As filed with the Securities and Exchange Commission on ^December 3, 1999
Registration Nos. 333-87357-01
333-87357
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
AMENDMENT NO. 3
TO FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------------
FIRST STAR CAPITAL TRUST
FIRST STAR BANCORP, INC.
-------------------------
(Name of Small Business Issuers in Their Charters)
Delaware Requested
Pennsylvania 6035 23-2753108
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(States or Other Jurisdictions (Primary SIC No.) (I.R.S. Employer
of Incorporation or Organization) Identification Nos.)
First Star Bancorp, Inc. First Star Capital Trust
418 West Broad Street, c/o Bankers Trust (Delaware)
Bethlehem, Pennsylvania 18018 1101 Centre Road, Suite 200, Trust Department
(610) 691-2233 Wilmington, Delaware 19805
(302) 636-3301
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(Address and Telephone Number of Principal Executive Offices)
Mr. Joseph T. Svetik
Chief Executive Officer
First Star Bancorp, Inc.
418 West Broad Street, Bethlehem, Pennsylvania 18018
(610) 691-2233
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(Name, address and telephone number of agent for service)
Please send copies of all communications to:
John J. Spidi, Esq. Jeffrey P. Waldron, Esq.
Gregory A. Gehlmann, Esq. Wesley R. Kelso, Esq.
MALIZIA SPIDI & FISCH, PC STEVENS & LEE, PC
1301 K Street, N.W., Suite 700 East One Penn Square
Washington, D.C. 20005 Lancaster, Pennsylvania 17608
(202) 434-4660 (610) 964-1480
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier 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 registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
The registrants hereby amend this registration statement on such date
or dates as may be necessary to delay its effective date until the registrants
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>
Information in this prospectus is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. [^] [We] may not [^] [sell the securities]
nor may [we accept] offers to buy [^] [the securities] prior to the time the
registration statement becomes effective. This prospectus does not constitute an
offer to sell, or the solicitation of an offer to buy, any of the securities to
any person in any jurisdiction in which the offer, solicitation or sale would be
unlawful.
<PAGE>
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED ___________ __, 1999
Up to $12,000,000
First Star Capital Trust [LOGO]
Adjustable Rate Trust Preferred Securities
[fully and unconditionally] guaranteed by
First Star Bancorp, Inc.
--------------------------------
[First Star Capital Trust is a subsidiary of] First Star Bancorp, Inc[. ][^] In
connection with this offering, the trust will:
o sell preferred securities to the public and common securities to us,
o use the proceeds from these sales to buy an equal principal amount of
adjustable rate junior subordinated debentures due ____________, 2029
issued by us, and
o distribute the cash payments it receives on the junior subordinated
debentures to the holders of the preferred and common securities.
The preferred securities represent interests in the assets of the
trust. For each preferred security that you own, you will be entitled to receive
cumulative cash distributions at an initial [annual] interest [^] rate equal to
the average yield on the five-year U.S. Treasury Note Constant Maturity over the
20 business days before ____________, _____ plus _.__%[^][,] payable [^]
[quarterly with interest accruing from ________, _______. We will adjust] the
interest rate [^] at five-year intervals [^].
We may defer payment of distributions at any time for periods of up to
[^] [five years]. The preferred securities mature on ____________, 2029. The
trust may redeem the preferred securities[^] at any time on or after __________,
2004, or earlier if [^] a change in the regulatory [^] treatment of the [trust
and/or the] preferred securities [occurs, or becomes likely to occur].
There is currently no market for the preferred securities[^] [and we do
not expect] an active market for the preferred securities [^] to develop.
--------------------------------
You should carefully read the factors set forth in "Risk Factors" beginning on
page ___.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission, the Federal Deposit Insurance
Corporation, the Pennsylvania Department of Banking, nor any state securities
regulator has approved or disapproved these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
Per Preferred Security Total
---------------------- -----
Public Offering Price $10.00 up to $12,000,000
[^] [Placement Agent's Fee] $0.35 up to $420,000
Proceeds to the trust before expenses $9.65 up to $11,580,000
[^]
[We have not registered the preferred securities under any state's
securities laws, and you may not be able to resell the preferred securities
without an exemption from registration under applicable state securities laws.]
We will pay all other expenses of the offering, which we estimate will
be approximately $_______. There is no minimum purchase requirement, and Hopper
Soliday, as placement agent, is not required to sell any specific amount of
preferred securities but will use its best efforts to sell the preferred
securities. All funds received for the purchase of preferred securities will be
held in escrow until the offering is completed or terminated.]
Hopper Soliday
A Division of Tucker Anthony Incorporated
____________, 1999
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[MAP PAGE]
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SUMMARY
To understand this offering fully, you should read this entire
prospectus carefully, including the financial statements and the notes to the
consolidated financial statements of First Star Bancorp, Inc.
First Star Bancorp, Inc.
We are a bank holding company [^][, and our] principal activity is
holding all of the stock of First Star Savings Bank[^]. The bank's principal
business consists of attracting deposits from the general public and originating
loans secured by residential properties.
Our bank conducts its operations through [^] [its] main office located
in Bethlehem, Pennsylvania, and five branch offices located throughout the
Lehigh Valley in Bath, Palmer, Allentown, Nazareth and Alburtis. During the past
twenty years, the economy of the Lehigh Valley has shifted from one principally
dominated by manufacturing to an economy characterized by a diverse group of
industries including service and distribution firms, health care, technology,
manufacturing and retail firms. Although we currently do not have any plans to
do so, we would look to add branch locations in contiguous market areas with
customer bases that would be receptive to our strategy if economical
opportunities become available.
At September 30, 1999, we had total assets of $366.5 million, deposits
of $192.0 million and total stockholders' equity of $15.7 million. From June 30,
1996 to June 30, 1999, our assets, loans and deposits have grown at annual
compounded rates of 26.1%, 8.5%, and 18.5%, respectively. Over that same period,
our net income has grown at an annual compounded rate of 27.2%, and our return
on average equity has increased from 12.9% for fiscal 1996 to 15.9% for fiscal
1999.
We have built our bank based on a strategy of being a low-cost provider
of savings opportunities in our market area. We believe that our customers value
competitively priced products, and by building a culture of expense control and
efficiency, we have been able to pass these savings on to our customers by
providing attractive deposit rates and loan products.
Our principal executive office is located at 418 West Broad Street,
Bethlehem, Pennsylvania. Our telephone number is (610) 691-2233.
First Star Capital Trust
The trust will:
o issue and sell the preferred securities to purchasers in the
offering;
o issue and sell the common securities to us;
o use the proceeds it receives from the sale of the preferred and
common securities to purchase the junior subordinated debentures
from us;
o distribute the cash payments it receives on the junior
subordinated debentures to the holders of the preferred and
common securities; and
o engage in other activities that are incidental to the activities
described above.
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The junior subordinated debentures will be the only assets of the
trust, and our payments to the trust under the junior subordinated debentures
will be the trust's sole source of revenue.
The Offering
The Issuer......................... First Star Capital Trust, a Delaware [^]
business trust.
The Securities that are being
Offered.......................... Up to 1,200,000 preferred securities.The
preferred securities represent preferred
interests in the assets of the trust,
which will consist solely of junior
subordinated debentures.
The Offering Price................. $10 per preferred security.
Calculation of the
Interest Rate...................... The initial interest rate will be
determined on the date the [trust issues
the] preferred securities [^] and will
be an annual rate equal to the average
yield on the five year U.S. Treasury
Note Constant Maturity over the 20
business days preceding the date of
issuance, ___________, ____ plus _.__%.
Distributions on the preferred
securities will be payable at the
initial interest rate for the first five
years. [^] [We will adjust the] interest
rate [^] on the five-year anniversary of
the issuance date (________, 200_) and
will be equal to equal to the average
yield on the five year U.S. Treasury
Note Constant Maturity over the 20
business days preceding ________, 200_
plus _.__%. On each five-year
anniversary date thereafter, [we will
adjust] the interest rate [^], with up
to six different interest rates over the
maximum 30 year life of the preferred
securities. The property trustee,
Bankers Trust Company, will be the
calculation agent and will use Federal
Reserve statistical release H. 15, or
any successor report to statistical
release H. 15 Daily Update as that
report may change over time, to gather
the yield for a business day to
calculate the 20 business day average
yield.
The Payment of
Distributions.................... The distributions will be cumulative,
will accumulate from __________ ____, and
will be payable in arrears at the end of
each calendar quarter, commencing
__________, 2000.
Junior Subordinated
Debentures....................... The trust will invest the proceeds from
the issuance of the preferred securities
and the common securities in an
equivalent amount of our junior
subordinated debentures.
Maturity........................... The junior subordinated debentures [^]
[will] mature on ____________ __, 2029
unless we voluntarily shorten the
maturity date to a date not earlier than
____________, 2004. We will not shorten
the maturity date [^] [without] prior
approval if [^] the applicable regulatory
requirements [at that time require us
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<PAGE>
to get approval]. The trust must redeem
the preferred securities when the junior
subordinated debentures are paid on the
maturity date, or following any earlier
redemption of the junior subordinated
debentures.
We have the Optioin to Defer
Interest Payments................ At any time we are not in default under
the junior subordinated debentures, we
may defer payments of interest on the
junior subordinated debentures for We
have the Option to Defer up to 20
consecutive quarters, but not beyond
their stated maturity date. Interest
Payments The trust would defer quarterly
distributions on the preferred
securities while we are deferring
payment on the junior subordinated
debentures. Deferred quarterly
distributions will accumulate additional
distributions at the applicable periodic
interest rate for that period compounded
quarterly.
During any period that we are deferring
interest payments, we may not declare or
pay any cash distributions on our
capital stock or debt securities that
are of equal or lower rank than the
junior subordinated debentures. After
the end of any period in which we are
deferring interest payments, if we have
paid all deferred and current interest
under the junior subordinated
debentures, we may defer interest
payments again. If we defer interest
payments, you will be required to
include deferred interest income in your
gross income for federal income tax
purposes before you have received
deferred interest payments.
Redemption of the Preferred
Securities is Possible........... The trust may redeem the preferred
securities in whole or in part if we
repay the junior subordinated
debentures. Subject to any regulatory
approval that may then be [^]
[necessary], we may redeem the junior
subordinated debentures prior to their
scheduled maturity (1) on or after
___________, 2004, in whole at any time
or in part from time to time, or (2) at
any time, in whole, but not in part,
within 90 days after:
o the federal tax treatment of
the trust changes or is likely
to change;
o the trust is or becomes likely
to be deemed to be an
investment company; or
o there is a change in the
regulatory capital treatment
of the preferred securities.
Upon any redemption of the junior
subordinated debentures we will use the
cash proceeds of the redemption to pay
you a liquidation amount for the
preferred securities. The liquidation
amount you will receive will be $10 per
preferred security plus any accrued and
unpaid distributions to the date of
redemption.
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How the Securities will Rank
in Right of Payment.............. The preferred securities will rank
equally with the common securities of
the trust. The trust will pay
distributions on its preferred and
common securities pro rata. However, if
we default by failing to pay interest
payments on the junior subordinated
debentures, then [^] [we will not
receive any] distributions on the common
securities [^] until [the trust has
paid] all accumulated and unpaid
distributions on the preferred
securities [^].
Our obligations under the junior
subordinated debentures are unsecured
and generally will rank junior in
priority to our senior and other
subordinated indebtedness. If we create
any new trusts similar to the trust,
then the junior subordinated debentures
will rank equally with any other junior
subordinated debentures we issue to such
trusts. We do not presently intend to
create any additional trusts.
Our obligations under the guarantee are
unsecured and will rank junior to our
senior and other subordinated
indebtedness. If we issue any guarantees
in the future relating to preferred
securities issued by new trusts, then
the guarantee issued in this transaction
will rank equally with those guarantees.
Because we are a holding company, the
junior subordinated debentures and the
guarantee will effectively be
subordinated to all existing and future
liabilities of our subsidiaries.
The Junior Subordinated
Debentures May Be
Distributed to You............... We will have the right to dissolve the
trust at any time, although we would [^]
[need] to receive the prior approval of
the Federal Reserve to do so. If we
dissolve the trust, after satisfaction
of any of the trust's liabilities to
creditors, the trust will distribute
your pro rata share of the junior
subordinated debentures to you in
liquidation of the trust.
Our Guarantee of
Payments......................... We will fully and unconditionally
guarantee the preferred securities based
on:
o our obligations to make
payments on the junior
subordinated debentures;
o our obligations under [^]
[the] guarantee [^]
[agreement] for the benefit of
the holders of the preferred
securities; and
o our obligations under the
trust agreement.
If we do not make payments on the junior
subordinated debentures, the trust will
not have sufficient funds to make
payments on the preferred securities. In
that event, you would not be able to
rely on
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<PAGE>
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[^] [the] guarantee [agreement] because
[^] [it] applies only when the trust has
funds available for payment. [Instead,
you would have to institute legal action
against us directly for payment on your
preferred securities.]
Limited Voting Rights.............. You will have limited voting rights. You
will have voting rights only with
respect to proposed changes to the terms
of the preferred securities and the
exercise of the trust's rights as the
holder of the junior subordinated
debentures.
The Use of Proceeds................ The trust will invest all of the
proceeds from the sale of the preferred
and the common securities in our junior
subordinated debentures. We intend to
use the net proceeds from our sale of
the junior subordinated debentures[:
o] to make a contribution to the
bank to fund its operations
and growth, including an
investment in back-office
systems technology designed to
further increase operating
efficiencies[^][;
o to finance growth, which may
include expansion of our
lending and investment
activities, one or more branch
acquisitions, acquisitions of
other financial institutions,
or acquisitions of other
financial service companies;]
and
[o] for general corporate
purposes. Initially, we may
leverage the capital by
investing in mortgage-backed
securities and [^] [corporate
bonds] and funding these
purchases with borrowings.
Listing of the Preferred
Securities....................... The preferred securities will be a new
issue of securities for which there
currently is no market. [^] [We expect
the] preferred securities [^] to be
Listing of the Preferred quoted on the
OTC Electronic Bulletin Board, however,
the development of an Securities active
trading market for the preferred
securities is unlikely. See "Market for
the Preferred Securities."
Book-entry......................... The [trust will issue the] preferred
securities [^] [in the form of] a global
security that [we] will [^] [deposit]
with and [^] [register] in the name of
The Depository Trust Company, New York,
New York, or its nominee. This means
that you will not receive a certificate
for your preferred securities.
ERISA Considerations............... You must carefully consider the
information set forth under "ERISA
Considerations."
Risk Factors
Before purchasing the preferred securities offered by this prospectus,
you should carefully consider the "Risk Factors" beginning on page ___.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following is our selected consolidated information. This information is
only a summary, and you should read it together with our consolidated financial
statements and the notes beginning on page F-1. The information at September 30,
1999 and for the three months ended September 30, 1999 is unaudited and may not
be indicative of results on an annualized basis or for any other period. In [^]
[management's] opinion [^][, we have made] all adjustments, consisting only of
normal recurring accruals, that are necessary for a fair presentation for this
period and date [^].
<TABLE>
<CAPTION>
At or For
the Three
Months Ended
September 30, At or For the Years Ended June 30,
------------------------ -------------------------------------------------------
1999 1999 1998 1997 1996 1995
------ ----- ------ ------ ------- ------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Selected Results of Operations:
Net interest income .......................... $2,018 $7,684 6,630 $ 5,787 $ 4,472 $ 4,302
Provision for loan losses .................... 47 423 385 220 244 104
Non-interest income .......................... (217) 796 1,760 720 548 581
Non-interest expenses ........................ 897 3,974 3,582 4,036(2) 2,848 2,694
Net income ................................... 561 2,566(1) 2,816 1,509 1,270 1,319
Less preferred dividends ..................... (11) (43) (45) (44) (45) (44)
Net income applicable to common stockholders . 550 2,523 2,771 1,465 1,225 1,275
Per Share Data(3):
Earnings per common share- basic ............. $1.49 $ 6.90 7.68 $ 4.00 $ 3.30 $ 3.51
Earnings per common share - diluted .......... 0.83 3.76 4.15 2.53 2.48 2.57
Book value per share, fully diluted .......... 28.08 27.90 27.55 23.55 20.60 18.56
Selected Balance Sheet Data:
Total Assets ................................. $366,492 $363,706 315,802 $ 270,899 $ 181,582 $ 186,021
Loans receivable, net(4) ..................... 186,581 184,264 176,386 149,476 144,299 154,420
Securities available for sale ................ 159,253 160,438 123,759 103,271 24,696 13,038
Total Deposits ............................... 192,039 190,148 145,096 118,662 114,266 121,747
Advances from Federal Home Loan Bank ......... 148,997 146,180 144,485 129,400 50,571 48,775
Subordinated debentures ...................... 5,480 5,480 5,480 5,480 1,480 1,480
Total Stockholders' Equity ................. 15,661 15,476 15,113 12,015 10,570 9,112
Performance Ratios:
Return on average assets ..................... 0.61%(7) 0.74% 0.97% 0.69% 0.63% 0.76%
Return on average equity ..................... 14.20(7) 15.85 20.35 13.83 12.91 15.65
Net interest margin .......................... 2.23(7) 2.25 2.32 2.71 2.51 2.52
Efficiency ratio ............................. 41.55(6) 46.86 42.69 50.58(5) 56.73 55.17
Asset Quality Ratios:
Nonperforming loans to total loans ........... 0.95% 1.22% 1.91% 2.72% 2.99% 1.62%
Allowance for loan losses to total loans ..... 0.94 0.95 0.84 0.77 0.70 0.56
Allowance for loan losses to non-performing
loans ..................................... 100.00 77.4 43.6 27.8 23.1 33.1
First Star Bancorp Capital Ratios:
Average stockholders' equity to average assets 4.31% 4.67% 4.76% 5.02% 4.86% 4.83%
Leverage ratio ............................... 4.80 4.72 4.93 5.22 5.75 4.90
Tier 1 risk-based capital ratio .............. 8.13 7.92 8.88 8.81 10.34 8.80
Total risk-based capital ratio ............... 10.93 10.89 12.85 13.74 12.80 11.06
</TABLE>
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(1) Excluding the write-off of $111,000, net of income taxes, related to an
attempted merger/conversion transaction to acquire Nesquehoning Savings
Bank that was abandoned, net income for fiscal 1999 would have been
$2,631,000.
(2) Includes a non-recurring expense of $745,000 for a one-time deposit
insurance premium to recapitalize the SAIF.
(3) Adjusted for two 20% stock dividends declared during fiscal 1998.
(4) Does not include loans available for sale of $1,468,000 and $1,654,000 at
June 30, 1997 and 1996.
(5) Does not include the non-recurring expense of $745,000 for a one-time
deposit insurance premium to recapitalize the SAIF.
(6) Does not include the writedown of investment securities of $358,000.
(7) Annualized.
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<PAGE>
RISK FACTORS
An investment in the preferred securities involves a number of risks,
some of which relate to the terms of the preferred securities or the junior
subordinated debentures and others of which relate to us and our business. You
should carefully review the following information about these risks together
with other information contained in this prospectus before deciding whether this
investment is suitable for you.
Risk Factors Relating to the Preferred Securities
Our obligations under the guarantee and under the junior subordinated debentures
will be deeply subordinated and we will pay our other debt obligations before we
pay you.
Our obligations under the junior subordinated debentures and the
guarantee are unsecured and are subordinate in right of payment to all of our
existing and future senior debt, subordinated debt and additional senior
obligations, which totaled $154.5 million at September 30, 1999, excluding
$192.0 million of deposits. Neither the indenture governing the junior
subordinated debentures, nor the trust agreement and guarantee relating to the
preferred securities, limit our ability to incur additional indebtedness,
including indebtedness that ranks senior to the junior subordinated debentures
and guarantee.
The junior subordinated debentures and the guarantee also are
effectively subordinated to all existing and future liabilities of our
subsidiary, First Star Savings Bank. The bank will pay its creditors before it
pays dividends to us, and the bank's creditors will generally have priority over
us and you in any distribution of the bank's assets in a liquidation,
reorganization or other transaction. In the event that distributions from the
bank to us are not sufficient to cover our payment obligations under the junior
subordinated debentures or the guarantee, we may be unable to make those
payments. See "Description of Junior Subordinated Debentures -- Subordination"
on page ___ and "Business of First Star Savings Bank -- Sources of Funds --
Borrowings" and "-- Subordinated Debentures" on page ___.
If we do not make payments on the junior subordinated debentures, the trust will
not be able to make payments on the preferred securities and the guarantee will
not apply.
The ability of the trust to timely pay amounts due on the preferred
securities depends solely upon our making the related payments on the junior
subordinated debentures when due. If we default on our obligation to pay
principal of or interest on the junior subordinated debentures, the trust will
not have sufficient funds to pay distributions on, or the $10 liquidation amount
of, the preferred securities.
In that event, you would not be able to rely on the guarantee for
payment because the guarantee applies only when the trust has funds available
for payment. Instead, you or the property trustee would have to sue us to
enforce the property trustee's rights under the indenture relating to the junior
subordinated debentures. See "Relationship Among the Preferred Securities, the
Junior Subordinated Debentures, and the Guarantee" on page ___.
9
<PAGE>
Payments on the junior subordinated debentures by us to the trust will depend
primarily on any dividends we may receive from the bank, which may be limited by
regulations and debt covenants.
The trust will depend solely on our payments on the junior subordinated
debentures in paying amounts due on the preferred securities. We are a separate
legal entity from the bank and do not have significant operations of our own.
Therefore, we will depend primarily on any dividends we receive from the bank to
pay interest on the junior subordinated debentures to the trust. In addition,
[we will continue to use] the dividends we receive from the bank [^] to pay
interest on our subordinated debt and dividends on our preferred stock. [^]
[Regulations] and debt covenants [may limit the bank's ability to pay
dividends]. For a more complete discussion, see the immediately following risk
information and information under "Description of the Preferred Securities" on
page ___ and "Description of Junior Subordinated Debentures -- Subordination" on
page ___.
We may defer interest payments under the junior subordinated debentures, which
could require you to pay taxes on interest payments before receiving the cash
distribution [^].
So long as we are not in default, we may defer the payment of interest
on the junior subordinated debentures at any time for up to 20 consecutive
quarters. Any deferral, however, could not extend beyond the stated maturity
date of the junior subordinated debentures. During any period in which we were
deferring interest payments, the trust would defer quarterly distributions on
the preferred securities. Deferred distributions would accumulate with interest
at the applicable periodic interest rate compounded quarterly from the normal
distribution payment date.
During each period in which we were deferring interest payments, the
federal income tax laws would require you to accrue and recognize income in the
form of original issue discount on your pro rata share of the interest accruing
on the junior subordinated debentures held by the trust. As a result, you would
be subject to federal income tax on this income before you would have received
cash distributions on the preferred securities.
In addition, during a deferral period:
o you would not receive the deferred cash distributions if you sold
the preferred securities before the record date for payment of
the deferred distributions, even if you held the preferred
securities on the last day of a quarter, and
o your tax basis in the preferred securities would increase by the
amount of accrued but unpaid distributions. If you sold the
preferred securities during a deferral period, your increased tax
basis would increase the amount of any capital loss that you
might have otherwise realized on the sale. A capital loss
generally cannot [^] offset ordinary income.
See "Description of Junior Subordinated Debentures -- Option to Extend Interest
Payment Period" on page ___ and "United States Federal Income Tax Consequences
- -- Interest Income and Original Issue Discount" on page ___.
10
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The [trust may redeem] preferred securities [^] prior to maturity; you may [^]
[have to pay tax] on the proceeds at the time of redemption and you may not be
able to reinvest the proceeds at the same or a higher rate of return.
Under the following circumstances, we may redeem the junior
subordinated debentures prior to maturity:
o We may redeem the junior subordinated debentures within 90 days
after the occurrence of the events described in "Description of
Preferred Securities -- Redemption" on page ___ at any time
during the life of the trust.
o In addition, we may redeem the junior subordinated debentures
prior to maturity at any time after _______________, 2004, so
long as we have obtained any approvals from regulatory agencies
that are [^] [necessary] at that time.
If we redeem the junior subordinated debentures, the trust will redeem
the preferred securities. Under current federal income tax law, the redemption
of the preferred securities would be a taxable event to you. In addition, you
may not be able to reinvest the money you receive in an investment with a
similar or higher expected rate of return. See "Description of Preferred
Securities -- Redemption" on page ___ and "Federal Income Tax Consequences --
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of the Trust"
on page ___ and "-- Sales of Preferred Securities" on page ___.
We may require you to exchange your preferred securities for junior subordinated
debentures; this may have adverse tax consequences for you and the junior
subordinated debentures may trade at a lower price than the price you paid for
the preferred securities.
We may dissolve the trust at any time before its expiration. In such an
event, the trustees will, after paying the creditors of the trust, distribute
your share of the junior subordinated debentures to you.
We cannot predict the market prices for the junior subordinated
debentures that [you] would [^] [receive] upon the dissolution of the trust.
Accordingly, the junior subordinated debentures that you receive in a
distribution, or the preferred securities that you hold pending the
distribution, may trade at a lower price than the price you paid to purchase the
preferred securities. Because you may receive junior subordinated debentures,
[you should make] your decision whether to invest in the preferred securities
[^] with regard to the junior subordinated debentures [as well]. You should
carefully review all of the information regarding the junior subordinated
debentures contained in this prospectus.
Under current federal income tax laws, a distribution of junior
subordinated debentures to you upon the dissolution of the trust would not be a
taxable event for you. If, however, the trust were taxable as a corporation at
the time of its dissolution, then a distribution of junior subordinated
debentures to you may be a taxable event for you.
11
<PAGE>
See "Description of Preferred Securities -- Liquidation Distribution
Upon Dissolution" on page ___ and "United States Federal Income Tax Consequences
- -- Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of the
Trust" on page ___. You will have only limited voting rights, and we can amend
the trust agreement without your consent.
You will have limited voting rights as a holder of the preferred
securities. Your voting rights will relate only to the modification of the
preferred securities and the exercise of the trust's rights as holder of the
junior subordinated debentures. You will not usually be able to appoint, remove
or replace the property trustee or the Delaware trustee because these rights
generally reside with us as the holder of the common securities. However, if an
event of default under the trust agreement occurs and is continuing the holders
of at least a majority in aggregate liquidation amount of the preferred
securities may remove the trustees. Even if it would adversely affect your
rights, we, together with the property trustee and the administrators may amend
the trust agreement without your consent to ensure that the trust will maintain
the desired federal income tax treatment for us. See "Description of Preferred
Securities -- Voting Rights; Amendment of Trust Agreement" on page ___.
The market price for the preferred securities may decline after you invest, and
the development of an active trading market is unlikely.
The preferred securities will be a new issue of securities for which
there is currently no public market. [^] [We expect the] preferred securities
[^] to be quoted on the OTC Bulletin Board. Although [^] [Hopper Soliday has]
advised [us] that [^] [it] intends to make a market in the preferred securities,
Hopper Soliday is not obligated to do so and [it may interrupt or discontinue]
any market making [^] at any time without notice at its sole discretion. The
development of any active market for the preferred securities is highly
unlikely. Investors who require liquidity should not purchase the preferred
securities. Even if an active public market developed, there is no guarantee
that the market price for the preferred securities would equal or exceed the
price you paid in this offering. See "Market for the Preferred Securities" on
page ___.
The preferred securities may not trade at a price that accurately
reflects the value of accrued but unpaid interest on the underlying junior
subordinated debentures. In addition to other circumstances, our deferral of
interest payments on the junior subordinated debentures may cause the market
price for the preferred securities to decline.
[^] [In addition, we have not registered] the preferred securities [^]
[under any state's securities laws, and you may not be able to resell the
preferred securities without an exemption from registration under applicable
state securities laws. Accordingly, you should consult your own legal counsel
prior to reselling the preferred securities.
The] covenants in the indenture and the trust agreement [do not protect the
holders of the preferred securities and the junior subordinated debentures].
Neither the indenture, which sets forth the terms of the junior
subordinated debentures, nor the trust agreement, which sets forth the terms of
the preferred securities and the common securities, protects holders of junior
subordinated debentures or the preferred securities, respectively, in the event
12
<PAGE>
we experience significant adverse changes in our financial condition or results
of operations. In addition, neither the indenture nor the trust agreement limits
our ability or the ability of any subsidiary to incur additional indebtedness.
Therefore, the provisions of these governing instruments should not be
considered a significant factor in evaluating whether we will comply with our
obligations under the junior subordinated debentures or the guarantee.
The preferred securities are not insured.
Neither the Bank Insurance Fund of the Federal Deposit Insurance
Corporation, the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation, nor any other governmental agency has insured the
preferred securities.
Risk Factors Relating to First Star Bancorp, Inc. and First Star Savings Bank
Future changes in interest rates may reduce our profits.
Our ability to make a profit largely depends on our net interest
income, which could be negatively affected by changes in interest rates. Net
interest income is the difference between:
o the interest income we earn on our interest-earning assets, such
as mortgage loans and investment securities; and
o the interest expense we pay on our interest-bearing liabilities,
such as deposits and amounts we borrow.
Most of our mortgage loans have rates of interest which are fixed for
the life of the loan[,] and [^] [we] generally [^] [originate our mortgage
loans] for periods of up to 30 years, while our deposit accounts have
significantly shorter periods to maturity. Because our interest-earning assets
generally have fixed rates of interest and have longer effective maturities than
our interest-bearing liabilities, the yield on our interest-earning assets
generally will adjust more slowly to changes in interest rates than the cost of
our interest-bearing liabilities, which are primarily time deposits. As a
result, our net interest income may be reduced when interest rates increase
significantly for long periods of time. In addition, rising interest rates may
reduce our earnings because there may be a lack of customer demand for loans.
Declining interest rates may also reduce our net interest income if [borrowers
refinance] adjustable rate or fixed rate mortgage loans [^] at reduced rates or
[^] [pay these loans] off earlier than expected, and we reinvest these funds in
assets which earn us a lower rate of interest. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Management of
Interest Rate Risk and Market Risk" on page ___.
Our allowance for loan losses may not be adequate to cover actual losses.
Like all financial institutions, we maintain an allowance for loan
losses to provide for loan defaults and non-performance. Our allowance for loan
losses may not be adequate to cover actual loan losses, and future provisions
for loan losses could materially and adversely affect our operating results. Our
allowance for loan losses is based on prior experience, as well as an evaluation
of the risks in the current portfolio, and [^] [we maintain our allowance for
loan losses] at a level considered adequate
13
<PAGE>
by management to absorb anticipated losses. The amount of future losses is
susceptible to changes in economic, operating and other conditions, including
changes in interest rates that may be beyond our control, and these losses may
exceed current estimates. State and federal regulatory agencies, as an integral
part of their examination process, review our loans and allowance for loan
losses. We believe that our allowance for loan losses is adequate to cover
anticipated losses. There can be no assurance, however, that we will not further
increase the allowance for loan losses or that regulators will not require us to
increase this allowance. Either of these occurrences could adversely affect our
earnings.
[^] [We are more dependent upon the ]local economy [for profitability than are
more geographically diversified banks; thus a decline in local economic
conditions could affect our profitability more severely than our competitors].
Prolonged losses could hinder our ability to make interest payments and reduce
the value of your initial investment.
Our success depends to a certain extent upon the general economic
conditions of the local markets that we serve. Unlike larger banks that are more
geographically diversified, we provide banking services primarily to customers
in the markets in which we have branches, so any decline in the economy of
Pennsylvania or the Lehigh Valley in particular could have an adverse impact on
us. [^] [Changes in prevailing economic conditions, including declines in real
estate values and rapid changes in interest rates may adversely affect our]
financial results, the credit quality of our existing loan portfolio, and [^]
[our] ability to generate new loans with acceptable yield and credit
characteristics [^]. Although economic conditions in our market area are strong,
there can be no assurance that these conditions will continue, or that negative
trends and developments will not adversely affect us. See "Business of First
Star Savings Bank - Market Area and Competition" on page ___.
Changes in general economic conditions and monetary policies may affect the
financial institutions industry as a whole, which will not only impact us
directly, but by affecting the condition of financial institutions whose fixed
income securities we hold in our investment portfolio, could affect us
indirectly as well by reducing the credit quality of these holdings.
Conditions beyond our control may have a significant impact on our
financial condition and results of operations, including:
o the strength of credit demand by customers;
o fiscal and debt management policies of the federal government;
o the monetary policy of the Federal Reserve Board;
o the introduction and growth of new investment instruments by
non-bank financial competitors; and
o changes in rules and regulations governing the payment of
interest on deposit accounts.
At September 30, 1999, we held approximately $67.2 million in corporate
bonds and both rated and unrated trust preferred securities of financial
institutions in our investment portfolio. To the
14
<PAGE>
extent the general economic conditions discussed above affect our financial
condition and results of operations, they may also have a broader affect on the
industry as a whole. As a result, the credit quality of these investments may
deteriorate, which may have an impact on our financial condition and results of
operations as well.
The amount of common stock held by our executive officers and directors gives
them influence over the election of our Board of Directors and other matters
that require stockholder approval. This limits the ability of outside
stockholders to influence our activities.
[^] [Our directors and executive officers beneficially owned a] total
of 334,799 shares of our common stock[^], or 51.2% of the common stock
outstanding at September 30, 1999, [^] [including shares issuable to this group
upon the exercise of options and conversion of convertible debentures]. See
"Principal Security Holders" on page ___. Therefore, if they vote together, our
directors and executive officers have the ability to exert significant influence
over the election of our Board of Directors and other corporate actions
requiring stockholder approval, including the adoption of proposals made by
stockholders.
[We will have substantial discretion over the use of the proceeds of this
offering.
We intend to use the proceeds from this offering to make a contribution
to the bank to fund its operations and growth, including an investment in
back-office systems technology, and to finance growth, possibly by expansion of
our lending and investment activities. We may also use the proceeds for
acquisitions, including one or more branches, other financial institutions or
other financial service companies. Because we have significant discretion over
the use of proceeds, it is possible that you may not agree with the manner in
which we use the proceeds. There is no guarantee that our use of the proceeds
from the offering will result in the maximization of the return on the
proceeds.]
Future laws or regulations could hurt our profitability.
We operate in a highly regulated industry. [^] [The] Federal Reserve
Board[^] [regulates us, and ]the FDIC and the Pennsylvania Department of Banking
[regulate our bank]. Federal and state banking laws and regulations govern
matters ranging from the regulation of certain debt obligations, changes in the
control of bank holding companies, and the maintenance of adequate capital to
the general business operations and financial conditions of our bank, including
permissible types, amounts and terms of loans and investments, the amount of
reserves maintained against deposits, restrictions on dividends, establishment
of branch offices and the maximum rate of interest that [we] may [^] [charge] by
law. These and other restrictions limit the manner in which we can conduct our
business and obtain financing, and could reduce our profitability.
If we do not compete successfully against other financial institutions in our
market area, our profitability will be hurt.
We operate in a competitive environment. In the market areas in which
we compete, other savings banks, commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies and brokerage and investment banking firms and other financial
15
<PAGE>
intermediaries offer similar services. Many of these competitors have
substantially greater resources and lending limits and may offer certain
services that we do not currently provide. In addition, some of the non-bank
competitors are not subject to the same extensive regulations that govern our
business. Our profitability depends on our ability to compete successfully in
our market area. See "Business of First Star Savings Bank - Market Area and
Competition" on page ___.
We cannot predict how changes in technology will affect our business. Our
ability to respond to such changes could impact our profitability.
[^] [Increasingly, advances in technology affect the] financial
services market, including banking services[^][. The technological] advances [^]
[include] developments in:
o telecommunications;
o data processing;
o automation;
o internet-based banking;
o telebanking; and
o debit cards and so-called "smart cards."
Our ability to compete successfully in the future will depend on
whether we can anticipate and respond to technological changes. To develop these
and other new technologies we will likely have to make additional capital
investments. Although we continually invest in new technology, we cannot assure
you that we will have sufficient resources or access to the necessary
proprietary technology to remain competitive in the future.
If our computer systems do not work properly with the Year 2000 date, we may not
be able to continue running our business properly.
Rapid and accurate data processing is essential to our operations.
Data processing is also essential to most other financial institutions and many
other companies. [^] [Computer] programs that can only distinguish the final two
digits of the year entered [^] [may] read entries for the year 2000 as the year
1900 and compute payment, interest or delinquency based on the wrong date or [^]
[may] be unable to compute payment, interest or delinquency.
Failure to resolve year 2000 issues presents the following risks to us:
(1) we could lose customers to other financial institutions,
resulting in a loss of revenue, if our third party service bureau
is unable to process properly customer transactions;
16
<PAGE>
(2) governmental agencies, such as the Federal Home Loan Bank, and
correspondent banks could fail to provide funds to us, which
could materially impair our liquidity and affect our ability to
fund loans and deposit withdrawals;
(3) concern on the part of depositors that year 2000 issues could
impair access to their deposit account balances could result in
our experiencing deposit outflows prior to December 31, 1999; and
(4) we could incur increased personnel costs if [we require]
additional staff [^] to perform functions that inoperative
systems would have otherwise performed.
[^] [A third party service bureau provides most] of our material data
processing that could be affected by this problem [^]. If our third party
service bureau does not resolve this problem, we would likely experience
significant data processing delays, mistakes or failures. These delays, mistakes
or failures could have a significant adverse impact on our financial condition
and profitability. In addition, if our significant suppliers of utilities are
not adequately prepared for year 2000 they may be unable to provide the
necessary service to drive our data systems or provide sufficient sanitary
conditions for our offices. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000 Issue" on page ___.
USE OF PROCEEDS
The trust will use all of the proceeds from the sale of the preferred
securities and common securities to purchase junior subordinated debentures from
us. We intend to use the net proceeds from the sale of the junior subordinated
debentures, estimated to be $___ million:
o to make a contribution to the bank to fund its operations and
growth, including an investment in back-office systems technology
designed to further increase operating efficiencies;
o to finance growth, which may include expansion of our lending and
investment activities, one or more branch acquisitions,
acquisitions of other financial institutions, or acquisitions of
other financial services companies; and
o for general corporate purposes.
[There are no current agreements or arrangements regarding expansion or
the ultimate allocation of the proceeds.] Until opportunities to invest the
funds in our core business become available, we may leverage the capital by
employing an investment strategy of purchasing mortgage-backed securities and
[^] [corporate bonds] and funding these purchases with borrowings, in order to
improve our overall return to stockholders and help offset the cost of this
capital.
MARKET FOR THE PREFERRED SECURITIES
There is no existing market for the preferred securities. Following the
completion of the offering, we anticipate that the preferred securities will be
quoted on the OTC Bulletin Board. We
17
<PAGE>
expect that Hopper Soliday will make a market in the preferred securities.
Making a market may include the solicitation of potential buyers and sellers in
order to match buy and sell orders. However, Hopper Soliday will not be
obligated with respect to these efforts and [it may interrupt or discontinue]
any market making [^] at any time without any notice at its sole discretion.
The development of an active trading market depends on the existence of
willing buyers and sellers. There is no guarantee that an active or liquid
public trading market will develop for the preferred securities or whether
continued quotation of the preferred securities on the OTC Bulletin Board will
be possible. Due to the small size of the offering, it is highly unlikely that
an active trading market will develop and be [^] [sustainable]. You could have
difficulty disposing of the preferred securities, and you should not view the
preferred securities as a short term investment. You may not be able to sell the
preferred securities at a price equal to or above the price you paid. [We have
not registered the preferred securities under any state's securities laws, and
you may not be able to resell the preferred securities without an exemption from
registration under applicable state securities laws. You should, therefore,
consult your own legal counsel prior to reselling the preferred securities.]
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratios of earnings to
fixed charges for each of the years in the five-year period ended June 30, 1999
and for each of the quarterly periods ended September 30, 1999 and 1998. For
purposes of calculating the ratio of earnings to fixed charges, we divided
consolidated income, before income taxes, plus fixed charges by fixed charges.
Fixed charges consist of:
o consolidated interest expense, including interest on our
indebtedness and including or excluding interest on deposits, as
the case may be; and
o that portion of rental expense which [^] [we deem] representative
of the interest factor.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Years Ended June 30,
------------- ---------------------------------------
1999 1998 1999 1998 1997 1996 1995
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings/Fixed Charges:
Including interest
on deposits................... 1.19x 1.20x 1.23x 1.30x 1.22x 1.22x 1.26x
Excluding interest
on deposits................... 1.38x 1.37x 1.45x 1.55x 1.45x 1.67x 1.66x
</TABLE>
18
<PAGE>
CAPITALIZATION
The following table presents our consolidated capitalization (1) at
September 30, 1999 and (2) as adjusted to give effect to the consummation of the
offering of preferred securities, assuming that [the trust sells] $12,000,000 of
preferred securities [^].
<TABLE>
<CAPTION>
Actual, at
September 30, 1999 Pro Forma Consolidated
-------------------- ----------------------
(Dollars in thousands)
<S> <C> <C>
Advances from Federal Home Loan Bank $148,997 $148,997
Convertible subordinated debt 5,480 5,480
Guaranteed preferred beneficial interests
in subordinated debt(1) -- 12,000
--------- ------
154,477 166,477
--------- -------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 2,500,000
shares authorized; 43,592 outstanding -- --
Common stock, $1.00 par value, 10,000,000
shares authorized; 375,404 outstanding 375 375
Additional paid-in capital 8,465 8,465
Retained earnings 8,850 8,850
Employee stock ownership plan debt (100) (100)
Accumulated other comprehensive
income (loss) (1,929) (1,929)
-------- -------
Total stockholders' equity 15,661 15,661
-------- -------
Total capitalization $ 170,138 $182,138
======== =======
FIRST STAR BANCORP CAPITAL
RATIOS:
Tier 1 risk-based capital ratio 8.13% 10.27%(2)
Total risk-based capital ratio 10.93% 15.61%(2)
Leverage ratio 4.80% 6.20%(2)
FIRST STAR SAVINGS BANK CAPITAL
RATIOS:
Tier 1 risk-based capital ratio 9.47% 11.96%(2)
Total risk-based capital ratio 10.30% 15.08%(2)
Leverage ratio 5.57% 7.18%(2)
</TABLE>
(1) Preferred securities representing beneficial interests in an aggregate
principal amount of $12,000,000 of the Junior Subordinated Debentures of
First Star Bancorp.
(2) Assumes [we invest] $12,000,000 [^] of [^] preferred securities [^] in
assets with a 100% risk weighting under the risk-based capital rules.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following is our selected consolidated financial information. This
information is only a summary, and you should read it together with our
consolidated financial statements and notes beginning on page F-1. The
information at September 30, 1999, and for the three months ended September 30,
1999 and 1998 are unaudited and may not be indicative of results on an
annualized basis or for any other period. In [^] [management's] opinion [^][, we
have made] all adjustments (consisting only of normal recurring accruals) that
are necessary for a fair presentation for such periods or dates have been made.
Selected Financial Data
<TABLE>
<CAPTION>
At
September 30, At June 30,
------------- ------------------------------------------------------------
1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
Balance Sheet:
<S> <C> <C> <C> <C> <C> <C>
Total assets $366,492 $363,706 $315,802 $270,899 $181,582 $186,021
Loans receivable, net 186,581 184,264 176,386 149,476 144,299 154,420
Securities available for sale 159,253 160,438 123,759 103,271 24,696 13,038
Cash and cash equivalents 4,283 3,078 2,080 3,310 3,680 8,599
Total deposits 192,039 190,148 145,096 118,662 114,266 121,747
FHLB advances 148,997 146,180 144,485 129,400 50,571 48,775
Subordinated debentures 5,480 5,480 5,480 5,480 1,480 1,480
Total stockholders' equity 15,661 15,476 15,113 12,015 10,570 9,112
Book value per share, fully
diluted(1) $28.08 $27.90 $27.55 $23.55 $20.60 $18.56
Other Data
Number of:
Loan accounts 3,253 3,258 3,210 3,082 3,126 3,202
Deposit accounts 18,976 18,616 15,967 14,436 14,079 13,341
Offices 6 6 6 6 5 5
</TABLE>
- ------------------------
(1) Adjusted for two 20% stock dividends declared during fiscal year ended June
30, 1998.
20
<PAGE>
Summary of Operations
<TABLE>
<CAPTION>
Three Months
Ended
September 30, Year Ended June 30,
------------------ ----------------------------------------------------------
1999 1998 1999 1998 1997 ^ 1996 1995
-------- -------- --------- --------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $6,580 $5,952 $25,064 $21,240 $16,193 $13,379 $12,192
Interest expense 4,562 4,164 17,380 14,610 10,406 8,907 7,890
----- ----- ------ ------ ------ ----- -----
Net interest income 2,018 1,788 6,630 5,787 4,472 4,302
7,684
Provision for loan losses 47 98 423 385 220 244 104
----- ----- ------ ------ ------ ------ ------
Net interest income after provision
for loan losses 1,971 1,690 7,261 6,245 5,567 4,228 4,198
Non-interest income 141 160 796 1,760 720 548 581
Permanent write-down on investment
securities (358) -- -- -- -- -- --
Non-interest expenses 897 1,001 3,974 3,582 4,036(1) 2,848 2,694
----- ----- ------ ------ ------ ------ ------
Income before income taxes 857 849 4,083 4,423 2,251 1,928 2,085
Provision for income taxes 296 316 1,517 1,607 742 658 766
----- ----- ------ ------ ------ ------ ------
Net income 561 533 2,566(2) 2,816 1,509 1,270 1,319
----- ----- ------ ------ ------ ------ ------
Less preferred dividends (11) (11) (43) (45) (44) (45) (44)
----- ----- ------ ------ ------ ------ ------
Net income applicable to common
stockholders $ 550 $ 522 $ 2,523 $ 2,771 $ 1,465 $ 1,225 $ 1,275
====== ====== ====== ====== ====== ====== ======
Earnings per common share -- basic(3) $ 1.49 $ 1.43 $ 6.90 $7.68 $4.00 $3.30 $3.51
Earnings per common share -- diluted(3) $ 0.83 $ 0.80 $ 3.76 $4.15 $2.53 $2.48 $2.57
</TABLE>
- ---------------------
(1) Includes a non-recurring expense of $745,000 for the year ended June 30,
1997 for a one-time deposit insurance premium to recapitalize the SAIF.
(2) Excluding the write-off of $111,000, net of income taxes, related to an
attempted merger/conversion transaction to acquire Nesquehonig Savings Bank
that was abandoned, net income for fiscal 1999 would have been $2,631,000.
(3) Adjusted for two 20% stock dividends declared during fiscal 1998.
21
<PAGE>
Selected Financial Ratios
<TABLE>
<CAPTION>
At or For the
Three Months
Ended
September 30, At or For the Year Ended June 30,
--------------------- ----------------------------------------------------
1999 1998 1999 1998 1997(2) 1996 1995
---- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (net income
divided by average total assets) 0.61%(6) 0.65%(6) 0.74%(1) 0.97% 0.69 % 0.63% 0.76%
Return on average equity (net income
divided by average equity) 14.20(6) 13.68(6) 15.85 20.35 13.83 12.91 15.65
Net interest rate spread 1.98(6) 1.92(6) 1.99 2.03 2.45 2.21 2.30
Net interest margin(3) 2.23(6) 2.21(6) 2.25 2.32 2.71 2.51 2.52
Efficiency ratio 41.55(4) 51.39 46.86 42.69 50.58(5)56.73 55.17
Asset Quality Ratios:
Non-performing loans to total loans 0.95 1.37 1.22 1.91 2.72 2.99 1.62
Allowance for loan losses to total 0.94 0.85 0.95 0.84 0.77 0.70 0.56
loans
Allowance for loan losses to
nonperforming loans 100.00 62.14 77.4 43.6 27.8 23.1 33.1
First Star Bancorp Capital Ratios:
Average stockholders' equity to
average assets 4.31 4.76 4.67 4.76 5.02 4.86 4.83
Tier 1 risk-based capital ratio 8.13 8.54 7.92 8.88 8.81 10.34 8.80
Total risk-based capital ratio 10.93 12.07 10.89 12.85 13.74 12.80 11.06
Leverage ratio 4.80 4.46 4.72 4.93 5.22 5.75 4.90
</TABLE>
- ----------------
(1) Such ratios include the effect of the write-off of $111,000 ($65,000 after
income taxes) related to an attempted merger/conversion transaction with
Nesquehoning Savings Bank that was abandoned in 1999.
(2) For 1997, return on average assets and return on average equity, excluding
the effect of the special assessment to recapitalize the SAIF, were .90%
and 17.99%, respectively.
(3) Net interest income as a percentage of average interest-earning assets. (4)
Does not include the writedown of investment securities of $358,000.
(5) Does not include the non-recurring expense of $745,000 for a one-time
deposit insurance premium to recapitalize the SAIF.
(6) Annualized.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
General
[^] [The intent of management's] discussion and analysis is [^] to
assist you in understanding our financial condition and results of operations.
[^] [You should read the] information in this section [^] with our consolidated
financial statements and notes to the consolidated financial statements
beginning on page F-1.
Our results of operations depend primarily on our net interest income,
which is determined by (i) the difference between rates of interest we earn on
our interest-earning assets and the rates we pay on interest-bearing liabilities
(interest rate spread), and (ii) the relative amounts of interest-earning assets
and interest-bearing liabilities. Our results of operations are also affected by
non-interest income, including income from loan and deposit account service
charges, gains and losses from the sale of available for sale securities and by
non-interest expense, including, primarily, compensation and employee benefits,
federal deposit insurance premiums, office occupancy cost, and data processing
cost. Our results of operations are also affected significantly by general and
economic and competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory authorities, all of which
are beyond our control.
Financial Condition
General. Total assets increased at September 30, 1999, to $366.5
million from $363.7 million at June 30, 1999, an increase of $2.8 million, or
0.8%. Loans receivable increased to $186.6 million at September 30, 1999 from
$184.3 million at June 30, 1999, an increase of $2.3 million, or 1.2%. Total
cash and cash equivalents increased to $4.3 million at September 30, 1999 from
$3.1 million at June 30, 1999, an increase of $1.2 million, or 38.7%, due to an
increase in deposits of $1.9 million.
Total assets increased to $363.7 million at June 30, 1999, from $315.8
million at June 30, 1998, an increase of $47.9 million or 15.2%. The increase in
total assets was attributable primarily to an increase in deposits which
increased by $45.1 million, or 31.1%, to $190.2 million from $145.1 million at
June 30, 1998. These funds were used to invest primarily in available for sale
securities which increased by $36.6 million, or 30%, to $160.4 million from
$123.8 million at June 30, 1998. Loans receivable increased from $176.4 million
to $184.3 million, an increase of $7.9 million, or 4.5%. Total cash and cash
equivalents increased to $3.1 million at June 30, 1999 from $2.1 million at June
30, 1998, an increase of $1.0 million, or 47.6%.
Securities Available for Sale. All of our investments are classified as
"available for sale." Securities available for sale decreased slightly to $159.3
million at September 30, 1999 from $160.4 million at June 30, 1999, a decrease
of $1.1 million, or 0.7%. Available for sale securities increased by $36.6
million, or 30%, to $160.4 million at June 30, 1999 from $123.8 million at June
30, 1998.
The following table sets forth the carrying value of our investments.
See Note 2 to our consolidated financial statements beginning on page F-1.
23
<PAGE>
<TABLE>
<CAPTION>
At
September 30, At June 30,
------------- -----------------------------------
1999 1999 1998 1997
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Government and Federal Agencies $ 8,122 $ 5,350 $ 15,763 $ 16,996
Mortgage-backed securities 78,592 81,217 76,035 74,736
Corporate debt securities 26,235 27,376 10,379 9,806
Trust preferred securities 40,971 41,269 19,826 --
Marketable equity securities 5,333 5,226 1,756 1,733
------- ------- ------- -------
Total securities available for sale $159,253 $160,438 $123,759 $103,271
======= ======= ======= =======
</TABLE>
The following table sets forth certain information regarding scheduled
maturities, carrying values, approximate fair values, and weighted average
yields for our investments at September 30, 1999 by contractual maturity. The
following table does not take into consideration the effects of scheduled
repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
Total Investment
One Year or Less One to Five Years Five to Ten Years More than Ten Years Securities
---------------- ----------------- ----------------- ------------------- ------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and Federal
Agencies $ - -% $ 1,964 7.50% $ 2,011 7.30% $ 4,147 7.87% $ 8,122 7.64%
Mortgage-backed securities - - 2,465 6.69 946 7.10 75,181 6.16 78,592 6.19
Corporate debt securities 2,118 6.09 13,005 6.93 9,550 7.27 1,561 7.11 26,234 7.00
Trust preferred securities - - 1,924 5.52 - - 39,047 7.12 40,971 7.04
Marketable equity securities - - - - - 5,333 5.35 5,333 5.35
----- ------ ------ ------- -------
Total investments $2,118 6.09% $19,358 6.80% $12,507 7.34% $125,269 6.32% $159,253 6.46%
===== ====== ====== ======= =======
</TABLE>
Loans Receivable. Loans receivable increased to $186.6 million at
September 30, 1999 from $184.3 million at June 30, 1999, an increase of $2.3
million or 1.2%. Loans receivable increased to $184.3 million at June 30, 1999
from $176.4 million at June 30, 1998, an increase of $7.9 million or 4.5%.
24
<PAGE>
The following table sets forth information concerning the types of
loans held by us, excluding loans held for sale.
<TABLE>
<CAPTION>
At September 30,
-------------------------
1999
-------------------------
(Dollars in thousands)
Type of Loans:
Real Estate:
<S> <C> <C>
1-4 family $147,743 77.44%
Construction 1,618 0.85
Multi-family and
commercial 32,696 17.14
Commercial leases 696 0.36
Consumer Loans:
Home equity 6,845 3.59
Auto loans 303 0.16
Other 879 0.46
-------- ------
Total loans $190,780 100.00%
------- =======
Less:
Loans in process (943)
Deferred loan
origination
fees and costs (1,477)
Allowance for
loan losses (1,779)
-------
Total loans, net $186,581
=======
</TABLE>
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------- --------------------- -------------------- -------------------- ----------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of Loans:
Real Estate:
1-4 family $147,092 78.21% $139,864 78.04% $123,982 81.10% $125,418 85.40% $126,788 78.91%
Construction 800 0.43 110 0.06 1,231 0.80 895 0.61 12,208 7.60
Multi-family and
commercial 31,341 16.67 28,782 16.06 15,194 9.94 8,917 6.07 7,569 4.71
Commercial leases 813 0.43 1,496 0.84 1,897 1.24 1,345 0.92 2,009 1.25
Consumer Loans:
Home equity 7,059 3.75 7,905 4.41 9,349 6.12 9,071 6.18 10,735 6.68
Auto loans 301 0.16 329 0.18 218 0.14 220 0.15 323 0.20
Other 656 0.35 728 0.41 1,009 0.66 983 0.67 1,042 0.65
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans 188,062 100.00% 179,214 100.00% 152,880 100.00% 146,849 100.00% 160,674 100.00%
------- ======= ------- ====== ------- ====== ------- ======= ------- ======
Less:
Loans in process (605) (66) (927) (446) (4,180)
Deferred loan
origination
fees and costs (1,421) (1,273) (1,321) (1,090) (1,215)
Allowance for
loan losses (1,772) (1,489) (1,156) (1,014) (859)
------- ------- ------- ------- -------
Total loans, net $184,264 $176,386 $149,476 $144,299 $154,420
======= ======= ======= ======= =======
</TABLE>
25
<PAGE>
The following table contains information concerning changes in the
amount of loans held by us.
<TABLE>
<CAPTION>
For the Three
Months Ended For the Years Ended
Sept. 30, June 30,
----------- -----------------------------------------------------
1999 1999 1998 1997 1996 1995
--------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Total gross loans receivable at
beginning of period ........... $ 188,062 $179,214 $152,880 $146,849 $160,674 $132,053
--------- -------- -------- -------- -------- --------
Loans originated:
1 to 4 family residential ..... 7,235 42,175 48,159 16,493 16,702 14,657
Construction .................. 1,045 1,034 385 1,056 767 22,193
Multi-family and commercial
real estate ................. 3,196 12,733 13,550 6,556 2,079 2,911
Home equity and second
mortgages ................... 1,507 4,211 2,733 4,522 3,662 4,766
Other consumer ................ 547 906 878 1,015 908 1,088
--------- -------- -------- -------- -------- --------
Total loans originated ...... 13,530 61,059 65,705 29,642 24,118 45,615
--------- -------- -------- -------- -------- --------
Loans securitized and repayments:
Total loans securitized ....... -- 4,028 7,034 -- 10,784 --
Loan principal repayments ..... 10,812 48,183 32,337 23,611 27,159 16,994
--------- -------- -------- -------- -------- --------
Total loans securitized and
repayments .................... 10,812 52,211 39,371 23,611 37,943 16,994
--------- -------- -------- -------- -------- --------
Total gross loans receivable
at end of period ............ $ 190,780 $188,062 $179,214 $152,880 $146,849 $160,674
========= ======== ======== ======== ======== ========
</TABLE>
The following table shows the maturity of loans (excluding residential
mortgages of 1-4 family residences) outstanding as of September 30, 1999. Also
provided are the amounts due after one year classified according to changes in
interest rates.
<TABLE>
<CAPTION>
Due After
Due Within 1 Through Due After
1 Year 5 Years 5 Years Total
------ ------- ------- -----
(In thousands)
<S> <C> <C> <C> <C>
Real Estate:
Construction $ - $ - $ 1,618 $ 1,618
Commercial Leases 128 568 - 696
Multi-Family and Commercial 2,316 14,217 16,163 32,696
----- ------ ------ ------
Total $2,444 $14,785 $17,781 $35,010
===== ======= ====== ======
Loans Maturing After
One Year With:
Fixed Interest Rates $10,696 $10,621
Adjustable Interest Rates 4,089 7,160
------- ------
Total $14,785 $17,781
====== ======
</TABLE>
Deposits. Deposits increased to $192.0 million at September 30, 1999,
from $190.1 million at June 30, 1999, an increase of $1.9 million or 1%. This
increase in deposits is concentrated primarily in certificates of deposit which
increased by $2.5 million to $145.5 million from $143 million.
26
<PAGE>
Deposits increased to $190.1 million at June 30, 1999, from $145.1
million at June 30, 1998, an increase of $45.0 million or 31.0%. This increase
in deposits is concentrated primarily in certificates of deposit which increased
by $38.9 million to $143 million from $104.1 million, due to our matching rate
program whereby we matched any competitors published interest rates on deposit
accounts.
Regular savings, money market demand and NOW accounts constituted $46.5
million, or 24.2%, of our deposit portfolio at September 30, 1999. Certificates
of deposit constituted $145.5 million or 75.8% of the deposit portfolio of which
$16.2 million or 8.4% of the deposit portfolio were certificates of deposit with
balances of $100,000 or more. Such deposits are offered at negotiated rates. As
of September 30, 1999, we had $1.2 million in brokered deposits.
At September 30, 1999 our deposits were represented by the various
types of deposit programs described below.
<TABLE>
<CAPTION>
Interest Minimum Balance as of Percentage of
Category Term Rate(1) Amount September 30, 1999 Total Deposits
- -------- ---- ------- ------ ------------------ --------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Non-interest demand accounts None 0% $ 250 $ 2,073 1.08%
NOW accounts None 2.10 750 13,342 6.95
Passbook and club accounts None 2.79 100 10,875 5.66
Money market demand None 4.70 1,000 20,281 10.56
Certificates of Deposit:
Fixed Term, Fixed-rate 91 Days 4.40 1,000 1,629 0.85
Fixed Term, Fixed-rate 6-12 months 4.78 1,000 65,696 34.21
Fixed Term, Fixed-rate 13-30 months 5.31 1,000 47,053 24.50
Fixed Term, Fixed-rate 31-48 months 5.35 1,000 6,180 3.22
Fixed Term, Fixed-rate 49-60 months 5.45 1,000 13,793 7.18
IRA deposits Various 5.45 1,000 11,117 5.79
------- ------
Total $192,039 100.00%
======= ======
</TABLE>
- -------------
(1) Interest rate offerings as of September 30, 1999.
The following table sets forth our time deposits classified by interest
rate at the dates indicated.
<TABLE>
<CAPTION>
At September 30, At June 30,
---------------- ------------------------------------------
1999 1998 1997 1996
--------- -------- -------- -------
(In thousands)
<S> <C> <C> <C> <C>
Interest Rate
4.00% or less $ 255 $ 155 $ 32 $ 153
4.01-6.00% 132,091 126,547 67,255 68,062
6.01-8.00% 13,071 16,088 36,532 16,167
8.01% or more 51 240 242 1,057
------- ------- ------- ------
Total $145,468 $143,030 $104,061 $85,439
======= ======= ======= ======
</TABLE>
27
<PAGE>
The following table sets forth the amount and maturities of our time
deposits classified by interest rate at September 30, 1999.
<TABLE>
<CAPTION>
Amount Due
-----------------------------------------------------------------------------
After
Interest Rate Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 2001 2002 2003 Total
---- ---- ---- ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
4.00% or less $ 254 $ - $ - $ 1 $ 255
4.01-6.00% 92,354 31,785 2,633 5,319 132,091
6.01-8.00% 6,590 2,815 2,755 911 13,071
8.01 or more 51 - - - 51
------ ------ ----- ----- -------
Total $99,249 $34,600 $5,388 $6,231 $145,468
====== ====== ===== ===== =======
</TABLE>
The following table indicates the amount of our certificates of
deposits of $100,000 or more by time remaining until maturity as of September
30, 1999.
Certificates
Maturity Period of Deposits
- --------------- -----------
(In thousands)
Within three months $ 4,278
Three through six months 4,175
Six through twelve months 3,521
Over twelve months 4,238
------
$16,212
=======
Borrowings. Advances from the Federal Home Loan Bank increased to
$148.9 million at September 30, 1999, from $146.2 million at June 30, 1999, an
increase of $2.7 million or 1.8%. Advances from the Federal Home Loan Bank
increased to $146.2 million at June 30, 1999, from $144.5 million at June 30,
1998, an increase of $1.7 million or 1.2%. In addition to providing funding for
our lending activities, we utilize advances from the Federal Home Loan Bank to
purchase investment securities, taking advantage of the spread to increase net
interest income.
28
<PAGE>
The following table sets forth the terms of our short-term Federal Home
Loan Bank advances.
<TABLE>
<CAPTION>
During the
Three Months During the
Ended September 30, Year Ended June 30
------------------- -----------------------------------------
1999 1999 1998 1997
------- ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Average balance outstanding $ 8,667 $5,367 $9,625 $4,833
Maximum balance at end of any month 11,000 20,000 18,000 24,000
Balance outstanding end of period 6,000 11,000 11,000 24,000
Weighted average rate during period 5.56% 5.58% 5.92% 6.03%
Weighted average rate at end of period 5.63% 5.11% 5.91% 6.26%
</TABLE>
We also have outstanding $5,480,000 in subordinated debentures. See
"Business of First Star Bancorp, Inc. and First Star Savings Bank - Source of
Funds - Subordinated Debentures."
Stockholders' Equity. Stockholders' equity increased to $15.7 million
at September 30, 1999, from $15.5 million at June 30, 1999, an increase of
$200,000 and or 1.3%. The increase is mainly attributable to net income from
operations, which was partially offset by a decrease in the unrealized gain on
securities available for sale.
Stockholders' equity increased to $15.5 million at June 30, 1999, from
$15.1 million at June 30, 1998, an increase of approximately $400,000 or 2.6%.
The increase is mainly attributable to net income from operations which was
substantially offset by an increase in the unrealized loss on securities
available for sale, due to an increase in market rates of interest.
Results of Operations for the Three Months Ended September 30, 1999 and 1998
Net Income. Net income for the three months ended September 30, 1999
and 1998 totaled $561,000 and $533,000 respectively, an increase of $28,000 or
5.25%. This increase from September 30, 1998 was mainly attributable to an
increase of $230,000 in net interest income and a decrease of $104,000 in
operating expenses, partially offset by a permanent write-down on investment
securities issued by Singer Co., of $358,000, due to the bankruptcy of Singer
Co. See "Results of Operations for the Fiscal Years Ended June 30, 1999 and 1998
- -- Results of Operations" and "-- Other Income."
Net Interest Income. Net interest income for the three months ended
September 30, 1999 increased by $230,000 to $2 million from $1.8 million for the
three months ended September 30, 1998.
Total Interest Income. For the three months ended September 30, 1999,
total interest income increased to $6.6 million from $6 million for the three
months ended September 30, 1998. This increase of $600,000 or 10% is primarily
due to an increase in income on securities of $338,000 to $2.7 million for the
three months ended September 30, 1999 from $2.4 million for the three months
ended September 30, 1998 due to an increase in the average balance of
securities.
29
<PAGE>
Total Interest Expense. Total interest expense increased to $4.6
million for the three months ended September 30, 1999 from $4.2 million for the
three months ended September 30, 1998. The two components of total interest
expense are interest on deposits and interest on borrowings. Interest on
deposits increased by $442,000 for the three months ended September 30, 1999 to
$2.3 million from $1.9 million for the three months ended September 30, 1998 due
to increased deposits. Interest on borrowings decreased by $44,000 for the three
months ended September 30, 1998 to $2.2 million from $2.3 million for the three
months ended September 30, 1998.
Provision For Loan Losses. The provision for loan losses was $47,000
for the three months ended September 30, 1999, as compared to $98,000 for the
three months ended September 30, 1998. The amount charged to operations and the
related balance in the allowance for loan loss is based on periodic reviews of
the portfolio by management. At its current level, the allowance for loan loss
represents 0.94% of loans outstanding at September 30, 1999 as compared to 0.95%
of loans outstanding at June 30, 1999.
Other Income. During the three months ended September 30, 1999, other
income (loss) decreased to ($217,000) from $160,000 for the three months ended
September 30, 1998. We recorded an impairment loss in our securities available
for sale portfolio of $358,000 during the three months ended September 30, 1999
due to a write-down of Singer Co. bonds following the bankruptcy of Singer Co.
See "Results of Operations for the Fiscal Years Ended June 30, 1999 and 1998 --
Other Income."
Operating Expenses. Total operating expenses decreased $104,000 or
10.4% to $897,000 for the three months ended September 30, 1999, as compared to
$1,001,000 for the three months ended September 30, 1998. Management continues
to monitor expenses and eliminate unnecessary expenses, where possible. The
ratio of operating expense to average assets continues to be low compared to our
peer banks, at an annualized ratio of 1.00% and the efficiency ratio for the
three months ended September 30, 1999 is 41.55%.
Results of Operations for the Fiscal Years Ended June 30, 1999 and 1998
General. The largest components of our total income and total expenses
are interest items. As a result, our earnings are greatly influenced by our net
interest income, which is determined by the difference between the interest
earned on our interest-earning assets and the rates paid on our interest-bearing
liabilities (interest rate spread) as well as by the relative amounts of our
interest-earning assets and interest-bearing liabilities.
Like most savings banks, our interest income and cost of funds are
substantially affected by general economic conditions and by policies of
regulatory authorities of the state and federal government. Because a
significant portion of our assets consist of fixed rate loans, increases in
interest costs will result in a decline in our net interest income.
Results of Operations. We recorded net income of $2,566,000 for the
fiscal year ended June 30, 1999, representing an 8.9% decrease from the
$2,816,000 net income recorded for the fiscal year ended June 30, 1998. The
decrease from June 30, 1998, is mainly attributable to a decrease of $995,000 in
the gains realized on the sale of securities and an increase of $392,000 in
other expense which was partially offset by an increase of $1,054,000 in net
interest income.
30
<PAGE>
Our securities available for sale portfolio includes corporate debt
securities issued by Singer Co. Singer Co. is most recognized as a maker of
sewing machines throughout the world. On September 13, 1999, Singer filed for
Chapter 11 bankruptcy protection. At September 30, 1999, we wrote the bonds down
to their estimated fair value of $95,000, resulting in a reduction in net income
for the quarter of $222,000, net of income tax benefits of $136,000. See "-
Other Income."
Net Interest Income. Net interest income is the most significant
component of our income from operations. Net interest income is the difference
between interest we receive on our interest-earning assets, primarily loans and
securities, and interest we pay on our interest-bearing liabilities, primarily
deposits and borrowings from the Federal Home Loan Bank.
Net interest income depends on the volume of and rates earned on
interest-earning assets and the volume of and rates paid on interest-bearing
liabilities. Net interest income increased $1.1 million or 15.9% for the fiscal
year ended June 30, 1999. Although the average balances increased during fiscal
1999 and 1998, our net interest rate spread and net interest margin remained
relatively stable, decreasing four and seven basis points, respectively.
Total Interest Income. For the fiscal year ended June 30, 1999, total
interest income increased to $25.1 million from $21.2 million for fiscal year
ended June 30, 1998. This increase of $3.9 million or 18.4% is due to an
increase in income on loans receivable to $14.4 million for the fiscal year
ended June 30, 1999 as compared to $13.2 million for the fiscal year ended June
30, 1998 and to an increase in income on investment securities to $10.5 million
for fiscal 1999 from $7.9 million for fiscal 1998. During the same time periods
the average balance on loans receivable increased by $16.2 million to $184.1
million for the fiscal year ended June 30, 1999 from $167.9 million for the
fiscal year ended June 30, 1998, and the average balance on investment
securities increased by $39.0 million to $157.0 million for fiscal 1999 from
$118.0 million for fiscal 1998.
Total Interest Expense. Total interest expense increased to $17.4
million for the fiscal year ended June 30, 1999 from $14.6 million for the
fiscal year ended June 30, 1998. The two components of total interest expense
are interest on deposits, which increased by $1.8 million for the fiscal year
ended June 30, 1999 to $8.4 million from $6.6 million for the fiscal year ended
June 30, 1998 and interest on borrowings, which increased by $1 million for the
fiscal year ended June 30, 1998 to $8.9 million from $7.9 million for the fiscal
year ended June 30, 1998.
Provision For Loan Losses. We review the allowance for loan losses in
relation to (i) our past loan loss experience, (ii) known and inherent risks in
our portfolio, (iii) adverse situations that may affect the borrower's ability
to repay, (iv) the estimated value of any underlying collateral, and (v) current
economic conditions. Management believes the allowance for loan losses is at a
level that is adequate to provide for estimated losses. However, there can be no
assurance that further additions will not be made to the allowance and that such
losses will not exceed the estimated amount.
The provision for loan losses was $423,000 for the fiscal year ended
June 30, 1999, as compared to $385,000 for the fiscal year ended June 30, 1998.
The amount charged to operations and the related balance in the allowance for
loan losses is based on periodic reviews of the portfolio by management. At its
current level, the allowance for loan losses represents 0.95% of loans
outstanding at June 30, 1999 as compared to 0.84% of loans outstanding at June
30, 1998.
31
<PAGE>
Other Income. Included in other income are loan servicing income, gains
or losses on sales of securities available for sale, and other miscellaneous
sources of operating income.
During the fiscal year ended June 30, 1999, other income decreased to
$796,000 from $1,760,000 for the fiscal year ended June 30, 1998. The decrease
was mainly attributable to a decrease in the amount of gains realized on the
sale of securities which was $156,000 for the fiscal year ended June 30, 1999
and $1,151,000 for the fiscal year ended June 30, 1998. Also included in other
income were gains realized on the sale of real estate owned of $77,000 and
$101,000 for the fiscal years ended June 30, 1999 and 1998, respectively.
We recorded an impairment loss in our securities available for sale
portfolio of $358,000 during the quarter ended September 30, 1999 due to the
bankruptcy of Singer Co. as previously discussed. See "- Results of Operations
for the Three Months Ended September 30, 1999 and 1998."
Operating Expenses. Total operating expenses increased $392,000 or
10.9% to $3,974,000 for the fiscal year ended June 30, 1999, as compared to
$3,582,000 for the fiscal year ended June 30, 1998.
The primary component of operating expenses was salaries and employee
benefits which increased $337,000 or 18.1% to $2,202,000 from $1,865,000 for the
fiscal year ended June 30, 1998. Also included in 1999 was one-time charge off
of $111,000, net of income taxes, relating to the canceled merger/conversion
with Nesquehonig Savings Bank. Management continues to monitor operating
expenses and reduce or eliminate such expenses where possible. The ratio of
operating expense to average assets for fiscal 1999 and fiscal 1998 was 1.15%
and 1.23% respectively. Excluding expenses related to the attempted
merger/conversion with Nesquehonig Savings Bank of $111,000, the ratio of
operating expense to average assets for fiscal 1999 would be 1.12%.
Comparison of Operating Results for the Fiscal Years Ended June 30, 1998 and
1997
Results of Operations. We recorded net income of $2,816,000 for the
fiscal year ended June 30, 1998, representing a 86.6% increase from the
$1,509,000 net income recorded for the fiscal year ended June 30, 1997. The
increase from June 30, 1997, is mainly attributable to an increase of $843,000
in net interest income, an increase in gains realized on the sale of
mortgage-backed securities of $804,000 and a decrease of $454,000 in total
operating expenses as a result of the $745,000 SAIF assessment in 1997.
Net Interest Income. Net interest income increased $843,000 or 14.6%
due to an increase in the average balances, despite decreases in the net
interest rate spread and interest margin of 42 and 39 basis points,
respectively.
Total Interest Income. For the fiscal year ended June 30, 1998, total
interest income increased to $21.2 million from $16.2 million for fiscal year
ended June 30, 1997. This increase of $5 million or 30.86% is due primarily to
an increase in income on loans receivable to $13.2 million for the fiscal year
ended June 30, 1998 as compared to $11.9 million for the fiscal year ended June
30, 1997 and to an increase in income on investment securities to $8.0 million
for fiscal 1998 from $4.4 million for fiscal 1997. During the same time periods
the average balance on loans receivable increased by $17.3 million to $167.9
million for the fiscal year ended June 30, 1998 from $150.6 million for the
fiscal year ended
32
<PAGE>
June 30, 1997, and the average balance on investment securities increased by
$54.8 million to $118.0 million for fiscal 1998 from $63.2 million for fiscal
1997.
Total Interest Expense. Total interest expense increased to $14.6
million for the fiscal year ended June 30, 1998 from $10.4 million for the
fiscal year ended June 30, 1997. The two components of total interest expense
are interest on deposits, which increased by $1.1 million for the fiscal year
ended June 30, 1998 to $6.6 million from $5.5 million for the fiscal year ended
June 30, 1997 and interest on borrowings, which increased by $3.1 million for
the fiscal year ended June 30, 1998 to $8 million from $4.9 million for the
fiscal year ended June 30, 1997. These increases are attributable to increases
in the volume of both deposits and borrowings as described previously as well as
an increase in the cost of deposits and borrowings due to an increase in market
rates of interest.
Provision For Loan Losses. The provision for loan losses was $385,000
for the fiscal year ended June 30, 1998, as compared to $220,000 for the fiscal
year ended June 30, 1997. The amount charged to operations and the related
balance in the allowance for loan losses based on periodic reviews of the
portfolio by management. The allowance for loan losses represented 0.84% of
loans outstanding at June 30, 1998 as compared to 0.76% of loans outstanding at
June 30, 1997. This increase of $165,000 is a result of increased lending
activity during the fiscal year ended June 30, 1998.
Other Income. Included in other income are loan servicing income, gains
or losses on sales of mortgage-backed securities and other investments, and
other miscellaneous sources of operating income.
During the fiscal year ended June 30, 1998, other income increased to
$1,760,000 from $720,000 for the fiscal year ended June 30, 1997. The increase
is mainly attributable to increases in the amount of gains realized on the sale
of mortgage-backed and investment securities which were $1,151,000 for the
fiscal year ended June 30, 1998 and $283,000 for the fiscal year ended June 30,
1997. Also included in other income were gains realized on the sale of real
estate owned of $101,000 and $73,000 for the fiscal years ended June 30, 1998
and 1997, respectively. Loan servicing income increased by $59,000 to $285,000
for fiscal year ended June 30, 1998 from $226,000 for fiscal year ended June 30,
1997 primarily attributable to an increase in the loan volume serviced.
Operating Expenses. Total operating expenses decreased $454,000 or
11.3% to $3,582,000 for the fiscal year ended June 30, 1998, as compared to
$4,036,000 for the fiscal year ended June 30, 1997.
The primary component of operating expenses was salaries and employee
benefits which increased $276,000 or 17.3% to $1,865,000 from $1,589,000 for the
fiscal year ended June 30, 1997. In addition, total bonuses paid to senior
executive officers increased $67,000 or 137% to $116,000 from $49,000 for the
fiscal year ended June 30, 1997. The primary reason for the decrease in
operating expenses during fiscal 1998 from fiscal 1997 was due to a special
charge of $745,000 levied on September 30, 1996 against all SAIF member
financial institutions to recapitalize the SAIF fund. Management continues to
monitor operating expenses and to reduce or eliminate such expenses where
possible. The ratio of operating expense to average assets for fiscal 1998 and
fiscal 1997 was 1.23% and 1.86%, respectively.
33
<PAGE>
Average Balance Sheet. The following table sets forth certain information
relating to our average balance sheet and reflects the average yield on assets
and average cost of liabilities for the periods indicated. Average balances are
derived from month-end balances. Management does not believe that the use of
month-end balances instead of daily average balances has caused any material
differences in the information presented.
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------------------------------------
1999 1998
--------------------------------- --------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost(5) Balance Expense Cost(5)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets (Dollars in thousands)
Interest-earning assets:
Loans receivable(1) $188,358 $3,836 8.15% 178,497 3,564 7.99%
Investment and mortgage-backed
securities(2) 172,826 2,744 6.35 144,481 2,388 6.61
----- -----
Total interest-earning assets 361,184 6,580 7.29% 322,978 5,952 7.37%
Non-interest-earning assets 5,247 4,656
------- -------
Total assets $366,431 $327,634
======= =======
Liabilities and
Stockholders'
Equity
Interest-bearing liabilities:
NOW accounts . $ 14,443 93 2.58% 13,698 80 2.34%
Passbook and club accounts 11,327 78 2.75 11,419 77 2.70
Money market demand accounts 20,207 228 4.51 15,756 186 4.72
Certificates of deposit 145,212 1,924 5.30 108,495 1,538 5.67
Short-term and
long-term 152,524 2,239 5.87 156,061 2,283 5.85
------- ----- ------- -----
Total interest-bearing liabilities 343,713 4,562 5.31% 305,429 4,164 5.45%
------- ----- ------- -----
Non-interest-bearing liabilities 6,911 6,616
----- -----
Total liabilities 350,624 312,045
Stockholders' equity 15,807 15,589
------ ------
Total liabilities and
stockholders' equity $366,431 $327,634
======= =======
Net interest income $ 2,018 $ 1,788
====== =======
Interest rate spread(3) 1.98% 1.92%
==== ====
Net interest margin(4) 2.23% 2.21%
==== ====
Ratio of average interest-earning
assets to average
interest-bearing liabilities 105.08% 105.75%
====== ======
</TABLE>
- --------------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(5) Annualized.
34
<PAGE>
Average Balance Sheet. The following table sets forth certain information
relating to our average balance sheet and reflects the average yield on assets
and average cost of liabilities for the periods indicated. Average balances are
derived from month-end balances. Management does not believe that the use of
month-end balances instead of daily average balances has caused any material
differences in the information presented.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------- ------------------------------ ------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost Balance Expense Cost
------- ------- ---- ------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets (Dollars in thousands)
Interest-earning assets:
Loans receivable(1) $184,068 $14,358 7.80% $167,876 $13,234 7.88% $150,633 $11,852 7.87%
Investment and mortgage-backed
securities(2) 156,991 10,706 6.82 117,985 8,006 6.78 63,217 4,341 6.87
--------- ------ --------- ----- -------- ------
Total interest-earning assets 341,059 25,064 7.35 285,861 21,240 7.43 213,850 16,193 7.57
Non-interest-earning assets 5,903 4,613 3,453
------- ------- -------
Total assets $346,962 $290,474 $217,303
======= ======= =======
Liabilities and
Stockholders' Equity
Interest-bearing liabilities:
NOW accounts $ 13,832 $ 320 2.31% $ 12,823 $ 311 2.43% $ 12,552 $ 267 2.13%
Passbook and club accounts 11,369 306 2.69 10,427 283 2.71 10,029 278 2.78
Money market demand accounts 17,570 788 4.48 12,986 572 4.41 9,991 420 4.20
Certificates of deposit 128,683 7,028 5.46 96,075 5,472 5.69 81,745 4,504 5.51
Short-term and
long-term borrowings 152,627 8,938 5.86 138,339 7,972 5.76 88,744 4,937 5.56
--------- ------ --------- ------- ------- ------
Total interest-bearing liabilities 324,081 17,380 5.36% 270,650 14,610 5.40% 203,061 10,406 5.12%
--------- ------ ------- ------ ------- ------
Non-interest-bearing liabilities 6,692 5,984 3,328
------- ----- -------
Total liabilities 330,773 276,634 206,389
Stockholders' equity 16,189 13,840 10,914
-------- ------ ------
Total liabilities and
stockholders' equity $346,962 $290,474 $217,303
======= ======= =======
Net interest income $ 7,684 $ 6,630 $ 5,787
====== ======= =======
Interest rate spread(3) 1.99% 2.03% 2.45%
====== ==== ====
Net interest margin(4) 2.25% 2.32% 2.71%
====== ==== ====
Ratio of average interest-earning
assets to average
interest-bearing liabilities 105.24% 105.62% 105.31%
======= ======== ========
</TABLE>
- ---------------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
35
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in our
interest income and interest expense for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume; (ii)
changes in rates; (iii) changes in rate and volume.
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 vs. 1998
Increase/(Decrease)
Due to
---------------------------------------
Rate/
Volume Rate Volume Total
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $197 $ 71 $ 4 $272
Investment and mortgage-backed
securities 468 (94) (18) 356
----- ---- ---- ---
Total interest-earning assets 665 (23) (14) 628
----- --- --- ---
Interest-bearing liabilities:
NOW and money market deposits 47 7 1 55
Savings and certificate accounts 494 (87) (20) 387
Short-term and long-term
borrowings (52) 8 - (44)
----- --- --- ---
Total interest-bearing liabilities 489 (72) (19) 398
----- --- --- ---
Increase (decrease) in net interest
income $176 $ 49 $ 5 $230
=== ===== ==== ===
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, Year Ended June 30,
1999 vs. 1998 1998 vs. 1997
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-earning assets:
Loans receivable $1,276 $ (134) $ (18) $1,124 $1,357 $ 15 $ 10 $1,382
Investment and mortgage-backed
securities 2,645 47 8 2,700 3,763 (57) (41) 3,665
------ ------ ------ ------ ------ ------ ------ ------
Total interest-earning assets 3,921 (87) (10) 3,824 5,120 (42) (31) 5,047
------ ------ ------ ------ ------ ------ ------ ------
Interest-bearing liabilities:
NOW and money market deposits 191 28 6 225 100 83 13 196
Savings and certificate accounts 1,812 (170) (63) 1,579 767 174 32 973
Short-term and long-term
borrowings 823 138 5 966 2,757 177 101 3,035
------ ------ ------ ------ ------ ------ ------ ------
Total interest-bearing liabilities 2,826 (4) (52) 2,770 3,624 434 146 4,204
------ ------ ------ ------ ------ ------ ------ ------
Increase (decrease) in net interest
income $1,095 $ (83) $ 42 $1,054 $1,496 $ (476) $ (177) $ 843
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
36
<PAGE>
Interest Rate Risk
Because the majority of our assets and liabilities are sensitive to
changes in interest rates, our most significant form of market risk is interest
rate risk. Our exposure to interest rate risk results from the difference in
maturities on interest-bearing liabilities and interest-earning assets and the
volatility of interest rates.
We are vulnerable to an increase in interest rates to the extent that
interest-bearing liabilities mature or reprice more rapidly than
interest-earning assets. In the current market, we primarily originate
long-term, fixed rate loans secured by single-family residences. Our primary
source of funds has been deposits with substantially shorter maturities. While
having interest-bearing liabilities that reprice more frequently than
interest-earning assets is generally beneficial to net interest income during a
period of declining interest rates, this type of an asset/liability mismatch is
generally detrimental during periods of rising interest rates.
Our Board of Directors reviews our asset and liability policy on an
annual basis. The Board of Directors meets quarterly to review interest rate
risk and trends, as well as liquidity and capital ratios and requirements.
Management administers the policies and determinations of the Board of Directors
with respect to our asset and liability goals and strategies.
To manage the interest rate risk on our mortgage loan portfolio, we
emphasize the origination of adjustable-rate loans and sell a portion of our
fixed-rate mortgage loan originations. At June 30, 1999, adjustable-rate
mortgage loans totaled $58.0 million or 30.9% of our total loan portfolio. To
manage interest rate risk, we also maintain a portfolio of liquid assets which
includes investment securities and mortgage-backed securities. Maintaining
liquid assets, however, tends to reduce potential net income because liquid
assets usually provide a lower yield than other interest-earning assets. As an
asset/liability management tool, we may use alternative sources of funding if
deposit pricing in our local market area is not acceptable.
Net Portfolio Value. We utilize various asset/liability models to help
us monitor our sensitivity to changes in interest rates, notably net portfolio
value ("NPV") analysis. NPV is the difference between incoming and outgoing
discounted cash flows from assets, liabilities, and off-balance sheet contracts.
Our interest rate risk is measured as the change to its NPV as a result of
hypothetical 100-400 basis point changes in market interest rates. We calculate
the NPV quarterly. The following table presents our NPV at June 30, 1999. As of
September 30, 1999, there were no significant changes to our interest rate risk.
37
<PAGE>
<TABLE>
<CAPTION>
Changes
in Market $ %
Interest Rates NPV Amount Change Change in NPV NPV Ratio(1)
-------------- ---------- ---------------- --------------- -------------
(basis points) (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+400 964 -22,443 -95.9 0.29%
+300 8,063 -15,374 -65.6 2.38%
+200 13,816 -9,620 -41.0 3.98%
+100 19,008 -4,429 -18.9 5.34%
0 23,437 -- -- 6.44%
-100 26,704 3,267 13.9 7.19%
-200 26,758 3,321 14.2 7.10%
-300 26,134 2,697 11.5 6.84%
-400 26,802 3,365 14.4 6.89%
</TABLE>
- ------------
(1) Calculated as the estimated NPV divided by present value of total assets.
Net Interest Income. The following table presents the effect on our net
interest income as a result of hypothetical 100-400 basis point changes in
market interest rates at June 30, 1999. As of September 30, 1999, there were no
significant changes to the hypothetical effect on our net interest income.
Changes
in Market $ Change in % Change in
Interest Rates Net Interest Income Net Interest Income
-------------- ------------------- -------------------
(basis points) (Dollars in thousands)
+400 -3,758 -44.0
+300 -2,565 -30.0
+200 -1,445 -16.9
+100 -416 -4.9
0 -- --
-100 -603 -7.1
-200 -1,114 -13.0
-300 -1,444 -16.9
-400 -1,555 -18.2
38
<PAGE>
Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, prepayments and deposit run-offs and should not be relied upon
as indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar
maturities or periods of repricing, they may react at different times and in
different degrees to changes in market rates of interest. The interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while rates on other types of assets and liabilities may
lag behind changes in market interest rates. In the event of a change in
interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making the calculations set forth above.
Additionally, an increased credit risk may result as many borrowers may be
unable to service their debt in the event of an interest rate increase.
Non-Performing Assets
We place all loans that are 90 days or more delinquent, or sooner, if
the collection of principal or interest becomes doubtful, on non-accrual status.
At June 30, 1999, our non-performing assets were $3.3 million as compared to
$4.5 million at June 30, 1998, a decrease of $1,200,000 or 26.7%. The ratio of
non-performing assets to total assets was 0.90% at June 30, 1999 compared to
1.44% at June 30, 1998.
At September 30, 1999 our non-performing assets were $2.8 million
compared to $3.3 million at June 30, 1999, a decrease of $489,000 or 15.0% due
to a decline in delinquent loans due to increased collection activity and an
increase in the transfer of delinquent loans to real estate owned and the
increased sale of said real estate owned. The following table sets forth
information regarding non-performing loans and real estate owned, as of the
dates indicated. For the quarter ended September 30, 1999 and for that year
ended June 30, 1999, interest income that would have been recorded on loans
accounted for on a nonaccrual basis under the original terms of such loans was
immaterial.
39
<PAGE>
<TABLE>
<CAPTION>
At September 30, At June 30,
----------------------------------
1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-performing loans:
Mortgage loans:
1-4 family residential real estate $1,447 $1,954 $2,645 $3,166 $3,689 $2,206
Construction -- -- -- -- 106 106
Multi-family -- -- 336 336 -- 33
Commercial loans and leases 315 302 334 333 333 --
Consumer loans:
Home equity 16 28 100 287 174 180
Other consumer -- 5 -- 41 90 76
------ ------ ------ ------ ------ ------
Total non-performing loans 1,778 2,289 3,415 4,163 4,392 2,601
Real estate owned 991 969 1,129 767 259 506
------ ------ ------ ------ ------ ------
Total non-performing assets $2,769 $3,258 $4,544 $4,930 $4,651 $3,107
===== ===== ===== ===== ===== =====
Total non-performing loans to total loans 0.95% 1.22% 1.91% 2.72% 2.99% 1.62%
Total non-performing assets to
total assets 0.76% 0.90% 1.44% 1.82% 2.56% 1.67%
</TABLE>
Real estate owned consists of properties acquired by foreclosure and is
stated at fair value less cost to sell at the date of acquisition. Real estate
owned decreased to $969,000 at June 30, 1999, from $1,129,000 at June 30, 1998.
At September 30, 1999, real estate owned was $991,000 and consisted of twelve
single-family dwelling units and one multi-family dwelling unit. Eight of these
properties are located in the Pocono Mountains area of Northeastern
Pennsylvania.
Liquidity and Capital Resources
We have pursued a policy of maintaining an adequate level of liquidity
to generate sufficient cash to fund current loan demand, meet deposit
withdrawals, pay operating expenses and fund debt obligations. The obligations
associated with the preferred securities issued in this offering will add to the
level of liquidity we will need to maintain. Cash for these short-term and
long-term needs is generated through deposits (including the use of brokered
deposits), funds borrowed from the Federal Home Loan Bank, the sale and maturity
of investment securities, cash flows generated from operations, and collections
of principal payments and prepayments of outstanding loans. Loan principal
repayments are a relatively stable source of funds while deposit flows are
influenced significantly by general interest rates and money market conditions.
Borrowings are also used to compensate for reductions in other sources of funds
such as deposits as well as to fund the expansion of loan volume. In the event
that they provide less expensive funds, brokered savings deposits are used as
well.
40
<PAGE>
As a member of the Federal Home Loan Bank System, we may borrow from
the Federal Home Loan Bank of Pittsburgh. At September 30, 1999, we had
outstanding from the Federal Home Loan Bank of Pittsburgh advances equal to $149
million as compared to $146.2 million at June 30, 1999 and $144.5 million in
outstanding advances at June 30, 1998. Such borrowings, as a percentage of our
total assets, equaled 40.7% at September 30, 1999, 40.2% at June 30, 1999 and
45.8% at June 30, 1998. Within certain guidelines, the policies of Federal Home
Loan Bank of Pittsburgh are flexible with respect to the borrowing limits of a
member institution. At September 30, 1999, our maximum borrowing capacity was
approximately $203.7 million.
At September 30, 1999, we had outstanding loan commitments, including
undisbursed lines of credit of approximately $8.2 million. We believe that
normal cash flow from principal and interest payments on our loan portfolio will
be sufficient to meet these loan commitments. No other significant commitments
existed at September 30, 1999.
Regulatory Capital. First Star Savings Bank is subject to regulatory
capital requirements by the Federal Deposit Insurance Corporation ("FDIC"). To
be deemed "adequately capitalized" the FDIC has three minimum regulatory capital
ratios: a leverage capital ratio equal to 4% of adjusted total assets; a Tier 1
risk-based capital ratio equal to 4% of risk-based assets; and total risk-based
capital equal to 8% of risk-based assets.
The following table sets forth the bank's regulatory capital position
at September 30, 1999, as compared to the minimum regulatory capital
requirements imposed on us by the FDIC.
Amount Percentage
------ ----------
(Dollars in thousands)
Leverage Ratio:
Actual capital ....................................... $20,237 5.57%
Regulatory requirement ............................... 14,543 4.00
------- -----
Excess ............................................... $ 5,694 1.57%
======= =====
Tier 1 Risk-Based Capital:
Actual Capital ....................................... $20,237 9.47%
Regulatory requirement ............................... 8,544 4.00
------- -----
Excess ............................................... $11,693 5.47%
======= =====
Total Risk-Based Capital:
Actual Capital ....................................... $22,016 10.30%
Regulatory requirement ............................... 17,087 8.00
------- -----
Excess ............................................... $ 4,929 2.30%
======= =====
For First Star Bancorp's capital ratios, see "Capitalization."
41
<PAGE>
Impact of Inflation and Changing Prices
The 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 industrial companies, substantially all of the assets and
liabilities of a financial institution are 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
prices of goods and service as measured by the consumer price index.
Year 2000 Issue
Rapid and accurate data processing is essential to our operations. Many
computer programs that can only distinguish the final two digits of the year
entered (a common programming practice in prior years) are expected to read
entries for the year 2000 as the year 1900 or as zero and incorrectly attempt to
compute payment, interest, delinquency and other data.
The following discussion of the implications of the year 2000 problem
for us contains a number of forward-looking statements. These statements reflect
our best current estimates, which were based on numerous assumptions about
future events, including the continued availability of [^] [various] resources,
[such as telecommunications capability, electrical power, data processing
services and programmers and other systems personnel, and] representations
received from third party service providers and other third parties[^]. There
can be no guarantee that these estimates, including year 2000 costs, will be
achieved, and actual results could cause our estimates and the impact of the
year 2000 issue to differ materially from what is described in the
forward-looking statements contained in the following discussion. [^] [Factors
that could cause actual results to differ from our expectations of how year 2000
will affect us include] uncertainties in the cost of hardware and software, the
availability and cost of programmers and other systems personnel, inaccurate or
incomplete execution of the phases, ineffective remediation of computer code,
the unpredictability of consumer behavior, and whether our customers, vendors,
competitors and other third parties effectively address the year 2000 issues.
Year 2000 issues expose us to a number of risks, any one of which, if
realized, could have a material adverse effect on our business, results of
operations or financial condition. These risks include the possibility that, to
the extent certain vendors fail to adequately address year 2000 issues, we may
suffer disruptions in important services on which we depend, such as
telecommunications, electrical power and data processing. Year 2000 issues could
affect our liquidity if customer withdrawals in anticipation of the year 2000
are greater than expected or if our lenders are unable to provide us with funds
when and as needed by us. Year 2000 issues also created additional credit risk
to our insofar as the failure of our customers and counterparties to adequately
address year 2000 issues could increase the likelihood that these customers and
counterparties become delinquent or default on their obligations to us. In
addition to increasing our risk exposure to problem loans, credit losses, and
liquidity problems, year 2000 issues expose us to increased risk of litigation
losses and expenses relating to the foregoing.
42
<PAGE>
We place a high degree of reliance on computer systems of third
parties, such as customers, suppliers, and other financial and governmental
institutions. Although we are assessing the readiness of these third parties and
preparing contingency plans, there can be no guarantee that the failure of these
third parties to modify their systems in advance of December 31, 1999 would not
have a material adverse affect on us.
Our year 2000 plan was presented to our Board of Directors in March
1998. The plan was developed using the guidelines outlined in the Federal
Financial Institutions Examination Council's "The Effect of Year 2000 on
Computer Systems" and the mission critical system testing and implementation has
been completed. The Year 2000 Committee is responsible for the plan with the
Board of Directors receiving year 2000 progress reports on a quarterly basis.
Our primary operating software is through our third party service
bureau, Bisys, Inc. We have maintained ongoing contact with this vendor so that
modification of the software for year 2000 readiness is a top priority. The
modification of the software has been accomplished. We have performed
significant testing of the software utilized by Bisys, Inc. with successful
results. Bisys, Inc. has represented that the software currently being utilized
for our current operations is year 2000 compliant. We have participated in proxy
testing of Bisys, Inc. with another financial institution in our area. Proxy
testing is a cooperative effort of a number of financial institutions that use
the same service for a third party service bureau.
We have contacted all other material vendors and suppliers regarding
their year 2000 readiness. Each of these third parties has delivered written
assurance to us that year 2000 will not be an issue or that the issue will be
satisfactorily resolved prior to the end of 1999. Appropriate testing, if
possible, and any related contingency plans would be performed in the third and
fourth quarters of 1999. We have contacted all significant customers and
non-information technology suppliers (i.e. utility systems, telephone systems,
etc.), regarding their year 2000 state of readiness with significant customers
and non-information technology suppliers. Such parties have indicated that they
have established year 2000 plans and are in various stages of remediation and
testing. We are unable to test the year 2000 readiness of our significant
suppliers of utilities. We are relying on the utility companies' internal
testing and representations to provide the required services that drive our data
systems. We are currently determining what recourse we would have from such
parties if they do not resolve the year 2000 issues. All software that is
considered mission critical has been tested.
We have mailed Year 2000 questionnaires to all of our commercial real
estate loan customers, and over 89% of the questionnaires were returned. These
questionnaires were based on Appendix A of Guidance Concerning the Year 2000
Impact on Customers, Federal Financial Institutions Examination Council (FFIEC)
Interagency Statement, March 17, 1998. This questionnaire is also used in the
underwriting for new commercial loans. Our Year 2000 Committee members reviewed
the responses with the appropriate commercial loan officer to rate the
customers' risk levels based on the type of business and the type of loan and
collateral. We have received favorable questionnaire responses from our
borrowers. Borrowers have established year 2000 plans and are testing software
and contacting vendors and suppliers and plan to be ready for year 2000. Several
borrowers are real estate holding companies that have minimal risk.
43
<PAGE>
Individual mortgage loan and consumer loan customers were not contacted
as a practical matter; it was deemed to be beyond the scope of our testing
parameters, because most of these are individuals with adequate collateral on
the loans.
Costs will be incurred to replace certain non-compliant software and
hardware. We do not anticipate that direct costs for renovating or replacing
non-compliant hardware and software will exceed $25,000 of which approximately
$16,000 had been expended as of September 30, 1999. No assurance can be given
that the year 2000 plan will be completed successfully by the year 2000, in
which event we could incur significant costs. If Bisys, Inc. fails to maintain
its system in a compliant state or incurs other obstacles prior to year 2000, we
would likely experience significant data processing delays, mistakes or
failures. These delays, mistakes or failures could have a significant adverse
impact on our financial condition and results of operations.
We are monitoring Bisys, Inc. to evaluate whether its data processing
system will fail and are being provided with periodic updates on the status of
testing and upgrades being made by the service bureau. If Bisys, Inc. fails, we
will attempt to locate an alternative service bureau that is year 2000
compliant. If we are unsuccessful, we will enter deposit and loan transactions
by hand in our general ledger and compute loan payments and deposit balances and
interest in our existing computer system. We are able to do this because of our
relatively small number of loan and deposit accounts and our internal
bookkeeping system. Our computer systems are independently able to generate
labels and mailings for all of our customers. If this labor intensive approach
is necessary, our management and employees will become much less efficient.
However, we believe that we would be able to operate in this manner for a
limited time, until our existing service bureau, or replacement bureau, is able
to provide data processing services. If very few financial institution service
bureaus were operating in the year 2000, their replacement costs, assuming we
could negotiate an agreement, could be material. We are currently determining
what recourse we would have from Bisys, Inc. if it does not resolve the year
2000 issues.
As part of our contingency planning, we will increase our liquidity to
accommodate any possible increase in customer demand for cash during the start
of 2000. To ensure maximum staffing, employees may not take vacation from
December 27, 1999 through January 14, 2000 (other than bank holidays).
The most reasonably likely worst case scenario is that some areas where
we have branch offices located will experience blackouts if utility service
companies are unable to provide necessary service to drive our data systems or
provide sufficient sanitary conditions to our offices. In the event that this
would happen, we would be unable to open the affected branches, and customers
would be directed to other branch locations and business would be transacted
manually.
Successful and timely completion of the year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of Bisys,
Inc., testing plans, and all vendors, suppliers and customer readiness.
Despite the best efforts of management to address this issue, the vast
number of external entities that have direct and indirect business relationships
with us, such as customers, vendors, payment system providers and other
financial institution, makes it impossible to assure that a failure to achieve
compliance by one or more of these entities would not have material adverse
impact on our operations.
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Recent Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities. In June
1998 the Financial Standards Accounting Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement establishes accounting and reporting for derivative
instruments, including certain instruments embedded in other contracts, and for
hedging activities. It requires that any entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. During July 1999, the FASB issued SFAS No. 137,
which delayed the effective date of this statement for one year, to fiscal years
beginning after June 15, 2000. The adoption of this statement is not expected to
have a significant impact on the financial condition or operations of the bank.
Mortgage Banking Activities. In October 1998, the FASB issued SFAS No.
134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise." This statement became effective for the Bank July 1, 1999. The
adoption of this statement did not have a significant impact on the financial
condition or results of operations of the Bank.
Business Combinations. In December 1998, the FASB issued an invitation
to comment on a document entitled "Methods of Accounting for Business
Combinations: Recommendations of the G4+1 for Achieving Convergence."
Subsequently, in April 1999, the FASB tentatively agreed to eliminate the
pooling-of-interests method of accounting for business combinations. In reaching
its conclusion, the FASB commented that the use of two methods, purchase and
pooling-of-interests, makes it difficult for users to compare the financial
statements of companies engaged in business combinations, and that the pooling
method is inconsistent with the general concept of fair value associated with
acquisitions. Accordingly, the FASB concluded that there should be a single
method of accounting for all business combinations, and that method is the
purchase method. As a general rule, the purchase method establishes a new
accounting basis for the assets and liabilities acquired based on fair value and
recognizes goodwill (positive or negative). Goodwill, the difference between the
purchase price and total value of the assets and liabilities obtained, is an
intangible asset that must be amortized over future periods. Regarding
transition, the FASB tentatively concluded that all business combinations
reported before final issuance of the new standard, as well as all combinations
in process at the time the new standard is issued should be accounted for under
APB 16 as a pooling, if the pooling criteria within that standard are met. In
September 1999, the FASB issued an Exposure Draft of the new standard, "Business
Combinations and Intangible Assets." The FASB is expected to issue the final
standard by the end of 2000.
BUSINESS OF FIRST STAR BANCORP, INC.
AND FIRST STAR SAVINGS BANK
General
First Star Bancorp was formed in March 10, 1993 as a
Pennsylvania-chartered corporation to be the holding company and sole
stockholder for First Star Savings Bank. The holding company structure
facilitates: (i) diversification into non-banking activities, (ii) acquisitions
of other financial institutions,
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such as savings institutions, (iii) expansion within existing and into new
market areas, and (iv) stock repurchases without adverse tax consequences. There
are, however, no present plans regarding diversification, acquisitions,
expansion or repurchases.
Our office is located at 418 West Broad Street, Bethlehem,
Pennsylvania. Our telephone number is (610) 691-2233.
First Star Savings Bank is a Pennsylvania-chartered stock savings bank
which traces its origins to 1893. Our principal business consists of attracting
deposits from the general public and originating loans secured by residential
properties. Our business is conducted through our main office located in
Bethlehem, Pennsylvania and five branch offices.
In May 1987, we converted from the mutual to the stock form of
ownership. In December of 1989, we issued and sold shares of First Star Savings
Bank Series A Convertible Preferred Stock in a private offering to nine
individuals, all of whom were directors of First Star. On July 27, 1993, we
converted to a state chartered savings bank.
The principal sources of funds for our activities are deposits,
payments on loans and borrowings from the FHLB of Pittsburgh. Funds are used
principally for the origination of adjustable-rate mortgage loans, but also for
the origination of fixed-rate mortgage loans, secured by first mortgages on one-
to four-family residences located in our local communities, and for the purchase
of securities. One- to four-family mortgage loans totaled $147.7 million, or
77.4% of our total loans receivable portfolio at September 30, 1999. Our
principal sources of revenue are interest received on loans and on investments
and our principal expense is interest paid on deposits.
Market Area
Our offices are located in Bath, Bethlehem, Palmer, Allentown, Nazareth
and Alburtis, which are all located within Lehigh and Northampton Counties. Our
market area includes the counties of Lehigh, Northampton, Carbon, Bucks and,
Monroe in their entireties. Carbon, Lehigh and Northampton Counties make up the
metropolitan area known locally as the Lehigh Valley. The population of this
area in 1990 was 595,000. The largest industry groups, ranked by number of
employees, include service industries, manufacturing, retail trade and
government. Monroe County is relatively sparsely populated, while Bucks County,
considered part of metropolitan Philadelphia, is densely populated, reporting
over 544,000 residents in 1990.
Allentown, Bethlehem and Easton are the principal cities of the Lehigh
Valley (Pennsylvania), which has an aggregate population of approximately
650,000. During the past twenty years, the economy of the Lehigh Valley has
shifted from one principally dominated by manufacturing, especially the steel
industry, to an economy characterized by a diverse group of industries including
service and distribution firms, health care, high technology, manufacturing and
retailing firms. Major employers include Air Products and Chemicals, Lehigh
Valley Hospital Center, Dun & Bradstreet, Prudential Insurance Company, Lucent
Technologies and Lehigh University. As of June 1999, unemployment in Lehigh and
Northampton Counties was 3.9% and 4.0%, respectively. An interstate highway
network through the Lehigh Valley benefits the local economy by providing
convenient access to New York, New England and Philadelphia.
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<PAGE>
Lending Activities
Most of our loans are mortgage loans which are secured by one- to
four-family residences and to a lesser extent, commercial real estate. We also
make construction loans, as well as consumer (including home equity, automobile
and unsecured business) loans. In the current interest rate environment, most of
the loans we originate have fixed rates of interest.
Mortgage Loans
One- to Four-Family Residential Loans. Our primary lending activity
consists of originating one- to four-family residential mortgage loans secured
by property located in our market areas. About 31% of our loan portfolio is
comprised of adjustable-rate mortgage loans which we retain for our portfolio.
The remainder consists of fixed-rate loans which we originate either to resell
in the secondary market or to retain in our portfolio, depending on the yield on
the loan and on our asset/liability management objectives. Residential real
estate loans often remain outstanding for significantly shorter periods than
their contractual terms because borrowers may refinance or repay loans at their
option.
The interest rate on our ARM loans is based on an index plus a stated
margin. We usually offer discounted initial interest rates on ARM loans.
Borrowers qualify for the ARM loan at the initial interest rate. However, ARM
loan borrowers are, for loan approval, required to meet lower income-to-debt
ratios than those required for fixed-rate loans. ARM loans provide for periodic
interest rate adjustments upward or downward of up to 2% per adjustment. The
interest rate generally may not increase more than 6% over the life of the loan.
Our ARM loans typically reprice annually, after the initial adjustment period of
one year, three years or five years, with most loans having terms to maturity of
30 years. ARM loans are offered to all applicants; however, in a relatively low
interest rate environment, borrowers may prefer a fixed-rate to ARM loans.
Our fixed-rate loans generally have terms of 10, 15 or 30 years with
principal and interest payments calculated using up to a 30-year amortization
period. Loans originated with a loan-to-value ratio in excess of 80% require
private mortgage insurance. The maximum loan-to-value ratio on mortgage loans
secured by non-owner occupied properties generally is limited to 80%. We conform
our loans to the standards that are used in the mortgage industry allowing our
loans to be readily sold in the secondary market. We currently retain servicing
rights to those loans sold in the secondary market. At June 30, 1999, we had no
loans specifically identified as held for sale.
ARM loans decrease the risk associated with changes in interest rates
by periodically repricing, but involve other risks because as interest rates
increase, the underlying payments by the borrower increase, thus increasing the
potential for default by the borrower. At the same time, the marketability of
the underlying collateral may be adversely affected by higher interest rates.
Upward adjustment of the contractual interest rate is also limited by the
maximum periodic and lifetime interest rate adjustment permitted by the loan
documents, and, therefore is potentially limited in effectiveness during periods
of rapidly rising interest rates.
Mortgage loans originated and held by us generally include due-on-sale
clauses. This gives us the right to deem the loan immediately due and payable in
the event the borrower transfers ownership of the property securing the mortgage
loan without our consent.
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<PAGE>
Multi-Family and Commercial Real Estate Loans. Multi-family and
commercial loans generally have a loan-to-value ratio of 80% or less. These
loans do not have terms greater than 30 years. Our multi-family loans are
secured by primarily properties with five to ten units. Commercial real estate
loans are secured by office buildings, churches and other commercial properties.
Multi-family and commercial real estate lending entails significant
additional risks compared to residential property lending. These loans typically
involve large loan balances to single borrowers or groups of related borrowers.
The repayment of these loans typically is dependent on the successful operation
of the real estate project securing the loan. These risks can be significantly
affected by supply and demand conditions in the market for office and retail
space and may also be subject to adverse conditions in the economy. To minimize
these risks, we generally limit this type of lending to our market area and/or
to borrowers who are otherwise well known to us. Most construction loans convert
to permanent loans with us after 6 months.
Residential Construction Loans. We make residential construction loans
on one- to four-family residential property to the individuals who will be the
owners and occupants upon completion of construction. Upon completion of
construction, such loans are classified as one- to four-family loans. Only
interest payments are required during construction and these are to be paid from
the borrower's own funds. These loans are underwritten using the same criteria
as applied in the underwriting of one- to four-family mortgage loans. The
maximum loan-to-value ratio is 80%. Upon completion of construction, regular
principal and interest payments commence.
Commercial Leases. We invest in loans secured by commercial equipment
leases, primarily medical equipment. Such leases generally have fixed rates of
interest and are for terms of five years. A number of such leases were produced
by a single entity. See "Management's Discussion and Analysis --Financial
Condition -- Non-Performing Assets."
Consumer Loans. We offer consumer loans in order to provide a wider
range of financial services to our customers and because these loans provide
higher interest rates and shorter terms than many of our other loans. Our
consumer loans consist primarily of home equity, direct automobile loans,
unsecured lines of credit, and savings account loans.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans that are unsecured or secured by
assets that depreciate rapidly. Repossessed collateral for a defaulted consumer
loan may not be sufficient for repayment of the outstanding loan, and the
remaining deficiency may not be collectible.
Loan Approval Authority and Underwriting. Our senior loan committee,
which is comprised of the President, Senior Vice President, Vice President of
Lending, and Servicing Manager approves all commercial loans and all mortgage
loans over $400,000. The loan committee has authority to approve loans in any
category up to 40% of the loans to one borrower limit. Loan requests above this
amount must be approved by the Board of Directors.
Upon receipt of a completed loan application from a prospective
borrower, a credit report is ordered. Income and certain other information is
verified. If necessary, additional financial information may be requested. An
appraisal or other estimate of value of the real estate intended to be used as
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<PAGE>
security for the proposed loan is obtained. Appraisals are processed by
independent fee appraisers. Private mortgage insurance will also be required in
certain instances.
Construction loans are made on individual properties. Funds advanced
during the construction phase are held in a loans-in-process account and
disbursed at various stages of completion, following physical inspection of the
construction by a loan officer or appraiser.
Either title insurance or a title opinion is generally required on all
real estate loans. Borrowers also must obtain fire and casualty insurance. Flood
insurance is also required on loans secured by property which is located in a
flood zone.
Loan Commitments. Written commitments are given to prospective
borrowers on all approved real estate loans. Generally, the commitment requires
acceptance within 60 days of the loan application. Loan commitments in excess of
this period may be issued upon payment of a non-refundable fee or upon agreement
on an interest rate float, allowing us to adjust the interest rate on the loan.
At September 30, 1999, commitments to cover originations of mortgage and
commercial loans totaled $1.3 million.
Loans to One Borrower. The maximum amount of loans which we may make to
any one borrower may not exceed 15% of our unimpaired capital and unimpaired
surplus. We may lend an additional 10% of our unimpaired capital and unimpaired
surplus if the loan is fully secured by readily marketable collateral. Our
maximum loan to one borrower limit was $3.3 million at September 30, 1999. At
September 30, 1999, each of our five largest lending relationships had
outstanding loan balances of between $1.3 million and $3.0 million. All of these
loans were performing in accordance with their terms.
Non-Performing and Problem Assets
Loan Delinquencies. When a mortgage loan becomes 15 days past due, a
notice of nonpayment is sent to the borrower. After the loan becomes 30 days
past due, another notice of nonpayment is sent to the borrower. If the loan
continues in a delinquent status for 90 days past due and no repayment plan is
in effect, foreclosure proceedings will be initiated. The borrower will be
notified when foreclosure is commenced.
Loans are reviewed on a monthly basis and are placed on a non-accrual
status when, in our opinion, the collection of additional interest is doubtful.
Interest accrued and unpaid at the time a loan is placed on nonaccrual status is
charged against interest income. Subsequent interest payments, if any, are
either applied to the outstanding principal balance or recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.
Classified Assets. The classification policies of the Pennsylvania
Department of Banking and FDIC regulations provide for a classification system
for problem assets of savings associations which covers all problem assets.
Under this classification system, problem assets of savings institutions such as
ours are classified as "substandard," "doubtful," or "loss." An asset is
considered substandard if it is inadequately protected by the current net worth
and paying capacity of the borrower or of the collateral pledged, if any.
Substandard assets include those characterized by the "distinct possibility"
that the institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as doubtful have
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<PAGE>
all of the weaknesses inherent in those classified substandard, with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as loss are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
may be designated "special mention" because of potential weakness that do not
currently warrant classification in one of the aforementioned categories.
When we classify problem assets as either substandard or doubtful, we
may establish general allowances for loan losses in an amount deemed prudent by
management. General allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. When we classify problem assets as loss, we are required either
to establish a specific allowance for losses equal to 100% of that portion of
the asset so classified or to charge off such amount. Our determination as to
the classification of our assets and the amount of its valuation allowances is
subject to review by the Pennsylvania Department of Banking and the FDIC, which
may order the establishment of additional general or specific loss allowances. A
portion of general loss allowances established to cover possible losses related
to assets classified as substandard or doubtful may be included in determining a
savings association's regulatory capital. Specific valuation allowances for loan
losses generally do not qualify as regulatory capital.
At September 30, 1999, we had loans classified as special mention,
substandard, doubtful and loss as follows:
At
September 30,
1999
----
(In thousands)
Special mention $ 130
Substandard 1,853
Doubtful assets -
Loss assets 238
-----
Total $2,221
======
Allowance for Loan Losses. A provision for loan losses is charged to
operations based on management's evaluation of the losses incurred in our loan
portfolio. The evaluation, including a review of all loans on which full
collectibility of interest and principal may not be reasonably assured,
considers: (i) our past loan loss experience, (ii) known and inherent risks in
our portfolio, (iii) adverse situations that may affect the borrower's ability
to repay, (iv) the estimated value of any underlying collateral, and (v) current
economic conditions.
We monitor our allowance for loan losses and make additions to the
allowance as economic conditions dictate. Although we maintain our allowance for
loan losses at a level that we consider adequate for the inherent risk of loss
in our loan portfolio, future losses could exceed estimated amounts
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<PAGE>
and additional provisions for loan losses could be required. In addition, our
determination as to the amount of allowance for loan losses is subject to review
by the Pennsylvania Department of Banking and the FDIC, as part of their
examination process. After a review of the information available, the
Pennsylvania Department of Banking and the FDIC might require the establishment
of an additional allowance.
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<PAGE>
The following table illustrates the allocation of the allowance for
loan losses for each category of loans. The allocation of the allowance to each
category is not necessarily indicative of future losses in any particular
category and does not restrict our use of the allowance to absorb losses in
other loan categories.
<TABLE>
<CAPTION>
At
September 30,
------------------
1999
-------------------
Percent
of Loans
to Total
Amount Loans
------ -----
(Dollars in thousands)
<S> <C> <C>
At end of period allocated to:
One- to four-family $ 830 46.66%
Construction 1 0.05
Multi-family and
commercial real estate 901 50.65
Commercial leases 40 2.25
Consumer 7 0.39
----- ------
Total allowance $1,779 100.00%
===== ======
</TABLE>
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ------------------ ----------------- ------------------- ----------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At end of period allocated to:
One- to four-family $ 789 44.53% $ 906 60.85% $ 814 70.41% $ 822 81.06% $651 75.70%
Construction - -- -- -- -- -- 16 1.58 30 3.49
Multi-family and
commercial real estate 928 52.37 481 32.30 234 20.24 117 11.54 130 15.12
Commercial leases 41 2.31 93 6.25 89 7.70 34 3.35 27 3.14
Consumer 14 0.79 9 0.60 19 1.65 25 2.47 22 2.55
----- ------ ----- ------ ----- ------ ----- ------ --- ------
Total allowance $1,772 100.00% $1,489 100.00% $1,156 100.00% $1,014 100.00% $860 100.00%
===== ====== ===== ====== ===== ====== ===== ====== === ======
</TABLE>
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The following table sets forth information with respect to our
allowance for loan losses at the dates and for the periods indicated:
<TABLE>
<CAPTION>
At September 30, At June 30,
------------------------------------------------------------
1999 1999 1998 1997 1996 1995
----------- ------ -------- ------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total loans outstanding $186,581 $184,264 $176,386 $149,476 $144,299 $154,420
======= ======= ======= ======= ======= =======
Average loans outstanding $188,358 $184,068 167,876 $150,633 $155,594 $150,989
======= ======= ======= ======= ======= =======
Allowance balance (at beginning of period) 1,772 1,489 1,156 1,014 860 839
Provision for loan losses 47 423 385 220 244 104
Net charge-offs:
1-4 family residential 20 100 44 78 79 83
Construction -- -- -- -- -- --
Multi-family and commercial real estate 20 9 -- -- -- --
Commercial leases -- 29 -- -- -- --
Consumer -- 2 8 -- 11 --
----- ----- -------- -------- -------- ---------
Allowance balance (at end of period) $1,779 $1,772 $ 1,489 $ 1,156 $ 1,014 $ 860
===== ===== ======== ======== ======== =========
Allowance for loan losses as a percent of
total loans outstanding 0.94% 0.95% 0.84% 0.77% 0.70% 0.56%
Allowance for loan losses as a percent of
non-performing loans 100.00% 77.4% 43.6% 27.8% 23.1% 33.1%
Net loans charged off as a percent of
average loans outstanding 0.02% 0.08% 0.03% 0.05% 0.06% 0.05%
</TABLE>
Real Estate Owned. At September 30, 1999, we had 13 properties with an
aggregate book value of $991,000 in real estate owned. The largest real estate
owned property had a book value of $150,000 at September 30, 1999 and consisted
of a seven unit dwelling located in Bethlehem, Pennsylvania. Of the total amount
of real estate owned, $573,000 or 57.7% of the total consisted of eight single
family dwellings located in the Pocono Mountain area of Northeastern
Pennsylvania.
Investment Activities
Investment Securities. We classify our investment securities as
"available-for-sale" or "held-to-maturity" in accordance with SFAS No. 115. At
September 30, 1999, all investment securities were classified as available for
sale. At September 30, 1999, our investment portfolio policy permitted
investments in instruments such as: (i) U.S. Treasury obligations, (ii) U.S.
federal agency or federally sponsored agency obligations, (iii) local municipal
obligations, (iv) mortgage-backed securities, (v) banker's acceptances, (vi)
certificates of deposit, (vii) federal funds, including FHLB overnight and term
deposits (up to six months), and (viii) corporate bonds, commercial paper and
mortgage derivative products. Our Board of Directors may authorize additional
investments.
At September 30, 1999, our investment securities portfolio did not
contain securities of any issuer with an aggregate book value in excess of 10%
of our equity, excluding those issued by the United States government agencies
and a $2.0 million investment in each of the following issuers' trust preferred
securities: Northern Trust Corp, National Commerce Bank and Mercantile Bancorp,
Inc.
Mortgage-Backed Securities. To supplement lending activities, we have
invested in residential mortgage-backed securities and collateralized mortgage
obligations. Mortgage-backed securities can serve as collateral for borrowings
and, through repayments, as a source of liquidity. Mortgage-backed securities
represent a participation interest in a pool of single-family or other type of
mortgages. Principal
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<PAGE>
and interest payments are passed from the mortgage originators, through
intermediaries (generally quasi-governmental agencies) that pool and repackage
the participation interests in the form of securities, to investors such as us.
The quasi-governmental agencies guarantee the payment of principal and interest
to investors and include the Federal Home Loan Mortgage Corporation ("FHLMC"),
the Government National Mortgage Association ("GNMA"), and Federal National
Mortgage Association ("FNMA").
At September 30, 1999, our entire mortgaged-backed securities portfolio
was classified as "available-for-sale." Each security was issued by GNMA, FHLMC
or FNMA. Expected maturities will differ from contractual maturities due to
scheduled repayments and because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or
adjustable-rate mortgage loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
The interest rate risk characteristics of the underlying pool of mortgages
(i.e., fixed-rate or adjustable-rate) and the prepayment risk, are passed on to
the certificate holder. The life of a mortgage-backed pass-through security is
equal to the life of the underlying mortgages. Mortgage-backed securities issued
by FHLMC and GNMA make up a majority of the passthrough certificates market.
We have not experienced any significant changes in the payment patterns
of our mortgage-backed securities portfolio in the last few years.
Sources of Funds
We use primarily deposits and FHLB borrowings as our major external
sources of funds for lending and other investment purposes. Funds are also
derived from the receipt of payments on loans and prepayment of loans and
maturities of investment securities and mortgage-backed securities and, to a
much lesser extent, borrowings and operations. Scheduled loan principal
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are significantly influenced by general interest
rates and market conditions.
Deposits. Consumer and commercial deposits are attracted principally
from within our primary market area through the offering of a selection of
deposit instruments including checking accounts, regular savings accounts, money
market accounts, and term certificate accounts. IRA accounts are also offered.
Deposit account terms vary according to the minimum balance required, the time
period the funds must remain on deposit, and the interest rate.
The interest rates paid by us on deposits are set weekly at the
direction of our senior management. Interest rates are determined based on our
liquidity requirements, interest rates paid by our competitors, and our growth
goals and applicable regulatory restrictions and requirements.
Borrowings. Advances may be obtained from the FHLB of Pittsburgh to
supplement our supply of lendable funds. Advances from the FHLB of Pittsburgh
are typically secured by a pledge of our stock in the FHLB of Pittsburgh,
substantially all of our first mortgage loans and other assets. Each FHLB
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<PAGE>
credit program has its own interest rate (which may be fixed or adjustable) and
range of maturities. At September 30, 1999, we could borrow up to $203.7 million
from the FHLB of Pittsburgh. If the need arises, we may also access the Federal
Reserve Bank discount window to supplement our supply of lendable funds and to
meet deposit withdrawal requirements. At September 30, 1999, borrowings from the
FHLB of Pittsburgh totaled $149.0 million ($6.0 million of which were short-term
borrowings).
Subordinated Debentures. During the year ended June 30, 1992, the bank
issued $1,590,000 of Adjustable-Rate Mandatorily Convertible Subordinated
Debentures due in the year 2002 (the "Debentures"). The Debentures were assumed
by First Star Bancorp at the time of its formation. Interest on the Debentures
is 2% over the prime rate, adjustable monthly. Interest is payable on the
Debentures on the first day of each month. The Debentures will automatically
convert into Permanent Noncumulative Convertible Preferred Stock, Series A
("Series A Preferred Stock" (see Note 11 to the consolidated financial
statements)) of First Star Bancorp on January 1, 2002, unless previously
converted. The Debentures may be converted into Series A Preferred Stock at any
time, at either our option or the option of the holder, unless previously
redeemed, at a conversion price of one share per $9.864 principal amount of
Debenture, subject to adjustment in certain events. Each share of Series A
Preferred Stock is convertible into one share of our common stock, subject to
the limitations of our restated articles of incorporation.
The Debentures are redeemable, in whole or in part, on not less than 30
days' notice at our option at par value. The Debentures are subordinated in
right of payment to all of our present and future senior indebtedness.
On December 31, 1996, we sold $4,000,000 of Adjustable-Rate Mandatorily
Convertible Subordinated Debentures due in the year 2008 (the "1996
Debentures"). Interest on the 1996 Debentures is 1% below the prime rate,
adjustable monthly. Interest is payable on the 1996 Debentures on the first day
of each month. The 1996 Debentures will automatically convert into Permanent
Noncumulative Convertible Preferred Stock, Series B ("Series B Preferred Stock")
of First Star Bancorp on December 31, 2008, unless previously converted. The
1996 Debentures may be converted into Series B Preferred Stock at any time by
the holder or by First Star Bancorp, unless previously redeemed, at a conversion
price of one share per $24.281 principal amount of 1996 Debenture, subject to
adjustment in certain events. The Series B Preferred Stock is convertible into
one share of our common stock, subject to the limitations of our restated
articles of incorporation.
The 1996 Debentures are redeemable at par value prior to maturity only
with the proceeds from the sale of common or perpetual preferred stock, unless
otherwise approved by the Board of Governors of the Federal Reserve System. The
1996 Debentures are subordinated in right of payment to all of our present and
future senior indebtedness.
During the year ended June 30, 1992, $110,000 of the 1992 Debentures
were converted into Series A Preferred Stock. At September 30, 1999, $1,480,000
of the 1992 Debentures and $4,000,000 of the 1996 Debentures remained
outstanding.
All Debentures are includable as Tier 2 capital for determining our
compliance with regulatory capital requirements, subject to certain limitations
(see Note 19 to the consolidated financial statements). Upon conversion, the
Debentures become Tier 1 capital.
55
<PAGE>
Competition
Competition for deposits comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions,
finance companies, and multi-state regional banks in our market areas.
Competition for funds also includes a number of insurance products sold by local
agents and investment products such as mutual funds and other securities sold by
local and regional brokers. Loan competition varies depending upon market
conditions and comes from commercial banks, thrift institutions, credit unions
and mortgage bankers.
Properties
We own three of our six offices and lease three of them. The net book
value of this real property at September 30, 1999, was $455,614. Our total
investment in office equipment had a net book value of $147,062 at September 30,
1999.
Year Total Book Owned
Address Opened Investment Value or Leased
------- ------ ---------- ----- ---------
MAIN OFFICE:
418 West Broad Street 1952 1,935,522 288,088 Owned
Bethlehem, PA 18018
BRANCH OFFICES:
358 South Walnut Street 1986 80,446 9,411 Leased(1)
Bath, PA 18014
3590 Northwood Avenue 1987 153,092 -- Leased(2)
Palmer, PA 18043
14 South Main Street 1989 5,894 1,807 Leased(3)
Nazareth, PA 18064
471-497 Wabash Street 1994 211,132 138,924 Owned
Allentown, PA 18103
11 North Main Street 1997 196,660 164,446 Owned
Alburtis, PA 18011
- ------------
(1) Expires May 2001. Option to renew for an additional three-year term.
(2) Expires June 2008. Option to renew for an additional ten-year term.
(3) Expires June 2000. Option to renew for an additional one-year term.
56
<PAGE>
Personnel
At September 30, 1999 we had 43 full-time employees and 7 part-time
employees. None of our employees are represented by a collective bargaining
group. We believe that our relationship with our employees is good.
Additional Subsidiary Activity
First Star Bancorp has two direct subsidiaries: First Star Savings and
Integrated Financial Corp. Integrated Financial Corp. primarily manages a
property acquired at a sheriff sale and holds an investment in a limited
partnership. Furthermore, Integrated Financial Corp. has one wholly owned
subsidiary, Integrated Abstract, Inc., which is substantially inactive.
Legal Proceedings
We are, from time to time, a party to legal proceedings arising in the
ordinary course of our business, including legal proceedings to enforce our
rights against borrowers. We are not a party to any legal proceedings which are
expected to have a material adverse effect on our financial statements.
MANAGEMENT OF FIRST STAR BANCORP, INC.
Directors and Executive Officers
Our Board of Directors is composed of six members, each of whom serves
for a term of three years, with approximately one-third of the directors elected
each year. Our charter and bylaws require that directors be divided into three
classes, as nearly equal in number as possible. Our officers are elected
annually by our board and serve at the board's discretion.
The following table sets forth information with respect to our
directors and executive officers.
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Year First Current Owned at Percent
Age at June Elected Term June 30, of
Name 30, 1999 Director Expires 1999(1) Class(2)
- ---- ------------ -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Harold J. Suess 78 1964 2000 5,828(3) 1.5%
Stephen M. Szy 54 1987 2000 3,864(4) 1.0
Joseph T. Svetik 50 1987 2001 101,438(5)(6) 22.1
Paul J. Sebastian 56 1986 2001 97,574(6)(7) 21.2
Mark Parseghian, Jr. 71 1974 1999 4,190(8) 1.1
Tighe Scott 50 1987 1999 121,905(9) 25.4
</TABLE>
- ---------
(1) Except as otherwise noted below, the named individual effectively exercises
sole voting and investment power over the shares beneficially owned.
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<PAGE>
(2) Assumes the full conversion of the 1992 Debentures and the 1996 Debentures
into Series A and Series B Preferred Stock, respectively, and full
conversion of Series A and Series B Preferred Stock into common stock.
(3) Includes 2,027 shares of the Series A Preferred Stock.
(4) Includes 1,013 shares of the Series A Preferred Stock.
(5) Includes 9,792 shares which may be received upon the exercise of stock
options which are immediately exercisable, 8,617 shares of the Series A
Preferred Stock, 38,522 shares of Series A Preferred Stock receivable upon
conversion of 1992 Debentures and 27,799 shares of Series B Preferred Stock
receivable upon conversion of 1996 Debentures.
(6) Excludes 47,429 shares of common stock held by the First Star Bancorp, Inc.
Employee Stock Ownership Plan for which such person serves as plan trustee
and exercises shared voting and investment power. Shares which are
unallocated to participating employees (47,429 shares) and shares for which
no voting direction is received are voted by the plan trustees as directed
by the Board of Directors or the ESOP Committee. The individuals serving as
plan trustees disclaim beneficial ownership of stock held under the ESOP.
(7) Includes 14,828 shares which may be received upon the exercise of stock
options which are immediately exercisable, 8,617 shares of the Series A
Preferred Stock, 29,399 shares of Series A Preferred Stock receivable upon
conversion of 1992 Debentures and 31,917 shares of Series B Preferred Stock
receivable upon conversion of 1996 Debentures.
(8) Includes 1,267 shares held by Mr. Parseghian's wife and 2,059 shares of
Series B Preferred Stock receivable upon conversion of 1996 Debentures also
held by Mr. Parseghian's wife.
(9) Includes 19,261 shares of the Series A Preferred Stock and 64,880 shares of
Series A Preferred Stock receivable upon conversion of 1992 Debentures and
19,548 shares of Series B Preferred Stock receivable upon conversion of
1996 Debentures. Tighe Scott is the brother of Neil Scott and the son of
Amelio Scott.
The business experience during at least the past five years for each of
the directors is as follows:
Joseph T. Svetik. Mr. Svetik became Chairman of the Board of the bank
in August 1997. Upon its formation in 1993, Mr. Svetik became President and
Chief Executive Officer of First Star Bancorp. Mr. Svetik became President and
Chief Executive Officer of the bank in November 1990. Prior to that date, Mr.
Svetik was Executive Vice President and Chief Executive Officer of the bank.
Prior to his employment by the bank, Mr. Svetik was Vice President, Treasurer
and Chief Financial Officer of Third Federal Savings Bank, Newtown,
Pennsylvania. Mr. Svetik is a certified public accountant.
Paul J. Sebastian. Mr. Sebastian became Senior Vice President of the
bank in October 1989 and Chairman of the Board of Directors of First Star
Bancorp in August 1997. From December 1986, through August 1991, Mr. Sebastian
was a principal in Professional Services Group of America, Inc., Allentown,
Pennsylvania, which provides financial services to individuals and businesses.
Prior to that, Mr. Sebastian had been a Registered Representative with Shearson
Lehman Brothers Inc. in Allentown, Pennsylvania, since February 1983. From
November 1981 to February 1983, Mr. Sebastian was Chief Financial Officer of
First Federal Savings Bank, Pottstown, Pennsylvania. From August 1976 to
November 1981, Mr. Sebastian was an Examiner with the Federal Home Loan Bank
Board, Pittsburgh, Pennsylvania. Mr. Sebastian is a certified public accountant.
Mark Parseghian, Jr. For more than the past five years, Mr. Parseghian
has been self-employed as a consultant to companies engaged in the construction
industry.
Tighe J. Scott. For more than the past five years, Mr. Scott has been
Vice President of Operations of Scotty's Fashion, Inc. an apparel manufacturer
located in Pen Argyl, Pennsylvania.
Harold J. Suess. Retired for the past several years, Mr. Suess is a
prior President of Bethlehem Fence Works. From 1990 until his retirement, he was
Chairman of the Board of that company.
58
<PAGE>
Stephen M. Szy. For more than the past five years, Mr. Szy has been
self-employed as a public accountant in Hellertown, Pennsylvania.
Meetings and Committees of the Board of Directors
First Star Bancorp's Board of Directors holds regular monthly meetings
and special meetings when needed. During the fiscal year ended June 30, 1999,
the Board met 12 times. No director attended fewer than 75% of the total number
of Board meetings held during the fiscal year ended June 30, 1999, and the total
number of meetings held by all committees of the Board on which the director
served during such year.
The Board of Directors has a number of standing committees, including
an Executive Committee, an Audit Committee and a Compensation Committee.
The Executive Committee, except as limited by our bylaws, has the full
authority of the Board of Directors when the Board of Directors is not in
session. The current members of the Executive Committee are Directors Sebastian,
Svetik and Szy. The Executive Committee did not meet during the fiscal year
ended June 30, 1999.
The Audit Committee reviews our records and affairs to determine our
financial condition and reviews with management and the independent auditors the
systems of internal control. This committee approves the scope of the audit
procedures employed by our independent auditors and meets with the auditors to
discuss the results of their audit. The Audit Committee reports to the Board of
Directors with respect to the foregoing matters and recommends annually the
selection of our independent auditors. The current members of the Audit
Committee are Directors Parseghian and Szy. During the fiscal year ended June
30, 1999, the Audit Committee met four times.
The Compensation Committee is responsible for reviewing and
establishing compensation for all officers and employees of First Star Bancorp
and also administers First Star Bancorp's Employee Stock Compensation Program.
The current members of the Compensation Committee are Directors Parseghian,
Scott, and Suess. This Committee met twice during the fiscal year ended June 30,
1999.
The full Board of Directors acts as a nominating committee for the
annual selection of nominees to the Board of Directors. Only its nominations,
and those of any stockholder delivered to the Secretary of First Star Bancorp at
least 60 days in advance of the Annual Meeting, shall be voted on at the Annual
Meeting. In its capacity as the Nominating Committee, the Board of Directors
held one meeting during the fiscal year ended June 30, 1999.
Director Compensation
Each director is paid monthly. Total aggregate fees paid to the
directors for the year ended June 30, 1999 were $30,675. Since January 1, 1998,
each outside director has been paid a monthly fee of $450 for each meeting
attended.
In addition, non-officer directors receive an annual cash bonus based
upon the performance of First Star Savings. During fiscal 1999, each
non-employee director received a cash bonus of $2,000.
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<PAGE>
Executive Compensation
Compensation Committee Report on Executive Compensation. The
Compensation Committee met twice during the fiscal year ended June 30, 1999 to
review compensation paid to the chief executive officer and senior vice
president of the bank. The Committee reviews various published surveys of
compensation paid to employees performing similar duties for depository
institutions and their holding companies, with a particular focus on the level
of compensation paid by comparable stockholder institutions in and around the
Bank's market areas and the Company's return on average assets and return on
average equity compared to its competitors of similar size, including
institutions with total assets of between $300 million and $500 million.
Although the Committee does not specifically set compensation levels for
executive officers based on whether particular financial goals have been
achieved by the Bank, the Committee does consider the overall profitability of
the Bank when making these decisions. The Compensation Committee has the
following goals for compensation programs impacting the executive officers of
the Company and the Bank:
o to provide motivation for the executive officers to enhance
stockholder value by linking their compensation to the future
value of the Company's stock;
o to retain the executive officers who have led the Company to
build its existing market franchise and to allow the Bank to
attract high quality executive officers in the future by
providing total compensation opportunities which are consistent
with competitive norms of the industry and the Company's level of
performance; and
o to maintain reasonable fixed compensation costs by targeting base
salaries at a competitive average.
During the year ended June 30, 1999, Joseph Svetik, President and CEO
received a base salary of $180,961 in recognition of his continued leadership in
the management of the Company and the Bank. Additionally, Mr. Svetik has been
previously awarded stock options under the Employee Stock Compensation Plan.
Such awards are intended to provide incentive to the President for
implementation of a business plan that will enhance shareholder value in the
intermediate and long term. The Committee also considers the annual compensation
paid to the presidents and chief executive officers of publicly owned financial
institutions nationally, in Pennsylvania and in surrounding states with assets
of between $300 million and $500 million and the individual job performance of
Mr. Svetik in consideration of its annual setting of the president's salary.
Compensation Committee:
Mark Parseghian, Jr.
Tighe J. Scott
Harold J. Suess
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by our chief executive officer and
senior vice president at June 30, 1999, 1998 and 1997. No other employee earned
in excess of $100,000 during the periods indicated.
60
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------- Stock Based
Fiscal Other Annual Compensation All Other
Name and Principal Position Year Salary Bonus Compensation(1) # of Options Compensation
- --------------------------- ---- ------ ----- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph T. Svetik 1999 $180,961 $41,000 -- -- $25,640(2)
Director, President and CEO 1998 149,581 58,026 -- -- 26,175(2)
1997 138,870 24,450 -- -- 23,370(2)
Paul J. Sebastian 1999 174,213 41,000 -- -- 25,695(3)
Director, Senior Vice President 1998 142,103 58,026 -- -- 25,614(3)
1997 131,927 24,450 -- -- 23,391(3)
</TABLE>
- --------------
(1) Other annual compensation does not equal the lesser of $50,000 or 10% of
the total of individual's annual salary and bonus.
(2) Includes First Star matching contributions of $1,640, $2,175 and $870 under
the 401(k) Plan and First Star contributions of $24,000, $24,000 and
$22,500 made pursuant to the Employee Stock Ownership Plan during 1999,
1998 and 1997, respectively.
(3) Includes First Star matching contributions of $1,695, $1,614 and $1,652
under the 401(k) Plan and First Star contributions of $24,000, $24,000 and
$21,739 made pursuant to the Employee Stock Ownership Plan during 1999,
1998 and 1997, respectively.
Stock Option Plans. We have established an Employee Stock Compensation
Program pursuant to which stock options may be granted to officers and key
employees. See note 10 to our consolidated financial statements beginning on
page F-1. The following table sets forth information concerning options granted
under this program.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
---------------------------------------------------------------------------------
Value of
Shares Number of Options In-the-money Options
Acquired on Value at Fiscal Year-End(#) at Fiscal Year-End($)
Name Exercise (#) Realized Exercisable/Unexercisable Exercisable/Unexercisable(3)
- ---- ------------ -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Joseph T. Svetik 1,584 $94,248(1) 9,792/0 $501,912/0
Paul J. Sebastian 1,300 78,650(2) 14,828/0 766,302/0
</TABLE>
- --------------
(1) Based upon the difference between the option exercise price and a market
price of $68.00 per share, based on the average of the high and low sales
prices as reported on the OTC Bulletin Board on August 17, 1998
(2) Based upon the difference between the option exercise price and a market
price of $69.00 per share, based on the average of the high and low sales
prices as reported on the OTC Bulletin Board on December 17, 1998.
(3) Based upon the difference between the option exercise price and the last
reported sales price of $61.00 per share on June 30, 1999.
Employment Agreements. We have entered into employment agreements with
Joseph T. Svetik and Paul J. Sebastian. Each agreement has a five-year term.
Each agreement is automatically extended each year, provided no notice has been
given by either the bank or that employee to terminate employment, so that the
number of years remaining in each agreement remains at five. The agreements are
terminable by us for "cause" as defined in the agreements. If we terminate the
individual without
61
<PAGE>
cause or such person terminates for good reason, he will be entitled to two
times his salary for the remainder of the term of the contract. Salaries for
these executives are set annually by the compensation committee of the Board of
Directors. [The base salaries for the fiscal year ending June 30, 2000 for
Mesrs. Svetik and Sebastian are $220,000 and $209,000, respectively.]
Employee Stock Ownership Plan. We have established an employee stock
ownership plan, the ESOP, for the exclusive benefit of participating employees
of ours, to be implemented upon the completion of the conversion. Participating
employees are employees who have completed one year of service with us or our
subsidiary and have attained the age of 21.
Contributions to the ESOP and shares released from the suspense account
are allocated among participants on the basis of total compensation. All
participants must be employed at least 1,000 hours in a plan year, or have
terminated employment following death, disability or retirement, in order to
receive an allocation. Participant benefits become vested in plan allocations
following five years of participation in the plan. Employment prior to the
adoption of the ESOP shall be credited for the purposes of vesting. Vesting will
be accelerated upon retirement, death, disability, change in control of First
Star Bancorp, or termination of the ESOP. Forfeitures will be reallocated to
participants on the same basis as other contributions in the plan year. Benefits
may be payable in the form of a lump sum upon retirement, death, disability or
separation from service. Our contributions to the ESOP are discretionary and may
cause a reduction in other forms of compensation. Therefore, benefits payable
under the ESOP cannot be estimated.
The Board of Directors appointed directors Svetik and Sebastian to
serve as ESOP administrators and to serve as the initial ESOP Trustees. The
Board of Directors or the ESOP Committee may instruct the ESOP Trustees
regarding investments of funds contributed to the ESOP. The ESOP Trustees must
vote all allocated shares held in the ESOP in accordance with the instructions
of the participating employees. Unallocated shares and allocated shares for
which no timely direction is received will be voted by the ESOP Trustees as
directed by the Board of Directors or the ESOP Committee, subject to the
Trustees' fiduciary duties.
Certain Related Transactions
We grant loans to our officers, directors and employees. These loans
are made in the ordinary course of business and upon the same terms, including
collateral, as those prevailing at the time for comparable transactions and do
not involve more than the normal risk of collectibility or present any other
unfavorable features. Loans to officers and directors and their affiliates
amounted to $3.5 million or 24.6% of our total equity, at June 30, 1999. All of
these loans were current at June 30, 1999.
PRINCIPAL SECURITY HOLDERS
We know of no person or entity other than those set forth below who is
a beneficial owner of more than 5% of our common stock. The following table
assumes the full conversion of the 1992 and 1996 Debentures into Series A
Preferred Stock and Series B Preferred Stock, respectively, and full conversion
of the Series A and B Preferred Stock into common stock. The following table
sets forth, as of June 30, 1999, certain information as to those persons who
were beneficial owners of more than 5% of
62
<PAGE>
our outstanding shares of common stock and as to such stock beneficially owned
by all of our officers and directors of as a group, as calculated from the lists
of our stockholders.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership (1) Class
- ---------------- ------------------------ -----
<S> <C> <C>
Neil Scott (2)(3)
315 Pennsylvania Avenue
Pen Argyl, Pennsylvania 18072 38,411 9.4%
Amelio Scott (2)(4)
205 David Avenue
Pen Argyl, Pennsylvania 18072 32,830 8.2%
Tighe Scott (2)(5)
Hemlock Lane Star Route
Saylorsburg, Pennsylvania 18353 121,905 25.4%
Paul J. Sebastian (6)(7)
418 West Broad Street
Bethlehem, Pennsylvania 18018 97,574 21.2%
Joseph T. Svetik (6)(8)
418 West Broad Street
Bethlehem, Pennsylvania 18018 101,438 22.1%
First Star Bancorp, Inc.(9)
Employee Stock Ownership Plan
418 West Broad Street
Bethlehem, Pennsylvania 18018 69,050 17.4%
All directors and executive officers as a group
(6 persons) (6)(10) 334,799 51.2%
</TABLE>
- -------------------------
(1) Includes shares of common stock owned by corporations or foundations in
which the stockholder, director or officer is an officer or major
stockholder or by spouses, or as a custodian or trustee for minor children,
over which shares the named individual or all officers and directors as a
group effectively exercise sole voting and investment power, unless
otherwise indicated. Also includes shares of common stock that may be
obtained through the conversion or exercise of other securities. Absent the
conversion or exercise of other securities, all directors and executive
officers as a group held 56,520 shares of common stock at June 30, 1999.
(2) Amelio Scott and Neil Scott are father and son, respectively. Tighe Scott,
a director of First Star Bancorp, is also a son of Amelio Scott.
(3) Includes 15,206 shares of common stock issuable upon conversion of Series A
Preferred Stock which is issuable upon conversion of Debentures and 19,562
shares of common stock issuable upon conversion of Series B Preferred Stock
which is issuable upon conversion of Debentures.
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<PAGE>
(4) Includes 24,710 shares of common stock issuable upon conversion of Series B
Preferred Stock which is issuable upon conversion of Debentures.
(5) Includes 84,141 shares of common stock issuable upon conversion of Series A
Preferred Stock (including Debentures that are convertible into Series A
Preferred Stock) and 19,548 shares of common stock issuable upon conversion
of Series B Preferred Stock (including Debentures that are convertible into
Series B Preferred Stock).
(6) Excludes 47,429 shares of common stock held by the First Star Bancorp, Inc.
Employee Stock Ownership Plan for which such person serves as plan trustee
and exercises shared voting and investment power. Shares which are
unallocated to participating employees (47,429 shares) and shares for which
no voting direction is received are voted by the plan trustees as directed
by the Board of Directors or the ESOP Committee. The individuals serving as
plan trustees disclaim beneficial ownership of stock held under the ESOP.
(7) Includes 14,828 shares of common stock which may be acquired through the
exercise of stock options which are immediately exercisable. Also includes
38,016 shares of common stock issuable upon conversion of Series A
Preferred Stock (including Debentures that are convertible into Series A
Preferred Stock) and 31,917 shares of common stock issuable upon conversion
of Series B Preferred Stock which is issuable upon conversion of
Debentures.
(8) Includes 9,792 shares of common stock which may be acquired through the
exercise of stock options which are immediately exercisable. Also includes
47,139 shares of common stock issuable upon conversion of Series A
Preferred Stock (including Debentures that are convertible into Series A
Preferred Stock) and 27,799 shares of common stock issuable upon conversion
of Series B Preferred Stock which is issuable upon conversion of
Debentures.
(9) Includes 21,621 shares of common stock issuable upon conversion of Series B
Preferred Stock which is issuable upon conversion of Debentures.
(10) Includes 24,620 shares of common stock which may be acquired through the
exercise of stock options which are immediately exercisable. Also includes
shares over which officers and directors exercise joint voting and
investment power with certain members of their families, 172,336 shares of
common stock issuable upon conversion of Series A Preferred Stock
(including Debentures that are convertible into Series A Preferred Stock)
and 81,323 shares of common stock issuable upon conversion of Series B
Preferred Stock which is issuable upon conversion of Debentures.
REGULATION
Set forth below is a brief description of material laws which relate to
us. The description is not complete and is qualified in its entirety by
references to applicable laws and regulation.
64
<PAGE>
Regulation of First Star Savings Bank
General. As a Pennsylvania chartered, SAIF-insured savings bank, the
bank is subject to extensive regulation and examination by the Pennsylvania
Department of Banking, the FDIC, which insures its deposits to the maximum
extent permitted by law, and to a much lesser extent, by the Federal Reserve.
The federal and state laws and regulations which are applicable to banks
regulate, among other things, the scope of their business, their investments,
the reserves required to be kept against deposits, the timing of the
availability of deposited funds and the nature and amount of and collateral for
certain loans. The laws and regulations governing the bank generally have been
promulgated to protect depositors and not for the purpose of protecting
stockholders. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulation, whether by the
Pennsylvania Department of Banking, the FDIC or the United States Congress could
have a material adverse impact on the bank and its operations.
Pennsylvania Savings Bank Law. The Pennsylvania Banking Code ("Banking
Code") contains detailed provisions governing the organization, location of
offices, rights and responsibilities of trustees, officers, and employees, as
well as corporate powers, savings and investment operations and other aspects of
the bank and its affairs. The Banking Code delegates extensive rule-making power
and administrative discretion to the Pennsylvania Department of Banking so that
the supervision and regulation of state chartered savings banks may be flexible
and readily responsive to changes in economic conditions and in savings and
lending practices.
One of the purposes of the Banking Code is to provide savings banks
with the opportunity to be fully competitive with each other and with other
financial institutions existing under other state, federal and foreign laws. To
this end, the Banking Code provides state-chartered savings banks with all of
the powers enjoyed by federal savings and loan associations, subject to
regulation by the Pennsylvania Department of Banking. The Federal Deposit
Insurance Act (the "FDIA"), however, prohibits state chartered institutions from
making new investments, loans, or becoming involved in activities as principal
and equity investments which are not permitted for national banks unless (1) the
FDIC determines the activity or investment does not pose a significant risk of
loss to the SAIF and (2) the savings bank meets all capital requirements.
Accordingly, the ability of the Banking Code to provide additional operating
authority to us is limited by the FDIA.
The Pennsylvania Department of Banking generally examines each savings
bank not less frequently than once every two years. The Banking Code permits the
Pennsylvania Department of Banking to accept the examinations and reports of the
FDIC in lieu of the Pennsylvania Department of Banking's examination. The
present practice is for the Pennsylvania Department of Banking to conduct
individual examinations. The Pennsylvania Department of Banking may order any
savings bank to discontinue any violation of law or unsafe or unsound business
practice and may direct any trustee, officer, attorney or employee of a savings
bank engaged in an objectionable activity, after the Pennsylvania Department of
Banking has ordered the activity to be terminated, to show cause at a hearing
before the Pennsylvania Department of Banking why such person should not be
removed.
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<PAGE>
Interstate Acquisitions. The Commonwealth of Pennsylvania has enacted
legislation regarding the acquisition of commercial banks, bank holding
companies, savings banks and savings and loan associations located in
Pennsylvania by institutions located outside of Pennsylvania. The statute
dealing with savings institutions authorizes (i) a savings bank, savings and
loan association or holding company thereof located in another state (a "foreign
institution") to acquire the voting stock of, merge or consolidate with, or
purchase assets and assume liabilities of, a Pennsylvania-chartered savings bank
and (ii) the establishment of branches in Pennsylvania by foreign institutions,
in each case subject to certain conditions including (A) reciprocal legislation
in the state in which the foreign institution seeking entry into Pennsylvania is
located permitting comparable entry by Pennsylvania savings institutions and (B)
approval by the Pennsylvania Department of Banking. Pennsylvania law also
provides for nationwide branching by Pennsylvania-chartered savings banks and
savings and loan associations, subject to the Pennsylvania Department of
Banking's approval and certain other conditions.
On September 29, 1994, the United States Congress enacted the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Law"), which amended various federal banking laws to provide
for nationwide interstate banking, interstate bank mergers and interstate
branching. The Interstate Banking Law allows the acquisition by a bank holding
company of a bank located in another state.
Pennsylvania has enacted legislation authorizing full interstate
branching for state- chartered financial institutions. This legislation allows
out-of-state banks to branch into Pennsylvania either by buying an existing bank
or converting it into a branch or by setting up a de novo branch. The
legislation also allows state-chartered banks the same rights as federally
chartered banks to branch into other states that allow interstate branching.
Deposit Insurance. The FDIC is an independent federal agency that
insures the deposits, up to prescribed statutory limits, of federally insured
banks and savings institutions and safeguards the safety and soundness of the
banking and savings industries. Two separate insurance funds, the Bank Insurance
Fund ("BIF") for commercial banks, state savings banks and some federal savings
banks, and the SAIF for savings associations, are maintained and administered by
the FDIC. First Star Savings, which was previously a state savings association,
remains a member of the SAIF and its deposit accounts are insured by the FDIC,
up to the prescribed limits. The FDIC has examination authority over all insured
depository institutions, including the bank, and has under certain circumstances
authority to initiate enforcement actions against federally insured savings
institutions to safeguard safety and soundness and the deposit insurance fund.
Assessments. As a member of the SAIF, the bank paid an insurance
premium to the FDIC equal to a minimum of 0.23% of its total deposits during
1996 and prior years. In 1996, the annual insurance premium for most BIF members
was lowered to $2,000. The lower insurance premiums for BIF members placed SAIF
members at a competitive disadvantage to BIF members.
Effective December 31, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the bank of approximately
0.657% of deposits held on March 31, 1995. Beginning January 1, 1997, the
deposit insurance assessment for most SAIF members was reduced to 0.064% of
deposits on an annual basis through the end of 1999. During this same period,
BIF members will be assessed approximately 0.013% of deposits. After 1999,
assessments for BIF and SAIF members
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should be the same. It is expected that these continuing assessments for both
SAIF and BIF members will be used to repay outstanding Financing Corporation
bond obligations.
Regulatory Capital Requirements. The FDIC has promulgated regulations
and adopted a statement of policy prescribing the capital adequacy requirements
for state-chartered banks, some of which, like the bank, are not members of the
Federal Reserve. At June 30, 1999, the bank exceeded all regulatory capital
requirements and was classified as "well capitalized."
The FDIC's capital regulations establish a minimum 3% Tier 1 leverage
capital requirement for the most highly-rated state-chartered, non-member banks;
other banks must maintain a minimum Tier 1 leverage ratio of 4%. The FDIC
defines a highly-rated bank as one that is not anticipating or experiencing
significant growth and has well diversified risk, including no undue interest
rate risk exposure, excellent asset quality, high liquidity, good earnings and
which the FDIC, in general, considers a strong banking organization, rated
composite 1 under the Uniform Financial Institutions Rating System. Leverage or
core capital is defined as the sum of common stockholders' equity (including
retained earnings), noncumulative perpetual preferred stock and related surplus,
and minority interests in consolidated subsidiaries, minus all intangible assets
other than certain qualifying supervisory goodwill, and certain purchased
mortgage servicing rights and purchased credit and relationships.
The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard for savings banks requires the
maintenance of total capital (which is defined as Tier I capital and
supplementary (Tier 2) capital) to risk weighted assets of 8%. In determining
the amount of risk-weighted assets, all assets, plus certain off balance sheet
assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the
FDIC believes are inherent in the type of asset or item.
The components of Tier 1 capital are equivalent to those discussed
above under the 4% leverage standard. The components of supplementary (Tier 2)
capital include certain perpetual preferred stock, certain mandatory convertible
securities, certain subordinated debt and intermediate preferred stock and
general allowances for loan and lease losses. Allowance for loan and lease
losses includable in supplementary capital is limited to a maximum of 1.25% of
risk-weighted assets. Overall, the amount of capital counted toward
supplementary capital cannot exceed 100% of core capital.
A bank which has less than the minimum leverage capital requirement is
subject to various capital plan and activities restriction requirements. The
FDIC's regulation also provides that any insured depository institution with a
ratio of Tier 1 capital to total assets that is less than 2.0% is deemed to be
operating in an unsafe or unsound condition pursuant to Section 8(a) of the FDIA
and could be subject to potential termination of deposit insurance.
The bank is also subject to similar Pennsylvania Department of Banking
guidelines. The components and requirements of leverage and risk-based capital
are substantially the same as those defined by the FDIC.
The bank was in compliance in both the FDIC and Pennsylvania capital
requirements at September 30, 1999.
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Prompt Corrective Action. Federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed.
The capital levels established for each of the categories are as
follows:
Total
Risk-Based Tier 1 Risk-Based
Capital Category Tier 1 Capital Capital Capital
- ---------------- -------------- ----------- ------------------
Well Capitalized 5% or more 10% or more 6% or more
Adequately
Capitalized 4% or more* 8% or more 4% or more
Undercapitalized less than 4% less than 8% less than 4%
Significantly
Undercapitalized less than 3% less than 6% less than 3%
Critically 2% or less
Undercapitalized tangible equity -- --
- ------------
* For institutions with the highest CAMEL rating, the required Tier 1 capital
ratio is 3%.
For purposes of the regulation, the term "tangible equity" includes
core capital elements counted as Tier 1 Capital for purposes of the risk-based
capital standards, plus the amount of outstanding cumulative perpetual preferred
stock (including related surplus), minus all intangible assets with certain
exceptions. A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency. A
bank holding company must guarantee that a subsidiary depository institution
meets its capital restoration plan, subject to certain limitations. The
obligation of a controlling holding company to fund a capital restoration plan
is limited to the lesser of 5% of an undercapitalized subsidiary's assets or the
amount required to meet regulatory capital requirements. An undercapitalized
institution is also generally prohibited from increasing its average total
assets, making acquisitions, establishing any branches, or engaging in any new
line of business, except in accordance with an accepted capital restoration plan
or with the approval of the FDIC.
At September 30, 1999, the bank had the requisite capital levels to
qualify as well capitalized while First Star Bancorp was adequately capitalized
under such measures.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"),
as implemented by FDIC regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and
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moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the FDIC, in connection with its examination of a savings bank,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution, and to provide a written evaluation of an institution's CRA
performance utilizing a four tiered descriptive rating system. The bank received
a "satisfactory" rating in its last CRA examination in August, 1999.
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be on terms as favorable to the bank as
transactions with non-affiliates. In addition, certain of these transactions are
restricted to a percentage of the bank's capital. Affiliates of the bank include
First Star Bancorp and any company which would be under common control with the
bank.
The bank's authority to extend credit to executive officers, trustees
and 10% stockholders, as well as entities such persons control are currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated by the Federal Reserve Board. Among other things, these regulations
require such loans to be made on terms substantially similar to those offered to
unaffiliated individuals, place limits on the amount of loans the bank may make
to such persons based, in part, on the bank's capital position, and require
certain approval procedures to be followed. See, however, "Management of First
Star Bancorp, Inc. - Certain Related Transactions."
Federal Home Loan Bank System. The bank is a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Trustees of the FHLB.
As a member, the bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At September 30, 1999, the bank had $7.9 million in
FHLB stock, which was in compliance with this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
in low and moderate income housing projects. These contributions have adversely
affected the level of FHLB dividends paid and could continue to do so in the
future. For the year ended June 30, 1999, dividends paid by the FHLB of
Pittsburgh to the bank totaled approximately $508,000.
Federal Reserve System. The Federal Reserve requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve may be used to
satisfy the liquidity
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requirements that are imposed by the Pennsylvania Department of Banking. At
September 30, 1999, the bank met its reserve requirements.
Savings associations have authority to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve policy generally requires savings
associations to exhaust all sources before borrowing from the Federal Reserve.
The bank had no discount window borrowings at September 30, 1999.
Regulation of First Star Bancorp
General. First Star Bancorp, as a bank holding company, is subject to
regulation and supervision by the Board of Governors of the Federal Reserve and
by the Pennsylvania Department of Banking. This regulation is generally intended
to ensure that First Star Bancorp limits its activities to those allowed by law
and that it operates in a safe and sound manner without endangering the
financial health of its subsidiary banks. First Star Bancorp will be required to
file annually a report of its operations with, and is subject to examination by,
the Federal Reserve and the Pennsylvania Department of Banking.
BHCA Activities and Other Limitations. The Bank Holding Company Act of
1956, as amended ("BHCA"), prohibits a bank holding company from acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
any bank, or increasing such ownership or control of any bank, without prior
approval of the Federal Reserve. In determining whether to authorize a bank
holding company (or a company that will become a bank holding company) to
acquire control of a bank, the Federal Reserve takes into consideration the
financial and managerial resources of the bank holding company, as well as those
of the bank to be acquired, and considers whether the acquisition is likely to
have anti-competitive effects or other adverse effects. No approval under the
BHCA is required, however, for a bank holding company already owning or
controlling 50% or more of the voting shares of a bank to acquire additional
shares of such bank.
The BHCA also prohibits a bank holding company, with certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from engaging in any business other than banking or managing
or controlling banks. Under the BHCA, the Federal Reserve is authorized to
approve the ownership of shares by a bank holding company in any company, the
activities of which the Federal Reserve has determined to be so closely related
to banking or to managing or controlling banks as to be a proper incident
thereto. In making such determinations, the Federal Reserve is required to weigh
expected benefits to the public, such as greater convenience, increased
competition or gains in efficiency, against the possible adverse effects, such
as undue concentration of resources, decreased or unfair competition, conflicts
of interest or unsound banking practices.
The Federal Reserve has by regulation determined that certain
activities are closely related to banking within the meaning of the BHCA. These
activities include those of operating a mortgage company, a finance company, a
credit card company, a factoring company, a trust company or a savings
association; performing certain data processing operations; providing limited
securities brokerage services; acting as an investment or financial advisor;
leasing personal property on a full-payout (and, to a limited extent, less than
full-payout), non-operating basis; providing tax planning and preparation
services; operating a collection agency; and providing certain courier services.
The Federal Reserve also has determined that certain other activities, including
real estate brokerage and syndication, land
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development, property management and underwriting of life insurance not related
to credit transactions, are not closely related to banking and a proper incident
thereto.
Regulatory Capital Requirements. The Federal Reserve has adopted
capital adequacy guidelines pursuant to which it assesses the adequacy of
capital in examining and supervising a bank holding company and in analyzing
applications to it under the BHCA. The Federal Reserve capital adequacy
guidelines are similar to those imposed on the bank by the FDIC. See "Regulation
of First Star Savings Bank - Regulatory Capital Requirements."
In addition, at the holding company level, our subordinated debt is
included in Tier 2 capital, subject to certain limitations. If not converted
prior to maturity at the option of either the holder or us, the subordinated
debentures will automatically convert at maturity into permanent noncumulative
preferred stock. Upon that conversion, the debentures would become Tier 1
capital. We have $1,480,000 in subordinated debentures scheduled to mature on
January 1, 2002 and an additional $4,000,000 in subordinated debentures
scheduled to mature on December 31, 2008. If all of our subordinated debt had
been converted into preferred stock at September 30, 1999, our leverage ratio
would have been 6.30%, our Tier 1 risk-based capital ratio would have been
10.66% and our total risk-based capital ratio would have been 11.48%.
The preferred securities will be includable as up to 25% of Tier 1
capital. At September 30, 1999, approximately $6.8 million of preferred
securities would have been includable in Tier 1 capital.
Commitments to Affiliated Depository Institutions. Under Federal
Reserve policy, First Star Bancorp will be expected to act as a source of
financial strength to the bank and to commit resources to support the bank in
circumstances when it might not do so absent such policy. The enforceability and
precise scope of this policy is unclear, however, in light of recent judicial
precedent. However, should the bank require the support of additional capital
resources, it should be anticipated that First Star Bancorp will be required to
respond with any such resources available to it.
Restrictions Applicable to Pennsylvania-Chartered Holding Companies.
First Star Bancorp is subject to such regulations as the Pennsylvania Department
of Banking may from time to time prescribe. No holding company regulations have
been issued to date.
Recent Developments - Financial Modernization. On November 12, 1999,
President Clinton signed into law the Gramm-Leach-Bliley Act (the "Act") which
will, effective March 11, 2000, permit qualifying bank holding companies to
become financial holding companies and thereby affiliate with securities firms
and insurance companies and engage in other activities that are financial in
nature. The Act defines "financial in nature" to include securities
underwriting, dealing and market making; sponsoring mutual funds and investment
companies; insurance underwriting and agency; merchant banking activities; and
activities that the Board has determined to be closely related to banking. A
qualifying national bank also may engage, subject to limitations on investment,
in activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real estate development, and real estate
investment, through a financial subsidiary of the bank.
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FIRST STAR CAPITAL TRUST
The trust is a statutory business trust formed under Delaware law
pursuant to:
o the initial trust agreement, dated as of August 24, 1999,
executed by us, as depositor, and by the Delaware trustee; and
o the Certificate of Trust filed with the Secretary of State of the
State of Delaware on August 24, 1999.
The initial trust agreement will be amended and restated in its
entirety substantially in the form filed as an exhibit to the registration
statement of which this prospectus forms a part. The trust agreement will be
qualified as an indenture under the Trust Indenture Act. The trust will issue
all of the preferred securities to purchasers in the offering as described in
this prospectus. We will acquire all of the common securities issued by the
trust, which will represent an aggregate liquidation amount equal to at least 3%
of the total capital of the trust. The common securities will be equal in right
to payments with the preferred securities, except that upon the occurrence and
during the continuance of an event of default under the Trust Agreement
resulting from a debenture event of default, our rights as holder of the common
securities to payment in respect of distributions and payments upon liquidation,
redemption or otherwise will be subordinated to your right to payments as a
holder of the preferred securities. See "Description of the Preferred Securities
- -- Subordination of Common Securities."
The trust exists for the purpose of:
o issuing the preferred securities and common securities
representing undivided beneficial interests in its assets,
o investing the gross proceeds of the preferred securities and the
common securities in the junior subordinated debentures issued by
us, and
o engaging in activities that are incidental to the activities
described above.
The junior subordinated debentures will be the only assets of the trust
and payments under the junior subordinated debentures will be the only revenue
of the trust. The trust has a term of 30 years, but may dissolve earlier as
provided in the trust agreement. The address of the trust is c/o Bankers Trust
(Delaware), 1101 Centre Road, Suite 200, Trust Department, Wilmington, Delaware
19805, and the telephone number is (302) 636-3301.
The trustees and the administrators will conduct the affairs of the
trust. We will select two individuals who are our employees, officers or
affiliates to be the administrators of the trust. The property trustee will be a
financial institution that is not our affiliate and will serve as institutional
trustee under the Trust Agreement and as indenture trustee for purposes of
compliance with the Trust Indenture Act. Bankers Trust Company, a state
chartered trust company organized under the laws of the State of New York, will
be the property trustee until we decide to remove or replace it. For purposes of
compliance with the provisions of the Trust Indenture Act, Bankers Trust Company
will also act as guarantee trustee under the Guarantee and as trustee under the
Indenture. The Delaware trustee will be an
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entity that maintains its principal place of business in the State of Delaware.
Bankers Trust (Delaware), a Delaware banking corporation, will act as Delaware
trustee.
The property trustee will hold the junior subordinated debentures for
the benefit of the holders of the preferred securities and the common securities
and in such capacity will have the power to exercise all rights, powers and
privileges under the indenture. The property trustee will also maintain
exclusive control of a segregated noninterest-bearing bank account, the property
account, to hold all payments made under the junior subordinated debentures for
the benefit of the holders of the preferred securities and the common
securities. The property trustee will make payments of distributions and
payments on liquidation, redemption and otherwise to the holders of the
preferred securities and the common securities out of funds from the property
account. The guarantee trustee will hold the guarantee for the benefit of the
holders of the preferred securities. We, as the holder of all the common
securities, will have the right to appoint, remove or replace any trustee and to
increase or decrease the number of trustees. We will pay all fees and expenses
related to the trust and the offering of the preferred securities and the common
securities.
Your rights as a holder of the preferred securities, including economic
rights, rights to information and voting rights, are set forth in the trust
agreement, the Delaware Business Trust Act and the Trust Indenture Act. See
"Description of the Preferred Securities."
The address of the Delaware trustee is Bankers Trust (Delaware), 1101
Centre Road, Suite 200, Trust Department, Wilmington, Delaware 19805, and the
telephone number is (302) 636-3301.
The address of the property trustee, the guarantee trustee and the
debenture trustee is Bankers Trust Company, Four Albany Street, 4th Floor, New
York, New York 10006, and the telephone number is (212) 250-2500.
ACCOUNTING TREATMENT
For financial reporting purposes, we will treat the trust as our
subsidiary. Accordingly, we will include the accounts of the trust in our
consolidated financial statements. We will present the preferred securities as a
separate category in our consolidated statements of financial condition under
the caption "Guaranteed Preferred Beneficial Interests in Subordinated Debt,"
and we will include appropriate disclosures about the preferred securities, the
guarantee and the junior subordinated debentures in the notes to our
consolidated financial statements. For financial reporting purposes, we will
record distributions on the preferred securities as interest expense in our
consolidated statements of income.
DESCRIPTION OF PREFERRED SECURITIES
The trust will issue the preferred securities and the common securities
under the trust agreement for the trust. The preferred securities will represent
preferred undivided beneficial interests in the assets of the trust, and you
will be entitled a preference in certain circumstances with respect to
distributions and amounts payable on redemption or liquidation over the common
securities, as well as other benefits as described in the trust agreement.
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This summary describes the material provisions of the preferred
securities and the trust agreement. You should read the form of the trust
agreement, which is filed as an exhibit to the registration statement of which
this prospectus is a part. Wherever particular defined terms of the trust
agreement are referred to in this prospectus, those defined terms are
incorporated into this prospectus by reference. A copy of the form of the trust
agreement is also available upon request from the trustees.
General
The preferred securities will be limited to $12,000,000 liquidation
amount (as defined in the trust agreement) outstanding. See "Underwriting." The
preferred securities will rank equally, and payments will be made pro rata, with
the common securities except as described under "-- Subordination of Common
Securities." The junior subordinated debentures will be registered in the name
of the trust and held by the property trustee in trust for your benefit and the
benefit of the holders of the common securities. The guarantee we will execute
for the benefit of the holders of the preferred securities will be subordinated
to most of our other obligations and liabilities. The guarantee will not
guarantee payment of distributions or amounts payable on redemption or
liquidation of the preferred securities if the trust does not have funds on hand
available to make such payments. See "Description of Guarantee."
Distributions
For each preferred security that you own, you will be entitled to
receive cumulative cash distributions at an initial interest rate which will be
an annual rate equal to the average yield on the five-year U.S. Treasury Note
Constant Maturity over the 20 business days before ____________, _____ plus
_.__%. The interest rate will be adjusted at five-year intervals to an annual
rate equal to the average yield on the five-year U.S. Treasury Note Constant
Maturity over the 20 business days before the date the interest rate is adjusted
plus _.__%. The property trustee, Bankers Trust Company, will be the calculation
agent and will use the average yield for the five-year U.S. Treasury Note
Constant Maturity (expressed as a percentage per annum) as quoted in the Federal
Reserve statistical release H. 15 Daily Update, or any successor report to the
H. 15 Daily Update as that report may change over time. The calculation agent
will, upon the request of any holder of preferred securities, provide the
interest rate in effect during any period. All percentages resulting from any
calculations on the preferred securities will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point, with five one-millionths
of a percentage point rounded upward.
Distributions on each preferred security will be payable at the
applicable periodic interest rate of the $10 liquidation amount, payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, to record holders at the close of business on the 15th day of March, June,
September and December (whether or not a business day) next preceding the
relevant distribution date. Each date on which distributions will be paid is
referred to as a distribution date in this prospectus. Distributions on the
preferred securities will be cumulative. Distributions will accumulate from
______ __, 1999. The first distribution date for the preferred securities will
be __________ __, 2000. The amount of distributions payable for any period less
than a full distribution period will be computed on the basis of a 360-day year
of twelve 30-day months and the actual days elapsed in a partial month in such
period. Distributions payable for each full distribution period will be computed
by dividing the annual rate by four. If any date on which distributions are
payable is not a business day, then payment will be made on the next succeeding
day that is a business day (without any additional distributions or other
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payment because of the delay), except that, if such business day falls in the
next calendar year, the payment will be made on the immediately preceding
business day.
So long as we are not in default, we may defer the payment of interest
on the junior subordinated debentures at any time for one or more extension
periods. No extension period may exceed 20 consecutive quarters. No extension
period may extend beyond the maturity date of the junior subordinated
debentures. As a consequence of any deferral by us, quarterly distributions on
the preferred securities will be deferred by the trust during the extension
period. Distributions to which you are entitled will accumulate additional
distributions thereon at the applicable periodic interest rate, compounded
quarterly from the relevant payment date, computed on the basis of a 360-day
year of twelve 30-day months and the actual days elapsed in a partial month in
such period. Additional distributions payable for each full distribution period
will be computed by dividing the annual rate by four.
During any extension period, we may not (1) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of our capital stock or (2) make any
payment of principal, interest or premium on or repay, repurchase or redeem any
of our debt securities that rank equally in all respects with or junior in
interest to the junior subordinated debentures, of which there are none as of
the date of this prospectus. These prohibitions, however, do not apply to:
o repurchases, redemptions or other acquisitions of our capital
stock in connection with any employment contract, benefit plan or
other similar arrangement, a dividend reinvestment or stockholder
stock purchase plan or the issuance of our capital stock (or
securities convertible into or exercisable for such capital
stock) as consideration in an acquisition transaction entered
into prior to the applicable extension period;
o a reclassification, exchange or conversion of any class or series
of our capital stock (or any capital stock of our subsidiaries)
for any class or series of our capital stock or of any class or
series of our indebtedness for any class or series of our capital
stock;
o the purchase of fractional interests in shares of our capital
stock pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged;
o any declaration of a dividend in connection with any
stockholders' rights plan, or the issuance of rights, stock or
other property under any stockholders' rights plan, or the
redemption or repurchase of rights pursuant thereto; or
o any dividend in the form of stock, warrants, options or other
rights where the dividend stock or the stock issuable upon
exercise of such warrants, options or other rights is the same
stock as that on which the dividend is being paid or ranks
equally with or junior to such stock.
Before the end of an extension period, we may further defer the payment
of interest. Upon the termination of an extension period and the payment of all
amounts then due, we may elect to begin a new extension period. We must give the
trustees notice of our election of an extension period at least one business day
prior to the earlier of (1) the date the distributions on the preferred
securities would have
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been payable but for the election to begin the extension period and (2) the date
the property trustee is required to give you notice of the record date or the
date the distributions are payable, but in any event not less than one business
day prior to the record date. The property trustee will give you notice of our
election to begin a new extension period. Subject to the foregoing, there is no
limitation on the number of times that we may elect to begin an extension
period. See "Description of Junior Subordinated Debentures -- Option To Extend
Interest Payment Period" and "United States Federal Income Tax Consequences --
Interest Income and Original Issue Discount."
We currently do not intend to exercise our right to defer payments of
interest by extending the interest payment period on the junior subordinated
debentures.
The revenue of the trust available for distribution to you will be
limited to payments under the junior subordinated debentures, which the trust
will purchase with the proceeds of this offering of preferred securities. See
"Description of Junior Subordinated Debentures." If we do not make payments on
the junior subordinated debentures, the trust will not have funds available to
pay distributions or other amounts payable on the preferred securities. The
payment of distributions and other amounts payable on the preferred securities
(if and to the extent the trust has funds legally available for and cash
sufficient to make such payments) is guaranteed by us on a limited basis as
described in this prospectus under "Description of Guarantee."
Redemption
If we redeem the junior subordinated debentures, the trust will redeem
a proportionate amount of the preferred and common securities. We may redeem the
junior subordinated debentures (1) on or after _________, 2004 in whole at any
time or in part from time to time, or (2) in whole, but not in part, at any time
within 90 days following the occurrence and during the continuation of a Tax
Event, Investment Company Event or Capital Treatment Event (each as defined
below), in each case subject to possible regulatory approval. See "--
Liquidation Distribution Upon Dissolution."
"Tax Event" means the receipt by the trust of an opinion of our counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including an announced prospective change) in, the laws (or any
regulations thereunder) of the United States or a political subdivision or
taxing authority thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the preferred securities, there is more than an insubstantial risk that:
o the trust is, or will be within 90 days of the delivery of such
opinion, subject to United States federal income tax with respect
to income received or accrued on the junior subordinated
debentures;
o interest payable by us on the junior subordinated debentures is
not, or within 90 days of the delivery of such opinion will not
be, deductible by us, in whole or in part, for United States
federal income tax purposes; or
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o the trust is, or will be within 90 days of the delivery of such
opinion, subject to more than an insignificant amount of other
taxes, duties or other governmental charges.
See "United States Federal Income Tax Consequences -- Pending Tax
Litigation Affecting the Preferred Securities" for discussion of pending United
States Tax Court litigation that, if decided adversely to the taxpayer, could
give rise to a Tax Event, which would permit us to redeem the junior
subordinated debentures prior to ________________, 2004.
If a Tax Event described in the first or third circumstances above has
occurred and is continuing and the trust holds of all the junior subordinated
debentures, we will pay on the junior subordinated debentures any additional
amounts as may be necessary so that the amount of distributions then due and
payable by the trust on the outstanding preferred securities and common
securities of the trust will not be reduced as a result of any additional taxes,
duties and other governmental charges to which the trust has become subject as a
result of a Tax Event.
"Investment Company Event" means the receipt by the trust of an opinion
of our counsel experienced in such matters to the effect that, as a result of
the occurrence of a change in law or regulation or a written change (including
any announced prospective change) in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority, there is more than an insubstantial risk that the trust is, or will
be, considered an "investment company" that is required to be registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act").
"Capital Treatment Event" means the reasonable determination by us
that, as a result of the occurrence of any amendment to, or change (including
any announced prospective change) in, the laws (or any rules or regulations
thereunder) of the United States or any political subdivision thereof or
therein, or as a result of any official or administrative pronouncement or
action or judicial decision interpreting or applying such laws or regulations,
there is more than an insubstantial risk that we will not be entitled to treat
an amount equal to the liquidation amount of the preferred securities as Tier 1
Capital (or the then equivalent thereof), except as otherwise restricted by the
Federal Reserve, for purposes of the risk-based capital adequacy guidelines of
the Federal Reserve, as then in effect and applicable to us. The Federal Reserve
has determined that the proceeds of certain qualifying securities like the
preferred securities will qualify as Tier 1 capital for us only up to an amount
not to exceed, when taken together with all of our cumulative preferred stock,
if any, 25% of our Tier 1 capital.
Redemption Procedures
The trust will only redeem preferred securities if we have redeemed
junior subordinated debentures. The trust may redeem preferred securities only
in an amount equal to the funds it has on hand and legally available to pay the
redemption price. The redemption price for each security will equal $10 plus
accumulated but unpaid distributions as of the redemption date and the related
amount of the premium, if any, paid by us upon the concurrent redemption of some
or all of the junior subordinated debentures.
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Unless payment of the redemption price is withheld or refused and not
paid either by the trust or us pursuant to the guarantee, additional interest
will stop accruing on those preferred securities called for redemption on the
date they are called for redemption.
Notice of any redemption will be mailed to you at your address as it
appears on the securities register maintained by the property trustee at least
30 days but not more than 60 days before the redemption date. If notice of
redemption has been given, then, in accordance with the normal operating
procedures of The Depository Trust Company ("DTC"), on the redemption date, to
the extent funds are available for payment, the property trustee will, for
preferred securities held in book-entry form:
o deposit irrevocably DTC with funds sufficient to pay the
applicable redemption price; and
o give DTC irrevocable instructions and authority to pay the
redemption price to you.
For preferred securities not held in book-entry form, the property
trustee will, to the extent funds are available for payment:
o irrevocably deposit with the paying agent for the preferred
securities funds sufficient to pay the applicable redemption
price; and
o give the paying agent irrevocable instructions and authority to
pay the redemption price to you once you surrender your
certificates evidencing the preferred securities.
Notwithstanding the foregoing, distributions payable on or prior to the
redemption date for any preferred securities called for redemption will be
payable to the holders on the relevant record dates for those distributions.
Once notice of redemption is given and funds are deposited as required,
then all of your rights with respect to the preferred securities called for
redemption will cease, except for your right to receive the redemption price,
but without interest after the date of redemption.
If any date fixed for redemption of preferred securities is not a
business day, then payment of the redemption price payable on such date will be
made on the next day that is a business day (without any interest or other
payment for the delay), except that, if the next business day falls in the next
calendar year, payment will be made on the immediately preceding business day.
In payment of the redemption price for the preferred securities called
for redemption is improperly withheld or refused and not paid, either by the
trust or by us pursuant to the guarantee, interest on those preferred securities
will continue to accumulate at the then applicable rate, from the redemption
date originally established to the date the payment is actually made. In this
case, the actual payment date will be the redemption date for purposes of
calculating the redemption price.
If less than all the junior subordinated debentures are going to be
redeemed, then the aggregate liquidation amount of the preferred and common
securities to be redeemed shall be allocated based upon the respective
liquidation amounts of each class, with 97% being allocated to the preferred
securities and 3% being allocated to the common securities, except in the case
of an event of default. See
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"--Subordination of Common Securities." The property trustee will select the
particular preferred securities to be redeemed not more than 60 days before the
redemption date by any method the property trustee deems fair and appropriate,
or, if the preferred securities are then held in book-entry form, in accordance
with DTC's customary procedures.
Subordination of Common Securities
Payment of distributions on, and the redemption price of, and the
liquidation distribution in respect of, the preferred securities and common
securities will be made on a proportionate basis, based on the aggregate
liquidation amount of each class of securities. However, if a debenture event of
default has occurred and is continuing as a result of any failure by us to make
an interest or principal payment on the junior subordinated debentures, then no
payment of any distribution on, or redemption price of, or liquidation
distribution in respect of, the common securities may be made, unless all unpaid
amounts due on the preferred securities have been paid in full or provided for,
as appropriate.
If there is an event of default under the trust agreement that results
from an event of default on the junior subordinated debentures, we, as the
holders of the common securities, will have no right to act with respect to the
event of default under the trust agreement until the effects of all events of
default under the trust agreement regarding the preferred securities have been
cured, waived or otherwise eliminated. Until that time, the property trustee
will act solely on your behalf and not on behalf of the holders of the common
securities. See "-- Events of Default; Notice" and "Description of Junior
Subordinated Debentures -- Debenture Events of Default."
Liquidation Distribution Upon Dissolution
We will have the right to dissolve the trust at any time, and, after
paying all the expenses and liabilities of the trust, distribute the junior
subordinated debentures to you. However, because the proceeds from the preferred
securities offering may be counted as up to 25% of our Tier 1 capital and
dissolution of the trust could impact our overall capital structure, we may only
dissolve the trust if we have received prior approval of the Federal Reserve, if
then required.
Pursuant to the trust agreement, the trust will dissolve upon
expiration of its term, on _____________, 2034. Early dissolution will occur
upon the occurrence of any of the following:
o the bankruptcy of First Star Bancorp;
o the filing of a certificate of dissolution, or its equivalent, of
First Star Bancorp;
o our delivery of a written direction to the property trustee to
dissolve the trust, which we may do in our discretion;
o the entry of a court order for the dissolution of the trust; or
o the redemption of all the preferred securities in connection with
the redemption of all the preferred and common securities as
described under "- Redemption."
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In the event of a dissolution, after the trust pays all amounts owed to
its creditors, the holders of the preferred and common securities will be
entitled to receive:
o junior subordinated debentures, if the dissolution does not arise
from redemption of the junior subordinated debentures, in an
aggregate principal amount equal to the aggregate liquidation
amount of the preferred and common securities; or
o cash, if distribution of junior subordinated debentures is not
practical or if the dissolution arises from the redemption of the
junior subordinated debentures.
In the event of a cash payment, you will receive an amount equal to the
liquidation amount of the preferred securities, plus accumulated and unpaid
distributions to the date of the liquidation distribution. If the liquidation
distribution can be paid only in part because the trust has insufficient assets
available for payment, then the holders of the preferred and common securities
will be paid on a proportionate basis. However, if an event of default under the
junior subordinated debentures has occurred and is continuing as a result of our
failure to make interest or principal payments to the trust when due, you will
receive a liquidation distribution on your preferred securities before we
receive a liquidation distribution on our common securities. See
"--Subordination of Common Securities."
Events of Default; Notice
Any one of the following events constitutes an event of default under
the trust agreement with respect to the preferred and common securities.
o the occurrence of a event of default with respect to the junior
subordinated debentures (see "Description of Junior Subordinated
Debentures -- Debenture Events of Default");
o default by the trust in the payment of any distribution when it
becomes due and payable, and the continuation of such default for
a period of 30 days;
o default by the trust in the payment of any redemption price of
any preferred security or common security when it becomes due and
payable;
o default in the performance, or breach, in any material respect,
of any covenant or warranty given by the trust in the trust
agreement (other than a default or breach in the performance of a
covenant or warranty which is addressed by either the second or
third events of default listed above), and the continuation of
such default or breach for a period of 60 days after the holders
of at least 25% in aggregate liquidation amount of the
outstanding preferred securities have given to the property
trustee, the Delaware trustee and us a written notice specifying
such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" under the trust
agreement; or
o the occurrence of bankruptcy or insolvency with respect to the
property trustee if a successor property trustee has not been
appointed within 90 days of the bankruptcy or insolvency.
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Within five business days after the occurrence of any event of default
actually known to the property trustee, the property trustee will transmit
notice of the event of default to you, to us, and to the administrators, unless
the event of default has been cured or waived. Along with the administrators, we
are required to file annual certificates with the property trustee declaring
whether or not we and they are in compliance with all the conditions and
covenants applicable to us and to them under the trust agreement.
Removal of Trustees; Appointment of Successors
The holders of at least a majority in aggregate liquidation amount of
the outstanding preferred securities may remove the property trustee or the
Delaware trustee for cause or, if an event of default with respect to the junior
subordinated debentures has occurred and is continuing, with or without cause.
If a trustee is removed by the holders of the outstanding preferred securities,
the successor may be appointed by the holders of at least 25% in aggregate
liquidation amount of preferred securities. If a trustee resigns, such trustee
will appoint its successor. If a trustee fails to appoint a successor, the
holders of at least 25% in aggregate liquidation amount of the outstanding
preferred securities may appoint a successor. If a successor has not been
appointed, we, any holder of preferred securities, or the other trustee may
petition a court in the State of Delaware to appoint a successor. Any successor
Delaware trustee must meet the applicable requirements of Delaware law. Any
successor property trustee must be a national or state-chartered bank that at
the time of appointment has:
o securities rated in one of the three highest rating categories by
a nationally recognized statistical rating organization; and
o capital and surplus of at least $50,000,000.
No resignation or removal of a trustee and no appointment of a
successor trustee will be effective until the successor trustee delivers its
written acceptance of the appointment.
Merger or Consolidation of Trustees
Any entity into which the property trustee or the Delaware trustee may
be merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which the trustee is a
party, or any entity succeeding to all or substantially all of the corporate
trust business of the trustee, will be the successor of that trustee under the
trust agreement, provided that entity is otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Trust
The trust may, at our request and with the consent of the holders of at
least a majority in aggregate liquidation amount of the outstanding preferred
securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any state, so long as:
o the successor entity (1) expressly assumes all the obligations of
the trust with respect to the preferred securities
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or (2) substitutes for the preferred securities other securities
having substantially the same terms as the preferred securities
so long as the substitute preferred securities have the same
priority as the preferred securities with respect to
distributions and payments upon liquidation, redemption and
otherwise;
o a trustee of the successor entity, possessing the same powers and
duties as the property trustee, is appointed to hold the junior
subordinated debentures;
o the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the preferred securities
(including any substitute preferred securities) to be downgraded
by any nationally recognized statistical rating organization, if
then rated;
o the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the preferred
securities (including any substitute preferred securities) in any
material respect;
o the successor entity has a purpose substantially identical to
that of the trust;
o prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the trust has received an opinion
from independent counsel experienced in these matters to the
effect that (1) the merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely
affect your rights, preference and privileges as a holder of
preferred securities (including any substitute preferred
securities) in any material respect, and (2) following the
merger, consolidation, amalgamation, replacement, conveyance
transfer or lease, neither the trust nor the successor entity
will be required to register as an investment company under the
Investment Company Act; and
o we or any permitted successor or assignee own all the common
securities of the successor entity and guarantee the obligations
of the successor entity under the successor securities at least
to the extent provided by the guarantee.
Notwithstanding the foregoing, the trust may not, except with the
consent of all holders of the preferred securities, consolidate, amalgamate,
merge with or into, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to, any other entity or
permit any other entity to consolidate, amalgamate, merge with or into or
replace it if such consolidation, amalgamation, merger, replacement, conveyance,
transfer or lease would cause the trust or the successor entity to be taxable as
a corporation for United States federal income tax purposes.
Voting Rights; Amendment of Trust Agreement
Except as provided below and under "--Removal of Trustees; Appointment
of Successors" and "Description of Guarantee -- Amendments and Assignment" and
as otherwise required by law and the trust agreement, you will have no voting
rights.
We, the property trustee and the administrators, may amend the trust
agreement without your consent in order to:
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o cure any ambiguity, correct or supplement any provisions in the
trust agreement that may be inconsistent with any other
provision, or to make any other provisions with respect to
matters or questions arising under the trust agreement, provided
that any such amendment does not adversely affect in any material
respect your interests; or
o modify, eliminate or add to any provisions of the trust agreement
as may be necessary to ensure that the trust will not be taxable
as a corporation for United States federal income tax purposes at
any time that any preferred or common securities are outstanding
or to ensure that the trust will not be required to register as
an "investment company" under the Investment Company Act.
With the consent of holders of not less than a majority in aggregate
liquidation amount of the preferred securities, we, the property trustee and the
administrators may amend any provision of the trust agreement so long as the
trustees have received an opinion of counsel that the amendment or the exercise
of any power granted to the trustees by the amendment will not:
o affect the trust's status as a grantor trust exempt from taxation
for United States federal income tax purposes; or
o the trust's exemption from status as an "investment company"
under the Investment Company Act.
However, without the consent of each holder of preferred securities or
common securities affected thereby, the trust agreement may not be amended to:
o change the amount or timing of any distribution on the preferred
and common securities or otherwise adversely affect the amount of
any distribution required to be made in respect of the preferred
and common securities as of a specified date; or
o restrict your right or our right as the holders of common
securities to institute suit for the enforcement of any payment
on or after such date.
So long as any junior subordinated debentures are held by the trust,
the property trustee will not:
o direct the time, method and place of conducting any proceeding
for any remedy available to the debenture trustee, or execute any
trust or power conferred on the property trustee with respect to
the junior subordinated debentures;
o waive any past default that is waivable under the indenture;
o exercise any right to rescind or annul a declaration that the
principal of all the junior subordinated debentures shall be due
and payable; or
o consent to any amendment, modification or termination of the
indenture or the junior subordinated debentures, where such
consent shall be required, without, in each case, obtaining the
prior approval of the holders of at least a majority in aggregate
liquidation
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amount of the outstanding preferred securities, or, if a consent
under the indenture would require the consent of each holder of
junior subordinated debentures affected thereby, no such consent
will be given by the property trustee without the prior consent
of each holder of the preferred securities.
The property trustee may not revoke any action previously authorized or
approved by a vote of the holders of the preferred securities except by
subsequent vote of the holders of the preferred securities. The property trustee
will notify you of any notice of default with respect to the junior subordinated
debentures. In addition to obtaining your approval as described above, before
taking any of the actions listed above, the property trustee will obtain an
opinion of counsel experienced in such matters to the effect that the trust will
not be taxable as a corporation for United States federal income tax purposes on
account of such action.
Any required approval of holders of preferred securities may be given
at a meeting of holders of preferred securities convened for such purpose or
pursuant to written consent. The property trustee will cause a notice of any
meeting at which you are entitled to vote, or of any matter upon which action by
your written consent is to be taken, to be given to you in the manner set forth
in the trust agreement.
Your vote or consent will not be required to redeem and cancel
preferred securities.
If we or any of our affiliates or the trustees or any of their
affiliates own any preferred securities, those preferred securities will not be
treated as outstanding for purposes of the votes or consents described above.
Expenses and Taxes
In the indenture, we have agreed to pay:
o all debts and obligations of the trust (other than distributions
on the preferred and common securities);
o any and all taxes and all costs and expenses with respect thereto
(other than United States withholding taxes) to which the trust
might become subject; and
o all costs and expenses of the trust, including the costs and
expenses of:
1) the trustees, and
2) the organization and operation of the trust.
Our payment obligations under the indenture are for the benefit of, and
shall be enforceable by, any creditor of the trust to whom any of these debts,
obligations, costs, expenses and taxes are owed. Any creditor may enforce these
obligations directly against us, and we have irrevocably waived any right or
remedy to require that any creditor take any action against the trust or any
other person before proceeding against us. We have also agreed in the indenture
to execute any additional agreements as may be necessary or desirable to give
full effect to the foregoing.
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Book Entry, Delivery and Form
DTC will act as securities depository for the preferred securities. The
trust will issue one or more fully registered global preferred securities
certificates in the name of Cede & Co. (DTC's nominee). These certificates will
represent the total aggregate number of preferred securities. The trust will
deposit these certificates with DTC or a custodian appointed by DTC. The trust
will not issue certificates to you for the preferred securities that you
purchase, unless DTC's services are discontinued.
Ownership of beneficial interests in a global security deposited with
DTC is limited to participants that have accounts with DTC. Access to the DTC
system is also available to indirect participants, such as securities brokers
and dealers, banks and trust companies, that may hold interests through a direct
participant. Upon the issuance of the global security, DTC will credit the
accounts of direct participants with their respective amounts of preferred
securities represented by the global security by its book-entry system. If you
purchase preferred securities within the DTC system, the purchase must be made
by or through a direct participant. You, as the actual owner of the preferred
securities, are the "beneficial owner." Your beneficial ownership interest will
be recorded on the direct or indirect participant's records, and DTC will have
no knowledge of your individual ownership.
You will not receive written confirmation from DTC of your purchases.
The direct or indirect participant through whom you purchased the preferred
securities should send you written confirmations providing details of your
transactions, as well as periodic statements of your holdings. The participants
are responsible for keeping accurate account of the holdings of their customers
like you.
Transfers of ownership interests in the preferred securities will be
accomplished by entries made on the books of participants acting on your behalf.
The laws of some states may require that specified purchasers of
securities take physical delivery of the securities in definitive form. These
laws may impair the ability to transfer beneficial interests in the global
certificate representing the preferred securities.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants and by direct
participants and indirect participants to you will be governed by arrangements
among them, and any statutory or regulatory requirements that may be in effect
from time to time.
Redemption notices will be sent to DTC. If less than all of the
preferred securities are being redeemed, DTC will reduce each direct
participant's holdings of preferred securities in accordance with its
procedures.
In those cases where a vote by the holders of the preferred securities
is required, neither DTC nor Cede & Co. will itself consent or vote. Under its
usual procedures, DTC would mail an omnibus proxy to the trust as soon as
possible after the record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those direct participants to whose accounts the
preferred securities are credited on the record date, which are identified in a
listing attached to the omnibus proxy.
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The trust will make distribution payments on the preferred securities
directly to DTC. DTC's practice is to credit direct participants' accounts on
the relevant payment date in accordance with their respective holdings shown on
DTC's records, unless DTC has reason to believe that it will not receive payment
on such payment date.
Payments by participants (whether direct participants or indirect
participants) to beneficial owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name." These payments will be
the responsibility of the participant and not of DTC, the trust or First Star
Bancorp.
As the beneficial owner in a global preferred securities certificate,
you will not be entitled to receive physical delivery of preferred securities.
You will not be considered an owner or a holder under the trust agreement.
Instead, DTC will be considered the sole owner or holder of the preferred
securities. Accordingly, you must rely on the procedures of DTC and, if you are
not a direct participant, on the procedures of the indirect participant through
which you own your interest, to exercise any of your rights under the preferred
securities.
DTC may discontinue providing its services as securities depositary
with respect to the preferred securities at any time by giving written notice to
the property trustee, the Delaware trustee and us that it is no longer willing,
or no longer able, to provide its services. In the event that we are not able to
obtain a successor securities depositary within 90 days, we will print and
deliver preferred securities certificates. In addition, we may, at our
discretion, decide to discontinue the book-entry system with respect to the
preferred securities. In that event, we will print and deliver certificates for
the preferred securities to you.
DTC has advised the trust and us as follows:
o DTC is a limited purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve, a
"clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Exchange Act;
o DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities
transactions between participants through electronic book entry
changes to accounts of its participants, thereby eliminating the
need for physical movement of certificates;
o participants include securities brokers and dealers (such as
Hopper Soliday), banks, trust companies and clearing corporations
and may include certain other organizations;
o certain participants (or their representatives), together with
other entities, own DTC; and
o indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through,
or maintain a custodial relationship with, a participant, either
directly or indirectly.
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Same-Day Settlement and Payment
Settlement for the preferred securities will be made by Hopper Soliday
in immediately available funds.
Secondary trading in preferred securities of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the preferred
securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the preferred securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as to
the effect, if any, of settlement in immediately available funds on trading
activity in the preferred securities.
Payment and Paying Agency
Payments in respect of the preferred securities will be made to DTC,
which will credit the relevant accounts at DTC on the applicable distribution
dates or, if the preferred securities are not held by DTC, such payments will be
made by check mailed to the holder entitled thereto at such address as appears
on the securities register for the preferred and common securities. The paying
agent will initially be the property trustee and any co-paying agent chosen by
the property trustee and acceptable to the administrators. The paying agent will
be permitted to resign as paying agent upon 30 days' written notice to the
property trustee and the administrators. If the property trustee is no longer
the paying agent, the property trustee will appoint a successor (which must be a
bank or trust company reasonably acceptable to the administrators) to act as
paying agent.
Registrar and Transfer Agent
The property trustee will act as registrar and transfer agent for the
preferred securities.
Registration of transfers of preferred securities will be effected
without charge by or on behalf of the trust, but only upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The trust will not be required to register or cause to be
registered the transfer of the preferred securities after the preferred
securities have been called for redemption.
Obligations and Duties of the Property Trustee
The property trustee, other than during the occurrence and continuance
of an event of default, undertakes to perform only such duties as are
specifically set forth in the trust agreement and, after such event of default,
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the property trustee is under no obligation to exercise any of the
powers vested in it by the trust agreement at your request unless it is offered
reasonable indemnity against the costs, expenses and liabilities that it might
incur.
For information concerning the relationships between the property
trustee and us, see "Description of Junior Subordinated Debentures --
Information Concerning the Debenture Trustee."
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Miscellaneous
The administrators and the property trustee are authorized and directed
to conduct the affairs of and to operate the trust in such a way that:
o the junior subordinated debentures will be treated as our
indebtedness for United States federal income tax purposes, and
o the trust will not be;
a) required to register as an "investment company" under the
Investment Company Act; or
b) taxable as a corporation for United States federal income
tax purposes.
To achieve these purposes, the administrators, the property trustee,
and we, as holders of the common securities, are authorized to take any action
that they and we determine to be necessary or desirable for such purposes, as
long as such action does not materially adversely affect your interests and is
not inconsistent with applicable law, the certificate of trust or the trust
agreement.
You will not have preemptive or similar rights.
The trust may not borrow money, issue debt or mortgage or pledge any of
its assets.
Subject to applicable law, including, without limitation, United States
federal securities laws, we or our affiliates may at any time and from time to
time purchase outstanding preferred securities by tender, in the open market or
by private agreement, and may resell such securities.
Governing Law
The trust agreement will be governed by and construed in accordance
with the laws of the State of Delaware.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The junior subordinated debentures will be issued under the indenture
between Bankers Trust Company, the debenture trustee, and us. The following is a
summary of the material terms and provisions of the junior subordinated
debentures. You should read the form of the indenture that is filed as an
exhibit to the registration statement of which this prospectus is a part.
Whenever particular defined terms of the indenture (as amended or supplemented
from time to time) are referred to in this prospectus, those defined terms are
incorporated into this prospectus by reference. A copy of the form of indenture
is available from the debenture trustee upon request.
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General
The trust will invest the proceeds of the issuance of the preferred
securities, together with the consideration paid by us for the common
securities, in the junior subordinated debentures issued by us. The junior
subordinated debentures are subordinated, unsecured debt under the indenture and
will bear interest, accruing from ___________ __, 1999, at the applicable
periodic interest rate of the principal amount thereof, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year,
commencing ___________ __, 1999, to the person in whose name each junior
subordinated debenture is registered at the close of business on the 15th day of
March, June, September or December (whether or not a business day) next
preceding such interest payment date. It is anticipated that, until the
liquidation, (if any), of the trust, each junior subordinated debenture will be
registered in the name of the trust and held by the property trustee in trust
for you and us, as the holders of the common securities.
The amount of interest payable for any period less than a full interest
period will be computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period. The amount of
interest payable for any full interest period will be computed by dividing the
annual rate by four. If any date on which interest is payable to the junior
subordinated debentures is not a business day, then payment of the interest
payable on such date will be made on the next business day (without any interest
or other payment in respect of any such delay), or, if the next business day
falls in the next calendar year, such payment will be made on the immediately
preceding business day.
Accrued interest that is not paid on the applicable interest payment
date will bear additional interest on the amount thereof (to the extent
permitted by law) at the applicable periodic interest rate, compounded quarterly
and computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period. The amount of additional
interest payable for any full interest period will be computed by dividing the
annual rate by four.
The term "interest" as used herein includes quarterly interest
payments, interest on quarterly interest payments not paid on the applicable
interest payment date and, if applicable, any additional sums we pay on the
junior subordinated debentures following a Tax Event (as defined under
"Description of Preferred Securities -- Redemption") that may be required so
that distributions payable by the trust will not be reduced by any additional
taxes, duties or other governmental changes resulting from such Tax Event.
The junior subordinated debentures will mature on _____________, 2029,
subject to our right to shorten the maturity date at any time to any date not
earlier than ___________, 2004, if we have received prior approval of the
Federal Reserve, if then required under applicable capital guidelines or
policies of the Federal Reserve. In the event we elect to shorten the maturity
of the junior subordinated debentures, we will give notice to the registered
holders of the junior subordinated debentures, the debenture trustee and the
trust at least 90 days before the new maturity date. The property trustee will
give you notice of the shortening of the stated maturity of the junior
subordinated debentures at least 30 but not more than 60 days before the new
maturity date.
The junior subordinated debentures will be unsecured and will rank
junior and be subordinate in right of payment to all of our senior indebtedness,
including the outstanding subordinated debentures. The junior subordinated
debentures will not be subject to a sinking fund. The indenture does not limit
our
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ability to incur or issue other secured or unsecured debt, including senior
indebtedness, whether under the junior subordinated debentures or any existing
or other indenture that we may enter into in the future or otherwise. See "--
Subordination."
Option to Extend Interest Payment Period
So long as we are not in default, we may defer the payment of interest
on the junior subordinated debentures at any time for one or more "extension
periods." No extension period may exceed 20 consecutive quarters. No extension
period may extend beyond the maturity date of the junior subordinated
debentures. During any extension period we have the right to make partial
payments of interest on any interest payment date. At the end of an extension
period, we will pay all interest then accrued and unpaid, together with interest
on that amount, compounded quarterly, at the applicable periodic interest rate.
During an extension period, interest will continue to accrue and holders of
junior subordinated debentures (or holders of preferred securities) will be
required to accrue interest income for United States federal income tax
purposes. See "United States Federal Income Tax Consequences --Interest Income
and Original Issue Discount."
During any extension period, we may not:
o make any payment of principal of or interest or premium, if any,
on or repay, repurchase or redeem any of our debt securities that
rank equally in all respects with or junior in interest to the
junior subordinated debentures, or
o declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to,
any of our capital stock, except that we may:
(a) repurchase, redeem or make other acquisitions of shares of
our capital stock in connectionwith any employment contract,
benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers directors or
consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the
issuance of our capital stock (or securities convertible
into or exercisable for such capital stock) as consideration
in an acquisition transaction entered into prior to the
applicable extension period;
(b) take any necessary action in connection with any
reclassification, exchange or conversionof any class or
series of our capital stock (or any capital stock of a
subsidiary of ours) or of any class or series of our
indebtedness for any class or series of our capital stock;
(c) purchase fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged;
(d) declare a dividend in connection with any stockholders'
rights plan, or issue
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rights, stock or other property under any stockholders'
rights plan, or redeem or repurchase rights pursuant
thereto; and
(e) declare a dividend in the form of stock warrants, options or
other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is
the same stock as that on which the dividend is being paid
or ranks equally with or junior to such stock.
Before the termination of any extension period, we may further defer
the payment of interest, provided that no extension period may exceed 20
consecutive quarters or extend beyond the stated maturity of the junior
subordinated debentures. Upon the termination of any extension period and the
payment of all amounts then due, we may elect to begin a new extension period
subject to the above conditions. No interest will be due and payable during an
extension period, except at its end. As long as the junior subordinated
debentures are held by the trust, we will give the property trustee notice of an
extension period at least one business day prior to the earlier of (1) the date
a distribution on the preferred securities would have been payable but for our
election to begin an extension period and (2) the date the property trustee is
required to give you notice of the record date or the date such distribution is
payable, but in any event not less than one business day prior to such record
date. The property trustee will give you notice of our election to begin a new
extension period. There is no limitation on the number of times that we may
elect to begin an extension period.
Redemption
We have the right, after receipt of prior approval of the Federal
Reserve, if approval is then required, to redeem the junior subordinated
debentures prior to maturity at our option:
o on or after _________________, 2004, in whole at any time or in
part from time to time, or
o in whole, but not in part, at any time within 90 days following
the occurrence and during the continuation of a Tax Event,
Investment Company Event or Capital Treatment Event (each as
defined under "Description of Preferred Securities --
Redemption").
In either case, the redemption price will equal 100% of the principal
amount of the junior subordinated debentures to be redeemed, plus accrued and
unpaid interest, to the date of redemption (including any additional interest on
any additional sums we pay following a Tax Event as described below under
"--Additional Sums"). The proceeds of any redemption will be used by the trust
to redeem a proportionate amount of the preferred securities.
Additional Sums
We have covenanted in the indenture that, if and for so long as the
trust is the holder of all junior subordinated debentures and the trust is
required to pay any additional taxes, duties or other governmental charges as a
result of a Tax Event, we will pay as additional sums on the junior subordinated
debentures such amounts as may be required so that the distributions payable by
the trust will not be reduced as a
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result of any such additional taxes, duties or other governmental charges. See
"Description of Preferred Securities -- Redemption."
Registration, Denomination and Transfer
The junior subordinated debentures will initially be registered in the
name of the trust. If the junior subordinated debentures are distributed to you
in connection with the involuntary or voluntary dissolution or liquidation of
the trust, they will be issued in the form of one or more global certificates.
In that event, we expect that the depositary arrangements for and payment on the
junior subordinated debentures will be substantially identical to those in
effect for the preferred securities. See "Description of Preferred Securities --
Book Entry, Delivery and Form."
If DTC is at any time unwilling or unable to continue as depositary and
we do not appoint a successor depositary within 90 days of receipt of notice
from DTC to such effect, we will cause the junior subordinated debentures to be
issued in definitive form to you. In that event, principal and interest will be
payable, the transfer of the junior subordinated debentures will be registerable
without service charge upon payment of any taxes and other governmental charges,
and the junior subordinated debentures will be exchangeable for junior
subordinated debentures of other authorized denominations of a like aggregate
principal amount, at the corporate trust office of the debenture trustee in New
York, New York, or at the offices of any paying agent or transfer agent we
appoint. We may also, at our option, make payment of interest by check mailed to
the address of the persons entitled to payment under the junior subordinated
debentures. A holder of $1 million or more in aggregate principal amount of
junior subordinated debentures, however, may receive payments of interest (other
than interest payable at the stated maturity) by wire transfer of immediately
available funds upon written request to the debenture trustee not later than 15
calendar days prior to the date on which the interest is payable.
In the event of any redemption, neither we, nor the debenture trustee,
will be required to:
o issue, register the transfer of or exchange junior subordinated
debentures during a period beginning at the opening of business
15 days before the day of selection for redemption of the junior
subordinated debentures to be redeemed and ending at the close of
business on the day of mailing of the relevant notice of
redemption; or
o transfer or exchange any junior subordinated debentures so
selected for redemption, except, in the case of any junior
subordinated debentures being redeemed in part, any portion of
the debenture not to be redeemed.
Any monies deposited with the debenture trustee or any paying agent, or
then held by us in trust, for the payment of the principal of (and premium, if
any) or interest on any junior subordinated debenture and remaining unclaimed
for two years after this principal (and premium, if any) or interest has become
due and payable shall, at our request, be repaid to us and the holder of such
junior subordinated debenture shall thereafter look, as a general unsecured
creditor, only to us for payment thereof.
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Restrictions on Payments; Covenants of the Company
We have covenanted that if at any time:
o we have actual knowledge of any event of default under the junior
subordinated debentures that we have not taken reasonable steps to cure;
o we are in default with respect to our payment of any obligations under the
guarantee, if the junior subordinated debentures are then held by the
trust, or
o we have given notice of our election of an extension period and have not
rescinded such notice, or the extension period, or any extension thereof,
is continuing,
then we will not:
o make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any of our debt securities that rank
equally in all respects with, or junior in interest to, the junior
subordinated debentures; or
o declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of our
capital stock, except that we may:
(a) repurchase, redeem or make other acquisitions of shares of our
capital stock in connectionwith any employment contract, benefit
plan or other similar arrangement with or for the benefit of any
one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock
purchase plan or in connection with the issuance of our capital
stock (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction
entered into prior to the applicable extension period or other
event referred to below;
(b) take any necessary action in connection with any
reclassification, exchange or conversionof any class or series of
our capital stock (or any capital stock of any subsidiary of
ours) for any class or series of our capital stock or of any
class or series of our indebtedness for any class or series of
our capital stock;
(c) purchase fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged;
(d) declare a dividend in connection with any stockholders' rights
plan, or issue rights, stock or other property under any
stockholders' rights plan, or redeem or repurchase rights
pursuant thereto; or
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(e) declare a dividend in the form of stock, warrants, options or
other rights where the dividend stock or the stock issuable upon
exercise of such warrants, options or other rights is the same
stock as that on which the dividend is being paid or ranks
equally with or junior to such stock.
We have covenanted in the indenture:
o to continue to hold, directly or indirectly, 100% of the common
securities, provided that certain successors may succeed to our
ownership of the common securities;
o as holder of the common securities, not to voluntarily terminate,
windup or liquidate the trust, other than:
(a) in connection with a distribution of junior subordinated
debentures to the holders of the preferred securities in
liquidation of the trust; or
(b) in connection with certain mergers, consolidations or
amalgamations permitted by the trust agreement; and
o to use reasonable efforts, consistent with the terms and
provisions of the trust agreement, to cause the trust to continue
not to be taxable as a corporation for United States federal
income tax purposes.
Modification of Indenture
From time to time, we and the debenture trustee may, without the
consent of any of the holders of the outstanding junior subordinated debentures,
amend, waive or supplement the provisions of the indenture to:
o evidence our succession to another corporation or association and
the assumption by that corporation or association of our
obligations under the junior subordinated debentures;
o add further covenants, restrictions or conditions for the
protection of holders of the junior subordinated debentures;
o cure ambiguities or correct the junior subordinated debentures in
the case of defects or inconsistencies in the provisions thereof,
so long as any cure or correction does not adversely affect the
interest of the holders of the junior subordinated debentures in
any material respect;
o change the terms of the junior subordinated debentures to
facilitate the issuance of the junior subordinated debentures in
certificated or other definitive form;
o evidence or provide for the appointment of a successor debenture
trustee; or
o qualify, or maintain the qualification of, the indenture under
the Trust Indenture Act.
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We and the debenture trustee, with the consent of the holders of
not less than a majority in principal amount of the junior
subordinated debentures, may modify the indenture in a manner
affecting the rights of the holders of the junior subordinated
debentures. However, the consent of all holders of junior
subordinated debenture is required to:
o change the stated maturity of, or any installment of interest on,
the junior subordinated debentures, or reduce the principal
amount thereof, the rate of interest thereon or any premium
payable upon the redemption thereof, or change the place of
payment where, or the currency in which, any such amount is
payable, or impair the right to institute suit for the
enforcement of any payment on junior subordinated debentures; or
o reduce the percentage of principal amount of junior subordinated
debentures which would be required to consent to any modification
of, or waiver of rights under, the indenture.
Furthermore, so long as any of the preferred securities remain
outstanding, no modification may be made that adversely affects you in any
material respect, and no termination of the indenture may occur, and no waiver
of any event of default or compliance with any covenant under the indenture may
be effective, without the prior consent of the holders of at least a majority of
the aggregate liquidation amount of the outstanding preferred securities unless
and until the principal of (and premium, if any, on) the junior subordinated
debentures and all accrued and unpaid interest thereon have been paid in full
and certain other conditions are satisfied.
Debenture Events of Default
Any one or more of the following described events with respect to the
junior subordinated debentures that has occurred and is continuing is an "event
of default" with respect to the junior subordinated debentures:
o failure to pay any interest on the junior subordinated debentures
when due and continuance of this default for a period of 30 days
(subject to the deferral of any due date in the case of an
extension period); or
o failure to pay any principal of or premium, if any, on the junior
subordinated debentures when due; or
o failure to observe or perform certain other covenants contained
in the indenture for 90 days after written notice of such failure
to us from the debenture trustee or the holders of at least 25%
in aggregate outstanding principal amount of the outstanding
junior subordinated debentures; or
o the occurrence of the appointment of a receiver or other similar
official in any liquidation, insolvency or similar proceeding
with respect to us or all or substantially all of our property;
or a court or other governmental agency shall enter a decree or
order appointing a receiver or similar official and such decree
or order shall remain unstayed and undischarged for a period of
60 days.
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As described in "Description of Preferred Securities -- Events of
Default; Notice," the occurrence of an event of default in respect of the junior
subordinated debentures will also constitute an event of default in respect of
the preferred securities.
The holders of at least a majority in aggregate principal amount of
outstanding junior subordinated debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
debenture trustee. The debenture trustee or the holders of not less than 25% in
aggregate principal amount of outstanding junior subordinated debentures may
declare the principal due and payable immediately upon a event of default, and,
should the debenture trustee or such holders of junior subordinated debentures
fail to make such declaration, the holders of at least 25% in aggregate
liquidation amount of the outstanding preferred securities shall have such
right. The holders of a majority in aggregate principal amount of outstanding
junior subordinated debentures may annul such declaration and waive the default
if all defaults (other than the non-payment of the principal of junior
subordinated debentures which has become due solely by such acceleration) have
been cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
debenture trustee. Should the holders of junior subordinated debentures fail to
annul such declaration and waive such default, the holders of a majority in
aggregate liquidation amount of the outstanding preferred securities shall have
such right.
The holders of at least a majority in aggregate principal amount of the
outstanding junior subordinated debentures affected thereby may, on behalf of
the holders of all the junior subordinated debentures, waive any past default,
except a default in the payment of principal (or premium, if any) or interest
(unless this default has been cured and a sum sufficient to pay all matured
installments of interest and principal (and premium on, if any) due otherwise
than by acceleration has been deposited with the debenture trustee) or a default
in respect of a covenant or provision which under the indenture cannot be
modified or amended without the consent of the holder of each outstanding junior
subordinated debenture affected by the default. See "-- Modification of Junior
Subordinated Indenture." We are required to give an annual certificate to the
debenture trustee declaring whether or not we are in compliance with all the
conditions and covenants applicable to us under the indenture.
If an event of default occurs and is continuing, the property trustee
will have the right to declare the principal of and the interest on the junior
subordinated debentures, and any other amounts payable under the indenture, to
be due and payable and to enforce its other rights as a creditor with respect to
the junior subordinated debentures.
Enforcement Rights by Holders of Preferred Securities
If an event of default on the junior subordinated debentures has
occurred and is continuing because of our failure to pay interest or principal
on the junior subordinated debentures when due, you may institute a legal action
against us for enforcement of payment to you of the principal of or interest on
the junior subordinated debentures in an amount equal to the aggregate
liquidation amount of the preferred securities you hold. We may not amend the
indenture to remove your right to bring this direct legal action without your
prior written consent. We will have the right under the indenture to set-off any
payment we make to you in connection with such a legal action.
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You will not be able to exercise directly any remedies available to the
holders of the junior subordinated debentures except as described in the
preceding paragraph. See "Description of Preferred Securities -- Events of
Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
We may not consolidate with or merge into any other entity or convey,
transfer or lease our properties and assets substantially as an entirety to any
entity, and no entity may consolidate with or merge into us or convey, transfer
or lease its properties and assets substantially as an entirety to us, unless:
o the successor entity is organized under the laws of the United
States or any state or the District of Columbia, and such
successor entity expressly assumes our obligations in respect of
the junior subordinated debentures; provided, however, that
nothing in the indenture shall be deemed to restrict or prohibit,
and no supplemental indenture shall be required in the case of
the merger of a bank (as defined below) with and into a bank or
us, the consolidation of banks into a bank or us, or the sale or
other disposition of all or substantially all of the assets of
any bank to another bank or us, if, in any such case in which we
are not the surviving, resulting or acquiring entity, we would
own, directly or indirectly, at least 80% of the voting
securities of the bank (and of any other bank any voting
securities of which are owned, directly indirectly, by such bank)
surviving such merger, resulting from such consolidation or
acquiring such assets;
o immediately after giving effect thereto, no event of default with
respect to the junior subordinated debentures, and no event
which, after notice or lapse of time or both, would constitute an
event of default with respect to the junior subordinated
debentures, has occurred and is continuing; and
o certain other conditions as prescribed in the indenture are
satisfied.
For purposes of the first bullet point above, the term "bank" means
each of:
o any banking subsidiary of ours the consolidated assets of which
constitute 20% or more of our consolidated assets and our
consolidated subsidiaries;
o any other banking subsidiary designated as a bank pursuant to a
board resolution and set forth in an officers' certificate
delivered to the trustee; and
o any subsidiary of ours that owns, directly or indirectly, any
voting securities, or options, warrants or rights to subscribe
for or purchase voting securities, of any bank under the first
and second bullet points above and in the case of all three
bullet points their respective successors (whether by
consolidation, merger, conversion, transfer of substantially all
their assets and business or otherwise) so long as any such
successor is a banking subsidiary (in the case of the first and
second bullet point) or a subsidiary (in the case of the third
bullet point) of ours.
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The provisions of the indenture do not give holders of the junior
subordinated debentures protection if we are involved in a highly leveraged or
other transaction that may adversely affect holders of the junior subordinated
debentures.
Satisfaction and Discharge
The indenture will cease to be of further effect and we will deemed to
have satisfied and discharged the indenture when:
o all junior subordinated debentures not previously delivered to
the debenture trustee for cancellation (1) have become due and
payable, or (2) will become due and payable at the stated
maturity within one year;
o we deposit or cause to be deposited with the debenture trustee
funds, in trust, for the purpose and in an amount sufficient to
pay and discharge the entire indebtedness on the junior
subordinated debentures not previously delivered to the debenture
trustee for cancellation, for the principal (and premium, if any)
and interest to the date of the deposit or to the stated maturity
or redemption date; and
o we have paid all other sums payable by us under the indenture and
we have delivered applicable certificates and opinions affirming
our compliance with all of our obligations.
Subordination
The junior subordinated debentures will be subordinate and junior in
right of payment, to the extent set forth in the indenture, to all of our senior
indebtedness (as defined below). We may not make payment of principal, including
redemption payments, or interest on the junior subordinated debentures if:
o any amount due on our senior indebtedness is not paid when due
and the default has not been cured or waived; or
o the maturity of any of our senior indebtedness has been
accelerated because of a default and the acceleration has not
been rescinded.
As used herein, "senior indebtedness" means, whether recourse is to all
or a portion of our assets and whether or not contingent:
o every obligation of ours for money borrowed;
o every obligation of ours evidenced by bonds, debentures, notes or
other similar instrument, including obligations incurred in
connection with the acquisition of property, assets or
businesses;
o every reimbursement obligation of ours with respect to letters of
credit, bankers' acceptance or similar facilities issued for our
account;
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o every obligation of ours issued or assumed as the deferred
purchase price of property or services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary
course of business);
o every capital lease obligation of ours;
o every obligation of ours for claims (as defined in Section 101(4)
of the United States Bankruptcy Code of 1978, as amended) in
respect of derivative products such as interest foreign exchange
rate contracts, commodity contracts and similar arrangements; and
o every obligation of the type referred to above of another person
and all dividends of another person the payment of which, in
either case, we have guaranteed or are responsible or liable,
directly or indirectly, as obligor or otherwise.
However, senior indebtedness shall not include any of the following:
o any obligations which, by their terms, are expressly stated to
rank equally in right of payment with, to not be superior in
right of payment to, the junior subordinated debentures;
o any of our senior indebtedness which when incurred and without
respect to any election under Section 1111(b) of the United
States Bankruptcy Code of 1978, as amended, was without recourse
to us;
o any indebtedness of ours to any of our subsidiaries;
o indebtedness to executive officers or directors, or
o any indebtedness in respect of debt securities issued to any
trust, or a trustee of such trust, partnership or other entity
affiliated with us that is a financing entity of ours in
connection with the issuance by such financing entity of
securities that are similar to the preferred securities.
As of September 30, 1999, our senior indebtedness was approximately
$_____ million, excluding $_____ million of deposits. All senior indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) must first be paid in full before any payment or distribution,
whether in cash, securities or other property, can be made on the junior
subordinated debentures in the event of:
o certain events of bankruptcy, dissolution or liquidation of us or
another holder of the common securities;
o any proceeding for our liquidation, dissolution or other winding
up, voluntary or involuntary, whether or not involving insolvency
or bankrupt proceedings;
o any assignment by us for the benefit of creditors; or
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o any other marshaling of our assets.
In that event, any payment or distribution on account of the junior
subordinated debentures, whether in cash, securities or other property, that
would otherwise (but for the subordination provisions) be payable or deliverable
in respect of the junior subordinated debentures will be paid directly to the
holders of senior indebtedness in accordance with the priorities then existing
until all senior indebtedness (including any interest thereon accruing after the
commencement of any such proceedings) has been paid in full.
In the event of any proceeding described above, after payment in full
of all sums owed on our senior indebtedness, the holders of junior subordinated
debentures, together with the holders of our obligations that rank equal with
the junior subordinated debentures, will be entitled to be paid from our
remaining assets. This payment will be made before any payment or other
distribution, whether in cash, property or otherwise, will be made on account of
any capital stock or obligations ranking junior to the junior subordinated
debentures and such other obligations. If payment or distribution on account of
the junior subordinated debentures of any character or security, whether in
cash, securities or other property, is received by any holder of any junior
subordinated debentures in contravention of the procedures described above, such
payment or distribution or security will be received in trust for the benefit
of, and must be paid over or delivered and transferred to, the holders of our
senior indebtedness to the extent necessary to pay all such senior indebtedness
in full.
The subordination of the junior subordinated debentures will not
prevent the occurrence of any event of default on the junior subordinated
debentures.
The indenture places no limitation on the amount of additional senior
indebtedness that we may incur. We expect from time to time to incur additional
senior indebtedness.
Information Concerning the Debenture Trustee
The debenture trustee, outside of the occurrence and continuation of a
default in the performance of our obligations under the junior subordinated
debentures, is under no obligation to exercise any of the powers vested in it at
the request of any holder of junior subordinated debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
that it might incur. The debenture trustee is not required to expend or risk its
own funds or otherwise incur personal financial liability in the performance of
its duties if the debenture trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it.
Bankers Trust Company, the debenture trustee, may serve from time to
time as trustee under other indentures or trust agreements with us or our
subsidiaries relating to other issues of our securities. In addition, we as well
as certain of our affiliates may have other banking relationships with Bankers
Trust Company and its affiliates.
Governing Law
The indenture and the junior subordinated debentures will be governed
by and construed in accordance with the laws of the State of New York.
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DESCRIPTION OF GUARANTEE
We will execute and deliver the guarantee in connection with the
issuance of preferred securities by the trust for your benefit. Bankers Trust
Company will act as guarantee trustee under the guarantee. The following [is a]
summary of the material [terms and] provisions of the guarantee. You should read
the form of the guarantee, which is filed as an exhibit to the registration
statement of which this prospectus is a part. A copy of the form of guarantee is
available upon request from the guarantee trustee.
General
We will irrevocably agree to pay in full on a subordinated basis, to
the extent set forth in the guarantee, the guarantee payments, as described
below, to you, as and when due, regardless of any defense, right of set-off or
counterclaim that the trust may have or assert other than the defense of
payment. The following payments with respect to the preferred securities, to the
extent not paid by or on behalf of the trust, will be subject to the guarantee:
o any accrued and unpaid distributions required to be paid on such
preferred securities, to the extent that the trust has funds on
hand available therefor at such time;
o the redemption price with respect to any preferred securities
called for redemption, to the extent that the trust has funds on
hand available for its payment at such time; and
o upon a voluntary or involuntary dissolution, termination, winding
up or liquidation of the trust (unless the junior subordinated
debentures are distributed to you), the lessor of:
(a) the aggregate of the liquidation amount and all accumulated
and unpaid distributions to the date of payment, to the
extent that the trust has funds on hand available for their
payment; and
(b) the amount of assets of the trust remaining available for
distribution to you on liquidation of the trust.
Our obligation to make a guarantee payment may be satisfied by our
direct payment to you or by causing the trust to pay these amounts to you.
The guarantee will be an irrevocable guarantee of payment on a
subordinated basis of the trust's obligations under the preferred securities,
but will apply only to the extent that the trust has funds sufficient to make
such payments, and is not a guarantee of collection.
If we do not make payments on the junior subordinated debentures held
by the trust, the trust will not be able to pay any amounts payable in respect
of the preferred securities and will not have funds legally available for these
payments. The guarantee will rank subordinate and junior in right of payment to
all of our senior indebtedness. See " -- Status of the Guarantee." The guarantee
does not limit our ability to incur or issue other secured or unsecured debt,
including senior indebtedness, whether under the indenture or any other
indenture that we may enter into in the future or otherwise.
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Status of the Guarantee
The guarantee will constitute our unsecured obligation and will rank
subordinate and junior in right of payment to all of our senior indebtedness in
the same manner as the junior subordinated debentures.
The guarantee will constitute a guarantee of payment and not of
collection. This means that the guarantee trustee may institute a legal
proceeding directly against us as the guarantor to enforce its rights under the
guarantee without first instituting a legal proceeding against any other person
or entity. The guarantee will not be discharged except by payment of the
guarantee payments in full to the extent not paid by the trust or distribution
of the junior subordinated debentures to the holders of the preferred
securities.
Amendments and Assignment
Except for changes which do not materially adversely affect your rights
(in which case no consent will be required), the guarantee may not be amended
without the prior approval of the holders of a majority of the aggregate
liquidation amount of the outstanding preferred securities. The manner of
obtaining any such approval is set forth under "Description of Preferred
Securities -- Voting Rights; Amendment of Trust Agreement." All guarantees and
agreements contained in the guarantee shall bind our successors, assigns,
receivers, trustees and representatives and shall inure to your benefit.
Events of Default
An event of default under the guarantee will occur if we fail to
perform any of our payment or other obligations under the guarantee, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of not less than a majority in aggregate
liquidation amount of the outstanding preferred securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the guarantee trustee in respect of the guarantee or to direct the
exercise of any trust or power conferred upon the guarantee trustee under the
guarantee.
You may institute a legal proceeding directly against us to enforce
your rights under the guarantee without first instituting a legal proceeding
against the trust, the guarantee trustee or any other person or entity.
We are required, as guarantor, to give an annual certificate to the
guarantee trustee declaring whether or not we are in compliance with all the
conditions and covenants applicable to us under the guarantee.
Information Concerning the Guarantee Trustee
The guarantee trustee, other than during the occurrence and continuance
of a default by us in performance of the guarantee, undertakes to perform only
such duties as are specifically set forth in the guarantee and, after the
occurrence of an event of default with respect to the guarantee, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the guarantee
trustee is under no obligation to exercise any of the
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powers vested in it at your request, unless it is offered reasonable indemnity
by such holder against the costs, expenses and liabilities that it might incur.
For information concerning our relationship with Bankers Trust Company, as
guarantee trustee, see "Description of Junior Subordinated Debentures
- --Information Concerning the Debenture Trustee.
Termination of the Guarantee
The guarantee will terminate and be of no further force and effect upon
full payment of the redemption price of the preferred securities, upon full
payment of the amounts payable with respect to the preferred securities upon
liquidation of the trust, or upon distribution of junior subordinated debentures
to you and the other holders of the preferred securities in exchange for all of
the preferred securities. The guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time you must restore payment of any
sums paid to you under the preferred securities or the guarantee.
Governing Law
The guarantee will be governed by and construed in accordance with the
laws of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES, AND THE GUARANTEE
Full and Unconditional Guarantee
We have irrevocably guaranteed, on a subordinate basis all of the
trust's obligations under the preferred securities to the extent set forth under
"Description of Guarantee." Taken together, our obligations under the junior
subordinated debentures, the indenture, the trust agreement and the guarantee
provide, in the aggregate, a full, irrevocable and unconditional guarantee of
payments of distributions and other amounts due on the preferred securities. No
single document standing alone or operating in conjunction with fewer than all
the other documents constitutes the guarantee. Only the combined operation of
these documents has the effect of providing a full, irrevocable and
unconditional guarantee of the trust's obligations in respect of the preferred
securities.
If and to the extent that we do not make payments on the junior
subordinated debentures, the trust will not have sufficient funds to pay
distributions or other amounts due on the preferred securities. The guarantee
does not cover payment of amounts payable with respect to the preferred
securities when the trust does not have sufficient funds to pay such amounts. In
that event, your remedy is to institute a legal proceeding directly against us
for enforcement of our payment obligations under the junior subordinated
debentures having a principal amount equal to the liquidation amount of the
preferred securities you hold. See "Description of Junior Subordinated Debenture
- -- Enforcement Rights by Holders of Preferred Securities."
Our obligations under the junior subordinated debentures and the
guarantee are subordinate and junior in right of payment to all senior
indebtedness.
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Sufficiency of Payments
As long as we make the payments on the junior subordinated debentures
when they are due, the trust should have funds sufficient to cover distributions
and other payments distributable on the preferred securities, primarily because:
o the aggregate principal amount of the junior subordinated
debentures will be equal to the sum of the aggregate stated
liquidation amount of the preferred securities and common
securities;
o the interest rate and interest and other payment dates on the
junior subordinated debentures will match the distribution rate,
distribution dates and other payment dates for the preferred
securities;
o we will pay any and all costs, expenses and liabilities of the
trust except the trust's obligations to you and the holders of
the common securities; and
o the trust agreement further provides that the trust will not
engage in any activity that is not consistent with the limited
purposes of the trust.
Notwithstanding anything to the contrary in the indenture, we have the
right to set-off any payment we are otherwise required to make thereunder
against and to the extent we have previously made, or are concurrently on the
date of such payment making, a payment under the guarantee.
Enforcement Rights of Holders of Preferred Securities
You may institute a legal proceeding directly against us to enforce
your rights under the guarantee without first instituting a legal proceeding
against the guarantee trustee, the trust or any other person or entity. See
"Description of Guarantee."
A default or event of default under any of our senior indebtedness
would not constitute a default or event of default in respect of the preferred
securities. However, in the event of payment defaults under, or acceleration of
our senior indebtedness, the subordination provisions of the indenture provide
that no payments may be made in respect of the junior subordinated debentures
until such senior indebtedness has been paid in full or any payment default on
senior indebtedness has been cured or waived. See "Description of Junior
Subordinated Debentures -- Subordination."
Limited Purpose of Trust
The preferred securities represent preferred undivided beneficial
interests in the assets of the trust, and the trust exists for the sole purpose
of issuing the preferred securities and common securities and investing the
proceeds from their issuance in the junior subordinated debentures. A principal
difference between your rights as a holder of preferred securities and a holder
of a junior subordinated debenture is that a holder of a junior subordinated
debenture is entitled to receive from us payments on junior subordinated
debentures held, while you are entitled to receive distributions or other
amounts
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distributable with respect to the preferred securities from the trust (or from
us under the Guarantee) only if and to the extent the trust has funds available
for the payment of such distributions.
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution of the trust, other than
any such dissolution involving the distribution of the junior subordinated
debentures, after satisfaction of liabilities to creditors of the trust as
required by applicable law, you will be entitled to receive, out of assets held
by the trust, the liquidation distribution in cash. See "Description of
Preferred Securities -- Liquidation Distribution Upon Dissolution." If we are
voluntarily or involuntarily liquidated or declare bankruptcy, the trust, as
registered holder of the junior subordinated debentures, will be our
subordinated creditor, subordinated and junior in right of payment to all our
senior indebtedness as set forth in the indenture, but entitled to receive
payment in full of all amounts payable with respect to the junior subordinated
debentures before any of our stockholders receive payments or distributions.
Since we are the guarantor under the guarantee and have agreed under the
indenture to pay all costs, expenses and liabilities of the trust (other than
the trust's obligations to you and the holders of the common securities), your
position as a holder of the preferred securities and the position of a holder of
such junior subordinated debentures relative to other creditors and to our
stockholders in the event of our liquidation or bankruptcy are expected to be
substantially the same.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
General
[^] [The] following [^] [discussion] describes the United States
federal income tax consequences that may be relevant to the purchase, ownership
and disposition of the preferred securities by beneficial owners ("Owners").
The preferred securities and payments on the preferred securities
generally are subject to taxation. Therefore, you should consider the tax
consequences of owning and receiving payments on the preferred securities as
they specifically relate to you before acquiring them.
The following discussion is general and may not apply to your
particular circumstances for any of the following (or other) reasons:
o This discussion is based on federal tax laws in effect as of the
date of this prospectus which are all subject to change at any
time. Changes to any of these laws may be applied retroactively
which may cause the tax consequences to become substantially
different from the consequences described below.
o This discussion only refers to preferred securities you acquire
at original issuance at the original offering price and hold as
capital assets (within the meaning of federal tax law). We do not
discuss all of the tax consequences that may be relevant to
Owners who are subject to special rules, such as banks, thrift
institutions, real estate investment trusts, regulated investment
companies, insurance companies, brokers and dealers in securities
or currencies, certain securities traders, tax-exempt
organizations and certain other
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financial institutions. This discussion also does not discuss tax
consequences that may be relevant to an Owner in light of the
Owner's particular circumstances, such as an Owner holding a
preferred security as a position in a straddle, hedging,
conversion or other integrated investment.
o This discussion does not address:
(a) The income tax consequences to stockholders in, partners of,
or beneficiaries of, a holder of preferred securities;
(b) the United States alternative minimum tax consequences of
purchasing, owning and disposing of preferred securities; or
(c) any state, local or foreign tax consequences of purchasing,
owning, holding or disposing of preferred securities.
The authorities on which this discussion is based are subject to
various interpretations, and the opinions of Tax Counsel are not binding on the
Internal Revenue Service (the "IRS") or the courts, either of which could take a
contrary position. Moreover, no rulings have been or will be sought from the IRS
with respect to the transaction described herein. Accordingly, we cannot assure
you that the IRS will not challenge the opinion expressed herein or that a court
would not rule in favor of the IRS.
You must consult your own tax advisors regarding the tax consequences
to you of purchasing, owning, holding, or disposing of the preferred securities
because the following discussion may not apply to you.
U.S. Holders
In General. For purposes of the following discussion, a "U.S. Holder"
means:
o a citizen or individual resident of the United States;
o a corporation or partnership created or organized in or under the
laws of the United States or any political subdivision thereof;
o an estate the income of which is includible in its gross income
for U.S. federal income tax purposes without regard to its
source; or
o a trust if a court within the United States is able to exercise
primary supervision over its administration and at least one
United States person has the authority to control all substantial
decisions of the trust.
Characterization of the Trust. Under current law and assuming [full]
compliance with the terms of the trust agreement [by all the parties, in the
opinion of Malizia Spidi & Fisch, PC, Washington, D.C., in its capacity as our
special tax counsel ("Tax Counsel"), and based on our representations, facts and
assumptions set forth in this prospectus], the trust will be [^] [classified as
a grantor trust for ]federal income tax purposes [^]. Accordingly, for United
States federal income tax purposes, if you, as a U.S. Holder, purchase a
preferred security you will be considered the owner of an undivided interest in
the junior subordinated debentures owned by the trust, and you will be required
to
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include all income or gain recognized for United States federal income tax
purposes with respect to your share of the junior subordinated debentures on
your income tax return.
Characterization of the Junior Subordinated Debentures. We intend to
take the position that, under current law, the junior subordinated debentures
are our debt for United States federal income tax purposes. We, along with the
trust and you (by acceptance of a beneficial interest in a preferred security)
agree to treat the junior subordinated debentures as debt of First Star Bancorp
and the preferred securities as evidence of a beneficial ownership interest in
the trust. We cannot assure you, however, that our position will not be
challenged by the IRS or, if challenged, that a challenge will not be
successful. [In connection with the issuance of the junior subordinated
debentures,] Tax Counsel [^] [is of the] opinion [^] [that, under current law,
based upon our representations, and the facts and assumptions set forth in this
prospectus,] the junior subordinated debentures will be classified as [^]
[indebtedness for United States] federal income tax purposes. The remainder of
this discussion assumes that the junior subordinated debentures will be
classified as our debt for United States federal income tax purposes.
Interest Income and Original Issue Discount. Under the terms of the
junior subordinated debentures, we have the ability to defer payments of
interest from time to time by extending the interest payment period for a period
not exceeding 20 consecutive quarterly periods, but not beyond the maturity of
the junior subordinated debentures. Treasury Regulations provide that debt
instruments like the junior subordinated debentures will not be considered
issued with original issue discount ("OID") even if their issuer can defer
payments of interest if the likelihood of any deferral is "remote."
We have concluded, and this discussion assumes, that, as of the date of
this prospectus, the likelihood of our deferring payments of interest is
"remote" within the meaning of the applicable Treasury regulations. Our
conclusion is based in part on the fact that exercising that option would
prevent us from declaring dividends on our preferred and common stock and would
prevent us from making any payments with respect to debt securities that rank
equally with or junior to the junior subordinated debentures. Therefore, the
junior subordinated debentures should not be treated as issued with OID by
reason of our deferral option. Rather, you will be taxed on stated interest on
the junior subordinated debentures when it is paid or accrued in accordance with
your method of accounting for income tax purposes. [^] [In connection with the
issuance of the junior subordinated debentures,] Tax Counsel [^] [is of the]
opinion [^] [that, under current law, based upon our representations, and the
facts and assumptions set forth in this prospectus,] the junior subordinated
debentures will [not] be [^] issued with OID. [^] [However, the relevant United
States Treasury regulations regarding OID have not yet been addressed in any
rulings or other interpretations by the IRS, and] it is possible that the IRS
could take a [contrary] position [^] to our interpretation [of the Treasury
regulations. If the IRS were to assert successfully that the stated interest on
the junior subordinated debentures was OID regardless of whether we exercise our
option to defer payments of interest on such debentures, all holders of
preferred securities would be required to include such stated interest in income
on a daily economic accrual basis as] described [^] [below].
If we exercise our option to defer payments of interest, the junior
subordinated debentures would be treated as redeemed and reissued for OID
purposes. The sum of the remaining interest payments (and any insignificant OID)
on the junior subordinated debentures would thereafter be treated as OID. The
OID would accrue, and be includible in your taxable income, on an economic
accrual basis (regardless of your method of accounting for income tax purposes)
over the remaining term of the junior subordinated
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debentures (including any period of interest deferral), without regard to the
timing of payments under the junior subordinated debentures. Subsequent
distributions of interest on the junior subordinated debentures generally would
not be taxable. The amount of OID that would accrue in any period would
generally equal the amount of interest that accrued on the junior subordinated
debentures in that period at the stated interest rate. Consequently, during any
period of interest deferral, you will include OID in gross income in advance of
the receipt of cash, and if you dispose of a preferred security prior to the
record date for payment of distributions on the junior subordinated debentures
following that period, you will be subject to income tax on OID accrued through
the date of disposition (and not previously included in income), but you will
not receive cash from the trust with respect to the OID.
Characterization of Income. Because the income underlying the preferred
securities will not be characterized as dividends for income tax purposes, if
you are a corporate holder of the preferred securities you will not be entitled
to a dividends-received deduction for any income you recognize with respect to
the preferred securities.
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of
the Trust. Under certain circumstances described above (See "Description of the
Preferred Securities -- Liquidation Distribution Upon Dissolution"), the trust
may distribute the junior subordinated debentures to you in exchange for your
preferred securities and in liquidation of the trust. Except as discussed below,
such a distribution would not be a taxable event for United States federal
income tax purposes, and you would have an aggregate adjusted basis in the
junior subordinated debentures you receive for United States federal income tax
purposes equal to your aggregate adjusted basis in your preferred securities.
For United States federal income tax purposes, your holding period in the junior
subordinated debentures you receive in such a liquidation of the trust would
include the period during which you held the preferred securities. If, however,
the relevant event is a Tax Event that results in the trust being treated as an
association taxable as a corporation, the distribution would likely constitute a
taxable event to you for United States federal income tax purposes.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), we may redeem junior subordinated debentures for cash
and distribute the proceeds of such redemption to you in redemption of your
preferred securities. Such a redemption would be taxable for United States
federal income tax purposes, and you would recognize gain or loss as if you had
sold the preferred securities for cash. See "-- Sales of Preferred Securities"
below.
Sales of Preferred Securities. If you sell preferred securities, you
will generally recognize gain or loss equal to the difference between your
adjusted basis in the preferred securities and the amount realized on the sale
of such preferred securities. Your adjusted basis in the preferred securities
generally will be the initial purchase price, increased by OID previously
included (or currently includible) in your gross income to the date of
disposition, and decreased by payments received on the preferred securities
(other than any interest received with respect to the period prior to the
effective date we first exercise our option to defer payments of interest). Any
such gain or loss generally will be capital gain or loss, and generally will be
a long-term capital gain or loss if you have held the preferred securities as a
capital asset for more than one year prior to the date of disposition.
If you dispose of your preferred securities between record dates for
payments of distributions thereon, you will be required to include accrued but
unpaid interest (or OID) on the junior subordinated
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debentures through the date of disposition in your taxable income for United
States federal income tax purposes (notwithstanding that you may receive a
separate payment from the purchaser with respect to accrued interest). You may
deduct that amount from the sales proceeds received (including the separate
payment, if any, with respect to accrued interest) for the preferred securities
(or as to OID only, to add such amount to your adjusted tax basis in the
preferred securities). To the extent the selling price is less than your
adjusted tax basis (which will include accrued but unpaid OID if any), you will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes.
Tax Litigation Regarding the Preferred Securities
In 1998, Enron Corp. filed a petition in the United States Tax Court
contesting the IRS's disallowance of interest deductions that Enron Corp.
claimed in respect of securities issued in 1993 and 1994 that are, in some
respects, similar to the preferred securities. (Enron Corp. v. Commissioner,
Docket No. 6149-98, filed April 1, 1998). The Enron Corp. case was settled on
October 1, 1999. The settlement allowed Enron Corp.'s interest deductions
related to the securities issued in 1993 and 1994. The Enron Corp. settlement
may not be relied upon by any other taxpayers and as a result the IRS may still
choose to disallow interest deductions related to the preferred securities. An
IRS disallowance of interest deductions related to the preferred securities may
cause a Tax Event, which would give us the right to redeem the junior
subordinated debentures. See "Description of Junior Subordinated Debentures --
Redemption" and "Description of Preferred Securities -- Liquidation Distribution
Upon Dissolution."
Non-U.S. Holders
The following discussion applies to you if you are not a U.S. Holder as
described above.
Payments to you, as a non-U.S. Holder, on a preferred security will
generally not be subject to withholding of income tax, provided that:
o you did not (directly or indirectly, actually or constructively)
own 10% or more of the total combined voting power of all classes
of our stock entitled to vote;
o you are not a controlled foreign corporation that is related to
us through stock ownership; and
o either (a) you certify to the trust or its agent under penalties
of perjury, that you are not a U.S. Holder and provide your name
and address, or (b) a securities clearing organization, bank or
other financial institution that holds customers' securities in
the ordinary course of its trade or business, and holds the
preferred security in such capacity, certifies to the trust or
its agent, under penalties of perjury, that it requires and has
received such a statement from you or another financial
institution between it and you in the chain of ownership, and
furnishes the trust or its agent with a copy of the statement.
As discussed above, it is possible that changes in the law affecting
the federal income tax consequences of the junior subordinated debentures could
adversely affect our ability to deduct interest payable on the junior
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subordinated debentures. Changes in the law could also cause the junior
subordinated debentures to be classified as our equity (rather than our debt)
for United States federal income tax purposes. This might cause the income
derived from the junior subordinated debentures to be characterized as
dividends, generally subject to a 30% income tax (on a withholding basis) when
paid to you if you are not a U.S. Holder, rather than as interest which, as
discussed above, generally is exempt from income tax in the hands of a person
who is not a U.S. Holder. However, according to new Treasury Regulations that
become effective January 1, 2001, the 30% income tax withholding may not be
required if certain requirements are met.
A non-U.S. Holder will generally not be subject to withholding of
income tax on any gain realized upon the sale or other disposition of a
preferred security.
If you hold the preferred securities in connection with the active
conduct of a United States trade or business, you will generally be subject to
income tax on all income and gains recognized with respect to your proportionate
share of the junior subordinated debentures.
Information Reporting
In general, information reporting requirements will apply to payments
made on, and proceeds from the sale of, the preferred securities held by a
noncorporate U.S. Holder within the United States. In addition, payments made
on, and payments of the proceeds from the sale of, the preferred securities to
or through the United States office of a broker are subject to information
reporting unless you certify as to your non-U.S. Holder status or otherwise
establish an exemption from information reporting and backup withholding. See
"--Backup Withholding." Taxable income on the preferred securities for a
calendar year should be reported to U.S. Holders on the appropriate forms by the
following January 31st.
Backup Withholding
Payments made on, and proceeds from the sale of, the preferred
securities may be subject to a "backup" withholding tax of 31% unless you comply
with certain identification or exemption requirements. Any amounts withheld will
generally be allowed as a credit against your income tax liability, or refunded,
provided the required information is provided to the IRS.
The preceding discussion [^] does not address the consequences to [^]
[any specific] person of the purchase, ownership and disposition of the
preferred securities. You must contact your own tax advisor to determine your
particular tax consequences.
ERISA CONSIDERATIONS
With respect to individual retirement accounts ("IRAs") and employee
benefit plans that are subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), we may be considered a "party in interest" within
the meaning of ERISA or a "disqualified person" within the meaning of Section
4975 of the Code. If we are considered to be a party in interest or a
disqualified person, an employee benefit plan or IRA that purchases the
preferred securities could be subject to excise taxes and, in the case of an
IRA, could be disqualified. Any pension or other employee benefit plan,
fiduciary or IRA holder that wishes to purchase the preferred securities should
consult with legal counsel.
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UNDERWRITING
[Hopper Soliday proposes to offer the preferred securities to institutional
investors at the public offering price of $10.00 per preferred security. Hopper
Soliday may offer the preferred securities to selected dealers at the public
offering price less a concession of up to $0.___ per preferred security. These
dealers may reallow a discount not in excess of $0.__ per preferred security to
other brokers and dealers. After the initial offering of the preferred
securities, Hopper Soliday may change the offering price, concession, discount
and other selling terms.]
Payment Method
The subscription price for the preferred securities, equal to $10.00
per preferred security, must be paid by wire transfer or by check payable to
"First Star Capital Trust" upon execution of the Subscription Agreement. Wire
transfer instructions are set forth in the Subscription Agreement[, included
with this prospectus].
Termination of the Offering
The trust is offering, pursuant to the terms of the [^] [agency
agreement], preferred securities up to an aggregate liquidation amount of
$12,000,000. This offering is not contingent upon the sale of a minimum amount
of preferred securities. Hopper Soliday, as placement agent, is acting as the
trust's agent in placing the preferred securities on a best-efforts basis. The
offering will terminate on the earlier of (i) the acceptance by us of
subscriptions for the preferred securities, which acceptance may be for less
than the full $12,000,000 of preferred securities offered, or (ii) , 1999 or
such later date on or before [^][____________ __], 1999 to which we and the
trust may extend the offering without further notice to the investors. We may
also terminate the offering at any time in our discretion without accepting any
subscriptions. Upon the sale of the securities offered hereby, proceeds will be
released to the trust and preferred securities will be issued to investors.
Closing Procedure
Two business days prior to the termination date of the offering, a
notice of termination date will be transmitted to each subscriber via facsimile.
Payment for the preferred securities must be received by the escrow agent by
2:00 P.M., E.S.T. on the business day prior to the termination date.
Confirmation of receipt of payment will be transmitted promptly via facsimile to
each subscriber. The termination date will also be considered the issuance date
of the preferred securities and interest on the preferred securities will start
accruing on such date.
Escrow Arrangement
Pending any closing [of the offering], all funds relating to
subscriptions for preferred securities will [^] placed in an escrow account with
Bankers Trust, as escrow agent. Upon issuance of the preferred securities, [^]
[these funds (excluding] interest on [^] [these] funds[,] as described below)
will be transferred to the trust.
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[^] [Funds] held in escrow will be [^] deposited [by Bankers Trust] in
money market accounts[^][. Upon issuance of the preferred securities, the
earnings], if any, generated on [^] [those funds ]will be distributed to such
investors on a pro rata basis according to the respective number of days between
the [^] [date] of deposit of their payments into escrow and the [^] [date of
issuance of the preferred securities. Funds received by Bankers Trust after 2:00
P.M., E.S.T. on any business day will not earn interest for that day. If an
investor's subscription is not accepted or if the offering is not consummated
for any reason, any funds held in escrow will be returned to investors and the]
earnings, if any, [^] generated on funds [^] [returned to investors] will be
distributed to [^] [such investors on a pro rata basis according to the
respective number of days between the date of deposit of their payments into
escrow and the date of return of such payments.]
Compensation of Placement Agent
In view of the fact that proceeds from the sale of the preferred
securities will be used by the trust to purchase subordinated debentures issued
by us, we will pay sales commissions to Hopper Soliday, as placement agent equal
to 3.5% of the offering price of all preferred securities sold in the offering
(equal to $0.35 per preferred security) or $420,000 in the aggregate if all
$12,000,000 of preferred securities offered hereby are sold. We have also agreed
to pay a financial advisory fee of $25,000 [upon completion of the offering] to
Hopper Soliday as compensation for the cost of due diligence and pricing advice.
Relationship with the Placement Agent
Pursuant to an [^] [agency agreement] among us, the trust and Hopper
Soliday, as placement agent, we and the trust have agreed to indemnify Hopper
Soliday against certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
Hopper Soliday may in the future perform various services for us,
including investment banking services, for which it may receive customary fees.
LEGAL AND TAX MATTERS
The validity of the Guarantee and the Junior Subordinated Debentures
[^] will be passed upon by Malizia Spidi & Fisch, PC, Washington, D.C., counsel
to First Star Bancorp[^][, which will also issue the tax opinion. The validity
of the agency agreement will be passed upon] for Hopper Soliday, a division of
Tucker Anthony Incorporated, [^] by Stevens & Lee, PC, Reading, Pennsylvania.
The validity of the preferred securities, the enforceability of the trust
agreement and the creation of the trust, as each of these issues relates to
Delaware law, will be passed upon by Richards, Layton & Finger, P.A.,Wilmington,
Delaware, special Delaware counsel to First Star Bancorp and the trust. Malizia
Spidi & Fisch, PC and Stevens & Lee, PC will rely on the opinion of Richards,
Layton & Finger as to those matters of Delaware law relating to the validity of
the preferred securities, the enforceability of the trust agreement and the
creation of trust.
112
<PAGE>
EXPERTS
The consolidated financial statements of First Star Bancorp, Inc. and
subsidiaries as of June 30, 1999 and 1998 and for each of the three years in the
period ended June 30, 1999, appearing in this prospectus have been audited by
Beard & Company, Inc., independent auditors, as set forth in their report
thereon which appears elsewhere, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
CHANGE IN INDEPENDENT AUDITORS
On March 23, 1999, our Board of Directors unanimously determined that
it would discontinue the engagement of Deloitte & Touche, LLP as our independent
auditors and determined that we would engage Beard & Company, Inc., Certified
Public Accountants, Allentown, Pennsylvania, as our auditors for the fiscal year
ending June 30, 1999. Beard & Company, Inc. was also engaged to audit our
financial statements for the fiscal years ended June 30, 1998 and 1997.
For the fiscal years ended June 30, 1998 and 1997 through March 23,
1999, there were no disagreements or reportable events with Deloitte & Touche,
LLP as to any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. The report of Deloitte & Touche, LLP
on the financial statements for the fiscal years ended June 30, 1998 and 1997,
the last two fiscal years audited by Deloitte & Touche, LLP, did not contain an
adverse opinion or disclaimer and was not modified as to uncertainty, audit
scope or accounting principles. We have been advised by Deloitte & Touche, LLP
that they have withdrawn their reports on our 1998 and 1997 financial
statements.
REPORTS OF FIRST STAR BANCORP, INC.
We intend to file with the SEC annual reports containing our audited
consolidated financial statements and quarterly reports fo rthe first three
quarters of each fiscal year containing unaudited financial information. We will
make copies of these reports available to any holder of the preferred securities
who makes an oral or written request for such reports to the Secretary of First
Star Bancorp at our executive office. Prior to this offering, we have not been a
reporting company with the SEC.
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under
the Securities Act of 1933, as amended, with respect to the preferred securities
offered in this document. As permitted by the rules and regulations of the SEC,
this document does not contain all the information set forth in the registration
statement. Such information can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such material can be obtained from the SEC at
prescribed rates. The address for this Web site is "http://www.sec.gov". The
statements contained in this document as to the contents of any contract or
other document filed as an exhibit to the Form S-1 are, of necessity, brief
descriptions and are not necessarily complete; each such statement is qualified
by reference to such contract or document.
113
<PAGE>
A copy of the articles and bylaws of each of First Star Bancorp and
First Star Savings may be obtained promptly and without charge from First Star
Savings by contacting Ruth Doncsecz, Secretary, First Star Bancorp, Inc., 418
West Broad Street, Bethlehem, Pennsylvania 18018 at (610) 691-2333.
114
<PAGE>
First Star Bancorp, Inc.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Page
Independent Auditor's Report ......................................................... F-1
Consolidated Balance Sheets as of June 30, 1999 and 1998 ............................. F-2
Consolidated Statements of Income for the Years Ended June 30, 1999 , 1998 and 1997... F-3
Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 1999, 1998 and 1997 ....................................... F-4
Consolidated Statements of Cash Flows for the Years Ended June 30, 1999,
1998 and 1997 ............................................................ F-5
Notes to Consolidated Financial Statements ........................................... F-7
Unaudited Consolidated Balance Sheets as of September 30, 1999 and June 30, 1999 ..... S-1
UnauditedConsolidated Statements of Income for the Three Months Ended September
30, 1999 and 1998 ........................................................... S-2
Unaudited Consolidated Statements of Stockholders' Equity for the
Three Months Ended September 30, 1999 and 1998 .............................. S-3
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1999 and 1998 .............................. S-4
Notes to Unaudited Consolidated Financial Statements ................................. S-7
</TABLE>
All schedules are omitted because the required information is either not
applicable or is included in the consolidated financial statements or related
notes.
115
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Trustees
First Star Bancorp, Inc.
Bethlehem, Pennsylvania
We have audited the accompanying consolidated balance sheets of
First Star Bancorp, Inc. and its subsidiaries as of June 30, 1999 and 1998, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of First
Star Bancorp, Inc. and its subsidiaries as of June 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1999 in conformity with generally accepted accounting
principles.
/s/BEARD & COMPANY, INC.
Allentown, Pennsylvania
November 12, 1999
F-1
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
June 30, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Share Data)
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,352 $ 1,222
Interest-bearing demand deposits 1,726 858
------------------------------------
Cash and cash equivalents 3,078 2,080
Securities available for sale 160,438 123,759
Loans receivable, net of allowance for loan losses
1999 $ 1,772; 1998 $ 1,489 184,264 176,386
Bank premises and equipment, net 599 687
Foreclosed real estate 969 1,129
Accrued interest receivable 2,567 2,404
Federal Home Loan Bank stock, at cost 7,935 7,378
Deferred income taxes 1,625 23
Cash surrender value of life insurance 1,710 1,583
Prepaid expenses and other assets 521 373
------------------------------------
Total assets $ 363,706 $ 315,802
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 190,148 $ 145,096
Advances from Federal Home Loan Bank 146,180 144,485
Convertible subordinated debentures 5,480 5,480
Other borrowed funds 594 647
Advances by borrowers for taxes and insurance 3,418 3,168
Accrued interest payable 801 785
Accrued expenses and other liabilities 1,609 1,028
------------------------------------
Total liabilities 348,230 300,689
------------------------------------
Stockholders' equity:
Convertible preferred stock, no par value; authorized 2,500,000
shares; issued and outstanding 43,592 shares - -
Common stock, par value $ 1 per share; authorized 10,000,000
shares; issued and outstanding 1999 375,404 shares; 1998
372,084 shares 375 372
Surplus 8,465 8,451
Retained earnings 8,300 5,777
Employee Stock Ownership Plan debt (200) (300)
Accumulated other comprehensive income (loss) (1,464) 813
------------------------------------
Total stockholders' equity 15,476 15,113
------------------------------------
Total liabilities and stockholders' equity $ 363,706 $ 315,802
====================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Years Ended June 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Interest income:
Loans receivable, including fees $ 14,358 $ 13,234 $ 11,852
Securities 10,535 7,881 4,180
Other 171 125 161
-----------------------------------------------------
Total interest income 25,064 21,240 16,193
-----------------------------------------------------
Interest expense:
Deposits 8,442 6,638 5,469
Borrowings 8,892 7,935 4,920
Other 46 37 17
-----------------------------------------------------
Total interest expense 17,380 14,610 10,406
-----------------------------------------------------
Net interest income 7,684 6,630 5,787
Provision for loan losses 423 385 220
-----------------------------------------------------
Net interest income after provision for loan losses 7,261 6,245 5,567
-----------------------------------------------------
Other income:
Service fees 316 285 226
Realized gain on sale of:
Securities 156 1,151 283
Foreclosed real estate 77 101 73
Other 247 223 138
-----------------------------------------------------
Total other income 796 1,760 720
-----------------------------------------------------
Other expenses:
Salaries and employee benefits 2,202 1,865 1,589
Occupancy and equipment 424 470 406
Federal deposit insurance premium 89 78 107
SAIF assessment - - 745
Data processing costs 173 144 113
Professional fees 204 216 212
Terminated merger costs 111 - -
Advertising 103 121 138
Other 668 688 726
-----------------------------------------------------
Total other expenses 3,974 3,582 4,036
-----------------------------------------------------
Income before income taxes 4,083 4,423 2,251
Income taxes 1,517 1,607 742
-----------------------------------------------------
Net income 2,566 2,816 1,509
Dividends on preferred stock (43) (45) (44)
-----------------------------------------------------
Net income applicable to common stockholders $ 2,523 $ 2,771 $ 1,465
=====================================================
Basic earnings per share $ 6.90 $ 7.68 $ 4.00
=====================================================
Diluted earnings per share $ 3.76 $ 4.15 $ 2.53
=====================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended June 30, 1999, 1998 and 1997 (In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Employee Accumulated
Stock Other
Preferred Common Retained Ownership Comprehensive
Stock Stock Surplus Earnings Plan Debt Income (Loss) Total
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1996 $ - $ 258 $ 3,061 $ 7,117 $ - $ 134 $ 10,570
-------------
Comprehensive income:
Net income - - - 1,509 - - 1,509
Change in net unrealized
gains (losses) on
securities available
for sale - - - - - 421 421
-------------
Total comprehensive
income 1,930
-------------
Issuance of ESOP debt - - - - (400) - (400)
Cash dividends paid:
Preferred stock - - - (44) - - (44)
Common stock - - - (41) - - (41)
----------------------------------------------------------------------------------------------------
Balance, June 30, 1997 - 258 3,061 8,541 (400) 555 12,015
-------------
Comprehensive income:
Net income - - - 2,816 - - 2,816
Change in net unrealized
gains (losses) on
securities available
for sale - - - - - 258 258
-------------
Total comprehensive
income 3,074
-------------
Stock dividends - 114 5,390 (5,504) - - -
Repayment of ESOP debt - - - - 100 - 100
Cash dividends paid:
Preferred stock - - - (45) - - (45)
Common stock - - - (31) - - (31)
----------------------------------------------------------------------------------------------------
Balance, June 30, 1998 - 372 8,451 5,777 (300) 813 15,113
-------------
Comprehensive income:
Net income - - - 2,566 - - 2,566
Change in net unrealized
gains (losses) on
securities available
for sale - - - - - (2,277) (2,277)
-------------
Total comprehensive
income 289
-------------
Exercise of stock options - 3 14 - - - 17
Repayment of ESOP debt - - - - 100 - 100
Cash dividends paid on
preferred stock - - - (43) - - (43)
----------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $ - $ 375 $ 8,465 $ 8,300 $ (200) $ (1,464) $ 15,476
====================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Years Ended June 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,566 $ 2,816 $ 1,509
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 423 385 220
Provision for depreciation and amortization 130 110 152
Net gain on foreclosed real estate (77) (101) (73)
Net realized gains on sales of securities (156) (1,151) (283)
Net accretion of securities premiums and discounts (865) (696) (122)
Deferred income taxes (189) 35 (35)
Change in assets and liabilities:
(Increase) decrease in:
Accrued interest receivable (163) 272 (1,256)
Prepaid expenses and other assets (148) (122) 145
Increase in:
Accrued expenses and other liabilities 581 68 (21)
Accrued interest payable 16 125 387
--------------------------------------------------
Net cash provided by operating activities 2,118 1,741 623
--------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale (84,872) (84,680) (101,538)
Proceeds from sale of securities available for sale 12,034 37,271 15,517
Proceeds from maturities of and principal repayments on
securities available for sale 37,518 36,204 8,466
Net increase in Federal Home Loan Bank stock (557) (408) (4,441)
Proceeds from the sale of foreclosed real estate 942 1,236 2,017
Net (increase) in loans (13,034) (34,758) (7,263)
Purchases of bank premises and equipment (42) (69) (229)
(Increase) decrease in cash surrender value of life insurance
policies (127) 197 (143)
--------------------------------------------------
Net cash used in investing activities (48,138) (45,007) (87,614)
--------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 45,052 26,434 4,396
Issuance of ESOP debt - - (400)
Repayment of ESOP debt 100 100 -
Proceeds from Federal Home Loan Bank advances 63,654 159,788 313,893
Repayment of Federal Home Loan Bank advances (61,959) (144,703) (235,065)
Proceeds from the issuance subordinated debentures - - 4,000
Repayment of other borrowed money (53) (25) (82)
Increase in advances from borrowers for taxes and insurance 250 518 (36)
Proceeds from the exercise of stock options 17 - -
Dividends paid (43) (76) (85)
--------------------------------------------------
Net cash provided by financing activities 47,018 42,036 86,621
--------------------------------------------------
Net increase (decrease) in cash and cash equivalents 998 (1,230) (370)
Cash and cash equivalents:
Beginning 2,080 3,310 3,680
--------------------------------------------------
Ending $ 3,078 $ 2,080 $ 3,310
==================================================
</TABLE>
F-5
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Years Ended June 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest on deposits, advances and other borrowed money $ 17,364 $ 14,485 $ 10,019
==============================================
Income taxes $ 1,079 $ 1,721 $ 653
==============================================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Loans swapped for mortgage-backed securities $ 4,028 $ 7,034 $ -
==============================================
Transfer of loans to foreclosed real estate $ 705 $ 1,497 $ 2,452
==============================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES
Nature of operations:
First Star Bancorp, Inc. (the "Company") is the parent holding
company and sole stockholder of First Star Savings Bank (the
"Bank"). The Bank is a Pennsylvania chartered stock savings bank
which provides lending and depository services to the Lehigh
Valley through its six branch locations (Bethlehem, Bath, Palmer,
Nazareth, Allentown and Alburtis). The Bank is supervised and
regulated by the Pennsylvania Department of Banking and the
Federal Deposit Insurance Corporation ("FDIC"). The Bank's
deposits are insured by the FDIC.
Principles of consolidation:
The consolidated financial statements of the Company include the
accounts of the Bank and Integrated Financial Corporation,
wholly-owned subsidiaries of the Company, and Integrated Abstract
Incorporated, a wholly-owned subsidiary of Integrated Financial
Corporation. All intercompany transactions and balances have been
eliminated in consolidation.
Estimates:
The preparation of consolidated 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 the disclosure of contingent assets
and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Presentation of cash flows:
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and interest bearing
demand deposits.
Securities:
Securities classified as available for sale are those securities
that the Company intends to hold for an indefinite period of time
but not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various
factors, including significant movement in interest rates, changes
in maturity mix of the Company's assets and liabilities, liquidity
needs, regulatory capital considerations and other similar
factors. Securities available for sale are carried at fair value.
Unrealized gains or losses are reported as increases or decreases
in other comprehensive income, net of the related deferred tax
effect. Realized gains or losses, determined on the basis of the
cost of the specific securities sold, are included in earnings.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
F-7
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities (continued):
Management determines the appropriate classification of debt
securities at the time of purchase and re-evaluates such
designation as of each balance sheet date.
Federal law requires a member institution of the Federal Home Loan
Bank System to hold stock of its district Federal Home Loan Bank
according to a predetermined formula. The stock is carried at
cost.
Loans receivable:
Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or payoff are
stated at their outstanding unpaid principal balances, net of an
allowance for loan losses and any deferred fees. Interest income
is accrued on the unpaid principal balance. Loan origination fees
are deferred and recognized as an adjustment of the yield
(interest income) of the related loans. The Company is generally
amortizing these amounts over the contractual life of the loan.
A loan is generally considered impaired when it is probable the
Company will be unable to collect all contractual principal and
interest payments due in accordance with the terms of the loan
agreement. Loans which are deemed to be impaired are reported at
the present value of expected future cash flows using the loans
effective interest rate, or as a practical expedient, at the fair
value of the collateral if the loan is collateral dependent.
The accrual of interest is generally discontinued when the
contractual payment of principal or interest has become 90 days
past due or management has serious doubts about further
collectibility of principal or interest, even though the loan is
currently performing. A loan may remain on accrual status if it is
in the process of collection and is either guaranteed or well
secured. When a loan is placed on nonaccrual status, unpaid
interest credited to income in the current year is reversed and
unpaid interest accrued in prior years is charged against the
allowance for loan losses. Interest received on nonaccrual loans
generally is either applied against principal or reported as
interest income, according to management's judgment as to the
collectibility of principal. Generally, loans are restored to
accrual status when the obligation is brought current, has
performed in accordance with the contractual terms for a
reasonable period of time and the ultimate collectibility of the
total contractual principal and interest is no longer in doubt.
F-8
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allowance for loan losses:
The allowance for loan losses is established through provisions
for loan losses charged against income. Loans deemed to be
uncollectible are charged against the allowance for loan losses,
and subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is maintained at a level considered
adequate to provide for losses that can be reasonably anticipated.
Management's periodic evaluation of the adequacy of the allowance
is based on the Company's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may
affect the borrower's ability to repay, the estimated value of any
underlying collateral, composition of the loan portfolio, current
economic conditions and other relevant factors. This evaluation is
inherently subjective as it requires material estimates that may
be susceptible to significant change.
Bank premises and equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line method
over the assets' estimated useful lives.
Cash surrender value of life insurance:
The Bank is the beneficiary of insurance policies on the lives of
certain officers of the Bank.
Foreclosed real estate:
Foreclosed real estate is comprised of property acquired through a
foreclosure proceeding or acceptance of a deed-in-lieu of
foreclosure. Foreclosed assets initially are recorded at fair
value, net of estimated selling costs, at the date of foreclosure,
establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the assets are carried at
the lower of cost or fair value minus estimated costs to sell.
Revenues and expenses from operations and changes in the valuation
allowance are included in other expenses.
Advertising costs:
The Company follows the policy of charging the costs of
advertising to expense as incurred.
F-9
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes:
Deferred income taxes are provided on the liability method whereby
deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities
and their tax basis. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more
likely than not that some portion of the deferred tax assets will
not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
enactment.
Off-balance sheet financial instruments:
In the ordinary course of business, the Company has entered into
off-balance sheet financial instruments consisting of commitments
to extend credit and letters of credit. Such financial instruments
are recorded in the balance sheet when they are funded.
Earnings per common share:
Basic earnings per share represents income available to common
stockholders divided by the weighted-average number of common
shares outstanding during the period, excluding unearned ESOP
shares. Diluted earnings per share reflects additional common
shares that would have been outstanding if dilutive potential
common shares had been issued, as well as any adjustment to income
that would result from the assumed issuance. Potential common
shares that may be issued by the Company relate to convertible
subordinated debentures, convertible preferred stock and
outstanding stock options. Potential common shares that may be
issued related to stock options are determined using the treasury
stock method. Per share amounts have been adjusted to give
retroactive effect to stock dividends declared in the year ended
June 30, 1998.
Segment reporting:
The Company acts as an independent community financial services
provider, and offers traditional banking and related financial
services to individual, business and government customers. Through
its branch and automated teller machine network, the Bank offers a
full array of commercial and retail financial services, including
the taking of time, savings and demand deposits; the making of
commercial, consumer and mortgage loans; and the providing of
other financial services.
Management does not separately allocate expenses, including the
cost of funding loan demand, between the commercial and retail
operations of the Company. As such, discrete financial information
is not available and segment reporting would not be meaningful.
Reclassifications:
Certain amounts in prior period financial statements have been
reclassified to conform with the presentation used in the 1999
financial statements. These reclassifications had no effect on net
income.
F-10
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New accounting standard:
The Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging
Activities", in June 1998. The Company is required to adopt the
Statement on July 1, 2001, as amended by Statement No. 137. The
adoption of the Statement is not expected to have a significant
impact on the financial condition or results of operations of the
Company.
2
- --------------------------------------------------------------------------------
SECURITIES
The amortized cost and approximate fair value of securities available
for sale as of June 30, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities:
June 30, 1999:
U.S. Government
corporations and
agencies securities $ 5,530 $ 17 $ (197) $ 5,350
State and municipal
securities 936 - (12) 924
Mortgage-backed securities 81,816 440 (1,039) 81,217
Corporate securities 27,345 81 (974) 26,452
Trust preferred securities 42,075 172 (978) 41,269
Marketable equity securities 5,217 138 (129) 5,226
-----------------------------------------------------------------
$ 162,919 $ 848 $ (3,329) $ 160,438
=================================================================
</TABLE>
F-11
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
- --------------------------------------------------------------------------------
SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities:
June 30, 1998:
U.S. Government
corporations and
agencies securities $ 15,710 $ 137 $ (84) $ 15,763
State and municipal
securities 15 - - 15
Mortgage-backed securities 75,067 980 (12) 76,035
Corporate securities 10,427 161 (224) 10,364
Trust preferred securities 19,826 - - 19,826
Marketable equity securities 1,505 251 - 1,756
-----------------------------------------------------------------
$ 122,550 $ 1,529 $ (320) $ 123,759
=================================================================
</TABLE>
The amortized cost and fair value of securities as of June 30, 1999, by
contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because the securities may be called or
prepaid with or without any penalties.
<TABLE>
<CAPTION>
Available For Sale
----------------------------------
Amortized Fair
Cost Value
----------------------------------
(In Thousands)
<S> <C> <C>
Due in one year or less $ 2,368 $ 2,365
Due after one year through five years 16,049 15,464
Due after five years through ten years 11,196 10,839
Due after ten years 46,273 45,327
----------------------------------
75,886 73,995
Mortgage-backed securities 81,816 81,217
Marketable equity securities 5,217 5,226
----------------------------------
$ 162,919 $ 160,438
==================================
</TABLE>
F-12
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
- --------------------------------------------------------------------------------
SECURITIES (CONTINUED)
Gross gains of $ 156,000 and gross losses of $ -0- were realized on
sales of securities in the year ended June 30, 1999. Gross gains of $
1,151,000 and gross losses of $ -0- were realized on sales of
securities in the year ended June 30, 1998. Gross gains of $ 283,000
and gross losses of $ -0- were realized on sales of securities in the
year ended June 30, 1997.
Securities with a carrying value of $ 33,633,000 at June 30, 1999
were pledged to secure advances from the Federal Home Loan Bank.
3
- --------------------------------------------------------------------------------
LOANS RECEIVABLE
The composition of net loans receivable at June 30, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------
(In Thousands)
<S> <C> <C>
First mortgage residential loans $ 153,089 $ 149,286
Construction loans 800 110
Commercial leases purchased 813 1,496
Consumer loans 656 728
Home equity loans 7,059 7,905
Automobile loans 301 329
Commercial real estate loans 25,344 19,360
------------------------------------
Total loans 188,062 179,214
------------------------------------
Less:
Loans in process (605) (66)
Unearned net loan fees and origination costs (1,421) (1,273)
Allowance for loan losses (1,772) (1,489)
------------------------------------
(3,798) (2,828)
------------------------------------
Net loans $ 184,264 $ 176,386
====================================
</TABLE>
F-13
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
- --------------------------------------------------------------------------------
LOANS RECEIVABLE (CONTINUED)
The following table presents changes in the allowance for loan losses
for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Balance, beginning $ 1,489 $ 1,156 $ 1,014
Provision for loan losses 423 385 220
Charge-offs (143) (57) (82)
Recoveries 3 5 4
-----------------------------------------------
Balance, ending $ 1,772 $ 1,489 $ 1,156
===============================================
</TABLE>
At June 30, 1999, 1998 and 1997, as a result of loan sales and swaps,
the Bank was servicing loans for others amounting to approximately $
31,584,000, $ 33,802,000 and $ 33,974,000, respectively. Servicing
loans for others generally consists of collecting mortgage payments,
maintaining escrow accounts, disbursing payments to investors and
foreclosure processing. Loan servicing income is recorded on the
accrual basis and includes servicing fees from investors and certain
charges collected from borrowers, such as late payment fees. Custodial
escrow balances maintained in connection with the foregoing loan
servicing and included in advances by borrowers for taxes and insurance
were approximately $ 578,000 and $ 602,000 at June 30, 1999 and 1998,
respectively.
Nonperforming loans (which include loans in excess of 90 days
delinquent) at June 30, 1999, 1998 and 1997 amounted to approximately $
2,289,000, $ 3,415,000 and $ 4,163,000, respectively. The reserve for
delinquent interest on loans totaled $ 217,000, $ 320,000 and $ 313,000
at June 30, 1999, 1998 and 1997, respectively. Revenue that would have
been earned if nonperforming loans were accruing interest approximated
$ 116,000, $ 217,000 and $ 177,000 for the years ended June 30, 1999,
1998 and 1997, respectively. None of these loans at June 30, 1999, 1998
and 1997 are considered impaired.
F-14
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
- --------------------------------------------------------------------------------
BANK PREMISES AND EQUIPMENT
The components of bank premises and equipment at June 30, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------
(In Thousands)
<S> <C> <C>
Land and buildings $ 963 $ 961
Furniture, fixtures and equipment 1,379 1,339
Leasehold improvements 241 241
-------------------------------
2,583 2,541
Less accumulated depreciation 1,984 1,854
-------------------------------
$ 599 $ 687
===============================
</TABLE>
5
- --------------------------------------------------------------------------------
DEPOSITS
Deposits and their respective effective rate of interest at June
30, 1999 and 1998 consist of the following major classifications:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------------------------
Effective Effective
Rate Of Rate Of
Amount Percent Interest Amount Percent Interest
----------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing checking $ 1,871 1.0 % - % $ 1,524 1.0 % - %
NOW accounts 14,089 7.4 2.37 12,691 8.8 2.12
Money market accounts 19,592 10.3 4.41 15,352 10.6 4.22
Passbook and club accounts 11,566 6.1 2.73 11,468 7.9 2.72
Certificates of deposit 143,030 75.2 5.34 104,061 71.7 5.83
------------------------------- -----------------------------
Total deposits $ 190,148 100.0 % $ 145,096 100.0 %
=============================== =============================
Weighted average cost 4.81 % 5.05 %
================== ================
</TABLE>
The aggregate amount of certificates of deposit with a minimum
denomination of $ 100,000 was approximately $ 18,484,000 and $
15,840,000 at June 30, 1999 and 1998, respectively.
At June 30, 1999 and 1998, the Bank had included in certificates of
deposit approximately $ 1,318,000 and $ 689,000, respectively, in
brokered deposits.
F-15
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
- --------------------------------------------------------------------------------
DEPOSITS (CONTINUED)
The scheduled maturities of certificates of deposit for fiscal years
subsequent to June 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Amount Percent
-----------------------------------
<S> <C> <C> <C>
2000 $ 110,168 77.0 %
2001 21,818 15.3
2002 3,439 2.4
2003 - 2004 6,791 4.7
Thereafter 814 0.6
-----------------------------------
$ 143,030 100.0 %
===================================
</TABLE>
A summary of interest expense on deposits is as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
1999 1998 1997
------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
NOW $ 320 $ 311 $ 267
Money market demand 788 572 420
Passbook and club 306 283 278
Certificates of deposit 7,028 5,472 4,504
------------------------------------------------
$ 8,442 $ 6,638 $ 5,469
================================================
</TABLE>
F-16
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
- --------------------------------------------------------------------------------
OTHER BORROWED FUNDS AND LONG-TERM DEBT
Federal Home Loan Bank advances at June 30, 1999 and 1998 consist of
short-term and long-term borrowings. The following table provides
information on short-term borrowings for the years ended June 30, 1999
and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------------------
<S> <C> <C>
Average balance outstanding $ 5,367 $ 9,625
Maximum balance at end of any month 20,000 18,000
Balance outstanding at end of year 11,000 11,000
Weighted average interest rate during the year 5.58 % 5.92 %
Interest rate at end of year 5.11 % 5.91 %
</TABLE>
Long-term advances at June 30, 1999 and 1998 consist of the following
(in thousands):
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------
Maturity Amount Rate Amount Rate
------------------------------ ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0-12 months $ 7,325 5.90 % $ 16,936 5.64 %
13-24 months 6,000 5.93 7,328 5.90
25-36 months 42,500 5.79 6,000 5.93
37-48 months 45,000 5.70 42,500 5.79
49-60 months 12,000 5.19 45,000 5.68
Over 60 months 22,355 6.03 15,721 6.44
-------------------- --------------------
Total $ 135,180 5.76 % $ 133,485 5.82 %
=====================================================================
</TABLE>
Included in above are three convertible notes which total $ 42,500,000
where the Federal Home Loan Bank has the option to convert the notes at
a rate equal to the three month libor plus .03 on a quarterly basis.
Also, included is a $ 30,000,000 convertible note where the Federal
Home Loan Bank has the option to convert to a three-month libor rate
plus .03 if the three-month libor exceeds 6.5%. If converted, the Bank
may prepay these notes without penalty.
The advances are secured by qualifying assets of the Bank which
includes the Federal Home Loan Bank stock, mortgage-backed securities
and first mortgage loans. The Bank has a maximum borrowing capacity
with the Federal Home Loan Bank of approximately $ 202,200,000, of
which $ 146,180,000 was outstanding at June 30, 1999.
F-17
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
- --------------------------------------------------------------------------------
SUBORDINATED DEBENTURES
During the year ended June 30, 1992, the Bank issued $ 1,590,000 of
Adjustable-Rate Mandatorily Convertible Subordinated Debentures due in
the year 2002 (the "Debentures"). At the formation of the holding
company, the Debentures were assumed by the Company. Interest on the
Debentures is 2% over the prime rate, adjustable monthly. Interest is
payable on the Debentures on the first day of each month. The
Debentures will automatically convert into Permanent Noncumulative
Convertible Preferred Stock, Series A ("Series A Preferred Stock" (see
Note 11)) of the Company on January 1, 2002, unless previously
converted. The Debentures may be converted into Series A Preferred
Stock at any time, at the option of either the Company or the holder of
the Debenture, unless previously redeemed, at a conversion price of one
share per $ 9.864 principal amount of Debenture subject to adjustment
in certain events. During the year ended June 30, 1992, $ 110,000 of
the Debentures were converted to the Series A Preferred Stock.
The Debentures are redeemable in whole or in part, on not less than 30
days' notice at the option of the Company at par. The Debentures are
subordinated in right of payment to all present and future Senior
Indebtedness of the Company.
On December 31, 1996, the Company sold $ 4,000,000 of Adjustable-Rate
Mandatorily Convertible Subordinated Debentures due in the year 2008
(the "1996 Debentures"). Interest on the 1996 Debentures is 1% under
the prime rate, adjustable monthly. Interest is payable on the 1996
Debentures on the first day of each month. The 1996 Debentures will
automatically convert into Permanent Noncumulative Convertible
Preferred Stock, Series B ("Series B Preferred Stock") of the Company
on December 31, 2008, unless previously converted. The 1996 Debentures
may be converted into Series B Preferred Stock at any time by the
holder or after two years by the Company, unless previously redeemed,
at a conversion price of one share per $ 24.281 principal amount of
1996 Debenture subject to adjustment in certain events.
The 1996 Debentures are redeemable at par value prior to maturity by
the Company only with the proceeds from the sale of common or perpetual
preferred stock, unless otherwise approved by the Board of Governors of
the Federal Reserve System. The 1996 Debentures are subordinated in
right of payment to all present and future Senior Indebtedness of the
Company.
F-18
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
- --------------------------------------------------------------------------------
SUBORDINATED DEBENTURES (CONTINUED)
At June 30, 1999 and 1998, $ 1,480,000 of the 1992 Debentures and $
4,000,000 of the 1996 Debentures remain outstanding. Substantially all
of the subordinated debentures are held by related parties which
includes directors, executive officers, principal stockholders, their
immediate families and affiliated companies.
All debentures are includable as Tier 2 capital for determining the
Company's compliance with regulatory capital requirements (see Note
19). Upon conversion, the Debentures become Tier 1 capital.
8
- --------------------------------------------------------------------------------
OTHER BORROWED MONEY
On December 31, 1987, the Bank entered into an agreement to transfer $
2,016,000 of loans with a weighted average interest rate of 8.07% to
another institution subject to certain recourse provisions. At June 30,
1999 and 1998, these loans had outstanding balances of $ 594,000 and $
647,000, respectively. The Bank is responsible for the collection of
principal and interest payments, for which it receives a servicing fee,
and remits the net proceeds to the transferee on a monthly basis. The
Bank is contingently liable for the collection of these loans and their
collectibility has been considered in the determination of the
provision for loan losses.
9
- --------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS)
The Bank adopted SFAS No. 130, "Reporting Comprehensive Income", as of
July 1, 1998. Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income. Although
certain changes in assets and liabilities, such as unrealized gains and
losses on available for sale securities, are reported as a separate
component of the equity section of the balance sheet, such items, along
with net income, are components of comprehensive income. The adoption
of SFAS No. 130 had no effect on the Bank's net income or stockholders'
equity.
F-19
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
- --------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) (CONTINUED)
The components of other comprehensive income (loss) and related tax
effects for the years ended June 30, 1999, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Unrealized holding gains (losses) on available for
sale securities $ (3,534) $ 1,541 $ 898
Less reclassification adjustment for gains included
in net income 156 1,151 283
--------------------------------------------------
Net unrealized gains (losses) (3,690) 390 615
Tax effect (1,413) 132 194
--------------------------------------------------
Net of tax amount $ (2,277) $ 258 $ 421
==================================================
</TABLE>
10
- --------------------------------------------------------------------------------
STOCK OPTION PLANS
The Company grants options under the Employee Stock Compensation
Program (the "Program") to certain officers and key employees. The
Program has reserved 34,662 shares of common stock for options. Options
granted under the Program are exercisable for a term no longer than 10
years from the date of grant, are generally not transferable and will
terminate within a period of time following termination of employment
with the Company.
A summary of options activity, adjusted for stock dividends, for the
years ended June 30, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Exercise Price
----------------------------------------------
$ 9.47 $ 5.37 Total
----------------------------------------------
<S> <C> <C> <C>
Options outstanding, June 30, 1996, 1997 and 1998 3,744 25,146 28,890
Options exercised - (3,319) (3,319)
----------------------------------------------
Options outstanding, June 30, 1999 3,744 21,827 25,571
==============================================
</TABLE>
All options were exercisable at June 30, 1999, 1998 and 1997. The
weighted average contractual life of stock options outstanding as of
June 30, 1999 is 2.3 years. The weighted average exercise price as of
June 30, 1999 is $ 5.97.
F-20
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
- --------------------------------------------------------------------------------
ISSUANCE OF PREFERRED STOCK
In December 1989, the Company issued 32,440 shares, of Permanent
Noncumulative Preferred Stock, Series A, for $ 9.864 per share pursuant
to the restated articles of incorporation of the Company, as adjusted
for stock dividends. During the year ended June 30, 1992, an additional
11,152 shares, as adjusted for stock dividends, of Series A Preferred
Stock were issued upon the conversion of subordinated debentures. Each
share of Preferred Stock is convertible into 1 share of common stock of
the Company subject to the limitations of the Company's restated
articles of incorporation. The dividend pay rate for Series A Preferred
Stock is 2% over the prime rate adjusted monthly. The dividend pay rate
for Series B Preferred Stock is 1% under the prime rate, adjusted
monthly.
12
- --------------------------------------------------------------------------------
LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE
The Bank leases office space for certain branch offices. Future minimum
lease payments by year and in the aggregate, under noncancellable
operating leases with initial or remaining terms of one year or more,
consisted of the following at June 30, 1999 (in thousands):
2000 $ 72
2001 66
2002 48
2003 48
2004 48
Thereafter 192
---------------
$ 474
===============
The total rental expense included in the statements of income for the
years ended June 30, 1999, 1998 and 1997 is $72,000, $71,000 and
$70,000, respectively.
F-21
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13
- --------------------------------------------------------------------------------
EMPLOYEE BENEFIT PLANS
The Bank has an Employee Stock Ownership Plan ("ESOP") which covers all
employees who have met certain eligibility requirements. The Plan
requires the Bank to make a 15% contribution annually based on eligible
participants' compensation. The Bank's contribution to the ESOP was $
172,000, $ 152,000 and $ 149,000 for the years ended June 30, 1999,
1998 and 1997, respectively.
The ESOP borrowed $ 400,000 on December 31, 1996 from the Company. The
debt, which has a balance of $ 200,000 and $ 300,000 at June 30, 1999
and 1998, respectively, accrues interest at prime plus 1% and is due on
July 1, 2000. As of June 30, 1999 and 1998, the ESOP held 47,429 and
47,417 shares of the Company's common stock and $ 525,000 of the
Company's subordinated debentures due December 31, 2008 as described in
Note 7. In the event a terminated Plan participant desires to sell
their shares of the Bank's stock, or for certain employees who elect to
diversify their account balances, the Company may be required to
purchase the shares from the participant at their fair market value.
The loan obligation of the ESOP is considered unearned employee benefit
expense and, as such, is recorded as a reduction of the Company's
stockholders' equity. The Bank's contribution to the ESOP is used to
repay the loan principal and interest.
The Bank has a 401(k) savings plan (the "401(k) Plan") for all
qualified employees. Employees can contribute up to 5% of their
compensation and the Company provides discretionary matching
contributions. The Company's contribution to the 401(k) Plan was $
9,000, $ 12,000 and $ 7,000 for the years ended June 30, 1999, 1998 and
1997, respectively.
F-22
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
- --------------------------------------------------------------------------------
INCOME TAXES
The components of income tax expense for the years ended June 30, 1999,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Federal:
Current $ 1,429 $ 1,240 $ 600
Deferred (189) 35 (35)
----------------------------------------------
1,240 1,275 565
State, current 277 332 177
----------------------------------------------
$ 1,517 $ 1,607 $ 742
==============================================
</TABLE>
The provision for income taxes includes $ 64,000, $ 472,000 and $
116,000 in 1999, 1998 and 1997, respectively, of income taxes related
to gains on sales of securities.
A reconciliation of the statutory income tax at a rate of 34% to the
income tax expense included in the statements of income is as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
1999 1998 1997
-------------------------------------------------------------
% Of % Of % Of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
-------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate $ 1,388 34.0 % $ 1,504 34.0 % $ 765 34.0 %
State income taxes (net of
federal tax benefit) 183 4.5 219 5.0 117 5.2
Other (54) (1.3) (116) (2.7) (140) (6.3)
-------------------------------------------------------------
$ 1,517 37.2 % $ 1,607 36.3 % $ 742 32.9 %
==============================================================
</TABLE>
F-23
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
- --------------------------------------------------------------------------------
INCOME TAXES (CONTINUED)
The net deferred tax asset consisted of the following components as of
June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-----------------------------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Bank premises and equipment $ 57 $ 54
Deferred loan fees 160 216
Deferred compensation 104 79
Allowance for loan losses 357 210
Unrealized losses on securities available for sale 1,017 -
-----------------------------
1,695 559
-----------------------------
Deferred tax liabilities:
Unrealized gains on securities available for sale - (396)
Other (70) (140)
-----------------------------
(70) (536)
-----------------------------
Net deferred tax asset $ 1,625 $ 23
=============================
</TABLE>
Retained earnings include $ 636,000 at June 30, 1999 and 1998, for
which no provision for federal income tax has been made. These amounts
represent deductions for bad debt reserves for tax purposes which were
only allowed to savings institutions which met certain definitional
tests prescribed by the Internal Revenue Code of 1986, as amended. The
Small Business Job Protection Act of 1996 eliminates the special bad
debt deduction granted solely to thrifts. Under the terms of the Act,
there would be no recapture of the pre-1988 (base year) reserves.
However, these pre-1988 reserves would be subject to recapture under
the rules of the Internal Revenue Code if the Bank itself pays a cash
dividend in excess of earnings and profits, or liquidates. The Act
also provides for the recapture of deductions arising from "applicable
excess reserve" defined as the total amount of reserve over the base
year reserve. The Bank's total reserve exceeds the base year reserve
and deferred taxes have been provided for this excess.
F-24
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
- --------------------------------------------------------------------------------
EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Year Ended June 30, 1999
----------------------------------------------------
Per
Income Shares Share
(Numerator) (Denominator) Amount
----------------------------------------------------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Basic earnings per share:
Net income applicable to common
stockholders $ 2,523 365,904 $ 6.90
===============
Effect of dilutive securities:
Stock options - 24,282
Convertible preferred stock 43 43,592
Convertible subordinated debentures 252 314,772
--------------------------------------
Diluted earnings per share:
Net income applicable to common stock-
holders and assumed conversions $ 2,818 748,550 $ 3.76
====================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1998
----------------------------------------------------
Per
Income Shares Share
(Numerator) (Denominator) Amount
----------------------------------------------------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Basic earnings per share:
Net income applicable to common
stockholders $ 2,771 360,656 $ 7.68
===============
Effect of dilutive securities:
Stock options - 24,733
Convertible preferred stock 45 43,592
Convertible subordinated debentures 268 314,772
--------------------------------------
Diluted earnings per share:
Net income applicable to common stock-
holders and assumed conversions $ 3,084 743,753 $ 4.15
====================================================
</TABLE>
F-25
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
- --------------------------------------------------------------------------------
EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Year Ended June 30, 1997
----------------------------------------------------
Per
Income Shares Share
(Numerator) (Denominator) Amount
----------------------------------------------------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Basic earnings per share:
Net income applicable to common
stockholders $ 1,465 366,371 $ 4.00
===============
Effect of dilutive securities:
Stock options - 24,020
Convertible preferred stock 44 43,592
Convertible subordinated debentures 178 232,404
--------------------------------------
Diluted earnings per share:
Net income applicable to common stock-
holders and assumed conversions $ 1,687 666,387 $ 2.53
====================================================
</TABLE>
16
- --------------------------------------------------------------------------------
TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL
STOCKHOLDERS
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors,
executive officers, principal stockholders, their immediate families
and affiliated companies (commonly referred to as related parties), on
the same terms including interest rates and collateral, as those
prevailing at the time for comparable transactions with others. At June
30, 1999 and 1998, these persons were indebted to the Bank for loans
totaling $ 3,506,000 and $ 2,767,000, respectively. During the year
ended June 30, 1999, $ 1,298,000 of new loans were made and repayments
totaled $ 559,000.
F-26
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17
- --------------------------------------------------------------------------------
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 the financing needs of
its customers. These financial instruments include commitments to
extend credit and letters of credit. Those instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheets.
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 and letters of credit is represented by the contractual 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.
A summary of the Bank's financial instrument commitments at June 30,
1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------
(In Thousands)
<S> <C> <C>
Commitments to grant loans $ 6,743 $ 3,546
Unfunded commitments under lines of credit 5,357 5,671
Outstanding letters of credit 733 497
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Commitments generally have fixed
expiration dates or other termination clauses and may require payment
of a fee. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on
management's credit evaluation. Collateral held varies, but includes
principally residential or commercial real estate.
Outstanding letters of credit written are conditional commitments
issued by the Bank to guarantee the performance of a customer to a
third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending other loan
commitments.
F-27
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18
- --------------------------------------------------------------------------------
CONCENTRATION OF CREDIT RISK
The Bank grants loans to customers primarily located in the eastern
part of the State of Pennsylvania. The concentration of credit by type
of loan is set forth in Note 3. Although the Bank has a diversified
loan portfolio, its debtors' ability to honor their contracts is
influenced by the region's economy. The Bank also has a concentration
in corporate bonds and both rated and unrated trust preferred
securities of financial institutions in their investment portfolio in
Note 2. To the extent general economic conditions effect financial
institutions, they may impact the credit quality of these investments.
19
- --------------------------------------------------------------------------------
REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's
consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company
must meet specific capital guidelines that involve quantitative
measures of the Company's assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices. The
Company's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and ratios
(set forth below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets, and of Tier 1 capital to average
assets. Management believes, as of June 30, 1999, that the Company
meets all capital adequacy requirements to which it is subject.
As of June 30, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. There are
no conditions or events since that notification that management
believes have changed the Bank's category.
F-28
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19
- --------------------------------------------------------------------------------
REGULATORY MATTERS (CONTINUED)
The Bank's actual capital amounts and ratios at June 30, 1999 and 1998
and the minimum amounts and ratios required for capital adequacy
purposes and to be well capitalized under the prompt corrective action
provisions are as follows:
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
----------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------
(Dollar Amounts In Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999:
Total capital (to risk weighted assets) $ 21,522 10.18 % $ =>16,914 =>8.0 % $ =>21,143 =>10.0%
Tier I capital (to risk weighted assets) 19,750 9.34 => 8,457 =>4.0 =>12,686 => 6.0
Tier I capital (to average assets) 19,750 5.54 =>14,265 =>4.0 =>17,831 => 5.0
As of June 30, 1998:
Total capital (to risk weighted assets) $ 18,943 12.05 % $ =>12,577 =>8.0 % $ =>15,721 =>10.0%
Tier I capital (to risk weighted assets) 17,454 11.10 => 6,288 =>4.0 => 9,432 => 6.0
Tier I capital (to average assets) 17,454 5.95 =>11,740 =>4.0 =>14,675 => 5.0
</TABLE>
The Company's total risk-based capital, Tier 1 risk-based capital and
leverage capital ratios are 10.89%, 7.92% and 4.72%, respectively at
June 30, 1999 and 12.85%, 8.88% and 4.93%, respectively at June 30,
1998.
Under Pennsylvania banking law, the Bank is subject to certain
restrictions on the amount of dividends that it may declare without
prior regulatory approval. At June 30, 1999, $ 14,992,000 of retained
earnings were available for dividends without prior regulatory
approval, subject to the regulatory capital requirements discussed
above.
F-29
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair value of the
Company's financial instruments; however, there are inherent weaknesses
in any estimation technique. Therefore, for substantially all financial
instruments, the fair value estimates herein are not necessarily
indicative of the amounts the Company could have realized in a sales
transaction on the dates indicated. The estimated fair value amounts
have been measured as of their respective year ends, and have not been
reevaluated or updated for purposes of these financial statements
subsequent to those respective dates. As such, the estimated fair
values of these financial instruments subsequent to the respective
reporting dates may be different than the amounts reported at each year
end.
The following information should not be interpreted as an estimate of
the fair value of the entire Company since a fair value calculation is
only provided for a limited portion of the Company's assets. Due to a
wide range of valuation techniques and the degree of subjectivity used
in making the estimates, comparisons between the Company's disclosures
and those of other companies may not be meaningful. The following
methods and assumptions were used to estimate the fair values of the
Company's financial instruments at June 30, 1999 and 1998:
Cash and cash equivalents:
The carrying amounts of cash and cash equivalents approximate
their fair value.
Securities:
Fair values for securities are based on quoted market prices,
where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable
securities.
Loans receivable:
For variable-rate loans that reprice frequently and which
entail no significant changes in credit risk, fair values are
based on carrying values. The fair value of fixed rate loans
are estimated using discounted cash flow analyses, at interest
rates currently offered for loans with similar terms to
borrowers of similar credit quality.
Accrued interest receivable:
The carrying amount of accrued interest receivable
approximates fair value.
Deposit liabilities:
Fair values for demand deposits, savings accounts and certain
money market deposits are, by definition, equal to the amount
payable on demand at the reporting date. Fair values of
fixed-maturity certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates
currently being offered on similar instruments with similar
maturities.
F-30
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Advances from Federal Home Loan Bank, subordinated debentures and
other borrowed funds:
Fair values for these borrowings are estimated by
discounting future cash flows using interest rates currently
offered on borrowings with similar remaining maturities.
Accrued interest payable:
The carrying amount of accrued interest payable approximates
fair value.
Off-balance sheet instruments:
Fair value of commitments to extend credit and letters of
credit are estimated using the fees currently charged to enter
into similar agreements, taking into account market interest
rates, the remaining terms and present credit worthiness of
the counterparties.
The estimated fair values of the Company's financial instruments at
June 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 3,078 $ 3,078 $ 2,080 $ 2,080
Securities available for sale 160,438 160,438 123,759 123,759
Loans receivable 184,264 178,212 176,386 181,977
Federal Home Loan Bank stock 7,935 7,935 7,378 7,378
Accrued interest receivable 2,567 2,567 2,404 2,404
Liabilities:
Non-interest bearing checking 1,871 1,871 1,524 1,524
NOW accounts 14,089 14,089 12,691 12,691
Money market demand accounts 19,592 19,592 15,352 15,352
Passbook and club accounts 11,566 11,566 11,468 11,468
Certificates of deposit 143,030 144,337 104,061 104,741
Advances from Federal Home Loan Bank 146,180 142,616 144,485 145,412
Subordinated debentures 5,480 5,480 5,480 5,480
Other borrowed funds 594 594 647 647
Accrued interest payable 801 801 785 785
Off-balance sheet financial instruments - - - -
</TABLE>
F-31
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21
- --------------------------------------------------------------------------------
FIRST STAR BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
<TABLE>
<CAPTION>
Balance Sheets
June 30,
1999 1998
-----------------------------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash on deposit in bank subsidiary $ 140 $ 14
Interest bearing deposit with another institution 23 97
Securities available for sale 1,932 1,572
Loans receivable, net 358 379
Investment in subsidiaries 18,474 18,349
Other assets 324 300
-----------------------------------
$ 21,251 $ 20,711
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued expenses and other liabilities $ 38 $ 37
Intercompany payables 257 81
Subordinated debentures 5,480 5,480
-----------------------------------
Total liabilities 5,775 5,598
STOCKHOLDERS' EQUITY 15,476 15,113
-----------------------------------
$ 21,251 $ 20,711
===================================
</TABLE>
F-32
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21
- --------------------------------------------------------------------------------
FIRST STAR BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Statements of Income
Year Ended June 30,
1999 1998 1997
----------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Income:
Dividends from bank subsidiary $ 300 $ 300 $ 300
Interest income 141 169 113
Rental income, intercompany 88 88 65
Gain on sale of securities 4 63 -
----------------------------------------------------
533 620 478
----------------------------------------------------
Expenses:
Interest 227 455 301
Other 29 27 22
----------------------------------------------------
256 482 323
----------------------------------------------------
Income before income taxes 277 138 155
Income tax expense 111 55 62
----------------------------------------------------
166 83 93
Equity in undistributed earnings of subsidiaries 2,400 2,733 1,416
----------------------------------------------------
Net income $ 2,566 $ 2,816 $ 1,509
====================================================
</TABLE>
F-33
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21
- --------------------------------------------------------------------------------
FIRST STAR BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Statements of Cash Flows
Year Ended June 30,
1999 1998 1997
----------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,566 $ 2,816 $ 1,509
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of subsidiaries (2,400) (2,733) (1,416)
Net realized gain on sale of securities (4) (63) -
Other, net 264 118 (113)
----------------------------------------------------
Net cash provided by operating activities 426 138 (20)
----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of securities available for sale 44 120 -
Purchase of securities available for sale (513) (1,460) (6)
Net (increase) decrease in loans - 1,465 (1,844)
Capital contribution to First Star Savings Bank 21 (400) (1,450)
----------------------------------------------------
Net cash used in investing activities (448) (275) (3,300)
----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of subordinated
debentures - - 4,000
Stock options exercised 17 - -
Issuance of ESOP debt - - (400)
Repayment of ESOP debt 100 100 -
Cash dividends paid (43) (76) (85)
----------------------------------------------------
Net cash provided by financing activities 74 24 3,515
----------------------------------------------------
Increase (decrease) in cash and cash equivalents 52 (113) 195
Cash and cash equivalents:
Beginning 111 224 29
----------------------------------------------------
Ending $ 163 $ 111 $ 224
====================================================
</TABLE>
F-34
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22
- --------------------------------------------------------------------------------
SAVINGS ASSOCIATION INSURANCE FUND
On September 30, 1996, an omnibus appropriation bill was enacted, which
included recapitalization of the Savings Association Insurance Fund
(SAIF). All SAIF insured depository institutions were charged a
one-time special assessment on their SAIF-assessable deposits as of
March 31, 1995 at the rate of 65.7 basis points. Accordingly, the Bank
incurred a pre-tax expense of $ 745,000 during the year ended June 30,
1997.
23
- --------------------------------------------------------------------------------
TERMINATED MERGER
On August 19, 1998, the Company and Nesquehoning Savings Bank,
Nesquehoning, Pennsylvania, signed an agreement to convert Nesquehoning
Savings Bank to a stock form of organization and simultaneously merge
it with the Bank. In 1999, the pending merger failed to obtain
regulatory approval and the merger agreement was terminated.
Accordingly, costs incurred related to the merger of $ 111,000 were
expensed in the year ended June 30, 1999.
24
- --------------------------------------------------------------------------------
CONTINGENCIES
The Company is involved in various claims and lawsuits, arising in the
normal course of business. Management believes that any financial
responsibility that may be incurred in settlement of such claims and
lawsuits would not be material to the Company's financial position.
25
- --------------------------------------------------------------------------------
SUBSEQUENT EVENT
The Company's securities available for sale portfolio includes
corporate debt securities issued by Singer Co. On September 13, 1999,
Singer Co. filed for Chapter 11 bankruptcy protection. At September 30,
1999, the Company wrote the bonds down to their estimated fair value of
$ 95,000, resulting in a reduction in net income for the quarter ended
September 30, 1999 of $ 222,000, net of income tax benefits of $
136,000.
F-35
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
September 30, June 30,
1999 1999
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Share Data)
ASSETS
<S> <C> <C>
Cash and due from banks $ 1,639 $ 1,352
Interest-bearing demand deposits 2,644 1,726
------------------------------------
Cash and cash equivalents 4,283 3,078
Securities available for sale 159,253 160,438
Loans receivable, net of allowance for loan losses
September 30, 1999 $ 1,779; June 30, 1999 $ 1,772 186,581 184,264
Bank premises and equipment, net 602 599
Foreclosed real estate 991 969
Accrued interest receivable 2,728 2,567
Federal Home Loan Bank stock, at cost 7,935 7,935
Deferred income taxes 1,998 1,625
Cash surrender value of life insurance 1,728 1,710
Prepaid expenses and other assets 393 521
------------------------------------
Total assets $ 366,492 $ 363,706
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 192,039 $ 190,148
Advances from Federal Home Loan Bank 148,997 146,180
Convertible subordinated debentures 5,480 5,480
Other borrowed funds 588 594
Advances by borrowers for taxes and insurance 1,379 3,418
Accrued interest payable 721 801
Accrued expenses and other liabilities 1,627 1,609
------------------------------------
Total liabilities 350,831 348,230
------------------------------------
Stockholders' equity:
Convertible preferred stock, no par value; authorized 2,500,000 shares;
issued and outstanding 43,592 shares - -
Common stock, par value $ 1 per share; authorized 10,000,000 shares;
issued and outstanding 375,404 shares 375 375
Surplus 8,465 8,465
Retained earnings 8,850 8,300
Employee Stock Ownership Plan debt (100) (200)
Accumulated other comprehensive income (loss) (1,929) (1,464)
------------------------------------
Total stockholders' equity 15,661 15,476
------------------------------------
Total liabilities and stockholders' equity $ 366,492 $ 363,706
====================================
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
S-1
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C>
Interest income:
Loans receivable, including fees $ 3,836 $ 3,564
Securities 2,694 2,356
Other 50 32
------------------------------------
Total interest income 6,580 5,952
------------------------------------
Interest expense:
Deposits 2,323 1,881
Borrowings 2,239 2,283
------------------------------------
Total interest expense 4,562 4,164
------------------------------------
Net interest income 2,018 1,788
Provision for loan losses 47 98
------------------------------------
Net interest income after provision for loan losses 1,971 1,690
------------------------------------
Other income:
Service fees 64 73
Write-down of investment securities (358) -
Realized gain (loss) on sale of foreclosed real estate 12 (4)
Other 65 91
------------------------------------
Total other income (loss) (217) 160
------------------------------------
Other expenses:
Salaries and employee benefits 506 572
Occupancy and equipment 106 129
Federal deposit insurance premium 28 20
Data processing costs 40 40
Professional fees 24 44
Advertising 22 29
Other 171 167
------------------------------------
Total other expenses 897 1,001
------------------------------------
Income before income taxes 857 849
Income taxes 296 316
------------------------------------
Net income 561 533
Dividends on preferred stock (11) (11)
------------------------------------
Net income applicable to common stockholders $ 550 $ 522
====================================
Basic earnings per share $ 1.49 $ 1.43
====================================
Diluted earnings per share $ 0.83 $ 0.80
====================================
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
S-2
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 1998 (In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Employee Accumulated
Stock Other Total
Preferred Common Retained Ownership Comprehensive Stockholders'
Stock Stock Surplus Earnings Plan Debt Income (Loss) Equity
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 $ - $ 372 $ 8,451 $ 5,777 $ (300) $ 813 $ 15,113
-------------
Comprehensive income:
Net income - - - 533 - - 533
Change in net unrealized
gains (losses) on
securities available
for sale - - - - - 353 353
-------------
Total comprehensive
income 886
-------------
Repayment of ESOP debt - - - - - - -
Cash dividends paid on
preferred stock - - - (11) - - (11)
----------------------------------------------------------------------------------------------------
Balance, September 30, 1998 $ - $ 372 $ 8,451 $ 6,299 $ (300) $ 1,166 $ 15,988
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 1999 (In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Employee Accumulated
Stock Other Total
Preferred Common Retained Ownership Comprehensive Stockholders'
Stock Stock Surplus Earnings Plan Debt Income (Loss) Equity
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1999 $ - $ 375 $ 8,465 $ 8,300 $ (200) $ (1,464) $ 15,476
-------------
Comprehensive income:
Net income - - - 561 - - 561
Change in net unrealized
gains (losses) on
securities available
for sale - - - - - (465) (465)
-------------
Total comprehensive
income 96
-------------
Repayment of ESOP debt - - - - 100 - 100
Cash dividends paid on
preferred stock - - - (11) - - (11)
----------------------------------------------------------------------------------------------------
Balance, September 30, 1999 $ - $ 375 $ 8,465 $ 8,850 $ (100) $ (1,929) $ 15,661
====================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
S-3
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 561 $ 533
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 47 98
Provision for depreciation and amortization 35 33
Net (gain) loss on foreclosed real estate (12) 4
Write-down of investment securities 358 -
Net accretion of securities premiums and discounts (148) (117)
Deferred income taxes - 23
Change in assets and liabilities:
(Increase) decrease in:
Accrued interest receivable (161) (361)
Prepaid expenses and other assets 128 179
Increase (decrease) in:
Accrued expenses and other liabilities 18 423
Accrued interest payable (80) 94
--------------------------------
Net cash provided by operating activities 746 909
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale (4,787) (22,967)
Proceeds from maturities of and principal repayments on
securities available for sale 4,924 10,343
Net (increase) in Federal Home Loan Bank stock - (181)
Proceeds from the sale of foreclosed real estate 398 123
Net (increase) in loans (2,772) (3,293)
Purchases of bank premises and equipment (38) (2)
(Increase) in cash surrender value of life insurance policies (18) (28)
--------------------------------
Net cash used in investing activities (2,293) (16,005)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 1,891 9,928
Repayment of ESOP debt 100 -
Proceeds from Federal Home Loan Bank advances 10,021 20,500
Repayment of Federal Home Loan Bank advances (7,204) (14,338)
Repayment of other borrowed money (6) (6)
Decrease in advances from borrowers for taxes and insurance (2,039) (1,791)
Dividends paid (11) (11)
--------------------------------
Net cash provided by financing activities 2,752 14,282
--------------------------------
Net increase (decrease) in cash and cash equivalents 1,205 (814)
Cash and cash equivalents:
Beginning 3,078 2,080
--------------------------------
Ending $ 4,283 $ 1,266
================================
</TABLE>
S-4
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest on deposits, advances and other borrowed money $ 4,642 $ 4,070
=============================
Income taxes $ 348 $ -
=============================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Transfer of loans to foreclosed real estate $ 408 $ 259
=============================
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
S-5
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
The unaudited consolidated financial statements of the Company include the
accounts of the Bank and Integrated Financial Corporation, wholly-owned
subsidiaries of the Company, and Integrated Abstract Incorporated, a
wholly-owned subsidiary of Integrated Financial Corporation. All
intercompany transactions and balances have been eliminated in
consolidation. The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for fair presentation have
been included. Operating results for the three months period ended
September 30, 1999 are not necessarily indicative of the results that may
be expected for the year ended June 30, 2000.
2
- --------------------------------------------------------------------------------
EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
------------------------------------------------------
Per
Income Shares Share
(Numerator) (Denominator) Amount
------------------------------------------------------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Basic earnings per share:
Net income applicable to common
stockholders $ 550 369,690 $ 1.49
=================
Effect of dilutive securities:
Stock options - 22,795
Convertible preferred stock 11 43,592
Convertible subordinated debentures 63 314,772
--------------------------------------
Diluted earnings per share:
Net income applicable to common stock-
holders and assumed conversions $ 624 750,849 $ .83
======================================================
</TABLE>
S-6
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2
- --------------------------------------------------------------------------------
EARNINGS PER SHARE (CONTINUED)
The following table sets forth the computations of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
----------------------------------------------------
Per
Income Shares Share
(Numerator) (Denominator) Amount
----------------------------------------------------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Basic earnings per share:
Net income applicable to common
stockholders $ 522 364,475 $ 1.43
===============
Effect of dilutive securities:
Stock options - 25,539
Convertible preferred stock 11 43,592
Convertible subordinated debentures 67 314,772
--------------------------------------
Diluted earnings per share:
Net income applicable to common stock-
holders and assumed conversions $ 600 748,378 $ .80
====================================================
</TABLE>
3
- --------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) and related tax effects
for the three months ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------
1999 1998
---------------------------------------
(In Thousands)
<S> <C> <C>
Unrealized holding gains (losses) on available for sale securities $ (897) $ 533
Less reclassification adjustment for gains (losses) included in
net income (358) -
---------------------------------------
Net unrealized gains (losses) (539) 533
Tax effect 74 (180)
---------------------------------------
Net of tax amount $ (465) $ 353
=======================================
</TABLE>
S-7
<PAGE>
FIRST STAR BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4
- --------------------------------------------------------------------------------
WRITEDOWN OF INVESTMENT SECURITIES
The Company's securities available for sale portfolio includes corporate
debt securities issued by Singer Co. On September 13, 1999, Singer Co.
filed for Chapter 11 bankruptcy protection. At September 30, 1999, the
Company wrote the bonds down to their estimated fair value of $95,000,
resulting in a reduction in net income for the quarter ended September 30,
1999 of $222,000, net of income tax benefits of $136,000.
5
- --------------------------------------------------------------------------------
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", in June
1998. The Statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. In addition, the
transition provisions of this Statement allow the Company to reclassify
held to maturity securities to an available-for-sale classification. During
1999, the Financial Accounting Standards Board deferred the effective date
of Statement No. 133. The Company is required to adopt the Statement on
July 1, 2001. The adoption of the Statement is not expected to have a
significant impact on the financial condition or results of operations of
the Company.
In October 1998, the FASB issued SFAS NO. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise." This statement
became effective for the Bank July 1, 1999. The adoption of this statement
did not have a significant impact on the financial condition or results of
operations of the Bank.
S-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
================================================= =================================================
You should rely only on the information contained
in this prospectus or that to which we have
referred you. We have not authorized anyone to
provide you with information that is different.
This prospectus does not constitute an offer to sell [Logo]
or the solicitation of an offer to buy, any of the
securities offered hereby to any person in any
jurisdiction in which the offer or solicitation would
be unlawful. You should not assume that the
information provided by this prospectus is
accurate as of any date after the date of this
prospectus. Up to $12,000,000
--------------------
TABLE OF CONTENTS
Page First Star Capital Trust
Summary ........................................
The Offering ...................................
Summary Consolidated Financial Data ............ Adjustable Rate Trust Preferred
Risk Factors ................................... Securities
Use of Proceeds ................................
Market for the Preferred Securities ............
Consolidated Ratios of Earnings to Fixed
Charges ......................................
Capitalization .................................
Guaranteed By
Selected Consolidated Financial and Other Data
Management's Discussion and Analysis of First Star Bancorp, Inc.
Financial Condition and Results of Operation ...
Business of First Star Bancorp, Inc.
and First Star Savings Bank .................. -----------------
Management of First Star Bancorp, Inc........... PROSPECTUS
Principal Security Holders ..................... -----------------
Regulation .....................................
First Star Capital Trust .......................
Accounting Treatment ...........................
Description of Preferred Securities ............
Description of Junior Subordinated Debentures ..
Description of Guarantee ....................... Hopper Soliday
Relationship Among the Preferred Securities, A Division of Tucker Anthony
the Junior Subordinated Debentures and the Incorporated
Guarantee ....................................
United States Federal Income Tax Consequences .. __________ __, 1999
ERISA Considerations ...........................
Underwriting ...................................
Legal and Tax Matters ..........................
Experts ........................................
Reports of First Star Bancorp ..................
Where You Can ^ Obtain Additional Information ..
Index to Consolidated Financial Statements .....
Until the later of ____________________, 1999, or
90 days after commencement of the offering of
preferred securities, all dealers that buy, sell or trade
these securities, whether or not participating in this
distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
================================================= =================================================
</TABLE>
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 27. Exhibits:
The financial statements and exhibits filed as part of this
Registration Statement are as follows:
<TABLE>
<CAPTION>
<S> <C>
(a) List of Exhibits:
1 Form of Agency Agreement*
3(i) Articles of Incorporation of First Star Bancorp, Inc.**
3(ii) Bylaws of First Star Bancorp, Inc.**
4.1 Form of Junior Subordinated Indenture*
4.2 Form of Junior Subordinated Debenture Certificate (included in
Exhibit 4.1)*
4.3 Trust Agreement*
4.4 Form of Amended and Restated Trust Agreement*
4.5 Form of Preferred Security (included in Exhibit 4.4)*
4.6 Form of Guarantee Agreement*
5.1 Opinion of Richards, Layton & Finger, P.A.*
5.2 Opinion of Malizia Spidi & Fisch, PC*
8 Tax Opinion of Malizia Spidi & Fisch, PC
10.1 Form of Employment Agreement of Joseph T. Svetik and Paul J.
Sebastian*
10.2 Form of Escrow Agreement
12.1 Statement regarding computation of ratios*
16 Letter of Deloitte & Touche, LLP
23.1 Consent of Beard & Company, Inc.*
23.2 Consent of Richards, Layton & Finger, P.A. (included in Exhibit
5.1)*
23.3 Consent of Malizia Spidi & Fisch, PC (contained in its opinions
filed as Exhibits 5.2 and 8)
24 Power of Attorney (reference is made to the signature page)*
25 Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of Bankers Trust Company, as trustee under the Junior
Subordinated Indenture, the Amended and Restated Trust Agreement
and the Guarantee Agreement relating to First Star Capital Trust
27 Financial Data Schedule***
99 Subscription Agreement
(b) Financial Statements Schedules****
* Previously filed
** Incorporated by reference to the identically numbered exhibits to
the Registration Statement on Form SB-2 filed with the Commission
on September 28, 1998.
*** Electronic filing only
**** All schedules are omitted because the required information is
either not applicable or is included in the consolidated
financial statements or related notes included in the prospectus.
</TABLE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in Bethlehem,
Pennsylvania, on Decemer 2, 1999.
FIRST STAR BANCORP, INC.
By: /s/ Joseph T. Svetik
--------------------------------
Joseph T. Svetik
President and Director
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated as of December 2, 1999.
<TABLE>
<CAPTION>
<S> <C>
/s/ Joseph T. Svetik /s/ Paul J. Sebastian
- ----------------------------------------------- ----------------------------------
Joseph T. Svetik Paul J. Sebastian
President, Chief Executive Officer and Director Chairman of the Board and Director
(Principal Executive Officer)
/s/ Mark Parseghian, Jr.* /s/ Tighe J. Scott*
- ----------------------------------------------- ----------------------------------
Mark Parseghian, Jr. Tighe J. Scott
Director Director
/s/ Harold J. Suess* /s/ Stephen M. Szy*
- ----------------------------------------------- ----------------------------------
Harold J. Suess Stephen M. Szy
Director Director
/s/ Michael Styer
- -----------------------------------------------
Michael Styer
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
- ---------------
* Signed pursuant to a Power of Attorney.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, First Star
Capital Trust certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Wilmington, Delaware on December 2, 1999.
FIRST STAR CAPITAL TRUST
By: /s/Joseph T. Svetik
-------------------------------------
Joseph T. Svetik
(Duly Authorized Representative)
By: /s/Paul J. Sebastian
-------------------------------------
Paul J. Sebastian
(Duly Authorized Representative)
EXHIBIT 8
<PAGE>
MALIZIA SPIDI & FISCH, PC
ATTORNEYS AT LAW
1301 K STREET, N.W. 637 KENNARD ROAD
SUITE 700 EAST STATE COLLEGE, PENNSYLVANIA 16801
WASHINGTON, D.C. 20005 (814) 466-6625
(202) 434-4660 FACSIMILE: (814) 466-6703
FACSIMILE: (202) 434-4661
December 2, 1999
Board of Directors
First Star Bancorp, Inc.
418 West Broad Street
Bethlehem, Pennsylvania 18018
Dear Board Members:
We have acted as special tax counsel to First Star Bancorp, Inc. (the
"Company") and to First Star Capital Trust (the "Trust") in connection with the
registration statement of the Company and the Trust on Form S-1, for the Company
and the Trust, respectively), as amended ("Registration Statement"), of which a
prospectus ("Prospectus") is a part, filed by the Company and the Trust with the
United States Securities and Exchange Commission under the Securities Act of
1933, as amended. This opinion is furnished pursuant to the requirements of Item
601(b)(8) of Regulation S-1.
For the purposes of rendering this opinion, we have reviewed and relied
upon the Registration Statement and such other documents and instruments as we
deemed necessary for the rendering of this opinion. In our examination of
relevant documents, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as copies, the authenticity
of such copies and the accuracy and completeness of all corporate records made
available to us by the Company and the Trust.
Based solely upon our review of such documents and the Officer
Affidavit attached to this opinion, and upon such information as the Company has
provided to us (which we have not attempted to verify in any respect), and
reliance upon such documents and information, subject to the limitations,
qualifications, and assumptions set forth herein, our opinion is set forth in
the Prospectus under the caption "United States Federal Income Tax
Consequences."
Our opinion is limited to the federal income tax matters described
above and does not address any other federal income tax considerations or any
state, local, foreign, or other tax considerations. If any of the information on
which we have relied is incorrect, or if changes in the relevant facts occur
after the date hereof, our opinion could be affected thereby. Moreover, our
opinion is based on the Internal Revenue Code of 1986, as amended, applicable
<PAGE>
Board of Directors
First Star Bancorp, Inc.
December 2, 1999
Page 2
Treasury regulations promulgated thereunder, and Internal Revenue Service
rulings, procedures, and other pronouncements published by the United States
Internal Revenue Service. These authorities are all subject to change, and such
change may be made with retroactive effect. We can give no assurance that, after
such change, our opinion would not be different. We undertake no responsibility
to update or supplement our opinion. This opinion is not binding on the Internal
Revenue Service, and there can be no assurance, and none is hereby given, that
the Internal Revenue Service will not take a position contrary to one or more of
the positions reflected in the foregoing opinion, or that our opinion will be
upheld by the courts if challenged by the Internal Revenue Service.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the use of our name in the Prospectus
under the captions "United States Federal Income Tax Consequences" and "Legal
and Tax Matters." In giving such consent, we do not thereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Sincerely,
/s/Malizia Spidi & Fisch, PC
------------------------------------
MALIZIA SPIDI & FISCH, PC
EXHIBIT 10.2
<PAGE>
FORM OF
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of ______ 1999, (the "Agreement")
by and among First Star Bancorp, Inc., a Pennsylvania corporation (the
"Company"), First Star Capital Trust, a Delaware business trust (the "Trust"),
Hopper Soliday, a Division of Tucker-Anthony Incorporated (the "Placement
Agent") and Bankers Trust Company, a New York banking corporation (as escrow
agent hereunder, the "Escrow Agent").
W I T N E S S E T H :
-------------------
WHEREAS, the Trust proposes to offer for sale through the
Placement Agent up to 1,200,000 Adjustable Rate Trust Preferred Securities of
the Trust (the "Preferred Securities") at a price of $10.00 per Preferred
Security, for an aggregate offering price of $12,000,000 (the "Offering"); and
WHEREAS, the Placement Agent intends to sell the Preferred
Securities as the Trust's agent on a best-efforts basis for 1,200,000 Preferred
Securities.
WHEREAS, the Trust and the Placement Agent desire to establish
an interest-paying escrow account in which funds received from subscribers will
be deposited pending completion of the escrow period; and
WHEREAS, the Escrow Agent is willing to act as escrow agent in
respect of the Escrow Fund (as hereinafter defined) upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged by each of the parties
hereto, the parties hereto, intending to be legally bound, do hereby agree as
follows:
1. Appointment of Escrow Agent. The Company, the Trust and the
Placement Agent hereby appoint Bankers Trust Company as escrow agent in
accordance with the terms and conditions set forth herein, and the Escrow Agent
hereby accepts such appointment.
2. Establishment of Escrow Account. On or prior to the date of
the commencement of the Offering, the parties shall establish an account with
the Escrow Agent, which escrow account shall be titled the First Star Capital
Trust Escorw Account (the "Escrow Account"). The Placement Agent will instruct
subscirbers to make checks for subscriptions payable to First Star Capital
Trust, c/o the Placement Agent. Wire transfers will be directed to the Escrow
Agent as follows:
ABA #
----------------------------
for further credit to
<PAGE>
Bankers Trust Company
----------------------------
for further credit to
Bankers Trust Company Corporate Trust and Agency Services
----------------------------
Reference: First Star Capital Trust Escrow Account
3. Escrow Period. The escrow period (the "Escrow Period")
shall begin with the commencement of the Offering and shall terminate upon the
earlier to occur of the following dates:
A. The date selected by the Company to terminate the
Escrow Period and to have the Trust issue the
Preferred Securities pursuant to accepted
subscriptions, which date shall be set forth in a
written notice to the Escrow Agent from the Placement
Agent as set forth in Exhibit A attached hereto,
signed by an authorized person of the Placement
Agency, as set forth on Exhibit B attached hereto; or
B. The date upon which a determination is made by the
Trust and the Placement Agent to terminate the
offering prior to the issuance of any Preferred
Securities, which date shall be set forth in a
written notice to the Escrow Agent from the Placement
Agent.
During the Escrow Period, the Trust is aware and understands
that it is not entitled to any funds received into escrow and no amounts
deposited in the Escrow Account shall become the property of the Trust or any
other entity, or be subject to the debts of the Trust or any other entity.
4. Deposits into the Escrow Account. The Placement Agent
agrees that it shall promptly deliver all monies received from subscribers for
the payment of the Preferred Securities to the Escrow Agent for deposit to the
Escrow Account, together with a written account of each accepted subscription,
which account shall set forth, among other things, the subscriber's name and
address, tax identification number, the number of Preferred Securities
purchased, the amount paid therefor, and whether the consideration received was
in the form of a check, wire (to the Escrow Agent), draft or money order. All
monies so deposited in the Escrow Account are hereinafter referred to as the
"Escrow Amount."
5. Disbursements from the Escrow Account.
(a) In the event the Escrow Period is terminated pursuant to
clause (B) of Section 2 prior to issuance of any Preferred Securities, the
Escrow Agent shall refund to each subscriber the amount received from the
subscriber, together with any earnings generated thereon, and shall notify the
Trust and the Placement Agent of its distribution of the funds.
2
<PAGE>
The purchase money returned to each subscriber shall be free and clear of any
and all claims of the Trust or any of its creditors.
(b) In the event the Escrow Agent receives notification
pursuant to clause (A) of Section 2 of the date upon which the Escrow Period is
to terminate and to have the Trust issue the Preferred Securities, the Escrow
Agent shall pay over and remit to the Trust an amount equal to the aggregate
amount deposited by subscribers, provided, however, that in no event will funds
be released to the Trust until such amount is received by the Escrow Agent in
collected funds; and Escrow Agent shall pay over and remit to the Company any
earnings generated on escrowed funds that is not required to be returned to
subscribers.
(c) Any earnings generated on escrowed funds to be returned to
subscribers will be distributed to the subscribers on a pro-rata basis according
to the respective number of days between the time of collection of their
payments to the Escrow Account and the return of such payments to subscribers.
Earnings on any other funds returned to subscribers from the Escrow Account
shall be handled similarly.
For purposes of this Agreement, the term "collected funds"
shall mean all funds received by the Escrow Agent which have cleared normal
banking channels and are in the form of cash.
6. Collection Procedure. The Escrow Agent is hereby authorized
to forward each check for collection and, upon collection of the proceeds of
each check, deposit the collected proceeds in the Escrow Account.
Any check returned unpaid to the Escrow Agent shall be
returned to the Placement Agent. In such cases, the Escrow Agent will promptly
notify the Trust of such return.
If the Company or the Trust rejects any subscription for which
the Escrow Agent has already collected funds, the Escrow Agent shall promptly
issue a refund check to the rejected subscriber. If the Company or the Trust
rejects any subscription for which the Escrow Agent has not yet collected funds
but has submitted the subscriber's check for collection, the Escrow Agent shall
promptly issue a check in the amount of the subscriber's check to the rejected
subscriber after the Escrow Agent has cleared the funds. If the Escrow Agent has
not yet submitted a rejected subscriber's check for collection, the Escrow Agent
shall promptly remit the subscriber's check directly to the subscriber.
7. Investment of Escrow Amount. The Escrow Agent may invest
the Escrow Amount only in such accounts or investments as the Placement Agent
may specify by written notice. The Placement Agent may only specify investment
in (1) money-market accounts, (2) short-term certificates of deposit issued by a
bank, or (3) short-term securities issued or guaranteed by the U.S. Government.
8. Resignation of Escrow Agent. The Escrow Agent may resign
and be discharged from its duties hereunder at any time by giving written notice
of such
3
<PAGE>
resignation to the Company, the Trust and the Placement Agent specifying a date
when such resignation shall take effect and upon delivery of the Escrow Fund to
the successor escrow agent designated by all parties hereto (other than the
Escrow Agent) in writing. Upon such notice, a successor Escrow Agent shall be
appointed with the mutual consent of the Company, the Trust and the Placement
Agent. Such successor Escrow Agent shall become the Escrow Agent hereunder upon
the resignation date specified in such notice. If the Company, the Trust and the
Placement Agent are unable to agree upon a successor Escrow Agent within thirty
(30) days after such notice, the Escrow Agent shall be entitled to apply to a
court of competent jurisdiction for the appointment of a successor. The Escrow
Agent shall continue to serve until its successor accepts the escrow and
receives the Escrow Fund. The Company, the Trust and the Placement Agent shall
have the right at any time upon their mutual consent to substitute a new Escrow
Agent by giving notice thereof to the Escrow Agent then acting. Upon its
resignation and delivery of the Escrow Fund as set forth in this Section 6, the
Escrow Agent shall be discharged of and from any and all further obligations
arising in connection with the escrow contemplated by this Agreement.
9. Indemnification of Escrow Agent. (a) The Escrow Agent shall
have no duties or responsibilities whatsoever with respect to the Escrow Fund
except as are specifically set forth herein. The Escrow Agent shall neither be
responsible for or under, nor chargeable with knowledge of the terms and
conditions of, any other agreement, instrument or document in connection
herewith. The Escrow Agent may conclusively rely upon, and shall be fully
protected from all liability, loss, cost, damage or expense in acting or
omitting to act pursuant to any written notice, instrument, request, consent,
certificate, document, letter, telegram, opinion, order, resolution or other
writing hereunder without being required to determine the authenticity of such
document, the correctness of any fact stated therein, the propriety of the
service thereof or the capacity, identity or authority of any party purporting
to sign or deliver such document. The Escrow Agent shall have no responsibility
for the contents of any such writing contemplated herein and may rely without
any liability upon the contents thereof.
(b) The Escrow Agent shall not be liable for any action taken
or omitted by it in good faith and reasonably believed by it to be authorized
hereby or with the rights or powers conferred upon it hereunder, nor for action
taken or omitted by it in good faith, and in accordance with advice of counsel
(which counsel may be of the Escrow Agent's own choosing), and shall not be
liable for any mistake of fact or error of judgment or for any acts or omissions
of any kind except for its own willful misconduct or gross negligence.
(c) Each of the Company the Trust and the Placement Agent
agrees to jointly and severally indemnify the Escrow Agent and its employees,
directors, officers and agents and hold each harmless against any and all
liabilities incurred by it hereunder as a consequence of such party's action,
and the parties agree jointly and severally to indemnify the Escrow Agent and
hold it harmless against any claims, costs, payments, and expenses (including
the fees and expenses of counsel) and all liabilities incurred by it in
connection with the performance of its duties hereunder and them hereunder,
except in
4
<PAGE>
either case for claims, costs, payments, and expenses (including the fees and
expenses of counsel) and liabilities incurred by the Escrow Agent resulting from
its own willful misconduct or gross negligence. The Company, the Trust and the
Placement Agent agree to reimburse each other for one-half of any payments made
by them pursuant to this Section 7(c) with respect to liabilities for which the
parties are jointly liable pursuant to this Section 7(c). The provisions of this
Section 7 shall survive the termiantion of the Agreement or resignation or
removal of the Escrow Agent.
10. Compensation of Escrow Agent. The Escrow Agent shall be
entitled to payment from the Company for customary fees and expenses for all
services rendered by it hereunder in accordance with Schedule A attached hereto
(as such schedule may be amended from time to time). The Escrow Agent shall also
be entitled to reimbursement on demand for all loss, liability, damage or
expenses paid or incurred by it in the administration of its duties hereunder,
including, but not limited to, all counsel, advisors' and agents' fees and
disbursements and all taxes or other governmental charges. At all times, the
Escrow Agent will have a right of set off and first lien on funds in the Escrow
Fund for payment of customary fees and expenses and all such reasonable loss,
liability, damage or expenses. Such compensation and expenses shall be paid from
the Escrow Fund.
11. Further Assurances. From time to time on and after the
date hereof, the other parties hereto shall deliver or cause to be delivered to
the Escrow Agent such further documents and instruments and shall do and cause
to be done such further acts as the Escrow Agent shall reasonably request (it
being understood that the Escrow Agent shall have no obligation to make any such
request) to carry out more effectively the provisions and purposes of this
Agreement, to evidence compliance herewith or to assure itself that it is
protected in acting hereunder.
12. Termination of Agreement. This Agreement shall terminate
on the final disposition of the Escrow Fund provided that the rights of the
Escrow Agent and the obligations of the other parties hereto under Sections 8
and 9 shall survive the termination hereof and the resignation or removal of the
Escrow Agent.
13. Consents to Service Process. Each of the parties hereto
hereby irrevocably consents to the jurisdiction of the courts of the State of
New York and of any Federal Court located in the Borough of Manhattan in such
State in connection with any action, suit or other proceeding arising out of or
relating to this Agreement or any action taken or omitted hereunder, and waives
any claim of forum non conveniens and any objections as to laying of venue. Each
party further waives personal service of any summons, complaint or other process
and agree that the service thereof may be made by certified or registered mail
directed to such person at such person's address for purposes of notices
hereunder.
14. Tax Withholding & Reporting. (a) On or prior to the date
of this Agreement, the Company, the Trust and the Placement Agent for purposes
of United States backup withholding tax and information reporting requirements,
will provide the
5
<PAGE>
Escrow Agent with an executed copy of Internal Revenue Service form W-9 (for
United State persons) or form W-8 (for non-United States persons) or any
successor forms. The Company, the Trust and the Placement Agent agree to provide
replacement forms if originals of any form previously provided become obsolete
or incomplete.
(b) It is understood that the Escrow Agent shall be
responsible for income reporting only with respect to income earned through
dividend payments of the Escrow Shares and is not responsible for any other
reporting.
15. Miscellaneous. (a) This Agreement embodies the entire
agreement and understanding among the parties relating to the subject matter
hereof except, as to the Company, the Trust and the Placement Agent, the Agency
Agreement, and may not be changed orally, but only by an instrument in writing
signed by the parties hereto.
(b) All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally, on the
next Business Day after delivery to a recognized overnight courier or mailed
first class (postage prepaid)or when sent by facsimile to the parties (which
facsimile copy shall be followed, in the case of notices or other communications
sent to the Escrow Agent, by delivery of the original) at the following
addresses (or to such other address as a party may have specified by notice
given to the other parties pursuant to this provision):
If to the Company or to the Trust, to:
First Star Bancorp, Inc.
418 West Broad Street
Bethlehem, Pennsylvania 18018
Attn: Joseph T. Svetik, President and Chief Executive Officer
Telecopy No.: (610) 691-5658
with a copy to:
Malizia Spidi & Fisch, PC
1301 K Street, N.W. Suite 700 East
Washington, D.C. 20005
Attn: John J. Spidi, Esq.
Telecopy No.: (202) 434-4661
If to the Placement Agent, to:
Hopper Soliday, a division of Tucker-Anthony Incorporated
1703 Oregon Pike
Lancaster, Pennsylvania 17604
6
<PAGE>
Attn: Eric G. Hoerner, Senior Vice President
Telecopy No.: (717) 560-3063
with a copy to:
Stevens & Lee, PC
One Glenhardie Corporate Center
1275 Drummers Lane
Wayne, Pennsylvania 19087
Attn: Jeffrey P. Waldron, Esq.
Telecopy No.: (610) 687-1384
If to the Escrow Agent, to:
Bankers Trust Company
Corporate Trust and Agency Services
Four Albany Street
New York, New York 10006
Attention: Escrow Services
Telecopy No.: (212) 250-6961/6392
(c) The headings of the Sections of this Agreement have been
inserted for convenience and shall not modify, define, limit or expand the
express provisions of this Agreement.
(d) This Agreement and the rights and obligations hereunder of
parties hereto may not be assigned except with the prior written consent of the
other parties hereto. This Agreement shall be binding upon and inure to the
benefit of each party's respective successors and permitted assigns. Except as
expressly provided herein, no other person shall acquire or have any rights
under or by virtue of this Agreement. This Agreement is intended to be for the
sole benefit of the parties hereto, and (subject to the provisions of this
Section 14(d)) their respective successors and assigns, and none of the
provisions of this Agreement are intended to be, nor shall they be construed to
be, for the benefit of any third person.
(e) This Agreement may not be amended, supplemented or
otherwise modified without the prior written consent of the parties hereto.
(f) The Escrow Agent makes no representation as to the
validity, value, genuineness or the collectability of any security or other
document or instrument held by or delivered to it.
7
<PAGE>
(g) The Escrow Agent shall not be called upon to advise any
party as to the wisdom in selling or retaining or taking or refraining from any
action with respect to any securities or other property deposited hereunder.
(h) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without reference to the
principles of conflict of laws.
(i) This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
FIRST STAR BANCORP, INC.
By
----------------------------------------
Name:
Title:
FIRST STAR CAPITAL TRUST
By
----------------------------------------
Name:
Title:
HOPPER SOLIDAY,
a Division of Tucker Anthony Incorporated
As Placement Agent
By
----------------------------------------
Name:
Title:
BANKERS TRUST COMPANY,
as Escrow Agent
8
<PAGE>
By
----------------------------------------
Name:
Title:
9
<PAGE>
Schedule A
Schedule of Fees
Prepared For
Escrow Agreement
A. Acceptance Fee: one time
- --------------------
(Includes acceptance of appointment, review of documentation, establishment
of account and records. This fee is intended to cover costs and set up of a
standard escrow agreement. Any escrow that substantially alters the
agreement may incur additional costs which would be billed as an acceptance
fee.)
B. Annual Administrative Fee:
- --------------------------------
(Payable annually in advance. Includes normal administrative duties as
stipulated in the agreement.
C. Investment Transactions
- ---------------------------
(Covers all costs associated with investing in eligible investments at the
direction of the client, including ticket charges, custody and tax
reporting.)
D. Wire Transfer Fee
- ---------------------
(Pertains to outgoing wires only.)
Note: The fees set forth in this schedule are subject to review of
documentation. The fees are also subject to change should circumstances warrant.
Out-of-pocket expenses and disbursements, including counsel fees, incurred in
the performance of our duties will be added to the billed fees. Fees for any
services not covered in this or related schedules will be based upon our
appraisal of the services rendered.
We may place orders to buy/sell financial instruments with outside
broker-dealers that we select, as well as with BT or its affiliates. These
transactions(for which normal and customary spreads or other compensation may be
earned by such broker-dealers, including BT or its affiliates, in addition to
the charges quoted above) will be executed on a riskless principal basis solely
for your account(s) and without recourse to us or our affiliates. If you choose
to invest in any mutual fund, BT and/or our affiliates may earn investment
management fees and other service fees/expenses associated with these funds as
disclosed in the mutual fund prospectus provided to you, in addition to the
charges quoted above. Likewise, BT has entered into agreements with certain
mutual funds or their agents to provide shareholder services to those funds. For
providing these shareholder services, BT is paid a fee by these mutual funds
that calculated on an annual basis does not exceed 25 basis points of the amount
of your investment in these mutual funds. In addition, if you choose to use
other services provided by BT or its affiliates, Corporate Trust or other BT
affiliates may be allocated a portion of the fees earned. We will provide
periodic account statements describing transactions executed for your
account(s). Trade confirms will be available upon your request at no additional
charge. If a transaction should fail to close for reasons beyond our control, we
reserve the right to charge our acceptance fee plus reimbursement for legal fees
incurred.
Shares of mutual funds are not deposits or obligations of, or
guaranteed by, Bankers Trust Company or any of its affiliates and are not
insured by the Federal Deposit Insurance Corporation or any other agency of the
U.S. Government. Investments in the mutual funds involve the possible loss of
principal. Please read the prospectus carefully before investing.
10
<PAGE>
Exhibit A
Release Notice
11
<PAGE>
Exhibit B
Authorized Person(s) to Execute Exhibit(s) A
12
EXHIBIT 16
<PAGE>
Deloitte &
Touche
- ----------- -----------------------------------------------------------------
[LOGO] Deloitte & Touche LLP Telephone: (215) 246-2300
Twenty-Fourth Floor Facsimile: (215) 569-2441
1700 Market Street
Philadelphia, Pennsylvania 19103-3984
November 24, 1999
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, N.W.
Washington, DC 20549
Dear Sirs/Madams:
We have read the two paragraphs under the caption "Change in Independent
Auditors" in the Registration Statement on Form SB-2 of First Star Bancorp,
filed with the Securities and Exchange Commission on November 19, 1999 and have
the following comments:
1. We have no basis for agreeing or disagreeing with the statements made in
the first sentence of the first paragraph as it relates to Beard & Company,
Inc., and the second sentence of the first paragraph.
2. We agree with the statements made in the first sentence of the first
paragraph as they relate to Deloitte & Touche LLP and the second paragraph.
Yours truly,
/s/Deloitte & Touche LLP
cc: Mr. Joseph T. Svetik
President, First Star Bancorp
- ----------------
Deloitte Touche
Tohmatsu
- ----------------
EXHIBIT 25
<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
------------------------------
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
(Address of principal (Zip Code)
executive offices)
Bankers Trust Company
Legal Department
130 Liberty Street, 31st Floor
New York, New York 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FIRST STAR BANCORP, Inc FIRST STAR CAPITAL TRUST
(Exact name of obligor as specified in its charter) (Exact name of Co-Registrant as specified in its charter)
PENNSYLVANIA 23-2753108 DELAWARE Requested
(State or other jurisdiction (I.R.S. employer State or other jurisdiction of (I.R.S. employer
or organization) Identification no.) Incorporation or organization) Identification no.)
418 West Broad Street, c/o Bankers Trust (Delaware)
Bethlehem, Pennsylvania 18018 1101 Centre Road, Suite 200
(601) 691-2233 Wilmington, Delaware 19805
(302) 636-3301
(Address, including zip code and (Address, including zip code and
telephone of principal executive offices) telephone of principal executive offices)
</TABLE>
Preferred Securities of First Star Capital Trust
Junior Subordinated Debentures of First Star Bancorp, Inc.
Guarantee of First Star Bancorp, Inc. of certain obligations
under the Preferred Securities
(Title of the indenture securities)
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority to
which it is subject.
Name Address
---- -------
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the Trustee, describe each such
affiliation.
None.
Item 3.-15. Not Applicable
Item 16. List of Exhibits.
Exhibit 1 - Restated Organization Certificate of
Bankers Trust Company dated August 6, 1998,
Certificate of Amendment of the Organization
Certificate of Bankers Trust Company dated
September 25, 1998, and Certificate of
Amendment of the Organization Certificate of
Bankers Trust Company dated December 18,
1998, copies attached.
Exhibit 2 - Certificate of Authority to commence
business - Incorporated herein by reference
to Exhibit 2 filed with Form T-1 Statement,
Registration No. 33-21047.
Exhibit 3 - Authorization of the Trustee to exercise
corporate trust powers - Incorporated herein
by reference to Exhibit 2 filed with Form
T-1 Statement, Registration No. 33-21047.
Exhibit 4 - Existing By-Laws of Bankers Trust Company,
as amended on June 22, 1999. Copy attached.
-2-
<PAGE>
Exhibit 5 - Not applicable.
Exhibit 6 - Consent of Bankers Trust Company
required by Section 321(b) of the Act. -
Incorporated herein by reference to Exhibit
4 filed with Form T-1 Statement,
Registration No. 22-18864.
Exhibit 7 - The latest report of condition of Bankers
Trust Company dated as of June 30, 1999.
Copy attached.
Exhibit 8 - Not Applicable.
Exhibit 9 - Not Applicable.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on this 3rd day
of December, 1999
BANKERS TRUST COMPANY
/s/ Marc J. Parilla
-------------------
By: Marc J. Parilla
Assistant Vice President
-4-
<PAGE>
State of New York,
Banking Department
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New
York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF
AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY Under Section
8005 of the Banking Law," dated September 16, 1998, providing for an increase in
authorized capital stock from $3,001,666,670 consisting of 200,166,667 shares
with a par value of $10 each designated as Common Stock and 1,000 shares with a
par value of $1,000,000 each designated as Series Preferred Stock to
$3,501,666,670 consisting of 200,166,667 shares with a par value of $10 each
designated as Common Stock and 1,500 shares with a par value of $1,000,000 each
designated as Series Preferred Stock.
Witness, my hand and official seal of the Banking Department at the City of New
York,
this 25th day of September in the Year of our Lord
one thousand nine hundred and ninety-eight.
Manuel Kursky
------------------------------
Deputy Superintendent of Banks
<PAGE>
RESTATED
ORGANIZATION
CERTIFICATE
OF
BANKERS TRUST COMPANY
----------------------------
Under Section 8007
Of the Banking Law
----------------------------
Bankers Trust Company
130 Liberty Street
New York, N.Y. 10006
Counterpart Filed in the Office of the Superintendent of Banks,
State of New York, August 31, 1998
<PAGE>
RESTATED ORGANIZATION CERTIFICATE
OF
BANKERS TRUST
Under Section 8007 of the Banking Law
-----------------------------
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing
Director and an Assistant Secretary and a Vice President and an Assistant
Secretary of BANKERS TRUST COMPANY, do hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of the corporation was filed by the
Superintendent of Banks of the State of New York on the March 5,
1903.
3. The text of the organization certificate, as amended heretofore,
is hereby restated without further amendment or change to read as
herein set forth in full, to wit:
"Certificate of Organization
of
Bankers Trust Company
Know All Men By These Presents That we, the undersigned, James A.
Blair, James G. Cannon, E. C. Converse, Henry P. Davison, Granville W. Garth, A.
Barton Hepburn, Will Logan, Gates W. McGarrah, George W. Perkins, William H.
Porter, John F. Thompson, Albert H. Wiggin, Samuel Woolverton and Edward F. C.
Young, all being persons of full age and citizens of the United States, and a
majority of us being residents of the State of New York, desiring to form a
corporation to be known as a Trust Company, do hereby associate ourselves
together for that purpose under and pursuant to the laws of the State of New
York, and for such purpose we do hereby, under our respective hands and seals,
execute and duly acknowledge this Organization Certificate in duplicate, and
hereby specifically state as follows, to wit:
I. The name by which the said corporation shall be known is Bankers
Trust Company.
II. The place where its business is to be transacted is the City of New
York, in the State of New York.
III. Capital Stock: The amount of capital stock which the corporation
is hereafter to have is Three Billion One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($3,001,666,670), divided into Two Hundred
Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven (200,166,667)
shares with a par value of $10 each designated as Common Stock and 1,000 shares
with a par value of One Million Dollars ($1,000,000) each designated as Series
Preferred Stock.
(a) Common Stock
<PAGE>
1. Dividends: Subject to all of the rights of the Series Preferred
Stock, dividends may be declared and paid or set apart for payment upon the
Common Stock out of any assets or funds of the corporation legally available for
the payment of dividends.
2. Voting Rights: Except as otherwise expressly provided with respect
to the Series Preferred Stock or with respect to any series of the Series
Preferred Stock, the Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes, each holder of the Common
Stock being entitled to one vote for each share thereof held.
3. Liquidation: Upon any liquidation, dissolution or winding up of
the corporation, whether voluntary or involuntary, and after the holders of the
Series Preferred Stock of each series shall have been paid in full the amounts
to which they respectively shall be entitled, or a sum sufficient for the
payment in full set aside, the remaining net assets of the corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with their
respective rights and interests, to the exclusion of the holders of the Series
Preferred Stock.
4. Preemptive Rights: No holder of Common Stock of the corporation shall be
entitled, as such, as a matter of right, to subscribe for or purchase any part
of any new or additional issue of stock of any class or series whatsoever, any
rights or options to purchase stock of any class or series whatsoever, or any
securities convertible into, exchangeable for or carrying rights or options to
purchase stock of any class or series whatsoever, whether now or hereafter
authorized, and whether issued for cash or other consideration, or by way of
dividend or other distribution.
(b) Series Preferred Stock
1. Board Authority: The Series Preferred Stock may be issued from time
to time by the Board of Directors as herein provided in one or more series. The
designations, relative rights, preferences and limitations of the Series
Preferred Stock, and particularly of the shares of each series thereof, may, to
the extent permitted by law, be similar to or may differ from those of any other
series. The Board of Directors of the corporation is hereby expressly granted
authority, subject to the provisions of this Article III, to issue from time to
time Series Preferred Stock in one or more series and to fix from time to time
before issuance thereof, by filing a certificate pursuant to the Banking Law,
the number of shares in each such series of such class and all designations,
relative rights (including the right, to the extent permitted by law, to convert
into shares of any class or into shares of any series of any class), preferences
and limitations of the shares in each such series, including, buy without
limiting the generality of the foregoing, the following:
(i) The number of shares to constitute such series (which
number may at any time, or from time to time, be increased or decreased
by the Board of Directors, notwithstanding that shares of the series
may be outstanding at the time of such increase or decrease, unless the
Board of Directors shall have otherwise provided in creating such
series) and the distinctive designation thereof;
(ii) The dividend rate on the shares of such series, whether
or not dividends on the shares of such series shall be cumulative, and
the date or dates, if any, from which dividends thereon shall be
cumulative;
(iii) Whether or not the share of such series shall be
redeemable, and, if redeemable, the date or dates upon or after which
they shall be redeemable, the amount or amounts per share (which shall
be, in the case of each share, not less than its preference upon
involuntary liquidation, plus an amount equal to all dividends thereon
accrued and
<PAGE>
unpaid, whether or not earned or declared) payable thereon in the case
of the redemption thereof, which amount may vary at different
redemption dates or otherwise as permitted by law;
(iv) The right, if any, of holders of shares of such series to convert
the same into, or exchange the same for, Common Stock or other stock as
permitted by law, and the terms and conditions of such conversion or
exchange, as well as provisions for adjustment of the conversion rate
in such events as the Board of Directors shall determine;
(v) The amount per share payable on the shares of such series
upon the voluntary and involuntary liquidation, dissolution or winding
up of the corporation;
(vi) Whether the holders of shares of such series shall have
voting power, full or limited, in addition to the voting powers
provided by law and, in case additional voting powers are accorded, to
fix the extent thereof; and
(vii) Generally to fix the other rights and privileges and any
qualifications, limitations or restrictions of such rights and
privileges of such series, provided, however, that no such rights,
privileges, qualifications, limitations or restrictions shall be in
conflict with the organization certificate of the corporation or with
the resolution or resolutions adopted by the Board of Directors
providing for the issue of any series of which there are shares
outstanding.
All shares of Series Preferred Stock of the same series shall be
identical in all respects, except that shares of any one series issued at
different times may differ as to dates, if any, from which dividends thereon may
accumulate. All shares of Series Preferred Stock of all series shall be of equal
rank and shall be identical in all respects except that to the extent not
otherwise limited in this Article III any series may differ from any other
series with respect to any one or more of the designations, relative rights,
preferences and limitations described or referred to in subparagraphs (I) to
(vii) inclusive above.
2. Dividends: Dividends on the outstanding Series Preferred Stock of
each series shall be declared and paid or set apart for payment before any
dividends shall be declared and paid or set apart for payment on the Common
Stock with respect to the same quarterly dividend period. Dividends on any
shares of Series Preferred Stock shall be cumulative only if and to the extent
set forth in a certificate filed pursuant to law. After dividends on all shares
of Series Preferred Stock (including cumulative dividends if and to the extend
any such shares shall be entitled thereto) shall have been declared and paid or
set apart for payment with respect to any quarterly dividend period, then and
not otherwise so long as any shares of Series Preferred Stock shall remain
outstanding, dividends may be declared and paid or set apart for payment with
respect to the same quarterly dividend period on the Common Stock out the assets
or funds of the corporation legally available therefor.
All Shares of Series Preferred Stock of all series shall be of equal
rank, preference and priority as to dividends irrespective of whether or not the
rates of dividends to which the same shall be entitled shall be the same and
when the stated dividends are not paid in full, the shares of all series of the
Series Preferred Stock shall share ratably in the payment thereof in accordance
with the sums which would by payable on such shares if all dividends were paid
in full, provided, however, that nay two or more series of the Series Preferred
Stock may differ from each other as to the existence and extent of the right to
cumulative dividends, as aforesaid.
3. Voting Rights: Except as otherwise specifically provided in the
certificate filed pursuant to law with respect to any series of the Series
Preferred Stock, or as otherwise provided by law, the Series Preferred Stock
shall not have any right to vote for the election of directors or
<PAGE>
for any other purpose and the Common Stock shall have the exclusive right to
vote for the election of directors and for all other purposes.
4. Liquidation: In the event of any liquidation, dissolution or
winding up of the corporation, whether voluntary or involuntary, each series of
Series Preferred Stock shall have preference and priority over the Common Stock
for payment of the amount to which each outstanding series of Series Preferred
Stock shall be entitled in accordance with the provisions thereof and each
holder of Series Preferred Stock shall be entitled to be paid in full such
amount, or have a sum sufficient for the payment in full set aside, before any
payments shall be made to the holders of the Common Stock. If, upon liquidation,
dissolution or winding up of the corporation, the assets of the corporation or
proceeds thereof, distributable among the holders of the shares of all series of
the Series Preferred Stock shall be insufficient to pay in full the preferential
amount aforesaid, then such assets, or the proceeds thereof, shall be
distributed among such holders ratably in accordance with the respective amounts
which would be payable if all amounts payable thereon were paid in full. After
the payment to the holders of Series Preferred Stock of all such amounts to
which they are entitled, as above provided, the remaining assets and funds of
the corporation shall be divided and paid to the holders of the Common Stock.
5. Redemption: In the event that the Series Preferred Stock of any series shall
be made redeemable as provided in clause (iii) of paragraph 1 of section (b) of
this Article III, the corporation, at the option of the Board of Directors, may
redeem at any time or times, and from time to time, all or any part of any one
or more series of Series Preferred Stock outstanding by paying for each share
the then applicable redemption price fixed by the Board of Directors as provided
herein, plus an amount equal to accrued and unpaid dividends to the date fixed
for redemption, upon such notice and terms as may be specifically provided in
the certificate filed pursuant to law with respect to the series.
6. Preemptive Rights: No holder of Series Preferred Stock of the
corporation shall be entitled, as such, as a matter or right, to subscribe for
or purchase any part of any new or additional issue of stock of any class or
series whatsoever, any rights or options to purchase stock of any class or
series whatsoever, or any securities convertible into, exchangeable for or
carrying rights or options to purchase stock of any class or series whatsoever,
whether now or hereafter authorized, and whether issued for cash or other
consideration, or by way of dividend.
(c) Provisions relating to Floating Rate Non-Cumulative Preferred
Stock, Series A. (Liquidation value $1,000,000 per share.)
1. Designation: The distinctive designation of the series established
hereby shall be "Floating Rate Non-Cumulative Preferred Stock, Series A"
(hereinafter called "Series A Preferred Stock").
2. Number: The number of shares of Series A Preferred Stock shall
initially be 250 shares. Shares of Series A Preferred Stock redeemed, purchased
or otherwise acquired by the corporation shall be cancelled and shall revert to
authorized but unissued Series Preferred Stock undesignated as to series.
3. Dividends:
(a) Dividend Payments Dates. Holders of the Series A Preferred Stock
shall be entitled to receive non-cumulative cash dividends when, as and if
declared by the Board of Directors of the corporation, out of funds legally
available therefor, from the date of original issuance of such shares (the
"Issue Date") and such dividends will be payable on March 28, June 28, September
28 and December 28 of each year (:Dividend Payment Date") commencing September
28, 1990, at a rate per annum as determined in paragraph 3(b) below. The period
beginning on the Issue Date and ending on the day preceding the firs Dividend
Payment Date and
<PAGE>
each successive period beginning on a Dividend Payment Date and ending on the
date preceding the next succeeding Dividend Payment Date is herein called a
"Dividend Period". If any Dividend payment Date shall be, in The City of New
York, a Sunday or a legal holiday or a day on which banking institutions are
authorized by law to close, then payment will be postponed to the next
succeeding business day with the same force and effect as if made on the
Dividend Payment Date, and no interest shall accrue for such Dividend Period
after such Dividend Payment Date.
(b) Dividend Rate. The dividend rare from time to time payable in
respect of Series A Preferred Stock (the "Dividend Rate") shall be determined on
the basis of the following provisions:
(i) On the Dividend Determination Date, LIBOR will be determined on the
basis of the offered rates for deposits in U.S. dollars having a maturity of
three months commencing on the second London Business Day immediately following
such Dividend Determination Date, as such rates appear on the Reuters Screen
LIBO Page as of 11:00 A.M. London time, on such Dividend Determination Date. If
at least two such offered rates appear on the Reuters Screen LIBO Page, LIBOR in
respect of such Dividend Determination Dates will be the arithmetic mean
(rounded to the nearest one-hundredth of a percent, with five one-thousandths of
a percent rounded upwards) of such offered rates. If fewer than those offered
rates appear, LIBOR in respect of such Dividend Determination Date will be
determined as described in paragraph (ii) below.
(ii) On any Dividend Determination Date on which fewer than those offered rates
for the applicable maturity appear on the Reuters Screen LIBO Page as specified
in paragraph (I) above, LIBOR will be determined on the basis of the rates at
which deposits in U.S. dollars having a maturity of three months commending on
the second London Business Day immediately following such Dividend Determination
Date and in a principal amount of not less than $1,000,000 that is
representative of a single transaction in such market at such time are offered
by three major banks in the London interbank market selected by the corporation
at approximately 11:00 A.M., London time, on such Dividend Determination Date to
prime banks in the London market. The corporation will request the principal
London office of each of such banks to provide a quotation of its rate. If at
least two such quotations are provided, LIBOR in respect of such Dividend
Determination Date will be the arithmetic mean (rounded to the nearest
one-hundredth of a percent, with five one-thousandths of a percent rounded
upwards) of such quotations. If fewer than two quotations are provided, LIBOR in
respect of such Dividend Determination Date will be the arithmetic mean (rounded
to the nearest one-hundredth of a percent, with five one-thousandths of a
percent rounded upwards) of the rates quoted by three major banks in New York
City selected by the corporation at approximately 11:00 A.M., New York City
time, on such Dividend Determination Date for loans in U.S. dollars to leading
European banks having a maturity of three months commencing on the second London
Business Day immediately following such Dividend Determination Date and in a
principal amount of not less than $1,000,000 that is representative of a single
transaction in such market at such time; provided, however, that if the banks
selected as aforesaid by the corporation are not quoting as aforementioned in
this sentence, then, with respect to such Dividend Period, LIBOR for the
preceding Dividend Period will be continued as LIBOR for such Dividend Period.
(ii) The Dividend Rate for any Dividend Period shall be equal to the
lower of 18% of 50 basis points above LIBOR for such Dividend Period as LIBOR is
determined by sections (I) or (ii) above.
As used above, the term "Dividend Determination Date" shall mean, with resect to
any Dividend Period, the second London Business Day prior to the commencement of
such Dividend Period; and the term "London Business Day" shall mean any day that
is not a Saturday or Sunday and that, in New York City, is not a day on which
banking institutions generally are authorized or required by law or executive
order to close and that is a day on which dealings in deposits in U.S. dollars
are transacted in the London interbank market.
<PAGE>
4. Voting Rights: The holders of the Series A Preferred Stock shall
have the voting power and rights set forth in this paragraph 4 and shall have no
other voting power or rights except as otherwise may from time to time be
required by law.
So long as any shares of Series A Preferred Stock remain outstanding,
the corporation shall not, without the affirmative vote or consent of the
holders of at least a majority of the votes of the Series Preferred Stock
entitled to vote outstanding at the time, given in person or by proxy, either in
writing or by resolution adopted at a meeting at which the holders of Series A
Preferred Stock (alone or together with the holders of one or more other series
of Series Preferred Stock at the time outstanding and entitled to vote) vote
separately as a class, alter the provisions of the Series Preferred Stock so as
to materially adversely affect its rights; provided, however, that in the event
any such materially adverse alteration affects the rights of only the Series A
Preferred Stock, then the alteration may be effected with the vote or consent of
at least a majority of the votes of the Series A Preferred Stock; provided,
further, that an increase in the amount of the authorized Series Preferred Stock
and/or the creation and/or issuance of other series of Series Preferred Stock in
accordance with the organization certificate shall not be, nor be deemed to be,
materially adverse alterations. In connection with the exercise of the voting
rights contained in the preceding sentence, holders of all series of Series
Preferred Stock which are granted such voting rights (of which the Series A
Preferred Stock is the initial series) shall vote as a class (except as
specifically provided otherwise) and each holder of Series A Preferred Stock
shall have one vote for each share of stock held and each other series shall
have such number of votes, if any, for each share of stock held as may be
granted to them.
The foregoing voting provisions will not apply if, in connection with
the matters specified, provision is made for the redemption or retirement of all
outstanding Series A Preferred Stock.
5. Liquidation: Subject to the provisions of section (b) of this Article III,
upon any liquidation, dissolution or winding up of the corporation, whether
voluntary or involuntary, the holders of the Series A Preferred Stock shall have
preference and priority over the Common Stock for payment out of the assets of
the corporation or proceeds thereof, whether from capital or surplus, of
$1,000,000 per share (the "liquidation value") together with the amount of all
dividends accrued and unpaid thereon, and after such payment the holders of
Series A Preferred Stock shall be entitled to no other payments.
6. Redemption: Subject to the provisions of section (b) of this
Article III, Series A Preferred Stock may be redeemed, at the option of the
corporation in whole or part, at any time or from time to time at a redemption
price of $1,000,000 per share, in each case plus accrued and unpaid dividends to
the date of redemption.
At the option of the corporation, shares of Series A Preferred Stock
redeemed or otherwise acquired may be restored to the status of authorized but
unissued shares of Series Preferred Stock.
In the case of any redemption, the corporation shall give notice of
such redemption to the holders of the Series A Preferred Stock to be redeemed in
the following manner: a notice specifying the shares to be redeemed and the time
and place or redemption (and, if less than the total outstanding shares are to
be redeemed, specifying the certificate numbers and number of shares to be
redeemed) shall be mailed by first class mail, addressed to the holders of
record of the Series A Preferred Stock to be redeemed at their respective
addressees as the same shall appear upon the books of the corporation, not more
than sixty (60) days and not less than thirty (30) days previous to the date
fixed for redemption. In the event such notice is not given to any shareholder
such failure to give notice shall not affect the notice given to other
shareholders. If less than the whole amount of outstanding Series A Preferred
Stock is to be redeemed, the shares to be redeemed shall be selected by lot or
pro rata in any manner determined by resolution of the Board
<PAGE>
of Directors to b fair and proper. From and after the date fixed in any such
notice as the date of redemption (unless default shall be made by the
corporation in providing moneys at the time and place of redemption for the
payment of the redemption price) all dividends upon the Series A Preferred Stock
so called for redemption shall cease to accrue, and all rights of the holders of
said Series A Preferred Stock as stockholders in the corporation, except the
right to receive the redemption price (without interest) upon surrender of the
certificate representing the Series A Preferred Stock so called for redemption,
duly endorsed for transfer, if required, shall cease and terminate. The
corporation's obligation to provide moneys in accordance with the preceding
sentence shall be deemed fulfilled if, on or before the redemption date, the
corporation shall deposit with a bank or trust company (which may e an affiliate
of the corporation) having an office in the Borough of Manhattan, City of New
York, having a capital and surplus of at least $5,000,000 funds necessary for
such redemption, in trust with irrevocable instructions that such funds be
applied to the redemption of the shares of Series A Preferred Stock so called
for redemption. Any interest accrued on such funds shall be paid to the
corporation from time to time. Any funds so deposited and unclaimed at the end
of two (2) years from such redemption date shall be released or repaid to the
corporation, after which the holders of such shares of Series A Preferred Stock
so called for redemption shall look only to the corporation for payment of the
redemption price.
IV. The name, residence and post office address of each member
of the corporation are as follows:
<TABLE>
<CAPTION>
Name Residence Post Office Address
---- --------- -------------------
<S> <C> <C>
James A. Blair 9 West 50th Street, 33 Wall Street,
Manhattan, New York City Manhattan, New York City
James G. Cannon 72 East 54th Street, 14 Nassau Street,
Manhattan New York City Manhattan, New York City
E. C. Converse 3 East 78th Street, 139 Broadway,
Manhattan, New York City Manhattan, New York City
Henry P. Davison Englewood, 2 Wall Street,
New Jersey Manhattan, New York City
Granville W. Garth 160 West 57th Street, 33 Wall Street
Manhattan, New York City Manhattan, New York City
A. Barton Hepburn 205 West 57th Street 83 Cedar Street
Manhattan, New York City Manhattan, New York City
William Logan Montclair, 13 Nassau Street
New Jersey Manhattan, New York City
George W. Perkins Riverdale, 23 Wall Street,
New York Manhattan, New York City
William H. Porter 56 East 67th Street 270 Broadway,
Manhattan, New York City Manhattan, New York City
John F. Thompson Newark, 143 Liberty Street,
New Jersey Manhattan, New York City
Albert H. Wiggin 42 West 49th Street, 214 Broadway,
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Manhattan, New York City Manhattan, New York City
Samuel Woolverton Mount Vernon, 34 Wall Street,
New York Manhattan, New York City
Edward F.C. Young 85 Glenwood Avenue, 1 Exchange Place,
Jersey City, New Jersey Jersey City, New Jersey
</TABLE>
V. The existence of the corporation shall be perpetual.
VI. The subscribers, the members of the said corporation, do, and each
for himself does, hereby declare that he will accept the responsibilities and
faithfully discharge the duties of a director therein, if elected to act as
such, when authorized accordance with the provisions of the Banking Law of the
State of New York.
VII. The number of directors of the corporation shall not be less that
10 nor more than 25."
4. The foregoing restatement of the organization certificate was
authorized by the Board of Directors of the corporation at a meeting held on
July 21, 1998.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
6th day of August, 1998.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
6th day of August, 1998.
James T. Byrne, Jr.
------------------------------------------
James T. Byrne, Jr.
Managing Director and Secretary
Lea Lahtinen
------------------------------------------
Lea Lahtinen
Vice President and Assistant Secretary
Lea Lahtinen
------------------------------------------
Lea Lahtinen
<PAGE>
State of New York )
) ss:
County of New York )
Lea Lahtinen, being duly sworn, deposes and says that she is a Vice
President and an Assistant Secretary of Bankers Trust Company, the corporation
described in the foregoing certificate; that she has read the foregoing
certificate and knows the contents thereof, and that the statements herein
contained are true.
Lea Lahtinen
------------------------------------------
Lea Lahtinen
Sworn to before me this 6th day of August, 1998.
Sandra L. West
- ------------------------------------
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission Expires September 19, 1998
<PAGE>
State of New York,
Banking Department
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New
York, DO HEREBY APPROVE the annexed Certificate entitled "RESTATED ORGANIZATION
CERTIFICATE OF BANKERS TRUST COMPANY Under Section 8007 of the Banking Law,"
dated August 6, 1998, providing for the restatement of the Organization
Certificate and all amendments into a single certificate.
Witness, my hand and official seal of the Banking Department at the City of New
York,
this 31st day of August in the Year of our Lord one
thousand nine hundred and ninety-eight.
Manuel Kursky
------------------------------
Deputy Superintendent of Banks
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
-----------------------------
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing
Director and Secretary and a Vice President and an Assistant Secretary of
Bankers Trust Company, do hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of March, 1903.
3. The organization certificate as heretofore amended is hereby amended
to increase the aggregate number of shares which the corporation shall have
authority to issue and to increase the amount of its authorized capital stock in
conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital stock
shall be divided, the par value of the shares and the capital stock outstanding,
which reads as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Three Billion, One Million, Six Hundred Sixty-Six Thousand, Six
Hundred Seventy Dollars ($3,001,666,670), divided into Two Hundred
Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven
(200,166,667) shares with a par value of $10 each designated as Common
Stock and 1000 shares with a par value of One Million Dollars
($1,000,000) each designated as Series Preferred Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Three Billion, Five Hundred One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($3,501,666,670), divided into
Two Hundred Million, One Hundred Sixty-Six Thousand, Six Hundred
Sixty-Seven (200,166,667) shares with a par value of $10 each
designated as Common Stock and 1500 shares with a par value of One
Million Dollars ($1,000,000) each designated as Series Preferred
Stock."
<PAGE>
5. The foregoing amendment of the organization certificate was
authorized by unanimous written consent signed by the holder of all outstanding
shares entitled to vote thereon.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
25th day of September, 1998
James T. Byrne, Jr.
------------------------------------------
James T. Byrne, Jr.
Managing Director and Secretary
Lea Lahtinen
------------------------------------------
Lea Lahtinen
Vice President and Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is a Vice
President and an Assistant Secretary of Bankers Trust Company, the corporation
described in the foregoing certificate; that she has read the foregoing
certificate and knows the contents thereof, and that the statements herein
contained are true.
Lea Lahtinen
------------------------------------------
Lea Lahtinen
Sworn to before me this 25th day
of September, 1998
Sandra L. West
- ---------------------------------------
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission Expires September 19, 2000
<PAGE>
State of New York,
Banking Department
I, P. VINCENT CONLON, Deputy Superintendent of Banks of the State of
New York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF
AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY Under Section
8005 of the Banking Law," dated December 16, 1998, providing for an increase in
authorized capital stock from $3,501,666,670 consisting of 200,166,667 shares
with a par value of $10 each designated as Common Stock and 1,500 shares with a
par value of $1,000,000 each designated as Series Preferred Stock to
$3,627,308,670 consisting of 212,730,867 shares with a par value of $10 each
designated as Common Stock and 1,500 shares with a par value of $1,000,000 each
designated as Series Preferred Stock.
Witness, my hand and official seal of the Banking Department at the City of New
York,
this 18th day of December in the Year of our Lord one
thousand nine hundred and ninety-eight.
P. Vincent Conlon
------------------------------------------
Deputy Superintendent of Banks
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
-----------------------------
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing
Director and Secretary and a Vice President and an Assistant Secretary of
Bankers Trust Company, do hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of March, 1903.
3. The organization certificate as heretofore amended is hereby amended
to increase the aggregate number of shares which the corporation shall have
authority to issue and to increase the amount of its authorized capital stock in
conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital stock
shall be divided, the par value of the shares and the capital stock outstanding,
which reads as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Three Billion, Five Hundred One Million, Six Hundred Sixty-Six
Thousand, Six Hundred Seventy Dollars ($3,501,666,670), divided into
Two Hundred Million, One Hundred Sixty-Six Thousand, Six Hundred
Sixty-Seven (200,166,667) shares with a par value of $10 each
designated as Common Stock and 1500 shares with a par value of One
Million Dollars ($1,000,000) each designated as Series Preferred
Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter to
have is Three Billion, Six Hundred Twenty-Seven Million, Three Hundred
Eight Thousand, Six Hundred Seventy Dollars ($3,627,308,670), divided
into Two Hundred Twelve Million, Seven Hundred Thirty Thousand, Eight
Hundred Sixty- Seven (212,730,867) shares with a par value of $10 each
designated as Common Stock and 1500 shares with a par value of One
Million Dollars ($1,000,000) each designated as Series Preferred
Stock."
<PAGE>
5. The foregoing amendment of the organization certificate was
authorized by unanimous written consent signed by the holder of all outstanding
shares entitled to vote thereon.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
16th day of December, 1998
James T. Byrne, Jr.
------------------------------------------
James T. Byrne, Jr.
Managing Director and Secretary
Lea Lahtinen
------------------------------------------
Lea Lahtinen
Vice President and Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is a Vice
President and an Assistant Secretary of Bankers Trust Company, the corporation
described in the foregoing certificate; that she has read the foregoing
certificate and knows the contents thereof, and that the statements herein
contained are true.
Lea Lahtinen
------------------------------------------
Lea Lahtinen
Sworn to before me this 16th day
of December, 1998
Sandra L. West
- ----------------------------------
Notary Public
SANDRA L. WEST
Notary Public State of New York
No. 31-4942101
Qualified in New York County
Commission Expires September 19, 2000
<PAGE>
BY-LAWS
JUNE 22, 1999
Bankers Trust Corporation
(Incorporated under the New York Business Corporation Law)
<PAGE>
1
BANKERS TRUST CORPORATION
-----------------------------------------------
BY-LAWS
-----------------------------------------------
ARTICLE I
SHAREHOLDERS
SECTION 1.01 Annual Meetings. The annual meetings of shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on the third Tuesday in April of
each year, if not a legal holiday, and if a legal holiday then on the next
succeeding business day, at such hour as shall be designated by the Board of
Directors. If no other hour shall be so designated such meeting shall be held at
3 P.M.
SECTION 1.02 Special Meetings. Special meetings of the shareholders, except
those regulated otherwise by statute, may be called at any time by the Board of
Directors, or by any person or committee expressly so authorized by the Board of
Directors and by no other person or persons.
SECTION 1.03 Place of Meetings. Meetings of shareholders shall be held at such
place within or without the State of New York as shall be determined from time
to time by the Board of Directors or, in the case of special meetings, by such
person or persons as may be authorized to call a meeting. The place in which
each meeting is to be held shall be specified in the notice of such meeting.
SECTION 1.04 Notice of Meetings. A copy of the written notice of the place, date
and hour of each meeting of shareholders shall be given personally or by mail,
not less than ten nor more than fifty days before the date of the meeting, to
each shareholder entitled to vote at such meeting. Notice of a special meeting
shall indicate that it is being issued by or at the direction of the person or
persons calling the meeting and shall also state the purpose or purposes for
which the meeting is called. Notice of any meeting at which is proposed to take
action which would entitle shareholders to receive payment for their shares
pursuant to statutory provisions must include a statement of that purpose and to
that effect. If mailed, such notices of the annual and each special meeting are
given when deposited in the United States mail, postage prepaid, directed to the
shareholder at his address as it appears in the record of shareholders unless he
shall have filed with the Secretary of the corporation a written request that
notices intended for him shall be mailed to some other address, in which case it
shall be directed to him at such other address.
SECTION 1.05 Record Date. For the purpose of determining the shareholders
entitled to notice of or to vote any meeting of shareholders or any adjournment
thereof, or to express consent to or dissent from any proposal without a
meeting, or for the purpose of determining shareholders entitled to receive
payment of any dividend or the allotment of any rights, or for the purpose of
any other action, the Board of Directors may fix, in advance, a date as the
record date for any such determination of shareholders. Such date shall not be
more than fifty nor less than ten days before the date of such meeting, nor more
than fifty days prior to any other action.
<PAGE>
SECTION 1.06 Quorum. The presence, in person or by proxy, of the holders of a
majority of the shares entitled to vote thereat shall constitute a quorum at a
meeting of shareholders for the transaction of business, except as otherwise
provided by statute, by the Certificate of Incorporation or by the By-Laws. The
shareholders present in person or by proxy and entitled to vote at any meeting,
despite the absence of a quorum, shall have power to adjourn the meeting from
time to time, to a designated time and place, without notice other than by
announcement at the meeting, and at any adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment the Board of Directors fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice.
SECTION 1.07 Notice of Shareholder Business at Annual Meeting. At an annual
meeting of shareholders, only such business shall be conducted as shall have
been brought before the meeting (a) by or at the direction of the Board of
Directors or (b) by any shareholder of the corporation who complies with the
notice procedures set forth in this Section 1.07. For business to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than thirty days nor
more than fifty days prior to the meeting; provided, however, that in the event
that less than forty days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be received not later than the close of business on the tenth day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. A shareholder's notice to the Secretary shall
set forth as to each matter the shareholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the corporation's books, of
the shareholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the shareholder and (d) any
material interest of the shareholder in such business. Notwithstanding anything
in these By-Laws to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this Section 1.07
and Section 2.03. The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 1.07
and Section 2.03, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01 Number and Qualifications. The business of the corporation shall be
managed by its Board of Directors. The number of directors constituting the
entire Board of Directors shall be not less than seven nor more than fifteen, as
shall be fixed from time to time by vote of a majority of the entire Board of
Directors. Each director shall be at least 21 years of age. Directors need not
be shareholders. No Officer-Director who shall have attained age 65, or earlier
relinquishes his responsibilities and title, shall be eligible to serve as a
director.
SECTION 2.02 Election. At each annual meeting of shareholders, directors shall
be elected by a plurality of the votes to hold office until the next annual
meeting. Subject to the provisions of the statute, of the Certificate of
Incorporation and of the By-Laws, each director shall hold office until the
expiration of the term for which elected, and until his successor has been
elected and qualified.
<PAGE>
SECTION 2.03 Nomination and Notification of Nomination. Subject to the rights of
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board of Directors or to any committee appointed by
the Board of Directors or by any shareholder entitled to vote in the election of
directors generally. However, any shareholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Secretary of the corporation
not later than (i) with respect to an election to be held at an annual meeting
of shareholders ninety days in advance of such meeting, and (ii) with respect to
an election to be held at a special meeting of shareholders for the election of
directors, the close of business on the seventh day following the date on which
notice of such meeting is first given to shareholders. Each such notice shall
set forth: (a) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the shareholder is a holder of record of stock of the corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (d) such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as a director of the corporation if
so elected. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the corporation that information required to be set forth in a shareholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in the By-Laws. The Chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by these By-Laws, and if
he should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
SECTION 2.04 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such places and times as may be fixed from time to time
by resolution of the Board and a regular meeting for the purpose of organization
and transaction of other business shall be held each year after the adjournment
of the annual meeting of shareholders.
SECTION 2.05 Special Meetings. The Chairman of the Board, the Chief Executive
Officer, the President, the Senior Vice Chairman or any Vice Chairman may, and
at the request of three directors shall, call a special meeting of the Board of
Directors, two days' notice of which shall be given in person or by mail,
telegraph, radio, telephone or cable. Notice of a special meeting need not be
given to any director who submits a signed waiver of notice whether before or
after the meeting, or who attends the meeting without protesting, prior thereto
or at its commencement, the lack of notice to him.
SECTION 2.06 Place of Meeting. The directors may hold their meetings, have one
or more offices, and keep the books of the corporation (except as may be
provided by law) at any place, either within or without the State of New York,
as they may from time to time determine.
SECTION 2.07 Quorum and Vote. At all meetings of the Board of Directors the
presence of one-third of the entire Board, but not less than two directors,
shall constitute a quorum for the
<PAGE>
transaction of business. Any one or more members of the Board of Directors or of
any committee thereof may participate in a meeting of the Board of Directors or
a committee thereof by means of a conference telephone or similar communications
equipment which allows all persons participating in the meeting to hear each
other at the same time. Participation by such means shall constitute presence in
person at such a meeting. The vote of a majority of the directors present at the
time of the vote, if a quorum is present at such time, shall be the act of the
Board of Directors, except as may be otherwise provided by statute or the
By-Laws.
SECTION 2.08 Vacancies. Newly created directorships resulting from increase in
the number of directors and vacancies in the Board of Directors, whether caused
by resignation, death, removal or otherwise, may be filled by vote of a majority
of the directors then in office, although less than a quorum exists.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
SECTION 3.01 Designation and Authority. The Board of Directors, by resolution
adopted by a majority of the entire Board, may designate from among its members
an Executive Committee and other committees, each consisting of three or more
directors. Each such committee, to the extent provided in the resolution or the
By-Laws, shall have all the authority of the Board, except that no such
committee shall have authority as to:
(i) the submission to shareholders of any action as to which
shareholders' authorization is required by law.
(ii) the filling of vacancies in the Board of Directors or any committee.
(iii) the fixing of compensation of directors for serving on the Board or
on any committee.
(iv) the amendment or appeal of the By-Laws, or the adoption of new
By-Laws.
(v) the amendment or repeal of any resolution of the Board which by its
terms shall not be so amendable or repealable.
The Board may designate one or more directors as alternate members of any such
committee, who may replace any absent member or members at any meeting of such
committee. Each such committee shall serve at the pleasure of the Board of
Directors.
SECTION 3.02 Procedure. Except as may be otherwise provided by statute, by the
By-Laws or by resolution of the Board of Directors, each committee may make
rules for the call and conduct of its meetings. Each committee shall keep a
record of its acts and proceedings and shall report the same from time to time
to the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 4.01 Titles and General. The Board of Directors shall elect from among
their number a Chairman of the Board and a Chief Executive Officer, and may also
elect a President, a Senior Vice Chairman, one or more Vice Chairmen, one or
more Executive Vice Presidents, one or
<PAGE>
more Senior Vice Presidents, one or more Principals, one or more Vice
Presidents, a Secretary, a Controller, a Treasurer, a General Counsel, a General
Auditor, and a General Credit Auditor, who need not be directors. The officers
of the corporation may also include such other officers or assistant officers as
shall from time to time be elected or appointed by the Board. The Chairman of
the Board or the Chief Executive Officer or, in their absence, the President,
the Senior Vice Chairman or any Vice Chairman, may from time to time appoint
assistant officers. All officers elected or appointed by the Board of Directors
shall hold their respective offices during the pleasure of the Board of
Directors, and all assistant officers shall hold office at the pleasure of the
Board or the Chairman of the Board or the Chief Executive Officer or, in their
absence, the President, the Senior Vice Chairman or any Vice Chairman. The Board
of Directors may require any and all officers and employees to give security for
the faithful performance of their duties.
SECTION 4.02 Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the shareholders and of the Board of Directors. Subject to the
Board of Directors, he shall exercise all the powers and perform all the duties
usual to such office and shall have such other powers as may be prescribed by
the Board of Directors or the Executive Committee or vested in him by the
By-Laws.
SECTION 4.03 Chief Executive Officer. The Board of Directors shall designate the
Chief Executive Officer of the corporation, which person may also hold the
additional title of Chairman of the Board, President, Senior Vice Chairman or
Vice Chairman. Subject to the Board of Directors, he shall exercise all the
powers and perform all the duties usual to such office and shall have such other
powers as may be prescribed by the Board of Directors or the Executive Committee
or vested in him by the By-Laws.
SECTION 4.04 Chairman of the Board, President, Senior Vice Chairman, Vice
Chairmen, Executive Vice Presidents, Senior Vice Presidents, Principals and Vice
Presidents. The Chairman of the Board or, in his absence or incapacity the
President or, in his absence or incapacity, the Senior Vice Chairman, the Vice
Chairmen, the Executive Vice Presidents, or in their absence, the Senior Vice
Presidents, in the order established by the Board of Directors shall, in the
absence or incapacity of the Chief Executive Officer perform the duties of the
Chief Executive Officer. The President, the Senior Vice Chairman, the Vice
Chairmen, the Executive Vice Presidents, the Senior Vice Presidents, the
Principals, and the Vice Presidents shall also perform such other duties and
have such other powers as may be prescribed or assigned to them, respectively,
from time to time by the Board of Directors, the Executive Committee, the Chief
Executive Officer, or the By-Laws.
SECTION 4.05 Controller. The Controller shall perform all the duties customary
to that office and except as may be otherwise provided by the Board of Directors
shall have the general supervision of the books of account of the corporation
and shall also perform such other duties and have such powers as may be
prescribed or assigned to him from time to time by the Board of Directors, the
Executive Committee, the Chief Executive Officer, or the By-Laws.
SECTION 4.06 Secretary. The Secretary shall keep the minutes of the meetings of
the Board of Directors and of the shareholders and shall have the custody of the
seal of the corporation. He shall perform all other duties usual to that office,
and shall also perform such other duties and have such powers as may be
prescribed or assigned to him from time to time by the Board of Directors, the
Executive Committee, the Chairman of the Board, the Chief Executive Officer, or
the By-Laws.
ARTICLE V
<PAGE>
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 5.01 The corporation shall, to the fullest extent permitted by Section
721 of the New York Business Corporation Law, indemnify any person who is or was
made, or threatened to be made, a party to an action or proceeding, whether
civil or criminal, whether involving any actual or alleged breach of duty,
neglect or error, any accountability, or any actual or alleged misstatement,
misleading statement or other act or omission and whether brought or threatened
in any court or administrative or legislative body or agency, including an
action by or in the right of the corporation to procure a judgment in its favor
and an action by or in the right of any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, which any director or officer of the corporation is
serving or served in any capacity at the request of the corporation by reason of
the fact that he, his testator or intestate, is or was a director or officer of
the corporation, or is serving or served such other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, amounts paid in settlement, and costs, charges and
expenses, including attorneys' fees, or any appeal therein; provided, however,
that no indemnification shall be provided to any such person if a judgment or
other final adjudication adverse to the director or officer establishes that (i)
his acts were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 5.02 The corporation may indemnify any other person to whom the
corporation is permitted to provide indemnification or the advancement of
expenses by applicable law, whether pursuant to rights granted pursuant to, or
provided by, the New York Business Corporation Law or other rights created by
(i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an
agreement providing for such indemnification, it being expressly intended that
these By-Laws authorize the creation of other rights in any such manner.
SECTION 5.03 The corporation shall, from time to time, reimburse or advance to
any person referred to in Section 5.01 the funds necessary for payment of
expenses, including attorneys' fees, incurred in connection with any action or
proceeding referred to in Section 5.01, upon receipt of a written undertaking by
or on behalf of such person to repay such amount(s) if a judgment or other final
adjudication adverse to the director or officer establishes that (i) his acts
were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
SECTION 5.04 Any director or officer of the corporation serving (i) another
corporation, of which a majority of the shares entitled to vote in the election
of its directors is held by the corporation, or (ii) any employee benefit plan
of the corporation or any corporation referred to in clause (i), in any capacity
shall be deemed to be doing so at the request of the corporation. In all other
cases, the provisions of this Article V will apply (i) only if the person
serving another corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise so served at the specific request of the
corporation, evidenced by a written communication signed by the Chairman of the
Board, the Chief Executive Officer, the President, the Senior Vice Chairman or
any Vice Chairman, and (ii) only if and to the extent that, after making such
efforts as the Chairman of the Board, the Chief Executive Officer, or the
President shall deem adequate in the circumstances, such person shall be unable
to obtain indemnification from such other enterprise or its insurer.
SECTION 5.05 Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article V may
elect to have the right to
<PAGE>
indemnification (or advancement of expenses) interpreted on the basis of the
applicable law in effect at the time of the occurrence of the event or events
giving rise to the action or proceeding, to the extent permitted by law, or on
the basis of the applicable law in effect at the time indemnification is sought.
SECTION 5.06 The right to be indemnified or to the reimbursement or advancement
of expenses pursuant to this Article V (i) is a contract right pursuant to which
the person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the corporation and the director or
officer, (ii) is intended to be retroactive and shall be available with respect
to events occurring prior to the adoption hereof, and (iii) shall continue to
exist after the rescission or restrictive modification hereof with respect to
events occurring prior thereto.
SECTION 5.07 If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the corporation
within thirty days after a written claim has been received by the corporation,
the claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled also to be paid the expenses of prosecuting such
claim. Neither the failure of the corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the claimant is proper in the
circumstances, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel, or its shareholders) that the
claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses, shall be a defense to the action or create a
presumption that the claimant is not so entitled.
SECTION 5.08 A person who has been successful, on the merits or otherwise, in
the defense of a civil or criminal action or proceeding of the character
described in Section 5.01 shall be entitled to indemnification only as provided
in Sections 5.01 and 5.03, notwithstanding any provision of the New York
Business Corporation Law to the contrary.
ARTICLE VI
SEAL
SECTION 6.01 Corporate Seal. The corporate seal shall contain the name of the
corporation and the year and state of its incorporation. The seal may be altered
from time to time at the discretion of the Board of Directors.
ARTICLE VII
SHARE CERTIFICATES
SECTION 7.01 Form. The certificates for shares of the corporation shall be in
such form as shall be approved by the Board of Directors and shall be signed by
the Chairman of the Board, the Chief Executive Officer, the President, the
Senior Vice Chairman or any Vice Chairman and the Secretary or an Assistant
Secretary, and shall be sealed with the seal of the corporation or a facsimile
thereof. The signatures of the officers upon the certificate may be facsimiles
if the
<PAGE>
certificate is countersigned by a transfer agent or registered by a registrar
other than the corporation itself or its employees.
ARTICLE VIII
CHECKS
SECTION 8.01 Signatures. All checks, drafts and other orders for the payment of
money shall be signed by such officer or officers or agent or agents as the
Board of Directors may designate from time to time.
ARTICLE IX
AMENDMENT
SECTION 9.01 Amendment of By-Laws. The By-Laws may be amended, repealed or added
to by vote of the holders of the shares at the time entitled to vote in the
election of any directors. The Board of Directors may also amend, repeal or add
to the By-Laws, but any By-Laws adopted by the Board of Directors may be amended
or repealed by the shareholders entitled to vote thereon as provided herein. If
any By-Law regulating an impending election of directors is adopted, amended or
repealed by the Board, there shall be set forth in the notice of the next
meeting of shareholders for the election of directors the By-Laws so adopted,
amended or repealed, together with concise statement of the changes made.
ARTICLE X
SECTION 10.01 Construction. The masculine gender, when appearing in these
By-Laws, shall be deemed to include the feminine gender.
<PAGE>
I, Marc J. Parilla, Assistant Vice President of Bankers Trust Company, New York,
New York, hereby certify that the foregoing is a complete, true and correct copy
of the By-Laws of Bankers Trust Company, and that the same are in full force and
effect at this date.
/s/Marc J. Parilla
------------------------
Marc J. Parilla
Assistant Vice President
DATED: December 3, 1999
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 06/30/99 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1
City, State ZIP: New York, NY 10006 Transmit #: 21001003 11
</TABLE>
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for June 30, 1999
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
Schedule RC--Balance Sheet
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
------------
| C400 |
---------------------------
Dollar Amounts in Thousands | RCFD |
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS | ////////////////// |
1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// |
a. Noninterest-bearing balances and currency and coin (1) ............... | 0081 2,138,000 |1.a.
b. Interest-bearing balances (2) ........................................ | 0071 5,465,000 |1.b.
2. Securities: | ////////////////// |
a. Held-to-maturity securities (from Schedule RC-B, column A) ........... | 1754 0 |2.a.
b. Available-for-sale securities (from Schedule RC-B, column D).......... | 1773 1,811,000 |2.b.
3. Federal funds sold and securities purchased under agreements to resell....... | 135 19,558,000 |3.
4. Loans and lease financing receivables: | ////////////////// |
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 22,038,000 | ////////////////// |4.a.
b. LESS: Allowance for loan and lease losses...................RCFD 3123 458,000 | ////////////////// |4.b.
c. LESS: Allocated transfer risk reserve ......................RCFD 3128 0 | ////////////////// |4.c.
d. Loans and leases, net of unearned income, | ////////////////// |
allowance, and reserve (item 4.a minus 4.b and 4.c) ................... | 2125 21,580,000 |4.d.
5. Trading Assets (from schedule RC-D) ........................................ | 3545 18,767,000 |5.
6. Premises and fixed assets (including capitalized leases) .................... | 2145 877,000 |6.
7. Other real estate owned (from Schedule RC-M) ................................ | 2150 88,000 |7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) | 2130 948,000 |8.
9. Customers' liability to this bank on acceptances outstanding ................ | 2155 230,000 |9.
10. Intangible assets (from Schedule RC-M) ...................................... | 2143 100,000 |10.
11. Other assets (from Schedule RC-F) ........................................... | 2160 3,956,000 |11.
12. Total assets (sum of items 1 through 11) .................................... | 2170 75,518,000 |12.
-------------------------------
</TABLE>
- --------------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 06/30/99 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2
City, State Zip: New York, NY 10006 Transmit #: 21001003 12
</TABLE>
Schedule RC--Continued
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
___________________________
Dollar Amounts in Thousands |//////// Bil Mil Thou|
- -------------------------------------------------------------------------------------------------|-------------------------|
LIABILITIES |//////////////////////// |
13. Deposits: |/////////////////////// |
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) | RCON 2200 16,538,000 |13.a.
(1) Noninterest-bearing(1) ......................RCON 6631 2,636,000....... |/////////////////////// |13.a.(1)
(2) Interest-bearing .............................RCON 6636 13,902,000....... |/////////////////////// |13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E |/////////////////////// |
part II) | RCFN 2200 18,293,000 |13.b.
(1) Noninterest-bearing .........................RCFN 6631 3,202,000 |/////////////////////// |13.b.(1)
(2) Interest-bearing ............................RCFN 6636 15,091,000 |/////////////////////// |13.b.(2)
14. Federal funds purchased and securities sold under agreements to repurchase | RCFD 2800 5,772,000 |14.
15. a. Demand notes issued to the U.S. Treasury ........................................ | RCON 2840 500,000 |15.a.
b. Trading liabilities (from Schedule RC-D)......................................... | RCFD 3548 15,013,000 |15.b.
16.Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases)|////////////////////// /|
a. With a remaining maturity of one year or less ................................... | RCFD 2332 3,157,000 |16.a.
b. With a remaining maturity of more than one year through three years............. | A547 2,990,000 |16.b.
c. With a remaining maturity of more than three years................................ | A548 364,000 |16.c
17. Not Applicable. |/////////////////////////|17.
18. Bank's liability on acceptances executed and outstanding ............................. | RCFD 2920 230,000 |18.
19. Subordinated notes and debentures (2)................................................. | RCFD 3200 331,000 |19.
20. Other liabilities (from Schedule RC-G) ............................................... | RCFD 2930 6,588,000 |20.
21. Total liabilities (sum of items 13 through 20) ....................................... | RCFD 2948 69,776,000 |21.
22. Not Applicable |/////////////////////// |
|/////////////////////////|22.
EQUITY CAPITAL |/////////////////////// |
23. Perpetual preferred stock and related surplus ........................................ | RCFD 3838 1,500,000 |23.
24. Common stock ......................................................................... | RCFD 3230 2,127,000 |24.
25. Surplus (exclude all surplus related to preferred stock) ............................. | RCFD 3839 541,000 |25.
26. a. Undivided profits and capital reserves .......................................... | RCFD 3632 1,798,000 |26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities .......... | RCFD 8434 ( 5,000) |26.b.
c. Accumulated net gains (losses) on cash flow hedges............................... | RCFD 4336 0 |26.c.
27. Cumulative foreign currency translation adjustments .................................. | RCFD 3284 ( 219,000) |27.
28. Total equity capital (sum of items 23 through 27) .................................... | RCFD 3210 5,742,000 |28.
29. Total liabilities and equity capital (sum of items 21 and 28)......................... | RCFD 3300 75,518,000 |29
---------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external Number
---------------------------
auditors as of any date during 1997 ..................................... | RCFD 6724 N/A | M.1
---------------------------
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed
with generally accepted auditing standards by a certified by other external auditors (may be required
public accounting firm which submits a report on the bank by state chartering authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by
conducted in accordance with generally accepted auditing external auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial
submits a report on the consolidated holding company statements by external auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax
3 = Directors' examination of the bank conducted in preparation work)
accordance with generally accepted auditing standards by a certified 8 = No external audit work
public accounting firm (may be required by state chartering authority)
</TABLE>
- ----------------------
(1) Including total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
REGISTRATION STATEMENT ON FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<CIK> 0000900625
<NAME> FIRST STAR BANCORP INC
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 1,639
<INT-BEARING-DEPOSITS> 2,644
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 159,253
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 188,360
<ALLOWANCE> 1,779
<TOTAL-ASSETS> 366,492
<DEPOSITS> 192,039
<SHORT-TERM> 6,000
<LIABILITIES-OTHER> 3,727
<LONG-TERM> 149,065
0
0
<COMMON> 375
<OTHER-SE> 15,286
<TOTAL-LIABILITIES-AND-EQUITY> 366,492
<INTEREST-LOAN> 3,836
<INTEREST-INVEST> 2,694
<INTEREST-OTHER> 50
<INTEREST-TOTAL> 6,580
<INTEREST-DEPOSIT> 2,323
<INTEREST-EXPENSE> 4,562
<INTEREST-INCOME-NET> 2,018
<LOAN-LOSSES> 47
<SECURITIES-GAINS> (358)
<EXPENSE-OTHER> 897
<INCOME-PRETAX> 857
<INCOME-PRE-EXTRAORDINARY> 561
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 561
<EPS-BASIC> 1.49
<EPS-DILUTED> .83
<YIELD-ACTUAL> 2.23
<LOANS-NON> 1,778
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,772
<CHARGE-OFFS> 40
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,779
<ALLOWANCE-DOMESTIC> 1,779
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT 99
<PAGE>
FIRST STAR CAPITAL TRUST
Subscription Agreement
for
Adjustable Rate Trust Preferred Securities, Liquidation Amount $10.00
per Preferred Security
To: First Star Capital Trust
c/o Hopper Soliday, a Division of Tucker Anthony Incorporated
1703 Oregon Pike
Lancaster, PA 17601-4201
1. Subscription. The undersigned hereby subscribes for the purchase of
the number of Adjustable Rate Trust Preferred Securities, Liquidation Amount
$10.00 per Preferred Security (the "Preferred Securities") of FIRST STAR CAPITAL
TRUST, a statutory business trust formed under the laws of the State of Delaware
(the "Trust"), set forth above the undersigned's signature. The undersigned
hereby tenders immediately available funds in the amount of $10.00, payable to
the order of First Star Capital Trust, for each subscribed for Preferred
Security.
2. Acknowledgments. The undersigned acknowledges that no Preferred
Securities shall be deemed sold or issued to the undersigned, nor shall the
undersigned have any interest in the Trust or be deemed to be a holder of
Preferred Securities of the Trust, until the Trust accepts this subscription
pursuant to the terms of the offering as set forth in the Prospectus dated
, 1999, pertaining to the sale of up to $12,000,000 Preferred
Securities (the "Prospectus"). Acceptance of this subscription shall be made by
the execution of this Subscription Agreement by an authorized administrator of
the Trust. The undersigned acknowledges that the Company and the Trust may
reject any subscription for any reason in their discretion.
3. Warranties and Representations. The undersigned makes the following
representations and warranties with the intent that the same may be relied upon
in determining the undersigned's suitability to become a holder of Preferred
Securities of the Trust with the understanding that the availability of
exemptions from registration of the offering under applicable state securities
laws may depend upon the accuracy of such representations and warranties:
(a) Receipt of Prospectus. The undersigned has received a copy
of the Prospectus, from the Trust or its agent, and makes and enters into this
Subscription Agreement with full knowledge of the terms and conditions contained
therein. First Star Bancorp, Inc. (the "Company"), as sponsor of the Trust, has
made available to the undersigned and the undersigned's agents and advisors the
opportunity to obtain additional information and to verify
1
<PAGE>
the accuracy of the information contained in the Prospectus, to evaluate the
merits and risks of this investment and to ask questions of and receive
satisfactory answers from the Company on behalf of the Trust concerning the
terms and conditions of the offering.
(b) Risk Factors. The undersigned understands the risks
involved in an investment in the Preferred Securities, including those described
in the Prospectus under "Risk Factors." The undersigned recognizes that an
investment in the Preferred Securities involves the risk of loss of principal
and/or interest.
(c) Knowledge and Experience of Undersigned. The undersigned
represents that the undersigned's knowledge and experience in financial and
business matters in general are such that the undersigned (together with the
undersigned's advisors, if appropriate) is capable of evaluating the merits and
risks of an investment in the Preferred Securities.
(d) Financial Standards. Please check one or more if
applicable:
(1) As of the date hereof, the undersigned has
----- an individual net worth, or joint net worth
with his or her spouse, excluding principal
residence, home furnishings and automobiles,
of at least five times the price of the
Preferred Securities subscribed for herein.
(2) As of the date hereof, the undersigned has
----- an individual net worth, or joint net worth
with his or her spouse, in excess of
$1,000,000.
(3) The undersigned, individually and not
----- jointly with a spouse, has had income in
each of the two preceding calendar years and
reasonably expects to have income during the
current calendar year in excess of $200,000
per year.
(4) The undersigned has had joint income
----- together with his or her spouse in each of
the two preceding calendar years and
reasonably expects to have such joint income
during the current calendar year in excess
of $300,000 per year.
(5) The undersigned is an entity in which all of
----- the equity owners are accredited investors
who meet the criteria listed in (2), (3) or
(4) above.
(6) The undersigned is a bank, a savings and
----- loan association, a registered broker
dealer, an insurance company, an investment
company as defined in the Investment Company
Act of 1940, a private business development
company as defined in the
2
<PAGE>
Investment Advisors Act of 1940, or any
person (other than an individual) that
controls any of the foregoing.
(7) The undersigned is an employee benefit plan
----- within the meaning of TitleI of the Employee
Retirement Income Security Act of 1974 (ERISA)
and either (i) this investment decision is
made by a plan fiduciary, as defined in
Section 3(21) of ERISA, that is a bank, saving
and loan association, insurance company or
a registered investment advisor, or (ii) the
plan has total assets in excess of $5,000,000.
(8) The undersigned is a self-directed employee
----- benefit plan within the meaning of Title I
of ERISA whose investment decisions are made
solely by persons or entities who meet any
of the requirements of (2) through (7),
above, or (10) through (11), below.
(9) The undersigned is an organization described
----- in Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended, a Massachusetts or
similar business trust, a corporation or a
partnership with total assets in excess of
$5,000,000, and has not been formed for the
specific purpose of acquiring the Preferred
Securities.
(10) The undersigned is a trust with total assets
----- in excess of $5,000,000, not formed for the
specific purpose of acquiring the Preferred
Securities, whose subscription is being
directed by a person who has such knowledge
and experience in financial and business
matters that he or she is capable of
evaluating the merits and risks of an
investment in the Preferred Securities.
(11) The undersigned is a director or executive
----- officer of the Company.
(e) Limited Liquidity of Investment. The undersigned
recognizes that there will be no public market for the Preferred Securities. The
undersigned expects to hold the Preferred Securities for investment and
understands that the undersigned will not readily be able to liquidate the
investment in the Preferred Securities even in case of emergency.
(f) Employee Benefit Plans and Plan Asset Entities. The
undersigned represents that it has read the section of the Prospectus captioned
"ERISA Considerations" and represents that the undersigned either (a) is not a
Plan or Plan Asset Entity as such terms are defined under "ERISA Considerations"
in the Prospectus or (b) is exempt from ERISA's prohibited transaction rules
95-60, 91-38, 90-1 or 84-14.
3
<PAGE>
4. Restrictions on Transfer. The undersigned acknowledges that the
Preferred Securities will be offered and sold without registration under the
Pennsylvania Securities Act of 1972, as amended, or under any other state
securities law. No such registration is contemplated in the future, the holders
of Preferred Securities have no right to require such registration and the
Preferred Securities may not be transferred absent an exemption from such
registration. The undersigned acknowledges that certificates for the Preferred
Securities will bear a restrictive legend regarding the absence of registration
under the securities laws of any state. Any expenses of a subscriber's
compliance with resale restrictions are the responsibility of the subscriber.
(a) Pennsylvania Residents. The undersigned, if a resident of
the Commonwealth of Pennsylvania and if purchasing the Preferred Securities
other than as an Institutional Investor or a Principal, as such terms are
defined by Section 102(k) of the Pennsylvania Securities Act of 1972, as
amended, (the "Pennsylvania Act") or Regulation 102.111 of Chapter 102 of Title
64 of the Pennsylvania Code, as amended, and Regulation 203.184 of Chapter 203
of Title 64 of the Pennsylvania Code, respectively, acknowledges that the
certificates for the Preferred Securities will bear a restrictive legend and
represents that the undersigned has completed and delivered the Agreement Not to
Sell (in the form attached as Appendix A).
(b) Delaware Residents. The undersigned, if a resident of the
State of Delaware and if purchasing the Preferred Securities other than as an
Institutional Investor, as such term is defined by Section 7309(b)(8) of the
Delaware Securities Act, as amended, (the "Delaware Act") or Section 510 of the
Rules and Regulations pursuant to the Delaware Act, acknowledges that the
certificates for the Preferred Securities will bear a restrictive legend and
represents that the undersigned has completed and delivered the Agreement Not to
Sell (in the form attached as Appendix B).
(c) Ohio Residents. The undersigned, if a resident of the
State of Ohio and if purchasing the Preferred Securities other than as an
Institutional Investor, as such term is defined by Section 1707.01(S) of the
Ohio Securities Act, as amended, (the "Ohio Act") or Rule 1301:6- 3-01(D) of the
Rules and Regulations pursuant to the Ohio Act, acknowledges that the
certificates for the Preferred Securities will bear a restrictive legend and
represents that the undersigned has completed and delivered the Agreement Not to
Sell (in the form attached as Appendix C).
5. Indemnity. The undersigned agrees to indemnify the Trust, the
Company and their respective trustees, administrators, officers and directors
and hold them harmless from and against any and all loss, damage, liability and
expense, including reasonable attorney's fees, which they may incur by reason of
any misrepresentation made by the undersigned, any breach of any of the
undersigned's representations and warranties or the undersigned's failure to
fulfill any of the agreements under this Subscription Agreement.
4
<PAGE>
6. Purchaser's Questionnaire. The undersigned has completed and
delivered to the Trust the Purchaser's Questionnaire (in the form attached).
7. Offeree Representative. The undersigned has consulted with and been
guided by an investment advisor, attorney and/or accountant named below (the
"Representative") with respect to and concerning the advisability of the
purchase of the Preferred Securities hereby subscribed for (or if the space
therefor is left blank, the undersigned represents and warrants that the
undersigned is capable of evaluating an investment in the Preferred Securities
without the assistance of such an advisor even though advised by the Trust to
seek such advice). The undesigned has been advised by the Representative of any
and all material relationships that the Representative had during the past two
years, now had or intends to have in the future with the Trust or its
Affiliates.
--------------------------------
(Name of Offeree Representative)
8. Miscellaneous.
(a) The representations, warranties and agreements of the
undersigned set forth herein and in the Purchaser's Questionnaire are continuing
in nature and shall survive the acceptance of this Subscription Agreement and
the issuance of the Preferred Securities.
(b) this Subscription Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania,
without regard to the conflicts of laws principles thereof.
EXECUTED this day of , 1999.
-------- ----------------
Number of Preferred Securities subscribed Total subscription price at
for: $10.00 per Preferred Security = $
------------------------------------ ----
Name(s) to be placed on certificates:
------------------------------------------
Principal Residence:
-----------------------------------------------------------
-----------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Signature of Subscriber Signature of Subscriber
Business Address:
-----------------------------------------------------------
-----------------------------------------------------------
- -------------------------------------------- -------------------------------
Printed Name of Subscriber Printed Name of Subscriber
- --------------------------------------------------------------------------------
Social Security Number or Social Security Number or
Taxpayer Identification Number Taxpayer Identification Number
- -------------------------------------------- -------------------------------
Business Phone Number Home Phone Number
- -------------------------------------------- -------------------------------
Fax Number E-Mail Address
Please indicate with an "X" whether you wish mailings to holders of the
Preferred Securities to be sent to your home address or to your business address
.
Accepted this day of , 1999.
-------- ----------------
FIRST STAR CAPITAL TRUST
By: FIRST STAR BANCORP, INC.,
as Sponsor
By:
------------------------------
6
<PAGE>
INSTRUCTIONS
------------
Each subscription must include;
(a) A completed and executed copy of this Subscription Agreement;
(b) A completed and executed copy of the Purchaser's Questionnaire; and
(c) Your check made payable to "First Star Capital Trust" or written
instructions regarding the date when you intend to wire transfer funds
as payment for your Preferred Securities.
Please mail or hand deliver all of the above items to:
First Star Capital Trust
c/o Hopper Soliday, a Division of Tucker Anthony Incorporated
1703 Oregon Pike
Lancaster, PA 17601
Wire transfers in payment of the Preferred Securities shall be sent to:
Bankers Trust Company as follows:
ABA #
----------------------------
for further credit to
Bankers Trust Company
----------------------------------
for further credit to
Bankers Trust Company Corporate Trust and Agency Services
----------------------------------
Reference: First Star Capital Trust Escrow Account
7
<PAGE>
FIRST STAR CAPITAL TRUST
(the "Trust")
PURCHASER's QUESTIONNAIRE
for
Adjustable Rate Trust Preferred Securities, Liquidation Amount $10.00
per Preferred Security
THIS QUESTIONNAIRE MUST BE ANSWERED FULLY AND RETURNED TO HOPPER
SOLIDAY ALONG WITH YOUR COMPLETED SUBSCRIPTION PACKAGE. THE PURCHASER
INFORMATION REQUESTED HEREIN IS IN ADDITION TO THE INFORMATION CONTAINED IN THE
SUBSCRIPTION AGREEMENT.
THE INFORMATION SUPPLIED BY PROSPECTIVE SUBSCRIBERS WILL BE HELD IN
STRICT CONFIDENCE. NO INFORMATION WILL BE DISCLOSED EXCEPT TO THE EXTENT THAT
SUCH DISCLOSURE (i) IS REQUIRED BY LAW OR REGULATION, (ii) IS NECESSARY TO
DEFEND AGAINST ANY CLAIM THAT THE OFFER AND SALE OF THE PREFERRED SECURITIES WAS
NOT EXEMPT FROM REGISTRATION UNDER THE PENNSYLVANIA SECURITIES ACT OF 1972, AS
AMENDED, OR ANY STATE SECURITIES LAW OR TO OTHERWISE ESTABLISH THE TRUST'S AND
THE COMPANY'S GOOD FAITH ATTEMPT TO COMPLY WITH THE REQUIREMENTS OF ANY
EXEMPTION FROM REGISTRATION, OR (iii) IS OTHERWISE DEMANDED BY PROPER LEGAL
PROCESS.
PART I - INDIVIDUALS
--------------------
1. Personal Data
Name:
-----------------------------------------------------------------
Residence Address:
----------------------------------------------------
Business Address:
----------------------------------------------------
State of Residence, if Different:
-------------------------------------
8
<PAGE>
2. Occupation, Employment, Business Experience and Education
---------------------------------------------------------
A brief description of my current occupation is as follows:
------------
- --------------------------------------------------------------------------------
PART II - PURCHASERS WHO ARE NOT INDIVIDUALS
--------------------------------------------
1. General Information
-------------------
Name of Entity:
-------------------------------------------------------
Address of Principal Office:
------------------------------------------
- --------------------------------------------------------------------------------
Type of Organization (Corporation, Partnership, etc.):
----------------
- --------------------------------------------------------------------------------
Date and Place of Organization:
---------------------------------------
2. Business
--------
A brief description of the business conducted by the entity is as
follows:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. Controlling Persons
-------------------
Each person involved in making the investment decision on behalf of the
entity is listed below:
Name Title
---- -----
-----------------------------------------------------------------------
-----------------------------------------------------------------------
9
<PAGE>
4. Benefit Plan Status
-------------------
Please indicate whether or not the entity is or is acting on behalf of
(i) an employee benefit plan within the meaning of Section 3(3) of ERISA,
whether or not such plan is subject to ERISA, (ii) an entity which is deemed to
hold the assets of any such employee plan pursuant to 29 C.F.R. Section
2510.3-1010. For example, a plan which is maintained by a foreign corporation,
governmental entity or church, a Keogh plan covering no common-law employees,
and an individual retirement account are employee benefit plans within the
meaning of Section 3(3) of ERISA, but generally are not subject to ERISA
(collectively, "Non-ERISA Plans"). In general, a foreign or U.S. entity which is
not an operating company and which is not publicly traded or registered as an
investment company under the Investment Company Act and in which 25% or more of
the value of any class of equity interests is held by employee pension or
welfare plans (including an entity which is deemed to hold the assets of any
such plan), would be deemed to held the assets of one or more employee benefit
plans pursuant to 29 C.F.R. Section 2510.3- 101. However, if only Non-ERISA
Plans were invested in such an entity, the entity would not be subject to ERISA.
For purposes of determining whether this 25% threshold has been met or exceeded,
the value of any equity interests held by a person (other than such a plan or
entity) who had discretionary authority or control with respect to the assets of
the entity, or any persons who provides investment advice for a fee (direct or
indirect) with respect to such assets, or any affiliate of such person, is
disregarded.
Yes No
----- -----
If you answered yes to the above question, please answer the following:
The entity is, or is acting on behalf of, an individual retirement
account.
Yes No
----- -----
The entity is, or is acting on behalf of, an employee benefit plan
within the meaning of Section 3(3) of ERISA, whether or not such plan
is subject to ERISA, which covers only an individual who is the sole
owner of the plan sponsor and his or her spouse, if any.
Yes No
----- -----
5. Representations
---------------
The undersigned officer of the entity represents that:
a. The entity was not organized for the purpose of purchasing
Preferred Securities.
10
<PAGE>
b. the officers, directors, employees or equity owners of the entity
have sufficient knowledge and experience in similar programs or
investments to evaluate the merits and risks of an investment in
the Preferred Securities (or the entity has retained an attorney,
accountant, financial advisor or consultant as a purchaser
representative); the officers, directors, employees or equity
owners of the entity have received and have had access to
material and relevant information enabling them to make an
informed investment decision regarding the Preferred Securities,
and that all data requested on behalf of the entity has been
furnished to it.
If applicable, the name, employer address and telephone number of
the entity's purchaser representative is as follows:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
c. It is understood that the information contained herein is being
furnished to the Trust and First Star Bancorp, Inc. as Sponsor
(the "Company"), to assist the Trust and the Sponsor in
evaluating the entity's suitability as an investor in the Trust
and to determine whether a sale of Preferred Securities may be
made to the entity pursuant to applicable federal and state
securities laws and regulations.
d. It is acknowledged that the Trust and the Sponsor may rely upon
the information contained herein for purposes of determining the
entity's suitability as an investor in the Trust and that the
evaluation of the information by the Trust and the Sponsor
contained herein may preclude its acceptance of the entity's
subscription for Preferred Securities.
The foregoing answers are true and correct and may be relied upon by
the Trust, the Sponsor and Hopper Soliday.
Entity
------
Date:
---------------------------- -------------------------------------------
Name of Entity
By:
---------------------------------------
---------------------------------------
Name and Title
11
<PAGE>
PART III - OFFEREE REPRESENTATIVE QUESTIONNAIRE
-----------------------------------------------
1. Name (Individual and Firm or Company):
--------------------------------
-----------------------------------------------------------------------
2. Business Address and Telephone Number:
--------------------------------
-----------------------------------------------------------------------
3. I vote in the sate of:
------------------------------------------------
4. Employer and Position or Profession:
----------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
5. The undersigned is not an affiliate, director, officer, other employee
of the Trust or any affiliate, or the beneficial owner of ten percent
or more of the equity interest in the Trust or any affiliate.
6. The undersigned has such knowledge and experience in financial and
business matters so as to be capable of evaluating the relative merits
and risks of an investment in the Preferred Securities. Set forth below
is the following additional information in support of the foregoing
statement (i.e., investment experience, business experience, profession
and education):
-----------------------------------------------------------------------
-----------------------------------------------------------------------
7. There is no material relationship between the undersigned or his or her
affiliates and the Trust, the Company or its affiliates which now
exists, is mutually understood to be contemplated, or which has existed
at any time during the previous two years.
Date:
------------------------------- -------------------------------------
(Signature of Offeree Representative)
12
<PAGE>
APPENDIX A: PENNSYLVANIA RESIDENTS
NON-INSTITUTIONAL INVESTORS AND NON-PRINCIPALS
- --------------------------------------------------------------------------------
AGREEMENT NOT TO SELL
AND ACKNOWLEDGMENT OF RIGHT TO WITHDRAW SUBSCRIPTION
I,_________________, understand and hereby agree that as a condition of
the availability of an exemption from registration afforded to First Star
Capital Trust (the "Issuer") pursuant to Section 203(d) of the Pennsylvania
Securities Act of 1972, as amended (the "Act"), I may not sell any securities
issued to me by the Issuer, except in accordance with Regulation 204.011 of the
Pennsylvania Code, as amended, for a period of twelve months after the date of
purchase of such securities, and I authorize the Issuer to file this agreement
on my behalf with the Pennsylvania Securities Commission.
I further understand that I have the right, pursuant to Section 207(m)
of the Act to withdraw my subscription and receive a full refund of all monies
paid, within two business days from the date of receipt by Hopper Soliday of the
subscription agreement. Withdrawal will be without any further liability to any
person, including the Issuer and Hopper Soliday. To accomplish withdrawal, I
will send a letter or telegram to the Issuer in care of Hopper Soliday at the
address set forth in this subscription agreement, indicating my intention to
withdraw. Such letter will be postmarked or such telegram will be sent prior to
the end of the second business day. If I send a letter, I will do so by
certified mail, return receipt requested. If I make the request orally (in
person or by telephone), I will request a written confirmation that my request
has been received.
I further understand that my certificate for the securities will
contain the following legend:
"The securities evidenced by this certificate were sold without
registration in the Commonwealth of Pennsylvania pursuant to an exemption set
forth at Section 203(d) of the Pennsylvania Securities Act of 1972, as amended,
requiring, among other things, that the purchaser may not sell the securities
for twelve consecutive months from the date of purchase. These shares may not be
transferred or sold without an opinion of counsel of the holder stating that the
holder (i) has sufficiently fulfilled the requirements of under Section
203(d)(i) of the Pennsylvania Securities Act of 1972, or (ii) meets the
conditions for an automatic waiver of the twelve month holding period contained
in Regulation 204.011 of the Pennsylvania Code, as amended."
Date: , 1999 By:
----------------- ------------------------------------------
Purchaser
13
<PAGE>
APPENDIX B: DELAWARE RESIDENTS
NON-INSTITUTIONAL INVESTORS
- --------------------------------------------------------------------------------
AGREEMENT NOT TO SELL
---------------------
I, _______________, understand and hereby acknowledge that these
securities are being sold without registration in the State of Delaware pursuant
to an exemption set forth at Section 7309(b)(9) of the Delaware Securities Act,
as amended, requiring among other things that I am purchasing the securities of
the Issuer with investment intent and that these securities may be resold only
with an opinion of counsel stating that I have sufficiently fulfilled the
requirement of purchasing for investment. I authorize the Issuer to file this
agreement on my behalf with the Delaware Division of Securities.
I further understand that my certificate for the securities will
contain the following legend:
"The securities evidenced by this certificate were sold without
registration in the State of Delaware pursuant to an exemption set forth at
Section 7309(b)(9) of the Delaware Securities Act, as amended, requiring, among
other things, the buyer to be "purchasing for investment." These shares may not
be transferred or sold without an opinion of counsel of the holder stating that
the holder has sufficiently fulfilled the requirement of "purchasing for
investment" under Section 7309(b)(9) of the Delaware Securities Act, as
amended."
Date: , 1999 By:
----------------- ------------------------------------------
Purchaser
14
<PAGE>
APPENDIX C: OHIO RESIDENTS
NON-INSTITUTIONAL INVESTORS
- --------------------------------------------------------------------------------
AGREEMENT NOT TO SELL
---------------------
I, , understand and hereby acknowledge that these securities are being
sold without registration in the State of Ohio pursuant to an exemption set
forth at Section 1707.03(D) of the Ohio Securities Act, as amended, requiring
among other things that I am purchasing the securities of the Issuer with
investment intent and that these securities may be resold only with an opinion
of counsel stating that I have sufficiently fulfilled the requirement of
purchasing for investment. I authorize the Issuer to file this agreement on my
behalf with the Ohio Division of Securities.
I further understand that my certificate for the securities will
contain the following legend:
"The securities evidenced by this certificate were sold without
registration in the State of Ohio pursuant to an exemption set forth at Section
1707.03(D) of the Ohio Securities Act, as amended, requiring, among other
things, the buyer to be "purchasing for investment." These shares may not be
transferred or sold without an opinion of counsel of the holder stating that the
holder has sufficiently fulfilled the requirement of "purchasing for investment"
under Section 1707.03(D) of the Ohio Securities Act, as amended."
Date: , 1999 By:
----------------- ------------------------------------------
Purchaser
15
