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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) - January 16, 1997
UNITED COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 333-15067 41-1380239
(State or other Jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
2600 EAGAN WOODS DRIVE, SUITE 155
EAGAN, MN 55121
(Address of principal executive offices and zip code)
(612) 552-2828
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 16, 1997, the Company's wholly-owned subsidiary, PFC
Acquisition Corp., merged with and into Park Financial Corporation ("PFC").
As a result of this merger, the Company acquired one hundred percent
ownership of PFC. PFC is a registered bank holding company and owns one
hundred percent of the capital stock of Park National Bank ("Park Bank").
Park Bank, a national banking association with its main banking house located
in St. Louis Park, Minnesota, provides a wide range of commercial and
consumer banking products and services for small-to-medium-sized businesses,
consumers and professionals.
In connection with the merger, the former shareholders of PFC received
cash consideration in an amount equal to $94.1304 per share (for an aggregate
cash merger consideration of $45,672,991). An amount equal to $1,215,256 of
the aggregate merger consideration was paid to an escrow agent, who used that
sum to purchase certain specified loans from PFC and Park Bank, which shall
be collected by the escrow agent for the benefit of the former PFC
shareholders. The aggregate merger consideration of $46,888,247 was based on
the November 30, 1996 book value of PFC plus a premium plus a fixed daily
accrual representing earnings from November 30, 1996 through January 16,
1997. The merger consideration formula resulted from a bidding process
instituted by the majority shareholder of PFC, and was negotiated and agreed
upon by the Company and PFC.
There was no material relationship between PFC or its shareholders and
the Company or any of the Company's affiliates, any director or officer of
the Company or any associate of such director or officer.
Financing for the merger consideration was obtained as follows: (i)
$6,068,924 from the proceeds of the sale of the Company's Common Stock; (ii)
$10,560,000 from the proceeds of the sale of the Company's Junior
Subordinated Deferrable Interest Debentures (the "Junior Subordinated
Debentures"); (iii) $22,000,000 from the proceeds of a loan from Firstar Bank
Milwaukee, N.A.; and (iv) $8,259,323 from cash on hand.
The Company's Junior Subordinated Debentures were purchased by United
Capital Trust I ("United Capital"), a trust created by the Company under the
laws of the State of Delaware. United Capital was created for the specific
purpose of issuing its preferred securities and its common securities, and
investing the proceeds thereof in the Company's Junior Subordinated
Debentures.
ITEM 7. FINANCIAL STATEMENTS; PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial statements of business acquired.
The following financial statements of Park Financial Corporation
("PFC") and Subsidiary are filed as part of this report, which
financial statements are incorporated by reference to the financial
statements on the following pages in the Company's Registration
Statement on Form S-1, SEC File No. 333-14587:
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Page
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Independent Auditors' Report dated January 31, 1996. . . . . . . F-33
Consolidated Balance Sheets as of September 30, 1996 (unaudited)
and December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . F-34
Consolidated Statements of Income for the Nine Months ended
September 30, 1996 and 1995 (unaudited) and for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . F-35
Consolidated Statements of Stockholders' Equity for the Nine Months
Ended September 30, 1996 and 1995 (unaudited) and for the Years
Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . F-36
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 (unaudited) and for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . F-37
Notes to Consolidated Financial Statements . . . . . . . . . . . F-38
(b) Pro forma financial information.
The following unaudited pro forma financial statements are filed as
part of this report, which unaudited pro forma financial statements
are incorporated by reference to the unaudited pro forma financial
statements on the following pages in the Company's Registration
Statement on Form S-1:
Unaudited Pro Forma Consolidated Financial Statements of the
Company and PFC. . . . . . . . . . . . . . . . . . . . . . . . . F-51
Unaudited Pro Forma Consolidated Balance Sheet as of September
30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-52
Unaudited Pro Forma Consolidated Statement of Income for the
Year Ended December 31, 1995 . . . . . . . . . . . . . . . . . . F-53
Unaudited Pro Forma Consolidated Statement of Income for the
Nine Months Ended September 30, 1996 . . . . . . . . . . . . . . F-54
Unaudited Pro Forma Consolidated Statement of Income for the
Nine Months Ended September 30, 1995 . . . . . . . . . . . . . . F-55
Note to Unaudited Pro Forma Consolidated Financial Statements. . F-56
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(c) Exhibits. The following exhibits are included with this report:
2.1 Merger Agreement dated October 7, 1996 between the Company and
Park Financial Corporation (incorporated by reference to Exhibit
2.1 in the Company's Registration Statement on Form S-1, SEC File
No. 333-14587).
10.1 Amended and Restated Revolving Credit and Term Loan Agreement
dated January 16, 1997 between the Company and Firstar Bank
Milwaukee, N.A.
23.1 Consent of Larson, Allen, Weishair, & Co., LLP
99.1 Financial Statements of Park Financial Corporation for the three
years ended December 31, 1995.
99.2 Pro Forma Financial Statements of United Community Bancshares,
Inc. and Park Financial Corporation for the year ended December
31, 1995 and the nine months ended September 30, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
DATED: January 30, 1997 UNITED COMMUNITY BANCSHARES, INC.
By: /s/ Galen T. Pate
Galen T. Pate, President
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBIT INDEX TO FORM 8-K
Date of Report: Commission File No.:
January 16, 1997 333-15067
- --------------------------------------------------------------------------------
UNITED COMMUNITY BANCSHARES, INC.
- --------------------------------------------------------------------------------
Exhibit
- -------
2.1* Merger Agreement dated October 7, 1996 between the Company and Park
Financial Corporation.(incorporated by reference to Exhibit 2.1 in the
Company's Registration Statement on Form S-1, SEC File No. 333-14587).
10.1** Amended and Restated Revolving Credit and Term Loan Agreement dated
January 16, 1997 between the Company and Firstar Bank Milwaukee, N.A.
23.1** Consent of Larson, Allen, Weishair, & Co., LLP
99.1** Financial Statements of Park Financial Corporation for the three years
ended December 31, 1995.
99.2** Pro Forma Financial Statements of United Community Bancshares, Inc.
and Park Financial Corporation for the year ended December 31, 1995
and the nine months ended September 30, 1996.
*Incorporated by reference.
**Filed herewith.
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Exhibit 10.1
AMENDED AND RESTATED REVOLVING CREDIT
AND TERM LOAN AGREEMENT
This Amended and Restated Revolving Credit and Term Loan Agreement (the
"AGREEMENT") is made and entered into as of the 16th day of January, 1997 by
and between United Community Bancshares, Inc. (the "BORROWER") and Firstar
Bank Milwaukee, N.A. (the "BANK").
RECITALS
The Borrower and the Bank acknowledge the following:
A. The Borrower and the Bank entered into a Revolving Credit and
Term Loan Agreement dated as of January 3, 1994 (the "Original Agreement")
pursuant to which the Bank agreed to extend credit to the Borrower on the
terms and subject to the conditions set forth therein.
B. The Original Agreement has been previously amended several
times and the Bank and the Borrower now desire to amend and restate the
Original Agreement.
ARTICLE I. DEFINITIONS
1.1 DEFINITIONS. Except as otherwise provided, all accounting terms
will be construed in accordance with generally accepted accounting principles
applicable to banks consistently applied and consistent with those applied in
the preparation of the financial statements referred to in paragraph 4.13,
and financial data submitted pursuant to this Agreement will be prepared in
accordance with such principles. As used herein:
(a) "ASSETS" means the sum of all assets including Loan Loss
Reserves of the Subsidiary Banks determined in accordance with generally
accepted accounting principles applicable to banks, consistently applied.
(b) "LOAN LOSS RESERVES" means the loan loss reserves of the
Subsidiary Bank reported in the most recent call reports of the Subsidiary
Banks.
(c) "NONPERFORMING LOANS" means the sum of those loans 90 days or
more past due and those loans classified as "non-accrual" or "renegotiated"
as reported in the most recent call reports of the Subsidiary Banks.
(d) "OTHER REAL ESTATE" means the value of all real estate owned
by the Subsidiary Banks and classified as such by the examiners of the
Comptroller of the Currency, Federal Deposit Insurance Corporation, Federal
Reserve Board or appropriate state agency responsible for examining the
Subsidiary Banks, as shown on the most recent examination reports of the
Subsidiary Banks.
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(e) "PRIMARY CAPITAL" means the sum of Total Tangible Equity and Loan
Loss Reserves.
(f) "SUBSIDIARY" OR "SUBSIDIARIES" means the Subsidiary Banks and
any entity of which the Borrower owns, directly or through another
Subsidiary, at the date of determination, more than 50% of the outstanding
stock having ordinary voting power for the election of directors,
irrespective of whether or not at such time stock of any other class or
classes might have voting power by reason of the happening of any contingency.
(g) "SUBSIDIARY BANKS" means Signal Bank, Inc. ("Signal Bank"),
The Goodhue County National Bank ("Goodhue Bank") and Park National Bank
("Park Bank") and "SUBSIDIARY BANK" means any of the foregoing.
(h) "TOTAL LOANS" means the aggregate outstanding principal amount
of all loans shown as assets of the Subsidiary Banks as reported in the most
recent call reports of the Subsidiary Banks.
(i) "TOTAL TANGIBLE EQUITY" means the total amount of capital
stock, surplus and undivided profits accounts, after adjustment for net
unrealized holding gains (losses) on available-for-sale securities of the
Subsidiary Banks, less intangibles, all of which will be determined in
accordance with generally accepted accounting principles applicable to banks,
consistently applied.
ARTICLE II. LOANS
2.1 LOANS.
(a) REVOLVING CREDIT FACILITY. From time to time prior to January
16, 1998 or the earlier termination hereof pursuant to Article VI, the
Borrower may borrow from the Bank, subject to the terms and conditions
contained herein, up to the aggregate principal amount outstanding at any one
time of up to $3,000,000. All revolving loans hereunder will be evidenced by
a single promissory note of the Borrower payable to the order of the Bank and
dated as of the date hereof (the "REVOLVING CREDIT NOTE"). Although the
Revolving Credit Note will be expressed to be payable in the maximum amount
set forth above, the Borrower will be obligated to pay only the amount of
loans actually disbursed hereunder, together with accrued interest on the
outstanding balance at the rates and on the dates specified therein and such
other charges provided for herein.
(b) TERM LOAN. As of the date hereof, the Bank agrees, subject to
the terms and conditions hereof, to make a term loan to the Borrower in an
amount up to $27,000,000. The term loan shall be evidenced by a single
promissory note of the Borrower payable to the order of the Bank and dated as
of the date hereof (the "TERM NOTE"). The principal balance of the Term Note
shall be payable, and bear interest in accordance with, the terms and
conditions of the Term Note.
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2.2 SECURITY. The loans provided for hereunder will be secured by all
of the capital stock of the Subsidiary Banks, all of the capital stock of
Consumers Credit Corporation ("CCC") and all of the capital stock of Park
Financial Corporation ("PFC"), now owned or hereafter acquired by the
Borrower or any Subsidiary, except directors qualifying shares, if any.
2.3 MANDATORY PREPAYMENT. If R. Scott Jones and Galen T. Pate cease
for any reason to be active in the management of the Borrowerfor a period of
30 consecutive days or more, exclusive of vacation or other approved leaves
of absence, and is not replaced by an individual of comparable ability and
experience, the Borrower will promptly give the Bank written notice thereof
and upon demand by the Bank, the Borrower will repay the loans made
hereunder, and any other loans from the Bank to the Borrower, on the date
specified in such demand.
ARTICLE III. CONDITIONS TO BORROWING
3.1 CONDITIONS TO BORROWING. The Bank will not be obligated to make
(or continue to make) advances hereunder unless (i) the Bank has received
executed copies of the Notes and all other documents or agreements applicable
to the loans described herein, including but not limited to the documents
specified in Article V (collectively with this Agreement the "LOAN
DOCUMENTS"), in form and content satisfactory to the Bank; (ii) the Bank has
received confirmation satisfactory to it that the Bank has a properly
perfected security interest with the proper priority in any collateral
securing advances hereunder; (iii) the Bank has received certified copies of
the Articles of Incorporation and By-Laws and a certificate of status of the
Borrower and the Subsidiaries; (iv) the Bank has received a certified copy of
a resolution or authorization in form and content satisfactory to the Bank
authorizing the loan and all acts contemplated by this Agreement and all
related documents, and confirmation of proper authorization of all guaranties
and other acts of third parties contemplated hereunder; (v) the Bank has been
provided with an opinion of the Borrower's counsel in form and content
satisfactory to the Bank confirming the matters outlined in paragraph 4.1 and
such other matters as the Bank requests; (vi) no default exists under this
Agreement or under any other Loan Documents, or under any other agreements by
and between the Borrower and the Bank and no condition or event will exist or
have occurred which with the passage of time, the giving of notice or both
would constitute a default under this Agreement or under any other Loan
Documents or under any other agreements by and between the Borrower and the
Bank; (vii) all proceedings taken in connection with the transactions
contemplated by this Agreement and all instruments, authorizations and other
documents applicable thereto, will be satisfactory to the Bank and its
counsel; (viii) the Bank has received evidence satisfactory to the Bank that
the Borrower has obtained all required regulatory approvals for the
acquisition by the Borrower of PFC and the Bank has received evidence
satisfactory to the Bank that except for the funding of the term loan
contemplated hereunder the Borrower has consummated the acquisition of PFC;
(ix) the Bank has received its original Letter of Credit No. s102182 dated
October 7, 1996, undrawn upon, in the face amount of $1,000,000 issued for
the account of the Borrower in favor of Park Financial Corporation; (x) the
Bank has received evidence satisfactory to the Bank that the Borrower has
raised $11,000,000 through the issuance and sale of Junior Subordinated
Deferrable
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Interest Debentures substantially in accordance with the application
submitted to the Federal Reserve Bank of Minneapolis, copies of which were
previously provided to the Bank; and (xi) the Bank has received evidence
satisfactory to the Bank that the Borrower has raised $4,998,960 through the
issuance and sale of common stock.
ARTICLE IV. WARRANTIES AND COVENANTS
During the term of this Agreement, and while any part of the credit
granted the Borrower is available or any obligations under any of the Loan
Documents are unpaid or outstanding, the Borrower warrants and agrees as
follows:
4.1 ORGANIZATION AND AUTHORITY. The Borrower is a validly existing
corporation in good standing under the laws of its state of organization, and
has all requisite power and authority, corporate or otherwise, and possesses
all licenses necessary, to conduct its business and own its properties. The
execution, delivery and performance of this Agreement and the other Loan
Documents (i) are within the Borrower's power; (ii) have been duly authorized
by proper corporate action; (iii) do not require the approval of any
governmental agency; and (iv) will not violate any law, agreement or
restriction by which the Borrower is bound. This Agreement and the other
Loan Documents are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their terms.
4.2 SUBSIDIARIES.
(a) Signal Bank has issued and outstanding 4,355 shares of common
stock, par value $100 per share, which are duly authorized, validly issued,
fully paid and non-assessable, of which the Borrower owns 4,355 shares, which
represent 100% of the issued and outstanding capital stock of Signal Bank,
free and clear of any liens, charges, encumbrances, rights of redemption,
preemptive rights or rights of first refusal of any kind or nature
whatsoever, except liens in favor of the Bank. Signal Bank has no shares of
capital stock (common or preferred), or securities or other obligations
convertible into any of the foregoing, authorized or outstanding and has no
outstanding offers, subscriptions, warrants, rights or other agreements or
commitments obligating Signal Bank to issue or sell any of the foregoing.
(b) Goodhue Bank has issued and outstanding 14,981 shares of
common stock, par value $50 per share, which are duly authorized, validly
issued, fully paid and non-assessable, of which the Borrower owns 14,981
shares, which represent 100% of the issued and outstanding capital stock of
Goodhue Bank, free and clear of any liens, charges, encumbrances, rights of
redemption, preemptive rights or rights of first refusal of any kind or
nature whatsoever, except liens in favor of the Bank. Goodhue Bank has no
shares of capital stock (common or preferred), or securities or other
obligations convertible into any of the foregoing, authorized or outstanding
and has no outstanding offers, subscriptions, warrants, rights or other
agreements or commitments obligating Goodhue Bank to issue or sell any of the
foregoing.
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(c) CCC has issued and outstanding 100,000 shares of common stock,
par value $1 per share, which are duly authorized, validly issued, fully paid
and non-assessable, of which the Borrower owns 100,000 shares, which
represent 100% of the issued and outstanding capital stock of CCC, free and
clear of any liens, charges, encumbrances, rights of redemption, preemptive
rights or rights of first refusal of any kind or nature whatsoever, except
liens in favor of the Bank. CCC has no shares of capital stock (common or
preferred), or securities or other obligations convertible into any of the
foregoing, authorized or outstanding and has no outstanding offers,
subscriptions, warrants, rights or other agreements or commitments obligating
CCC to issue or sell any of the foregoing.
(d) INTENTIONALLY OMITTED.
(e) PFC has issued and outstanding 100,000 shares of common stock,
par value $1 per share, which are duly authorized, validly issued, fully paid
and non-assessable, of which the Borrower owns 100,000 shares, which
represents 100% of the issued and outstanding capital stock of PFC, free and
clear of any liens, charges, encumbrances, rights of redemption, preemptive
rights or rights of first refusal of any kind or nature whatsoever, except
liens in favor of the Bank. PFC has no shares of capital stock (common or
preferred), or securities or other obligations convertible into any of the
foregoing, authorized or outstanding and has no outstanding offers,
subscriptions, warrants, rights or other agreements or commitments obligating
PFC issue or sell any of the foregoing.
(f) Park Bank has issued and outstanding 130,000 shares of common
stock, par value $5 per share, which are duly authorized, validly issued,
fully paid and non-assessable, of which PFC owns 130,000 shares, which
represent 100% of the issued and outstanding capital stock of Park Bank, free
and clear of any liens, charges, encumbrances, rights of redemption,
preemptive rights or rights of first refusal of any kind or nature
whatsoever, except liens in favor of the Bank. Park Bank has no shares of
capital stock (common or preferred), or securities or other obligations
convertible into any of the foregoing, authorized or outstanding and has no
outstanding offers, subscriptions, warrants, rights or other agreements or
commitments obligating Park Bank issue or sell any of the foregoing.
(g) Unitech Services, Inc. has issued and outstanding 1,000 shares
of common stock, par value $.01 per share, which are duly authorized, validly
issued, fully paid and non-assessable, of which the Borrower owns 1,000
shares, which represent 100% of the issued and outstanding capital stock of
Unitech Services, Inc., free and clear of any liens, charges, encumbrances,
rights of redemption, preemptive rights or rights of first refusal of any
kind or nature whatsoever, except liens in favor of the Bank. Unitech
Services, Inc. has no shares of capital stock (common or preferred), or
securities or other obligations convertible into any of the foregoing,
authorized or outstanding and has no outstanding offers, subscriptions,
warrants, rights or other agreements or commitments obligating Unitech
Services, Inc. issue or sell any of the foregoing.
(h) The Borrower also has an additional wholly-owned subsidiary
named, United Capital Trust I, a Delaware business trust. The Borrower's
ownership interest in
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United Capital Trust I is free and clear of any liens, charges and
encumbrances of any kind or nature whatsoever.
4.3 LITIGATION AND COMPLIANCE WITH LAWS. The Borrower and the
Subsidiaries have complied in all material respects with and will continue to
comply with all applicable federal and state laws and regulations: (i) that
regulate or are concerned in any way with its or their banking and trust
business, including without limitation those laws and regulations relating to
the investment of funds, lending of money, collection of interest, extension
of credit, and location and operation of banking facilities; or (ii)
otherwise relate to or affect the business or assets of the Borrower or any
of the Subsidiaries or the assets owned, used or occupied by them. Except to
the extent previously disclosed to the Bank, there are no claims, actions,
suits, or proceedings pending, or to the best knowledge of the Borrower,
threatened or contemplated against or affecting the Borrower or any of the
Subsidiaries, at law or in equity, or before any federal, state or other
governmental authority, or before any arbitrator or arbitration panel,
whether by contract or otherwise, and there is no decree, judgment or order
of any kind in existence against or restraining the Borrower or any of the
Subsidiaries, or any of their officers, employees or directors, from taking
any action of any kind in connection with the business of the Borrower or any
of the Subsidiaries. Except to the extent previously disclosed to the Bank,
neither the Borrower nor any of the Subsidiaries has (i) received from any
regulatory authority any criticisms, recommendations or suggestions of a
material nature, and the Borrower has no reason to believe that any such is
contemplated, concerning the capital structure of any of the Subsidiaries,
loan policies or portfolio, or other banking and business practices of any of
the Subsidiaries that have not been resolved to the satisfaction of such
regulatory authorities or (ii) entered into any memorandum of understanding
or similar arrangement with any federal or state regulator relating to any
unsound or unsafe banking practice or conduct or any violation of law
respecting the operations of the Borrower or the operations of any of the
Subsidiaries.
4.4 F.D.I.C. INSURANCE. Each Subsidiary Bank is insured as to deposits
by the Federal Deposit Insurance Corporation and no act has occurred which
could adversely affect the status of any Subsidiary Bank as an insured bank.
4.5 CORPORATE EXISTENCE; BUSINESS ACTIVITIES; ASSETS. The Borrower
will and will cause each Subsidiary to (i) preserve its corporate existence,
rights and franchises; (ii) carry on its business activities in substantially
the manner such activities are conducted as of the date of this Agreement;
(iii) not liquidate, dissolve, merge or consolidate with or into another
entity; and (iv) not sell, lease, transfer or otherwise dispose of all or
substantially all of its assets. Notwithstanding the foregoing, any
Subsidiary may merge or consolidate with the Borrower or any other Subsidiary
(except Unitech Services, Inc. or United Capital Trust I), provided that in
the case of a merger or consolidation with the Borrower, the surviving entity
must be the Borrower; and any Subsidiary may sell, lease or transfer all or
substantially all of its assets to the Borrower or any other Subsidiary
(except Unitech Services, Inc. or United Capital Trust I).
4.6 USE OF PROCEEDS; MARGIN STOCK; SPECULATION. Advances by the Bank
under the Revolving Credit Note will be used exclusively by the Borrower to
refinance its existing
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revolving credit facilities with the Bank and for working capital purposes.
Advances by the Bank under the Term Note will be used exclusively by the
Borrower to refinance its existing term loan obligations with the Bank and to
acquire the capital stock of Park Financial Corporation. The Borrower will
not use any of the loan proceeds to purchase or carry "margin" stock (as
defined in Regulation U of the Board of Governors of the Federal Reserve
System). No part of any of the proceeds will be used for speculative
investment purposes, including, without limitation, speculating or hedging in
the commodities and/or futures market.
4.7 ENVIRONMENTAL MATTERS. Except as disclosed in a written schedule
attached to this Agreement (if no schedule is attached, there are no
exceptions), there exists no uncorrected violation by the Borrower of any
federal, state or local laws (including statutes, regulations, ordinances or
other governmental restrictions and requirements) relating to the discharge
of air pollutants, water pollutants or process waste water or otherwise
relating to the environment or Hazardous Substances as hereinafter defined,
whether such laws currently exist or are enacted in the future (collectively
"ENVIRONMENTAL LAWS"). The term "HAZARDOUS SUBSTANCES" will mean any
hazardous or toxic wastes, chemicals or other substances, the generation,
possession or existence of which is prohibited or governed by any
Environmental Laws. The Borrower is not subject to any judgment, decree,
order or citation, or a party to (or threatened with) any litigation or
administrative proceeding, which asserts that the Borrower (i) has violated
any Environmental Laws; (ii) is required to clean up, remove or take remedial
or other action with respect to any Hazardous Substances (collectively
"REMEDIAL ACTION"); or (iii) is required to pay all or a portion of the cost
of any Remedial Action, as a potentially responsible party. Except as
disclosed on the Borrower's environmental questionnaire provided to the Bank,
there are not now, nor to the Borrower's knowledge after reasonable
investigation have there ever been, any Hazardous Substances (or tanks or
other facilities for the storage of Hazardous Substances) stored, deposited,
recycled or disposed of on, under or at any real estate owned or occupied by
the Borrower during the periods that the Borrower owned or occupied such real
estate, which if present on the real estate or in soils or ground water,
could require Remedial Action. To the Borrower's knowledge, there are no
proposed or pending changes in Environmental Laws which would adversely
affect the Borrower or its business, and there are no conditions existing
currently or likely to exist while the Loan Documents are in effect which
would subject the Borrower to Remedial Action or other liability. The
Borrower currently complies with and will continue to timely comply with all
applicable Environmental Laws; and will provide the Bank, immediately upon
receipt, copies of any correspondence, notice, complaint, order or other
document from any source asserting or alleging any circumstance or condition
which requires or may require a financial contribution by the Borrower or
Remedial Action or other response by or on the part of the Borrower under
Environmental Laws, or which seeks damages or civil, criminal or punitive
penalties from the Borrower for an alleged violation of Environmental Laws.
4.8 RESTRICTION ON INDEBTEDNESS. The Borrower will not and will not
permit any of the Subsidiaries to create, incur, assume or have outstanding
any indebtedness for borrowed money (including capitalized leases) except (i)
indebtedness under the Notes issued under this Agreement; (ii) other
indebtedness to the Bank; (iii) indebtedness of the Subsidiary
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Banks to the Federal Home Loan Bank; (iv) indebtedness of CCC owing to any
Subsidiary Bank; (v) obligations of any Subsidiary Bank under customer
repurchase agreements; (vi) any other indebtedness outstanding on the date
hereof, and shown on the Borrower's or the Subsidiary Banks' financial
statements delivered to the Bank prior to the date hereof, provided such
other indebtedness shall not be renewed, extended or increased; (vii) fed
funds purchased, or commercial paper issued, in the ordinary course of
business by Subsidiaries in an aggregate amount not to exceed $20,000,000 at
any time outstanding; and (viii) indebtedness evidenced by the Junior
Subordinated Deferrable Interest Debentures issued by the Borrower under the
Subordinated Indenture (as defined in section 4.19 hereof).
4.9 RESTRICTION ON LIENS. The Borrower will not and will not permit
any Subsidiary to create, incur, assume or permit to exist any mortgage,
pledge, encumbrance or other lien or levy upon or security interest in any of
the Borrower's property now owned or hereafter acquired, except (i) taxes and
assessments which are either not delinquent or which are being contested in
good faith with adequate reserves provided; (ii) easements, restrictions and
minor title irregularities which do not, as a practical matter, have an
adverse effect upon the ownership and use of the affected property; (iii)
liens in favor of the Bank; (iv) liens arising in connection with customer
repurchase agreements and (v) other liens disclosed in writing to the Bank
prior to the date hereof which are fully subordinated to any security
interest or other lien held by the Bank.
4.10 RESTRICTION ON CONTINGENT LIABILITIES. The Borrower will not and
will not permit any of the Subsidiaries to guarantee or become a surety or
otherwise contingently liable for any obligations of others, except pursuant
to the deposit and collection of checks, the issuance or confirmation of
letters of credit by the Subsidiary Banks, the guaranty of United Capital
Trust I's obligations with respect to the Trust Securities to be issued under
that certain Amended and Restated Trust Agreement to be entered into among
the Borrower, Wilmington Trust Company, as Property Trustee, Wilmington Trust
Company, as Delaware Trustee and the Administrative Trustees named therein
and party thereto and similar matters in the ordinary course of banking
business.
4.11 INSURANCE. The Borrower will maintain and cause each Subsidiary to
maintain insurance to such extent, covering such risks and with such insurers
as is usual and customary for businesses operating similar properties, and as
is satisfactory to the Bank, including insurance for fire and other risks
insured against by extended coverage, public liability insurance and workers'
compensation insurance.
4.12 TAXES AND OTHER LIABILITIES. The Borrower will pay and discharge,
and cause each Subsidiary to pay and discharge when due, all of its taxes,
assessments and other liabilities, except when the payment thereof is being
contested in good faith by appropriate procedures which will avoid
foreclosure of liens securing such items, and with adequate reserves provided
therefor.
4.13 FINANCIAL STATEMENTS AND REPORTING. The financial statements and
other information previously provided to the Bank or provided to the Bank in
the future are or will be complete and accurate and prepared in accordance
with generally accepted accounting
8
<PAGE>
principles. There has been no material adverse change in the Borrower's
financial condition since such information was provided to the Bank. The
Borrower will, and will cause each Subsidiary to (i) maintain accounting
records in accordance with generally recognized and accepted principles of
accounting consistently applied throughout the accounting periods involved;
(ii) provide the Bank with such information concerning its business affairs
and financial condition (including insurance coverage) as the Bank may
reasonably request; and (iii) without request, provide the Bank with the
following information:
(a) As soon as available, and in any event within 90 days after
the end of each fiscal year of the Borrower, the Borrower's annual audited
financial statements prepared by an accounting firm acceptable to the Bank;
and
(b) Within 45 days of the end of each quarter, quarterly call
reports prepared on FFIEC forms, or any successors thereto, of each
Subsidiary Bank prepared in accordance with the guidelines of the regulatory
agency which regulates such Subsidiary Bank to the extent the Borrower is
able to do so under bank regulatory rules and guidelines; and
(c) As soon as available, copies of all reports or materials
submitted or distributed to shareholders of the Borrower or filed with the
SEC or other governmental agency having regulatory authority over the
Borrower or any Subsidiary or with any national securities exchange to the
extent the Borrower is able to do so under bank regulatory rules and
guidelines; and
(d) Promptly after the furnishing thereof, copies of any statement
or report furnished to any other holder of obligations of the Borrower or any
Subsidiary pursuant to the terms of any indenture, loan or similar agreement
and not otherwise required to be furnished to the Bank pursuant to any other
clause of this paragraph 4.13 to the extent the Borrower is able to do so
under bank regulatory rules and guidelines; and
(e) Promptly, and in any event within 10 days, after the Borrower
has knowledge thereof, a statement of the chief financial officer of the
Borrower describing: (i) any event which, either of itself or with the lapse
of time or the giving of notice or both, would constitute a default hereunder
or under any other material agreement to which the Borrower or any Subsidiary
is a party, together with a statement of the actions which the Borrower
proposes to take with respect thereto; and (ii) any pending or threatened
litigation or administrative proceeding of the type described in paragraph
4.3; and
(f) Notice of any memorandum of understanding or any other
agreement with any banking regulatory agencies, or cease and desist order,
immediately after entered into by or issued against Borrower or any
Subsidiary to the extent the Borrower is able to do so under bank regulatory
rules and guidelines; and
(g) Promptly after request therefor, any other information concerning
the business affairs and financial condition of the Borrower or any Subsidiary
as the Bank may
9
<PAGE>
reasonably request to the extent the Borrower is able to do so under bank
regulatory rules and guidelines.
4.14 INFORMATION. The Borrower will make available for review by the
Bank, promptly upon the Bank's request, financial statements, call reports
and any other records or documents of the Borrower or any Subsidiary Bank.
The Borrower and the Subsidiaries will use best efforts to obtain the consent
of any person or regulator which it deems necessary or appropriate for
disclosure of the information described above.
4.15 FINANCIAL COVENANTS. The Borrower will cause each Subsidiary Bank
to maintain as of the end of each fiscal quarter for such Subsidiary Bank:
(a) a ratio of Primary Capital to Assets of at least 7.0%;
(b) a ratio of Nonperforming Loans plus Other Real Estate to Total
Loans plus Other Real Estate of not greater than 3.0%;
(c) a ratio of Nonperforming Loans plus Other Real Estate to
Primary Capital of not greater than 24.0%;
(d) an average return on Assets of at least .75% for Signal Bank
and Goodhue Bank and an average return on Assets of at least .45% for Park
Bank; provided, however, that the failure by any Subsidiary Bank to maintain
the required average return on Assets as of the end of any fiscal quarter
will not constitute an event of default under paragraph 6.1 if such
Subsidiary Bank maintains the required average return on Assets as of the end
of the immediately succeeding fiscal quarter as reported on such Subsidiary
Bank's quarterly call report; and
(e) a ratio of Loan Loss Reserves to Nonperforming Loans of at
least 100%.
4.16 ACCESS TO RECORDS. The Borrower will permit representatives of the
Bank to visit and inspect any of the properties and examine any books and
records of the Borrower and the Subsidiaries including without limitation the
stock transfer records of each Subsidiary Bank, at any reasonable time and as
often as the Bank may reasonably desire.
4.17 ISSUANCE OF STOCK. The Borrower will not permit any Subsidiary to
issue any additional shares of common or preferred stock, or any options,
warrants or other common stock equivalents, or sell or issue securities or
obligations convertible into such ("NEW STOCK"), whether in the form of stock
dividends or stock splits or otherwise, unless such New Stock will be issued
to the Borrower and delivered by the Borrower to the Bank, together with any
additional documents required by the Bank, as additional collateral to secure
the loan provided for hereunder, except for the securities to be issued by
United Capital Trust I pursuant to the plans as described in the prospectus
previously delivered to the Bank.
10
<PAGE>
4.18 DIVIDENDS. The Borrower will not pay any dividends or make any
other distribution on account of any shares of any class of its stock or
redeem, purchase or otherwise acquire, directly or indirectly any shares of
its stock unless and until the occurrence of each of the following: (i) the
Borrower maintains Total Tangible Equity in an amount greater than 5% of
Assets; and (ii) the Borrower is retiring the Term Notes substantially in
accordance with the financial projections submitted to the Federal Reserve
Bank of Minneapolis, copies of which were previously provided to the Bank.
4.19 SUBORDINATED DEBENTURES. The Borrower shall not make, nor shall
any Subsidiary retain, any payment on account of the principal of, or
interest on, any Junior Subordinated Deferrable Interest Debenture in
violation of that certain Subordinated Indenture to be entered into between
the Borrower and Wilmington Trust Company, as trustee (the "SUBORDINATED
INDENTURE"), nor shall the Borrower or any Subsidiary amend, supplement or
modify the Subordinated Indenture without the prior written consent of the
Bank, which consent shall not be unreasonably withheld.
ARTICLE V. COLLATERAL
5.1 COLLATERAL. This Agreement and the Notes will be secured by an
Amended and Restated Collateral Pledge Agreement of the Borrower , a
Collateral Pledge Agreement of PFC and a Guaranty Agreement of PFC. The
information in this Article V is for information only and the omission of any
reference to an agreement will not affect the validity or enforceability
thereof. The rights and remedies of the Bank outlined in this Agreement and
the documents identified above are intended to be cumulative.
5.2 CREDIT BALANCES; SETOFF. As additional security for the payment of
the obligations described in the Loan Documents and any other obligations of
the Borrower to the Bank of any nature whatsoever (collectively the
"OBLIGATIONS"), the Borrower hereby grants to the Bank a security interest
in, a lien on and an express contractual right to set off against all
depository account balances, cash and any other property of the Borrower now
or hereafter in the possession of the Bank. The Bank may, at any time upon
the occurrence of a default hereunder (notwithstanding any notice
requirements or grace/cure periods under this or other agreements between the
Borrower and the Bank) set off against the Obligations WHETHER OR NOT THE
OBLIGATIONS (INCLUDING FUTURE INSTALLMENTS) ARE THEN DUE OR HAVE BEEN
ACCELERATED, ALL WITHOUT ANY ADVANCE OR CONTEMPORANEOUS NOTICE OR DEMAND OF
ANY KIND TO THE BORROWER, SUCH NOTICE AND DEMAND BEING EXPRESSLY WAIVED.
ARTICLE VI. DEFAULTS
6.1 DEFAULTS. NOTWITHSTANDING ANY CURE PERIODS DESCRIBED BELOW, THE
BORROWER WILL IMMEDIATELY NOTIFY THE BANK IN WRITING WHEN THE BORROWER
OBTAINS KNOWLEDGE OF THE OCCURRENCE OF ANY DEFAULT SPECIFIED BELOW.
Regardless of whether the Borrower has given the required notice, the
occurrence of one or more of the following will constitute a default:
11
<PAGE>
(a) NONPAYMENT. The Borrower fails to pay (i) any interest due on
the Notes or any fees, charges, costs or expenses under the Loan Documents by
5 days after the same becomes due; or (ii) any principal amount of the Notes
when due.
(b) NONPERFORMANCE. The Borrower or any guarantor of Borrower's
Obligations to the Bank ("GUARANTOR") fails to perform or observe any
agreement, term, provision, condition, or covenant (other than a default
occurring under (a), (c), (d), (e), (f) or (g) of this paragraph 6.1)
required to be performed or observed by the Borrower or any Guarantor
hereunder or under any other Loan Document or other agreement with or in
favor of the Bank.
(c) MISREPRESENTATION. Any financial information, statement,
certificate, representation or warranty given to the Bank by the Borrower or
any Guarantor (or any of their representatives) in connection with entering
into this Agreement or the other Loan Documents and/or any borrowing
thereunder, or required to be furnished under the terms thereof, proves
untrue or misleading in any material respect (as determined by the Bank in
the exercise of its judgment) as of the time when given.
(d) DEFAULT ON OTHER OBLIGATIONS. The Borrower, any Guarantor or
any Subsidiary will be in default under the terms of any loan agreement,
promissory notes, lease, conditional sale contract or other agreement,
document or instrument evidencing, governing or securing any indebtedness
owing by the Borrower, any Guarantor or any Subsidiary to the Bank, or the
Borrower shall be in default under any indebtedness in excess of $100,000
owing by the Borrower to any third party, and the period of grace, if any, to
cure said default shall have passed.
(e) JUDGMENTS. Any judgment is obtained against the Borrower, any
Guarantor or any Subsidiary which, together with all other outstanding
unsatisfied judgments against the Borrower (or such Guarantor or Subsidiary),
exceeds the sum of $100,000 and remains unvacated, unbonded or unstayed for a
period of 30 days following the date of entry thereof.
(f) INABILITY TO PERFORM; BANKRUPTCY/INSOLVENCY. (i) the
Borrower, any Guarantor or any Subsidiary ceases to exist (except as
otherwise permitted herein); or (ii) any Guarantor attempts to revoke any
guaranty of the Obligations described herein, or any guaranty becomes
unenforceable in whole or in part for any reason; or (iii) any bankruptcy,
insolvency or receivership proceedings, or an assignment for the benefit of
creditors, is commenced under any Federal or state law by or against the
Borrower, any Guarantor or any Subsidiary; or (iv) the Borrower, any
Guarantor or any Subsidiary becomes the subject of any out-of-court
settlement with its creditors; or (v) the Borrower, any Guarantor or any
Subsidiary is unable or admits in writing its inability to pay its debts as
they mature; or (vi) the Borrower or any Subsidiary is closed or taken over
by a banking regulatory agency.
(g) ADVERSE CHANGE. There is a material adverse change in the
business, properties, financial condition or affairs of the Borrower, any
Guarantor or any Subsidiary, or in any collateral securing the Obligations.
12
<PAGE>
(h) REGULATORY ORDERS. The Borrower or any Subsidiary enters into
any memorandum of understanding or other agreement with any banking
regulatory agency relating to any unsound or unsafe banking practice or
conduct or any violation of law respecting the operation of Borrower or such
Subsidiary; or Borrower or any Subsidiary or any of their senior officers or
directors become the subject of a judicial or administrative determination
restraining any of them from taking any actions of any kind in connection
with the business of Borrower or such Subsidiary, assessing a civil penalty,
finding that any criminal offense occurred in connection with the operations
of Borrower or such Subsidiary, or suspending or removing any officer or
director of Borrower or such Subsidiary.
6.2 TERMINATION OF LOAN; ADDITIONAL BANK RIGHTS. Upon the occurrence
and during the continuance of any of the events identified in paragraph 6.1,
the Bank may at any time (notwithstanding any notice requirements or
grace/cure periods under this or other agreements between the Borrower and
the Bank) (i) immediately terminate its obligation, if any, to make
additional loans to the Borrower; (ii) set off; and/or (iii) take such other
steps to protect or preserve the Bank's interest in any collateral, including
without limitation, notifying account debtors to make payments directly to
the Bank, advancing funds to protect any collateral and insuring collateral
at the Borrower's expense; all without demand or notice of any kind, all of
which are hereby waived.
6.3 ACCELERATION OF OBLIGATIONS. Upon the occurrence and during the
continuance of any of the events identified in paragraphs 6.1(a) through
6.1(e) and 6.1(g) and 6.1(h), and the passage of any applicable cure periods,
the Bank may at any time thereafter, (i) by written notice to the Borrower,
declare the unpaid principal balance of any Obligations, together with the
interest accrued thereon and other amounts accrued hereunder and under the
other Loan Documents, to be immediately due and payable; and the unpaid
balance will thereupon be due and payable, all without presentation, demand,
protest or further notice of any kind, all of which are hereby waived, and
notwithstanding anything to the contrary contained herein or in any of the
other Loan Documents; and (ii) require the Borrower to cause any Subsidiary
to appoint an independent transfer agent for the purpose of registering and
transferring ownership of the capital stock of such Subsidiary. Upon the
occurrence of any event under paragraph 6.1(f), the unpaid principal balance
of any Obligations, together with all interest accrued thereon and other
amounts accrued hereunder and under the other Loan Documents, will thereupon
be immediately due and payable, all without presentation, demand, protest or
notice of any kind, all of which are hereby waived, and notwithstanding
anything to the contrary contained herein or in any of the other Loan
Documents. NOTHING CONTAINED IN PARAGRAPH 6.1, PARAGRAPH 6.2 OR THIS SECTION
WILL LIMIT THE BANK'S RIGHT TO SET OFF AS PROVIDED IN PARAGRAPH 5.2 OR
OTHERWISE IN THIS AGREEMENT.
6.4 OTHER REMEDIES. Nothing in this Article VI is intended to restrict
the Bank's rights under any of the Loan Documents or at law, and the Bank may
exercise all such rights and remedies as and when they are available.
13
<PAGE>
ARTICLE VII. MISCELLANEOUS
7.1 DELAY; CUMULATIVE REMEDIES. No delay on the part of the Bank in
exercising any right, power or privilege hereunder or under any of the other
Loan Documents will operate as a waiver thereof, nor will any single or
partial exercise of any right, power or privilege hereunder preclude other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein specified are cumulative and are
not exclusive of any rights or remedies which the Bank would otherwise have.
7.2 RELATIONSHIP TO OTHER DOCUMENTS. The warranties, covenants and
other obligations of the Borrower (and the rights and remedies of the Bank)
that are outlined in this Agreement and the other Loan Documents are intended
to supplement each other. In the event of any inconsistencies in any of the
terms in the Loan Documents, all terms will be cumulative so as to give the
Bank the most favorable rights set forth in the conflicting documents, except
that if there is a direct conflict between any preprinted terms and
specifically negotiated terms (whether included in an addendum or otherwise),
the specifically negotiated terms will control.
7.3 PARTICIPATIONS; GUARANTORS. The Bank may, at its option, sell all
or any interests in the Notes and other Loan Documents to other financial
institutions. Any purchaser of an interest in the Notes is hereinafter
referred to as a "Participant." In connection with such sales (and
thereafter), the Bank may disclose any financial information the Bank may
have concerning the Borrower to any such Participant or potential
Participant. From time to time, the Bank may, in its discretion and without
obligation to the Borrower, any guarantor or any other third party, disclose
information about the Borrower and this Agreement to any guarantor, surety or
other accommodation party. This provision does not obligate the Bank to
supply any information or release the Borrower from its obligation to provide
such information, and the Borrower agrees to keep all Guarantors advised of
its financial condition and other matters which may be relevant to the
Guarantors' obligations to the Bank.
7.4 EXPENSES AND ATTORNEYS' FEES. The Borrower will reimburse the Bank
for all attorneys' fees and all other costs, fees and out-of-pocket
disbursements (including fees and disbursements of both inside counsel and
outside counsel) incurred by the Bank in connection with the preparation,
execution, delivery, administration, defense and enforcement of this
Agreement or any of the other Loan Documents, including fees and costs
related to any waivers or amendments with respect thereto (examples of costs
and fees include but are not limited to fees and costs for: filing,
perfecting or confirming the priority of the Bank's lien, title searches or
insurance, appraisals, environmental audits and other reviews related to the
Borrower, any collateral or the loans, if requested by the Bank). The
Borrower will also reimburse the Bank for all costs of collection before and
after judgment, and the costs of preservation and/or liquidation of any
collateral (including fees and disbursements of both inside and outside
counsel).
7.5 SUCCESSORS. The rights, options, powers and remedies granted in
this Agreement and the other Loan Documents will extend to the Bank and to
its successors and assigns, will be binding upon the Borrower and its
successors and assigns and will be applicable hereto and to all renewals
and/or extensions hereof.
14
<PAGE>
7.6 INDEMNIFICATION. Except for harm arising from the Bank's gross
negligence or willful misconduct, the Borrower hereby indemnifies and agrees
to defend and hold the Bank harmless from any and all losses, costs, damages,
claims and expenses of any kind suffered by or asserted against the Bank
relating to claims by third parties arising out of the financing provided
under the Loan Documents or related to any collateral. This indemnification
and hold harmless provision will survive the termination of the Loan
Documents and the satisfaction of the Obligations due the Bank.
7.7 NOTICE OF CLAIMS AGAINST BANK; LIMITATION OF CERTAIN DAMAGES. In
order to allow the Bank to mitigate any damages to the Borrower from the
Bank's alleged breach of its duties under the Loan Documents or any other
duty, if any, to the Borrower, the Borrower agrees to give the Bank immediate
written notice of any claim or defense it has against the Bank, whether in
tort or contract, relating to any action or inaction by the Bank under the
Loan Documents, or the transactions related thereto, or of any defense to
payment of the Obligations for any reason. The requirement of providing
timely notice to the Bank represents the parties' agreed-to standard of
performance regarding claims against the Bank. Notwithstanding any claim
that the Borrower may have against the Bank, and regardless of any notice the
Borrower may have given the Bank, THE BANK WILL NOT BE LIABLE TO THE BORROWER
FOR CONSEQUENTIAL AND/OR SPECIAL DAMAGES ARISING THEREFROM, EXCEPT THOSE
DAMAGES ARISING FROM THE BANK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
7.8 NOTICES. Although any notice required to be given hereunder or
under any of the other Loan Documents might be accomplished by other means,
notice will always be deemed given when placed in the United States Mail,
with postage prepaid, or sent by overnight delivery service, or sent by telex
or facsimile, in each case to the address set forth below or as amended.
7.9 PAYMENTS. Payments due under the Notes and other Loan Documents
will be made in lawful money of the United States, and the Bank is authorized
to charge payments due under the Loan Documents against any account of the
Borrower. All payments may be applied by the Bank to principal, interest and
other amounts due under the Loan Documents in any order which the Bank elects.
7.10 APPLICABLE LAW AND JURISDICTION; INTERPRETATION; JOINT LIABILITY.
This Agreement and all other Loan Documents will be governed by and
interpreted in accordance with the internal laws of the state where the
Bank's main office is located, except to the extent superseded by Federal
law. Invalidity of any provisions of this Agreement will not affect any
other provision. THE BORROWER HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION
OF ANY STATE OR FEDERAL COURT SITUATED IN THE COUNTY OR FEDERAL JURISDICTION
WHERE THE BANK'S OFFICE WHICH IS DESIGNATED IN THE NOTES AS THE PLACE FOR
PAYMENT IS LOCATED (OR, IN THE ABSENCE OF SUCH DESIGNATION, THE BANK'S MAIN
OFFICE), AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, WITH REGARD
TO ANY ACTIONS, CLAIMS, DISPUTES OR PROCEEDINGS RELATING TO THIS AGREEMENT,
THE NOTES, THE COLLATERAL, ANY OTHER LOAN DOCUMENT, OR ANY TRANSACTIONS
ARISING THEREFROM, OR ENFORCEMENT AND/OR
15
<PAGE>
INTERPRETATION OF ANY OF THE FOREGOING. Nothing herein will affect the
Bank's rights to serve process in any manner permitted by law, or limit the
Bank's right to bring proceedings against the Borrower in the competent
courts of any other jurisdiction or jurisdictions. This Agreement, the other
Loan Documents and any amendments hereto (regardless of when executed) will
be deemed effective and accepted only upon the Bank's receipt of the executed
originals thereof. If there is more than one Borrower, the liability of the
Borrowers will be joint and several, and the reference to "Borrower" will be
deemed to refer to all Borrowers.
7.11 COPIES; ENTIRE AGREEMENT; MODIFICATION. The Borrower hereby
acknowledges the receipt of a copy of this Agreement and all other Loan
Documents.
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER
TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY
ENFORCED. YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN
AGREEMENT. THIS NOTICE SHALL ALSO BE EFFECTIVE WITH RESPECT TO ALL OTHER
CREDIT AGREEMENTS NOW IN EFFECT BETWEEN YOU AND THIS LENDER. A MODIFICATION
OF ANY OTHER CREDIT AGREEMENTS NOW IN EFFECT BETWEEN YOU AND THIS LENDER,
WHICH OCCURS AFTER RECEIPT BY YOU OF THIS NOTICE, MAY BE MADE ONLY BY ANOTHER
WRITTEN INSTRUMENT. ORAL OR IMPLIED MODIFICATIONS TO SUCH CREDIT AGREEMENTS
ARE NOT ENFORCEABLE AND SHOULD NOT BE RELIED UPON.
7.12 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY JOINTLY AND
SEVERALLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING RELATING TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS THEREUNDER,
ANY COLLATERAL SECURING THE OBLIGATIONS, OR ANY TRANSACTION ARISING THEREFROM
OR CONNECTED THERETO. THE BORROWER AND THE BANK EACH REPRESENTS TO THE OTHER
THAT THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY GIVEN.
16
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this AMENDED AND RESTATED
REVOLVING CREDIT AND TERM LOAN AGREEMENT as of January 16, 1997.
Address: 2600 Eagan Woods UNITED COMMUNITY
Suite 155 BANCSHARES, INC.
Eagan, MN 55121
By (s) R. Scott Jones
--------------------------------
Its Chairman
-------------------------------
By (s) Galen T. Pate
--------------------------------
Its President
-------------------------------
Address: 101 East 5th Street FIRSTAR BANK MILWAUKEE,
9th Floor N.A.
St. Paul, MN 55101
By (s) Michael J. Kwiatkowski
--------------------------------
Its Vice President
-------------------------------
17
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in this Form 8-K
Current Report of United Community Bancshares, Inc. (the "Company") of our
report dated January 31, 1996 on the financial statements of Park Financial
Corporation, which report appears in the Form S-1 Registration Statement of the
Company and United Capital Trust I, Reg. No. 333-14587.
/s/ Larson, Allen, Weishair & Co., LLP
LARSON, ALLEN, WEISHAIR, & CO., LLP
January 30, 1997
<PAGE>
EXHIBIT 99.1
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Park Financial Corporation and Subsidiary
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of Park
Financial Corporation (a Minnesota corporation) and Subsidiary at December 31,
1995 and 1994, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 Park
Financial Corporation and Subsidiary at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As described in Note 1 to the consolidated financial statements and as
required by generally accepted accounting principles, the Company changed its
method of accounting for investments in debt securities in 1994 and income taxes
in 1993.
LARSON, ALLEN, WEISHAIR, & CO., LLP
Minneapolis, Minnesota
January 31, 1996
F-33
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------------
1996 1995 1994
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks............................ $ 14,028,271 $ 13,169,628 $ 10,383,932
Interest Bearing Deposits with Banks............... 1,256,000 876,000 --
Federal Funds Sold................................. -- 4,900,000 7,600,000
Commercial Paper................................... 3,511,281 1,570,357 2,281,129
Securities:
Available-for-Sale............................... 68,268,410 61,044,394 52,837,500
Held-to-Maturity................................. -- 1,149,884 513,559
Loans (Less Allowance for Loan Losses of $2,174,975
in 1996, $2,481,705 in 1995 and $2,019,723 in
1994)............................................. 116,569,192 113,498,772 102,882,230
Land, Buildings, Leasehold Improvements and
Equipment (Less Accumulated Depreciation and
Amortization)..................................... 2,062,337 2,130,254 2,225,913
Other Assets....................................... 2,831,685 2,230,636 2,780,933
-------------- -------------- --------------
Total Assets................................. $ 208,527,176 $ 200,569,925 $ 181,505,196
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
Demand........................................... $ 45,038,960 $ 46,810,324 $ 46,295,507
Money Market Demand and NOW Accounts............. 14,591,118 15,456,490 14,991,459
Regular Savings.................................. 12,675,617 10,197,306 12,695,656
Money Market Savings............................. 40,693,028 38,356,160 32,696,892
Savings Certificates and Other Time.............. 51,966,840 54,933,342 50,024,887
-------------- -------------- --------------
$ 164,965,563 $ 165,753,622 $ 156,704,401
Securities Sold Under Repurchase Agreements........ 17,510,802 10,665,906 4,354,251
Accrued Interest Payable and Other Liabilities..... 1,458,702 1,262,022 1,209,228
-------------- -------------- --------------
Total Liabilities............................ $ 183,935,067 $ 177,681,550 $ 162,267,880
-------------- -------------- --------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share; 5,000,000
Shares Authorized; 472,710 Shares Issued and
Outstanding in 1996 and 650,000 Shares Issued in
1995 and 1994................................... $ 472,710 $ 650,000 $ 650,000
Additional Contributed Capital................... -- 1,198,497 1,198,497
Retained Earnings................................ 24,152,130 22,033,841 19,633,033
Net Unrealized Gain (Loss) on Available-for-Sale
Securities...................................... (32,731) 502,191 (702,815)
-------------- -------------- --------------
Total........................................ $ 24,592,109 $ 24,384,529 $ 20,778,715
Less: Common Stock in Treasury (at Cost); 177,290
Shares in 1995 and 178,490 Shares in 1994....... -- 1,496,154 1,541,399
-------------- -------------- --------------
Total Stockholders' Equity................... $ 24,592,109 $ 22,888,375 $ 19,237,316
-------------- -------------- --------------
Total Liabilities and Stockholders' Equity... $ 208,527,176 $ 200,569,925 $ 181,505,196
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-34
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------- ------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans................. $8,382,177 $8,320,374 $11,268,722 $ 8,833,418 $7,110,961
Interest on Investment Securities:
U.S. Treasury Securities................. 1,042,121 1,000,296 1,273,402 1,153,539 456,010
Obligations of Other U.S. Government
Agencies and Corporations............... 963,115 660,341 918,354 574,718 1,061,439
Obligations of States and Political
Subdivisions............................ 517,369 208,625 313,653 379,287 641,937
Other Securities......................... 777,898 586,589 831,094 449,920 320,451
Interest on Federal Funds Sold and Interest
Bearing Deposits.......................... 174,252 234,470 363,523 272,043 153,652
----------- ----------- ----------- ----------- ----------
Total Interest Income.................. 11,856,932 11,010,695 14,968,748 11,662,925 9,744,450
----------- ----------- ----------- ----------- ----------
INTEREST EXPENSE
Interest on Deposits....................... 4,007,924 3,798,083 5,171,989 3,361,568 2,820,531
Interest on Federal Funds Purchased and
Securities Sold Under Repurchase
Agreements................................ 511,106 327,618 499,627 176,035 106,727
----------- ----------- ----------- ----------- ----------
Total Interest Expense................. 4,519,030 4,125,701 5,671,616 3,537,603 2,927,258
----------- ----------- ----------- ----------- ----------
NET INTEREST INCOME.......................... 7,337,902 6,884,994 9,297,132 8,125,322 6,817,192
PROVISION FOR LOAN LOSSES.................... 329,274 540,000 720,000 740,227 552,000
----------- ----------- ----------- ----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES...................................... 7,008,628 6,344,994 8,577,132 7,385,095 6,265,192
----------- ----------- ----------- ----------- ----------
OTHER INCOME
Service Fees............................... 1,179,247 1,150,735 1,529,870 1,404,965 1,358,658
Investment Securities Gains................ 1,000 39,125 39,125 68,902 430,726
Other...................................... 58,076 70,116 89,717 81,965 312,407
----------- ----------- ----------- ----------- ----------
Total Other Income..................... 1,238,323 1,259,976 1,658,712 1,555,832 2,101,791
----------- ----------- ----------- ----------- ----------
OTHER EXPENSE
Salaries................................... 1,984,767 2,116,241 3,174,566 3,015,073 2,829,026
Profit Sharing and Other Employee
Benefits.................................. 453,302 227,207 315,196 297,794 252,311
Net Occupancy Expenses..................... 460,763 443,950 595,766 596,926 689,163
Equipment Expenses......................... 444,948 387,744 522,021 491,051 526,182
Other Operating Expenses................... 1,262,452 1,547,561 1,730,224 1,674,680 1,937,104
----------- ----------- ----------- ----------- ----------
Total Other Expense.................... 4,606,232 4,722,703 6,337,773 6,075,524 6,233,786
----------- ----------- ----------- ----------- ----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLE... 3,640,719 2,882,267 3,898,071 2,865,403 2,133,197
PROVISION FOR INCOME TAX EXPENSE............. 1,402,063 1,096,242 1,497,263 1,030,415 659,104
----------- ----------- ----------- ----------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE........................ 2,238,656 1,786,025 2,400,808 1,834,988 1,474,093
Cumulative Effect of Change in Accounting
Principle................................... -- -- -- -- 850,221
----------- ----------- ----------- ----------- ----------
NET INCOME................................... $2,238,656 $1,786,025 $ 2,400,808 $ 1,834,988 $2,324,314
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
PER SHARE OF COMMON STOCK
Income Before Cumulative Effect of Change
in Accounting Principle................... $ 4.74 $ 3.78 $ 5.09 $ 3.89 $ 3.15
Cumulative Effect of Change in Accounting
Principle................................. -- -- -- -- 1.81
----------- ----------- ----------- ----------- ----------
$ 4.74 $ 3.78 $ 5.09 $ 3.89 $ 4.96
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-35
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN (LOSS) ON
ADDITIONAL AVAILABLE-
COMMON CONTRIBUTED RETAINED FOR-SALE TREASURY
STOCK CAPITAL EARNINGS SECURITIES STOCK TOTAL
---------- ------------ ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992................ $ 650,000 $ 1,198,497 $ 15,473,731 $ -- $ (1,682,298) $ 15,639,930
2,600 Shares of Common Stock Purchased
for Treasury........................... -- -- -- -- (86,870) (86,870)
8,225 Shares of Common Stock Sold from
Treasury............................... -- -- -- -- 274,962 274,962
Net Income for the Year................. -- -- 2,324,314 -- -- 2,324,314
---------- ------------ ------------- -------------- ------------- -------------
BALANCE, DECEMBER 31, 1993................ 650,000 1,198,497 17,798,045 -- (1,494,206) 18,152,336
5,000 Shares of Common Stock Purchased
for Treasury........................... -- -- -- -- (196,890) (196,890)
3,900 Shares of Common Stock Sold from
Treasury............................... -- -- -- -- 149,697 149,697
Net Change in Unrealized Gain (Loss) on
Securities Available-for-Sale, Net of
Taxes.................................. -- -- -- (702,815) -- (702,815)
Net Income for the Year................. -- -- 1,834,988 -- -- 1,834,988
---------- ------------ ------------- -------------- ------------- -------------
BALANCE, DECEMBER 31, 1994................ 650,000 1,198,497 19,633,033 (702,815) (1,541,399) 19,237,316
1,200 Shares of Common Stock Sold from
Treasury............................... -- -- -- -- 45,245 45,245
Net Change in Unrealized Gain (Loss) on
Securities Available-for-Sale, Net of
Taxes.................................. -- -- -- 1,205,006 -- 1,205,006
Net Income for the Year................. -- -- 2,400,808 -- -- 2,400,808
---------- ------------ ------------- -------------- ------------- -------------
BALANCE, DECEMBER 31, 1995 (UNAUDITED).... 650,000 1,198,497 22,033,841 502,191 (1,496,154) 22,888,375
Net Change in Unrealized Gain (Loss) on
Securities Available-for-Sale, Net of
Taxes.................................. -- -- -- (534,922) -- (534,922)
Retirement of Treasury Stock............ (177,290) (1,198,497) (120,367) -- 1,496,154 --
Net Income for the Nine Months.......... -- -- 2,238,656 -- -- 2,238,656
---------- ------------ ------------- -------------- ------------- -------------
BALANCE, SEPTEMBER 30, 1996............... $ 472,710 $ -- $ 24,152,130 $ (32,731) $ -- $ 24,592,109
---------- ------------ ------------- -------------- ------------- -------------
---------- ------------ ------------- -------------- ------------- -------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-36
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------------- ------------------------------------------------
1996 1995 1995 1994 1993
-------------- -------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net Income................................. $ 2,238,656 $ 1,786,025 $ 2,400,808 $ 1,834,988 $ 2,324,314
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Cumulative Effect of Accounting Change... -- -- -- -- (850,221)
Depreciation and Amortization............ 314,854 237,318 318,006 323,460 362,047
Deferred Income Taxes.................... 69,188 (121,025) 48,642 72,309 108,217
Investment Premium Amortization (Net).... 99,723 163,715 210,731 201,264 412,489
Provision for Loan Losses................ 329,274 540,000 720,000 740,227 552,000
(Gain) Loss on Sale of Other Real Estate
and Equipment, Net...................... -- -- -- -- 42,431
Securities Gains......................... (1,000) (39,125) (39,125) (68,902) (430,726)
(Increase) Decrease in Interest and Fees
Receivable.............................. (257,458) (444,112) (317,378) (438,304) 93,829
(Increase) Decrease in Prepaid Expenses
and Other Assets........................ (56,166) (28,488) 47,074 (66,338) 55,693
Increase (Decrease) in Interest
Payable................................. (101,783) (105,675) (53,511) 127,225 (73,727)
Increase (Decrease) in Other
Liabilities............................. 298,463 269,953 74,924 229,179 (186,022)
-------------- -------------- -------------- -------------- --------------
Net Cash Provided by Operating
Activities............................ 2,933,751 2,258,586 3,410,171 2,955,108 2,410,324
-------------- -------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Available-for-Sale
Securities................................ (26,923,773) (15,001,702) (22,110,843) (34,334,524) (23,866,396)
Proceeds from Sales, Maturities or Called
Available-for-Sale Securities............. 19,859,382 10,789,250 16,254,248 22,866,982 25,356,770
Purchase of Held-to-Maturity Securities.... -- -- (1,149,884) -- --
Net Increase in Interest Bearing Deposits
with Banks................................ (380,000) (689,000) (876,000) -- --
Net Increase in Loans...................... (3,399,694) (12,131,531) (11,336,542) (6,973,296) (11,297,959)
Proceeds from the Sale of Other Real
Estate.................................... -- -- -- -- 192,190
Net (Increase) Decrease in Commercial
Paper..................................... (1,940,924) (403,646) 710,772 (2,281,129) --
Purchase of Properties and Equipment....... (246,936) (198,351) (222,347) (287,310) (154,825)
-------------- -------------- -------------- -------------- --------------
Net Cash Used by Investing
Activities............................ (13,031,945) (17,634,980) (18,730,596) (21,009,277) (9,770,220)
-------------- -------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Demand Deposits, NOW
Accounts, Savings Accounts, and
Certificates of Deposits.................. (788,059) (370,817) 9,049,221 21,341,090 3,326,146
Net Increase (Decrease) in Short-Term
Borrowings................................ 6,844,896 9,304,619 6,311,655 1,072,953 (1,433,819)
Sales of Treasury Stock.................... -- -- 45,245 149,697 274,962
Purchase of Treasury Stock................. -- -- -- (196,890) (86,870)
-------------- -------------- -------------- -------------- --------------
Net Cash Provided by Financing
Activities............................ 6,056,837 8,933,802 15,406,121 22,366,850 2,080,419
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. (4,041,357) (6,442,592) 85,696 4,312,681 (5,279,477)
Cash and Cash Equivalents -- Beginning of
Period...................................... 18,069,628 17,983,932 17,983,932 13,671,251 18,950,728
-------------- -------------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS -- END OF PERIOD... $ 14,028,271 $ 11,541,340 $ 18,069,628 $ 17,983,932 $ 13,671,251
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest................................... $ 4,620,813 $ 4,227,376 $ 5,725,127 $ 3,410,378 $ 3,000,985
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Income Taxes............................... $ 1,066,316 $ 953,425 $ 1,422,747 $ 917,608 $ 750,949
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-37
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF ACTIVITIES
Park Financial Corporation is a one-bank holding company providing bank and
bank-related services through its subsidiary, Park National Bank. The majority
of the subsidiary bank's business activity is with customers located within the
immediate area of the subsidiary bank.
A summary of the Company's significant accounting and reporting policies
consistently applied in the preparation of the accompanying consolidated
financial statements follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Park National Bank. All significant
intercompany accounts and transactions have been eliminated in preparing the
consolidated financial statements.
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold. Generally, federal funds
are sold and purchased for one day periods. Cash flows for loans originated by
the Company, deposits and securities sold under agreement to repurchase are
reported net. In 1993, other real estate of $1,586,378 was transferred to loans.
CONCENTRATION OF CREDIT RISK
Substantially all of the Company's loans, commitments to extend credit and
standby letters of credit have been granted to customers in the Bank's market
area. Investments in securities issued by State and political subdivisions (see
Note 2) involve diverse governmental entities. The concentration of credit by
type of loan is set forth in Note 3. Standby letters of credit were granted
primarily to commercial customers.
INVESTMENT SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT
AND EQUITY SECURITIES. This statement requires that management determine the
appropriate classification of securities at the date of adoption and thereafter
as each individual security is acquired. In addition, the appropriateness of
such classification is reassessed at each balance sheet date. The
classifications and related accounting policies under SFAS No. 115 are as
follows:
HELD-TO-MATURITY SECURITIES
Held to maturity securities consist of bonds, notes and debentures for
which the Company has the positive intent and ability to hold to maturity.
Held-to-maturity securities are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest method
over the period to maturity.
AVAILABLE-FOR-SALE SECURITIES
Available-for-sale Securities consist of bonds, notes, and debentures
not classified as held-to-maturity securities. Unrealized holding gains and
losses, net of tax, on available-for-sale securities are reported as a net
amount in a separate component of stockholders' equity until realized. Gains
and losses on the sale of available-for-sale securities are determined using
the specific-identification method.
F-38
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRADING ACCOUNT SECURITIES
Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading account
securities and are reported at fair value. Gains or losses on sales of
trading account securities, adjustments to fair values, and other
noninterest income are included in trading account profits and commissions.
The Company had no investments it classified as trading at December 31, 1995
and 1994.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company and its bank subsidiary have not invested in instruments which
are typically described as derivative financial instruments, and have no current
plans to do so, for trading, investing, hedging or other purposes.
LOANS AND ALLOWANCES FOR LOSSES
Loans are stated at the amount of unpaid principal. Interest on loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding.
Loans are reduced by an allowance for losses, which is established through
provisions for loan losses charged to expense. Loans are charged against the
allowance for losses when management believes that the collectibility of the
principal is unlikely. The allowance is an amount that management believes will
be adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of collectibility and prior loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall quality, review of specific problem
loans and current economic conditions that may affect the borrowers' ability to
pay. Accrual of interest is discontinued when management believes, after
consideration of economic and business conditions and collection efforts, that
the borrowers' financial condition is such that collection of interest is
doubtful. Interest on these loans is recognized only when actually paid by the
borrower if collection of the principal is likely to occur.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates may affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could vary from the estimates that
were used.
BUILDINGS, LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Buildings and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided on the straight-line method for financial reporting
purposes at rates sufficient to absorb the cost over the estimated useful life
of each asset which range from 3 to 32 years. For income tax reporting purposes,
depreciation is provided using accelerated methods. Leasehold improvements are
amortized over the term of the lease or the estimated useful lives of the
improvements, whichever is shorter.
INCOME TAXES
In 1993, the Company began providing for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109 (SFAS 109). In
accordance with SFAS 109, the asset and liability approach is used to determine
deferred income taxes. The asset and liability approach requires recognition of
deferred tax liabilities and assets for the expected future consequences of
temporary differences between the financial reporting basis and tax basis of
assets and liabilities. A valuation allowance is provided when it is
F-39
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
more likely than not that a deferred tax asset will not be realized. The effect
of the adjustment as of January 1, 1993 to adopt SFAS 109 has been reflected in
the income statement as a cumulative effect of an accounting change and
increased 1993 net earnings by $850,221.
The Company and its subsidiary bank file consolidated federal and unitary
state income tax returns.
EMPLOYEE BENEFIT PLAN
The Company has established a 401(k) defined contribution profit sharing
plan covering substantially all officers and employees. The Company matches
employee contributions in accordance with the plan agreement. Additional annual
contributions by the Company are voluntary and made at the discretion of the
Board of Directors. Contributions of $64,275, $69,931 and $65,481 were made to
the plan at December 31, 1995, 1994 and 1993, respectively.
TREASURY STOCK
The Company records the purchase of its common stock at cost. Gains or
losses on the sale of treasury stock are based on the net proceeds and the cost
basis of the common stock using the last-in, first-out method. As of September
30, 1996, the Company retired all of its outstanding treasury stock.
NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is calculated on the basis of the
weighted average number of shares outstanding during the year which totaled
471,540, 471,931 and 468,692 shares in 1995, 1994 and 1993, respectively.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1993 financial
statements in order to conform to the 1995 presentation. These reclassifications
had no effect on net income or stockholders' equity as originally presented.
INTERIM FINANCIAL DATA
The interim financial statements are unaudited; however, in management's
opinion, the interim financial statements include all adjustments necessary for
a fair presentation of the financial results for the interim periods.
F-40
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
2 SECURITIES
The amortized cost and estimated market values of investments in debt and
equity securities at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Available-For-Sale:
U.S. Government Obligations.................... $ 18,045,014 $ 104,094 $ (14,323) $ 18,134,785
Obligations of Federal Agencies................ 16,928,813 284,297 (39,150) 17,173,960
Obligations of States and Political
Subdivisions.................................. 10,267,585 155,872 (19,516) 10,403,941
Corporate Securities........................... 12,914,844 376,325 (9,974) 13,281,195
Mortgage-Backed Securities..................... 2,001,654 0 (641) 2,001,013
Other Securities............................... 49,500 0 0 49,500
------------- ----------- ----------- -------------
$ 60,207,410 $ 920,588 $ (83,604) $ 61,044,394
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Held-to-Maturity:
Obligations of Federal Agencies................ $ 1,149,884 $ 0 $ 0 $ 1,149,884
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Available-For-Sale:
U.S. Government Obligations................. $ 29,195,538 $ 0 $ (653,597) $ 28,541,941
Obligations of Federal Agencies............. 12,970,556 0 (289,994) 12,680,562
Obligations of States and Political
Subdivisions............................... 6,033,104 55,289 (111,134) 5,977,259
Corporate Securities........................ 3,750,581 0 (116,974) 3,633,607
Mortgage-Backed Securities.................. 2,009,581 0 (54,950) 1,954,631
Other Securities............................ 49,500 0 0 49,500
------------- ----------- ------------- -------------
$ 54,008,860 $ 55,289 $ (1,226,649) $ 52,837,500
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
Held-to-Maturity:
Obligations of States and Political
Subdivisions............................... $ 513,559 $ 0 $ (48,872) $ 464,687
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
</TABLE>
During 1995, the Bank transferred a held-to-maturity security of $512,307 to
available-for-sale.
F-41
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
2 SECURITIES (CONTINUED)
The amortized cost and estimated market value of securities at December 31,
1995, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties. Mortgage-backed
securities are included below at their stated maturity date.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
---------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Due in One Year or Less................................ $ 20,105,750 $ 20,108,571 $ 1,149,884 $ 1,149,884
Due after One Year through Five Years.................. 30,374,477 31,097,515 0 0
Due after Five Years through Ten Years................. 5,515,537 5,617,695 0 0
Due After Ten Years.................................... 4,211,646 4,220,613 0 0
------------- ------------- ------------ ------------
Total.............................................. $ 60,207,410 $ 61,044,394 $ 1,149,884 $ 1,149,884
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
Gross gains from sales of securities available-for-sale were $39,125,
$68,902 and $430,726 for 1995, 1994 and 1993, respectively.
Investment securities with a carrying amount of $32,595,000 and $31,864,222
at December 31, 1995 and 1994, respectively, were pledged to secure public
deposits and securities sold under repurchase agreements and for other purposes
required or permitted by law.
3 LOANS
Major classifications of loans at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Commercial............................................................. $ 70,905,502 $ 61,320,880
Consumer............................................................... 11,113,783 13,107,442
Real Estate............................................................ 33,151,994 29,580,177
Ready Reserve.......................................................... 549,627 568,641
Other.................................................................. 259,571 324,813
-------------- --------------
Total.............................................................. $ 115,980,477 $ 104,901,953
Less: Allowance for Loan Losses........................................ 2,481,705 2,019,723
-------------- --------------
Loans (Net)........................................................ $ 113,498,772 $ 102,882,230
-------------- --------------
-------------- --------------
</TABLE>
The impairment of loans having carrying values of $1,889,581 in 1995 have
been recognized in conformity with FASB Statement No. 114, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN. The total allowance for credit losses
related to these loans was $849,341 in 1995. For impairment recognized in
conformity with FASB Statement No. 114, the entire change in present value of
expected cash flows is reported as bad debt expense in the same manner which
impairment initially was recognized or as a reduction in the amount of bad debt
expense that otherwise would be reported.
F-42
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
3 LOANS (CONTINUED)
Changes in the allowance for loan losses as of December 31, 1995, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance, Beginning of Year.................................... $ 2,019,723 $ 1,545,320 $ 1,455,760
Provision Charged to Operations............................. 720,000 740,227 552,000
Loans Charged Off........................................... (380,882) (429,094) (632,066)
Recoveries.................................................. 122,864 163,270 169,626
------------ ------------ ------------
Balance, End of Year.......................................... $ 2,481,705 $ 2,019,723 $ 1,545,320
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
In the ordinary course of business, the Company and its subsidiary bank have
granted loans to certain directors, officers, employees and stockholders and the
companies with which they are associated. The approximate aggregate amount of
all such loans at December 31, 1995 and 1994 was $1,805,534 and $2,078,120,
respectively.
4 LAND, BUILDINGS, LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Major classifications of these assets at December 31, 1995 and 1994 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Buildings and Improvements........................................ $ 981,364 $ 981,364
Leasehold Improvements............................................ 733,251 733,251
Equipment......................................................... 2,717,230 2,556,028
Other............................................................. 21,111 21,111
------------ ------------
$ 4,452,956 $ 4,291,754
Less: Accumulated Depreciation and Amortization................... 2,808,792 2,551,931
------------ ------------
$ 1,644,164 $ 1,739,823
Land.............................................................. 486,090 486,090
------------ ------------
Total......................................................... $ 2,130,254 $ 2,225,913
------------ ------------
------------ ------------
</TABLE>
5 OTHER ASSETS
Other assets consist of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Accrued Interest and Fees Receivable.............................. $ 1,785,362 $ 1,467,984
Deferred Taxes.................................................... 297,943 1,118,544
Prepaid Expenses and Other........................................ 147,331 194,405
------------ ------------
Total......................................................... $ 2,230,636 $ 2,780,933
------------ ------------
------------ ------------
</TABLE>
6 NOTE PAYABLE
At December 31, 1995 and 1994, the Company had $3,000,000 and $6,000,000,
respectively, available for use under a one year revolving promissory note with
an unrelated bank. Interest which is payable monthly was at the federal funds
rate plus 2.25% in 1995 and at the lenders prime rate in 1994 (effective rate of
7.63% on December 31, 1995 and 8.5% on December 31, 1994). The promissory notes
are collateralized by all of the outstanding shares of common stock of Park
National Bank. No borrowings were outstanding under the line at December 31,
1995 and 1994.
F-43
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
7 INCOME TAXES
The provision for income tax expense in the statements of income for the
years ended December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ----------
<S> <C> <C> <C>
Current......................................................... $ 1,448,621 $ 958,106 $ 550,887
Deferred........................................................ 48,642 72,309 108,217
------------ ------------ ----------
Total....................................................... $ 1,497,263 $ 1,030,415 $ 659,104
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
Deferred tax expense results from temporary differences in the recognition
of revenue and expense for financial reporting and income tax purposes. The
principal sources of these differences are the provision for loan losses for tax
purposes which differs from the provision for financial reporting purposes, from
using accelerated methods of depreciation for tax purposes only, and the
benefits of alternative minimum tax credit carryforwards.
The Company has alternative minimum tax credit carryforwards of $-0- and
$352,014 at December 31, 1995 and 1994, respectively.
Income tax expense differs from income tax expense computed by applying the
statutory federal income tax rate. The reasons for these differences are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------- -------------------------- -------------------------
PERCENT PERCENT PERCENT
OF PRETAX OF PRETAX OF PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
----------- ------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income Tax Expense at Statutory
Rate........................... $ 1,325,344 34.0% $ 974,237 34.0% $ 725,287 34.0%
State Taxes, Net of Federal Tax
Benefit........................ 253,107 6.5 186,089 6.5 135,615 6.4
Exempt Interest from Investments
and Loans...................... (105,080) (2.7) (123,355) (4.3) (209,000) (9.8)
Other........................... 23,892 0.6 (6,556) (0.2) 7,202 0.3
----------- --- ----------- --- ---------- ---
Income Tax Expense............ $ 1,497,263 38.4% $ 1,030,415 36.0% $ 659,104 30.9%
----------- ----- ----------- ----- ---------- -----
----------- ----- ----------- ----- ---------- -----
</TABLE>
8 COMMITMENTS AND CONTINGENT LIABILITIES
The Company conducts the majority of its operations in leased facilities. In
addition to basic rent, the Company is obligated to pay a percentage of
insurance, real estate taxes, and other building operating and maintenance
costs. The lease, which expires on October 31, 2004 includes a mark to market
clause which allows the landlord to adjust the rent to market once during the
period beginning on November 1, 1999 until the end of the lease. The lease
includes options to renew for three additional successive ten year periods under
similar terms. The Bank has also entered into sublease agreements with various
tenants. These subleases call for base rental payments and operating expenses
payable to Park National Bank and expire in 1998.
F-44
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
8 COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The approximate minimum annual rental commitments as of December 31, 1995
are as follows:
<TABLE>
<CAPTION>
GROSS SUBLEASE NET
YEAR ENDING DECEMBER 31, AMOUNT AMOUNT AMOUNT
- ---------------------------------------------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
1996............................................................ $ 307,000 $ (44,000) $ 263,000
1997............................................................ 312,000 (44,000) 268,000
1998............................................................ 315,000 (11,000) 304,000
1999............................................................ 263,000 0 263,000
------------ ---------- ------------
Total....................................................... $ 1,197,000 $ (99,000) $ 1,098,000
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
The total rental expense under all lease agreements was $570,568, $578,057
and $652,839 in 1995, 1994 and 1993, respectively.
In the normal course of business there are outstanding various commitments
and contingent liabilities, such as commitments to extend credit, items held for
collections, and unsold travelers checks, which are not reflected in the
accompanying financial statements. The subsidiary bank does not anticipate
losses as a result of these transactions.
9 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company's subsidiary 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 standby letters of credit. The instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the balance sheets. The contract or notional amounts of these
instruments reflect the extent of involvement the subsidiary bank has in
particular classes of financial instruments.
The subsidiary 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 standby letters of credit is represented by the contractual notional amount
of these instruments. The subsidiary bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance sheet
instruments.
The contract or notional amount of financial instruments whose contract
amounts represent credit risk were approximately $32,434,688 and $25,513,751 for
commitments to extend credit and $1,211,354 and $3,321,931 for standby letters
of credit at December 31, 1995 and 1994, respectively.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The subsidiary bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the subsidiary bank upon extension of credit is
based on management's credit evaluation. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
subsidiary 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 loan facilities to customers. The subsidiary bank
holds appropriate collateral supporting those commitments for which collateral
is deemed necessary.
F-45
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
10 JUMBO CERTIFICATES OF DEPOSIT
Certificate of deposits equal to or in excess of $100,000 totaled
approximately $14,560,270 and $17,633,692 at December 31, 1995 and 1994,
respectively. Interest expense related to these deposits totaled approximately
$317,000 and $762,000 at December 31, 1995 and 1994, respectively.
11 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN BANKS,
FEDERAL FUNDS SOLD, AND COMMERCIAL PAPER
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE
For these short-term receivables and payables, the carrying value is a
reasonable estimate of fair value.
INVESTMENT SECURITIES
For securities held as investments, fair value equals quoted market price,
if available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
LOANS
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
OTHER BORROWINGS
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
F-46
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
11 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
COMMITMENTS TO EXTEND CREDIT, LINE-OF-CREDIT ARRANGEMENTS,
CREDIT CARD ARRANGEMENTS, AND LETTERS OF CREDIT
For these commitments, the carrying amount is a reasonable estimate of fair
value, since the stated fees and interest rates charged on these arrangements
does not significantly vary from the terms currently being offered.
<TABLE>
<CAPTION>
1995 1994
------------------------------ ------------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial Assets:
Investment Securities........................ $ 62,194,278 $ 62,194,278 $ 53,351,059 $ 53,302,187
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Loans........................................ $ 115,980,477 $ 104,901,953
Less: Allowance for Loan Losses.............. 2,481,705 2,019,723
-------------- --------------
Net Loans.................................. $ 113,498,772 $ 115,485,449 $ 102,882,230 $ 104,084,659
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Financial Liabilities:
Deposits..................................... $ 165,753,622 $ 165,915,248 $ 156,704,401 $ 157,155,168
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
12 REGULATORY CAPITAL REQUIREMENTS
Federal regulatory agencies have adopted various capital standards for
financial institutions, including risk-based capital standards. The primary
objectives of the risk-based capital framework are to provide a more consistent
system for comparing capital positions of financial institutions' assets and
off-balance-sheet items.
Risk-based capital standards have been supplemented with requirements for a
minimum Tier 1 capital to asset ratio (leverage ratio). In addition, regulatory
agencies consider the published capital levels as minimum levels and may require
a financial institution to maintain capital at higher levels.
A comparison of the capital of the Company's bank subsidiary as of December
31, 1995, with the minimum requirements is presented below:
<TABLE>
<CAPTION>
WELL ADEQUATELY
ACTUAL CAPITALIZED CAPITALIZED
----------- ------------- ---------------
<S> <C> <C> <C>
Total Risk-Based Capital................................... 12.2% 10% 8%
Tier 1 Risk-Based Capital.................................. 10.6% 6% 4%
Leverage Ratio............................................. 8.1% 5% 4%
</TABLE>
Banking regulations restrict the amount of dividends that may be paid
without prior approval of Bank supervisory authorities.
F-47
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
13 PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for Park Financial Corporation (parent
Company only) follows:
BALANCE SHEETS (in 000's)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Interest-Bearing Deposits with Subsidiary Bank.............................................. $ 15 $ 1,642
Investments Held to Maturity................................................................ 1,150 0
Commercial Paper............................................................................ 1,570 2,281
Loans (Less Allowance for Loan Losses $101 in 1995 and 1994)................................ 3,501 1,086
Investment in Bank Subsidiary............................................................... 16,553 14,237
Other Assets................................................................................ 137 56
--------- ---------
Total Assets............................................................................ $ 22,926 $ 19,302
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Other Liabilities........................................................................... $ 38 $ 65
Stockholders' Equity........................................................................ 22,888 19,237
--------- ---------
Total Liabilities and Stockholders' Equity.............................................. $ 22,926 $ 19,302
--------- ---------
--------- ---------
</TABLE>
INCOME STATEMENT (in 000's)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Dividend Income from Bank Subsidiary................................................. $ 1,150 $ 1,000 $ 1,000
Interest............................................................................. 394 223 271
Other................................................................................ 47 166 248
--------- --------- ---------
Total Income..................................................................... $ 1,591 $ 1,389 $ 1,519
Expenses............................................................................. 208 272 385
--------- --------- ---------
Income before Income Taxes, Equity in Undistributed Earnings of Subsidiary and
Cumulative Effect of Change in Accounting Principle................................. $ 1,383 $ 1,117 $ 1,134
Provision for Income Taxes........................................................... 94 47 54
--------- --------- ---------
Income before Equity in Undistributed Earnings of Bank Subsidiary and Cumulative
Effect of Change in Accounting Principle............................................ $ 1,289 $ 1,070 $ 1,080
Equity in Undistributed Earnings of Bank Subsidiary.................................. 1,112 765 1,264
--------- --------- ---------
Income before Cumulative Effect of Change in Accounting Principle.................... $ 2,401 $ 1,835 $ 2,344
Cumulative Effect of Change in Accounting Principle.................................. 0 0 (20)
--------- --------- ---------
NET INCOME........................................................................... $ 2,401 $ 1,835 $ 2,324
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-48
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
13 PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS (in 000's)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Income....................................................................... $ 2,401 $ 1,835 $ 2,324
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Equity in Undistributed Earnings of Subsidiary................................. (1,112) (765) (1,264)
(Increase) Decrease in Prepaid Expenses and Other Assets....................... (81) 129 481
Increase (Decrease) in Other Liabilities....................................... (26) (30) (58)
--------- --------- ---------
Net Cash Provided by Operating Activities.................................... $ 1,182 $ 1,169 $ 1,483
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Held to Maturity Securities......................................... $ (1,150) $ 0 $ 0
Net (Increase) Decrease in Loans................................................. (2,415) 1,132 2,193
Net (Increase) Decrease in Commercial Paper...................................... 711 (795) (1,487)
--------- --------- ---------
Net Cash Provided (Used) by Investing Activities............................. $ (2,854) $ 337 $ 706
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Short-Term Borrowings............................................ $ 0 $ 0 $ (2,225)
Sales of Treasury Stock.......................................................... 45 150 275
Purchase of Treasury Stock....................................................... 0 (197) (87)
--------- --------- ---------
Net Cash Provided (Used) by Financing Activities............................. $ 45 $ (47) $ (2,037)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................................................... $ (1,627) $ 1,459 $ 152
Cash and Cash Equivalents -- Beginning of Year..................................... 1,642 183 31
--------- --------- ---------
CASH AND CASH EQUIVALENTS -- END OF YEAR........................................... $ 15 $ 1,642 $ 183
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest......................................................................... $ 25 $ 0 $ 54
--------- --------- ---------
--------- --------- ---------
Income Taxes Paid (Refund)....................................................... $ 156 $ 105 $ (71)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Federal law prevents the corporation from borrowing from its subsidiary bank
unless the loans are secured by specified assets. Such secured loans by any
subsidiary bank are generally limited to 10 percent of the subsidiary bank's
capital and surplus.
The payment of dividends to the corporation by subsidiary banks is subject
to various federal and state regulatory limitations. The bank must obtain the
approval of the Comptroller of the Currency if the total of all dividends
declared in any calendar year exceeds the bank's net profits for that year
combined with its retained net profits for the preceding two calendar years.
F-49
<PAGE>
PARK FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1996 and 1995 (Unaudited)
and December 31, 1995, 1994 and 1993
14 SUBSEQUENT EVENTS
On October 7, 1996, the Company entered into a merger agreement with United
Community Bancshares, Inc. The merger has been approved by the Board of
Directors and will be completed upon regulatory approval and fulfillment of
certain covenants and conditions.
An appreciation bonus of approximately $1,000,000 will be paid to certain
employees of the Company's Bank subsidiary upon the successful closing of the
merger. An accrual for this bonus will be recorded by the Bank in November 1996.
F-50
<PAGE>
EXHIBIT 99.2
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS OF UNITED AND PFC
The Unaudited Pro Forma Consolidated Balance Sheet is derived from the
unaudited balance sheets of United and PFC as of September 30, 1996 included
elsewhere herein and assumes that the transactions were consummated on September
30, 1996. The Unaudited Pro Forma Consolidated Statement of Income for the Year
Ended December 31, 1995 is derived from the audited Consolidated Statements of
Income of United and PFC included elsewhere herein and assumes that the
transactions were consummated on January 1, 1995. The Unaudited Pro Forma
Consolidated Statements of Income for the Nine Months Ended September 30, 1996
and 1995 are derived from the unaudited Consolidated Statements of Income of
United and PFC included elsewhere herein and assumes that the transactions were
consummated on January 1, 1996, and January 1, 1995, respectively.
The Unaudited Pro Forma Consolidated Financial Statements do not purport to
represent what United's results of operations or financial condition would
actually have been if the transactions had occurred on the dates indicated, and
do not project United's results or financial condition for or to any future
period or date. The Unaudited Pro Forma Consolidated Financial Statements are
presented for comparative purposes only. The pro forma adjustments, as discussed
in Note 1, are based on available information and certain assumptions that
management believes are reasonable.
The acquisition will be accounted for using the purchase method of
accounting. The purchase price of the acquisition will be allocated to the
tangible assets and liabilities of PFC based upon management's preliminary
estimates of their fair value with the remainder allocated to goodwill. The
allocation of purchase price for the acquisition is subject to revision when
additional information concerning asset and liability valuations are obtained.
In the opinion of United's management, and assuming a stable interest rate
environment, the asset and liability valuations for the acquisition will not be
materially different from the Unaudited Pro Forma Consolidated Financial
Statements presented.
F-51
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET OF UNITED AND PFC
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON AND PRO FORMA
PREFERRED CONSOLIDATED
STOCK UNITED BALANCE
UNITED OFFERING PRO FORMA PFC ADJUSTMENTS SHEET
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks..... $ 24,001,941 $ 15,127,960 (a) $ 39,129,901 $ 15,284,271 $(45,139,540)(c) $ 38,837,322
24,000,000 (d)
5,562,690 (e)
Federal funds sold.......... 7,875,000 7,875,000 -- 7,875,000
Investment securities
available for sale......... 103,453,335 103,453,335 71,779,691 (3,511,281)(e) 171,721,745
Loans and leases............ 280,212,723 280,212,723 118,744,167 (1,972,776)(e) 396,849,114
(135,000)(c)
Allowance for loan and
lease losses........... (2,867,523) (2,867,523) (2,174,975) 70,274 (e) (4,972,224)
------------- ------------- ------------- ------------- -------------
Net loans and
leases............... 277,345,200 277,345,200 116,569,192 (2,037,502) 391,876,890
------------- ------------- ------------- ------------- -------------
Property and equipment,
net........................ 10,887,181 10,887,181 2,062,337 (11,084)(e) 12,938,434
Cash surrender value of life
insurance.................. 9,421,321 9,421,321 -- 9,421,321
Intangible assets, net...... 3,684,285 3,684,285 -- 21,223,731 (c) 24,908,016
Other assets................ 5,181,713 5,181,713 2,831,685 (167,136)(e) 7,846,262
------------- ------------- ------------- ------------- ------------- -------------
Total assets............ $ 441,849,976 $ 15,127,960 $456,977,936 $ 208,527,176 $ (80,122) $665,424,990
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits.................. $ 351,825,044 $351,825,044 $ 164,965,563 $516,790,607
Securities sold under
repurchase agreements.... 27,556,398 27,556,398 17,510,802 45,067,200
Accrued expenses and other
liabilities.............. 5,880,339 5,880,339 1,458,702 595,300 (b) 7,851,028
(29,313)(e)
(54,000)(c)
Notes payable and other
borrowings............... 16,708,565 16,708,565 -- 24,000,000 (d) 40,708,565
------------- ------------- ------------- ------------- ------------- -------------
Total liabilities....... 401,970,346 -- 401,970,346 183,935,067 24,511,987 610,417,400
------------- ------------- ------------- ------------- ------------- -------------
Company obligated
mandatorily redeemable
preferred securities of
subsidiary trust holding
solely junior subordinated
debentures................. -- 10,159,000 (a) 10,159,000 -- 10,159,000
------------- ------------- ------------- ------------- ------------- -------------
Stockholders' equity:
Common stock.............. 5,466 472 (a) 5,938 472,710 (472,710)(c) 5,938
Additional paid-in
capital.................. 21,015,602 (30,000)(a) 25,984,090 -- -- 25,984,090
4,998,488 (a)
Retained earnings......... 18,917,959 18,917,959 24,152,130 (23,556,830)(c) 18,917,959
(595,300)(b)
Unrealized loss on
securities available
for sale............... (59,397) (59,397) (32,731) 32,731 (c) (59,397)
------------- ------------- ------------- ------------- ------------- -------------
Total stockholders'
equity............... 39,879,630 4,968,960 44,848,590 24,592,109 (24,592,109) 44,848,590
------------- ------------- ------------- ------------- ------------- -------------
Total liabilities and
stockholders'
equity............... $ 441,849,976 $ 15,127,960 $456,977,936 $ 208,527,176 $ (80,122) $665,424,990
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
See Note to the Unaudited Pro Forma Consolidated Financial Statements
F-52
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF INCOME OF UNITED AND PFC
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
STATEMENT OF
UNITED PFC ADJUSTMENTS INCOME
------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C>
Interest income:
Loans and leases.............................. $ 25,089,584 $ 11,268,722 $ 27,000 (f) $ 36,142,994
(242,312)(h)
Investment securities......................... 5,355,179 3,336,503 (140,917)(h) 8,550,765
Federal funds sold............................ 760,820 363,523 1,124,343
------------- ------------- ----------------- ------------
Total interest income....................... 31,205,583 14,968,748 (356,229) 45,818,102
------------- ------------- ----------------- ------------
Interest expense:
Deposits...................................... 10,438,601 5,171,989 15,610,590
Federal funds purchased and securities sold
under repurchase agreements.................. 1,453,699 499,627 1,953,326
Notes payable and other borrowings............ 955,752 -- 1,687,200 (g) 2,642,952
------------- ------------- ----------------- ------------
Total interest expense...................... 12,848,052 5,671,616 1,687,200 20,206,868
------------- ------------- ----------------- ------------
Net interest income........................... 18,357,531 9,297,132 (2,043,429) 25,611,234
Provision for loan and lease losses............. 60,999 720,000 -- 780,999
------------- ------------- ----------------- ------------
Net interest income after provision for loan (2,043,429)
and lease losses........................... 18,296,532 8,577,132 24,830,235
Noninterest income:
Service charges and other fees................ 2,922,664 1,529,870 4,452,534
Net investment securities gains............... (32,329) 39,125 6,796
Other......................................... 1,028,650 89,717 1,118,367
------------- ------------- ----------------- ------------
Total noninterest income.................... 3,918,985 1,658,712 -- 5,577,697
------------- ------------- ----------------- ------------
Noninterest expense:
Salaries and employee benefits................ 9,291,893 3,489,762 12,781,655
Occupancy..................................... 1,208,300 595,766 1,804,066
Depreciation.................................. 1,252,682 522,021 (28,813)(h) 1,745,890
Other......................................... 4,778,059 1,730,224 1,414,915 (f) 7,923,198
------------- ------------- ----------------- ------------
Total noninterest expense................... 16,530,934 6,337,773 1,386,102 24,254,809
------------- ------------- ----------------- ------------
Income before income taxes and minority interest (3,429,531)
in preferred securities dividends of
subsidiary..................................... 5,684,583 3,898,071 6,153,123
Income tax expense.............................. 2,055,552 1,497,263 (805,846)(i) 2,746,969
Minority interest in preferred securities -- -- (660,000)(j) (822,900)
dividends of subsidiary........................ (162,900)(k)
------------- ------------- ----------------- ------------
Net income...................................... $ 3,629,031 $ 2,400,808 $ (3,446,585) $ 2,583,254
------------- ------------- ----------------- ------------
------------- ------------- ----------------- ------------
Earnings per common share..................... $ 6.97 $ 5.09 $ 4.55
Weighted average common shares outstanding.... 520,306 471,540 567,466
</TABLE>
See Note to the Unaudited Pro Forma Consolidated Financial Statements
F-53
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF INCOME OF UNITED AND PFC
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
STATEMENT OF
UNITED PFC ADJUSTMENTS INCOME
------------- ------------ ----------------- ------------
<S> <C> <C> <C> <C>
Interest income:
Loans and leases............................... $ 20,061,287 $ 8,382,177 $ 20,250 (f) $ 28,322,282
(141,432)(h)
Investment securities.......................... 4,549,378 3,300,503 (120,828)(h) 7,729,053
Federal funds sold............................. 389,775 174,252 564,027
------------- ------------ ----------------- ------------
Total interest income........................ 25,000,440 11,856,932 (242,010) 36,615,362
------------- ------------ ----------------- ------------
Interest expense:
Deposits....................................... 8,721,275 4,007,924 12,729,199
Federal funds purchased and securities sold
under repurchase agreements................... 956,487 511,106 1,467,593
Notes payable and other borrowings............. 767,214 -- 1,265,400 (g) 2,032,614
------------- ------------ ----------------- ------------
Total interest expense....................... 10,444,976 4,519,030 1,265,400 16,229,406
------------- ------------ ----------------- ------------
Net interest income.......................... 14,555,464 7,337,902 (1,507,410) 20,385,956
Provision for loan and lease losses.............. 145,823 329,274 -- 475,097
------------- ------------ ----------------- ------------
Net interest income after provision for loan (1,507,410)
and lease losses............................ 14,409,641 7,008,628 19,910,859
Noninterest income:
Service charges and other fees................. 2,442,366 1,179,247 3,621,613
Net investment securities gains................ -- 1,000 1,000
Other.......................................... 1,005,623 58,076 1,063,699
------------- ------------ ----------------- ------------
Total noninterest income..................... 3,447,989 1,238,323 -- 4,686,312
------------- ------------ ----------------- ------------
Noninterest expense:
Salaries and employee benefits................. 7,323,248 2,438,069 9,761,317
Occupancy...................................... 645,535 460,763 1,106,298
Depreciation................................... 1,141,406 444,948 (8,573)(h) 1,577,781
Other.......................................... 3,664,528 1,262,452 1,061,186 (f) 5,988,166
------------- ------------ ----------------- ------------
Total noninterest expense.................... 12,774,717 4,606,232 1,052,613 18,433,562
------------- ------------ ----------------- ------------
Income before income taxes and minority interest (2,560,023)
in preferred securities dividends of
subsidiary...................................... 5,082,913 3,640,719 6,163,609
Income tax expense............................... 1,677,987 1,402,063 (599,535)(i) 2,480,515
Minority interest in preferred securities -- -- (495,000)(j) (617,175)
dividends of subsidiary......................... (122,175)(k)
------------- ------------ ----------------- ------------
Net income................................... $ 3,404,926 $ 2,238,656 $ (2,577,663) $ 3,065,919
------------- ------------ ----------------- ------------
------------- ------------ ----------------- ------------
Earnings per common share...................... $ 6.20 $ 4.74 $ 5.14
Weighted average common shares outstanding..... 549,079 472,710 596,239
</TABLE>
See Note to the Unaudited Pro Forma Consolidated Financial Statements
F-54
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF INCOME OF UNITED AND PFC
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
STATEMENT OF
UNITED PFC ADJUSTMENTS INCOME
------------- ------------ ----------------- ------------
<S> <C> <C> <C> <C>
Interest income:
Loans and leases............................... $ 18,522,558 $ 8,320,374 $ 20,250 (f) $ 26,709,707
(153,475)(h)
Investment securities.......................... 3,863,727 2,455,851 (111,582)(h) 6,207,996
Federal funds sold............................. 532,775 234,470 767,245
------------- ------------ ----------------- ------------
Total interest income........................ 22,919,060 11,010,695 (244,807) 33,684,948
------------- ------------ ----------------- ------------
Interest expense:
Deposits....................................... 7,626,718 3,798,083 11,424,801
Federal funds purchased and securities sold
under repurchase agreements................... 1,057,758 327,618 1,385,376
Notes payable and other borrowings............. 712,785 -- 1,265,400 (g) 1,978,185
------------- ------------ ----------------- ------------
Total interest expense....................... 9,397,261 4,125,701 1,265,400 14,788,362
------------- ------------ ----------------- ------------
Net interest income.......................... 13,521,799 6,884,994 (1,510,207) 18,896,586
Provision for loan and lease losses.............. 41,215 540,000 -- 581,215
------------- ------------ ----------------- ------------
Net interest income after provision for loan (1,510,207)
and lease losses............................ 13,480,584 6,344,994 18,315,371
Noninterest income:
Service charges and other fees................. 2,135,645 1,150,735 3,286,380
Net investment securities (losses)............. (22,869) 39,125 16,256
Other.......................................... 773,744 70,116 843,860
------------- ------------ ----------------- ------------
Total noninterest income..................... 2,886,520 1,259,976 -- 4,146,496
------------- ------------ ----------------- ------------
Noninterest expense:
Salaries and employee benefits................. 6,865,658 2,343,448 9,209,106
Occupancy...................................... 743,539 443,950 1,187,489
Depreciation................................... 911,640 387,744 (26,237)(h) 1,273,147
Other.......................................... 3,626,573 1,547,561 1,061,186 (f) 6,235,320
------------- ------------ ----------------- ------------
Total noninterest expense.................... 12,147,410 4,722,703 1,034,949 17,905,062
------------- ------------ ----------------- ------------
Income before income taxes and minority interest (2,545,156)
in preferred securities dividends of
subsidiary...................................... 4,219,694 2,882,267 4,556,805
Income tax expense............................... 1,249,086 1,096,242 (593,588)(i) 1,751,740
Minority interest in preferred securities -- -- (495,000)(j) (617,175)
dividends of subsidiary......................... (122,175)(k)
------------- ------------ ----------------- ------------
Net income................................... $ 2,970,608 $ 1,786,025 $ (2,568,743) $ 2,187,890
------------- ------------ ----------------- ------------
------------- ------------ ----------------- ------------
Earnings per common share...................... $ 5.82 $ 3.78 $ 3.92
Weighted average common shares outstanding..... 510,770 471,510 557,930
</TABLE>
See Note to the Unaudited Pro Forma Consolidated Financial Statements
F-55
<PAGE>
NOTE TO THE UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS OF UNITED AND PFC
NOTE 1: PRO FORMA ADJUSTMENTS
Management's assumptions and the related pro forma adjustments are as
follows:
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Reflects the sale of $11,000,000 of preferred securities and approximately
$5,000,000 of common stock. A total of 47,160 shares of the common stock are
assumed to be sold at a price of $106.00 per share. A total of 440,000
shares of preferred securities are assumed to be sold at a price of $25.00
per share. Total offering costs of the preferred securities are estimated to
be $841,000 and total offering costs of the common stock are estimated to be
$30,000.
(b) Reflects a $1,000,000 appreciation bonus granted to employees of PFC by the
former owner. The after-tax effect is estimated to be $595,300, resulting in
an increase in accrued liabilities and a reduction in equity.
(c) Reflects the allocation of the purchase price and the elimination of PFC's
equity. The purchase price is $21,110,000 plus the equity of PFC excluding
the unrealized loss on securities available for sale. The investment
securities are recorded at fair value, therefore no adjustments are
required. The fair value adjustment to loans was a decrease of $135,000.
This adjustment to loans was based on discounted cash flows, using interest
rates currently being offered for loans with similar terms to borrowers with
similar credit quality. Management determined that no fair value adjustment
was necessary for deposits based on a discounted cash flow calculation that
applies interest rates currently being offered on certificates of deposit of
similar remaining maturities to the existing certificate of deposit
portfolio.
The following table summarizes the calculation of the purchase price:
<TABLE>
<S> <C>
Equity of PFC, excluding unrealized loss on securities
available for sale............................................ $ 24,624,840
Premium........................................................ 21,110,000
Bonus accrual.................................................. (1,000,000)
Tax benefit related to bonus................................... 404,700
--------------
Purchase price................................................. 45,139,540
PFC book value................................................. 24,592,109
--------------
Purchase price in excess of book value......................... $ 20,547,431
--------------
--------------
</TABLE>
The following table summarizes the purchase price in excess of book value:
<TABLE>
<S> <C>
Bonus, net of tax effect....................................... $ (595,300)
Fair value adjustment to loans................................. (135,000)
Deferred taxes on loan adjustment.............................. 54,000
Goodwill....................................................... 21,223,731
--------------
Purchase price in excess of book value......................... $ 20,547,431
--------------
--------------
</TABLE>
The following table summarizes the allocation of the purchase price:
<TABLE>
<S> <C>
Fair value adjustment to loans, net of tax effect.............. $ (81,000)
PFC book value................................................. 24,592,109
Bonus, net of tax effect....................................... (595,300)
Goodwill....................................................... 21,223,731
--------------
Purchase price................................................. $ 45,139,540
--------------
--------------
</TABLE>
(d) Reflects the additional proceeds received from bank financing to be obtained
from Firstar in conjunction with the Park Acquisition.
F-56
<PAGE>
(e) Reflects the cash liquidation and extinguishment of PFC's parent
company-only assets and liabilities (excluding its investment in Park Bank).
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(f) Reflects the effect of push-down accounting to goodwill resulting in
additional amortization of $1,414,915 and $1,061,186 for the year ended
December 31, 1995 and for the nine months ended September 30, 1996 and 1995,
respectively. Goodwill will be amortized over 15 years. A further effect of
push-down accounting is to accrete to income the loan fair value adjustment
over the estimated life of the respective portfolio. The accretion for the
year ended December 31, 1995 and for each of the nine months ended September
30, 1996 and 1995 is $27,000 and $20,250, respectively.
(g) Reflects the additional interest expense incurred as a result of the
additional financing of $24,000,000 required to complete the Park
Acquisition. The interest rate is assumed to be 140 basis points over the 90
day LIBOR rate or 7.03%. The actual interest rate may be higher or lower
than this rate. A change of 0.125% in the interest rate would change the pro
forma interest expense by approximately $30,000 for the year ended December
31, 1995 and by approximately $22,500 for each of the nine months ended
September 30, 1996 and 1995, respectively.
(h) Reflects the reduction of interest income and depreciation assuming PFC's
loans, investment securities and property and equipment were assumed to be
sold on January 1, 1995 and January 1, 1996, respectively. The amounts
eliminated reflect actual interest income and depreciation expense recorded
for the periods.
(i) Reflects the tax effect of the taxable pro forma adjustments. The goodwill
amortization is not tax deductible. The effective tax rate is assumed to be
forty percent for the year ended December 31, 1995 and for the nine months
ended September 30, 1996 and 1995 resulting in decreased income tax expense
of $805,846, $599,535 and $593,588 respectively.
(j) Reflects the dividends paid on the preferred securities at an assumed rate
of 10.0% per annum paid quarterly on $11,000,000 of preferred securities,
net of income taxes. The effective tax rate is assumed to be forty percent.
(k) Reflects the amortization of the $841,000 of offering costs associated with
the preferred securities over a five year term. Amortization expense for the
year ended December 31, 1995 and for each of the nine months ended September
30, 1996 and 1995 is $162,900 and $122,175, respectively.
F-57
