ----------
Transfers from loans to other repossessed assets $ 21,327 $ 1,560 $ 50,536
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
PRINCETON FEDERAL BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Princeton Federal Bank, (the Bank) and P.F.S. Home Service
Corporation (the "Service Corporation"). The Bank owns 100 percent of the
outstanding stock of the Service Corporation, an inactive company. Intercompany
accounts and transactions between the Bank and its wholly owned subsidiary have
been eliminated.
CASH - Cash consists primarily of funds due from banks. For purposes of the
statement of cash flows, the Bank considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash.
INVESTMENT SECURITIES - Investments in obligations of the U.S. Government and
federal agencies are carried at cost adjusted for premiums and discounts that
are recognized in interest income using the interest method over the period to
maturity.
The Bank has adopted SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT
AND EQUITY SECURITIES. SFAS 115 requires debt and equity securities to be
classified into one of three categories: held to maturity, available for sale,
or trading. Securities held to maturity are limited to debt securities that the
holder has the positive intent and the ability to hold to maturity; these
securities are reported at amortized cost. Securities held for trading are
limited to debt and equity securities that are held principally to be sold in
the near term; these securities are reported at fair value, and unrealized
gains, and losses are reflected in earnings. Securities held as available for
sale consist of all other securities; these securities are reported at fair
value, and unrealized gains and losses are not reflected in earnings but are
reflected as a separate component of stockholders' equity. Under SFAS 115,
securities that could be sold in the future because of changes in interest rates
or other factors may not be classified as held to maturity. The carrying value
of investment securities is not adjusted for temporary declines in market value,
since the Bank intends, and has the ability, to hold the securities to their
maturities.
Equity securities that are nonmarketable are carried at cost.
Gains and losses on the sale of investment securities are determined using the
specific identification method.
MORTGAGE-BACKED SECURITIES AND MORTGAGE-RELATED DERIVATIVES - Mortgage-backed
securities and mortgage-related derivatives are held for investment and are
carried at their outstanding principal balances, adjusted for amortization of
premiums and accretion of discounts using the level yield method. The carrying
value of these investments was not adjusted for temporary declines in market
value because the Bank has both the intent and the ability to hold them to
maturity.
LOANS RECEIVABLE - Loans receivable are stated at unpaid principal balances,
less any loans-in-process, deferred loan origination fees and related cost, and
less the allowance for loan losses.
The allowance for loan losses is increased by charges to income and decreased
by charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, estimated value of any underlying collateral,
and current economic conditions.
Uncollectible interest on loans that are contractually past due is charged off
or an allowance is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all interest
previously accrued. Income is subsequently recognized only to the extent cash
payments are received until, in management's judgment, the borrower's ability to
make periodic interest and principal payments is back to normal, in which case
the loan is returned to accrual status.
F-8
<PAGE>
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Bank's primary lending area is a region within Western Kentucky. The
economy within this region is based upon agriculture and a variety of
manufacturing industries. The Bank's primary lending activity is the
origination of residential real estate loans secured by a first mortgage for the
purpose of acquisition or construction of one-to-four family residential
properties.
ALLOWANCE FOR LOSSES ON LOANS - It is the Bank's policy to provide valuation
allowances for estimated losses on loans based on past loss experience, trends
in the level of delinquent and problem loans, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral and current and anticipated economic conditions in the primary
lending area. When the collection of a loan becomes doubtful, or otherwise
troubled, the Bank records a loan charge-off equal to the difference between the
fair value of the property securing the loan and loan's carrying value. Lending
areas are reviewed periodically to determine potential problems at an early
date. The allowance for loan losses is increased by charges to earnings and
decreased by charge-offs (net of recoveries).
In June 1993, the FASB issued SFAS No. 114, ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN. This promulgation, which was amended by SFAS No. 118 as to
certain income recognition and disclosure provisions and was effective as to the
Bank in fiscal year 1995, requires that impaired loans be measured based upon
the present value of expected future cash flows discounted at the loan's
effective interest rate or, as an alternative, at the loan's observable market
price or fair value of the collateral. The Bank's current procedures for
evaluating impaired loans result in carrying such loans at the lower of cost or
fair value.
The Bank adopted SFAS No. 114, as subsequently amended on October 1, 1994,
without a material effect on consolidated financial condition or result of
operations.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. In
applying the provisions of SFAS No. 114, the Bank considers its investment in
one-to-four family residential loans and consumer installment loans to be
homogeneous and therefore excluded from separate identification for evaluation
of impairment. With respect to the Bank's investment in multi-family and
nonresidential loans, and its evaluation of impairment thereof, such loans are
collateral dependent and, as a result, are carried as a practical expedient at
the lower of cost or fair value.
Collateral dependent loans which are more that ninety days delinquent are
considered to constitute more than a minimum delay in repayment and are
evaluated for impairment under SFAS No. 114 at the time.
At September 30, 1997 and 1996, the Bank had no loans that would be defined as
impaired under SFAS No. 114.
LOAN ORIGINATION AND COMMITMENT FEES AND RELATED COSTS - Loan fees received
are accounted for in accordance with FASB Statement No. 91, ACCOUNTING FOR
NONREFUNDABLE FEES AND COSTS ASSOCIATED WITH ORIGINATING OR ACQUIRING LOANS AND
INITIAL DIRECT COSTS OF LEASES. Loan fees and certain direct loan origination
costs are deferred, and the net fee or cost when material is recognized as an
adjustment to interest income using the interest method over the contractual
life of the loans, adjusted for estimated prepayments based on the Bank's
historical prepayment experience.
FORECLOSED REAL ESTATE - Real estate properties acquired through, or in lieu
of, loan foreclosures are initially recorded at the lower of cost or fair value
at the date of foreclosure. Real estate properties held for investment are
carried at the lower of cost, including cost of improvements and amenities
incurred subsequent to acquisition, or net realizable value. Costs relating to
development and improvement of property are
F-9
<PAGE>
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
capitalized, whereas costs relating to holding property are expensed.
Valuations are periodically performed by management, and an allowance for
losses is established by a charge to operations if the carrying value of a
property exceeds its estimated net realizable value.
PREMISES AND EQUIPMENT - Premises and equipment are carried at cost.
Depreciation is computed using the straight-line method. When assets are
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts and any resulting gain or loss is recognized in
income for the period.
INTEREST INCOME, MORTGAGE LOANS - Interest on loans is computed on the
outstanding principal balance adjusted for escrow disbursements made during the
month. The interest on mortgage loans is recognized as income as it is accrued.
INTEREST EXPENSE, CERTIFICATES OF DEPOSIT AND PASSBOOK ACCOUNTS - Certificates
of deposit may be purchased on any day of the month. Interest is payable from
30 up to 360 days from the date of purchase. Therefore, at the end of any
financial reporting period, there will be a significant amount of accrued
interest payable. Interest is paid on or credited to passbook accounts at the
end of each calendar quarter. Consequently, there will be no accrued interest
payable on passbook accounts at the end of a calendar quarter.
INCOME TAXES - The Bank accounts for federal income taxes in accordance with
the provisions of SFAS No. 109, ACCOUNTING FOR INCOME TAXES. SFAS No. 109
established financial accounting and reporting standards for the effects of
income taxes that result from the Bank's activities within the current and
previous years. Pursuant to the provisions of SFAS No. 109, a deferred tax
liability or deferred tax asset is computed by applying the current statutory
tax rates to net taxable or deductible differences between the tax basis of an
asset or liability and its reported amount in the financial statements that will
result in taxable or deductible amounts in future periods. Deferred tax assets
are recorded only to the extent that the amount of net deductible temporary
differences or carryforward attributes may be utilized against current period
earnings, carried back against prior years earnings, offset against taxable
temporary differences reversing in future periods, or utilized to the extent of
management's estimate of future taxable income. A valuation allowance is
provided for deferred tax assets to the extent that the value of net deductible
temporary differences and carryforward attributes exceeds management's estimates
of taxes payable on future taxable income. Deferred tax liabilities are
provided on the total amount of net temporary differences taxable in the future.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
EARNINGS PER SHARE - The Bank has adopted Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE (SFAS 128), which specifies the
computation, presentation and disclosure requirements for earnings per share
(EPS). SFAS 128 replaces the presentation of primary EPS with a presentation of
basic EPS and requires dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures. Diluted
EPS is computed similarly to basic EPS but considers the effect on the numerator
and denominator of all dilutive potential common shares that were outstanding
during the year. SFAS 128 also requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. All prior year EPS data has been restated to reflect
the presentation required under SFAS 128.
F-10
<PAGE>
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table reflects the reconciliation of the numerator and
denominator of the basic earnings per share computation to the numerator and
denominator of the diluted earnings per share computation:
<TABLE>
<CAPTION>
Year ended September 30, 1997 Year ended September 30, 1996 Year ended September 30, 1995
----------------------------------- ----------------------------------- -------------------------------------
Income Shares Per Share Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic earnings
per share
Income available
to common
shareholders $266,530 246,849 $1.08 $84,333 240,489 $0.35 $240,574 234,554 $1.03
Effect of
dilutive
securities
Stock options 8,013 7,397 7,179
Management
recognition
plan 3,794 5,239 6,303
Diluted earnings
per share
Income available
to common
shareholders
plus assumed
conversions $266,530 258,656 $1.03 $84,333 253,125 $0.34 $240,574 248,036 $0.97
-------- ------- ------- ------- -------- -------
-------- ------- ------- ------- -------- -------
</TABLE>
There were no preferred dividends or antidilutive securities that would effect
the computation of earnings per share. Stock option shares have been adjusted
by use of proceeds to purchase treasury stock at average market price for the
period.
REPORTING OF COMPREHENSIVE INCOME - In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, REPORTING OF COMPREHENSIVE INCOME (SFAS
130), which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of financial statements. This statement also requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
This statement is effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
DISCLOSURE ABOUT SEGMENTS AND RELATED INFORMATION - In June 1997, the FASB
issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION (SFAS 131), which establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
stockholders. This statement also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
statement requires the reporting of financial and descriptive information about
an enterprise's reportable operating segments.
This statement is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. The Bank believes that the
adoption of SFAS 131 will not have a significant impact on its financial
statements and disclosures as it operates in only one reportable segment.
F-11
<PAGE>
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PENSIONS AND OTHER POSTRETIREMENT BENEFITS - The FASB recently issued SFAS No.
132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
(SFAS 132), which changes current financial statement disclosure requirements
from those that were required under SFAS 87, EMPLOYERS' ACCOUNTING FOR PENSIONS,
SFAS 88, EMPLOYERS' ACCOUNTING FOR SETTLEMENTS AND CURTAILMENTS OF DEFINED
BENEFIT PENSION PLANS AND FOR TERMINATION BENEFITS, and SFAS 106, EMPLOYERS'
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS.
Some of the more significant effects of SFAS 132 are that it:
- Standardizes the disclosure requirements for pensions and other
postretirement benefits and presents them in one footnote.
- Requires that additional information be disclosed regarding
changes in the benefit obligation and fair values of plan assets.
- Eliminates certain disclosures that are no longer considered
useful, including general descriptions of the plans.
- Permits the aggregation of information about certain plans.
- Provides reduced disclosures requirements for nonpublic entities.
SFAS 132 does not change the existing measurement or recognition provisions
of the above standards and is effective for fiscal years beginning after
December 15, 1997, though early application is permitted. The Bank has not yet
adopted SFAS 132 but does not expect that adoption will have a material impact
on its financial statements.
DERIVATIVES - On June 16, 1998, the FASB issued SFAS No. 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (SFAS 133). SFAS 133
requires companies to record derivatives on the balance sheet as assets or
liabilities at fair value. Depending on the use of the derivative and
whether it qualifies for hedge accounting, gains or losses resulting from
changes in the values of those derivatives would either be recorded as a
component of net income or as a change in stockholders' equity. The Bank is
required to adopt this new standard January 1, 2000. Management has not yet
determined the impact of this standard.
F-12
<PAGE>
2 INVESTMENT SECURITIES
The carrying values and estimated market values of investment securities at
September 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- -----------------------
Estimated Estimated
Carrying Market Carrying Market
Value Value Value Value
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Securities held to maturity:
Bonds, notes and debentures
at amortized cost:
U.S. Treasury $ 700,179 $ 695,703 $ 1,000,358 $ 985,814
FNMA Agency Bond 984,238 995,125 1,480,844 1,464,400
FHLB Agency Bond 500,000 500,625
---------- ---------- ----------- ----------
2,184,417 2,191,453 2,481,202 2,450,214
---------- ---------- ----------- ----------
Equity securities:
Stock in Savings and Loan Data
Corporation, Inc., at cost 15,000 15,000 15,000 15,000
Stock in Federal Home Loan
Bank, at cost 310,400 310,400 289,500 289,500
---------- ---------- ----------- ----------
325,400 325,400 304,500 304,500
---------- ---------- ----------- ----------
$ 2,509,817 $2,516,853 $ 2,785,702 $2,754,714
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
The amortized cost and estimated market values of investments in debt
securities at September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury notes $ 700,179 $ $ 4,476 $ 695,703
FMMA Agency Bond 984,238 10,887 995,125
FHLB Agency Bond 500,000 625 500,625
----------- --------- -------- -----------
$ 2,184,417 $ 11,512 $ 4,476 $ 2,191,453
----------- --------- -------- -----------
----------- --------- -------- -----------
</TABLE>
The amortized cost and estimated market value of debt securities at September
30, 1997, by contractual maturity are as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
1998 $ 500,000 $ 500,625
1999 700,179 695,703
2000 0 0
2001 492,482 499,375
2002 0 0
Thereafter 491,756 495,750
----------- -----------
$ 2,184,417 $ 2,191,453
----------- -----------
----------- -----------
</TABLE>
F-13
<PAGE>
3 MORTGAGE-BACKED SECURITIES
The carrying value, estimated market value and unrealized gains and losses of
mortgage-backed securities at September 30, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
September 30, 1997
-----------------------------------------------------------------------
Unamortized Gross Gross Estimated
Securities held to Principal Premiums Carrying Unrealized Unrealized Market
maturity: Balance (Discount) Value Gain Losses Value
---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FHLMC $ 155,244 $ 3,924 $ 159,168 $ 0 $ 5,957 $ 153,211
FNMA 123,819 2,158 125,977 1,369 0 127,346
Collateralized
mortgage
obligations 4,093,017 7,372 4,100,389 213,818 3,886,571
---------- ----------- ---------- ---------- ---------- ----------
$4,372,080 $13,454 $4,385,534 $1,369 $219,775 $4,167,128
---------- ----------- ---------- ---------- ---------- ----------
---------- ----------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
-----------------------------------------------------------------------
Unamortized Gross Gross Estimated
Securities held to Principal Premiums Carrying Unrealized Unrealized Market
maturity: Balance (Discount) Value Gain Losses Value
---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FHLMC $ 185,339 $ 3,924 $ 189,263 $ 0 $ 7,495 $ 181,768
FNMA 155,498 2,731 158,229 540 1,465 157,304
Collateralized
mortgage
obligations 4,093,017 7,481 4,100,498 289,673 3,810,825
---------- ----------- ---------- ---------- ---------- ----------
$4,433,854 $14,136 $4,447,990 $ 540 $298,633 $4,149,897
---------- ----------- ---------- ---------- ---------- ----------
---------- ----------- ---------- ---------- ---------- ----------
</TABLE>
Contractual maturities of mortgage-backed securities are as follows:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
-------------------------- -------------------------
Carrying Market Carrying Market
Value Value Value Value
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Maturities within five years $ 0 $ 0 $ 0 $ 0
Maturities from five to ten
years 0 0 10,297 10,194
Maturities after ten years 4,385,534 4,167,128 4,437,693 4,139,703
----------- ------------ ----------- -----------
$ 4,385,534 $ 4,167,128 $ 4,447,990 $ 4,149,897
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
Proceeds from the maturities of investments in debt securities during the year
ended September 30, 1997 , 1996, and 1995, were $0, $ 0, and $0 respectively.
F-14
<PAGE>
4 LOANS RECEIVABLE
Loans receivable at September 30, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
First mortgage loans:
(Principally conventional):
Principal balances:
Secured by one to four single
family dwellings $ 12,879,791 $ 13,031,377
Other loans secured by real estate 2,239,867 2,153,631
Construction loans secured by one to
four single family dwellings 206,748 266,757
------------ ------------
15,326,406 15,451,765
Less:
Undisbursed portion of mortgage loans ( 34,835) ( 148,080)
Net deferred loan origination fees ( 81,146) ( 80,230)
------------ ------------
Total first mortgage loans 15,210,425 15,223,455
------------ ------------
Consumer and other loans:
Principal balances:
Loans on deposits 550,381 521,885
Automobile and boat 1,327,929 1,384,668
Home equity and second mortgage 426,939 401,420
Agriculture 1,426,189 969,026
Commercial 2,204,912 1,998,240
Other 2,159,957 1,915,876
------------ ------------
Total consumer and other loans 8,096,307 7,191,115
------------ ------------
23,306,732 22,414,570
Less allowance for loan losses ( 230,169) ( 224,505)
------------ ------------
$ 23,076,563 $ 22,190,065
------------ ------------
------------ ------------
</TABLE>
The weighted average interest rate on loans receivable at September 30, 1997
and 1996 was 8.91 percent and 8.71 percent, respectively.
Provision for losses is established by a charge to earnings when the loss can
be reasonably estimated. The overall provision for losses has been provided
based on the loss experience of prior periods and current economic trends.
The following is a summary of activity in the allowance for loan losses:
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year $ 224,505 $ 214,594 $ 210,664
Provision charged to operations 21,000 11,439 10,664
Charge-offs ( 24,061) ( 6,978) ( 10,634)
Recoveries 8,725 5,450 3,900
------------- ------------ ------------
Balance at end of year $ 230,169 $ 224,505 $ 214,594
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The Association is not committed to lend additional funds to debtors whose
loans have been modified.
F-15
<PAGE>
4 LOANS RECEIVABLE (CONTINUED)
The following table sets forth information with respect to the Bank's
non-performing assets:
<TABLE>
<CAPTION>
September 30,
-------------------------
1997 1996
-------- --------
<S> <C> <C>
Accruing loan 90 days past due $199,487 $241,226
Nonaccrual loans
-------- --------
Total non-performing loans at year end $199,487 $241,226
-------- --------
-------- --------
Non-performing loans as a percentage
of total loans .85% 1.19%
</TABLE>
Certain directors and officers of the Bank, including their immediate families
and companies in which they are principal owners, were loan customers of the
Bank in the ordinary course of business. A summary of the loan activity with
these related parties during the year ended September 30, 1997, is shown below.
<TABLE>
<CAPTION>
<S> <C>
Balance at September 30, 1996 $141,356
New Loans Made 28,100
Repayments 26,624
--------
Balance at September 30, 1997 142,832
--------
--------
</TABLE>
5 ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
September 30,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Investment securities $ 38,138 $ 42,220
Mortgage-backed securities 18,624 19,573
Loans receivable 255,728 250,505
------------ ------------
312,490 312,298
Less reserve for uncollected
interest 0 0
------------ ------------
$ 312,490 $ 312,298
------------ ------------
------------ ------------
</TABLE>
Interest earned but uncollected on conventional and other loans for a period
in excess of 90 days is charged to the reserve for uncollected interest. The
reserve is as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Conventional loan interest $ 0 $ 0 $ 0
Consumer loan interest 0 0 939
------------ ------------ -----------
$ 0 $ 0 $ 939
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
F-16
<PAGE>
6 PREMISES AND EQUIPMENT
Office properties and equipment consist of the following:
<TABLE>
<CAPTION>
September 30,
------------- Estimated
1997 1996 Useful Life
------------ ------------ -------------
<S> <C> <C> <C>
Land $ 43,874 $ 43,874
Building and improvements 279,095 274,615 10 - 50 years
Furniture, fixtures and equipment 324,612 280,134 4 - 20 years
------------ ------------
647,581 598,623
Less accumulated depreciation 340,193 305,382
------------ ------------
$ 307,388 $ 293,241
------------ ------------
------------ ------------
</TABLE>
Depreciation charged to income was $39,736, $32,549 and $20,462 in 1997,
1996 and 1995, respectively.
7 RESTRICTED ASSET
During the year ended September 30, 1994 the Bank established a deferred
compensation plan. The Bank maintains a separate restricted fund for
deferred compensation.
8 DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1997
-----------------------------------------
Rate Amount Percent
------------ ------------ ---------
<S> <C> <C> <C>
Passbook savings 3.248% $ 2,012,424 8.99%
NOW and other savings 0.000-3.500% 4,817,348 21.53
Certificates 3.500-5.000% 588,540 2.63
Certificates 5.001-5.500% 6,204,093 27.73
Certificates 5.501-5.750% 2,663,647 11.91
Certificates 5.751-5.999% 1,014,479 4.53
Certificates 6.000-7.000% 5,052,037 22.59
Certificates 7.001-7.036% 21,000 .09
------------ ---------
$ 22,373,568 100.00%
------------ ---------
------------ ---------
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
-----------------------------------------
Rate Amount Percent
------------ ------------ ---------
<S> <C> <C> <C>
Passbook savings 3.250% $ 2,199,568 9.55%
NOW and other savings 1.450-3.500% 5,317,091 23.08
Certificates 3.500-4.780% 1,936,315 8.40
Certificates 4.780-5.260% 3,403,777 14.77
Certificates 5.270-5.500% 1,526,948 6.63
Certificates 5.510-5.750% 1,878,877 8.15
Certificates 5.560-5.950% 6,758,643 29.33
Certificates 5.960-7.040% 21,000 .09
------------ --------
$ 23,042,219 100.00%
------------ ---------
------------ ---------
</TABLE>
F-17
<PAGE>
8 DEPOSITS (CONTINUED)
The contractual maturity of certificate accounts is as follows:
<TABLE>
<S> <C> <C>
1998 $ 8,335,172 53.63%
1999 3,946,669 25.39
2000 1,303,174 8.38
2001 1,956,782 12.59
2002 0 0.00
Thereafter 2,000 0.01
----------- -------
$15,543,797 100.00%
----------- -------
----------- -------
</TABLE>
The aggregate amount of jumbo deposits with balances in excess of
$100,000 was approximately $1,929,364 and $1,255,000 at September 30, 1997
and 1996 respectively.
The average interest rates on the certificate portfolio, computed without
the effect of compounding daily interest at September 30, 1997, and 1996,
were 5.69 percent and 5.55 percent, respectively.
The average interest rate on deposits, computed without the effect of
compounding daily interest, at September 30, 1997 and 1996, was 4.78 percent
and 4.64 percent, respectively.
Interest expense on deposits by type is summarized as follows:
<TABLE>
<CAPTION>
September 30,
------------------------------------------
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Passbook savings $ 68,638 $ 65,807 $ 66,614
Now and other savings 128,923 138,837 186,941
Certificates 881,633 874,715 715,945
------------ ------------ -------------
$ 1,079,194 $ 1,079,359 $ 969,500
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-18
<PAGE>
9 BORROWED FUNDS
Borrowed funds at September 30, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ESOP note payable $ 74,000 $ 110,000
Advance from the Federal Home
Loan Bank 4,500,000 3,000,000
------------ ------------
$ 4,574,000 $ 3,110,000
------------ ------------
------------ ------------
</TABLE>
The Bank obtained a $201,020 promissory note dated April 26, 1994, carrying
interest at the rate of the New York Prime (currently 8.50%). The interest
rate shall be adjusted on each January 1. The principal is to be repaid in
ten annual installments commencing on December 31, 1994.
The promissory note is secured pursuant to a Stock Pledge Agreement
associated with the Bank's Employee Stock Ownership Plan.
The Bank obtained $4,500,000 in London Interbank Offered Rate (LIBOR) based
advances from the Federal Home Loan Bank (FHLB). The Bank could repay any
amount up to the outstanding balance of the advance on the thirtieth of each
month. The LIBOR rates at September 30, 1997 were 5.656 percent to 5.690
percent. Accrued interest was $21,184 at September 30, 1997.
Advances from the Federal Home Loan Bank of Cincinnati are collateralized
by Federal Home Loan Bank stock and a blanket pledge of one-to-four family
residential mortgage loans equivalent to 150 percent of the outstanding
advances.
Maturities of borrowed funds are as follows:
<TABLE>
<S> <C>
1998 $ 2,620,102
1999 1,520,102
2000 20,102
2001 13,694
2002 0
Thereafter 400,000
-----------
$ 4,574,000
-----------
-----------
</TABLE>
10 EMPLOYEE BENEFITS
PENSION PLAN - The Bank participates in the Financial Institutions
Retirement Fund, a noncontributory retirement plan for all eligible
employees. The required contribution for the cost of the plan amounted to
$43,415 in 1997, $42,326 in 1996 and $54,167 in 1995. Past service costs have
been fully deducted on prior financial statements. The Bank's policy is to
fund pension costs as incurred. The defined benefit plan is fully insured by
the Pension Benefits Guaranty Corporation.
As is the case with multiple employer plans, separate actuarial valuations
are not made with respect to each employer, nor are the plan assets so
segregated.
F-19
<PAGE>
10 EMPLOYEE BENEFITS (CONTINUED)
STOCK OPTION PLAN - The Bank granted stock options under the 1996 Stock
Option and Incentive Plan (the "Plan"). The Bank applies APB Opinion 25 and
related Interpretations in accounting for the Plan. In 1995, the FASB issued
FASB Statement No. 123. "Accounting for Stock-Based Compensation" (SFAS 123)
which, if fully adopted by the Bank, would change the methods the Bank
applies in recognizing the cost of the Plan. Adoption of the cost
recognition provisions of SFAS 123 is optional. As the cost value assigned
to the stock options under a SFAS 123 methodology would not differ materially
from that required by APB Option 25, the Bank has decided not to elect these
provisions of SFAS 123.
Under the Plan, the Bank is authorized to issue shares of common stock
pursuant to "Awards" granted in various forms, including incentive stock
options (intended to qualify under Section 422 of the Internal Revenue Code
of 1986, as amended) non-qualified stock options and other similar
stock-based awards. The Bank granted stock options to two officers in 1994
under the Plan in the form of incentive stock options. The stock options
granted in 1997 have contractual terms of 10 years. All options granted have
an exercise price no less than the fair market value of the stock at grant
date. The options expire ten years after the date of grant. The Bank
granted no options in the year ended September 30, 1997.
In accordance with APB 25, the Bank has not recognized any compensation
cost for the Plan in 1997.
A summary of the status of the Bank's stock options as of September 30,
1997 and the charges during the year ended on that date is presented below:
<TABLE>
<CAPTION>
# of Shares
Underlying Weighted Average
Options Exercise Prices
----------- -----------------
<S> <C> <C>
Outstanding, October 1, 1996 25,127 $10.00
Granted during the year 0
Exercised during the year 0
-------- -------
Outstanding September 30, 1997 25,127 $10.00
Eligible for exercise at year-end 25,127
</TABLE>
As of September 30, 1997, 25,127 options were outstanding with a
weighted-average remaining contractual life of all stock options being 6.5
years.
F-20
<PAGE>
10 EMPLOYEE BENEFITS (CONTINUED)
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) - As a part of the conversion from a
mutual stock entity, the Bank formed the Employee Stock Ownership Plan
(ESOP). The ESOP borrowed $201,020 from an unrelated bank to purchase 20,102
shares of the Bank's common stock. The obligation of the ESOP to repay the
debt is not guaranteed by the Bank. Generally, all employees of the Bank are
eligible to participate in the ESOP upon attainment of age 21 and completion
of one year of service. Participants are 100% vested in their right to ESOP
benefits at all times.
In November 1993, the AICPA issued Statement of Position 93-6
"Employers' Accounting for Employee Stock Ownership Plans." The Statement
has been adopted by the Bank. The Statement requires, among other things,
that: (1) for ESOP shares committed to be released in a period to compensate
employees directly, employers should recognize compensation cost equal to the
average fair value (as determined on a monthly basis) of the shares committed
to be released, (2) dividends on unallocated shares used to repay ESOP loans
are not considered dividends for financial reporting purposes, and (3) for
earnings per share computations, ESOP shares that have been committed to be
released should be considered outstanding. ESOP shares that have not been
committed to be released should not be considered outstanding.
Compensation cost charged to operations for the year ended September 30,
1997 and 1996 totaled $64,018 and $67,888, respectively. The fair value of
the 7,400 unearned ESOP shares at September 30, 1997 was $123,950. The ESOP
held 12,702 allocated shares at September 30, 1997. Shares are released
based on the amount of principal payments made on the loan.
In the case of a distribution of ESOP shares which are not readily
tradeable on an established securities market, the ESOP provides the
participant with a put option that complies with the requirements of Section
409(h) of the Internal Revenue Code. The Bank has classified outside of
permanent equity the fair value of earned and unearned ESOP shares (net of
the debt balance representing unearned ESOP shares) subject to the put option
in accordance with the Securities and Exchange Commission Accounting Series
Release #268.
MANAGEMENT RECOGNITION PLAN (MRP) - In connection with the conversion, the
Bank adopted the Management Recognition Plan, the objective of which is to
enable the Bank to retain personnel of experience an ability in key positions
of responsibility. Those eligible to receive benefits under the MRP include
certain directors and executive officers of the Bank as determined by members
of a committee appointed by the Board of Directors. On May 9, 1994, 10,051
shares were awarded.
The fair market value of the common stock at that date was $106,519 and
there is no exercise price for the stock. MRP awards vest 20% on each
anniversary date of the award. Shares are held by the trustee and are voted
by the MRP trustee in the same proportion that the trustee of the ESOP votes
shares held therein. Assets of the MRP trust are subject to the general
creditors of the Bank. All shares vest immediately if there is a change in
control or in the case of a participant's death or disability. The Bank
applies APB Opinion 25 and related Interpretations in accounting for the MRP.
Compensation cost charged to operations for the MRP totaled $21,304 for the
year ended September 30, 1997 and 1996.
F-21
<PAGE>
11 FEDERAL INCOME TAX
In accordance with the provision of FASB Statement No. 109, ACCOUNTING FOR
INCOME TAXES deferred income taxes have been provided under the asset and
liability method in which the deferred asset or liability is adjusted each
period based on the application of currently enacted tax rates and laws that
are scheduled to be in effect in the periods the temporary differences
reverse. This method of accounting for income taxes resulted in the following
deferred income taxes:
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
(Increase) decrease in taxes currently
payable due to timing differences $ 31,753 $ 45,896 $ ( 2,495)
---------- ---------- ----------
$ 31,753 $ 45,896 $ ( 2,495)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The cumulative deferred income tax assets is $78,258 and $76,332 for
September 30, 1997 and 1996, respectively, and the cumulative deferred tax
liability of September 30, 1997 and 1996, $129,372 and $95,694, respectively.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Current tax expense $ 117,200 $ 106,437 $ 108,880
Deferred income tax expense
(benefit) 31,753 ( 45,896) ( 2,495)
---------- ---------- -----------
Income tax expense $ 148,953 $ 60,541 $ 106,385
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The provision for federal income taxes differs from that computed at the
statutory corporate rate of 34 percent of income before taxes as a result of the
following:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Tax at corporate rates $ 141,264 $ 49,257 $ 117,966
Increase (decrease) in taxes:
Other 1,569 3,828 ( 15,322)
ESOP deduction 6,120 7,456 3,741
---------- ---------- -----------
$ 148,956 $ 60,541 $ 106,385
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
In August 1996, the Small Business Job Protection Act was signed into law
which repeals the favorable tax bad debt deduction method available to savings
banks. Although the percentage of taxable income method bad debt deduction will
no longer be available to the Bank, the tax requirement to invest in certain
qualifying types of investments and loans has been eliminated, thus providing
greater freedom to the Bank in structuring its statement of financial condition
to maximize returns. These tax-related changes had no impact on the Bank's
financial position or results of operations.
As of September 30, 1997, the Bank's bad debt reserve for federal tax purposes
was approximately $380,649 which represents the base year amount. A deferred
tax liability has not been recognized for the base year amount. If the Bank
uses the base year reserve for any reason other than to absorb loan losses, a
tax liability could be incurred. It is not anticipated that the reserve will be
used for any other purposes.
F-22
<PAGE>
12 STOCKHOLDERS' EQUITY
GENERAL - Effective May 9, 1994, Princeton Federal Bank, converted from a
federally chartered mutual savings and loan association to a federally-chartered
capital stock savings bank. In connection with the conversion, 261,326 shares
of common stock were sold at $10.00 per share. Net proceeds from the sale of
stock were $2,466,544 after conversion cost of $146,716.
LIQUIDATION ACCOUNT - In connection with the Bank's conversion from mutual to
stock form of ownership during 1994, the Bank established a "liquidation
account" currently in the amount of $1,820,432 for the purpose of granting to
eligible savings account holders a priority in the event of future liquidation.
Only in such an event would an eligible account holder, who continues to
maintain a savings account, be entitled to receive a distribution from the
liquidation account. The total amount of the liquidation account decreases in
an amount proportionately corresponding to decreases in the savings account
balances of the eligible account holder.
DIVIDEND RESTRICTION - The bank may not declare or pay a cash dividend on any
of its capital stock if the effect thereof would cause the net worth of the Bank
to be reduced below the amount required for the liquidation account.
Additionally, federal regulations limit dividend and capital distributions
during a calendar year to 100 percent of the Bank's current net income plus the
amount that would reduce by one-half it's surplus capital ratio at the beginning
of the calendar year. If the Bank's capital requirement falls below its minimum
capital requirement, the Bank may not pay dividends without regulatory approval.
13 FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet financing needs of its customers. Those
financial instruments are commitments to extend credit and are detailed in Note
18. The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments.
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. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if it is
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the counterparty. The collateral held varies but may
include accounts receivable; inventory; property, plant, and equipment; and
income-producing commercial properties.
14 SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Bank's business activity is with customers located within its
lending community. The Bank has defined its lending community as Caldwell
County, Northeastern Lyon County, and Southwestern Hopkins County, Kentucky.
Occasionally, loans are made outside the lending community, but such lending
rarely exceeds ten percent of its loan activity.
F-23
<PAGE>
15 FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT ("FIRREA") OF
1989
FIRREA was signed into law on August 9, 1989 and regulations for savings
institutions' minimum capital requirements went into effect on December 7,
1989. In addition to its capital requirements, FIRREA includes provisions for
changes in the federal regulatory structure for institutions including a new
deposit insurance system, increased deposit insurance premiums, and
restricted investment activities with respect to non investment-grade
corporate debt and certain other investments. FIRREA also increases the
required ratio of housing-related assets in order to qualify as a savings
institution.
Certain features of the new capital regulations and their administration
have not been made final. However, the regulations require institutions to
have a minimum regulatory tangible capital equal to 1.5 percent of total
assets, a minimum 3 percent leverage capital ratio and 8 percent risk-based
capital ratio.
The Bank at September 30, 1997 meets all capital requirements as defined
by FIRREA. The institution's regulatory tangible capital was $4,459,868 or
14.1 percent of total assets, core capital was $4,459,868 or 14.1 percent of
total assets, and risk-based capital was $4,689,868 or 23.9 percent of total
risk-adjusted assets, as defined by FIRREA. Failure to meet these capital
requirements exposes the institution to regulatory sanctions, including
limitation on asset growth.
As of September 30, 1997, the most recent notification from the OTS
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table below. There have been no conditions or events since
that notification that management believes have changed the Bank's category.
Amounts are in thousands.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------- ------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997
Total Capital (to Risk
Weighted Assets) $4,690 23.90% $1,586 8.0% $1,982 10.0%
Tier I Capital (to Risk
Weighted Assets) $4,460 22.50% $ 793 4.0% $1,189 6.0%
Tier I Capital (to
Adjusted Total Assets) $4,460 14.06% $ 951 3.0% $ 951 3.0%
Tangible Capital (to
Adjusted Total Assets) $4,460 14.06% $ 476 1.5% $4,476 1.5%
As of September 30, 1996
Total Capital (to Risk
Weighted Assets) $4,587 23.90% $1,535 8.0% $1,919 10.0%
Tier I Capital (to
Risk Weighted Assets) $4,366 22.75% $ 768 4.0% $1,151 6.0%
Tier I Capital (to
Adjusted Total Assets) $4,366 14.10% $ 928 3.0% $ 928 3.0%
Tangible Capital (to
Adjusted Total Assets) $4,366 14.10% $ 464 1.5% $ 464 1.5%
</TABLE>
F-24
<PAGE>
16 OTHER NON-INTEREST INCOME AND EXPENSE
Other non-interest income and expense amounts at September 30 are summarized
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Other non-interest income:
Late charges $ 11,280 $ 8,865 $ 7,445
Checking and saving account fees 58,380 46,189 49,237
Insurance 22,766 14,108 14,289
Other 3,779 1,902 4,352
----------- ----------- -----------
$ 96,205 $ 71,064 $ 75,323
----------- ----------- -----------
----------- ----------- -----------
Other non-interest expense:
Employee expense accounts $ 8,179 $ 6,674 $ 5,359
Data processing 66,280 54,918 46,207
Advertisement and promotion 30,333 32,027 31,412
Bank charges 6,564 11,917 23,231
Professional fees 21,480 21,383 19,471
Office expense 40,780 43,166 41,608
Insurance and bonds 9,324 8,071 10,181
Franchise tax 22,691 22,334 21,360
Dues and subscriptions 9,324 8,109 5,437
Contributions 8,831 8,229 7,466
Other 38,343 31,051 36,588
----------- ----------- -----------
$ 262,129 $ 247,879 $ 248,320
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
17 COMMITMENTS
At September 30, 1997 the Bank has committed $755,000 for variable rate floor
plans and lines of credit. The note balances at September 30, 1997 were
$360,756 leaving $394,244 in committed funds at year end. At September 30, 1996
the Association had $690,000 in committed funds at year end for the same
purposes. No liability or reserve has been reflected in the financial
statements for these commitments at September 30, 1997 and 1996.
18 P.F.S. HOME SERVICE CORPORATION, CONSOLIDATED SUBSIDIARY
The following condensed statements summarize the financial position and
operating results of the Bank's wholly owned subsidiary:
P.F.S. HOME SERVICE CORPORATION
SUMMARY STATEMENTS OF FINANCIAL CONDITION
September 30, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
------------ ------------
<S> <C> <C>
Cash $ 14,524 $ 14,224
Stock - Savings & Loan Data Center 15,000 15,000
------------ ------------
$ 29,524 $ 29,224
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Income tax payable $ 0 $ 0
------------ ------------
Common stock - stated value $100 per share;
authorized 2,000 shares, issued 190 shares 19,000 19,000
Retained earnings 10,524 10,224
------------ ------------
Total stockholders' equity 29,524 29,224
------------ ------------
$ 29,524 $ 29,224
------------ ------------
------------ ------------
</TABLE>
F-25
<PAGE>
18 P.F.S. HOME SERVICE CORPORATION, CONSOLIDATED SUBSIDIARY (CONTINUED)
P.F.S. HOME SERVICE CORPORATION
SUMMARY STATEMENT OF INCOME AND RETAINED EARNINGS
September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income:
Interest on investments and bank deposits $ 465 $ 512 $ 128
---------- ---------- ----------
Expenses:
License and taxes 45 45 45
Professional fees 120 110 100
Other expenses 0 4,333 54
---------- ---------- ----------
165 4,488 199
---------- ---------- ----------
Operating income (loss) 300 ( 3,976) ( 71)
Gain of sale of fixed asset 0 0 15,325
---------- ---------- ----------
Loss (income) before provision for
income tax 300 ( 3,976) 15,254
Provision for current income taxes 0 0 3,886
---------- ---------- ----------
Net (loss) income 300 ( 3,976) 11,368
Retained earnings, beginning 10,224 14,200 2,832
---------- ---------- ----------
Retained earnings, ending $ 10,524 $ 10,224 $ 14,200
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-26
<PAGE>
19 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
In December 1991, the FASB issued SFAS No. 107, "Disclosures About Fair Value
of Financial Instruments." This statement extends the existing fair value
disclosure practices for some instruments by requiring all entities to disclose
the fair value of financial instruments (as defined), both assets and
liabilities recognized and not recognized in the statements of financial
condition, for which it is practicable to estimate fair value.
There are inherent limitations in determining fair value estimates as they
relate only to specific data based on relevant information at that time. As a
significant percentage of the Bank's financial instruments do not have an active
trading market, fair value estimates are necessarily based on future expected
cash flows, credit losses and other related factors. Such estimates are,
accordingly, subjective in nature, judgmental and involve imprecision. Future
events will occur at levels different from that in the assumptions, and such
differences may significantly affect the estimates.
The statement excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Bank.
Additionally, the tax impact of the unrealized gains or losses has not been
presented or included in the estimates of fair value.
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the statements of
financial condition for cash and short-term instruments approximate those
assets' fair values.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES: Fair values for
investment securities are based on quoted market prices, where available. If
quoted market pries are not available, fair values are based on quoted market
prices of comparable instruments. No active market exists for the Federal Home
Loan Bank capital stock. The carrying value is estimated to be fair value
since, if the Bank withdraws membership in the Federal Home Loan Bank, the stock
must be redeemed for face value.
LOANS RECEIVABLE: For certain homogeneous categories of loans, such as
residential mortgages and other consumer loans, fair value is estimated using
the quoted market prices for securities based 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 savings deposits and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities.
ADVANCES FROM THE FEDERAL HOME LOAN BANK: Advances from the Federal Home Loan
Bank primarily bear interest at current variable rates, therefore their carrying
value approximates their fair value.
LOAN COMMITMENTS: The fair value of loan commitments is estimated to
approximate the contract values, as the related loan will have a current market
value, the creditworthiness of the counterparties is presently considered in the
commitments, and the original fees, charged do not vary significantly from the
fee structure at September 30, 1997.
F-27
<PAGE>
19 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Bank's financial instruments are as follows:
<TABLE>
<CAPTION>
At September 30, 1997 At September 30, 1996
--------------------- ---------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash $ 295 $ 295 $ 366 $ 366
Interest-bearing deposits in other
depository institutions 710 710 396 396
Investment securities 2,510 2,517 2,786 2,574
Investment in nonmarketable equity
securities
Mortgage-backed securities 4,386 4,167 4,448 4,150
Loans receivable, net of allowance
for loan losses of $230 for 1997 and
$225 for 1996 23,076 23,752 22,190 22,989
Financial Liabilities:
Savings accounts and certificates $22,373 $22,397 $23,036 $23,405
Federal Home Loan Bank advances 4,500 4,513 3,000 3,028
Other borrowed funds 74 74 110 110
</TABLE>
20 PRIOR PERIOD ADJUSTMENT
Net income for September 30, 1997, 1996 and 1995 and retained earnings at
October 1, 1994 has been restated from amounts previously reported to reflect
additional ESOP compensation and interest expense of $30,813, $46,618, $13,981
and $5,000 respectively. Income tax expense for September 30, 1997, 1996 and
1995 has also been restated from amounts previously reported to adjust income
taxes by $19,529, $7,990 and ($19,731) respectively. These retroactive
adjustments (reduced) increased basic net income per share for such years by
($.20), ($.23) and $.02, respectively, as follows:
<TABLE>
<CAPTION>
Retained
Earnings Net Income
--------------- -------------------------------
October 1, 1994 1997 1996 1995
--------------- ---- ---- ----
<S> <C> <C> <C> <C>
Previously reported $ 2,105,530 $316,872 $138,941 $234,824
Adjustments 5,000 50,342 54,608 5,750
------------ -------- -------- --------
As adjusted $ 2,100,530 $266,530 $ 84,333 $240,574
</TABLE>
F-28
<PAGE>
PRINCETON FEDERAL BANK, FSB AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 1998 1997
- ----------------------------------------------------------------- --------- -------------
<S> <C> <C>
Cash $ 622 $ 655
Federal Funds Sold 260 350
Investment securities, at cost (estimated market value of $1,535
at March 31, 1998 and $2,517 at September 30, 1997) 1,235 2,510
Mortgage-backed securities, at cost (estimated market value
of $5,918 at March 31, 1998 and $4,168 at September 30, 1997) 5,701 4,385
Loans Receivable, net 22,738 23,076
Accrued interest receivable 296 313
Other repossessed assets -- 21
Premises and equipment, (net of accumulated depreciation of
$295 at March 31, 1998 and $340 at September 30, 1997) 294 308
Other assets 38 58
Cash restricted for deferred compensation plan 48 35
------- -------
$31,232 $31,711
------- -------
------- -------
LIABILITIES AND STOCKHOLDER'S EQUITY
- -----------------------------------------------------------------
Deposits $22,259 $22,373
Borrowed funds 4,162 4,574
Advances from borrowers for taxes and insurance -- 1
Tax liability 81 78
Accrued interest payable 118 124
Accrued expenses and other liabilities 77 101
------- -------
Total liabilities $26,697 $27,251
------- -------
------- -------
Common Stock owned by ESOP (subject to put option) 317 228
Stockholders' equity:
Common stock, $.01 par value per share; 1,000,000 shares
authorized, 270,154 shares issued and outstanding at
June 30, 1998 and 261,326 at September 30, 1997 3 3
Additional paid-in capital 2,655 2,525
Employee stock ownership trust obligation (33) (74)
Unvested shares of management recognition plan (21) (43)
Retained earnings, substantially restricted 1,931 2,048
Common Stock owned by ESOP (subject to put option) (317) (227)
------- -------
4,218 4,232
------- -------
Total liabilities and stockholders' equity $31,232 $31,711
------- -------
------- -------
</TABLE>
F-29
<PAGE>
PRINCETON FEDERAL BANK, FSB, AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE-MONTH PERIOD
ENDED JUNE 30,
-------------------------
1998 1997
------ ------
<S> <C> <C>
Interest income:
First mortgage loans $1,029 $1,041
Consumer and other loans 513 462
Investment securities 93 116
Mortgage-backed and related securities 213 202
Other interest earning assets 31 13
------ ------
Total interest income $1,879 $1,834
Interest expense:
Deposits 798 808
Borrowed funds 211 141
------ ------
Total interest expense 1,009 949
Net interest income 870 885
Provision for loan losses, net (18) (15)
------ ------
Net interest income after provision for loan losses 852 870
Noninterest income:
Dividends 18 15
Gain on foreclosed real estate 0 0
Other 63 70
------ ------
Total noninterest income $ 81 $ 85
Noninterest expense:
General and administrative:
Compensation and benefits 384 394
Occupancy and equipment 58 52
SAIF deposit insurance 12 18
Other 200 189
------ ------
Total noninterest expense $ 654 $ 653
Income before provision for federal income taxes 279 302
Provision for federal income taxes 88 102
------ ------
Net income $ 191 $ 200
------ ------
------ ------
Earnings per share:
Basic 0.74 0.81
Diluted 0.71 0.78
Weighted average number of shares
Basic 256,730 245,980
Diluted 267,391 257,963
</TABLE>
F-30
<PAGE>
PRINCETON FEDERAL BANK, FSB AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE-MONTH PERIOD
ENDED JUNE 30,
------------------------
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities
Net income $ 191 $ 200
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 43 27
Amortization (36) (20)
Provision for losses, net 24 15
Stock dividends (18) (15)
Market value adjustments included in pension costs 41 18
Amortization of MRP 22 21
(Increase) decrease in:
Federal income tax receivable 0 27
Interest receivable 17 34
Other assets 7 (18)
Increase (decrease) in:
Federal income tax liability 3 0
Interest payable (6) 5
Other liabilities (24) (165)
------ ------
Net cash provided by operating activities 264 129
Cash flows from investing activities
Net (increase) decrease in loans receivable 332 (732)
Purchase of investment securities (1,000) 0
Proceeds from maturities of investment securities 2,293 300
Purchase of mortgage-backed securities and related securities (1,893) 0
Proceeds from maturities of mortgage-backed and related securities 595 40
Proceeds from sale of real estate owned 21
Proceeds from sale of other repossessed assets 0 2
Purchase of fixed assets (29) (34)
------ ------
Net cash provided by investing activities 319 (424)
Cash flows from financing activities
Net increase (decrease) in deposits (114) (86)
Prepayment of long-term debt (3,412) (36)
Principal payments on ESOP debt 41 26
Proceeds from new long-term debt 3,000 1,000
Net increase (decrease) in mortgage escrow funds (1) (2)
Dividends paid (308) (261)
Stock options exercised 88 0
------ ------
Net cash provided (used) by financing activities (706) 641
------ ------
Net increase (decrease) in cash (123) 346
Cash, beginning of period 1,005 762
------ ------
Cash, end of period $ 882 $1,108
------ ------
------ ------
Supplemental disclosures
Cash paid for:
Interest on deposits, advances and other borrowings 1,009 944
Income taxes 123 76
</TABLE>
F-31
<PAGE>
PRINCETON FEDERAL BANK, FSB AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
1 EARNINGS PER SHARE
The following table reflects the reconciliation of the numerator and
denominator of the basic earnings per share computation to the numerator and
denominator of the diluted earnings per share computation:
<TABLE>
<CAPTION>
For the Nine Months Ended For the Nine Months Ended
June 30, 1998 June 30, 1997
-------------------------------------- -------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Income available to common
shareholders $191,000 256,730 $0.74 $200,000 245,980 $0.81
Effect of dilutive securities
Stock options 8,014 7,952
Management recognition plan 2,647 4,031
-------- ------- ----- -------- -------- -----
Diluted earnings per share $191,000 267,391 $0.71 $200,000 257,963 $0.78
Income available to common share-
holders plus assumed conversions
</TABLE>
There were no preferred dividends or antidilutive securities that would
effect the computation of earnings per share.
F-32
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered
into as of the 22nd day of May, 1998, by and between National City Bancshares,
Inc., an Indiana corporation ("NCBE"), and Princeton Federal Bank, fsb, a
federal savings bank ("PFB").
W I T N E S S E T H:
WHEREAS, the parties desire that NCBE acquire PFB in a transaction to be
accounted for as a pooling-of-interests by merging (the "Merger") with and into
PFB a to-be-formed interim federal savings bank subsidiary of NCBE ("Interim");
and
WHEREAS, the Board of Directors of PFB deems the Merger advisable and in
the best interests of its shareholders and has adopted resolutions approving
this Agreement and the Merger Agreement relating to the Merger in the form
attached hereto as Exhibit A (the "Merger Agreement"); and
WHEREAS, the Board of Directors of NCBE has adopted a resolution approving
the Merger and this Agreement and agreeing to cause Interim to enter into the
Merger Agreement after NCBE completes the formation of Interim.
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
representations, warranties and covenants herein contained and for the purpose
of prescribing the terms and conditions of the Merger, the mode of carrying the
Merger into effect, and such other provisions as are deemed desirable in
connection with the Merger, the parties, intending to be bound, hereby agree as
follows:
1. THE MERGER. Upon the terms and subject to the conditions set forth in
the Merger Agreement, and in accordance with applicable law, at the Effective
Time (as defined in the Merger Agreement), Interim will be merged with and into
PFB. PFB shall be the surviving bank under the Merger (the "Surviving Bank").
2. REGULATORY APPROVALS. The parties acknowledge that certain approvals
must be received from or notices must be given to federal and state banking
regulatory agencies to complete the transactions contemplated by this Agreement,
including: (i) the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"); (ii) the Office of Thrift Supervision (the "OTS");
and (iii) any other banking regulatory authorities having jurisdiction over the
parties or the Merger (the governmental agencies referred to in items (i)-(iii)
above are collectively referred to herein as the "Applicable Governmental
Authorities").
3. CLOSING. The delivery of the certificates and opinions called for by
this Agreement shall take place at the offices of NCBE, 227 Main Street,
Evansville, Indiana, at a closing (the "Closing") fixed by agreement of NCBE and
PFB as promptly as practicable following the latest of (i) approval by all the
Applicable Governmental Authorities; (ii) the expiration of any waiting period
imposed by law; and (iii) satisfaction or waiver (to the extent legally
permissible) of the conditions set forth in Sections 10, 11 and 12 of this
Agreement.
4. EXCHANGE OF CERTIFICATES.
(a) SURRENDER OF CERTIFICATES. Within five (5) business days after the
Effective Time, the exchange agent appointed by NCBE (the "Exchange Agent"),
shall send to each record holder of shares of PFB's Common Stock, $0.01 par
value (" PFB Common"), except for holders of Dissenting Shares (as defined in
the Merger Agreement), a letter of transmittal for use in effecting the
surrender of certificates formerly evidencing PFB Common in exchange for the
Merger Consideration (as defined in the Merger Agreement). The letter of
transmittal shall specify how surrender of the certificates formerly
evidencing shares of PFB Common shall be effected. Upon surrender of a
certificate formerly
A-1
<PAGE>
evidencing PFB Common to the Exchange Agent together with such letter of
transmittal and such other documentation that reasonably may be required by
NCBE or the Exchange Agent, the Merger Consideration shall be issued, and the
certificate so surrendered shall be canceled. No interest shall accrue or be
paid with respect to the Merger Consideration. There shall be no obligation
to deliver the Merger Consideration in respect of any shares of PFB Common
until (and then only to the extent that) the holder thereof validly
surrenders the certificates formerly representing the shares of PFB Common
for exchange as provided in this Section 4, or, in lieu thereof, delivers to
the Exchange Agent an appropriate affidavit of loss and an indemnity
agreement as may be required in any such case by NCBE in its reasonable
discretion. If any payment for shares of PFB Common is to be made in a name
other than the registered holder of a surrendered certificate, it shall be a
condition to the payment that the certificate shall be properly endorsed or
otherwise in proper form for transfer, that all signatures shall be
guaranteed by a bank, broker or other institutional member of the Medallion
Signature Guarantee Program, and that the person requesting the payment shall
either (i) pay to the Exchange Agent any transfer or other taxes required by
reason of the payment to a person other than the registered holder of a
surrendered certificate or (ii) establish to the satisfaction of the Exchange
Agent that such taxes have been paid or are not payable.
(b) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to shares of NCBE's Common Stock, without par
value ("NCBE Common") included in the Merger Consideration with a record date
after the Effective Time shall be delivered to the holder of any unsurrendered
certificate evidencing shares of PFB Common with respect to the shares of NCBE
Common evidenced thereby until the surrender of such certificate in accordance
with this Section 4.
(c) ESCHEAT. Notwithstanding anything in this Section 4 or elsewhere in
this Agreement to the contrary, neither the Exchange Agent nor any party hereto
shall be liable to a former holder of PFB Common for any property delivered to a
public official pursuant to applicable escheat or abandoned property laws.
(d) NO FURTHER OWNERSHIP RIGHTS IN PFB COMMON. The Merger Consideration
paid upon the surrender of a certificate evidencing shares of PFB Common in
accordance with the terms of this Section 4 shall be deemed to have been paid in
full satisfaction of all rights pertaining to the shares of PFB Common
theretofore represented by such certificate, and there shall be no further
registration of transfers on the stock transfer books of the Surviving Bank of
the shares of PFB Common which were outstanding immediately prior to the
Effective Time.
(e) WITHHOLDING RIGHTS. NCBE shall be entitled to deduct and withhold
from any dividends payable to former holders of PFB Common such amounts as NCBE
is required to deduct and withhold with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the "Code"). Such withheld
amounts shall be treated as having been paid by any such former holder of shares
of PFB Common.
5. REPRESENTATIONS AND WARRANTIES OF NCBE. NCBE represents and warrants
to PFB as follows:
(a) ORGANIZATION, AUTHORIZATION AND NO VIOLATION. NCBE is a corporation
duly organized and validly existing under the laws of the State of Indiana.
NCBE has all necessary corporate power to own its properties and assets and to
carry on its business as now conducted. Subject to receipt of approvals from
the Applicable Governmental Authorities, the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby by NCBE
have been duly authorized by all necessary corporate action on the part of NCBE,
and this Agreement constitutes the legal, valid and binding obligation of NCBE,
enforceable against NCBE in accordance with its terms, except as limited by (i)
bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance laws
and other similar laws affecting creditors' rights generally, and (ii) general
principles of equity, regardless of whether asserted in a proceeding in equity
or law. The execution and delivery of this Agreement by NCBE, the execution and
delivery of the Merger Agreement by Interim after its formation, and the
consummation of the transactions contemplated by this Agreement, will not
violate the provisions of, or constitute a breach or default under, the articles
of incorporation or by-laws of NCBE or any material agreement to which NCBE is a
party or is bound, or any other material license, law, order, rule, regulation
or judgment to which NCBE is a party. NCBE is duly registered with the Federal
Reserve Board as a bank holding company under the Bank Holding Company Act of
1956, as amended.
A-2
<PAGE>
(b) NO SHAREHOLDER VOTE. No vote by the shareholders of NCBE is
required to approve the Merger under Indiana law, the articles of
incorporation or by-laws of NCBE or any rules of the National Association of
Securities Dealers, Inc. which apply to Nasdaq National Market issuers.
(c) CAPITAL STOCK. The authorized capital stock of NCBE consists of
20,000,000 shares of NCBE Common, of which 10,759,219 shares were issued and
outstanding as of May 1, 1998. All of the issued and outstanding shares of
NCBE Common are duly and validly issued and outstanding and are fully paid
and non-assessable. None of the shares of NCBE Common have been issued in
violation of any preemptive rights. As of the date hereof, there are no
outstanding options, warrants, rights to subscribe for, calls, or commitments
of any character whatsoever relating to, or securities or rights convertible
into or exchangeable for, such shares or contracts, commitments,
understandings or arrangements by which NCBE is or may be obligated to issue
additional shares of capital stock or other equity securities of NCBE, other
than (i) options to purchase shares of NCBE Common which have been granted
pursuant to NCBE's Incentive Stock Option Plan, and (ii) commitments to issue
shares of NCBE Common in connection with the pending acquisitions of Illinois
One Bankcorp, Inc., Trigg Bancorp, Inc., Community First Financial, Inc.,
Hoosier Hills Financial Corporation and 1st Bancorp Vienna, Inc.
(d) SEC DOCUMENTS. NCBE has provided PFB with copies of the following
reports (the "SEC Documents") filed by NCBE with the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"): (i) the annual report on Form 10-K for the year
ended December 31, 1997, as amended; and (ii) the definitive proxy materials for
the 1998 annual meeting of NCBE shareholders. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder and did not contain any untrue statement of a material fact or omit
to state any material fact necessary to make the statements contained therein
not misleading.
(e) FINANCIAL INFORMATION. NCBE has delivered to PFB the consolidated
balance sheets of NCBE and its subsidiaries as of December 31, 1997 and 1996
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for the three (3) years ended December 31, 1997,
together with the notes thereto, that are included in the SEC Documents.
Such financial statements have been audited by McGladrey & Pullen, LLP,
independent auditors, whose report thereon is included with such financial
statements. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent
basis (except for changes, if any, required by GAAP and disclosed therein)
and fairly present in all material respects the consolidated financial
position and the consolidated results of operations, changes in shareholders'
equity and cash flows of NCBE and its consolidated subsidiaries as of the
dates and for the periods indicated. At December 31, 1997, there were no
material liabilities of NCBE and its subsidiaries (actual, contingent or
accrued) which, in accordance with GAAP applied on a consistent basis, should
have been shown or reflected in such financial statements or the notes
thereto, but which are not so reflected.
(f) ABSENCE OF CHANGES. Except as disclosed in the SEC Documents, since
December 31, 1997, NCBE has not incurred any obligation or liability (absolute
or contingent), except normal trade or business obligations or liabilities
incurred in the ordinary course of business, and there has not been any material
adverse change in the financial condition, results of operations or business of
NCBE and its subsidiaries taken as whole, nor have there been any events or
transactions having such a material adverse effect which should be disclosed in
order to make the financial statements described in subsection (e) not
misleading.
(g) LITIGATION. There is no litigation, claim, investigation or other
proceeding pending or, to the knowledge of NCBE, threatened, against or
adversely affecting NCBE or any of its subsidiaries, or of which the property of
NCBE or any of its subsidiaries is or would be subject and which would have a
material adverse effect on the financial condition, results of operations or
business of NCBE and its subsidiaries, taken as a whole. To the knowledge of
NCBE management, there is no litigation, claim, investigation or other
proceeding to which any director, officer, employee or agent of NCBE or any of
its subsidiaries in their respective capacities as directors, officers,
employees or agents, is a party, pending of threatened against any such
director, officer, employee or agent. There is no outstanding order, writ,
injunction or decree of any court, government or governmental agency against or,
affecting NCBE or any of its subsidiaries, or the assets or business of NCBE or
any of its
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subsidiaries, which could reasonably be expected to have a material adverse
effect on the financial condition, results of operations or business of NCBE
and its subsidiaries, taken as a whole, or which challenges the validity of
the transactions contemplated by this Agreement.
(h) SHARES TO BE ISSUED IN THE MERGER. The shares of NCBE Common to be
issued in the Merger are duly authorized and, when issued in accordance with
this Agreement and the Merger Agreement, will be validly issued, fully paid and
nonassessable.
(i) POOLING-OF-INTERESTS; TAX TREATMENT. As of the date of this
Agreement, NCBE has no reason to believe that the Merger will not qualify for
the pooling-of-interests method of accounting under Accounting Principles Board
No. 16 ("APB 16") or that the Merger will not qualify as a "reorganization"
within the meaning of Section 368(a) of the Code.
(j) REGULATORY APPROVALS. NCBE knows of no reason, other than the receipt
by NCBE of a "needs improvement" rating with regard to its Year 2000 compliance
efforts by bank regulatory authorities, why (i) it would not receive all
regulatory approvals from the Applicable Governmental Authorities in connection
with the transactions contemplated by this Agreement at least 15 calendar days
before the Termination Date (as defined in Section 15(c) of this Agreement) or
(ii) any of such regulatory approvals would be subject to a condition that would
have a material adverse effect on the financial condition, operations, business
or assets of NCBE and its subsidiaries, taken as a whole.
(k) TRUE AND COMPLETE INFORMATION. No representation or warranty made by
NCBE contained in this Agreement and no statement of NCBE contained in any
certificate, list, exhibit or other instrument specified in this Agreement,
whether heretofore furnished to PFB or hereinafter required to be furnished to
PFB, contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary to make the statements contained
therein not misleading.
6. REPRESENTATIONS AND WARRANTIES OF PFB. PFB represents and warrants to
NCBE, except as disclosed in the writing delivered to NCBE concurrently with the
execution of this Agreement (the "Disclosure Schedule"), as follows:
(a)(i) ORGANIZATION AND GOOD STANDING OF PFB. PFB is a savings bank
duly organized, validly existing and in good standing under the Home Owners
Loan Act, as amended ("HOLA"), and has all necessary corporate power to own
its properties and assets and to carry on its business as now conducted.
PFB is duly qualified to conduct its business and is in good standing in
each jurisdiction in which the nature of the business transacted by PFB
requires such qualification. The deposits of PFB are insured by the Savings
Association Insurance Fund administered by the FDIC up to applicable
limits.
(ii) CAPITAL STOCK. On the date hereof, PFB has 1,000,000 shares of
PFB Common and 500,000 shares of Preferred Stock, $0.01 par value ("PFB
Preferred") and there are 270,204 shares of PFB Common issued and
outstanding and no shares of PFB Preferred issued and outstanding. All of
the issued and outstanding shares of PFB Common are duly and validly
authorized and issued, fully paid and nonassessable. None of the issued
and outstanding shares of PFB Common have been issued in violation of any
preemptive rights. There are no shares of any class of capital stock or
equity securities of PFB outstanding other than the PFB Common and there
are no outstanding, options, warrants, rights to subscribe for, calls, or
commitments of any character whatsoever relating to, or securities
convertible into or exchangeable for, such shares or contracts,
commitments, understandings or arrangements by which PFB is or may be
obligated to issue additional shares of any class of capital stock or other
equity securities of PFB except for options to acquire an aggregate of
16,249 shares of PFB Common (the "PFB Options") as disclosed in the
Disclosure Schedule.
(b) AUTHORIZATION AND NO VIOLATION. PFB has all requisite corporate power
and authority to enter into this Agreement and Merger Agreement and, subject to
approval of the Merger by the Applicable Governmental Authorities and the
approval by the shareholders of PFB of this Agreement and an amendment to
Article 8 of PFB's Federal Stock Charter (the "PFB Charter") to delete Section A
(Beneficial Ownership Limitation) thereof (the "Charter Amendment"),
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to consummate the transactions contemplated by the Agreement. The execution
and delivery of this Agreement and the Merger Agreement by PFB and the
consummation of the transactions contemplated by this Agreement have been
duly and validly authorized by all necessary corporate action on the part of
PFB, except for the approval of this Agreement and the Charter Amendment by
PFB's shareholders. This Agreement constitutes and the Merger Agreement, when
executed, will constitute, the legal, valid and binding obligation of PFB,
enforceable against PFB in accordance with its terms, except as limited by
(x) bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance
laws and other similar laws affecting creditors' rights generally, and (y)
general principles of equity, regardless of whether asserted in a proceeding
in equity or at law. The execution of this Agreement and the Merger Agreement
by PFB and the consummation of the transactions contemplated by this
Agreement will not violate the provisions of, or constitute a breach or
default under (i) the PFB Charter (assuming shareholder approval of the
Charter Amendment contemplated hereby), (ii) the by-laws of PFB, (iii) any
Material Contract (as defined in Section 6(f)) of PFB or (iv) any other
material license, law, order, rule, regulation or judgment to which PFB is a
party, is bound or by which any of its respective properties or assets is
subject. The minute books of PFB accurately reflect in all material respects
all corporate actions held or taken by its shareholders and Board of
Directors (including committees of the Board of Directors).
(c) SUBSIDIARIES. The only entity (including, without limitation,
corporations, partnerships, limited liability companies and joint ventures) in
which PFB has a direct or indirect equity or ownership interest is P.F.S. Home
Service Corporation (the "Subsidiary"). Unless the context indicates otherwise,
references to PFB in this Agreement shall mean PFB and the Subsidiary.
(d) FINANCIAL STATEMENTS. PFB has delivered to NCBE the consolidated
statements of financial condition of PFB as of September 30, 1997 and 1996 and
the related statements of income, changes in shareholders' equity and cash flows
for each of the three years in the period ended September 30, 1997. Such
financial statements have been audited by Thurman Campbell & Co., certified
public accountants, whose report thereon is included with such financial
statements. Such financial statements have been prepared in conformity with
GAAP applied on a consistent basis (except for changes, if any, required by GAAP
and disclosed therein), the statements of financial condition present fairly the
consolidated financial condition of PFB as of their dates and the statements of
income present fairly the results of operations of PFB for the periods covered.
At September 30, 1997, there were no material liabilities of PFB (actual,
contingent or accrued) which, in accordance with GAAP applied on a consistent
basis, should have been shown or reflected in such financial statements or the
notes thereto, but which are not so shown or reflected.
(e) TAXES AND TAX RETURNS.
(i) To the knowledge of PFB management, PFB has duly filed all
federal and state tax information and tax returns (the "Returns") required
to be filed by it (all such returns being accurate and complete in all
material respects) and has duly paid or made provision for the payment of
all material taxes and other governmental charges which have been incurred
and are shown to be due on said Returns or are otherwise due or claimed to
be due from it or imposed on it or its properties, assets, income,
franchises, licenses, sales or use, by any federal, state or local taxing
authorities (collectively, the "Taxes") on or prior to the date hereof
other than Taxes which are being contested in good faith and by appropriate
proceedings and as to which PFB has set aside adequate reserves. To the
knowledge of PFB management, the amounts recorded as reserves for Taxes on
the consolidated financial statements of PFB as of September 30, 1997, are
sufficient in the aggregate for the payment of all unpaid Taxes (including
any interest or penalties thereon) whether or not disputed or accrued, for
the period ended September 30, 1997 or for any year or period prior
thereto. The federal and state Returns of PFB have been examined by the
Internal Revenue Service ("IRS") or other appropriate tax authority or the
tax years have been closed without audit and any liability with respect
thereto has been satisfied for all years to and including the year ended
December 31, 1993 and, if required, the appropriate tax authorities have
been apprised of such liabilities and the satisfaction thereof. There are
no material disputes pending, or claims asserted, for Taxes upon PFB. PFB
has not been required to give any currently effective waivers extending the
statutory period of limitation applicable to any federal, state or local
Return for any period. PFB does not have in effect any power of attorney
or authorization to anyone to represent it with respect to any Taxes. PFB
has not filed any consolidated federal income tax return with an
"affiliated group" (within the meaning of Section 1504 of the Code), where
PFB was not the common
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parent of the group. PFB is not and has not been, a party to any tax
allocation agreement or arrangement pursuant to which it has any
contingent or outstanding liability to anyone other than PFB. PFB has
not filed a consent under Section 341(f) of the Code. PFB has made
available to NCBE or its representatives complete and correct copies of
its federal and state income tax returns filed on or prior to April 15,
1998, and all examination reports, if any, relating to the audit of such
returns by the IRS or other tax authority for each taxable year
beginning on or after January 1, 1995.
(ii) All monies required to be withheld from employees of PFB for
income taxes, social security and unemployment insurance taxes or collected
from customers or others as sales, use or other taxes have been withheld or
collected and paid, when due, to the appropriate governmental authority, or
if such payment is not yet due, a reserve, which in the opinion of PFB
management is adequate, has been established.
(f) MATERIAL CONTRACTS. The Disclosure Schedule contains a list of all
executory contracts, indentures, commitments, and other agreements (other than
agreements or commitments for loans made in the ordinary course of business) in
excess of $50,000 to which PFB is a party or to which PFB or any of its
properties are subject (collectively, the "Material Contracts" and each a
"Material Contract"). All Material Contracts were entered into in the ordinary
course of business. PFB has duly performed all its obligations thereunder to
the extent that such obligations to perform have accrued, and no material breach
or default thereunder by PFB or, to the knowledge of PFB management, any other
party thereto has occurred which will impair the ability of PFB to enforce any
material rights thereunder.
(g) REAL ESTATE. PFB has good title to all of the assets reflected as
owned in the financial statements described in Subsection (e), and in the case
of real property, transferable and insurable title in fee simple, and in all
cases free and clear of any material liens or other encumbrances. The real
properties, structures, buildings, equipment, and the tangible personal property
owned, operated or leased by PFB are (i) in good repair, order and condition,
except for depletion, depreciation and ordinary wear and tear, and (ii) free
from any known structural defects. There are no laws, conditions of record or
other impediments which materially interfere with the intended uses by PFB of
the real property or tangible personal property owned or leased by it.
(h) NO MATERIAL ADVERSE CHANGE. Since September 30, 1997, there has been
no material adverse change in the business, financial condition, properties,
results of operation, or capitalization of PFB.
(i) LITIGATION. There is no litigation, claim, investigation or other
proceeding pending or, to the knowledge of PFB management, threatened, against
or adversely affecting PFB, or of which the property of PFB is or would be
subject and which would have a material adverse effect on the financial
condition, results of operations or business of PFB. To the knowledge of PFB
management, there is no litigation, claim, investigation or other proceeding to
which any director, officer, employee or agent of PFB in their respective
capacities as directors, officers, employees or agents, is a party, pending or
threatened against any such director, officer, employee or agent. There is no
outstanding order, writ, injunction or decree of any court, government or
governmental agency against or, affecting PFB, or the assets or business of PFB,
which could reasonably be expected to have a material adverse effect on the
financial condition, results of operations or business of PFB, or which
challenges the validity of the transactions contemplated by this Agreement.
(j) INSURANCE. PFB has in effect insurance coverage with reputable
insurers, which in respect to amounts, types and risks insured, is adequate in
the opinion of PFB management for the business in which PFB is engaged. All
policies of insurance owned or held by PFB are in full force and effect, all
material premiums with respect thereto covering all periods up to and including
the date hereof is paid (other than retrospective premiums which may be payable
with respect to worker's compensation insurance policies), and no notice of
cancellation or termination has been received with respect to any such policy.
(k) COMPLIANCE WITH LAWS. PFB has conducted its business in substantial
compliance with all applicable federal, state and local laws, regulations and
orders including, without limitation, disclosure, usury, equal credit
opportunity, equal employment, fair credit reporting, lender liability, and
other laws, regulations and orders, and the forms, procedures and practices used
by PFB, to the knowledge of PFB management, are in compliance with such laws,
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regulations and orders except to the extent that non-compliance with any such
law, regulation or order would not have a material adverse effect on PFB.
(l) BROKER'S AND FINDER'S FEES. Except for the fees payable to
Professional Bank Services, Inc. ("PBS"), PFB has not incurred any obligation or
liability, contingent or otherwise, for any brokers or finders in respect of the
matters provided for in this Agreement.
(m) EMPLOYEE BENEFIT PLANS.
(i) There are no other trades or businesses, whether or not
incorporated, which, together with PFB, would be deemed to be a "single
employer" within the meaning of Section 414(b), (c) or (m) of the Code.
(ii) The Disclosure Schedule sets forth a true and a complete list of
(A) each employee benefit plan, as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") that PFB
currently maintains or has maintained within the three year period
preceding the date hereof (the "ERISA Plans"), and (B) each other plan,
arrangement, program and agreement providing employee benefits, including,
but not limited to, deferred compensation, bonuses, severance pay or fringe
benefits, and consulting or employment agreements, that are presently
maintained for the benefit of any current or former employees of PFB (the
ERISA Plans and such other plans are collectively referred to as the
"Plans"). PFB has made available to NCBE copies of all Plans and any
related documents or instruments establishing the Plans or any related
trusts or funding arrangements; the most recent determination letter, or
any outstanding request for a determination letter, from the IRS with
respect to each ERISA Plan intended to satisfy the requirements of Section
401(a) of the Code and a copy of the application on which the determination
letter or request for determination letter is based; fidelity bonds;
actuarial valuations, if applicable, for the most recent three plan years
for which such valuations are available; current summary plan descriptions;
annual returns/reports on Form 5500 and summary annual report for the three
most recent plan years; Form 5310 and any related filings with the IRS, the
Department of Labor ("DOL") or the Pension Benefit Guaranty Corporation
("PBGC") within the last year preceding the date of this Agreement; and any
material correspondence to or from the IRS, DOL or PBGC within the last
three years preceding the date hereof in connection with any Plan.
(iii) PFB does not currently maintain or contribute to, or has ever
maintained or contributed to, a "multi-employer plan" as defined in Section
3(37) of ERISA.
(iv) No Plan provides benefits, including without limitation death or
medical benefits (whether or not insured), with respect to current or
former employees for any period extending beyond their retirement or other
termination of service other than (A) continuation group health coverage
pursuant to Section 4980B of the Code or applicable state law;
(B) benefits, the full cost of which is borne by the current or former
employee (or his or her beneficiary); or (C) benefits which in the
aggregate are not material.
(v) Each ERISA Plan intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter from the IRS that
the Plan is qualified and to the knowledge of PFB's management, satisfies
all legal requirements, including the requirements of the Tax Reform Act of
1986. To the knowledge of PFB management, nothing has occurred since the
dates of the respective IRS favorable determination letters that could
adversely affect the qualification of the Plans and their related trusts.
(vi) To the knowledge of PFB's management, all of the Plans, and any
related trust agreement, group annuity contract, insurance policy or other
funding arrangement are in substantial compliance with all applicable laws,
rules and regulations, including without limitation, the rules and
regulations promulgated by the DOL, PBGC or IRS pursuant to the provisions
of ERISA and the Code, and each of such Plans has been administered in
substantial compliance with such requirements and its own terms.
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(vii) PFB does not currently maintain or contribute to, or has ever
maintained or contributed to, a Plan that is subject to Title IV of ERISA
or the minimum funding requirements of Section 412 of the Code.
(viii) To the knowledge of PFB management, none of PFB, any of the
Plans, any trust created thereunder, or any trustee or administrator
thereof has engaged in a transaction in connection with which PFB, any of
the Plans, any such trust, or any trustee or administrator thereof, or any
party dealing with the Plans or related trusts could be subject to either a
civil penalty assessed pursuant to Sections 409 or 502 of ERISA or a tax
imposed pursuant to Sections 4975 or 4976 of the Code. To the knowledge of
PFB management, none of PFB, NCBE or the Surviving Bank is, or, as a result
of any actions, omissions, occurrences or state of facts existing prior to
or at the Effective Time, is likely to become liable for any tax imposed
under Sections 4978 or 4978(B) of the Code.
(ix) To the knowledge of PFB's management, there are no (A) actions,
suits, arbitrations or claims (other than routine claims for benefits), (B)
legal, administrative or other proceedings or governmental investigations
or audits, or (C) complaints to or by any governmental entity, which are
pending, anticipated or threatened, against any Plan or its assets, or
against any Plan fiduciary or administrator, or against PFB or its officers
or employees with respect to any Plan.
(x) Each ERISA Plan may be terminated directly or indirectly by the
Surviving Bank, in its discretion, at any time after the Effective Time, in
accordance with its terms, without any liability on the part of the
Surviving Bank, NCBE or PFB, to any person, entity or government agency for
any conduct, practice or omission of PFB which occurred prior to the
Effective Time, except for liabilities to and the rights of the employees
thereunder accrued prior to the Effective Time, or if later, the time of
termination.
(xi) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (A) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director
or any employee of PFB from PFB under any Plan or otherwise; (B) materially
increase any benefits otherwise payable under any Plan; or (C) result in
any acceleration of the time of payment or vesting of any such benefits to
any material extent, except that the consummation of the Merger will
accelerate the vesting of awards of PFB Common under PFB's Management
Recognition Plan.
(xii) The termination of PFB's employee stock ownership plan (the
"ESOP") and the related actions to be taken with respect to the ESOP as
provided in Section 9(f) will not violate the provisions of the ESOP or any
applicable laws, rules and regulations, including without limitation, the
rules and regulations promulgated by the DOL or IRS pursuant to the
provisions of ERISA and the Code.
(n) LABOR MATTERS. PFB is not a party to any organized labor contract or
collective bargaining agreement.
(o) ENVIRONMENTAL MATTERS.
(i) As used herein, the term "Environmental Laws" shall mean all
local, state and federal environmental, health and safety laws and
regulations and common law standards in all jurisdictions in which PFB has
done business or owned, leased or operated property, including, without
limitation, the Federal Resource Conservation and Recovery Act, the Federal
Comprehensive Environmental Response, Compensation and Liability Act, the
Federal Clean Water Act, the Federal Clean Air Act, and the Federal
Occupational Safety and Health Act.
(ii) To the knowledge of PFB management, neither the conduct nor
operation of PFB nor any condition of any property presently or previously
owned, leased or operated by any of them violates or violated Environmental
Laws or has in any respect that would have a material adverse effect on the
financial condition, results of operations or business of PFB, and no
condition has existed or event has occurred with respect to either of them
or any such property that, with notice or the passage of time, or both,
would constitute a violation of Environmental Laws or obligate (or
potentially obligate) PFB, NCBE or the Surviving Bank to remedy, stabilize,
neutralize or otherwise
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alter the environmental condition of any such property where the
aggregate cost of such actions would have a material adverse effect on
the financial condition, results of operations or business of PFB. PFB
has not received any notice from any person or entity that PFB or the
operation or condition of any property ever owned, leased or operated by
either of them are or were in violation of any Environmental Laws or
that any of them are responsible for the cleanup or other remediation of
any pollutants, contaminants, or hazardous or toxic wastes, substances
or materials at, on or beneath any such property.
(p) REGULATORY COMPLIANCE. PFB is not a party to any enforcement action
instituted by any memorandum of understanding, agreement, consent agreement or
cease and desist order with any federal or state regulatory agency, and PFB has
not been advised by any federal or state regulatory agency that it is
considering taking such action. There is no material unresolved violation,
criticism or exception cited by any such federal or state regulatory agency with
respect to any examination of PFB.
(q) POOLING-OF-INTERESTS; TAX TREATMENT. As of the date of this
Agreement, PFB has no reason to believe that the Merger will not qualify for the
pooling-of-interests method of accounting under APB 16 or that the Merger will
not qualify as a "reorganization" within the meaning of Section 368(a) of the
Code.
(r) TRUE AND COMPLETE INFORMATION. No representation or warranty made by
PFB contained in this Agreement and no statement of PFB contained in the
Disclosure Schedule or any certificate, list, exhibit or other instrument
specified in this Agreement, whether heretofore furnished to NCBE or hereinafter
required to be furnished to NCBE, contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary to
make the statements contained therein not misleading.
7. COVENANTS OF NCBE. NCBE agrees with PFB as follows:
(a) REGULATORY APPROVALS. NCBE shall, at its sole expense, be responsible
for the preparation and filing of all regulatory applications or notices to the
Applicable Governmental Authorities. NCBE shall use reasonable efforts to
obtain the approvals of the Applicable Governmental Authorities for the
transactions contemplated by this Agreement; however, NCBE's obligation to use
its reasonable efforts to obtain the approvals of the Applicable Governmental
Authorities shall not be construed as including an obligation to accept any
unreasonable terms of or conditions to an approval of any Applicable
Governmental Authority, to change the business practices of NCBE or any NCBE
subsidiary in any material respect or to institute any litigation in connection
with such approvals. Notwithstanding the foregoing, NCBE shall use its best
efforts to remedy any Year 2000 compliance issues raised by any Applicable
Governmental Authority in order that all required regulatory approvals are
received as promptly as practicable. NCBE shall keep PFB informed as to the
status of such applications and make available to PFB, upon reasonable request
by PFB from time to time, copies of such applications and any supplementally
filed materials.
(b) REGISTRATION STATEMENT. NCBE shall file with the Commission a
Registration Statement on Form S-4 (the "Registration Statement") relating to
the shares of NCBE Common to be issued pursuant to the Merger, and shall use its
best efforts to cause the Registration Statement to become effective. At the
time the Registration Statement becomes effective, the Registration Statement,
including the Proxy Statement/Prospectus included therein (the "Proxy
Statement/Prospectus"), as amended or supplemented, shall comply in all material
respects with the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder, and
the information in the Proxy Statement/Prospectus furnished by NCBE for
inclusion therein shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not false or misleading.
(c) LISTING. NCBE shall use its best efforts to list the shares of NCBE
Common to be issued in the Merger on the Nasdaq National Market.
(d) ACCESS TO INFORMATION. NCBE shall permit PFB reasonable access during
regular business hours to its properties. NCBE shall disclose and make
available to PFB and shall use its best efforts to cause its agents and
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authorized representatives to disclose and make available to PFB, all books,
papers and records relating to its assets, properties, operations,
obligations and liabilities, including, but not limited to, all books of
account, tax records, minute books of directors' and shareholders' meetings,
organizational documents, material contracts and agreements, loan files,
filings with any regulatory authority, accountants' workpapers (if available
and subject to the respective independent accountants' consent), litigation
files (but only to the extent that such review would not result in a material
waiver of the attorney-client or attorney work product privileges under the
rules of evidence), plans affecting employees, and any other business
activities or prospects in which PFB may have a reasonable and legitimate
interest in furtherance of the transactions contemplated by this Agreement.
(e) ACTIONS RELATED TO INTERIM. NCBE shall use its best efforts to
complete the formation of Interim as soon as reasonably practicable after the
execution of this Agreement. After the date that Interim has been formed,
NCBE shall take all actions necessary to cause Interim to approve and enter
into the Merger Agreement and, as the sole shareholder of Interim, approve
the Merger Agreement and the Merger.
(f) POOLING-OF-INTERESTS. NCBE shall not knowingly take any action that
would adversely affect the ability of the Merger to be accounted for using the
pooling-of-interests method of accounting under APB 16.
(g) NOTICE. NCBE shall promptly notify PFB of any event which hereafter
becomes known to NCBE management which may reasonably have a material adverse
effect on the financial condition, operations, business or assets of NCBE and
its subsidiaries, taken as a whole, or if NCBE determines that it may be unable
to fulfill the conditions set forth in Sections 10 or 11 hereof.
8. AGREEMENTS WITH RESPECT TO CONDUCT OF PFB PRIOR TO THE CLOSING. PFB
agrees with NCBE as follows:
(a) ORDINARY COURSE, INSURANCE AND PRESERVATION OF BUSINESS. PFB shall,
except as otherwise agreed to in writing by NCBE:
(i) carry on its business in the ordinary course and consistent with
its policies, procedures and practices as heretofore conducted;
(ii) except as terminated in accordance with their terms or in
accordance with the terms of this Agreement, keep in full force and effect,
and not cause a default of any of its obligations under, any Material
Contracts;
(iii) keep in full force and effect the insurance coverage in effect
on the date hereof;
(iv) maintain, renew, keep in full force and effect and preserve its
business organization, material rights, franchises, permits and licenses,
retain its present employee force, maintain its existing, or substantially
equivalent, credit arrangements with banks and other financial institutions
and use its best efforts to continue its general customer relationships;
and
(v) duly comply in all material respects with all laws applicable to
it and to the conduct of its business.
(b) NOTICE. PFB shall promptly notify NCBE of any event which hereafter
becomes known to PFB management which may reasonably have a material adverse
effect on the financial condition, operations, business or assets of PFB, or if
PFB determines that it may be unable to fulfill the conditions set forth in
Section 10 or 12 hereof.
(c) PROHIBITED ACTION WITHOUT APPROVAL. PFB shall not, except with the
prior written consent of NCBE, do any of the following:
(i) incur or agree to incur any obligation or liability (absolute or
contingent) other than the taking of deposits and other liabilities
incurred in the ordinary course of business and consistent with prior
practice, and liabilities
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arising out of, incurred in connection with, or related to the
consummation of this Agreement; make or permit any amendment or
termination of any Material Contract; acquire (by merger, consolidation,
or acquisition of stock or assets) any corporation, partnership, limited
liability company or other business organization or division or
substantial part thereof; sell or otherwise dispose of any substantial
part of its assets; enter into, dispose or divest itself of any joint
venture or partnership or cause any business entity to become a
subsidiary or affiliate; sell or otherwise dispose of any real property
owned or operated by PFB; enhance, expand, modify, replace or alter any
computer or data processing system owned, leased or licensed by PFB
(including any software associated with any such computer or system);
make, originate or otherwise acquire one or more loans, or one or more
loan commitments for one or more loans, or one or more lines of credit,
in an aggregate amount in excess of $500,000 to any person other than
renewals or restructurings of loans in existence on the date hereof; or
enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing; or
(ii) make any capital expenditure, except for ordinary repairs,
renewals and replacements in excess of $25,000 individually or $100,000 in
the aggregate; or
(iii) issue, sell, redeem or acquire for value, or agree to do so,
any shares of the capital stock or other equity securities, options or
other ownership interests of PFB or debt securities, or declare, issue or
pay any dividend or other distribution of assets, whether consisting of
money, other personal property, real property or other things of value, to
its shareholders other than (A) if the Effective Time occurs after
December 31, 1998, the payment in accordance with past practices of PFB's
regular annual dividend for the fiscal year ending September 30, 1998, in
an amount not to exceed the net income of PFB for such fiscal year,
(B) sinking fund or other mandatory payments required under the terms of
any indenture or loan agreement or repurchases of any outstanding debt
securities to be applied against any such sinking fund payments in amounts
which do not exceed, with respect to any series or class of debt
securities, the sinking fund payments required within the next twelve-month
period, (C) the payment of any debt security upon the maturity thereof, and
(D) obligations or liabilities permitted to be incurred pursuant to
Section 8(c)(i) hereof; or
(iv) amend the PFB Charter (except for the Charter Amendment
contemplated hereby) or the bylaws of PFB; split, combine or reclassify any
shares of capital stock; or enter into any agreement, commitment or
arrangement with respect to any of the foregoing; or
(v) enter into, amend or extend the term of any employment agreement,
pay any extraordinary bonus or establish any general increase in salaries;
or
(vi) compromise or otherwise settle or adjust any assertion or claim
of a deficiency in taxes (or interest thereon or penalties in connection
therewith) or file any appeal from an asserted deficiency, except in a form
previously approved by NCBE, or file any federal or state tax return
before furnishing a copy to NCBE and affording NCBE an opportunity to
consult with the filing entity; or
(vii) open any new office or close any current office at which
business is conducted; or
(viii) knowingly take any actions that would adversely affect the
ability of the Merger to be accounted for using the pooling-of-interests
method of accounting under APB 16.
(d) NO SOLICITATION.
(i) Neither PFB nor any officer, director or any representative
thereof shall solicit or authorize the solicitation of, or, unless PFB's
Board of Directors has reasonably determined in good faith based upon the
written advice of counsel that the failure to do so would cause the Board
of Directors to breach its fiduciary duties under applicable law, enter
into or authorize any discussions with any third party concerning, or
furnish or authorize the furnishing of any confidential information
relating to PFB to any third party for the purpose of studying,
considering, soliciting or inducing any offer or possible offer by any such
third party or any other third party to acquire PFB or any or all
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of its capital stock, other equity securities or other ownership
interests, or all or substantially all of the assets, of PFB. PFB will
promptly communicate to NCBE the terms of any proposal or contract it
may receive with respect to any such transactions.
(ii) Upon the execution of this Agreement, PFB shall immediately
terminate all discussions then existing with any third parties regarding
any possible offer to acquire PFB.
(e) INSIDER LENDING. PFB shall not change or modify any of its current
practices relating to the lending of money, secured or unsecured, to its
affiliated persons, including but not limited to its directors, officers and
employees.
(f) NO VIOLATION. PFB shall not take any action which knowingly violates
any statute, code, ordinance, rule, regulation or judgment, order, writ,
arbitral award, injunction or decree of any court, governmental agency or body
or arbitrator, domestic or foreign, having jurisdiction over its properties.
(g) ACCOUNTING. PFB shall maintain its books, accounts and records in
accordance with GAAP. PFB shall not make any change in any method of accounting
or accounting practice, or any change in the method used in allocating income,
charging costs or accounting for income, except as may be required by law,
regulation or GAAP. PFB shall not change any practice or policy with respect
to the charging off or loans or the maintenance of its reserve for possible loan
losses, except as required by law, regulation or GAAP.
9. ADDITIONAL AGREEMENTS.
(a) CONTINUING ACCESS TO INFORMATION. Through the Effective Time, PFB
shall permit NCBE and its authorized representatives reasonable access during
regular business hours to PFB's properties. PFB shall make its directors,
management and other employees and agents and authorized representatives
(including counsel and independent public accountants) available to confer with
NCBE and its authorized representatives at reasonable times and upon reasonable
request, and PFB shall disclose and make available to NCBE, and shall use its
best efforts to cause its agents and authorized representatives to disclose and
make available to NCBE, all books, papers and records relating to the assets,
properties, operations, obligations and liabilities of PFB, including, but not
limited to, all books of account, tax records, minute books of directors' and
shareholders' meetings, organizational documents, material contracts and
agreements, loan files, filings with any regulatory authority, accountants'
workpapers (if available, and subject to the respective independent accountants'
consent), litigation files (but only to the extent that such review would not
result in a material waiver of the attorney-client or attorney work product
privileges under the rules of evidence), plans affecting employees, and any
other business activities or prospects in which NCBE may have a reasonable and
legitimate interest in furtherance of the transactions contemplated by this
Agreement.
(b) MANAGEMENT REPORTS. PFB shall promptly provide to NCBE copies of any
reports to the Board of Directors of PFB or any committee thereof and minutes of
all meetings of the Board of Directors of PFB and each committee thereof.
Throughout the period prior to the Effective Time, PFB will cause one or more
designated representatives to confer with representatives of NCBE on the ongoing
operations of PFB.
(c) INFORMATION FOR REGULATORY FILINGS. Upon request by NCBE, PFB shall
promptly furnish NCBE with any information within its possession which relates
to PFB and which is required under any applicable law or regulation for
inclusion in any filing that NCBE is required to make with any Applicable
Governmental Authority. PFB agrees that all information so furnished shall be
true and correct in all material respects without omission of any material fact
required to be stated therein or necessary to make the information stated
therein not misleading.
(d) RESTRICTIONS ON RESALES. PFB shall obtain and deliver to NCBE, at
least thirty-one (31) days prior to the Closing, the signed agreement, in the
form of Exhibit B hereto, of each of its officers and directors and shall use
its best efforts to obtain similar agreements from each other person who owns 5%
or more of the outstanding shares of PFB Common and any other persons who may
reasonably be deemed by NCBE to be an "affiliate" of PFB within the meaning of
such term as used in Rule 145 under the Securities Act.
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(e) SHAREHOLDER APPROVAL. PFB shall cause to be duly called and held a
special meeting of the holders of PFB Common for submission of this Agreement,
the Merger and the Charter Amendment for approval of such shareholders as
required by applicable law. In connection with such shareholders' meeting, (i)
PFB shall cooperate and assist NCBE in preparing and filing the Registration
Statement, and any amendments or supplements thereto, including the Proxy
Statement/Prospectus with the SEC, the OTS and applicable state securities
authorities, and PFB shall mail the Proxy Statement/Prospectus to its
shareholders; (ii) PFB shall furnish NCBE all information within its possession
concerning itself that NCBE may reasonably request in connection with the Proxy
Statement/Prospectus; (iii) the Board of Directors of PFB (subject to
compliance with its fiduciary duties as advised in writing by counsel) shall
recommend to its shareholders the approval of this Agreement, the Merger
Agreement, the Merger and the Charter Amendment contemplated hereby and use its
best efforts to obtain such approval; and (iv) PFB agrees that the information
furnished to NCBE for inclusion in the Proxy Statement/Prospectus shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
false or misleading.
(f) TERMINATION OF ESOP. PFB shall take such actions in connection with
the ESOP as may be necessary to: (i) terminate the ESOP no sooner than
December 31, 1998; (ii) cause the trustee of the ESOP to surrender to the
Exchange Agent the certificates representing all shares of PFB Common owned by
the ESOP in exchange for the Merger Consideration in accordance with this
Agreement; (iii) prior to December 31, 1998, cause the repayment, by the trustee
of the ESOP, of the outstanding loan used to acquire the PFB Common and the
release of the assets held as collateral in the ESOP suspense account; (iv)
allow the allocation of unallocated assets held by the ESOP, after repayment of
the loan, to the ESOP participants to the fullest extent permitted by applicable
law; (v) as soon as practicable after December 31, 1998, obtain an IRS
determination that the termination of the ESOP will not affect the qualified
status of the ESOP under the Code; and (vi) as soon as practicable after
December 31, 1998, provide for the distribution to participants of their
interest in the ESOP.
(g) ASSUMPTION OF EMPLOYMENT AGREEMENTS. From and after the Effective
Time, NCBE shall honor the employment agreements between PFB and its President
and Chief Executive Officer, W. D. Wadlington, and between PFB and its Vice
President and Secretary, Larry R. Mansfield, as in effect on the date hereof in
accordance with their respective terms.
(h) OTHER EMPLOYEE BENEFIT PLANS.
(i) As of the first January 1 or June 1 following the Effective
Time, each employee of PFB who continues as an employee of PFB or who
becomes an employee of another subsidiary of NCBE subsequent to the Merger
shall be entitled to participate in the NCBE Employees' Savings and Profit
Sharing Plan and the NCBE Employee Cash Bonus Plan on the same terms and to
the same extent as employees of NCBE, and such employees shall receive
credit for their period of service to PFB for purposes of eligibility,
participation and vesting.
(ii) Except as provided otherwise herein, in Section 9(f) with
respect to the ESOP and in Section 9(g) with respect to the assumed
employment agreements, the Plans currently maintained by PFB that are
listed on the Disclosure Schedule shall remain in effect, subject to the
terms of such Plans as in effect on the date hereof, after the Effective
Time through such date as NCBE may determine as the date on which employees
of PFB shall become covered by an NCBE employee benefit or welfare plan
(the "NCBE Plan"). Employees of PFB shall be entitled to participate in
each NCBE Plan on the same terms and to the same extent as employees of
NCBE, and PFB employees shall receive credit for their period of service to
PFB for purposes of determining accrued vacation, sick leave and short-term
disability, as well as eligibility, participation and vesting. PFB shall
take all actions necessary to (A) terminate the Deferred Compensation Plan
and the Management Recognition Plan as of or before the Effective Time and
(B) (i) amend PFB's defined benefit pension plan in order both to permit
payment of accrued benefits in a lump sum distribution at the election of
participants and to adjust the formula and qualifications for determining
benefits in any manner reasonably associated with assuring that any excess
funding in said plan inures solely for the benefit of individuals who have
become participants before the Effective Time; (ii) terminate the defined
benefit pension plan as of December 31, 1998 and obtain an IRS
determination that the termination of the
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defined benefit pension plan will not affect its qualified status under
the Code and (iii) as soon as practicable after obtaining such
determination letter, provide for the distribution to the participants
of their interests in the defined benefit pension plan. PFB agrees to
provide NCBE with advance notice of any actions proposed hereunder and
to implement any reasonable changes or modifications thereto that NCBE
may request.
(iii) Notwithstanding the foregoing provisions of this Section 9(h),
this Agreement shall not confer upon any such employee of PFB any
rights or remedies hereunder and shall not constitute a contract of
employment or create any right to be retained in the employment of NCBE.
(i) ACTIONS RELATED TO BANK MERGER. Upon request by NCBE, PFB shall
execute the Merger Agreement.
(j) INDEMNIFICATION.
(i) After the Effective Time, 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 Effective Time, a director, officer, or
employee of PFB (each, an "Indemnified Party") (including any person who
becomes a director, officer or employee prior to the Effective Time)
against all liabilities (including reasonable attorneys' fees, and
expenses, judgments, fines and amounts paid in settlement) arising out of
actions or omissions occurring at or prior to the Effective Time (including
the transactions contemplated by this Agreement) to the fullest extent
permitted under the regulations of the OTS, the PFB Charter or PFB's bylaws
as in effect on the date hereof, including provisions relating to advances
of expenses incurred in the defense of any litigation. Without limiting
the foregoing, in any case in which approval by NCBE is required to make
any indemnification, NCBE shall direct, at the election of the Indemnified
Party, that the determination of any such approval shall be made by
independent counsel mutually agreed upon between NCBE and the Indemnified
Party.
(ii) Any Indemnified Party wishing to claim indemnification under
Subsection (i) of this Section 9(j), upon learning of any such liability or
litigation, shall promptly notify NCBE thereof, provided that the failure
to so notify shall not affect the obligations of NCBE under this Section
9(j) unless and to the extent such failure materially increases NCBE's
liability under this Section 9(j). In the event of any such litigation
(whether arising before or after the Effective Time), (A) NCBE shall have
the right to assume the defense thereof and NCBE shall not be liable to
such Indemnified Parties for any legal expenses of other counsel or any
other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that, if NCBE elects not to
assume such defense or counsel for the Indemnified Parties advises that
there are substantive issues which arise conflicts of interest between NCBE
and the Indemnified Parties or between the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and NCBE shall
pay all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; provided, that NCBE
shall be obligated pursuant to this Subsection (ii) to pay for only two
firms of counsel for all Indemnified Parties in any jurisdiction, (B) the
Indemnified Parties will cooperate in the defense of any such litigation,
and (C) NCBE shall not be liable for any settlement effected without its
prior written consent or have any obligation hereunder to any Indemnified
Party when and if a court of competent jurisdiction shall determine, and
such determination shall have become final, that the indemnification of
such Indemnified Party in the manner contemplated hereby is prohibited by
applicable law.
(iii) NCBE shall pay all reasonable costs, including attorneys' fees,
that may be incurred by any Indemnified Party in enforcing the indemnity
and other obligations provided for in this Section 9(j).
(iv) If NCBE or any of its respective successors or assigns shall
consolidate with or merge into any other person and shall not be the
continuing or surviving person of such consolidation or merger or shall
transfer all or substantially all of its assets to any person, then and in
each case, proper provision shall be made so that the successors and
assigns of NCBE shall assume the obligations set forth in this Section
9(j).
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(v) The provisions of this Section 9(j) are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or
her heirs and representatives.
(k) CURRENT PUBLIC INFORMATION. For not less than the one (1) year period
following the Effective Time, NCBE shall make available adequate current public
information about itself within the meaning of Rule 144(c) under the Securities
Act.
10. CONDITIONS TO OBLIGATIONS OF BOTH PARTIES. The respective obligations
of each party to effect the Merger are subject to the satisfaction or waiver on
or prior to the Closing of the following conditions:
(a) SHAREHOLDER APPROVAL. The Merger and the Charter Amendment shall have
been approved by the holders of two-thirds (2/3) of the outstanding shares of
PFB Common.
(b) REGULATORY APPROVAL. The Merger shall have been approved by all
Applicable Governmental Authorities and all applicable waiting periods shall
have expired.
(c) NO ACTION TO PREVENT CONSUMMATION.
(i) No action or proceeding shall have been instituted before a
court or other governmental body, agency or authority or other person which
is reasonably expected to (A) result in an order enjoining the Merger, (B)
result in a determination that a party has failed to comply with applicable
legal requirements in connection with the Merger; or (C) have a material
adverse effect on the future conduct of the business of a party;
(ii) No governmental agency shall have notified either party in
writing to the effect that consummation of the transactions contemplated by
this Agreement would constitute a violation of any statute, rule,
regulation or policy and that it intends to commence proceedings to
restrain consummation of the Merger; and
(iii) No statute, rule, regulation or policy shall have been
promulgated or enacted by any governmental or regulatory agency of
competent jurisdiction which shall prevent or declare the Merger illegal.
(d) REGISTRATION STATEMENT. The Registration Statement shall have become
effective under the Securities Act and shall not be subject of any stop order or
proceeding seeking a stop order.
(e) FEDERAL TAX OPINION. The parties shall have received an opinion of
Baker & Daniels to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code and such opinion shall not have
been withdrawn or modified in any material respect prior to the Effective Time.
11. CONDITIONS TO OBLIGATIONS OF NCBE. The obligation of NCBE to effect
the Merger is subject to the satisfaction or waiver on or prior to the Closing
of the following conditions:
(a) STATUS AS OF CLOSING. All representations and warranties of PFB
contained in this Agreement shall be true as though made at and as of the
Closing except for such untruths or inaccuracies which individually or in the
aggregate would not have a material adverse effect on PFB; PFB shall have
performed and satisfied or otherwise complied with all covenants made by it in
this Agreement which are to be performed on or prior to the Closing; there shall
not have occurred any material adverse change in the business, assets,
properties, financial condition or results of operations of PFB; and there shall
be delivered to NCBE a certificate (dated the Closing and signed by the chief
executive officer of PFB) stating that to the best of his knowledge such
conditions have been satisfied.
(b) ATTORNEYS' OPINION. NCBE shall have received an opinion, dated the
Closing, of Kutak Rock, counsel for PFB, in substantially the form of Exhibit C
attached hereto. Such opinion may be governed by, and interpreted in accordance
with, the Legal Opinion Accord of the Section of Business Law, American Bar
Association (1991) (the "Legal Opinion Accord").
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(c) POOLING-OF-INTERESTS. In the opinion of NCBE, after consultation
with its independent auditors, the Merger shall qualify for the
pooling-of-interests method of accounting under APB 16 if consummated in
accordance with this Agreement.
12. CONDITIONS TO OBLIGATIONS OF PFB. The obligation of PFB to effect
the Merger is subject to the satisfaction or waiver on or prior to the
Closing of the following conditions:
(a) STATUS AS OF CLOSING. All representations and warranties of NCBE
contained in this Agreement shall be true as though made at and as of the
Closing except for such truths or inaccuracies which individually or in the
aggregate would not have a material adverse effect on NCBE and its
subsidiaries, taken as a whole; NCBE shall have performed and satisfied all
covenants made by it in this Agreement which are to be performed on or prior
to the Closing; there shall not have occurred any material adverse change in
the business, assets, properties, financial condition or results of
operations of NCBE and its subsidiaries, taken as a whole; and there shall be
delivered to PFB a certificate (dated the Closing and signed by the President
of NCBE) stating that to the best of his knowledge such conditions have been
satisfied.
(b) ATTORNEYS' OPINION. PFB shall have received an opinion, dated the
Closing, of Baker & Daniels, counsel for NCBE, in substantially the form of
Exhibit D attached hereto.
(c) NCBE COMMON LISTING. The shares of NCBE Common to be issued in the
Merger shall have been listed on the Nasdaq National Market, subject to official
notice of issuance.
(d) FAIRNESS OPINION. The opinion from PBS received by PFB prior to the
execution of this Agreement, to the effect that the Merger is fair to PFB's
shareholders (including the ESOP) from a financial point of view, shall be
confirmed and not withdrawn as of the date of the Proxy Statement/Prospectus
mailed to PFB's shareholders in connection with the meeting held to approve this
Agreement.
13. INFORMATION. The parties acknowledge the confidential and proprietary
nature of the "Information" (as hereafter defined) which has heretofore been
exchanged and which will be received from each other hereunder and agree to hold
and keep the same confidential. Such Information shall include any and all
financial, technical, commercial, marketing, customer or other information
concerning the business, operations and affairs of a party that may be provided
to the other, irrespective of the form of the communication, by such party's
employees or authorized representatives. Such Information shall not include
information which is or becomes generally available to the public other than as
a result of a disclosure by a party or its authorized representatives in
violation of this Agreement. The parties agree that the Information will be
used solely for the purposes contemplated by this Agreement and that such
Information will not be disclosed to any person other than employees and
authorized representatives of a party who are directly involved in evaluating
the Merger. The Information shall not be used in any way detrimental to a
party, including use directly or indirectly in the conduct of the other party's
business or any business or enterprise in which such party may have an interest,
now or in the future, and whether or not now in competition with such other
party. Upon termination of this Agreement without the Merger becoming
effective, each party shall: (a) deliver to the other originals and all copies
of all Information made available to such party; (b) not retain any copies,
extracts or other reproductions in whole or in part of such Information; and
(c) destroy all memoranda, notes and other writings prepared by any party or its
authorized representatives based on the Information.
14. PAYMENT OF EXPENSES.
(a) EXPENSES GENERALLY. Except as otherwise provided in subsection (b)
below, each party hereto shall pay its own fees and expenses incident to
preparing for, entering into, and carrying out this Agreement and the
transactions contemplated hereby.
(b) REIMBURSEMENT OF NCBE. Upon the occurrence of a Triggering Event (as
hereafter defined), PFB shall reimburse NCBE for all of its out-of-pocket
expenses and costs, including fees of accountants and attorneys, incurred
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in connection with the transactions contemplated by this Agreement up to a
maximum of $150,000. As used herein, the term "Triggering Event" shall mean
both (i) the termination of this Agreement for any reason other than a
failure of any of the conditions set forth in Sections 10(b), 10(c), 10(d),
10(e) or pursuant to Section 15(a) hereof and (ii) the occurrence of any of
the following within one (1) year of the date of termination: (A) PFB enters
into any agreement with respect to a Competing Transaction; (B) the Board of
Directors of PFB recommends a Competing Transaction to PFB's shareholders; or
(C) following the announcement of a Competing Transaction, the Board of
Directors of PFB withdraws or modifies its recommendation of the Merger or
this Agreement. The term "Competing Transaction" means any of the following:
(x) an offer by any person or group of persons (other than NCBE) to acquire
ownership of twenty-five percent (25%) or more of the PFB Common or (y) a
proposal for a merger, consolidation, share exchange, business combination,
or similar transaction involving PFB; or (z) a proposal for a sale, lease,
exchange, transfer or other disposition of twenty-five percent (25%) or more
of the assets of PFB. The terms "person" and "group of persons" shall have
the meanings conferred thereon by Sections 3(a)(9) and 13(d)(3) of the
Exchange Act and the regulations promulgated thereunder.
15. TERMINATION OF AGREEMENT. Notwithstanding the fact that the
shareholders of PFB have approved this Agreement, this Agreement may be
terminated at any time on or prior to the Effective Time:
(a) MUTUAL CONSENT. By mutual consent of PFB and NCBE;
(b) COMPETING TRANSACTION. By PFB, if PFB accepts, approves or
recommends a Competing Transaction to its shareholders; provided that PFB has
simultaneously delivered to NCBE the amounts payable pursuant to Section
14(b); or
(c) CONDITIONS TO NCBE'S OBLIGATIONS NOT MET. By NCBE, upon written
notice to PFB if by February 28, 1999 (the "Termination Date") any of the
conditions set forth in Sections 10 or 11 shall have not been satisfied;
(d) CONDITIONS TO PFB'S OBLIGATIONS NOT MET. By PFB, upon written notice
to NCBE, if by the Termination Date any of the conditions set forth in
Sections 10 or 12 shall not have been satisfied; or
(e) EFFECT OF TERMINATION. Upon termination of this Agreement by either
NCBE or PFB pursuant to this Section 15, there shall be no liability by reason
of this Agreement or the termination thereof on the part of NCBE or PFB or the
respective directors, officers, employees, agents or shareholders of either of
them, except for any liability under Section 14(b) or unless such termination
results from a party's intentional or reckless misrepresentation or intentional
or reckless breach of any covenant contained herein.
16. PUBLICITY AND REPORTS. NCBE and PFB shall coordinate all publicity
relating to the transactions contemplated by this Agreement and, except as
otherwise required by law, neither party shall issue any press release,
publicity statement or other public notice relating to this Agreement or any of
the transactions contemplated hereby without obtaining the prior written consent
of the other, which consent shall not be unreasonably withheld.
17. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as set
forth in the following sentence, none of the representations, warranties or
covenants of the parties shall survive the Effective Time or the earlier
termination of this Agreement. The covenants contained in Sections 4, 9(f),
9(g), 9(h), 9(j), 9(k) and 13 shall survive the Effective Time or, in the case
of Section 13 only, the earlier termination of this Agreement.
18. NOTICES. Any notice of communication required or permitted hereunder
shall be sufficiently given if in writing and (a) delivered in person; (b) sent
by facsimile transmission (with confirmation of receipt by the recipient) or
express delivery service; or (c) mailed by certified or registered mail, postage
prepaid, as follows:
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If to NCBE, addressed to:
National City Bancshares, Inc.
227 Main Street
P. O. Box 868
Evansville, Indiana 47705-0868
Attn: Robert A. Keil
Fax No. (812) 464-9825
With a copy addressed to:
Baker & Daniels
300 North Meridian Street, Suite 2700
Indianapolis, Indiana 46204-1782
Attn: David C. Worrell
Fax No. (317) 237-1000
If to PFB, addressed to:
Princeton Federal Bank, fsb
208 North Jefferson Street
Princeton, Kentucky 42445
Attn: W. D. Wadlington
Fax No. (502) 365-3564
With a copy addressed to:
Kutak Rock
Suite 1000
1101 Connecticut Avenue, N.W.
Washington, D.C. 20036-4374
Attn: Edward B. Crosland, Jr.
Fax No. (202) 828-2488
19. MISCELLANEOUS.
(a) ASSIGNMENT. Neither this Agreement nor any rights, duties or
obligations hereunder shall be assignable by either party, in whole or in
part, without the consent of the other party and any attempted assignment in
violation of this prohibition shall be null and void.
(b) LAW GOVERNING. This Agreement will be governed in all respects,
including validity, interpretation and effect, by the internal laws of the
State of Indiana.
(c) COUNTERPARTS. This Agreement may be executed in several
counterparts and one or more separate documents, all of which together shall
constitute one and the same instrument with the same force and effect as
though all of the parties had executed the same documents.
(d) AMENDMENT AND WAIVER. Any of the terms or conditions of this
Agreement may be waived, amended or modified in whole or in part at any time
before or after the approval of this Agreement by the shareholders of PFB, to
the extent authorized by applicable law, by a writing signed by PFB and NCBE.
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<PAGE>
(e) ENTIRE AGREEMENT. All exhibits and the Disclosure Schedule
referred to in this Agreement are integral parts hereof, and this Agreement,
such exhibits and Disclosure Schedule, constitute the entire agreement among
the parties hereto with respect to the matters contained herein and therein,
and supersede all prior agreements and understandings between the parties
with respect thereto.
(f) REMEDIES. Subject to the terms hereof, in the event of any willful
breach of this Agreement in any material respect by any of the parties
hereto, any other party hereto damaged shall have all the rights, remedies
and causes of action available at law or in equity.
(g) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
NATIONAL CITY BANCSHARES, INC.
By: /s/ Robert A. Keil
---------------------------------
Robert A. Keil, President
ATTEST:
/s/ Stephen C. Byelick
- ------------------------------------
Stephen C. Byelick, Jr., Secretary
PRINCETON FEDERAL BANK, fsb
By: /s/ W.D. Wadlington
-------------------------------------
W.D. Wadlington, President and Chief
Executive Officer
ATTEST:
/s/ Larry R. Mansfield
- ------------------------------
Larry R. Mansfield, Secretary
A-20
<PAGE>
EXHIBIT A
MERGER AGREEMENT
THIS MERGER AGREEMENT ("Agreement") is dated as of _________ __, 1998,
between NCBE Interim Bank, fsb, a federal savings bank ("Interim"), and
Princeton Federal Bank, fsb, a federal savings bank ("PFB") and is joined in
by National City Bancshares, Inc., an Indiana corporation ("NCBE").
WITNESSETH:
WHEREAS, as of the date hereof, the outstanding capital stock of Interim
consists of 100 shares of Common Stock, $0.01 par value per share ("Interim
Common");
WHEREAS, as of the date hereof, the outstanding capital stock of PFB
consists of [270,204] shares of Common Stock, $0.01 par value per share ("PFB
Common");
WHEREAS, all of the Interim Common is owned of record and beneficially
by NCBE;
WHEREAS, PFB and NCBE are parties to an Agreement and Plan of
Reorganization dated _______ __, 1998 (the "Acquisition Agreement"), relating
to the acquisition of PFB by NCBE in a transaction in which Interim will
merge with and into PFB (the "Merger"); and
WHEREAS, the Boards of Directors of PFB, Interim and NCBE have all
approved the Merger on the terms and conditions contained in this Agreement
and the Acquisition Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements
herein contained, and for the purpose of prescribing the terms and conditions
of the Merger, the mode of carrying the same into effect, the manner, basis
and such other details and provisions as are deemed necessary or desirable,
the parties hereto agree as follows:
1. THE MERGER.
(a) THE MERGER. Pursuant to the provisions of the Home Owners' Loan
Act, as amended (the "HOLA"), Interim shall be merged with and into PFB, with
PFB to survive the Merger as the surviving bank (the "Surviving Bank").
(b) ARTICLES OF COMBINATION. At or prior to the Closing, as defined in
the Acquisition Agreement, the parties agree to execute and file with the
Office of Thrift Supervision (the "OTS") articles of combination ("Articles
of Combination") in the form required by the HOLA and OTS regulations
relating to the Merger.
(c) EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
upon endorsement of the Articles of Combination by the Secretary of the OTS.
The time at which the Merger becomes effective is hereinafter referred to as
the "Effective Time."
2. EFFECTS OF THE MERGER.
(a) EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in the HOLA and in the regulations of the OTS.
(b) CHARTER AND BYLAWS. The Charter and the Bylaws of PFB as in effect
at the Effective Time shall be the Charter and Bylaws of the Surviving Bank
until thereafter changed or amended as provided therein or by applicable law.
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<PAGE>
(c) DIRECTORS. The directors of the Surviving Bank, who shall hold
office until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be, are
set forth in Exhibit 1 hereto.
(d) OFFICERS. The officers of PFB serving at the Effective Time shall
be the officers of the Surviving Bank until the earlier of their resignation
or removal or until their respective successors are duly elected and
qualified, as the case may be.
(e) EXCHANGE OF PFB OPTIONS. All PFB Options outstanding and
unexercised immediately prior to the Effective Time shall be exchanged for a
substitute nonqualified stock option to be issued by NCBE at or prior to the
Closing. The substitute option shall permit the holder of a PFB Option to
acquire such number of shares (rounded down to the nearest whole number) of
NCBE Common equal to the product of number of shares of PFB Common issuable
pursuant to such option multiplied by 0.7424 at an exercise price (rounded to
the nearest whole cent) equal to the per share exercise price applicable to
the PFB Option divided by 0.7424.
(f) WITHDRAWABLE ACCOUNTS; LIQUIDATION ACCOUNT. At the Effective Time,
each accountholder of PFB shall receive, without payment, a withdrawable
account or accounts in the Surviving Bank equal in withdrawal value to the
account or accounts held in PFB on such date, featuring the same rate,
maturity and other terms. The liquidation account of PFB shall be unaffected
by the Merger.
(g) OFFICE LOCATION. The home office of the Surviving Bank (which
shall be its only office) shall be located at 208 N. Jefferson Street,
Princeton, Kentucky 42445.
3. EFFECT ON CAPITAL STOCK OF PARTIES. The Merger shall have the
following effects with regard to the PFB Common and Interim Common:
(a) CONVERSION OF PFB COMMON. As of the Effective Time, each issued
and outstanding share of PFB Common other than Dissenting Shares (as
hereafter defined) shall be converted into the right to receive 0.7424 shares
of NCBE's Common Stock, without par value ("NCBE Common").
(b) CONVERSION OF INTERIM COMMON. As of the Effective Time, each
issued and outstanding share of Interim Common shall be converted into one
validly issued, fully paid and nonassessable share of Common Stock, $0.01 par
value, of the Surviving Bank. The certificate which formerly represented
the outstanding shares of Interim Common shall evidence ownership of shares
of the capital stock of the Surviving Bank as set forth in the preceding
sentence.
(c) SHARE ADJUSTMENT. If, between the date of the Acquisition
Agreement and the Effective Time, the number of outstanding shares of NCBE
Common should be changed as the result of any stock dividend, stock split or
reclassification (a "Share Adjustment"), the number of shares of NCBE Common
to be received by holders of PFB Common pursuant to Section 3(a) shall be
appropriately adjusted to reflect the Share Adjustment.
(d) NO FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of NCBE Common shall be issued upon the surrender for
exchange of certificates evidencing PFB Common. Each holder of PFB Common
who would otherwise have been entitled to receive a fractional interest in a
share of NCBE Common shall have the right to receive cash (without interest)
in an amount equal to such fractional interest of a share of NCBE Common
multiplied by the Average NCBE Value (as hereafter defined). Such cash,
together with the shares of NCBE Common to be issued pursuant to Section
3(a), is referred to as the "Merger Consideration." "Average NCBE Value"
shall mean the average of the means between the highest and lowest per share
trading prices for NCBE Common reported by the Nasdaq National Market for the
ten (10) trading days ended on or prior to the fifth business day prior to
the Closing. A "trading day" shall mean a day on which at least 100 shares
of NCBE Common are traded on the Nasdaq National Market.
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<PAGE>
(e) CANCELLATION OF TREASURY STOCK. As of the Effective Time, each
share of PFB Common that is owned by PFB in its treasury shall automatically
be canceled and retired and shall cease to exist, and no consideration shall
be delivered in exchange therefor. The foregoing shall not apply to any
issued and outstanding shares held by PFB in a fiduciary or similar capacity.
(f) DISSENTING SHARES. "Dissenting Shares" shall mean shares of PFB
Common held by any person who properly exercises and perfects rights under
the HOLA as a dissenting shareholder. The holder of any Dissenting Shares
shall only have the rights accorded a dissenting shareholder under the HOLA
and shall not receive any part of the Merger Consideration.
4. EFFECT ON CAPITAL STOCK OF NCBE. The Merger shall have no effect
on the outstanding shares of capital stock of NCBE.
5. MISCELLANEOUS
(a) CONSENTS OF THIRD PARTIES. The parties shall obtain any written
consents to the transactions contemplated hereby to the extent that such
consents are necessary to prevent the consummation of such transactions from
constituting a breach of, or a default under, any agreement to which either
of them is a party.
(b) OTHER LEGAL REQUIREMENTS. The parties shall comply with all other
legal requirements relating to or resulting from the Merger, including any
notifications required to be given to depositors under the Federal Deposit
Insurance Act, as amended, after the Effective Time.
(c) WAIVER AND AMENDMENT. Any provision of this Agreement may be
waived at any time by the party that is entitled to the benefits thereof, and
this Agreement may be amended, modified or supplemented at any time, and from
time to time (either before or after the shareholders of PFB have approved
the Merger) in accordance with the provisions of Section 19(d) of the
Acquisition Agreement.
(d) ENTIRE AGREEMENT. This Agreement and the Acquisition Agreement
contain the entire agreement of the parties with respect to the Merger.
(e) APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the United States of America and the laws of
the State of Indiana.
(f) DESCRIPTIVE HEADINGS. The descriptive headings are for convenience
and reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
A-23
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers, all as of the date and year first
above written.
NCBE INTERIM SAVINGS BANK, fsb
By:_______________________________________
________________________, ___________
Attest:
______________________________
___________________, __________
PRINCETON FEDERAL BANK, fsb
By:_______________________________________
W. D. Wadlington, President and
Chief Executive Officer
Attest:
______________________________
Larry R. Mansfield, Secretary
JOINDER AND UNDERTAKING
NCBE hereby joins in the foregoing Agreement and undertakes that it will
be bound to issue and pay the Merger Consideration and do all other acts
required to be done by it in such Agreement.
IN WITNESS WHEREOF, NCBE has caused this joinder and undertaking to be
executed by its duly authorized officers, all as of the date and year first
above written.
NATIONAL CITY BANCSHARES, INC.
By:_____________________________________
ATTEST: Robert A. Keil, President
__________________________
Stephen C. Byelick, Jr.
A-24
<PAGE>
EXHIBIT 1
TO
MERGER AGREEMENT
DIRECTORS OF SURVIVING BANK
NAME RESIDENCE ADDRESS TERM TO EXPIRE
---- ----------------- --------------
Mary McFadden Parker 1445 Circle Crest Drive 1999
Eddyville, KY 42038
W. D. Wadlington 114 Dogwood Lane 1999
Princeton, KY 42445
Henry B. Asher 104 Apache Drive 2000
Princeton, KY 42445
Robert L. Brown 103 Woodlawn Court 2000
Princeton, KY 42445
Larry R. Mansfield 2937 State Route 293 South 2000
P.O. Box 456
Princeton, KY 42445
William E. Travis 4537 Highway 128 2001
Princeton, KY 42445
A-25
<PAGE>
EXHIBIT B
FORM OF AFFILIATE LETTER
Gentlemen:
In connection with the merger (the "Merger") with and into Princeton
Federal Bank, fsb ("PFB"), of a subsidiary of National City Bancshares, Inc.
("NCBE"), pursuant to the Agreement and Plan of Reorganization dated as of
________ __, 1998 (the "Agreement"), I have been advised that I may be deemed
to be an "affiliate" within the meaning of Rule 145 promulgated by the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933,
as amended (the "1933 Act"), for the purposes of any resales of shares of the
common stock, without par value, of NCBE to be issued to me in the Merger
(the "Shares"). I have also been advised that I may be deemed an "affiliate"
of PFB for purposes of qualifying the Merger for pooling of interests
accounting treatment under Opinion 16 of the Accounting Principles Board.
Based on such advice and in order to induce NCBE and PFB to cause the Merger
to be consummated, I hereby represent and warrant to, and agree with NCBE and
PFB as follows:
A. I hereby consent to the placing of a legend on the certificate or
certificates evidencing the Shares referring to the issuance thereof in a
transaction to which Rule 145 under the 1933 Act is applicable and to the
giving of stop transfer instructions to the transfer agent for the Shares
with respect to such certificate or certificates. The legend will state in
substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 under the Securities Act of 1933 applies
and may be sold or otherwise transferred only in compliance with the
terms of such Rule."
B. I understand that NCBE is under no obligation to take any action
to facilitate the sale, transfer, or other disposition by me or on my
behalf of any of the Shares.
C. In the event of any sale or transfer of any of the Shares in a
transaction not involving a sale within the limits and in accordance with
the applicable provisions of Rule 145 or a sale in a registered public
offering, I will obtain from each transferee of the Shares in such
transaction a letter agreement substantially similar hereto, or a letter
containing such other information reasonably required by NCBE to evidence
an exception from the applicable registration requirements of federal or
state securities laws, which is binding and enforceable by NCBE against the
transferee.
It is understood and agreed that the legend set forth in Paragraph A
above shall be removed, and the related stock transfer restrictions shall be
lifted forthwith (i) if the sale or other transfer by me or on my behalf of
my Shares shall have been registered under the 1933 Act, (ii) if the sale or
other transfer by me or on my behalf of my Shares is not so registered, such
sale is exempt from the registration requirements of the 1933 Act, or (iii)
upon the expiration of the period specified in Rule 145(d)(3) under the 1933
Act, as it may be amended from time to time.
I further represent to and covenant with NCBE that I have not, within
the preceding 30 days, sold, transferred or otherwise disposed of any shares
of PFB Common Stock held by me and that I will not sell, transfer or
otherwise dispose of any of the Shares received by me in the Merger until
after such time as results covering at least 30 days of combined operations
of PFB and NCBE have been published by NCBE, in the form of a quarterly
earnings report, an effective registration statement filed with the SEC, a
report to the SEC on Form 10-K, 10-Q or 8-K, or any other public filing or
announcement which includes such combined results of operations.
Very truly yours,
______________________________
A-26
<PAGE>
EXHIBIT C
FORM OF OPINION OF COUNSEL FOR PFB
Capitalized terms used and not otherwise defined herein have the
meanings given them in the Plan and Agreement of Reorganization (the
"Agreement").
1. PFB is a federal stock savings bank organized, validly existing and
in good standing under the laws of the United States of America.
2. PFB has all requisite corporate power and authority necessary to
carry out its business as currently conducted.
3. The authorized capital stock of PFB consists of 1,000,000 shares of
PFB Common. and 500,000 shares of PFB Preferred Based solely on a review of
PFB's stock records, there are _______ shares of PFB Common and no shares of
PFB Preferred issued and outstanding. All of the outstanding shares of PFB
Common have been duly authorized and validly issued and are fully paid and
non-assessable and, to the best of our knowledge, were not issued in
violation of any preemptive rights.
4. The Agreement and the Merger Agreement have been duly executed and
delivered by PFB and constitute valid and binding obligations of PFB,
enforceable against PFB in accordance with their terms, except to the extent
limited by general principles of equity and by bankruptcy, insolvency,
reorganization, liquidation, fraudulent conveyance, moratorium, readjustment
of debt or other laws of general application relating to or affecting the
enforcement of creditors' rights.
5. All consents or approvals from Applicable Governmental Authorities
that are required to be obtained by PFB in connection with the Merger have
been obtained.
6. The execution and delivery by PFB of, and the performance by PFB of
its agreements in, the Agreement and the Merger Agreement do not: (a) violate
its charter or bylaws, or (b) to the best of our knowledge after due inquiry,
violate, result in a breach of or constitute a default under any Material
Contract to which PFB is a party or by which its properties are bound.
7. The meeting of shareholders of PFB held on ________ __, 1998, was
duly held in accordance with applicable law and the charter and bylaws of
PFB. The Agreement and the Merger Agreement were duly adopted by the
affirmative vote of the holders of two-thirds (2/3) of the outstanding shares
of PFB Common, which is the only action required on the part of the holders
of PFB Common to approve the Merger.
A-27
<PAGE>
EXHIBIT D
FORM OF OPINION OF COUNSEL FOR NCBE
Capitalized terms used and not otherwise defined herein have the
meanings given them in the Plan and Agreement of Reorganization (the
"Agreement").
1. NCBE is a corporation duly organized and validly existing under the
laws of Indiana and is registered as a bank holding company with the Federal
Reserve Board under the Bank Holding Company Act of 1956, as amended.
2. NCBE has all requisite corporate power and authority necessary to
carry out its business as currently conducted.
3. The authorized capital stock of NCBE consists of 20,000,000 shares
of common stock, without par value. All shares of NCBE Common to be issued
to shareholders of HHFC pursuant to the Merger have been duly authorized and,
when issued in accordance with the Agreement, will be fully paid and
non-assessable.
4. The Agreement has been duly executed and delivered by NCBE and
constitutes a valid and binding obligation of NCBE, enforceable against NCBE
in accordance with its terms, except to the extent limited by general
principles of equity and by bankruptcy, insolvency, reorganization,
liquidation, fraudulent conveyance, moratorium, readjustment of debt or other
laws of general application relating to or affecting the enforcement of
creditors' rights.
5. All consents or approvals of any Applicable Governmental
Authorities required to be obtained by NCBE in connection with the Merger
have been obtained.
6. No vote by the shareholders of NCBE is required to approve the
Merger under Indiana law, the articles of incorporation or by-laws of NCBE or
rules of the National Association of Securities Dealers, Inc. which apply to
Nasdaq National Market issuers.
7. The execution and delivery by NCBE of, and the performance by NCBE
of its agreements in, the Agreement do not: (a) violate its articles of
incorporation or by-laws; or (b) to our knowledge, violate, result in a
breach or constitute a default under any material contract, agreement or
other instrument to which NCBE is a party or by which its respective
properties are bound.
A-28
<PAGE>
APPENDIX B-1
[Letterhead of PBS]
May 21, 1998
Board of Directors
Princeton Federal Bank, FSB
208 North Jefferson
Princeton, Kentucky 42445-1575
Dear Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from
a financial perspective, to the common shareholders of Princeton Federal
Bank, FSB, Princeton, Kentucky (the "Company") of the proposed merger of the
Company with National City Bancshares, Inc., Evansville, Indiana ("NCBE"). In
the proposed merger, Company shareholders will receive an aggregate of
212,662 NCBE common shares for all 270,204 Company common shares and 16,249
options outstanding as further defined in the Agreement and Plan of Merger
between NCBE and the Company (the "Agreement"). On May 19, 1998, the proposed
consideration to be received represents an aggregate value of $8,240,653 or
$28.77 per Company common share based on the closing price for NCBE common
stock of $38.75 on May 19, 1998 as quoted on the National Association of
Securities Dealers Automated Quotation System.
Professional Bank Services, Inc. ("PBS") is a bank consulting firm and as
part of its investment banking business is continually engaged in reviewing
the fairness, from a financial perspective, of bank acquisition transactions
and in the valuation of banks and other businesses and their securities in
connection with mergers, acquisitions, estate settlements and other purposes.
We are independent with respect to the parties of the proposed transaction.
For purposes of this opinion, PBS performed a review and analysis of the
historic performance of the Company contained in: (i) December 31, 1997
Consolidated Reports of Condition and Income filed by the Bank with the FDIC
and (ii) September 30, 1997 and 1996 audited annual reports of the Company.
We have reviewed and tabulated statistical data regarding the loan portfolio,
securities portfolio and other performance ratios and statistics. Financial
projections were prepared and analyzed as well as other financial studies,
analyses and investigations as deemed relevant for the purposes of this
opinion. In review of the aforementioned information, we have taken into
account our assessment of general market and financial conditions, our
experience in other transactions, and our knowledge of the banking industry
generally. We have also taken into consideration other offers received by the
Company
We have not compiled, reviewed or audited the financial statements of the
Company or NCBE nor have we independently verified any of the information
reviewed; we have relied upon such information as being complete and accurate
in all material respects. We have not made independent evaluation of the
assets of the Company or NCBE.
Based on the foregoing and all other factors deemed relevant, it is our
opinion as investment bankers, that, as of the date hereof, the consideration
proposed to be received by the shareholders of the Company under the
Agreement is fair and equitable from a financial perspective.
Very truly yours,
Professional Bank Services, Inc.
B-1
<PAGE>
APPENDIX B-2
[Letterhead of PBS]
October __, 1998
Board of Directors
Princeton Federal Bank, FSB
208 North Jefferson
Princeton, Kentucky 42445-1575
Dear Members of the Board:
To our knowledge, nothing has occurred since the issuance of our Fairness
Opinion (the "Opinion") to the common shareholders of Princeton Federal Bank,
FSB, Princeton, Kentucky (the "Company") dated May 21, 1998, that would cause
us to alter or rescind the Opinion, and the Opinion is affirmed as of this
date. The Opinion is related to the fairness from a financial point of view,
to the common shareholders of the Company, regarding the proposed transaction
outlined in the Agreement and Plan of Reorganization between National City
Bancshares, Inc., Evansville, Indiana and the Company.
Very truly yours,
Professional Bank Services, Inc.
B-2
<PAGE>
APPENDIX C
PROVISIONS OF FEDERAL LAW GOVERNING THE RIGHTS OF
DISSENTING SHAREHOLDERS OF FEDERAL STOCK SAVINGS BANKS
Section 552.14 DISSENTER AND APPRAISAL RIGHTS.
1. RIGHT TO DEMAND PAYMENT OF FAIR OR APPRAISED VALUE. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with Section 552.13 of this part shall
have the right to demand payment of the fair or appraised value of his stock:
PROVIDED, That such stockholder has not voted in favor of the combination
and complies with the provisions of paragraph (c) of this section.
2. EXCEPTIONS. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was
listed on a national securities exchange or quoted on the National
Association of Securities Dealers' Automated Quotation System ("NASDAQ") on
the date of the meeting at which the combination was acted upon or
stockholder action is not required for a combination made pursuant to Section
552.13(h)(2) of this part. "Qualified consideration" means cash, shares of
stock of any association or corporation which at the effective date of the
combination will be fisted on a national securities exchange or quoted on
NASDAQ, or any combination of such shares of stock and cash.
3. PROCEDURE.
(A) NOTICE. Each constituent Federal stock association shall notify all
stockholders entitled to rights under this section, not less than twenty
days prior to the meeting at which the combination agreement is to be
submitted for stockholder approval, of the right to demand payment of
appraised value of shares, and shall include in such notice a copy of
this section. Such written notice shall be mailed to stockholders of
record and may be part of management's proxy solicitation for such
meeting.
(B) DEMAND FOR APPRAISAL AND PAYMENT. Each stockholder electing to make
a demand under this section shall deliver to the Federal stock
association, before voting on the combination, a writing identifying
himself or herself and stating his or her intention thereby to demand
appraisal of and payment for his or her shares. Such demand must be in
addition to and separate from any proxy or vote against the combination
by the stockholder.
(C) NOTIFICATION OF EFFECTIVE DATE AND WRITTEN OFFER. Within ten days
after the effective date of the combination, the resulting association
shall:
(i) Give written notice by mail to stockholders of constituent Federal
stock associations who have complied with the provisions of
paragraph (c)(2) of this section and have not voted in favor of the
combination, of the effective date of the combination;
(ii) Make a written offer to each stockholder to pay for dissenting
shares at a specified price deemed by the resulting association to
be the fair value thereof; and
(iii) Inform them that within sixty days of such date, the respective
requirements of paragraphs (c)(5) and (c)(6) of this section (set
out in the notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and statement of
income of the association the shares of which the dissenting stockholder
holds, for a fiscal year ending not more than sixteen months before the date
of notice and offer, together with the latest available interim financial
statements.
C-1
<PAGE>
(D) ACCEPTANCE OF OFFER. If within sixty days of the effective date of
the combination the fair value is agreed upon between the resulting
association and any stockholder who has complied with the provisions of
paragraph (c)(2) of this section, payment therefor shall be made within
ninety days of the effective date of the combination.
(E) PETITION TO BE FILED IF OFFER NOT ACCEPTED. If within sixty days
of the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file
a petition with the Office, with a copy by registered or certified mail to
the resulting association, demanding a determination of the fair market value
of the stock of all such stockholders. A stockholder entitled to file a
petition under this section who fails to file such petition within sixty days
of the effective date of the combination shall be deemed to have accepted the
terms offered under the combination.
(F) STOCK CERTIFICATES TO BE NOTED. Within sixty days of the effective
date of the combination each stockholder demanding appraisal and payment
under this section shall submit to the transfer agent his certificates of
stock for notation thereon that an appraisal and payment have been demanded
with respect to such stock and that appraisal proceedings are pending. Any
stockholder who fails to submit his or her stock certificates for such
notation shall no longer be entitled to appraisal rights under this section
and shall be deemed to have accepted the terms offered under the combination.
(G) WITHDRAWAL OF DEMAND. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any
stockholder shall have the right to withdraw his or her demand for appraisal
and to accept the terms offered upon the combination.
(H) VALUATION AND PAYMENT. Director shall, as he or she may elect,
either appoint one or more independent persons or direct appropriate staff of
the Office to appraise the shares to determine their fair market value, as of
the effective date of the combination, exclusive of any element of value
arising from the accomplishment or expectation of the combination.
Appropriate staff of the Office shall review and provide an opinion on
appraisals prepared by independent persons as to the suitability of the
appraisal methodology and the adequacy of the analysis and supportive data.
The Director after consideration of the appraisal report and the advice of
the appropriate staff shall, if he or she concurs in the valuation of the
shares, direct payment by the resulting association of the appraised fair
market value of the shares, upon surrender of the certificates representing
such stock. Payment shall be made, together with interest from the effective
date of the combination, at a rate deemed equitable by the Director.
(I) COSTS AND EXPENSES. The costs and expenses of any proceeding under
this section may be apportioned and assessed by the Director as he or she may
deem equitable against all or some of the parties. In making this
determination the Director shall consider whether any party has acted
arbitrarily, vexatiously, or not in good faith in respect to the rights
provided by this section.
(J) VOTING AND DISTRIBUTION. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock for any purpose nor be
entitled to the payment of dividends or other distributions on the stock
(except dividends or other distribution payable to, or a vote to be taken by
stockholders of record at a date which is on or prior to, the effective date
of the combination): PROVIDED, That if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and
accepts or is deemed to have accepted the terms offered upon the combination,
such stockholder shall thereupon be entitled to vote and receive the
distributions described above.
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<PAGE>
(K) STATUS. Shares of the resulting association into which shares of
the stockholders demanding appraisal rights would have been converted or
exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
C-3
<PAGE>
APPENDIX D
SECTION 8 OF PFB'S FEDERAL STOCK CHARTER
SECTION 8. CERTAIN PROVISIONS APPLICABLE FOR FIVE YEARS. Notwithstanding
anything contained in the savings bank's charter or bylaws to the contrary,
for a period of five years from the date of completion of the conversion of
the savings bank from a mutual savings and loan association to a stock
savings bank, the following provisions shall apply:
A. BENEFICIAL OWNERSHIP LIMITATION. No person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than
10 percent of any class of an equity security of the savings bank. This
limitation shall not apply to a transaction in which the savings bank forms a
holding company without change in the respective beneficial ownership
interests of its stockholders other than pursuant to the exercise of any
dissenter and appraisal rights, the purchase of shares by underwriters in
connection with a public offering, or the purchase of shares by a
tax-qualified employee stock benefit plan which is exempt form the approval
requirements under Section 574.3(c)(1)(vi) of the Office's regulations.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10 percent shall be
considered "excess shares" and shall not be counted as shares entitled to
vote and shall not be voted by any person or counted as voting shares in
connection with any matters submitted to the stockholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company,
a trust, an unincorporated organization or similar company, a syndicate or
any other group formed for the purpose of acquiring, holding or disposing of
the equity securities of the savings bank.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation
for tenders of, a security or interest in a security for value.
(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or
not pursuant to an express agreement, or (b) a combination or pooling of
voting or other interests in the securities of an issuer for a common purpose
pursuant to any contract, understanding, relationship, agreement or other
arrangements, whether written or otherwise.
B. CUMULATIVE VOTING LIMITATION. Stockholders shall not be permitted
to cumulate their votes for election of directors.
C. CALL FOR SPECIAL MEETINGS. Special meetings of stockholders
relating to changes in control of the savings bank or amendments to its
charter shall be called only upon direction of the board of directors.
D-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Indiana Business Corporation Law provides that a corporation, unless
limited by its Articles of Incorporation, is required to indemnify its
directors and officers against reasonable expenses incurred in the successful
defense of any proceeding to which the director or officer was a party
because of serving as a director or officer of the corporation.
Registrant may also voluntarily undertake to provide for indemnification
of directors, officers and employees of the Registrant against any and all
liability and reasonable expense that may be incurred by them, arising out of
any claim or action, civil, criminal, administrative or investigative, in
which they may become involved by reason of being or having been a director,
officer, or employee. To be entitled to indemnification, those persons must
have been wholly successful in the claim or action or the Board of Directors
must have determined that such persons acted in good faith in what they
reasonably believed to be the best interests of the Registrant (or at least
not opposed to its best interests) and, in addition, in any criminal action,
had reasonable cause to believe their conduct was lawful (or had no
reasonable cause to believe that their conduct was unlawful).
In addition, the Registrant has a directors' and officers' liability and
company reimbursement policy that insures against certain liabilities,
including liabilities under the Securities Act, subject to applicable
retentions.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits: The list of exhibits is incorporated by reference to
the Index to Exhibits on page E-1.
(b) Financial Statement Schedules: All financial statements
schedules are omitted since the required information is not applicable
or is not present in amounts sufficient to require submission of the
schedules.
Item 22. Undertakings.
1. The undersigned Registrant hereby undertakes:
(a) 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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b), if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
II-1
<PAGE>
(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 such information in the
Registration Statement;
(b) 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.
(c) 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.
2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities hereunder through use of a
prospectus which is a part of this Registration Statement, by a person or
party who is deemed to be an underwriter within the making of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by other Items of the applicable form.
4. The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (3) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the 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.
5. Insofar as indemnification by the Registrant for liabilities
arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable, in
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
6. The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
II-2
<PAGE>
7. The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
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, ON OCTOBER 14, 1998.
NATIONAL CITY BANCSHARES, INC.
By: /s/ Michael F. Elliott
-----------------------------------
Michael F. Elliott, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Michael F. Elliott and Robert A. Keil
and each of them, his true and lawful attorneys-in-fact and agents with full
power of substitution, for him and in his name, place and stead, in any and
all capacities, to (i) act on, sign and file with the Securities and Exchange
Commission any and all amendments (including post-effective amendments) to
this Registration Statement, together with all schedules and exhibits thereto
and any subsequent registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, and (ii) take any and all actions
which may be necessary and appropriate therewith, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael F. Elliott Chairman of the Board, Chief October 14, 1998
- --------------------------- Executive Officer and Director
Michael F. Elliott (Principal Executive Officer)
/s/ Robert A. Keil President, Chief Financial October 14, 1998
- --------------------------- Officer and Director
Robert A. Keil (Principal Financial Officer)
/s/ Stephen C. Byelick, Jr. Secretary and Treasurer October 14, 1998
- --------------------------- (Principal Accounting
Stephen C. Byelick, Jr. Officer)
/s/ Janice L. Beesley Director October 14, 1998
- ---------------------------
Janice L. Beesley
Director October __, 1998
- ---------------------------
Ben L. Cundiff
/s/ Susanne R. Emge Director October 14, 1998
- ---------------------------
Susanne R. Emge
/s/ Donald G. Harris Director October 14, 1998
- ---------------------------
Donald G. Harris
/s/ Dr. H. Ray Hoops Director October 14, 1998
- ---------------------------
Dr. H. Ray Hoops
Director October __, 1998
- ---------------------------
John D. Lippert
/s/ Ronald G. Reherman Director October 14, 1998
- ---------------------------
Ronald G. Reherman
/s/ Laurence R. Steenberg Director October 14, 1998
- ---------------------------
Laurence R. Steenberg
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Director October __, 1998
- ---------------------------
Robert D. Vance
/s/ Richard F. Welp Director October 14, 1998
- ---------------------------
Richard F. Welp
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- ------------
2 Agreement and Plan of Reorganization dated May 22, 1998, between the
Registrant and Princeton Federal Bank, fsb (incorporated by
reference to Appendix A to the Proxy Statement/Prospectus included
in this Registrant Statement).
3(a) Restated Articles of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1 to Form 8-A/A dated June 12, 1998).
3(b) By-Laws of the Registrant, as amended (incorporated by reference to
Exhibit 3(ii) to Form 10-K for the year ending December 31, 1997).
5 Opinion of Baker & Daniels, counsel for Registrant, regarding
legality of securities offered hereby.
8 Opinion of Baker & Daniels, counsel for Registrant, regarding tax
matters.
23(a) Consent of PriceWaterhouseCoopers LLP.
23(b) Consent of McGladrey & Pullen, LLP.
23(c) Consent of Thurman Campbell & Co.
23(d) Consent of Professional Bank Services, Inc.
23(e) Consent of Baker & Daniels - included in its opinions filed as
Exhibits 5 and 8.
24 Power of Attorney - included on page II-4.
99 Form of PFB Proxy.
<PAGE>
EXHIBIT 5
[LETTERHEAD OF BAKER & DANIELS]
October 14, 1998
National City Bancshares, Inc.
227 Main Street
P.O. Box 868
Evansville, Indiana 47705-0868
Ladies and Gentlemen:
We have examined the corporate records and proceedings of National City
Bancshares, Inc., an Indiana corporation (the "Company"), with respect to (a)
the organization of the Company, and (b) the legal sufficiency of all
corporate proceedings of the Company taken in connection with the
authorization, issuance, form, validity and nonassessability of the
authorized but unissued shares of the Common Stock, without par value (the
"Common Stock"), of the Company issuable in connection with the Merger, as
that term is defined in the Registration Statement on Form S-4 (the
"Registration Statement"), being filed by the Company under the Securities
Act of 1933, as amended (the "Act").
Based on such examination, we are of the opinion that:
1. The Company is a duly organized and validly existing corporation
under the laws of the State of Indiana.
2. The authorized capital stock of the Company consists of 29,000,000
Common Shares, without par value ("Common Stock"), and 1,000,000 Preferred
Shares, without par value.
3. The shares of Common Stock to be issued in the Merger have been
duly and validly authorized, and such shares will, upon consummation of the
Merger described in the Registration Statement and issuance and delivery of
such shares in accordance with the terms of the Merger, be validly issued and
outstanding, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the references to us in the Proxy
Statement/Prospectus which is a part of the Registration Statement. In
giving this consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Yours very truly,
BAKER & DANIELS
<PAGE>
EXHIBIT 8
[LETTERHEAD OF BAKER & DANIELS]
October 14, 1998
National City Bancshares, Inc.
227 Main Street
P.O. Box 868
Evansville, Indiana 47705-0868
Princeton Federal Bank, fsb
208 North Jefferson Street
Princeton, Kentucky 42445
Ladies and Gentlemen:
This opinion is delivered to you in connection with the Registration
Statement on Form S-4 (the "Registration Statement") being filed by National
City Bancshares, Inc. under the Securities Act of 1933, as amended (the
"Act").
We have examined the Registration Statement and such other documents as
we have deemed relevant and necessary as a basis for this opinion. In
addition, we have made such other and further investigations as we have
deemed appropriate.
Based on the foregoing, and subject to the qualifications and
limitations stated herein, we hereby advise you that in our opinion the
statements made in the Registration Statement under the caption "THE
MERGER--Certain Federal Income Tax Consequences", insofar as they purport to
constitute summaries of matters of United States federal income tax law or
legal conclusions with respect thereto, constitute accurate summaries of the
matters described therein in all material respects.
The foregoing opinion is based on current provisions of the Internal
Revenue Code of 1986, as amended, the Treasury Regulations promulgated
thereunder, published pronouncements of the Internal Revenue Service and
other relevant authorities, all of which are subject to change. No opinions
are expressed concerning any matters other than those specifically addressed
herein.
We hereby consent to the filing of this opinion as Exhibit 8 to the
Registration Statement and to the references to us in the Proxy
Statement/Prospectus which is a part of the Registration Statement. In
giving this consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Yours very truly,
BAKER & DANIELS
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Proxy
Statement/Prospectus forming a part of the Registration Statement on Form S-4
filed by National City Bancshares, Inc. of our report dated September 25,
1998, on our audits of the consolidated and supplemental consolidated
financial statements of National City Bancshares, Inc. and subsidiaries as of
December 31, 1997 and 1996, which are included in the October 9, 1998 Form
8-K of National City Bancshares, Inc. and to the reference of our firm under
the heading "EXPERTS" in the Proxy Statement/Prospectus.
/s/ PRICEWATERHOUSE COOPERS LLP
Lexington, Kentucky
October 14, 1998
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Proxy
Statement/Prospectus forming a part of the Registration Statement on Form S-4
filed by National City Bancshares, Inc. of our report dated February 5, 1998,
on our audits of the consolidated and supplemental consolidated financial
statements of National City Bancshares, Inc. and subsidiaries and
supplemental consolidated for the year ended December 31, 1995, which are
included in the October 9, 1998 Form 8-K of National City Bancshares, Inc.
and to the reference of our firm under the heading "EXPERTS" in the Proxy
Statement/Prospectus.
/s/ McGLADREY & PULLEN, LLP
Champaign, Illinois
October 14, 1998
<PAGE>
EXHIBIT 23(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Proxy Statement/Prospectus forming a
part of the Registration Statement on Form S-4 filed by National City
Bancshares, Inc. of our report dated October 24, 1997, on our audit of the
statements of financial condition of Princeton Federal Bank, fsb, as of
September 30, 1997 and 1996, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for the years ended
September 30, 1997, 1996 and 1995. We also consent to the reference to our
firm under the caption "EXPERTS" in the Proxy Statement/Prospectus.
/s/ THURMAN CAMPBELL & CO.
Princeton, Kentucky
October 8, 1998
<PAGE>
EXHIBIT 23(d)
CONSENT OF FINANCIAL ADVISOR
We consent to the use of our fairness opinion letter to be dated as of
the date of the Proxy Statement/Prospectus forming a part of the Registration
Statement on Form S-4 filed by National City Bancshares, Inc. to be included
as Appendix B to such Proxy Statement/Prospectus, subject to the issuance of
such opinion by us. We further consent to the references to our fairness
opinion letter and the analysis conducted by us under "SUMMARY--The Merger"
and "THE MERGER" and the use of our name in such Proxy Statement/Prospectus
in conjunction therewith. In giving such consent, we do not admit that we
come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of
the Securities and Exchange Commission thereunder, nor do we thereby admit
that we are experts with respect to any part of such Registration Statement
within the meaning of the term "experts" as used in the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
/s/ Professional Bank Services, Inc.
PROFESSIONAL BANK SERVICES, INC.
Louisville, Kentucky
October 12, 1998
<PAGE>
EXHIBIT 99
REVOCABLE PROXY
PRINCETON FEDERAL BANK, fsb
SPECIAL MEETING OF SHAREHOLDERS
NOVEMBER __, 1998
The undersigned, a shareholder of PRINCETON FEDERAL BANK, fsb ("PFB") hereby
constitutes and appoints __________________________ and _______________ and
each of them acting individually as the attorney and proxy of the
undersigned, with full power of substitution, for and in the name and stead
of the undersigned to attend the Special Meeting of Shareholders of PFB to be
held on November __, 1998 at 11:00 a.m., and any adjournment or postponement
thereof, to vote all shares which the undersigned would be entitled to cast
if personally present, upon such business as may properly come before the
meeting, including the following items, as set forth in the notice of meeting
and proxy statement.
1. A proposal to approve and adopt the
Agreement and Plan of Reorganization between
PFB and National City Bancshares, Inc.,
as more fully described in the For Against Abstain
accompanying Proxy Statement/Prospectus. [ ] [ ] [ ]
2. A proposal to amend Section 8 of PFB's
Federal Stock Charter by deleting Section 8.A.
(Beneficial Ownership Limitation) in its
entirety, contingent on the consummation
of transactions contemplated by the For Against Abstain
Agreement and Plan of Reorganization. [ ] [ ] [ ]
3. To transact such other business as
may properly come before the meeting.
If not otherwise specified, the shares will be voted FOR Proposals 1 and 2.
The undersigned hereby revokes all previous proxies for such meeting, and
hereby acknowledges receipt of the notice of the meeting and the Proxy
Statement/Prospectus furnished herewith.
In the event proxies representing a sufficient number of shares voting
to approve Proposals 1 and 2 are not obtained before the meeting, a proposal
to adjourn the meeting in order to solicit additional proxies will be put to
a vote at the meeting.
Please be sure to sign and date Date ______________, 1998
this Proxy below.
- ------------------------------ ----------------------------------
(Shareholder sign above) Co-holder (if any) sign above
NOTE: If shares are registered in more than one name, all owners should
sign. If signing in a fiduciary or representative capacity, please
give full title and attach evidence of authority. Corporations please
sign with full corporate name by a duly authorized officer and affix
the corporate seal.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
