SUPERIOR BANCORP
As filed with the Securities and Exchange Commission on
July 10, 2006
Registration
No. 333-
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form S-4
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
SUPERIOR BANCORP
(Exact Name of Registrant as
Specified in its Charter)
|
|
|
|
|
Delaware
|
|
6711
|
|
63-1201350
|
(State or Other Jurisdiction
of
Incorporation or Organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification Number)
|
17 North
20th Street
Birmingham, Alabama
35203
(205) 327-1400
(Address, including Zip Code,
and Telephone Number, including Area Code, of Registrants
Principal Executive Offices)
C. Stanley Bailey
Chief Executive
Officer
Superior Bancorp
17 North
20th Street
Birmingham, Alabama
35203
(205) 327-1400
(Name, Address, including Zip
Code, and Telephone Number, including Area Code, of Agent for
Service)
Copies to:
ROBERT E. LEE GARNER
Haskell Slaughter
Young & Rediker, LLC
1400 Park Place Tower
2001 Park Place North
Birmingham, Alabama
35203
(205) 251-1000
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this Registration Statement.
If the securities being registered on this Form are to be
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check the
following box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
number of the earlier effective registration statement for the
same offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier, effective registration statement for the same
offering. o
CALCULATION OF REGISTRATION
FEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposed Maximum
|
|
|
Proposed Maximum
|
|
|
|
Title of Each Class of
Securities
|
|
|
Amount To Be
|
|
|
Offering Price
|
|
|
Aggregate
|
|
|
Amount of
|
To Be Registered
|
|
|
Registered(1)
|
|
|
Per Unit
|
|
|
Offering Price(2)
|
|
|
Registration Fee
|
Common Stock, par value
$.001 per share
|
|
|
6,228,566
|
|
|
|
|
|
$28,311,115
|
|
|
$3,029.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the maximum amount of common stock, par value
$.001 per share (Superior Bancorp common
stock), of Superior Bancorp issuable upon the consummation
of the merger of Kensington Bankshares, Inc. with and into
Superior Bancorp, assuming the conversion of each outstanding
share of common stock, par value $.01 per share
(Kensington Bankshares common stock), of Kensington
Bankshares, Inc. into 1.60 shares of Superior Bancorp
common stock and the issuance of up to 291,766 shares of
Superior Bancorp common stock in satisfaction of outstanding
options to purchase Kensington Bankshares common stock.
|
|
(2)
|
In accordance with Rule 457(f)(2), the registration fee is
based on the aggregate book value of the number of shares of
common stock of Kensington Bankshares that will be received by
the registrant pursuant to the merger.
|
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further Amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the SEC, acting
pursuant to said Section 8(a), may determine.
The
information in this joint proxy statement/prospectus is not
complete and may be changed. We may not sell these securities
until the registration statement filed with the Securities and
Exchange Commission is effective. This joint proxy
statement/prospectus is not an offer to sell these securities
and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
|
DATED
JULY 10, 2006, SUBJECT TO COMPLETION
|
|
Superior
Bancorp |
Kensington
Bankshares, Inc. |
PROPOSED
MERGER YOUR VOTE IS VERY IMPORTANT
Each of the boards of directors of Superior Bancorp and
Kensington Bankshares, Inc. has unanimously approved a
transaction that will result in the merger of Kensington
Bankshares with and into Superior Bancorp. The stockholders of
Superior Bancorp and Kensington Bankshares are being asked to
approve the merger at special meetings of the stockholders of
each company.
If we complete the merger, Kensington Bankshares stockholders
will be entitled to receive 1.60 shares of Superior Bancorp
common stock for each share of Kensington Bankshares common
stock they own, subject to the following provisions. If, on the
date that all necessary consents and regulatory approvals for
the merger have been received, the average closing price for ten
trading days immediately preceding such date of Superior Bancorp
common stock is less than $10.50 per share, then the
majority of the entire board of Kensington Bankshares may vote
to terminate the Agreement and Plan of Merger any time during
the five-day period after the date that all consents and
approvals have been received. If Kensington Bankshares exercises
its option to terminate the merger agreement, Kensington
Bankshares must give notice to Superior Bancorp. Superior
Bancorp will then have the option of paying additional
consideration in the form of Superior Bancorp common stock, cash
or a combination of stock and cash so that the aggregate
consideration per share is equal to $10.50. The parties cannot
now predict whether or not Kensington Bancshares board of
directors would exercise the right to terminate the merger
agreement if these conditions are met or if Superior Bancorp
would agree to pay additional consideration.
We expect that the merger will qualify as a reorganization under
the Internal Revenue Code, in which case Kensington Bankshares
stockholders will not recognize gain or loss for federal income
tax purposes upon the exchange of their shares of Kensington
Bankshares common stock for share of Superior Bancorp common
stock. You should carefully read the description of material
federal tax consequences beginning on page of
this joint proxy statement/prospectus and consult your own tax
advisor.
We cannot complete the merger unless the stockholders of both
companies approve the merger agreement. Each of our boards of
directors unanimously recommends that you vote
FOR the merger agreement and the merger.
Each of Superior Bancorp and Kensington Bankshares will hold a
special meeting of its stockholders to approve the merger. The
places, dates and times of the special meetings are as follows:
|
|
|
|
|
Superior Bancorp
|
|
Kensington Bankshares, Inc.
|
|
,
2006
|
|
|
,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Superior Bancorp common stock is quoted on the NASDAQ National
Market System under the ticker symbol SUPR.
YOUR VOTE IS IMPORTANT. Please take the time to vote on the
proposals by completing and mailing the enclosed proxy card,
even if you plan to attend the stockholders meeting.
This joint proxy statement/prospectus provides you with
detailed information about the proposed merger. In addition, you
may obtain information about Superior Bancorp from documents
that Superior Bancorp has filed with the Securities and Exchange
Commission. We encourage you to read this entire document
carefully. You should also consider carefully the risk factors
we describe beginning on page of this joint
proxy statement/prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this joint proxy
statement/prospectus is truthful or complete. Any representation
to the contrary is a criminal offense. Shares of Superior
Bancorp common stock are not bank accounts or deposits, are not
federally insured by the FDIC and are not insured by any other
state or federal agency.
This joint proxy statement/prospectus is
dated ,
2006, and is first being mailed to stockholders of Superior
Bancorp and Kensington Bankshares on or
about ,
2006.
JOINT PROXY STATEMENT/PROSPECTUS
This joint proxy statement/prospectus incorporates by reference
important business and financial information about Superior
Bancorp and Kensington Bankshares from documents that are not
included in or delivered with this document. This information is
available to you without charge upon your written or oral
request. You can obtain documents incorporated by reference in
this document, other than certain exhibits to those documents,
by requesting them in writing or by telephone from the
appropriate company at the following address:
|
|
|
Superior Bancorp
|
|
Kensington Bankshares, Inc.
|
17 North 20th Street
|
|
13246 North Dale Murphy Highway
|
Birmingham, Alabama 35203
|
|
Tampa, Florida 33264
|
(205)
327-1400
|
|
(813) 961-6200
|
Attention: Tom Jung
|
|
Attention: William R.
Bender, Jr.
|
Superior Bancorp files quarterly and annual reports with the
Securities and Exchange Commission. You can obtain free copies
of this information through the SEC website at
http://www.sec.gov or through Superior Bancorps website at
www.superiorbank.com.
Stockholders requesting documents should do so
by ,
2006, in order to receive them before the special meetings.
For additional information regarding where you can find more
information about Superior Bancorp and Kensington Bankshares,
see Where You Can Find More Information beginning on
page .
You should rely only on information provided in this joint
proxy statement/prospectus. Neither Superior Bancorp nor
Kensington Bankshares has authorized anyone else to provide you
with different information. The information in this joint proxy
statement/prospectus about Superior Bancorp and its subsidiaries
has been supplied by Superior Bancorp, and the information in
this joint proxy statement/prospectus about Kensington
Bankshares and First Kensington Bank has been supplied by
Kensington Bankshares. Although neither Superior Bancorp nor
Kensington Bankshares has actual knowledge that would indicate
that any statement or information (including financial
statements) relating to the other party contained herein are
inaccurate or incomplete, neither Superior Bancorp nor
Kensington Bankshares warrants the accuracy or completeness of
such statements or information as they relate to any other
party. Superior Bancorp is not making an offer of these
securities in any state or jurisdiction where the offer is not
permitted. Neither Superior Bancorp nor Kensington Bankshares is
soliciting proxies in any state where the solicitation of
proxies is not permitted.
SUPERIOR
BANCORP
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
to be
held ,
2006
.m.
Birmingham, Alabama
NOTICE IS HEREBY GIVEN THAT Superior Bancorp will hold a special
meeting of stockholders
on ,
2006,
at .m.
at
for the following purposes:
1. Merger. To consider and vote on an Agreement and
Plan of Merger, dated as of March 6, 2006, under which
Kensington Bankshares, Inc., a Florida bank holding company,
will merge with and into Superior Bancorp, a Delaware-chartered
thrift holding company. The merger agreement, which describes
the merger in more detail, is included in the accompanying joint
proxy statement/prospectus as Annex A.
2. Other Business. To transact such other business
as may properly come before the special meeting or any
postponement or adjustments of the special meeting.
Only stockholders of record at the close of business
on ,
2006 will be entitled to notice of and to vote at Superior
Bancorp special meeting or any adjournments or postponements
thereof. The approval of the merger agreement requires the
approval of the holders of a majority of the shares of Superior
Bancorp common stock outstanding and entitled to vote at the
meeting.
The board of directors of Superior Bancorp unanimously
recommends that holders of Superior Bancorp common stock vote
FOR the proposals listed above.
It is important that your shares be represented at the
special meeting regardless of the number of shares you own. Even
if you plan to attend the special meeting, we urge you to
complete, sign and date the enclosed proxy card and return it in
the envelope provided as promptly as possible. If you attend the
special meeting, you may vote either in person or by proxy. You
may revoke any proxy you give at any time before its exercise in
the manner described in the joint proxy statement/prospectus.
By Order of the Board of Directors,
C. Stanley Bailey
Chief Executive Officer
,
2006
Birmingham, Alabama
KENSINGTON
BANKSHARES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
to be
held ,
2006
.m.
Tampa, Florida
NOTICE IS HEREBY GIVEN THAT Kensington Bankshares, Inc. will
hold a special meeting of stockholders
on ,
2006,
at .m.
at for
the following purposes:
1. Merger. To consider and vote on an Agreement and
Plan of Merger, dated as of March 6, 2006, under which
Kensington Bankshares will merge with and into Superior Bancorp,
a Delaware-chartered thrift holding company, headquartered in
Birmingham, Alabama. The merger agreement, which describes the
merger in more detail, is included in the accompanying joint
proxy statement/prospectus as Annex A.
2. Other Business. To transact such other business
as may properly come before the special meeting or any
postponement or adjustments of the special meeting.
Only stockholders of record at the close of business
on ,
2006 will be entitled to notice of and to vote at the Kensington
Bankshares special meeting or any adjournments or postponements
thereof. The approval of the merger agreement requires the
approval of the holders of a majority of the shares of the
Kensington Bankshares common stock outstanding and entitled to
vote at the meeting.
Stockholders of Kensington Bankshares have a right to dissent
from the proposed merger and obtain payment in cash of the
appraised or fair value of their shares of Kensington Bankshares
common stock by complying with the applicable provisions of
Florida law. The full text of Sections 607.1301 through
607.1320 of the Florida Statutes, which describes the procedures
to be followed by stockholders who choose to dissent under
Florida law, are included as Annex B to the joint proxy
statement/prospectus and should be read carefully.
The board of directors of Kensington Bankshares unanimously
recommends that holders of Kensington Bankshares common stock
vote FOR the proposals listed above.
It is important that your shares be represented at the
special meeting regardless of the number of shares you own. Even
if you plan to attend the special meeting, we urge you to
complete, sign and date the enclosed proxy card and return it in
the envelope provided as promptly as possible. If you attend the
special meeting, you may vote either in person or by proxy. You
may revoke any proxy you give at any time before its exercise in
the manner described in the joint proxy statement/prospectus.
By Order of the Board of Directors,
Gerald K. Archibald
Chairman, Chief Executive Officer and President
,
2006
Tampa, Florida
DO NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD.
TABLE OF
CONTENTS
|
|
|
|
|
Page
|
|
|
|
iv
|
|
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
|
2
|
|
|
2
|
|
|
3
|
|
|
3
|
|
|
3
|
|
|
4
|
|
|
4
|
|
|
4
|
|
|
4
|
|
|
5
|
|
|
5
|
|
|
5
|
|
|
7
|
|
|
7
|
|
|
7
|
|
|
8
|
|
|
8
|
|
|
8
|
|
|
8
|
|
|
9
|
|
|
9
|
|
|
10
|
|
|
10
|
|
|
11
|
|
|
28
|
|
|
30
|
|
|
32
|
|
|
33
|
|
|
33
|
|
|
38
|
|
|
40
|
|
|
42
|
|
|
44
|
|
|
44
|
|
|
45
|
|
|
46
|
|
|
47
|
|
|
|
|
|
Page
|
|
|
|
47
|
|
|
47
|
|
|
57
|
|
|
63
|
|
|
72
|
|
|
74
|
|
|
74
|
|
|
74
|
|
|
75
|
|
|
77
|
|
|
77
|
|
|
79
|
|
|
80
|
|
|
81
|
|
|
81
|
|
|
82
|
|
|
83
|
|
|
83
|
|
|
83
|
|
|
84
|
|
|
84
|
|
|
84
|
|
|
84
|
|
|
85
|
|
|
86
|
|
|
86
|
|
|
87
|
|
|
|
|
|
|
|
|
92
|
|
|
101
|
|
|
110
|
|
|
110
|
|
|
110
|
|
|
111
|
|
|
111
|
|
|
111
|
|
|
111
|
|
|
112
|
|
|
112
|
|
|
113
|
|
|
113
|
|
|
113
|
ii
QUESTIONS
AND ANSWERS ABOUT THE MERGER
|
|
|
Q: |
|
What are Superior Bancorp and Kensington Bankshares proposing
at the special meetings? |
|
A: |
|
At the special meetings, the stockholders of each company will
be asked to vote for a proposal to approve the Agreement and
Plan of Merger between Superior Bancorp and Kensington
Bankshares by which Kensington Bankshares will be merged with
and into Superior Bancorp. |
|
Q: |
|
What should I do now? |
|
A: |
|
After carefully reviewing this document, please indicate on your
proxy card how you want to vote and sign and date your proxy
card. Mail your signed proxy card in the enclosed return
envelope as soon as possible to ensure that your shares are
represented at the applicable special meeting. |
|
|
|
If you sign, date and send in your proxy and do not indicate how
you want to vote, your proxy will be voted in favor of the
merger agreement and the merger. If you do not sign and send in
your proxy and if you do not attend and cast your vote in person
at the applicable special meeting, it will have the same effect
as a vote against the merger agreement and the merger. |
|
Q: |
|
What vote is required to approve the merger? |
|
A: |
|
Approval of the merger agreement requires the affirmative vote
of a majority of the outstanding shares of each of the
Kensington Bankshares common stock and Superior Bancorp common
stock. |
|
Q: |
|
What do the Superior Bancorp and Kensington Bankshares boards
of directors recommend? |
|
A: |
|
The boards of directors of Superior Bancorp and Kensington
Bankshares have both unanimously approved and adopted the merger
and the merger agreement. Accordingly, the boards of directors
of both Superior Bancorp and Kensington Bankshares unanimously
recommend that their stockholders vote
FOR approval of the merger agreement
and the merger. |
|
Q: |
|
What will Kensington Bankshares stockholders receive in the
merger? |
|
A: |
|
Kensington Bankshares stockholders will receive 1.60 shares
of Superior Bancorp common stock for each share of Kensington
Bankshares common stock, subject to adjustment as provided in
the merger agreement. |
|
Q: |
|
What happens to options previously granted by Kensington
Bankshares with respect to the merger? |
|
A: |
|
All outstanding Kensington Bankshares options will be cancelled
and option holders will receive shares of Superior Bancorp
common stock based on a formula as described in the merger
agreement. It is a condition to the closing of the merger that
each holder of a Kensington Bankshares option shall have
executed an agreement to cancel such option as of the effective
date of the merger and receive shares of Superior Bancorp common
stock in exchange therefor. See The
Merger The Merger
Agreement Treatment of Kensington Bankshares
Stock Options on page . |
|
Q: |
|
Is the Kensington Bankshares merger conditioned on the
consummation of the proposed merger of Community Bankshares,
Inc. with Superior Bancorp? |
|
A: |
|
No. The Kensington Bankshares merger is not conditioned on
the completion of the Community Bancshares merger. Each merger
is independent of the other. |
|
Q: |
|
Will Kensington Bankshares stockholders be able to trade
Superior Bancorp common stock they receive pursuant to the
merger? |
|
A: |
|
Yes. Superior Bancorp common stock issued pursuant to the merger
will be registered under the Securities Act of 1933 and will be
listed on the NASDAQ National Market System under the ticker
symbol SUPR. All shares of Superior Bancorp common
stock that you receive pursuant to the merger will generally be
freely transferable unless you are deemed an affiliate of
Kensington Bankshares at the time of the merger. Affiliates of
Kensington Bankshares may, however, be able to freely sell the
shares they receive pursuant to the merger, subject to the terms
of any lock-up agreement and any applicable
securities regulations. See The
Merger Resale of Superior Bancorp Common Stock
by Affiliates on page . |
iv
|
|
|
Q: |
|
Can I change my vote after I have mailed my signed proxy
card? |
|
A: |
|
Yes. You can change your vote at any time before your proxy is
voted at the special meeting. You can do this in one of three
ways. First, you can send a written notice stating that you
would like to revoke your proxy. Second, you can complete and
submit a new proxy card. If you choose either of these two
methods, you must submit your notice of revocation or your new
proxy card to Kensington Bankshares or Superior Bancorp, as
appropriate, at the address below, before the special meeting.
Third, you can attend the special meeting and vote in person.
Simply attending the meeting, however, will not revoke your
proxy. |
|
Q: |
|
Should I send in my stock certificates now? |
|
A: |
|
No. After the merger is completed, we will send you written
instructions on exchanging your Kensington Bankshares stock
certificates for Superior Bancorp stock certificates. |
|
Q: |
|
When do you expect the merger to be completed? |
|
A: |
|
We expect to complete the merger in the third or fourth quarter
of 2006. However, we cannot assure you when or if the merger
will occur. We must first obtain the approvals of our respective
stockholders and the necessary regulatory approvals and various
conditions specified in the merger agreement must be satisfied
or waived. |
|
Q: |
|
Who can help answer my questions? |
|
A: |
|
If you have more questions about the merger or the special
meetings or if you need additional copies of this joint proxy
statement/prospectus, you should contact: |
|
|
|
Superior Bancorp
|
|
Kensington Bankshares, Inc.
|
17 North Twentieth Street
|
|
13246 North Dale Mabry Highway
|
Birmingham, Alabama 35203
|
|
Tampa, Florida 33264
|
Attention: Investor
Relations Tom Jung
|
|
Attention: William R.
Bender, Jr.
|
Telephone:
(205) 327-1400
|
|
Telephone: (813) 961-6200
|
v
SUMMARY
OF JOINT PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this joint
proxy statement/prospectus and may not contain all of the
information that is important to you. For a more complete
understanding of this merger and for a more complete description
of the legal terms of the merger agreement, you should carefully
read this entire joint proxy statement/prospectus and the
documents to which we have referred you. This will help you to
understand the merger and related matters fully and their legal
terms.
The
Companies
(See
pages and )
Superior
Bancorp
17 North 20th Street
Birmingham, Alabama 35203
(205) 327-1400
Superior Bancorp is a Delaware-chartered thrift holding company,
headquartered in Birmingham, Alabama. Superior Bancorp was known
as The Banc Corporation until May 18, 2006, when its
stockholders approved the change of its corporate name to
Superior Bancorp. Superior Bancorp offers a broad range of
banking and related services through Superior Bank (formerly
known as The Bank), its principal subsidiary. Superior Bank is a
federal savings bank with a total of 26 branches, 19 locations
throughout the state of Alabama and seven locations along
Floridas panhandle. Superior Bank also has loan production
offices in Montgomery, Alabama, Tallahassee, Florida and Panama
City, Florida. At March 31, 2006, Superior Bancorp had
assets of approximately $1.432 billion, loans of
approximately $989.6 million, deposits of approximately
$1.078 billion and stockholders equity of
approximately $105.8 million.
On April 29, 2006, Superior Bancorp and Community
Bancshares, Inc. entered into a definitive agreement under which
Community Bancshares will merge with and into Superior Bancorp
in a stock transaction valued at approximately $99 million
based on current market prices of Superior Bancorp common stock.
Under the terms of the merger agreement, Superior Bancorp has
agreed to issue 0.8974 shares of its common stock for each
share of Community Bancshares common stock, subject to
adjustment as provided in the merger agreement. In addition,
Community Bankshares stockholders could receive a special cash
dividend of up to $0.50 per share, with a maximum of
$4.4 million in the aggregate, payable, and consummation of
the transaction subject to, various conditions specified in the
merger agreement. Completion of the merger is subject to
approval of the transaction by the stockholders of both
companies, to the receipt of required regulatory approvals and
to the satisfaction of usual and customary closing conditions.
There can be no assurance if or when the Community Bancshares
merger will be consummated.
As used in this joint proxy statement/prospectus, the term
Superior Bancorp refers to Superior Bancorp and its
subsidiaries and affiliates, including Superior Bank, unless the
context requires otherwise.
Kensington
Bankshares, Inc.
13246 North Dale Mabry Highway
Tampa, Florida 33264
(813) 961-6200
Kensington Bankshares is a Florida-chartered bank holding
company, headquartered in Tampa, Florida. First Kensington Bank
(Kensington Bank), a wholly-owned subsidiary of
Kensington Bankshares, is a Florida-chartered independent
community bank. Kensington Bank serves nine communities in the
Tampa Bay area, Spring Hill, Brooksville, New Port Richey, Port
Richey, Sun City, Tampa, Wesley Chapel and Clearwater and
recently opened a new full-service branch in Palm Harbor. At
March 31, 2006, Kensington Bankshares had assets of
approximately $339.9 million, loans of approximately
$137.2 million, deposits of approximately
$298.2 million and stockholders equity of
approximately $28.3 million.
As used in this joint proxy statement/prospectus, the term
Kensington Bankshares refers to Kensington
Bankshares and its sole subsidiary, Kensington Bank, unless the
context requires otherwise.
1
The
Special Meetings
(See
page )
Superior Bancorp will hold a special meeting of stockholders
on ,
2006,
at .m.,
local time,
at ,
Birmingham, Alabama.
Kensington Bankshares will hold a special meeting of
stockholders
on ,
2006,
at .m.,
local time,
at ,
Tampa, Florida.
At each special meeting, stockholders will be asked to vote on a
proposal to approve and adopt the merger agreement providing for
the merger of Kensington Bankshares with and into Superior
Bancorp and on any other business that properly arises during
the special meeting.
The
Merger
(See
page )
If the conditions for completing the merger are satisfied,
Kensington Bankshares will merge with and into Superior Bancorp.
Superior Bancorp will be the surviving corporation and
Kensington Bankshares will cease to exist. In connection with
the merger, we anticipate that on or after the effective date of
the merger, Superior Bank will purchase substantially all of the
assets of and assume substantially all of the liabilities of
Kensington Bank.
We have attached the merger agreement to this joint proxy
statement/prospectus as Annex A. The merger agreement is
the legal document that establishes the terms and conditions of
the merger, and you should read the entire merger agreement
carefully.
Board of
Directors of the Surviving Corporation
(See
page )
After the effective time of the merger, the boards of directors
of Superior Bancorp and its subsidiaries, including Superior
Bank, will consist of those persons serving before the effective
time. After the effective date of the merger, but not later than
December 31, 2006, Superior Bancorp has agreed to appoint
to its board of directors one individual who will be a
representative of the Tampa-area market who is mutually
satisfactory to the boards of directors of Superior Bancorp and
Kensington Bankshares.
Reasons
for the Merger
(See
page )
In reaching its decision to approve and adopt the merger
agreement, the board of directors of Superior Bancorp considered
a number of factors as generally supporting its decision,
including the following:
|
|
|
|
|
the high growth market available in central Florida;
|
|
|
|
the growth potential in Florida for a billion-dollar financial
institution;
|
|
|
|
the numerous customer relationships in the Tampa market;
|
|
|
|
the expected impact on future earnings of the combined companies;
|
|
|
|
the expected impact on stockholder value of the combined
companies;
|
|
|
|
the financial terms of recent business combinations in the
financial services industry and a comparison of the multiples of
selected combinations with the terms of the proposed transaction
with Kensington Bankshares; and
|
|
|
|
the opinion of Sandler ONeill & Partners that the
consideration to be received by Kensington Bankshares
stockholders pursuant to the merger agreement is fair from a
financial point of view to Superior Bancorp.
|
2
In reaching its decision to approve and adopt the merger
agreement, the board of directors of Kensington Bankshares
considered a number of factors as generally supporting its
decision, including the following:
|
|
|
|
|
the value of the consideration to be received by Kensington
Bankshares stockholders relative to the value of its common
stock;
|
|
|
|
certain information concerning the financial condition, results
of operations and business prospects of Superior Bancorp;
|
|
|
|
the financial terms of recent business combinations in the
financial services industry and a comparison of the multiples of
selected combinations with the terms of the proposed transaction
with Superior Bancorp;
|
|
|
|
the alternatives to the merger, including remaining an
independent institution;
|
|
|
|
the competitive and regulatory environment for financial
institutions generally;
|
|
|
|
the fact that the merger will enable Kensington Bankshares
stockholders to exchange their shares of common stock for shares
of common stock of a financial institution, the stock of which
is publicly traded on the NASDAQ National Market System, and
that the consideration will be received tax-free; and
|
|
|
|
the opinion of Alex Sheshunoff & Co. Investment
Banking, LP that the consideration to be received by Kensington
Bankshares stockholders pursuant to the merger agreement is fair
from a financial point of view.
|
Boards of
Directors of Superior Bancorp and Kensington Bankshares
Recommend Stockholder Approval
Each of the boards of directors of Superior Bancorp and
Kensington Bankshares believes that the merger is in the best
interests of its respective company and its respective
stockholders and recommends that stockholders vote
FOR the approval of the merger
agreement and the merger.
Opinion
of Superior Bancorps Financial Advisor
(See
page )
Sandler ONeill & Partners, L.P. delivered a
written opinion to the board of directors of Superior Bancorp to
the effect that, as of March 6, 2006, and subject to
various assumptions and limitations in its opinion, the
consideration for which shares of Kensington Bankshares common
stock will be exchanged in the merger is fair from a financial
point of view to Superior Bancorp stockholders. The opinion will
be reconfirmed no earlier than five days prior to the
mailing of this joint proxy statement/prospectus and the opinion
will not have been withdrawn prior to the effective time of the
merger.
The opinion is attached to this joint proxy statement/prospectus
as Annex C. You should read the entire opinion carefully in
connection with your consideration of the merger.
Opinion
of Kensington Bankshares Financial Advisor
(See
page )
Alex Sheshunoff & Co. Investment Banking, LP delivered
a written opinion to the board of directors of Kensington
Bankshares to the effect that, as of March 3, 2006, and
subject to various assumptions and limitations in its opinion,
the consideration for which shares of Kensington Bankshares
common stock will be exchanged in the merger is fair from a
financial point of view to Kensington Bankshares stockholders.
The opinion will be reconfirmed no earlier than five days
prior to the mailing of this joint proxy statement/prospectus
and the opinion will not have been withdrawn prior to the
effective time of the merger.
The opinion is attached to this joint proxy statement/prospectus
as Annex D. You should read the entire opinion carefully in
connection with your consideration of the merger.
3
Vote
Required
To approve the merger, a majority of the outstanding shares of
Kensington Bankshares common stock entitled to vote at the
special meeting and a majority of the outstanding shares of
Superior Bancorp common stock entitled to vote at the special
meeting must vote for the merger agreement and the
merger.
Kensington
Bankshares Stockholders Will Receive Shares of Superior Bancorp
Common Stock
(See
page )
When the merger is completed, Kensington Bankshares stockholders
will have the right to receive 1.60 shares of Superior
Bancorp common stock in exchange for each share of Kensington
Bankshares common stock they own, subject to the following
provisions. If, on the date that all necessary consents and
regulatory approvals for the merger have been received, the
average closing price for ten trading days immediately preceding
such date of Superior Bancorp common stock is less than
$10.50 per share, then the majority of the entire board of
Kensington Bankshares may vote to terminate the merger agreement
any time during the five-day period after the date all consents
and approvals have been received. If Kensington Bankshares
exercises its option to terminate the merger agreement,
Kensington Bankshares must give notice to Superior Bancorp.
Superior Bancorp will have the option of paying additional
consideration in the form of Superior Bancorp common stock, cash
or a combination of both so that the aggregate consideration per
share is equal to $10.50. The parties cannot predict whether
Kensington Bancshares board of directors would exercise
the right to terminate the merger agreement if these conditions
are met nor whether Superior Bancorp would agree to pay
additional consideration.
Kensington
Bankshares Optionholders Will Receive Shares of Superior Bancorp
Common Stock
(See
page )
At the effective time of the merger, all outstanding options
will be cancelled, and each holder of a Kensington Bankshares
option will be entitled to receive the number of shares of
Superior Bancorp common stock equal to the amount resulting when
the number of options held by a holder is multiplied by the per
option value ($18.2880 less the exercise price of such option)
and the result is divided by $11.43. If a fractional share
exists, the number of shares of Superior Bancorp common stock to
be issued will be equal to the whole number obtained by rounding
down to the nearest whole number.
For example, if you hold 1,000 options with an exercise price of
$7.50, you would receive
1,000 (18.2880−7.50)
11.43
or 943 shares of Superior Bancorp common stock.
As a further example, if you hold 1,000 options with an exercise
price of $8.50, you would receive
1,000 (18.2880−8.50)
11.43
or 856 shares of Superior Bancorp common stock.
It is a condition to the closing of the merger that each holder
of a Kensington Bankshares option has entered into an agreement
to cancel his or her option as of the effective date of the
merger in exchange for the consideration described above.
Listing
of Superior Bancorp Common Stock
(See
page )
Superior Bancorp common stock issued pursuant to the merger will
be registered under the Securities Act of 1933 and will be
listed on the NASDAQ National Market System under the ticker
symbol SUPR. Shares of Superior Bancorp common stock
that Kensington Bankshares stockholders will receive will be
freely transferable unless the stockholder is an affiliate of
Kensington Bankshares at the time of the merger. Affiliates of
Kensington Bankshares may, however, be able to freely sell the
shares they receive in the merger subject to the terms of any
lock-up
agreement and any applicable securities regulations.
4
Other
Interests of Officers and Directors of Kensington Bankshares in
the Merger
(See
page )
You should be aware that the officers and directors of
Kensington Bankshares, who are also stockholders of Kensington
Bankshares, have interests in the merger that are different from
or in addition to your interests. If the merger is consummated,
Gerald K. Archibald, currently the Chairman, Chief Executive
Officer and President of Kensington Bankshares, has agreed to
provide consulting services to Superior Bancorp. William R.
Bender, Jr., the Secretary/Treasurer of Kensington
Bankshares, and Arthur E. Williams, Senior Vice President and
Chief Operations Officer of Kensington Bankshares, have each
agreed to maintain an employment relationship with Superior
Bancorp. In addition, Kensington Bankshares is obligated to
provide extended coverage under its officers and directors
liability insurance policy for four years following the
effective date of the merger, and Superior Bancorp has agreed to
indemnify the current officers and directors of Kensington
Bankshares for a period of four years following the effective
date of the merger.
Share
Ownership of Directors and Executive Officers
(See
page )
As
of ,
2006, the directors and executive officers of Superior Bancorp
beneficially owned and were entitled to vote
approximately shares,
or approximately % of the
outstanding shares, of Superior Bancorp common stock. Superior
Bancorps directors have unanimously approved the merger
agreement and are expected to vote all shares of Superior
Bancorp common stock for which they have voting power in favor
of the merger agreement and the merger.
As
of ,
2006, the directors and executive officers of Kensington
Bankshares beneficially owned and were entitled to vote
approximately shares,
or approximately % of the shares of
Kensington Bankshares common stock. The directors and executive
officers of Kensington Bankshares and Kensington Bank holding
voting power with respect to an aggregate of 849,468 shares
of Kensington Bankshares common stock, comprising approximately
23% of the total of Kensington Bankshares common stock, have
agreed in writing to vote all shares of Kensington Bankshares
common stock for which they have voting power in favor of the
merger agreement and the merger.
Conditions
to the Completion of the Merger
(See
page )
In order to complete the merger, Superior Bancorp and Kensington
Bankshares must satisfy a number of mutual conditions, including
the following:
|
|
|
|
|
the merger agreement will have been approved by the Superior
Bancorp stockholders and the Kensington Bankshares stockholders;
|
|
|
|
no litigation, order or other actions will be pending or
threatened to restrain or prohibit the merger;
|
|
|
|
all necessary regulatory approvals and consents will have been
received from the Office of Thrift Supervision, SEC and other
regulatory agencies;
|
|
|
|
all other consents required for the consummation of the merger
will have been obtained for the prevention of a default under
any contract or permit which if not obtained is reasonably
likely to have a material adverse effect;
|
|
|
|
the registration statement filed with the SEC with respect to
the shares of Superior Bancorp common stock to be received by
the Kensington Bankshares stockholders will have been declared
effective and will not be subject to a stop order and no other
proceedings will be threatened or pending by any state or
federal agency; and
|
|
|
|
an opinion will have been provided by Balch & Bingham
LLP regarding the tax aspects of the merger.
|
5
The obligation of Superior Bancorp to complete the merger is
subject to the satisfaction of the following conditions, among
others:
|
|
|
|
|
all representations and warranties of Kensington Bankshares will
be true and correct in all material respects;
|
|
|
|
Kensington Bankshares will have performed in all material
respects all agreements and covenants required by the merger
agreement;
|
|
|
|
there will have been no material adverse changes in the
business, operations or financial condition of Kensington
Bankshares;
|
|
|
|
Kensington Bankshares will have provided certain closing
certificates with respect to the merger and the financial and
regulatory condition of Kensington Bankshares and its
subsidiaries;
|
|
|
|
Kensington Bankshares legal counsel will have provided an
opinion as required by the merger agreement;
|
|
|
|
Kensington Bankshares will have used its best efforts to obtain
an agreement from its directors, executive officers and
affiliates regarding the sale and disposition of such
persons stock;
|
|
|
|
Superior Bancorp will have received prior to the mailing of this
joint proxy statement/prospectus a letter from Sandler
ONeill & Partners, L.P. reconfirming its opinion
as of the date of the merger agreement that the exchange ratio
is fair to the stockholders of Superior Bancorp from a financial
point of view, and the opinion will not have been withdrawn as
of the effective time of the merger;
|
|
|
|
on the effective date of the merger, Kensington Bank will have
maintained satisfactory ratings and compliance with the
requisite regulatory agencies as required in the merger
agreement;
|
|
|
|
each of the officers and directors of Kensington Bankshares will
have delivered a letter to Superior Bancorp to the effect that
that he or she is not aware of any claims he or she may have
against Kensington Bankshares;
|
|
|
|
the board of directors of Superior Bancorp will have made no
determination that the merger has become impractical because of
any state of war, declaration of a banking moratorium or a
general suspension of trading of Superior Bancorp common stock
on the NASDAQ National Market System;
|
|
|
|
Kensington Bankshares will have taken all necessary action to
cancel all options as provided for in the merger
agreement; and
|
|
|
|
Kensington Bankshares will have complied, to the reasonable
satisfaction of Superior Bancorp, with any applicable reporting
obligations to any governmental agency and will have obtained
all necessary consents.
|
The obligations of Kensington Bankshares are subject to the
satisfaction or waiver of the following conditions:
|
|
|
|
|
all representations and warranties of Superior Bancorp will be
true and correct in all material respects;
|
|
|
|
Superior Bancorp will have performed in all material respects
all agreements and covenants required by the merger agreement;
|
|
|
|
Superior Bancorp will have provided certain closing certificates
with respect to the merger and the financial and regulatory
condition of Superior Bancorp and its subsidiaries;
|
|
|
|
there will have been no material adverse changes in the
business, operations or financial condition of Superior Bancorp;
|
|
|
|
Kensington Bankshares will have received opinions from
Balch & Bingham LLP and Haskell Slaughter
Young & Rediker, LLC, as required by the merger
agreement;
|
|
|
|
Kensington Bankshares will have received prior to the mailing of
this joint proxy statement/prospectus a letter from Alex
Sheshunoff & Co. Investment Banking, LP reconfirming
its opinion as of the date of the merger agreement that the
exchange ratio is fair to the stockholders of Kensington
Bankshares from a financial point of view, and the opinion will
have not been withdrawn prior to the effective time of the
merger;
|
6
|
|
|
|
|
the shares of Superior Bancorp common stock to be issued in the
merger will have been approved for listing on the NASDAQ
National Market System;
|
|
|
|
the board of directors of Kensington Bankshares will have made
no determination that the merger has become impractical because
of any state of war, declaration of a banking moratorium or a
general suspension of trading of Superior Bancorp common stock
on the NASDAQ National Market System; and
|
|
|
|
Superior Bank will have maintained satisfactory ratings and
compliance with the requisite regulatory agencies as required in
the merger agreement.
|
Except for stockholder approval and other legal and regulatory
requirements, any condition to the merger may be waived by the
company entitled to assert the condition.
Regulatory
Approvals
(See
page )
The merger of Kensington Bankshares with Superior Bancorp and
related acquisition of Kensington Bank must be approved by the
Office of Thrift Supervision and the Florida Office of Financial
Regulation. Superior Bancorp has filed on May 19, 2006, all
of the required notices and applications with the Office of
Thrift Supervision and the Florida Office of Financial
Regulation.
No
Solicitation By Kensington Bankshares
(See
page )
Kensington Bankshares has agreed that it will not initiate or
encourage any discussions regarding a business combination of
Kensington Bankshares with any other party.
Termination
of the Merger Agreement
(See
page )
The boards of directors of Superior Bancorp and Kensington
Bankshares may agree to mutually terminate the merger agreement
without completing the merger even after their respective
stockholders approve the merger. In addition, either Superior
Bancorp or Kensington Bankshares can terminate the merger
agreement even after their respective stockholders approve the
mergerif any of the following occurs:
|
|
|
|
|
The other party is in material breach of its representations or
warranties under the merger agreement, the breach has not been
or cannot be cured within 30 days after notice of the
breach, and the breach would provide the non-breaching party the
ability to refuse to consummate the merger;
|
|
|
|
The other party is in material breach of any of its covenants or
other agreements under the merger agreement, and as a result of
such breach, one of the conditions to the merger cannot be
satisfied or cured within 30 days after notice of the
breach; or
|
|
|
|
The merger is not completed by December 31, 2006.
|
Kensington Bankshares may terminate the merger agreement in any
of the following events:
|
|
|
|
|
if its board of directors, as advised in writing by its legal
counsel, determines that it is required to do so to comply with
its fiduciary duties to Kensington Bankshares stockholders to
consider an alternate proposal; or
|
|
|
|
if its board of directors determines by majority vote that at
any time during the five-day period commencing on the date that
all regulatory approvals and consents are received (the
determination date) that, on the determination date, the ten-day
average closing price of Superior Bancorp common stock is less
than $10.50. Kensington Bankshares must give Superior Bancorp
notice of its election to terminate and Superior Bancorp will
have the option to pay additional consideration in stock, cash
or a combination of both so that the
|
7
|
|
|
|
|
aggregate consideration is equal to $10.50 per share. If
Superior Bancorp elects to pay such additional consideration
within the five day period, the merger agreement will not
terminate.
|
Superior Bancorp may terminate the merger agreement if more than
10% of the stockholders of Kensington Bankshares exercise
dissenters rights of appraisal.
Termination
Fees
(See
page )
Either Superior Bancorp and Kensington Bankshares may be
required to pay a termination fee under certain circumstances.
If Kensington Bankshares enters into a letter of intent,
agreement in principle or definitive agreement regarding an
acquisition proposal with any third party (other than Superior
Bancorp or any of its subsidiaries) before the earlier of
(1) the effective date of the merger or (2) the
termination of the merger agreement, or if Kensington Bankshares
receives an acquisition proposal from a third party (other than
Superior Bancorp or any of its subsidiaries) prior to the
termination of the merger agreement by Superior Bancorp pursuant
to the merger agreement, and the merger is not closed, then
Kensington Bankshares is obligated under the merger agreement to
pay Superior Bancorp a termination fee of $2,100,000.
If the merger agreement is terminated by Superior Bancorp
because more than 10% of stockholders of Kensington Bankshares
exercise their dissenters rights of appraisal, Superior
Bancorp will pay Kensington Bankshares, upon demand, a
termination fee of $420,000 to compensate Kensington Bankshares
for its costs and expenses associated with the transaction.
Community
Bancshares Transaction
The merger is independent of the proposed merger of Community
Bancshares with and into Superior Bancorp, and accordingly, the
consummation of, or the failure to consummate, the Community
Bancshares merger will have no impact on either Superior
Bancorps or Kensington Bancshares obligation to
complete the merger.
Accounting
Treatment
(See
page )
The merger will be accounted for using the purchase method of
accounting for financial reporting purposes.
Material
Federal Income Tax Consequences
(See
page )
Superior Bancorp and Kensington Bankshares expect that the
merger will qualify as a reorganization under the Internal
Revenue Code. If the merger does qualify as a reorganization,
Kensington Bankshares stockholders will generally not recognize
gain or loss for federal income tax purposes upon the exchange
of their shares of Kensington Bankshares common stock for
Superior Bancorp common stock. The tax consequences of the
merger to you will depend on the facts of your own situation.
You are advised to consult your tax advisor as to the tax
consequences of the merger to you.
Dissenters
Rights of Appraisal of Kensington Bankshares
Stockholders
(See page )
If you are a Kensington Bankshares stockholder, you have the
right to dissent from the merger under Florida law and receive
payment in cash of the fair value of your shares of
Kensington Bankshares common stock if you do not vote in favor
of the merger agreement and the merger and give written notice
(satisfying the requirements of Florida law) to Kensington
Bankshares before the special meeting that you plan to exercise
dissenters rights of appraisal.
8
MARKET
PRICE AND DIVIDEND INFORMATION
Superior Bancorp common stock currently trades on the NASDAQ
National Market System under the ticker symbol SUPR.
Superior Bancorp common stock traded on the NASDAQ National
Market System under the ticker symbol TBNC through
May 18, 2006. As of March 8, 2006, there were
approximately 849 record holders of Superior Bancorp common
stock. The following table sets forth, for the calendar periods
indicated, the range of high and low reported sales prices:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2004
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
8.77
|
|
|
$
|
7.14
|
|
Second Quarter
|
|
|
7.56
|
|
|
|
6.25
|
|
Third Quarter
|
|
|
7.04
|
|
|
|
6.13
|
|
Fourth Quarter
|
|
|
8.74
|
|
|
|
6.93
|
|
2005
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
11.25
|
|
|
$
|
8.00
|
|
Second Quarter
|
|
|
10.85
|
|
|
|
9.25
|
|
Third Quarter
|
|
|
10.91
|
|
|
|
10.34
|
|
Fourth Quarter
|
|
|
12.00
|
|
|
|
10.49
|
|
2006
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
11.90
|
|
|
$
|
10.70
|
|
Second Quarter
|
|
|
11.87
|
|
|
|
10.71
|
|
Third Quarter
(through ,
2006)
|
|
|
|
|
|
|
|
|
On March 3, 2006, the closing price for Superior Bancorp
common stock before the public announcement of the merger was
$11.39 per share.
On ,
2006, the closing price for Superior Bancorp common stock was
$ per share.
Kensington Bankshares common stock is not listed for quotation
on any stock exchange. As
of ,
2006, there were
approximately record
holders of Kensington Bankshares common stock. There is no
trading market for Kensington Bankshares common stock.
Dividends
Holders of Superior Bancorp common stock are entitled to receive
dividends when, as and if declared by the board of directors.
Superior Bancorp derives cash available to pay dividends
primarily, if not entirely, from dividends paid to Superior
Bancorp by its subsidiaries. There are certain restrictions that
limit Superior Banks ability to pay dividends to Superior
Bancorp and, in turn, Superior Bancorps ability to pay
dividends to its stockholders. Superior Bancorps ability
to pay dividends will depend on its earnings and financial
condition, liquidity and capital requirements, the general
economic and regulatory climate, its ability to service any
equity or debt obligations senior to Superior Bancorp common
stock and other factors deemed relevant by its board of
directors.
Although thrift holding companies are not currently subject to
specific capital requirements or specific restrictions on the
payment of dividends or other capital distributions, federal
regulations prescribe such restrictions on subsidiary savings
institutions. Superior Bank must notify the Office of Thrift
Supervision 30 days before declaring any dividend to
Superior Bancorp. In addition, the financial impact of a holding
company on its subsidiary institution is a matter that is
evaluated by the Office of Thrift Supervision, and the Office of
Thrift Supervision has authority to order cessation of
activities or divestiture of subsidiaries deemed to pose a
threat to the safety and soundness of the institution.
Superior Bancorp paid dividends on its preferred stock
aggregating $4.92 per preferred share in 2005. All preferred
stock of Superior Bancorp was converted into Superior Bancorp
common stock effective July 1, 2005.
10
Superior Bancorp does not currently pay dividends on its common
stock, but expects to evaluate its common stock dividend policy
from time to time as circumstances indicate, subject to
applicable regulatory restrictions.
Holders of Kensington Bankshares common stock are entitled to
receive dividends when, as and if declared by the board of
directors. Kensington Bankshares funds that are available to pay
dividends come from dividends it receives from Kensington Bank.
There are certain restrictions that limit Kensington Banks
ability to pay dividends to Kensington Bankshares under Florida
law and, in turn, Kensington Bankshares ability to pay
dividends to its stockholders. Kensington Bankshares
ability to pay dividends depends on its earnings and financial
condition, liquidity and capital requirements, and other factors
deemed relevant by its board of directors. Kensington Bankshares
paid its first cash dividends in 2005, amounting to a total of
$.45 per share. In January 2006, Kensington Bankshares paid its
stockholders a quarterly cash dividend of $.15 per share plus a
year-end bonus cash dividend of $.05 per share for a total of
$.20 per share. This dividend was declared and recorded in
December 2005.
COMPARATIVE
PER SHARE INFORMATION
The following summary presents selected information about
Superior Bancorps and Kensington Bankshares net
income (loss) per share and book value per share of common
stock, respectively, in comparison with pro forma information
giving effect to the merger. The selected financial information
should be read in conjunction with the historical consolidated
financial statements of Superior Bancorp, the historical
consolidated financial statements of Kensington Bankshares and
the related notes thereto.
The following information is not necessarily indicative of the
combined results of operations or combined financial position
that would have resulted had the merger been consummated at the
beginning of the periods indicated, nor is it necessarily
indicative of the future combined results of operations or
financial position.
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Ended
|
|
|
December 31,
|
|
|
|
March 31, 2006
|
|
|
2005
|
|
|
Net Income (Loss) per Common
Share Basic
|
|
|
|
|
|
|
|
|
Superior Bancorp
|
|
|
|
|
|
|
|
|
Historical
|
|
|
.04
|
|
|
$
|
(.42
|
)
|
Pro Forma Combined
|
|
|
.06
|
|
|
|
(.22
|
)
|
Kensington Bankshares
|
|
|
|
|
|
|
|
|
Historical
|
|
|
.24
|
|
|
|
.78
|
|
Pro Forma Equivalent
|
|
|
.10
|
|
|
|
(.35
|
)
|
Net Income (Loss) per Common
Share Diluted
|
|
|
|
|
|
|
|
|
Superior Bancorp
|
|
|
|
|
|
|
|
|
Historical
|
|
|
.04
|
|
|
|
(.42
|
)
|
Pro Forma Combined
|
|
|
.06
|
|
|
|
(.22
|
)
|
Kensington Bankshares
|
|
|
|
|
|
|
|
|
Historical
|
|
|
.24
|
|
|
|
.77
|
|
Pro Forma Equivalent
|
|
|
.10
|
|
|
|
(.35
|
)
|
Book Value per Common
Share
|
|
|
|
|
|
|
|
|
Superior Bancorp
|
|
|
|
|
|
|
|
|
Historical
|
|
|
5.27
|
|
|
|
5.26
|
|
Pro Forma Combined
|
|
|
6.73
|
|
|
|
NA
|
|
Kensington Bankshares
|
|
|
|
|
|
|
|
|
Historical
|
|
|
7.63
|
|
|
|
7.39
|
|
Pro Forma Equivalent
|
|
|
10.77
|
|
|
|
NA
|
|
11
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
Three Months
|
|
|
Year Ended
|
|
|
|
Ended
|
|
|
December 31,
|
|
|
|
March 31, 2006
|
|
|
2005
|
|
|
Dividends Declared per Common
Share
|
|
|
|
|
|
|
|
|
Superior Bancorp
|
|
|
|
|
|
|
|
|
Kensington Bankshares
|
|
|
|
|
|
|
.65
|
|
Kensington Bankshares Pro Forma
Equivalent (a)
|
|
|
|
|
|
|
|
|
(a) Superior Bancorp did not pay any dividends on its
common stock for the periods ended March 31, 2006 and
December 31, 2005. Dividends may be paid in future periods
when and if declared by Superior Bancorps board of
directors, subject to applicable regulatory restrictions.
UNAUDITED
PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated
financial information is based on the historical financial
statements of Superior Bancorp and Kensington Bankshares and has
been prepared to illustrate the effects of the merger of
Kensington Bankshares with and into Superior Bancorp. The
unaudited pro forma condensed consolidated statement of
financial condition as of March 31, 2006 and the unaudited
pro forma condensed consolidated statements of operations for
the three months ended March 31, 2006 and for the year
ended December 31, 2005 give effect to this merger,
accounted for under the purchase method of accounting.
The unaudited pro forma condensed consolidated statement of
operations for the three months ended March 31, 2006 has
been derived from the unaudited interim financial statements of
Superior Bancorp and Kensington Bankshares included or
incorporated by reference in this joint proxy
statement/prospectus. The unaudited pro forma condensed
consolidated statement of operations for the year ended
December 31, 2005 is based on the audited financial
statements of Superior Bancorp and Kensington Bankshares
included or incorporated by reference in this joint proxy
statement/prospectus. These unaudited pro forma condensed
consolidated statements of operations give effect to the
transaction as if it had been consummated as of January 1,
2005. The unaudited pro forma condensed consolidated financial
statements do not give effect to any anticipated cost savings or
revenue enhancements in connection with the transaction.
The unaudited pro forma condensed consolidated financial
statements should be considered together with the historical
financial statements of Superior Bancorp and Kensington
Bankshares, including the respective notes to those statements,
included or incorporated by reference in this joint proxy
statement/prospectus. The pro forma information is based on
certain assumptions described in the accompanying Note 1 to
Unaudited Pro Forma Condensed Consolidated Financial Information
and does not necessarily indicate the consolidated financial
position or the results of operations in the future or the
consolidated financial position or the results of operations
that would have been realized had the merger transaction been
consummated during the periods or as of the date for which the
pro forma information is presented.
12
Superior
Bancorp and Subsidiaries
Unaudited
Pro Forma Condensed Consolidated Statement of Financial
Condition
As of
March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Superior
|
|
|
Kensington
|
|
|
Acquisition
|
|
|
Pro Forma
|
|
|
|
Bancorp
|
|
|
Bankshares
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(In thousands, except per share
data)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
29,412
|
|
|
$
|
5,213
|
|
|
$
|
(1,447
|
)(b)
|
|
$
|
33,078
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)(c)
|
|
|
|
|
Interest bearing deposits in other
banks
|
|
|
8,668
|
|
|
|
|
|
|
|
|
|
|
|
8,668
|
|
Federal funds sold
|
|
|
4,905
|
|
|
|
5,740
|
|
|
|
|
|
|
|
10,645
|
|
Investment securities
|
|
|
238,706
|
|
|
|
184,127
|
|
|
|
(3,349
|
)(b)
|
|
|
419,484
|
|
Mortgage loans held for sale
|
|
|
17,711
|
|
|
|
|
|
|
|
|
|
|
|
17,711
|
|
Loans, net of unearned income
|
|
|
989,576
|
|
|
|
137,153
|
|
|
|
(250
|
)(b)
|
|
|
1,126,479
|
|
Less: Allowance for loan losses
|
|
|
(11,999
|
)
|
|
|
(1,011
|
)
|
|
|
|
|
|
|
(13,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
977,577
|
|
|
|
136,142
|
|
|
|
(250
|
)
|
|
|
1,113,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
56,388
|
|
|
|
5,631
|
|
|
|
(160
|
)(b)
|
|
|
61,859
|
|
Accrued interest receivable
|
|
|
6,638
|
|
|
|
2,187
|
|
|
|
|
|
|
|
8,825
|
|
Stock in FHLB
|
|
|
10,272
|
|
|
|
|
|
|
|
|
|
|
|
10,272
|
|
Cash surrender value of life
insurance
|
|
|
39,535
|
|
|
|
|
|
|
|
|
|
|
|
39,535
|
|
Goodwill and intangible assets
|
|
|
12,018
|
|
|
|
|
|
|
|
3,500
|
(b)
|
|
|
59,532
|
|
|
|
|
|
|
|
|
|
|
|
|
44,014
|
(b)
|
|
|
|
|
Other assets
|
|
|
30,137
|
|
|
|
886
|
|
|
|
730
|
(b)
|
|
|
31,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,431,967
|
|
|
$
|
339,926
|
|
|
$
|
42,938
|
|
|
$
|
1,814,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,077,853
|
|
|
$
|
298,206
|
|
|
$
|
(1,000
|
)(b)
|
|
$
|
1,375,059
|
|
Advances from FHLB
|
|
|
166,090
|
|
|
|
|
|
|
|
|
|
|
|
166,090
|
|
Federal funds borrowed and
security repurchase agreements
|
|
|
31,006
|
|
|
|
12,271
|
|
|
|
|
|
|
|
43,277
|
|
Long-term debt
|
|
|
3,703
|
|
|
|
|
|
|
|
|
|
|
|
3,703
|
|
Junior subordinated debentures
owed to unconsolidated subsidiary trusts
|
|
|
31,959
|
|
|
|
|
|
|
|
|
|
|
|
31,959
|
|
Accrued expenses and other
liabilities
|
|
|
15,553
|
|
|
|
1,143
|
|
|
|
1,010
|
(b)
|
|
|
17,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,326,164
|
|
|
|
311,620
|
|
|
|
10
|
|
|
|
1,637,794
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Superior
|
|
|
Kensington
|
|
|
Acquisition
|
|
|
Pro Forma
|
|
|
|
Bancorp
|
|
|
Bankshares
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(In thousands, except per share
data)
|
|
|
Stockholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
20
|
|
|
|
37
|
|
|
|
(37
|
)(a)
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
(b)
|
|
|
|
|
Surplus
|
|
|
88,743
|
|
|
|
21,112
|
|
|
|
7,194
|
(a)
|
|
|
159,971
|
|
|
|
|
|
|
|
|
|
|
|
|
43,022
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)(c)
|
|
|
|
|
Retained earnings
|
|
|
22,344
|
|
|
|
7,157
|
|
|
|
(7,157
|
)(a)
|
|
|
22,344
|
|
Accumulated other comprehensive
loss
|
|
|
(3,505
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,505
|
)
|
Treasury stock, at cost
|
|
|
(310
|
)
|
|
|
|
|
|
|
|
|
|
|
(310
|
)
|
Unearned ESOP stock
|
|
|
(1,489
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,489
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders
equity
|
|
|
105,803
|
|
|
|
28,306
|
|
|
|
42,928
|
|
|
|
177,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
1,431,967
|
|
|
$
|
339,926
|
|
|
$
|
42,938
|
|
|
$
|
1,814,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of common shares
outstanding
|
|
|
20,085
|
|
|
|
3,711
|
|
|
|
6,230
|
(b)
|
|
|
26,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total book value per common
share
|
|
$
|
5.27
|
|
|
$
|
7.63
|
|
|
|
|
|
|
$
|
6.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible book value per common
share
|
|
$
|
4.67
|
|
|
$
|
7.63
|
|
|
|
|
|
|
$
|
4.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent pro forma book value
per common share for Superior Bancorp common shares exchanged
for Kensington Bankshares common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
To eliminate equity of Kensington Bankshares. |
|
(b) |
|
To record issuance of common stock to purchase 100% of
Kensington Bankshares; to record assets acquired and liabilities
assumed and related merger and transaction costs. See
Note 1 to unaudited proforma condensed consolidated
financial information. |
|
(c) |
|
To record direct costs of issuing common stock. |
|
|
|
|
|
Professional fees
|
|
$
|
50
|
|
Printing costs
|
|
|
50
|
|
|
|
|
|
|
|
|
$
|
100
|
|
|
|
|
|
|
14
Superior
Bancorp and Subsidiaries
Unaudited
Pro Forma Condensed Consolidated Statement of Operations
For the
Three-Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Superior
|
|
|
Kensington
|
|
|
Acquisition
|
|
|
Pro Forma
|
|
|
|
Bancorp
|
|
|
Bankshares
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(In thousands, except per share
data)
|
|
|
Interest income
|
|
$
|
21,649
|
|
|
$
|
4,907
|
|
|
$
|
188
|
(a)
|
|
$
|
26,725
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)(e)
|
|
|
|
|
Interest expense
|
|
|
11,645
|
|
|
|
2,344
|
|
|
|
83
|
(b)
|
|
|
14,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
10,004
|
|
|
|
2,563
|
|
|
|
86
|
|
|
|
12,653
|
|
Provision for loan losses
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for loan losses
|
|
|
9,404
|
|
|
|
2,563
|
|
|
|
86
|
|
|
|
12,053
|
|
Noninterest income
|
|
|
2,502
|
|
|
|
80
|
|
|
|
|
|
|
|
2,582
|
|
Noninterest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
5,869
|
|
|
|
772
|
|
|
|
|
|
|
|
6,641
|
|
Occupancy, furniture and equipment
expense
|
|
|
1,847
|
|
|
|
224
|
|
|
|
(8
|
)(g)
|
|
|
2,063
|
|
Other operating expenses
|
|
|
3,090
|
|
|
|
340
|
|
|
|
188
|
(c)
|
|
|
3,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses
|
|
|
10,806
|
|
|
|
1,336
|
|
|
|
180
|
|
|
|
12,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,100
|
|
|
|
1,307
|
|
|
|
(94
|
)
|
|
|
2,313
|
|
Income tax expense
|
|
|
250
|
|
|
|
429
|
|
|
|
(35
|
)(d)
|
|
|
644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
850
|
|
|
$
|
878
|
|
|
$
|
(59
|
)
|
|
$
|
1,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common
share
|
|
$
|
0.04
|
|
|
$
|
0.24
|
|
|
|
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common
share
|
|
$
|
0.04
|
|
|
$
|
0.24
|
|
|
|
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
20,015
|
|
|
|
3,711
|
|
|
|
6,230
|
(f)
|
|
|
26,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding, assuming dilution
|
|
|
20,673
|
|
|
|
3,725
|
|
|
|
6,230
|
(f)
|
|
|
26,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma equivalent net income
per common share for Superior Bancorp common shares exchanged
for Kensington Bankshares common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
To record amortization of fair value adjustment of loans and
investments over a 3 to 5 year period using straight-line
and accelerated methods which approximate the interest method. |
|
|
|
(b) |
|
To record amortization of fair value adjustment of deposits over
a 3 year period using an accelerated method which
approximates the interest method. |
|
(c) |
|
To record amortization of core deposit intangible over a
7 year period using an accelerated method. |
15
|
|
|
|
|
|
|
Kensington
|
|
Amortization
|
|
Bankshares
|
|
|
Year 1
|
|
$
|
875
|
|
Year 2
|
|
|
750
|
|
Year 3
|
|
|
625
|
|
Year 4
|
|
|
500
|
|
Year 5
|
|
|
375
|
|
Year 6
|
|
|
250
|
|
Year 7
|
|
|
125
|
|
|
|
|
|
|
|
|
$
|
3,500
|
|
|
|
|
|
|
|
|
|
(d) |
|
To record the tax effect of adjustments at a 37% marginal tax
rate. |
|
(e) |
|
Adjust interest income for loss of earnings due to cash payments
at the federal funds rate of 5%. |
|
(f) |
|
Common stock issued to acquire Kensington Bankshares. |
|
(g) |
|
To record reduction in depreciation expense related to decrease
in carrying value of equipment. |
16
Superior
Bancorp and Subsidiaries
Unaudited
Pro Forma Condensed Consolidated Statement of Operations
For the
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Superior
|
|
|
Kensington
|
|
|
Acquisition
|
|
|
Pro Forma
|
|
|
|
Bancorp
|
|
|
Bankshares
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(In thousands, except per share
data)
|
|
|
Interest income
|
|
$
|
77,280
|
|
|
$
|
16,058
|
|
|
$
|
795
|
(a)
|
|
$
|
94,056
|
|
|
|
|
|
|
|
|
|
|
|
|
(77
|
)(e)
|
|
|
|
|
Interest expense
|
|
|
38,255
|
|
|
|
6,247
|
|
|
|
500
|
(b)
|
|
|
45,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
39,025
|
|
|
|
9,811
|
|
|
|
218
|
|
|
|
49,054
|
|
Provision for loan losses
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for loan losses
|
|
|
35,525
|
|
|
|
9,811
|
|
|
|
218
|
|
|
|
45,554
|
|
Noninterest income
|
|
|
14,697
|
|
|
|
257
|
|
|
|
|
|
|
|
14,954
|
|
Noninterest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
23,104
|
|
|
|
3,017
|
|
|
|
|
|
|
|
26,121
|
|
Occupancy, furniture and equipment
expense
|
|
|
7,680
|
|
|
|
1,330
|
|
|
|
(32
|
)(g)
|
|
|
8,978
|
|
Management separation costs
|
|
|
15,467
|
|
|
|
|
|
|
|
|
|
|
|
15,467
|
|
Other operating expenses
|
|
|
14,369
|
|
|
|
1,083
|
|
|
|
875
|
(c)
|
|
|
16,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses
|
|
|
60,620
|
|
|
|
5,430
|
|
|
|
843
|
|
|
|
66,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income(loss) before income taxes
|
|
|
(10,398
|
)
|
|
|
4,638
|
|
|
|
(625
|
)
|
|
|
(6,385
|
)
|
Income tax
expense(benefit)
|
|
|
(4,612
|
)
|
|
|
1,758
|
|
|
|
(231
|
)(d)
|
|
|
(3,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(loss)
|
|
|
(5,786
|
)
|
|
|
2,880
|
|
|
|
(394
|
)
|
|
|
(3,300
|
)
|
Preferred stock dividends
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
|
305
|
|
Effect of early conversion of
preferred stock
|
|
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(loss) available to
common shareholders
|
|
$
|
(8,097
|
)
|
|
$
|
2,880
|
|
|
$
|
(394
|
)
|
|
$
|
(5,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income(loss) per
common share
|
|
$
|
(0.42
|
)
|
|
$
|
0.78
|
|
|
|
|
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income(loss) per
common share
|
|
$
|
(0.42
|
)
|
|
$
|
0.77
|
|
|
|
|
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
19,154
|
|
|
|
3,710
|
|
|
|
6,230
|
(f)
|
|
|
25,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding, assuming dilution
|
|
|
19,154
|
|
|
|
3,725
|
|
|
|
6,230
|
(f)
|
|
|
25,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma equivalent net loss
per common share for Superior Bancorp common shares exchanged
for Kensington Bankshares common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
To record amortization of fair value adjustment of loans and
investments over a 3 to 5 year period using straight-line
and accelerated methods which approximate the interest method. |
|
(b) |
|
To record amortization of fair value adjustment of deposits over
a 3 year period using an accelerated method which
approximates the interest method. |
|
(c) |
|
To record amortization of core deposit intangible over a
7 year period using an accelerated method. |
|
(d) |
|
To record the tax effect of the interest amortization
adjustments at a 37% marginal tax rate. |
|
(e) |
|
Adjust interest income for loss of earnings due to cash payments
at the federal funds rate of 5%. |
|
(f) |
|
Common stock issued to acquire Kensington Bankshares. |
|
(g) |
|
To record reduction in depreciation expense related to decrease
in carrying value of equipment. |
17
Note 1 Unaudited
Pro Forma Condensed Consolidated Financial Information
|
|
|
|
|
|
|
Kensington
|
|
|
|
Bankshares
|
|
|
|
(In thousands, except
|
|
|
|
per share amounts)
|
|
|
Pro forma outstanding shares of
acquired corporation
|
|
|
3,711
|
|
Exchange ratio per merger agreement
|
|
|
1.6000
|
|
|
|
|
|
|
Superior Bancorp shares to be
issued for outstanding shares
|
|
|
5,938
|
|
Superior Bancorp shares to be
issued for outstanding options
|
|
|
292
|
(b)
|
|
|
|
|
|
Total Superior Bancorp shares to
be issued
|
|
|
6,230
|
|
Fair value of Superior Bancorp
stock
|
|
$
|
11.45
|
(a)
|
|
|
|
|
|
Fair value of stock to be issued
|
|
$
|
71,334
|
|
Pro forma transaction costs
|
|
|
528
|
(c)
|
|
|
|
|
|
Total pro forma purchase
price
|
|
|
71,862
|
|
|
|
|
|
|
Net assets of acquired corporation
per historical financial statements
|
|
|
28,306
|
|
Increase (decrease) in net
assets to be acquired to reflect certain pro forma premerger
transactions
|
|
|
|
|
Merger costs
|
|
|
(919
|
)(d)
|
|
|
|
|
|
Pro forma net assets to be acquired
|
|
|
27,387
|
|
|
|
|
|
|
Purchase accounting adjustments
to carrying value of asset or liability:(h)
|
|
|
|
|
Investment securities
|
|
|
(3,349
|
)
|
Loans
|
|
|
(250
|
)
|
Equipment
|
|
|
(160
|
)
|
Core deposit intangible
|
|
|
3,500
|
(e)
|
Other
assets Florida bank charter to be sold
|
|
|
1,000
|
|
Deposits
|
|
|
1,000
|
|
Contingent contractual obligations
|
|
|
(760
|
)(f)
|
Severance benefits
|
|
|
(250
|
)
|
Other
assets deferred income taxes
|
|
|
(270
|
)(g)
|
|
|
|
|
|
Net pro forma purchase
accounting adjustments
|
|
|
461
|
|
|
|
|
|
|
Goodwill
|
|
$
|
44,014
|
|
|
|
|
|
|
|
|
|
(a) |
|
Based on the closing stock price several days prior to and after
the agreements were reached and announced. |
|
(b) |
|
Pro forma amount of shares to be exchanged for Kensington
Bankshares stock options. |
18
|
|
|
|
|
|
|
Kensington
|
|
|
|
Bankshares, Inc.
|
|
|
Per Option Value as defined in
agreement
|
|
|
|
|
Dollar per option
|
|
$
|
18.288
|
|
Less: Weighted average exercise
price per option
|
|
|
8.140
|
|
|
|
|
|
|
Per Option Value
|
|
$
|
10.148
|
|
Total stock options
outstanding
|
|
|
329
|
|
|
|
|
|
|
Total stock options outstanding
times Per Option Value
|
|
$
|
3,339
|
|
Divided by per share amount per
merger agreement
|
|
|
11.43
|
|
|
|
|
|
|
Total shares to be exchanged for
options
|
|
|
292
|
|
|
|
|
|
|
|
|
|
(c) |
|
The following pro forma merger costs are expected to be incurred
by Superior Bancorp: |
|
|
|
|
|
Professional fees
|
|
$
|
150
|
|
Investment banking
|
|
|
267
|
|
Consulting
|
|
|
111
|
|
|
|
|
|
|
|
|
$
|
528
|
|
|
|
|
|
|
|
|
|
(d) |
|
The following pro forma merger costs are expected to be incurred
by Kensington Bankshares: |
|
|
|
|
|
Professional fees
|
|
$
|
163
|
|
Investment banking
|
|
|
756
|
|
|
|
|
|
|
|
|
$
|
919
|
|
|
|
|
|
|
|
|
|
(e) |
|
Estimated to be approximately 4.0% of non-time deposits for
Kensington Bankshares. |
|
|
|
|
|
Pro forma core deposit intangible
|
|
$
|
3,500
|
|
Less: Existing core deposit
intangible
|
|
|
|
|
|
|
|
|
|
Net pro forma core deposit
intangible adjustment
|
|
$
|
3,500
|
|
|
|
|
|
|
|
|
|
(f) |
|
Pro forma contractual obligations |
|
|
|
(g) |
|
Assumes 37% marginal tax rate. |
|
(h) |
|
These purchase accounting adjustments are preliminary estimates
and are subject to change primarily as a result of changes in
market interest rates or decline in credit quality of the loan
portfolio. |
19
UNAUDITED
PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated
financial information is based on the historical financial
statements of Superior Bancorp, Kensington Bankshares and
Community Bancshares and has been prepared to illustrate the
effects of the merger of Kensington Bankshares and Community
Bancshares with and into Superior Bancorp. The unaudited pro
forma condensed consolidated statement of financial condition as
of March 31, 2006 and the unaudited pro forma condensed
consolidated statements of operations for the three months ended
March 31, 2006 and for the year ended December 31,
2005 give effect to these merger transactions, accounted for
under the purchase method of accounting.
The unaudited pro forma condensed consolidated income statement
for the three months ended March 31, 2006 has been derived
from the unaudited interim financial statements of Superior
Bancorp, Kensington Bankshares and Community Bancshares included
or incorporated by reference in this joint proxy
statement/prospectus or in the parties respective SEC
filings. The unaudited pro forma condensed consolidated
statement of operations for the year ended December 31,
2005 is based on the audited financial statements of Superior
Bancorp, Kensington Bankshares and Community Bancshares included
or incorporated by reference in this joint proxy
statement/prospectus or in the parties respective SEC
filings. These unaudited pro forma condensed consolidated
statements of operations give effect to the transactions as if
they had been consummated as of January 1, 2005. The
unaudited pro forma condensed consolidated financial statements
do not give effect to the any anticipated cost savings or
revenue enhancements in connection with these transactions.
The unaudited pro forma condensed consolidated financial
statements should be considered together with the historical
financial statements of Superior Bancorp, Kensington Bankshares
and Community Bancshares, including the respective notes to
those statements, included or incorporated by reference in this
joint proxy statement/prospectus or in the parties
respective SEC filings. The pro forma information is based on
certain assumptions described in the accompanying Note 1 to
Unaudited Pro Forma Condensed Consolidated Financial Information
and does not necessarily indicate the consolidated financial
position or the results of operations in the future or the
consolidated financial position or the results of operations
that would have been realized had the merger transactions been
consummated during the periods or as of the date for which the
pro forma information is presented.
20
Superior
Bancorp and Subsidiaries
Unaudited
Pro Forma Condensed Consolidated Statement of Financial
Condition
As of
March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
Kensington
|
|
|
Community
|
|
|
Acquisitions
|
|
|
Pro Forma
|
|
|
|
Superior Bancorp
|
|
|
Bankshares
|
|
|
Bancshares
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(In thousands, except per share
data)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
29,412
|
|
|
$
|
5,213
|
|
|
$
|
17,003
|
|
|
$
|
(9,589
|
)(b)
|
|
$
|
41,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(225
|
)(c)
|
|
|
|
|
Interest bearing deposits in other
banks
|
|
|
8,668
|
|
|
|
|
|
|
|
2,320
|
|
|
|
|
|
|
|
10,988
|
|
Federal funds sold
|
|
|
4,905
|
|
|
|
5,740
|
|
|
|
23,387
|
|
|
|
|
|
|
|
34,032
|
|
Investment securities
|
|
|
238,706
|
|
|
|
184,127
|
|
|
|
131,550
|
|
|
|
(3,349
|
)(b)
|
|
|
551,034
|
|
Mortgage loans held for sale
|
|
|
17,711
|
|
|
|
|
|
|
|
1,024
|
|
|
|
|
|
|
|
18,735
|
|
Loans, net of unearned income
|
|
|
989,576
|
|
|
|
137,153
|
|
|
|
351,658
|
|
|
|
(4,250
|
)(b)
|
|
|
1,474,137
|
|
Less: Allowance for loan losses
|
|
|
(11,999
|
)
|
|
|
(1,011
|
)
|
|
|
(5,112
|
)
|
|
|
|
|
|
|
(18,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
977,577
|
|
|
|
136,142
|
|
|
|
346,546
|
|
|
|
(4,250
|
)
|
|
|
1,456,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
56,388
|
|
|
|
5,631
|
|
|
|
22,332
|
|
|
|
(1,039
|
)(b)
|
|
|
83,312
|
|
Accrued interest receivable
|
|
|
6,638
|
|
|
|
2,187
|
|
|
|
3,589
|
|
|
|
|
|
|
|
12,414
|
|
Stock in FHLB
|
|
|
10,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,272
|
|
Cash surrender value of life
insurance
|
|
|
39,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,535
|
|
Goodwill and intangible assets
|
|
|
12,018
|
|
|
|
|
|
|
|
2,971
|
|
|
|
10,026
|
(b)
|
|
|
129,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,522
|
(b)
|
|
|
|
|
Other assets
|
|
|
30,137
|
|
|
|
886
|
|
|
|
25,574
|
|
|
|
3,549
|
(b)
|
|
|
60,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,431,967
|
|
|
$
|
339,926
|
|
|
$
|
576,296
|
|
|
$
|
99,645
|
|
|
$
|
2,447,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
1,077,853
|
|
|
$
|
298,206
|
|
|
$
|
441,282
|
|
|
$
|
(3,000
|
)(b)
|
|
$
|
1,814,341
|
|
Advances from FHLB
|
|
|
166,090
|
|
|
|
|
|
|
|
67,200
|
|
|
|
1,895
|
(b)
|
|
|
235,185
|
|
Federal funds borrowed and security
repurchase agreements
|
|
|
31,006
|
|
|
|
12,271
|
|
|
|
330
|
|
|
|
|
|
|
|
43,607
|
|
Long-term debt
|
|
|
3,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,703
|
|
Junior subordinated debentures owed
to unconsolidated subsidiary trusts
|
|
|
31,959
|
|
|
|
|
|
|
|
10,310
|
|
|
|
5,400
|
(b)
|
|
|
47,669
|
|
Accrued expenses and other
liabilities
|
|
|
15,553
|
|
|
|
1,143
|
|
|
|
13,929
|
|
|
|
4,980
|
(b)
|
|
|
35,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,326,164
|
|
|
|
311,620
|
|
|
|
533,051
|
|
|
|
9,275
|
|
|
|
2,180,110
|
|
Stockholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
20
|
|
|
|
37
|
|
|
|
900
|
|
|
|
(937
|
)(a)
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
(b)
|
|
|
|
|
Surplus
|
|
|
88,743
|
|
|
|
21,112
|
|
|
|
50,925
|
|
|
|
884
|
(a)
|
|
|
252,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,581
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(225
|
)(c)
|
|
|
|
|
Retained earnings (accumulated
deficit)
|
|
|
22,344
|
|
|
|
7,157
|
|
|
|
(1,553
|
)
|
|
|
(5,604
|
)(a)
|
|
|
22,344
|
|
Other equity
|
|
|
|
|
|
|
|
|
|
|
278
|
|
|
|
(278
|
)(a)
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(3,505
|
)
|
|
|
|
|
|
|
(4,914
|
)
|
|
|
4,914
|
(a)
|
|
|
(3,505
|
)
|
Treasury stock, at cost
|
|
|
(310
|
)
|
|
|
|
|
|
|
(1,021
|
)
|
|
|
1,021
|
(a)
|
|
|
(310
|
)
|
Unearned ESOP stock
|
|
|
(1,489
|
)
|
|
|
|
|
|
|
(1,370
|
)
|
|
|
|
|
|
|
(2,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders
equity
|
|
|
105,803
|
|
|
|
28,306
|
|
|
|
43,245
|
|
|
|
90,370
|
|
|
|
267,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
1,431,967
|
|
|
$
|
339,926
|
|
|
$
|
576,296
|
|
|
$
|
99,645
|
|
|
$
|
2,447,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of common shares
outstanding
|
|
|
20,085
|
|
|
|
3,711
|
|
|
|
8,892
|
|
|
|
14,210
|
(b)
|
|
|
34,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total book value per common
share
|
|
$
|
5.27
|
|
|
$
|
7.63
|
|
|
$
|
4.86
|
|
|
|
|
|
|
$
|
7.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible book value per common
share
|
|
$
|
4.67
|
|
|
$
|
7.63
|
|
|
$
|
4.53
|
|
|
|
|
|
|
$
|
4.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
(a) |
|
To eliminate equity of Kensington Bankshares and Community
Bancshares. |
|
(b) |
|
To record issuance of common stock and cash payments to purchase
100% of Kensington Bankshares and Community Bancshares; to
record assets acquired and liabilities assumed and related
merger and transaction costs. See Note 1 to Unaudited Pro
Forma Condensed Consolidated Financial Information for detail. |
|
(c) |
|
To record direct costs of issuing common stock. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kensington
|
|
|
Community
|
|
|
|
|
|
|
Bankshares, Inc.
|
|
|
Bancshares, Inc.
|
|
|
Total
|
|
|
Professional fees
|
|
$
|
50
|
|
|
$
|
75
|
|
|
$
|
125
|
|
Printing costs
|
|
|
50
|
|
|
|
50
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
100
|
|
|
$
|
125
|
|
|
$
|
225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Superior
Bancorp and Subsidiaries
Unaudited
Pro Forma Condensed Consolidated Statement of Operations
For the
Three-Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
Kensington
|
|
|
Community
|
|
|
Acquisition
|
|
|
Pro Forma
|
|
|
|
Superior Bancorp
|
|
|
Bankshares
|
|
|
Bancshares
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(In thousands, except per share
data)
|
|
|
Interest income
|
|
$
|
21,649
|
|
|
$
|
4,907
|
|
|
$
|
8,890
|
|
|
$
|
767
|
(a)
|
|
$
|
36,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(121
|
)(e)
|
|
|
|
|
Interest expense
|
|
|
11,645
|
|
|
|
2,344
|
|
|
|
3,949
|
|
|
|
143
|
(b)
|
|
|
18,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
10,004
|
|
|
|
2,563
|
|
|
|
4,941
|
|
|
|
503
|
|
|
|
18,011
|
|
Provision for loan losses
|
|
|
600
|
|
|
|
|
|
|
|
795
|
|
|
|
|
|
|
|
1,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for loan losses
|
|
|
9,404
|
|
|
|
2,563
|
|
|
|
4,146
|
|
|
|
503
|
|
|
|
16,616
|
|
Noninterest income
|
|
|
2,502
|
|
|
|
80
|
|
|
|
1,348
|
|
|
|
|
|
|
|
3,930
|
|
Noninterest
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
5,869
|
|
|
|
772
|
|
|
|
2,630
|
|
|
|
|
|
|
|
9,271
|
|
Occupancy, furniture and equipment
expense
|
|
|
1,847
|
|
|
|
223
|
|
|
|
977
|
|
|
|
(78
|
)(g)
|
|
|
2,971
|
|
Other operating expenses
|
|
|
3,090
|
|
|
|
340
|
|
|
|
1,848
|
|
|
|
563
|
(c)
|
|
|
5,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses
|
|
|
10,806
|
|
|
|
1,335
|
|
|
|
5,455
|
|
|
|
485
|
|
|
|
18,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,100
|
|
|
|
1,308
|
|
|
|
39
|
|
|
|
18
|
|
|
|
2,465
|
|
Income tax expense
|
|
|
250
|
|
|
|
429
|
|
|
|
15
|
|
|
|
7
|
(d)
|
|
|
701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
850
|
|
|
$
|
879
|
|
|
$
|
24
|
|
|
$
|
11
|
|
|
$
|
1,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common
share
|
|
$
|
0.04
|
|
|
$
|
0.24
|
|
|
$
|
0.01
|
|
|
|
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common
share
|
|
$
|
0.04
|
|
|
$
|
0.24
|
|
|
$
|
0.01
|
|
|
|
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
20,015
|
|
|
|
3,711
|
|
|
|
8,762
|
|
|
|
14,210(f
|
)
|
|
|
34,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding, assuming dilution
|
|
|
20,673
|
|
|
|
3,725
|
|
|
|
9,002
|
|
|
|
14,210(f
|
)
|
|
|
34,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
To record amortization of fair value adjustment of loans and
investments over a 3 to 5 year period using straight-line
and accelerated methods which approximate the interest method. |
|
(b) |
|
To record amortization of fair value adjustment of deposits and
borrowings over a 3 to 25 year period using straight-line
and accelerated methods which approximate the interest method. |
|
(c) |
|
To record amortization of core deposit intangible over a
7 year period using an accelerated method. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kensington
|
|
|
Community
|
|
|
|
|
Amortization
|
|
Bankshares
|
|
|
Bancshares
|
|
|
Total
|
|
|
Year 1
|
|
$
|
875
|
|
|
$
|
1,750
|
|
|
|
2,625
|
|
Year 2
|
|
|
750
|
|
|
|
1,500
|
|
|
|
2,250
|
|
Year 3
|
|
|
625
|
|
|
|
1,250
|
|
|
|
1,875
|
|
Year 4
|
|
|
500
|
|
|
|
1,000
|
|
|
|
1,500
|
|
Year 5
|
|
|
375
|
|
|
|
750
|
|
|
|
1,125
|
|
Year 6
|
|
|
250
|
|
|
|
500
|
|
|
|
750
|
|
Year 7
|
|
|
125
|
|
|
|
250
|
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,500
|
|
|
$
|
7,000
|
|
|
$
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) |
|
To record the tax effect of adjustments at a 37% marginal tax
rate. |
|
(e) |
|
Adjust interest income for loss of earnings due to cash payments
at the federal funds rate of 5%. |
|
(f) |
|
Common stock issued to acquire Kensington Bankshares and
Community Bancshares. |
|
(g) |
|
To record reduction in depreciation expense related to decrease
in carrying value of equipment and software: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kensington
|
|
|
Community
|
|
|
|
|
|
|
Bankshares
|
|
|
Bancshares
|
|
|
Total
|
|
|
|
|
$
|
8
|
|
|
$
|
70
|
|
|
$
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Superior
Bancorp and Subsidiaries
Unaudited
Pro Forma Condensed Consolidated Statements of Operations
For the
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
|
|
|
|
Superior
|
|
|
Kensington
|
|
|
Community
|
|
|
Acquisition
|
|
|
Pro Forma
|
|
|
|
Bancorp
|
|
|
Bankshares
|
|
|
Bancshares
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
(In thousands, except per share
data)
|
|
|
Interest income
|
|
$
|
77,280
|
|
|
$
|
16,058
|
|
|
$
|
32,357
|
|
|
$
|
3,778
|
(a)
|
|
$
|
128,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(491
|
)(e)
|
|
|
|
|
Interest expense
|
|
|
38,255
|
|
|
|
6,247
|
|
|
|
13,934
|
|
|
|
1,073
|
(b)
|
|
|
59,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
39,025
|
|
|
|
9,811
|
|
|
|
18,423
|
|
|
|
2,214
|
|
|
|
69,473
|
|
Provision for loan losses
|
|
|
3,500
|
|
|
|
|
|
|
|
796
|
|
|
|
|
|
|
|
4,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for loan losses
|
|
|
35,525
|
|
|
|
9,811
|
|
|
|
17,627
|
|
|
|
2,214
|
|
|
|
65,177
|
|
Noninterest income
|
|
|
14,697
|
|
|
|
257
|
|
|
|
7,042
|
|
|
|
|
|
|
|
21,996
|
|
Noninterest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
23,104
|
|
|
|
3,017
|
|
|
|
10,922
|
|
|
|
|
|
|
|
37,043
|
|
Occupancy, furniture and equipment
expense
|
|
|
7,680
|
|
|
|
1,330
|
|
|
|
3,861
|
|
|
|
(311
|
)(g)
|
|
|
12,560
|
|
Management separation costs
|
|
|
15,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,467
|
|
Other operating expenses
|
|
|
14,369
|
|
|
|
1,083
|
|
|
|
7,815
|
|
|
|
2,625
|
(c)
|
|
|
25,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses
|
|
|
60,620
|
|
|
|
5,430
|
|
|
|
22,598
|
|
|
|
2,314
|
|
|
|
90,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(10,398
|
)
|
|
|
4,638
|
|
|
|
2,071
|
|
|
|
(100
|
)
|
|
|
(3,789
|
)
|
Income tax expense
(benefit)
|
|
|
(4,612
|
)
|
|
|
1,758
|
|
|
|
422
|
|
|
|
(37
|
)(d)
|
|
|
(2,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(5,786
|
)
|
|
|
2,880
|
|
|
|
1,649
|
|
|
|
(63
|
)
|
|
|
(1,320
|
)
|
Preferred stock dividends
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305
|
|
Effect of early conversion of
preferred stock
|
|
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to
common shareholders
|
|
$
|
(8,097
|
)
|
|
$
|
2,880
|
|
|
$
|
1,649
|
|
|
$
|
(63
|
)
|
|
$
|
(3,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per
common share
|
|
$
|
(0.42
|
)
|
|
$
|
0.78
|
|
|
$
|
0.19
|
|
|
|
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per
common share
|
|
$
|
(0.42
|
)
|
|
$
|
0.77
|
|
|
$
|
0.19
|
|
|
|
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
19,154
|
|
|
|
3,710
|
|
|
|
8,592
|
|
|
|
14,210
|
(f)
|
|
|
33,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding, assuming dilution
|
|
|
19,154
|
|
|
|
3,725
|
|
|
|
8,780
|
|
|
|
14,210
|
(f)
|
|
|
33,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
To record amortization of fair value adjustment of loans and
investments over a 3 to 5 year period using straight-line
and accelerated methods which approximate the interest method. |
|
(b) |
|
To record amortization of fair value adjustment of deposits and
borrowings over a 3 to 25 year period using straight-line
and accelerated methods which approximate the interest method. |
|
(c) |
|
To record amortization of core deposit intangible over a
7 year period using an accelerated method. |
|
(d) |
|
To record the tax effect of adjustments at a 37% marginal tax
rate. |
|
(e) |
|
Adjust interest income for loss of earnings due to cash payments
at the federal funds rate of 5%. |
|
(f) |
|
Common stock issued to acquire Kensington Bankshares and
Community Bancshares. |
|
(g) |
|
To record reduction in depreciation expense related to decrease
in carrying value of equipment and software: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kensington
|
|
|
Community
|
|
|
|
|
|
|
Bankshares
|
|
|
Bancshares
|
|
|
Total
|
|
|
|
|
$
|
32
|
|
|
$
|
279
|
|
|
$
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Note 1 Unaudited
Pro Forma Condensed Consolidated Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kensington
|
|
|
Community
|
|
|
|
|
|
|
Bankshares
|
|
|
Bancshares
|
|
|
Total
|
|
|
|
(In thousands, except per share
amounts)
|
|
|
Pro forma outstanding shares of
acquired corporation
|
|
|
3,711
|
|
|
|
8,892
|
|
|
|
|
|
Exchange ratio per merger agreement
|
|
|
1.6000
|
|
|
|
0.8974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Superior Bancorp shares to be
issued for outstanding shares
|
|
|
5,938
|
|
|
|
7,980
|
|
|
|
|
|
Superior Bancorp shares to be
issued for outstanding options
|
|
|
292
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Superior Bancorp shares to
be issued
|
|
|
6,230
|
|
|
|
7,980
|
|
|
|
14,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of Superior Bancorp
stock
|
|
$
|
11.45
|
(a)
|
|
$
|
11.38
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of stock to be issued
|
|
$
|
71,334
|
|
|
$
|
90,812
|
|
|
$
|
162,146
|
|
Payment for outstanding options
and warrants
|
|
|
|
|
|
|
6,736
|
(c)
|
|
|
6,736
|
|
Pro forma transaction costs
|
|
|
528
|
(d)
|
|
|
301
|
(d)
|
|
|
829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pro forma purchase
price
|
|
|
71,862
|
|
|
|
97,849
|
|
|
|
169,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets of acquired corporation
per historical financial statements
|
|
|
28,306
|
|
|
|
43,245
|
|
|
|
71,551
|
|
Increase (decrease) in net
assets to be acquired to reflect certain pro forma premerger
transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividend
|
|
|
|
|
|
|
|
(e)
|
|
|
|
|
Retirement of debt
|
|
|
|
|
|
|
|
(f)
|
|
|
|
|
Merger costs
|
|
|
(919
|
)(g)
|
|
|
(1,105
|
)(g)
|
|
|
(2,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net assets to be acquired
|
|
|
27,387
|
|
|
|
42,140
|
|
|
|
69,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase accounting adjustments
to carrying value of asset or liability:(k)
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
(3,349
|
)
|
|
|
|
|
|
|
(3,349
|
)
|
Loans
|
|
|
(250
|
)
|
|
|
(4,000
|
)
|
|
|
(4,250
|
)
|
Equipment and software
|
|
|
(160
|
)
|
|
|
(879
|
)
|
|
|
(1,039
|
)
|
Core deposit intangible
|
|
|
3,500
|
(h)
|
|
|
6,526
|
(h)
|
|
|
10,026
|
|
Goodwill recorded on books of
acquired corporation
|
|
|
|
|
|
|
(2,497
|
)
|
|
|
(2,497
|
)
|
Other
assets Florida bank charter to be sold
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
Deposits
|
|
|
1,000
|
|
|
|
2,000
|
|
|
|
3,000
|
|
FHLB borrowings
|
|
|
|
|
|
|
(1,895
|
)
|
|
|
(1,895
|
)
|
Junior subordinated debentures
|
|
|
|
|
|
|
(5,400
|
)
|
|
|
(5,400
|
)
|
Contingent contractual obligations
|
|
|
(760
|
)(i)
|
|
|
(3,470
|
)(i)
|
|
|
(4,230
|
)
|
Severance benefits
|
|
|
(250
|
)
|
|
|
(500
|
)
|
|
|
(750
|
)
|
Other
assets deferred income taxes
|
|
|
(270
|
)(j)
|
|
|
2,819
|
(j)
|
|
|
2,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pro forma purchase
accounting adjustments
|
|
|
461
|
|
|
|
(7,296
|
)
|
|
|
(6,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
44,014
|
|
|
$
|
63,005
|
|
|
$
|
107,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Based on the closing stock price several days prior to and after
the agreements were reached and announced. |
|
(b) |
|
Pro forma amount of shares to be exchanged for Kensington
Bankshares stock options. |
25
|
|
|
|
|
|
|
Kensington
|
|
|
|
Bankshares
|
|
|
Per Option Value as defined in
agreement
|
|
|
|
|
Dollar per option
|
|
$
|
18.288
|
|
Less: Weighted average exercise
price per option
|
|
|
8.140
|
|
|
|
|
|
|
Per Option Value
|
|
$
|
10.148
|
|
Total stock options
outstanding
|
|
|
329
|
|
|
|
|
|
|
Total stock options outstanding
times Per Option Value
|
|
$
|
3,339
|
|
Divided by per share amount per
merger agreement
|
|
|
11.43
|
|
|
|
|
|
|
Total shares to be exchanged for
options
|
|
|
292
|
|
|
|
|
|
|
|
|
|
(c) |
|
Pro forma amount of cash to be paid for Community Bancshares
stock options and warrants. |
|
|
|
|
|
|
|
Community
|
|
|
|
Bancshares
|
|
|
Per Option Value as defined in
agreement
|
|
|
|
|
Dollar per option or warrant
|
|
$
|
10.500
|
|
Less: Weighted average exercise
price per option or warrant
|
|
|
6.720
|
|
|
|
|
|
|
Per Option Value
|
|
$
|
3.780
|
|
Total stock options and
warrants outstanding
|
|
|
1,782
|
|
|
|
|
|
|
Total pro forma amount of cash
due to option and warrant holders
|
|
$
|
6,736
|
|
|
|
|
|
|
|
|
|
(d) |
|
The following pro forma merger costs are expected to be incurred
by Superior Bancorp: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kensington
|
|
|
Community
|
|
|
|
|
|
|
Bankshares
|
|
|
Bancshares
|
|
|
Total
|
|
|
Professional fees
|
|
$
|
150
|
|
|
$
|
80
|
|
|
$
|
230
|
|
Investment banking
|
|
|
267
|
|
|
|
185
|
|
|
|
452
|
|
Consulting
|
|
|
111
|
|
|
|
36
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
528
|
|
|
$
|
301
|
|
|
$
|
829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(e) |
|
Community Bancshares may establish and declare ten days before
the closing date of the merger a cash dividend equal to an
amount that Community Bancshares net worth exceeds
$44.3 million provided the aggregate amount of the dividend
does not exceed $4.4 million. |
|
(f) |
|
Community Bancshares must retire its line of credit with a
regional financial institution. |
|
(g) |
|
The following pro forma merger costs are expected to be incurred
by Kensington Bankshares and Community Bancshares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kensington
|
|
|
Community
|
|
|
|
|
|
|
Bankshares
|
|
|
Bancshares
|
|
|
Total
|
|
|
Professional fees
|
|
$
|
163
|
|
|
$
|
345
|
|
|
$
|
508
|
|
Investment banking
|
|
|
756
|
|
|
|
760
|
|
|
|
1,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
919
|
|
|
$
|
1,105
|
|
|
$
|
2,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(h) |
|
Estimated to be approximately 4.0% and 3.0% of non-time deposits
for Kensington Bankshares and Community Bancshares, respectively. |
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kensington
|
|
|
Community
|
|
|
|
|
|
|
Bankshares
|
|
|
Bancshares
|
|
|
Total
|
|
|
Pro forma core deposit intangible
|
|
$
|
3,500
|
|
|
$
|
7,000
|
|
|
$
|
10,500
|
|
Less: Existing core deposit
intangible
|
|
|
|
|
|
|
(474
|
)
|
|
|
(474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pro forma core deposit
intangible adjustment
|
|
$
|
3,500
|
|
|
$
|
6,526
|
|
|
$
|
10,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Pro forma contractual obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kensington
|
|
|
Community
|
|
|
|
|
|
|
Bankshares
|
|
|
Bancshares
|
|
|
Total
|
|
|
Employment contracts
|
|
$
|
|
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
Data processing
|
|
|
760
|
|
|
|
320
|
|
|
|
1,080
|
|
Other
|
|
|
|
|
|
|
150
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma contractual obligations
|
|
$
|
760
|
|
|
$
|
3,470
|
|
|
$
|
4,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(j) |
|
Assumes 37% marginal tax rate. |
|
(k) |
|
These purchase accounting adjustments are preliminary estimates
and are subject to change primarily as a result of changes in
market interest rates or decline in credit quality of the loan
portfolio. |
27
SELECTED
FINANCIAL DATA SUPERIOR BANCORP
The following table sets forth selected historical financial
data of Superior Bancorp for the periods and dates indicated and
should be read in conjunction with Superior Bancorps
consolidated financial statements including the related notes
and Managements Discussion and Analysis of Financial
Condition and Results of Operations incorporated by
reference herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
As of and For the Year Ended
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Statement of Financial
Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,431,967
|
|
|
$
|
1,426,934
|
|
|
$
|
1,415,469
|
|
|
$
|
1,423,128
|
|
|
$
|
1,171,626
|
|
|
$
|
1,406,800
|
|
|
$
|
1,207,397
|
|
Loans, net of unearned income
|
|
|
989,576
|
|
|
|
942,391
|
|
|
|
963,253
|
|
|
|
934,868
|
|
|
|
856,941
|
|
|
|
1,138,537
|
|
|
|
999,156
|
|
Allowance for loan losses
|
|
|
11,999
|
|
|
|
12,957
|
|
|
|
12,011
|
|
|
|
12,543
|
|
|
|
25,174
|
|
|
|
27,766
|
|
|
|
12,546
|
|
Investment securities
|
|
|
238,706
|
|
|
|
264,559
|
|
|
|
242,595
|
|
|
|
288,308
|
|
|
|
141,601
|
|
|
|
73,125
|
|
|
|
68,847
|
|
Deposits
|
|
|
1,077,853
|
|
|
|
1,079,565
|
|
|
|
1,043,696
|
|
|
|
1,067,206
|
|
|
|
889,935
|
|
|
|
1,107,798
|
|
|
|
952,235
|
|
Advances from FHLB and other
borrowings
|
|
|
197,096
|
|
|
|
193,903
|
|
|
|
214,496
|
|
|
|
205,546
|
|
|
|
131,919
|
|
|
|
174,922
|
|
|
|
135,900
|
|
Notes payable
|
|
|
3,703
|
|
|
|
3,913
|
|
|
|
3,755
|
|
|
|
3,965
|
|
|
|
1,925
|
|
|
|
|
|
|
|
|
|
Junior subordinated debentures owed
to unconsolidated trusts
|
|
|
31,959
|
|
|
|
31,959
|
|
|
|
31,959
|
|
|
|
31,959
|
|
|
|
31,959
|
|
|
|
31,959
|
|
|
|
31,959
|
|
Stockholders Equity
|
|
|
105,803
|
|
|
|
99,001
|
|
|
|
105,065
|
|
|
|
100,539
|
|
|
|
100,122
|
|
|
|
76,541
|
|
|
|
76,853
|
|
Selected Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
21,649
|
|
|
$
|
18,186
|
|
|
$
|
77,280
|
|
|
$
|
66,160
|
|
|
$
|
76,213
|
|
|
$
|
88,548
|
|
|
$
|
90,418
|
|
Interest expense
|
|
|
11,645
|
|
|
|
8,579
|
|
|
|
38,255
|
|
|
|
28,123
|
|
|
|
33,487
|
|
|
|
40,510
|
|
|
|
50,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
10,004
|
|
|
|
9,607
|
|
|
|
39,025
|
|
|
|
38,037
|
|
|
|
42,726
|
|
|
|
48,038
|
|
|
|
39,833
|
|
Provision for loan losses
|
|
|
600
|
|
|
|
750
|
|
|
|
3,500
|
|
|
|
975
|
|
|
|
20,975
|
|
|
|
51,852
|
|
|
|
7,454
|
|
Noninterest income
|
|
|
2,502
|
|
|
|
1,247
|
|
|
|
9,583
|
|
|
|
10,527
|
|
|
|
14,592
|
|
|
|
15,123
|
|
|
|
9,773
|
|
Gain on sale of branches
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
739
|
|
|
|
48,264
|
|
|
|
|
|
|
|
|
|
Insurance proceeds
|
|
|
|
|
|
|
|
|
|
|
5,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment
penalty FHLB advances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,532
|
|
|
|
|
|
|
|
|
|
Loss on sale of loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management separation costs
|
|
|
|
|
|
|
12,377
|
|
|
|
15,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense
|
|
|
10,806
|
|
|
|
10,945
|
|
|
|
45,153
|
|
|
|
45,644
|
|
|
|
55,398
|
|
|
|
42,669
|
|
|
|
38,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes(benefit)
|
|
|
1,100
|
|
|
|
(13,218
|
)
|
|
|
(10,398
|
)
|
|
|
391
|
|
|
|
26,677
|
|
|
|
(31,360
|
)
|
|
|
3,655
|
|
Income tax expense (benefit)
|
|
|
250
|
|
|
|
(5,057
|
)
|
|
|
(4,612
|
)
|
|
|
(796
|
)
|
|
|
9,178
|
|
|
|
(12,959
|
)
|
|
|
966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
850
|
|
|
|
(8,161
|
)
|
|
|
(5,786
|
)
|
|
|
1,187
|
|
|
|
17,499
|
|
|
|
(18,401
|
)
|
|
|
2,689
|
|
Preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
305
|
|
|
|
446
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
Effect of early conversion of
preferred stock
|
|
|
|
|
|
|
|
|
|
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)income applicable to
common stockholders
|
|
$
|
(850
|
)
|
|
$
|
(8,161
|
)
|
|
$
|
(8,097
|
)
|
|
$
|
741
|
|
|
$
|
17,280
|
|
|
$
|
(18,401
|
)
|
|
$
|
2,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss) basic
|
|
$
|
0.04
|
|
|
$
|
(0.44
|
)
|
|
$
|
(0.42
|
)
|
|
$
|
0.04
|
|
|
$
|
0.99
|
|
|
$
|
(1.09
|
)
|
|
$
|
0.19
|
|
diluted(1)
|
|
$
|
0.04
|
|
|
$
|
(0.44
|
)
|
|
$
|
(0.42
|
)
|
|
$
|
0.04
|
|
|
$
|
0.95
|
|
|
$
|
(1.09
|
)
|
|
$
|
0.19
|
|
Weighted average shares
outstanding basic
|
|
|
20,015
|
|
|
|
18,406
|
|
|
|
19,154
|
|
|
|
17,583
|
|
|
|
17,492
|
|
|
|
16,829
|
|
|
|
14,272
|
|
Weighted average shares
outstanding diluted(1)
|
|
|
20,673
|
|
|
|
18,406
|
|
|
|
19,154
|
|
|
|
17,815
|
|
|
|
18,137
|
|
|
|
16,829
|
|
|
|
14,302
|
|
Book value at period end
|
|
$
|
5.27
|
|
|
$
|
4.95
|
|
|
$
|
5.26
|
|
|
$
|
5.31
|
|
|
$
|
5.31
|
|
|
$
|
4.35
|
|
|
$
|
5.41
|
|
Tangible book value per share
|
|
$
|
4.67
|
|
|
$
|
4.29
|
|
|
$
|
4.65
|
|
|
$
|
4.62
|
|
|
$
|
4.59
|
|
|
$
|
3.59
|
|
|
$
|
4.98
|
|
Preferred shares outstanding at
period end
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
62
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
Common shares outstanding at period
end
|
|
|
20,085
|
|
|
|
18,757
|
|
|
|
19,980
|
|
|
|
17,750
|
|
|
|
17,695
|
|
|
|
17,605
|
|
|
|
14,217
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
As of and For the Year Ended
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios and Other
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.24
|
%
|
|
|
(2.31
|
)%
|
|
|
(0.41
|
)%
|
|
|
0.09
|
%
|
|
|
1.29
|
%
|
|
|
(1.36
|
)%
|
|
|
0.23
|
%
|
Return on average
stockholders equity
|
|
|
3.27
|
|
|
|
(32.80
|
)
|
|
|
(5.68
|
)
|
|
|
1.18
|
|
|
|
19.08
|
|
|
|
(19.89
|
)
|
|
|
3.53
|
|
Net interest margin(2)(3)
|
|
|
3.21
|
|
|
|
3.06
|
|
|
|
3.14
|
|
|
|
3.31
|
|
|
|
3.50
|
|
|
|
3.93
|
|
|
|
3.83
|
|
Net interest spread(3)(4)
|
|
|
3.01
|
|
|
|
2.94
|
|
|
|
3.00
|
|
|
|
3.20
|
|
|
|
3.35
|
|
|
|
3.70
|
|
|
|
3.43
|
|
Noninterest income to average
assets(5)
|
|
|
0.69
|
|
|
|
0.68
|
|
|
|
0.77
|
|
|
|
0.82
|
|
|
|
1.03
|
|
|
|
.99
|
|
|
|
0.73
|
|
Noninterest expense to average
assets(6)
|
|
|
3.09
|
|
|
|
3.00
|
|
|
|
3.19
|
|
|
|
3.52
|
|
|
|
4.07
|
|
|
|
3.15
|
|
|
|
3.34
|
|
Efficiency ratio(7)
|
|
|
86.72
|
|
|
|
89.91
|
|
|
|
87.99
|
|
|
|
91.72
|
|
|
|
100.09
|
|
|
|
67.85
|
|
|
|
80.56
|
|
Average loan to average deposit
ratio
|
|
|
94.37
|
|
|
|
87.95
|
|
|
|
88.82
|
|
|
|
92.16
|
|
|
|
100.69
|
|
|
|
105.35
|
|
|
|
100.40
|
|
Average interest-earning assets to
average interest bearing liabilities
|
|
|
105.07
|
|
|
|
104.36
|
|
|
|
104.58
|
|
|
|
104.88
|
|
|
|
105.82
|
|
|
|
107.04
|
|
|
|
108.26
|
|
Assets Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to
nonperforming loans
|
|
|
290.53
|
%
|
|
|
183.97
|
%
|
|
|
252.76
|
%
|
|
|
169.36
|
%
|
|
|
78.59
|
%
|
|
|
105.00
|
%
|
|
|
100.99
|
%
|
Allowance for loan losses to loans,
net of unearned income
|
|
|
1.21
|
|
|
|
1.37
|
|
|
|
1.25
|
|
|
|
1.34
|
|
|
|
2.94
|
|
|
|
2.44
|
|
|
|
1.26
|
|
Nonperforming
assets(NPA) to loans plus NPAs, net of unearned
income
|
|
|
0.56
|
|
|
|
1.06
|
|
|
|
0.68
|
|
|
|
1.32
|
|
|
|
4.41
|
|
|
|
2.53
|
|
|
|
1.70
|
|
Nonaccrual loans to loans, net of
unearned income
|
|
|
0.42
|
|
|
|
0.74
|
|
|
|
0.47
|
|
|
|
0.68
|
|
|
|
3.46
|
|
|
|
2.17
|
|
|
|
0.79
|
|
Net loan charge-offs to average
loans
|
|
|
0.25
|
|
|
|
0.14
|
|
|
|
0.43
|
|
|
|
1.52
|
|
|
|
2.21
|
|
|
|
3.35
|
|
|
|
0.42
|
|
Net loan charge-offs to average
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
102.00
|
|
|
|
44.80
|
|
|
|
115.20
|
|
|
|
1,395.49
|
|
|
|
111.87
|
|
|
|
72.69
|
|
|
|
51.88
|
|
Allowance for loan losses
|
|
|
20.69
|
|
|
|
10.52
|
|
|
|
33.57
|
|
|
|
108.47
|
|
|
|
93.21
|
|
|
|
135.74
|
|
|
|
30.82
|
|
Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk-based capital ratio
|
|
|
10.25
|
%
|
|
|
11.34
|
%
|
|
|
10.15
|
%
|
|
|
10.05
|
%
|
|
|
12.60
|
%
|
|
|
6.51
|
%
|
|
|
9.44
|
%
|
Total risk-based capital ratio
|
|
|
11.17
|
|
|
|
10.06
|
|
|
|
11.08
|
|
|
|
11.51
|
|
|
|
14.07
|
|
|
|
8.83
|
|
|
|
11.41
|
|
Leverage ratio
|
|
|
8.38
|
|
|
|
7.90
|
|
|
|
8.30
|
|
|
|
7.98
|
|
|
|
9.72
|
|
|
|
3.70
|
|
|
|
7.92
|
|
|
|
|
(1) |
|
Common stock equivalents of 287,000, 775,000, and
1,002,000 shares were not included in computing diluted
earnings per share for the years ended December 31, 2002,
2004 and 2005, respectively, because their effects were
antidilutive. Also, common stock equivalents of
1,327,000 shares were not included in computing diluted
earnings per share for March 31, 2005 because the effect
was antidilutive. |
|
(2) |
|
Net interest income divided by average earning assets. |
|
(3) |
|
Calculated on a taxable equivalent basis. |
|
(4) |
|
Yield on average interest-earning assets less rate on average
interest-bearing liabilities. |
|
(5) |
|
Noninterest income has been adjusted for certain nonrecurring
items such as gain on sale of branches, insurance proceeds,
change in fair value of derivatives and investment security
gains (losses). |
|
(6) |
|
Noninterest expense has been adjusted for certain nonrecurring
items such as loss on sale of assets and management separation
costs. |
|
(7) |
|
Efficiency ratio is calculated by dividing noninterest expense,
adjusted for management separation costs, losses on other real
estate and the loss on sale of assets, by noninterest income,
adjusted for gain on sale of branches, insurance proceeds,
changes in fair values of derivatives and investment security
gains (losses), plus net interest income on a fully taxable
equivalent basis. |
29
SELECTED
FINANCIAL DATA KENSINGTON BANKSHARES,
INC.
The following table sets forth selected financial data for
Kensington Bankshares, Inc. and should be read in conjunction
with the related consolidated financial statements and notes
thereto. See Kensington Bankshares, Inc. and Subsidiaries
Consolidated Financial Statements, beginning on
page F-1.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
As of and For the Year Ended
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands, except
per share data)
|
|
|
Selected Statement of Financial
Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
339,925
|
|
|
$
|
277,550
|
|
|
$
|
324,654
|
|
|
$
|
268,674
|
|
|
$
|
287,257
|
|
|
$
|
272,774
|
|
|
$
|
198,226
|
|
Loans, net of unearned income
|
|
|
137,153
|
|
|
|
107,177
|
|
|
|
125,535
|
|
|
|
97,770
|
|
|
|
90,070
|
|
|
|
80,473
|
|
|
|
48,134
|
|
Allowance for loan losses
|
|
|
1,011
|
|
|
|
1,030
|
|
|
|
1,017
|
|
|
|
1,000
|
|
|
|
900
|
|
|
|
700
|
|
|
|
410
|
|
Investment securities
|
|
|
184,127
|
|
|
|
158,700
|
|
|
|
184,025
|
|
|
|
158,400
|
|
|
|
173,280
|
|
|
|
184,466
|
|
|
|
139,762
|
|
Deposits
|
|
|
298,206
|
|
|
|
232,818
|
|
|
|
278,688
|
|
|
|
240,446
|
|
|
|
252,111
|
|
|
|
238,247
|
|
|
|
176,989
|
|
Other borrowings
|
|
|
12,271
|
|
|
|
14,767
|
|
|
|
17,321
|
|
|
|
991
|
|
|
|
9,737
|
|
|
|
11,863
|
|
|
|
5,717
|
|
Stockholders Equity
|
|
|
28,306
|
|
|
|
27,774
|
|
|
|
27,426
|
|
|
|
26,940
|
|
|
|
24,194
|
|
|
|
22,299
|
|
|
|
15,252
|
|
Selected Statement of Income
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
4,907
|
|
|
$
|
3,555
|
|
|
$
|
16,058
|
|
|
$
|
14,174
|
|
|
$
|
13,345
|
|
|
$
|
13,821
|
|
|
$
|
9,089
|
|
Interest expense
|
|
|
2,344
|
|
|
|
1,164
|
|
|
|
6,247
|
|
|
|
5,119
|
|
|
|
5,891
|
|
|
|
7,825
|
|
|
|
5,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
2,563
|
|
|
|
2,391
|
|
|
|
9,811
|
|
|
|
9,055
|
|
|
|
7,454
|
|
|
|
5,996
|
|
|
|
3,316
|
|
Provision for loan losses
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
127
|
|
|
|
203
|
|
|
|
290
|
|
|
|
272
|
|
Noninterest income
|
|
|
80
|
|
|
|
55
|
|
|
|
257
|
|
|
|
224
|
|
|
|
344
|
|
|
|
188
|
|
|
|
95
|
|
Noninterest expense
|
|
|
1,335
|
|
|
|
1,170
|
|
|
|
5,430
|
|
|
|
4,841
|
|
|
|
4,332
|
|
|
|
3,707
|
|
|
|
2,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,308
|
|
|
|
1,264
|
|
|
|
4,638
|
|
|
|
4,311
|
|
|
|
3,263
|
|
|
|
2,187
|
|
|
|
371
|
|
Income tax expense
|
|
|
429
|
|
|
|
436
|
|
|
|
1,758
|
|
|
|
1,626
|
|
|
|
1,234
|
|
|
|
838
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
879
|
|
|
$
|
828
|
|
|
$
|
2,880
|
|
|
$
|
2,685
|
|
|
$
|
2,029
|
|
|
$
|
1,349
|
|
|
$
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income basic
|
|
$
|
0.24
|
|
|
$
|
0.22
|
|
|
$
|
0.78
|
|
|
$
|
0.72
|
|
|
$
|
0.55
|
|
|
$
|
0.42
|
|
|
$
|
0.13
|
|
diluted(1)
|
|
$
|
0.24
|
|
|
$
|
0.22
|
|
|
$
|
0.77
|
|
|
$
|
0.72
|
|
|
$
|
0.55
|
|
|
$
|
0.42
|
|
|
$
|
0.13
|
|
Dividends declared per common share
|
|
|
|
|
|
|
|
|
|
|
.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding basic
|
|
|
3,711
|
|
|
|
3,710
|
|
|
|
3,710
|
|
|
|
3,710
|
|
|
|
3,710
|
|
|
|
3,210
|
|
|
|
2,860
|
|
Weighted average shares
outstanding diluted(1)
|
|
|
3,725
|
|
|
|
3,710
|
|
|
|
3,725
|
|
|
|
3,710
|
|
|
|
3,710
|
|
|
|
3,210
|
|
|
|
2,860
|
|
Book value at period end
|
|
$
|
7.63
|
|
|
$
|
7.49
|
|
|
$
|
7.39
|
|
|
$
|
7.26
|
|
|
$
|
6.52
|
|
|
$
|
6.01
|
|
|
$
|
4.11
|
|
Common shares outstanding at period
end
|
|
|
3,711
|
|
|
|
3,710
|
|
|
|
3,711
|
|
|
|
3,710
|
|
|
|
3,710
|
|
|
|
3,710
|
|
|
|
2,960
|
|
Performance Ratios and Other
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
1.06
|
%
|
|
|
1.22
|
%
|
|
|
1.01
|
%
|
|
|
0.93
|
%
|
|
|
0.76
|
%
|
|
|
0.56
|
%
|
|
|
0.29
|
%
|
Return on average
stockholders equity
|
|
|
12.58
|
|
|
|
12.30
|
|
|
|
10.54
|
|
|
|
10.63
|
|
|
|
8.97
|
|
|
|
7.65
|
|
|
|
2.58
|
|
Net interest margin(2)
|
|
|
3.17
|
|
|
|
3.50
|
|
|
|
3.46
|
|
|
|
3.18
|
|
|
|
2.80
|
|
|
|
2.47
|
|
|
|
2.63
|
|
Net interest spread(4)
|
|
|
3.05
|
|
|
|
3.29
|
|
|
|
3.29
|
|
|
|
3.39
|
|
|
|
3.38
|
|
|
|
3.49
|
|
|
|
3.28
|
|
Noninterest income to average assets
|
|
|
0.09
|
|
|
|
0.08
|
|
|
|
0.09
|
|
|
|
0.07
|
|
|
|
0.06
|
|
|
|
0.06
|
|
|
|
0.08
|
|
Noninterest expense to average
assets
|
|
|
1.60
|
|
|
|
1.70
|
|
|
|
1.88
|
|
|
|
1.67
|
|
|
|
1.60
|
|
|
|
1.41
|
|
|
|
2.15
|
|
Efficiency ratio
|
|
|
50.42
|
|
|
|
47.55
|
|
|
|
53.70
|
|
|
|
52.10
|
|
|
|
56.47
|
|
|
|
58.32
|
|
|
|
81.14
|
|
Average loan to average deposit
ratio
|
|
|
45.14
|
|
|
|
43.05
|
|
|
|
43.99
|
|
|
|
37.53
|
|
|
|
36.34
|
|
|
|
27.05
|
|
|
|
29.23
|
|
Average interest-earning assets to
average interest bearing liabilities
|
|
|
120.25
|
|
|
|
123.20
|
|
|
|
119.12
|
|
|
|
116.09
|
|
|
|
112.25
|
|
|
|
108.52
|
|
|
|
112.07
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
As of and For the Year Ended
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Dollars in thousands, except
per share data)
|
|
|
Assets Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to
nonperforming loans
|
|
|
0.00
|
%
|
|
|
171.67
|
%
|
|
|
169.33
|
%
|
|
|
52.63
|
%
|
|
|
1.89
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Allowance for loan losses to loans,
net of unearned income
|
|
|
0.74
|
|
|
|
0.96
|
|
|
|
0.81
|
|
|
|
1.02
|
|
|
|
1.00
|
|
|
|
0.87
|
|
|
|
0.85
|
|
Nonperforming assets
(NPA) to loans plus NPAs, net of unearned income
|
|
|
0.29
|
|
|
|
0.01
|
|
|
|
0.33
|
|
|
|
0.02
|
|
|
|
0.53
|
|
|
|
0
|
|
|
|
0
|
|
Nonaccrual loans to loans, net of
unearned income
|
|
|
0
|
|
|
|
0.01
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0.52
|
|
|
|
0
|
|
|
|
0
|
|
Net loan charge-offs to average
loans
|
|
|
0.02
|
|
|
|
(0.07
|
)
|
|
|
(0.01
|
)
|
|
|
0.03
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Net loan charge-offs as a
percentage of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
0
|
|
|
|
(150.00
|
)
|
|
|
0
|
|
|
|
21.25
|
|
|
|
1.47
|
|
|
|
0
|
|
|
|
0.73
|
|
Allowance for loan losses
|
|
|
0.49
|
|
|
|
(1.74
|
)
|
|
|
(1.57
|
)
|
|
|
2.70
|
|
|
|
0.33
|
|
|
|
0
|
|
|
|
0.49
|
|
Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk-based capital ratio
|
|
|
15.32
|
%
|
|
|
18.90
|
%
|
|
|
15.99
|
%
|
|
|
19.72
|
%
|
|
|
17.15
|
%
|
|
|
17.51
|
%
|
|
|
19.25
|
%
|
Total risk-based capital ratio
|
|
|
15.87
|
|
|
|
19.60
|
|
|
|
16.59
|
|
|
|
20.46
|
|
|
|
17.78
|
|
|
|
18.07
|
|
|
|
19.76
|
|
Leverage ratio(3)
|
|
|
8.43
|
|
|
|
10.11
|
|
|
|
9.75
|
|
|
|
10.03
|
|
|
|
9.20
|
|
|
|
8.35
|
|
|
|
8.04
|
|
|
|
|
(1) |
|
Common stock equivalents of 104,400, 140,000, 140,000, and
314,307 shares were not included in computing diluted
earnings per share for the years ended December 31, 2002,
2003, 2004 and 2005, respectively, because their effects were
antidilutive. |
|
(2) |
|
Net interest income divided by average earning assets. |
|
(3) |
|
Calculated as Tier 1 Capital to average assets (quarterly). |
|
(4) |
|
Yield on average interest-earning assets less rate on average
interest-bearing liabilities. |
31
FORWARD-LOOKING
STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements made by Superior
Bancorp or on its behalf. Some of the disclosures in this joint
proxy statement/prospectus, including any statements preceded
by, followed by or which include the words may,
could, should, will,
would, hope, might,
believe, expect, anticipate,
estimate, intend, plan,
assume or similar expressions constitute
forward-looking statements.
These forward-looking statements include, implicitly and
explicitly, the assumptions underlying the statements and other
information with respect to Superior Bancorps beliefs,
plans, objectives, goals, expectations, anticipations,
estimates, intentions, financial condition, results of
operations, future performance and business, including the
accretive effect of the merger and Superior Bancorps
expectations and estimates with respect to Superior
Bancorps revenues, expenses, earnings, return on equity,
return on assets, efficiency ratio, asset quality, the adequacy
of Superior Bancorps allowance for loan losses and other
financial data and capital and performance ratios.
Although Superior Bancorp believes that the expectations
reflected in its forward-looking statements are reasonable,
these statements involve risks and uncertainties which are
subject to change based on various important factors (some of
which are beyond Superior Bancorps control). The following
factors, among others, could cause Superior Bancorps
financial performance to differ materially from its goals,
plans, objectives, intentions, expectations and other
forward-looking statements: (1) the strength of the United
States economy in general and the strength of the regional and
local economies in which Superior Bancorps conduct
operations; (2) the effects of, and changes in, trade,
monetary and fiscal policies and laws, including interest rate
policies of the Board of Governors of the Federal Reserve
System; (3) inflation, interest rate, market and monetary
fluctuations; (4) its ability to successfully integrate the
assets, liabilities, customers, systems and management Superior
Bancorp acquires or merges into its operations; (5) its
timely development of new products and services in a changing
environment, including the features, pricing and quality
compared to the products and services of its competitors;
(6) the willingness of users to substitute
competitors products and services for its products and
services; (7) the impact of changes in financial services
policies, laws and regulations, including laws, regulations and
policies concerning taxes, banking, securities and insurance,
and the application thereof by regulatory bodies; (8) its
ability to resolve any legal proceeding on acceptable terms and
its effect on its financial condition or results of operations;
(9) technological changes; (10) changes in consumer
spending and savings habits; (11) the effect of natural
disasters, such as hurricanes, in its geographic markets; and
(12) regulatory, legal or judicial proceedings.
If one or more of the factors affecting Superior Bancorps
forward-looking information and statements proves incorrect,
then its actual results, performance or achievements could
differ materially from those expressed in, or implied by,
forward-looking information and statements contained in this
joint proxy statement/prospectus. Therefore, Superior Bancorp
cautions you not to place undue reliance on its forward-looking
information and statements.
Superior Bancorp does not intend to update its forward-looking
information and statements, whether written or oral, to reflect
change. All forward-looking statements attributable to Superior
Bancorp are expressly qualified by these cautionary statements.
32
RISK
FACTORS
If the merger is consummated, Kensington Bankshares stockholders
will receive shares of Superior Bancorp common stock in exchange
for their shares of Kensington Bankshares common stock. You
should be aware of the risks and uncertainties associated with
an investment in Superior Bancorp common stock and should
carefully consider these risks.
Some of the risks and uncertainties involved in an investment in
Superior Bancorp common stock relate to economic conditions
generally and would affect other financial institutions in
similar ways. Some of these factors are identified under the
heading Forward-Looking Statements on
page .
Risks
Relating to the Merger
If the
merger is not completed, Superior Bancorp and Kensington
Bankshares will have incurred substantial expenses without
realizing the expected benefits.
Superior Bancorp and Kensington Bankshares have incurred
substantial expenses in connection with the merger. The
completion of the merger depends on the satisfaction of
specified conditions and the receipt of regulatory approvals. We
cannot guarantee that these conditions will be met. If the
merger is not completed, these expenses could have a material
adverse effect on the financial condition of Superior Bancorp
and/or
Kensington Bankshares because neither company would have
realized the expected benefits of the merger.
The
merger must be approved by multiple governmental
agencies.
Before the merger and related transactions may be completed,
various orders, consents and approvals or waivers must be
obtained from the Office of Thrift Supervision, the Board of
Governors of the Federal Reserve System, the Florida Office of
Financial Regulation, the Securities and Exchange Commission and
other governmental authorities. These governmental entities may
impose conditions on the completion of the merger or require
changes to the terms of the merger. Although Superior Bancorp
and Kensington Bankshares do not currently expect that any such
conditions or changes would be imposed, there can be no
assurance that they will not be, and such conditions or changes
could have the effect of delaying completion of the merger or
imposing additional costs on or limiting the revenues of
Superior Bancorp following the merger, any of which might have a
material adverse effect on Superior Bancorp following the
merger. Neither Superior Bancorp nor Kensington Bankshares is
obligated to complete the merger if the regulatory approvals
received in connection with the completion of the merger include
any conditions or restrictions which, in the reasonable good
faith judgment of the board of directors of either company,
would so materially adversely impact the economic benefits of
the transaction so as to render inadvisable the consummation of
the merger; provided, however, that Superior Bancorp is not
obligated to complete the merger if a consent by a governmental
agency is conditioned or restricted in a manner which, in the
reasonable judgment of the board of directors of Superior
Bancorp, would so materially adversely impact the economic or
business benefits of the transaction so as to render inadvisable
the consummation of the merger.
Superior
Bancorp may fail to realize all of the anticipated benefits of
the merger.
The success of the merger will depend, in part, on Superior
Bancorps ability to realize the anticipated benefits and
cost savings from combining the businesses of Superior Bancorp
and Kensington Bankshares. However, to realize these anticipated
benefits and cost savings, Superior Bancorp must successfully
combine the businesses of Superior Bancorp and Kensington
Bankshares. If Superior Bancorp is not able to achieve these
objectives, the anticipated benefits and cost savings of the
merger may not be realized fully or at all or may take longer to
realize than expected.
Superior Bancorp and Kensington Bankshares have operated, and
until the completion of the merger will continue to operate,
independently. It is possible that the integration process could
result in the loss of key employees, the disruption of each
companys ongoing businesses or inconsistencies in
standards, controls, procedures and policies that adversely
affect Superior Bancorps ability to maintain its
relationships with the companies respective clients,
customers, depositors and employees or to achieve the
anticipated benefits of the merger. Integration efforts between
the two companies may, to some extent, also divert management
attention and resources. These integration matters could have an
adverse effect on Superior Bancorp during such transition period.
33
The
consummation of the Kensington Bankshares merger is not
conditioned on the consummation of the Community Bancshares
merger.
The consummation of the Kensington Bancshares merger is not
conditioned on the consummation of Superior Bancorps
merger with Community Bancshares, which was announced
May 1, 2006, and is expected to close in the third or
fourth quarter of 2006. There can be no assurance, however, if
or when the merger of Community Bancshares with and into
Superior Bancorp will close. Accordingly, Kensington Bankshares
stockholders should not give undue weight to the merger with
Community Bancshares in evaluating the Kensington Bankshares
merger with Superior Bancorp. Further, assuming that both
mergers are consummated in the timeframes currently
contemplated, managements time and resources will be
focused on the integration of both entities during the same
general time period. This, in turn, could divert time and
resources from other matters, which could have an adverse effect
on Superior Bancorp during the transition period. See
Information about Superior
Bancorp General, beginning on
page .
Kensington
Bankshares directors and executive officers have financial
interests in the merger that are
different from, or in addition to, the interests of Kensington
Bankshares stockholders.
Kensington Bankshares executive officers and directors,
who collectively hold approximately 23% of the outstanding
Kensington Bankshares stock, have agreed to vote in favor of the
merger agreement and the merger. In considering these facts and
the other information contained in this document, you should be
aware that Kensington Bankshares directors and executive
officers have financial interests in the merger that are
different from, or in addition to, the interests of Kensington
Bankshares stockholders. In addition, these agreements may have
the effect of discouraging persons from making a proposal to
acquire Kensington Bankshares. Further, certain executive
officers of Kensington Bankshares have entered into employment
relationships or agreements with Superior Bancorp. These and
certain other additional interests of Kensington
Bankshares directors and executive officers are described
in detail in The Merger Interests of
Directors, Officers and Others in the Merger, beginning on
page of this joint proxy statement/prospectus.
These circumstances may cause some of Kensington
Bankshares directors and executive officers to view the
proposed transaction differently than you may view it.
Because
the market price of Superior Bancorp common stock will
fluctuate, Kensington Bankshares
stockholders cannot be sure of the exact market value of
Superior Bancorp common stock that they will
receive in the merger.
Under the terms of the merger agreement, each share of
Kensington Bankshares common stock you own will be converted
into the right to receive 1.60 shares of Superior Bancorp
common stock. The market price of Superior Bancorp common stock
may vary from the price on the date that this joint proxy
statement/prospectus is mailed to Kensington Bankshares
stockholders, the date of the special meeting of Kensington
Bankshares stockholders and the effective time of the merger.
See Market Price and Dividend Information, beginning
on page .
The market price of Superior Bancorp common stock may change as
a result of a variety of factors, including general market and
economic conditions, changes in Superior Bancorps
business, operations and prospects, and regulatory
considerations. Many of these factors are beyond the control of
Superior Bancorp and are not necessarily related to a change in
the financial performance or condition of Superior Bancorp. As a
result of the fixed exchange ratio, the market value of shares
of Superior Bancorp common stock that a Kensington Bankshares
stockholder receives in the merger will decline or increase
correspondingly with declines or increases in the market price
of Superior Bancorp common stock prior to and as of the date
shares are exchanged.
There can be no assurance that the value of Superior Bancorp
common stock that Kensington Bankshares stockholders receive in
the merger will be substantially equivalent to the market price
of Superior Bancorp common stock at the time Kensington
Bankshares stockholders vote to approve the merger agreement and
the merger. We urge you to obtain current market quotations for
Superior Bancorp common stock. Superior Bancorp common stock is
currently listed on the NASDAQ National Market System under the
ticker symbol SUPR. Superior Bancorp traded under
the ticker symbol TBNC through May 18, 2006. At
the time of the special meeting, you will not know the exact
value of the consideration you will receive when the merger is
completed.
34
The
value of the stock consideration Kensington Bankshares
stockholders will receive could be less than $10.50 per
share if the Kensington Bankshares board of directors does not
exercise its right to terminate the merger agreement upon the
occurrence of certain events.
If on the date that all necessary consents and regulatory
approvals have been received the ten-day average closing price
of Superior Bancorp common stock is less than $10.50 per
share, then the majority of the entire board of Kensington
Bankshares may vote to terminate the merger agreement any time
during the five-day period after all consents and approvals have
been received. If Kensington Bankshares exercises its option to
terminate the merger agreement, Kensington Bankshares must give
notice to Superior Bancorp. Superior Bancorp will have the
option of paying additional consideration in the form of
Superior Bancorp common stock, cash or a combination of both so
that the aggregate consideration is equal to $10.50.
No assurance can be given as to whether Kensington
Bankshares board of directors would exercise the right to
terminate the merger agreement if these conditions are met or
whether Superior Bancorp would agree to pay additional
consideration.
The merger agreement does not provide for a resolicitation of
Kensington Bankshares stockholders in the event that the
conditions are met and the Kensington Bankshares board of
directors nevertheless chooses to complete the transaction. The
Kensington Bankshares board of directors has made no decision as
to whether it would exercise its right to terminate the merger
agreement. In considering whether to exercise its right to
terminate the merger agreement, Superior Bancorp expects that
the Kensington Bankshares board of directors would take into
account all the relevant facts and circumstances that exist at
the time and would consult with its financial advisor and legal
counsel.
The
merger agreement limits Kensington Bankshares ability to
pursue alternative transactions to the merger and requires
Kensington Bankshares to pay a termination fee if it
does.
The merger agreement prohibits Kensington Bankshares and its
directors, officers, representatives and agents from soliciting,
authorizing the solicitation of or, subject to very narrow
exceptions, entering into discussions with any third party
regarding alternative acquisition proposals. The prohibition
limits Kensington Bankshares ability to pursue offers that
may be superior from a financial point of view from other
possible acquirers. If Kensington Bankshares receives an
unsolicited proposal from a third party that is superior from a
financial point of view to that made by Superior Bancorp and the
merger agreement is terminated, Kensington Bankshares would be
required to pay a $2,100,000 termination fee to Superior
Bancorp. This fee makes it less likely that a third party will
make an alternative acquisition proposal.
Superior
Bancorp and Kensington Bankshares may choose not to proceed with
the merger if it is not completed by December 31, 2006, or
if all conditions to closing are not met or
waived.
Either Superior Bancorp or Kensington Bankshares may terminate
the merger agreement if the merger has not been completed by
December 31, 2006. See The
Merger The Merger
Agreement Termination Events, beginning
on page . There can be no assurance that all
conditions to the merger will have been satisfied by
December 31, 2006. See The
Merger The Merger
Agreement Conditions to Completion of the
Merger, beginning on page .
After
the merger is completed, Kensington Bankshares stockholders who
receive Superior Bancorp common stock for some or all of their
shares of Kensington Bankshares common stock will become
stockholders of Superior Bancorp and will have different rights,
as stockholders, which that may be less advantageous than their
current rights.
Upon completion of the merger, Kensington Bankshares
stockholders who receive Superior Bancorp common stock for their
shares of Kensington Bankshares common stock will become
stockholders of Superior Bancorp. Differences in Kensington
Bankshares articles of incorporation and bylaws and
Superior Bancorps restated certificate of incorporation
and bylaws will result in changes to the rights of Kensington
Bankshares stockholders who become Superior Bancorp
stockholders. For a description of these changes, see
Comparison of the Rights of Kensington Bankshares
Stockholders and Superior Bancorp Stockholders, beginning
on page of this joint proxy
35
statement/prospectus. A stockholder of Kensington Bankshares may
conclude that his or her current rights under Kensington
Bankshares articles of incorporation and bylaws are more
advantageous than the rights such stockholder would have as a
stockholder of Superior Bancorp under Superior Bancorps
restated certificate of incorporation and bylaws.
Superior
Bank and Superior Bancorp are subject to different regulation
than First Kensington Bank and Kensington
Bankshares.
Superior Bank is a federal savings bank and Superior Bancorp is
a thrift holding company. Each is subject to supervision by the
Office of Thrift Supervision, an agency of the United States
Department of the Treasury. Kensington Bank is a Florida
state-chartered bank subject to supervision by the Federal
Deposit Insurance Corporation and the Florida Office of
Financial Regulation. Kensington Bankshares is a bank holding
company subject to supervision by the Board of Governors of the
Federal Reserve System under the Bank Holding Company Act.
There are a number of material differences between federal
savings banks and thrift holding companies, on the one hand, and
Florida state-chartered banks and bank holding companies, on the
other hand. Neither Superior Bancorp nor Kensington Bankshares
can give any assurance as to the effect that any of these
differences will have on the operations of the combined
organizations. Some of these differences include restrictions on
federal savings banks non real estate-related lending not
imposed on Florida state-chartered banks; differences in
permitted non-banking-related activities; differences in
interstate branching rights; differences in the cost of
supervisory assessments imposed from time to time by the Office
of Thrift Supervision as compared to the Florida Office of
Financial Regulation and the Federal Reserve; and differences in
the nature and extent of other supervisory and regulatory
requirements by the Office of Thrift Supervision as compared to
the Florida Office of Financial Regulation and the Federal
Reserve and the interpretation thereof by such agencies.
Kensington
Bankshares failure to timely file all of its reports with
the SEC may result in an enforcement action, fines or other
legal actions against Superior Bancorp as the successor to
Kensington Bankshares if the merger is completed.
Kensington Bankshares did not file any of the annual and
quarterly reports required to be filed with the SEC since filing
its
Form 10-KSB
for the fiscal year ended December 31, 2002. On
March 26, 2003, Kensington Bankshares filed a Form 15
certification notifying the SEC that it had less than 300
stockholders of record at December 31, 2002, thereby
suspending the filing of further reports under
Section 15(d) of the Securities Exchange Act of 1934. For
the years ended December 31, 2003 and 2004, Kensington
Bankshares computed its number of stockholders based on
beneficial ownership rather than record ownership and, as a
result, no annual reports on
Form 10-KSB
were filed for the years ended December 31, 2003 and 2004
and no quarterly reports on
Form 10-QSB
were filed for each of the quarterly periods in the years ended
December 31, 2004 and 2005. Although Kensington Bankshares
had less than 300 beneficial owners of its common stock at the
end of each year, the number of record holders exceeded 300, and
thus Kensington Bankshares was required to comply with the
reporting requirements of the Exchange Act. At December 31,
2005, both the number of record and beneficial holders exceeded
300. Upon discovery of the prior error in the computation,
Kensington Bankshares notified the SEC. If the merger is
completed, Superior Bancorp, as the successor to Kensington
Bankshares, may be subject to enforcement actions and fines by
the SEC as a result of Kensington Bankshares previous
failure to timely file those reports. Such enforcement actions,
fines or other legal actions may have a material adverse effect
on Superior Bancorp.
On July 7, Kensington Bankshares filed its
Form 10-KSB
with the SEC covering each of the years ended December 31,
2003, 2004 and 2005, and Note 19 to the Notes to
Consolidated Financial Statements of Kensington Bankshares
contained in this joint proxy statement/prospectus contains
certain unaudited quarterly financial information for 2004 and
2005, and its
Form 10-QSB
for the three months ended March 31, 2006.
36
Risks
Relating To Superior Bancorps Business
If the
interest payments Superior Bank makes on deposits increase
relative to interest income, Superior Bancorp may be less
profitable.
Superior Bancorps profitability depends to a large extent
on Superior Banks net interest income, which is the
difference between income from interest-earning assets, such as
loans made and investment securities held, and interest paid on
deposits and its borrowings. Superior Bancorps net
interest income is affected not only by actions it takes, but by
changes in general interest rate levels and by other economic
factors beyond Superior Bancorps control. Superior
Bancorps net interest income may be reduced if
(i) more interest-earning assets than interest-bearing
liabilities reprice or mature at a time when interest rates are
declining, or (ii) more interest-bearing liabilities than
interest-earning assets reprice or mature at a time when
interest rates are rising.
In addition, Superior Bancorp may be affected by changes in the
difference between short- and long-term interest rates. For
example, short-term deposits may be used to support longer-term
loans. If the difference between short- and long-term interest
rates becomes smaller, the spread between the rates Superior
Bancorp pays on deposits and borrowings and the rates Superior
Bancorp receives on loans could narrow significantly, decreasing
net interest income.
Further, if market interest rates rise rapidly, interest rate
adjustment caps may limit Superior Bancorps ability to
increase interest rates on adjustable-rate mortgage loans, but
Superior Bancorp may have to pay higher interest rates on
deposits and borrowings. This could cause Superior
Bancorps net interest income to decrease.
An
increase in loan prepayments may adversely affect Superior
Bancorps profitability.
The rate at which borrowers prepay loans is dependent on a
number of factors outside Superior Bancorps control,
including changes in market interest rates, conditions in the
housing and financial markets and general economic conditions.
Superior Bancorp cannot always accurately predict prepayment
rates. If the prepayment rates with respect to loans are greater
than Superior Bancorp anticipates, there may be a negative
impact on profitability because Superior Bancorp may not be able
to reinvest prepayment proceeds at rates comparable to those
received on the prepaid loans, particularly in a time of falling
interest rates.
If
Superior Bancorps allowance for loan losses is inadequate,
then Superior Bancorps profitability will be
reduced.
Superior Bancorp is exposed to the risk that its customers will
be unable to repay their loans in accordance with their terms
and that any collateral securing such loans will be insufficient
to ensure full repayment. Such credit risk is inherent in the
lending business, and failure to adequately assess such credit
risk could have a material adverse effect on Superior
Bancorps financial condition and results of operations.
Superior Bancorp evaluates the collectibility of its loan
portfolio and reviews its evaluation on a regular basis, and
Superior Bancorp provides an allowance for loan losses that
Superior Bancorp believes is adequate based on various factors
that Superior Bancorp believes may affect the credit quality of
loans. However, there can be no assurance that actual loan
losses will not exceed the allowance that has been established,
as such allowance is adjusted from time to time.
If the allowance for loan losses is inadequate for the actual
losses, then there could be a material adverse effect on
Superior Bancorps results of operations. In addition, if
as a result of its perception of adverse trends, Superior
Bancorp materially increases the allowance for loan losses in
the future, its earnings would be reduced.
Events
in Superior Bancorp geographic markets could adversely affect
Superior Bancorp.
Superior Bancorps business is concentrated in a limited
number of markets in Alabama and Florida. Changes in general
economic conditions and in the values of real estate in such
geographic markets could have an adverse impact on Superior
Bancorps ability to achieve loan and deposit growth
targets and on its customers ability to repay existing
loans. In addition, natural disasters, such as hurricanes and
tornadoes, in these geographic markets could adversely affect
Superior Bancorps business.
37
Superior
Bancorp faces substantial competition.
There are numerous competitors in Superior Bancorps
geographic markets, including national, regional and local banks
and thrifts and other financial services businesses, some of
which have substantially greater resources, higher brand
visibility and a wider geographic presence than Superior Bancorp
has. Some of these competitors may offer a greater range of
services, more favorable pricing and greater customer
convenience than Superior Bancorp is able to provide. In
addition, in some markets, there are a significant number of new
banks and other financial institutions that have opened in the
recent past or are expected to open in the near future, and such
new competitors may also seek to exploit Superior Bancorps
markets and customer base. Further, there have been recent
consolidations or announcements of proposed consolidations of
larger banking institutions in Superior Banks market areas
which have led to some uncertainties and such consolidations may
have an impact on Superior Banks market areas. If Superior
Bancorp is unable to maintain and grow its market share in the
face of such competition, its results of operations will be
adversely affected.
Superior
Bancorp is subject to extensive regulation.
Superior Bancorps operations are subject to regulation by
the Office of Thrift Supervision. Regulation by the Office of
Thrift Supervision is intended primarily for the protection of
depositors and the deposit insurance fund and not for the
benefit of stockholders. Superior Bancorp may incur substantial
costs in complying with such regulations, and failure to comply
with them may expose Superior Bancorp to substantial penalties.
In addition, Superior Bancorp is subject to numerous consumer
protection laws and other laws relating to the operation of
financial institutions. Failure to comply with such laws could
expose Superior Bancorp to liability, which could have a
material adverse effect on its results of operations.
Superior
Bancorp may require additional capital to fund its growth
plans.
Superior Bancorps business strategy includes the expansion
of its business through the development of new locations and
through the acquisition of other financial institutions and, to
the extent permitted by applicable law, complementary businesses
as appropriate opportunities arise. In order to finance such
growth and to maintain required regulatory capital levels,
Superior Bancorp may require additional capital in the future.
There can be no assurance that such capital will be available
upon favorable terms, or at all.
Superior
Bancorp is dependent upon the services of its management
team.
Superior Bancorps operations and strategy are directed by
its senior management team, most of whom have joined Superior
Bancorp since January 2005. Any loss of the services of members
of this management team could have a material adverse effect on
Superior Bancorps results of operations and the ability to
implement Superior Bancorps business strategy.
Risks
Related To an Investment in Superior Bancorp Common
Stock
Superior
Bancorps stock price may be volatile due to limited
trading volume.
Superior Bancorp common stock is traded on the NASDAQ National
Market System. However, the average daily trading volume in
Superior Bancorp common stock is relatively small, typically
under 50,000 shares per day and sometimes significantly
less than that. As a result, trades involving a relatively small
number of shares may have a significant effect on the market
price of Superior Bancorp common stock, and it may be difficult
for investors to acquire or dispose of large blocks of stock
without significantly affecting the market price.
Superior
Bancorps ability to pay dividends is
limited.
Superior Bancorps ability to pay dividends is limited by
regulatory requirements and the need to maintain sufficient
consolidated capital to meet the capital needs of its business,
including capital needs related to future growth. Superior
Bancorps primary source of income is the payment of
dividends from Superior Bank to Superior Bancorp. Superior Bank,
in turn, is likewise subject to regulatory requirements
potentially limiting its ability to pay such dividends to
Superior Bancorp and by the need to maintain sufficient capital
for its operations and obligations.
38
Further, Superior Bancorp is obligated, subject to regulatory
limitations, to make periodic distributions on its trust
preferred securities, which reduces the income that might
otherwise be available to pay dividends on Superior Bancorp
common stock. Thus, there can be no assurance that Superior
Bancorp will pay dividends to its common stockholders, no
assurance as to the amount or timing of any such dividends, and
no assurance that such dividends, if and when paid, will be
maintained, at the same level or at all, in future periods.
Superior Bancorp has no present plans for paying a dividend on
its common stock.
The
market price of Superior Bancorp common stock has risen
significantly in a relatively short period of
time.
The market price of Superior Bancorp common stock, as reported
on the NASDAQ National Market System, increased by approximately
32% between December 31, 2004 and December 31, 2005.
Superior Bancorp believes that this increase resulted in part
from investors perception as to the ability of its new
senior management team to execute its business strategy and
enhance stockholder value. There can be no assurance that the
market price of Superior Bancorp common stock will remain at or
near its current level, which is substantially above historic
trading prices prior to 2005, or will increase at a similar pace
in the future.
The
issuance of Superior Bancorp common stock in future acquisitions
or capital-raising transactions may be dilutive to existing
stockholders.
If Superior Bancorp determines that appropriate strategic
opportunities exist, Superior Bancorp may acquire other
financial institutions and related businesses, subject to
applicable regulatory requirements. Superior Bancorp may use its
common stock for such acquisitions. From time to time, Superior
Bancorp may also seek to raise capital through selling
additional common stock. It is possible that the issuance of
additional common stock in such acquisition or capital
transactions may be dilutive to the interests of existing
stockholders. See Information about Superior
Bancorp General beginning on
page .
39
SUPERIOR
BANCORP SPECIAL MEETING
This joint proxy statement/prospectus is being furnished to
Superior Bancorp stockholders in connection with the
solicitation of proxies by Superior Bancorp board of directors
for use at Superior Bancorp special meeting to consider and vote
upon the approval of the merger agreement and the merger. Each
copy of this joint proxy statement/prospectus mailed or
delivered to Superior Bancorp stockholders is accompanied by a
proxy card for use at the special meeting.
Date, Place and Time. Superior Bancorp special
meeting is to be held at the principal executive offices of
Superior Bancorp located
at ,
Birmingham, Alabama ,
on ,
2006,
at .m.
Record Date, Quorum and Voting. Superior
Bancorp board of directors has fixed the close of business
on ,
2006, as the record date for the determination of Superior
Bancorp stockholders entitled to receive notice of and to vote
at Superior Bancorp special meeting. The presence, in person or
by proxy, of the holders of a majority of the shares of Superior
Bancorp common stock entitled to vote at Superior Bancorp
special meeting will constitute a quorum. Each stockholder of
record as of the record date is entitled to one vote for each
share of Superior Bancorp common stock then held.
Vote Required. As
of ,
Superior Bancorp record date, there
were shares
of Superior Bancorp common stock outstanding. Approval and
adoption of the merger agreement requires the affirmative vote
of a majority of all outstanding shares of Superior Bancorp
common stock entitled to vote thereon; as a result, failures to
vote, broker non-votes and abstentions will be the equivalents
of votes against the merger agreement. Accordingly, approval of
the merger agreement and the merger at Superior Bancorp special
meeting will require the affirmative vote of the holders of at
least shares
of Superior Bancorp common stock.
As of Superior Bancorp record date, directors and executive
officers of Superior Bancorp beneficially owned an aggregate
of shares,
or approximately % of Superior Bancorp common stock,
outstanding on such date. Superior Bancorp board of directors
has unanimously approved the merger agreement, and all directors
and executive officers are expected to vote in favor of the
merger agreement. See The Merger The
Merger Agreement Conditions to the Completion
of the Merger beginning on page .
Voting and Revocation of Proxies. Shares of
Superior Bancorp common stock represented by a proxy properly
signed and received at or prior to Superior Bancorp special
meeting, unless subsequently revoked, will be voted in
accordance with the instructions thereon. The proposal to adopt
the merger agreement is a non-discretionary item, meaning that
brokerage firms may not vote shares in their discretion on
behalf of a client if the client has not furnished voting
instructions. Because the merger must be approved by the holders
of a majority of the outstanding shares of the common stock of
both Superior Bancorp and Kensington Bankshares, abstentions and
broker non-votes will have the same effect as a vote against the
merger. You are urged to complete, sign and date the
accompanying proxy and return it promptly in the enclosed
postage-prepaid envelope.
If a proxy is properly executed and returned without
indicating any voting instructions, shares of Superior Bancorp
common stock represented by the proxy will be voted
FOR approval and adoption of the merger agreement
and the merger.
Any proxy given pursuant to the solicitation may be revoked by
the person giving the proxy at any time before the proxy is
voted by filing an instrument revoking it or by delivering a
duly executed proxy bearing a later date to Superior Bancorp
before or at the special meeting, or by voting in person at the
special meeting. Attendance at the special meeting will not in
and of itself constitute a revocation of a proxy. Only votes
cast FOR approval and adoption of the
merger agreement and the merger or other matters constitute
affirmative votes. Abstentions, broker non-votes and votes that
are withheld will, therefore, have the same effect as votes
against approval of the merger agreement and the merger,
so it is important that you return your proxy properly executed.
40
Solicitation of Proxies. In addition to
solicitation by mail, directors, officers and employees of
Superior Bancorp, who will not be specifically compensated for
such services, may solicit proxies from the stockholders of
Superior Bancorp personally or by telephone or other forms of
communication. Superior Bancorp has also engaged Georgeson
Shareholder Communications, Inc. to aid in the solicitation of
proxies, for which Superior Bancorp will pay a fee that will not
exceed
$
plus reimbursement of expenses. Superior Bancorp expects to
reimburse brokers, banks, custodians and other nominees for
their reasonable expenses in handling proxy materials for
beneficial owners. Except as otherwise provided in the merger
agreement, Superior Bancorp will bear its own expenses in
connection with the solicitation of proxies for Superior Bancorp
special meeting. See The Merger The
Merger Agreement Expenses and Fees, on
page .
Recommendation of Superior Bancorp Board of
Directors. Superior Bancorp board of directors
has unanimously adopted the merger agreement and believes that
the proposed transaction is fair and in the best interests of
Superior Bancorp and its stockholders. Superior Bancorp board of
directors recommends that its stockholders vote
FOR approval and adoption of the merger
agreement and the merger.
41
THE
KENSINGTON BANKSHARES SPECIAL MEETING
This joint proxy statement/prospectus is being furnished to
Kensington Bankshares stockholders in connection with the
solicitation of proxies by the Kensington Bankshares board of
directors for use at the Kensington Bankshares special meeting
to consider and vote upon the approval of the merger agreement
and the merger. Each copy of this joint proxy
statement/prospectus mailed or delivered to Kensington
Bankshares stockholders is accompanied by a proxy card for use
at the special meeting.
This joint proxy statement/prospectus is also furnished to
Kensington Bankshares stockholders as a prospectus in connection
with the issuance of shares of Superior Bancorp common stock
upon consummation of the merger.
Date, Place and Time. The Kensington
Bankshares special meeting is to be held at the principal
executive offices of Kensington Bankshares located
at ,
Tampa, Florida, ,
on ,
2006, at a.m.
Record Date, Quorum and Voting. The board of
directors of Kensington Bankshares has fixed the close of
business
on ,
2006, as the record date for the determination of the Kensington
Bankshares stockholders entitled to receive notice of and to
vote at the Kensington Bankshares special meeting. The presence,
in person or by proxy, of the holders of a majority of the
shares of Kensington Bankshares common stock entitled to vote at
the Kensington Bankshares special meeting will constitute a
quorum. Each stockholder of record as of the record date is
entitled to one vote for each share then held.
Vote Required. As
of ,
the Kensington Bankshares record date, there were
3,710,500 shares of Kensington Bankshares common stock
outstanding. Approval and adoption of the merger agreement
requires the affirmative vote of a majority of all outstanding
shares of Kensington Bankshares common stock entitled to vote
thereon; as a result, failures to vote, broker non-votes and
abstentions will be the equivalents of votes against the merger
agreement and the merger. Accordingly, approval of the merger
agreement at the Kensington Bankshares special meeting will
require the affirmative vote of the holders of at least
1,855,251 shares of Kensington Bankshares common stock.
As of the Kensington Bankshares record date, directors and
executive officers of Kensington Bankshares beneficially owned
an aggregate
of shares,
or approximately % of the Kensington Bankshares
common stock, outstanding on such date. The directors and
officers of Kensington Bankshares have agreed to vote the shares
of Kensington Bankshares common stock beneficially owned by them
in favor of the merger agreement and the merger. See The
Merger The Merger
Agreement Lock-Up and Non-Competition
Agreements, beginning on page .
Voting and Revocation of Proxies. Shares of
Kensington Bankshares common stock represented by a proxy
properly signed and received at or prior to the Kensington
Bankshares special meeting, unless subsequently revoked, will be
voted in accordance with the instructions thereon. The proposal
to adopt the merger agreement is a non-discretionary item,
meaning that brokerage firms may not vote shares in their
discretion on behalf of a client if the client has not furnished
voting instructions. Because the merger must be approved by the
holders of a majority of the outstanding shares of the common
stock of both Superior Bancorp and Kensington Bankshares,
abstentions and broker non-votes will have the same effect as a
vote against the merger. You are urged to complete, sign and
date the accompanying proxy and return it promptly in the
enclosed postage-prepaid envelope.
If a proxy is properly executed and returned without
indicating any voting instructions, shares of Kensington
Bankshares common stock represented by the proxy will be voted
FOR approval and adoption of the merger agreement
and the merger.
Any proxy given pursuant to the solicitation may be revoked by
the person giving the proxy at any time before the proxy is
voted by filing an instrument revoking it or by delivering a
duly executed proxy bearing a later date to Kensington
Bankshares before or at the special meeting, or by voting in
person at the special meeting. Attendance at the Kensington
Bankshares special meeting will not in and of itself constitute
a revocation of a proxy. Only votes cast
FOR approval and adoption of the
merger agreement and the merger or other matters constitute
affirmative votes.
Solicitation of Proxies. In addition to
solicitation by mail, directors, officers and employees of
Kensington Bankshares, who will not be specifically compensated
for such services, may solicit proxies from the stockholders
42
of Kensington Bankshares personally or by telephone or other
forms of communication. Except as otherwise provided in the Plan
of Merger, Kensington Bankshares will bear its own expenses in
connection with the solicitation of proxies for the Kensington
Bankshares special meeting. See The
Merger Expenses and Fees, on
page .
Recommendation of Kensington Bankshares Board of
Directors. Kensington Bankshares board of
directors has unanimously adopted the merger agreement and
believes that the proposed transaction is fair and in the best
interests of Kensington Bankshares and its stockholders.
Kensington Bankshares board of directors recommends that
its stockholders vote FOR approval and
adoption of the merger agreement and the merger.
Kensington Bankshares stockholders should not send stock
certificates with their proxy cards. The procedure for the
exchange of shares after the merger is consummated is described
at pages in this joint proxy
statement/prospectus. See The
Merger Exchange of Certificates,
beginning on page .
43
THE
MERGER
We describe and summarize below the principal provisions of
the proposed merger between Superior Bancorp and Kensington
Bankshares, Inc. This description is not complete and is subject
to, and qualified in its entirety by reference to, the Agreement
and Plan of Merger, the full text of which is attached to this
joint proxy statement prospectus as Annex A. We urge you to
read the Agreement and Plan of Merger carefully and in its
entirety.
Background
of the Merger
From November 2002 until April 2003, Kensington Bankshares
explored different strategic alternatives including engaging an
investment banker to determine if a sale of the company was
viable. No negotiations were ever commenced with any prospective
acquiror.
In March 2005, Kensington Bankshares engaged in preliminary
negotiations with another financial institution for the sale of
company. However, no agreement was reached.
In early January 2006, the management of Kensington Bankshares
was contacted by representatives of the investment banking firm
of Alex Sheshunoff & Co. Investment Banking, LP
(Sheshunoff) with regard to exploring the
possibility of a sale of the company to Superior Bancorp.
On January 13, 2006, a representative of Sheshunoff met
with officers of Superior Bancorp, including C. Stanley Bailey,
Chief Executive Officer, Marvin C. Scott, President, and Rick D.
Gardner, Chief Operating Officer, to introduce Kensington
Bankshares as a potential acquisition partner.
On January 24, 2006, Messrs. Bailey and Scott met with
Gerald K. Archibald, Chairman and Chief Executive Officer,
William R. Bender, Jr., Chief Financial Officer, and Ronald
S. Hockman, a director, of Kensington Bankshares to discuss the
history, current performance and future potential of both
companies. At the conclusion of such discussions, Kensington
Bankshares engaged Sheshunoff to serve as its financial advisor
and issue a fairness opinion from a financial point of view to
the stockholders of Kensington Bankshares with respect to a
potential merger with Superior Bancorp.
On January 31, 2006, Superior Bancorp engaged Sandler
ONeill & Partners, L.P. (Sandler
ONeill) to analyze and issue a fairness opinion with
respect to a merger between Superior Bancorp and Kensington
Bankshares.
On February 1, 2006, Superior Bancorp sent a letter of
intent to Kensington Bankshares containing a preliminary
proposal to merge the two companies. The letter of intent
contained a provision by which Kensington Bankshares would agree
not to engage in sale negotiations with other parties for one
month from the date of the letter.
On February 3, 2006, Messrs. Bailey and Scott met with
the board of directors of Kensington Bankshares to discuss a
merger of the two companies. On that same day, the board of
directors of Kensington Bankshares approved the letter of intent
and the commencement of due diligence by both companies.
Thereafter, Kensington Bankshares began to gather and forward
requested due diligence materials to Superior Bancorp for review.
Between February 3 and March 6, 2006, the date on which the
merger agreement between the companies was executed, each of the
four members of the board of directors of Kensington Bankshares
was kept informed by Mr. Archibald regarding the ongoing
merger negotiations with Superior Bancorp.
On February 6, 2006, Superior Bancorp engaged the law firm
of Balch & Bingham LLP, as acquisition legal counsel
for this transaction and the law firm of Haskell Slaughter
Young & Rediker, LLC, as corporate and securities
counsel for this transaction. Thereafter, the parties and their
counsel began due diligence reviews.
On February 9, 2006, Kensington Bankshares engaged the law
firm of Coleman, Talley, Newbern, Kurrie, Preston &
Holland LLP as special counsel for this transaction.
On February 14, 2006, Messrs. Bailey, Scott and
Gardner met with officials of the Office of Thrift Supervision,
the primary regulator for Superior Bancorp, to discuss certain
matters, including the proposed merger with Kensington
Bankshares.
44
On February 16, 2006, the board of directors of Superior
Bancorp conducted a teleconference meeting to review the status
of the discussions with Kensington Bankshares, including the
results to date of due diligence and Sandler ONeills
preliminary fairness opinion and to approve certain terms of the
transaction subject to further due diligence. The meeting was
adjourned pending completion of due diligence and the
negotiation of final terms and conditions with Kensington
Bankshares.
From February 17 through February 19, 2006, representatives
of Superior Bancorp conducted
on-site due
diligence of Kensington Bankshares in Tampa, Florida.
On February 19, 2006, Messrs. Bailey and Scott met
with Messrs. Archibald and Hockman to discuss the final
terms and conditions of the merger agreement, subject to
approval by their respective boards of directors, and to provide
their respective legal counsel with certain information with
respect to the merger agreement.
On February 21, 2006, the board of directors of Superior
Bancorp reconvened its teleconference meeting of February 16 to
further review the due diligence results and receive Sandler
ONeills reconfirmation of its fairness opinion.
After full discussion of these matters, the board of directors
approved in substance the terms and conditions of the merger
agreement and the merger, subject to final documentation.
Between February 21, 2006 and March 6, 2006,
Mr. Bailey and Mr. Archibald discussed by telephone
the progress of negotiations and the merger agreement.
On February 24, 2006, certain representatives of Kensington
Bankshares conducted
on-site due
diligence of Superior Bancorp in Birmingham, Alabama.
On February 28, 2006, the board of directors of Kensington
Bankshares met to receive a preliminary fairness opinion and a
presentation from representatives of Sheshunoff on the fairness
of the transaction from a financial point of view to the
stockholders of Kensington Bankshares.
On March 6, 2006, the board of directors of Kensington
Bankshares met to review and consider the transaction and the
merger agreement and to receive and review the final fairness
opinion of Sheshunoff. On the same day, after due deliberation
on the entire transaction and its proposed effect on the
stockholders of Kensington Bankshares, the board of directors
approved the transaction and authorized the execution of the
merger agreement. Finally, after the close of the market on that
day, Superior Bancorp and Kensington Bankshares executed the
merger agreement and the companies issued a joint press release
announcing the merger.
Superior
Bancorps Reasons for the Merger
On February 21, 2006, the board of directors of Superior
Bancorp unanimously approved and adopted the merger agreement.
The board of directors of Superior Bancorp believes that the
merger and the terms and provisions of the merger agreement are
in the best interests of Superior Bancorps stockholders.
In approving the merger, the board of directors of Superior
Bancorp considered a number of factors as generally supporting
its decision to enter into the merger agreement. The following
factors considered by the board of directors of Superior Bancorp
in evaluating the merger agreement are not intended to be
exhaustive, but include the material factors considered by the
board. Without assigning any relative or specific weights to the
factors, the board of directors of Superior Bancorp considered
the following material factors:
|
|
|
|
|
the high growth market available in central Florida;
|
|
|
|
the growth potential in Florida for a billion-dollar financial
institution;
|
|
|
|
the numerous customer relationships in the Tampa market;
|
|
|
|
the expected impact on future earnings of the combined companies;
|
|
|
|
the expected impact on stockholder value of the combined
companies;
|
|
|
|
the financial terms of recent business combinations in the
financial services industry and a comparison of the multiples of
selected combinations with the terms of the proposed transaction
with Kensington Bankshares; and
|
45
|
|
|
|
|
the opinion of Sandler ONeill that the consideration to be
received by Kensington Bankshares stockholders pursuant to
the merger agreement is fair from a financial point of view to
the stockholders of Superior Bancorp.
|
The foregoing discussion of the information and factors
considered by the Superior Bancorp board of directors is not
intended to be exhaustive, but includes the material factors
considered. In view of the variety of factors considered in
connection with its evaluation of the merger and the offer
price, the board of directors did not find it practicable to,
and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determinations
and recommendations, and individual directors may have given
differing weights to different factors.
The terms of the merger were the result of arms-length
negotiations between representatives of Superior Bancorp and
representatives of Kensington Bankshares. Based upon the
consideration of the foregoing factors, the board of directors
of Superior Bancorp unanimously approved the merger as being in
the best interest of Superior Bancorp, its stockholders and its
other constituencies.
Kensington
Bankshares Reasons for the Merger
On March 6, 2006, the board of directors of Kensington
Bankshares unanimously approved and adopted the merger
agreement. The board of directors of Kensington Bankshares
believes that the merger and the terms and provisions of the
merger agreement are in the best interests of Kensington
Bankshares stockholders.
In reaching its decision to approve and adopt the merger
agreement, the board of directors of Kensington Bankshares
considered a number of factors as generally supporting its
decision including the following:
|
|
|
|
|
the value of the consideration to be received by Kensington
Bankshares stockholders relative to the value of its common
stock;
|
|
|
|
certain information concerning the financial condition, results
of operations and business prospects of Superior Bancorp;
|
|
|
|
the financial terms of recent business combinations in the
financial services industry and a comparison of the multiples of
selected combinations with the terms of the proposed transaction
with Superior Bancorp;
|
|
|
|
the alternatives to the merger, including remaining an
independent institution;
|
|
|
|
the competitive and regulatory environment for financial
institutions generally;
|
|
|
|
the fact that the merger will enable Kensington Bankshares
stockholders to exchange their shares of common stock for shares
of common stock of a financial institution, the stock of which
is widely held and publicly traded, and that the consideration
will be received tax-free; and
|
|
|
|
the opinion of Sheshunoff that the consideration to be received
by Kensington Bankshares stockholders pursuant to the
merger agreement is fair from a financial point of view to the
stockholders of Kensington Bankshares.
|
The foregoing discussion of the information and factors
considered by the Kensington Bankshares board of directors is
not intended to be exhaustive, but includes the material factors
considered. In view of the variety of factors considered in
connection with its evaluation of the merger and the offer
price, the board of directors did not find it practicable to,
and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determinations
and recommendations, and individual directors may have given
differing weights to different factors.
Each member of the Kensington Bankshares board of directors has
indicated that he intends to vote his shares of common stock in
favor of the merger.
The terms of the merger were the result of arms-length
negotiations between representatives of Kensington Bankshares
and representatives of Superior Bancorp. Based upon the
consideration of the foregoing factors, the board of directors
of Kensington Bankshares unanimously approved the merger as
being in the best interest of Kensington Bankshares, its
stockholders and its other constituencies.
46
Recommendation
of Superior Bancorps Board of Directors
Superior Bancorps board of directors has unanimously
approved the merger agreement and the merger and believes that
the proposed merger is in the best interest of Superior Bancorp
and its stockholders. Accordingly, Superior Bancorps
board of directors unanimously recommends that its stockholders
vote FOR approval of the merger agreement and the
merger.
Recommendation
of Kensington Bankshares Board of Directors
Kensington Bankshares board of directors has unanimously
approved the merger agreement and the merger and believes that
the proposed merger is in the best interest of Kensington
Bankshares and its stockholders. Accordingly, Kensington
Bankshares board of directors unanimously recommends that
its stockholders vote FOR approval of the merger
agreement and the merger.
Opinion
of Superior Bancorps Financial Advisor
By letter dated January 31, 2006, Superior Bancorp retained
Sandler ONeill to act as its financial advisor in
connection with a possible business combination with Kensington
Bankshares. Sandler ONeill is a nationally recognized
investment banking firm whose principal business specialty is
financial institutions. In the ordinary course of its investment
banking business, Sandler ONeill is regularly engaged in
the valuation of financial institutions and their securities in
connection with mergers and acquisitions and other corporate
transactions.
Sandler ONeill acted as financial advisor to Superior
Bancorp in connection with the proposed transaction and
participated in certain of the negotiations leading to the
execution of a definitive merger agreement on March 6,
2006. At the February 16, 2006 meeting at which Superior
Bancorps board considered and subject to satisfactory
resolution of certain outstanding issues, approved the merger
agreement, Sandler ONeill delivered to the board its oral
opinion, that, as of such date, the merger consideration was
fair to Superior Bancorp from a financial point of view. The
full text of Sandler ONeills opinion is attached as
Annex C to this joint proxy statement/prospectus.
The opinion outlines the procedures followed, assumptions made,
matters considered and qualifications and limitations on the
review undertaken by Sandler ONeill in rendering its
opinion. The description of the opinion set forth below is
qualified in its entirety by reference to the opinion. Sandler
ONeill urges Superior Bancorps stockholders to read
the entire opinion carefully in connection with their
consideration of the proposed merger.
Sandler ONeills opinion speaks only as of the
date of the opinion. The opinion was directed to the Superior
Bancorp board and is directed only to the fairness of the merger
consideration to Superior Bancorp from a financial point of
view. It does not address the underlying business decision of
Superior Bancorp to engage in the merger or any other aspect of
the merger and is not a recommendation to any Superior Bancorp
stockholder as to how such stockholder should vote at the
special meeting with respect to the merge or any other
matter.
In connection with rendering its March 6, 2006 opinion,
Sandler ONeill reviewed and considered, among other things:
(1) the merger agreement;
(2) certain publicly available financial statements and
other historical financial information of Superior Bancorp that
Sandler ONeill deemed relevant;
(3) certain audited financial statements and other
historical financial information of Kensington Bankshares that
Sandler ONeill deemed relevant;
(4) earnings per share estimates for Superior Bancorp for
the years ending December 31, 2006 and 2007 as provided by,
and reviewed with, senior management of Superior Bancorp;
(5) internal financial projections for Kensington
Bankshares for the years ending December 31, 2006 and 2007
as provided by and reviewed with senior management of Kensington
Bankshares;
47
(6) the pro forma financial impact of the merger on
Superior Bancorp, based on assumptions relating to transaction
expenses, purchase accounting adjustments and cost savings
determined by the senior management of Superior Bancorp;
(7) the publicly reported historical price and trading
activity for Superior Bancorps common stock, including a
comparison of certain financial and stock market information for
Superior Bancorp and Kensington Bankshares and similar publicly
available information for certain other companies the securities
of which are publicly traded;
(8) the financial terms of certain recent business
combinations in the commercial banking industry, to the extent
publicly available;
(9) the current market environment generally and the
banking environment in particular; and
(10) such other information, financial studies, analyses
and investigations and financial, economic and market criteria
as Sandler ONeill considered relevant.
Sandler ONeill also discussed with certain members of
senior management of Superior Bancorp the business, financial
condition, results of operations and prospects of Superior
Bancorp and held similar discussions with the financial advisor
of Kensington Bankshares regarding the business, financial
condition, results of operations and prospects of Kensington
Bankshares.
In performing its reviews and analyses and in rendering its
opinion, Sandler ONeill relied upon the accuracy and
completeness of all the financial and other information that was
available to them from public sources, that was provided to
Sandler ONeill by Superior Bancorp or Kensington
Bankshares or their respective representatives or that was
otherwise reviewed by Sandler ONeill and have assumed such
accuracy and completeness for purposes of rendering this
opinion. Sandler ONeill further relied on the assurances
of the management of each Superior Bancorp and Kensington
Bankshares that they were not aware of any facts or
circumstances that would make any of such information inaccurate
or misleading. Sandler ONeill has not been asked to
undertake, and has not undertaken, an independent verification
of any of such information and Sandler ONeill does not
assume any responsibility or liability for the accuracy or
completeness thereof. Sandler ONeill did not make an
independent evaluation or appraisal of the specific assets, the
collateral securing the assets or the liabilities (contingent or
otherwise) of Superior Bancorp or Kensington Bankshares or any
of their subsidiaries, or the collectibility of any such assets,
nor has Sandler ONeill been furnished with any such
evaluations or appraisals. Sandler ONeill did not make an
independent evaluation of the adequacy of the allowance for loan
losses of Superior Bancorp or Kensington Bankshares nor has
Sandler ONeill reviewed any individual credit files
relating to Superior Bancorp or Kensington Bankshares. Sandler
ONeill assumed, with Superior Bancorps consent, that
the respective allowances for loan losses for both Superior
Bancorp and Kensington Bankshares were adequate to cover such
losses.
The internal budgets and estimates for growth used and relied
upon by Sandler ONeill in its analyses for Superior
Bancorp were provided by Superior Bancorp senior management who
confirmed to Sandler ONeill that that those budgets and
estimates reflected the best currently available estimates and
judgments of the future financial performance of Superior
Bancorp. With respect to the internal budgets and growth
estimates for Kensington Bankshares, with Superior
Bancorps consent, Sandler ONeill used and relied on
the budgets provided by the senior management of Kensington
Bankshares as adjusted by and discussed with Superior
Bancorps senior management and those budgets and estimates
reflected best currently available estimates and judgments of
the future financial performance of Kensington Bankshares by
Superior Bancorps senior management. All projections of
transaction costs, purchase accounting adjustments and expected
cost savings related to the merger were provided by or reviewed
with senior managements of Superior Bancorp and Kensington
Bankshares and those managements confirmed to Sandler
ONeill that those projections reflected to best currently
available estimates and judgments of those managements. Sandler
ONeill assumed that the financial performances reflected
in all budgets, estimates and projections used by us in our
analyses would be achieved. Sandler ONeill expressed no
opinion as to such budgets, estimates or projections or the
assumptions on which they were based. Sandler ONeill also
assumed that there has been no material change in the assets,
financial condition, results of operations, business or
prospects of Superior Bancorp or Kensington Bankshares since the
date of the last financial statements made available to them
48
and that Superior Bancorp and Kensington Bankshares will remain
as going concerns for all periods relevant to the analyses.
With respect to the merger agreement, Sandler ONeill
assumed that all of the representations and warranties contained
in the merger agreement and all related agreements were true and
correct, that each party to such merger agreements will perform
all of the covenants required to be performed by such party
under the agreements, that the conditions precedent in the
merger agreement are not waived and that the merger will be a
tax-free reorganization for federal income tax purposes.
Finally, with Superior Bancorps consent, Sandler
ONeill relied upon the advice received from Superior
Bancorps legal, accounting and tax advisors as to all
legal, accounting and tax matters relating to the merger
agreement and the other transactions contemplated by the merger
agreement.
Sandler ONeills opinion was necessarily based upon
market, economic and other conditions as they existed on, and
could be evaluated as of, the date of its opinion. Events
occurring after the date hereof could materially affect this
opinion. Sandler ONeill has not undertaken to update,
revise, reaffirm or withdraw its opinion or otherwise comment
upon events occurring after the date of this joint proxy
statement/prospectus. Sandler ONeill expressed no opinion
as to what the value of Superior Bancorps common stock
will be when issued to Kensington Bankshares stockholders
pursuant to the merger agreement or the prices at which the
common stock of Superior Bancorp may trade at any time.
In rendering its March 6, 2006 opinion, Sandler
ONeill performed a variety of financial analyses. The
following is a summary of the material analyses performed by
Sandler ONeill, but is not a complete description of all
the analyses underlying Sandler ONeills opinion. The
summary includes information presented in tabular format. In
order to fully understand the financial analyses, these tables
must be read together with the accompanying text. The tables
alone do not constitute a complete description of the financial
analyses. The preparation of a fairness opinion is a complex
process involving subjective judgments as to the most
appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances.
The process, therefore, is not necessarily susceptible to a
partial analysis or summary description. Sandler ONeill
believes that its analyses must be considered as a whole and
that selecting portions of the factors and analyses to be
considered without considering all factors and analyses, or
attempting to ascribe relative weights to some or all such
factors and analyses, could create an incomplete view of the
evaluation process underlying its opinion. Also, no company
included in Sandler ONeills comparative analyses
described below is identical to Superior Bancorp or Kensington
Bankshares and no transaction is identical to the merger.
Accordingly, an analysis of comparable companies or transactions
involves complex considerations and judgments concerning
differences in financial and operating characteristics of the
companies and other factors that could affect the public trading
values or merger transaction values, as the case may be, of
Superior Bancorp and Kensington Bankshares and the companies to
which they are being compared.
In performing its analyses, Sandler ONeill also made
numerous assumptions with respect to industry performance,
business and economic conditions and various other matters, many
of which cannot be predicted and are beyond the control of
Superior Bancorp, Kensington Bankshares and Sandler
ONeill. The analyses performed by Sandler ONeill are
not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested
by such analyses. Sandler ONeill prepared its analyses
solely for purposes of rendering its opinion and provided such
analyses to the Superior Bancorp board at the boards
February 16, 2006 meeting. Estimates on the values of
companies do not purport to be appraisals or necessarily reflect
the prices at which companies or their securities may actually
be sold. Such estimates are inherently subject to uncertainty
and actual values may be materially different. Accordingly,
Sandler ONeills analyses do not necessarily reflect
the value of Superior Bancorps common stock or the prices
at which Superior Bancorps common stock may be sold at any
time.
49
Summary of Proposal. Sandler ONeill
reviewed the financial terms of the proposed transaction. Using
the fixed exchange ratio of 1.60 shares of Superior Bancorp
common stock for each share of Kensington Bankshares common
stock, and the closing price of Superior Bancorp common stock of
$11.43(1) for calculating the consideration, Sandler
ONeill calculated a transaction value of $18.29 per
share. Based upon financial information for Kensington
Bankshares as or for the twelve month period ended
December 31, 2005, Sandler ONeill calculated the
following transaction ratios:
TRANSACTION
MULTIPLES
|
|
|
|
|
Transaction Value / Last Twelve
Months Net Income
|
|
|
24.7
|
x
|
Transaction Value / book value
|
|
|
252.7
|
%
|
Transaction Value / tangible book
value
|
|
|
252.7
|
%
|
Tangible book premium / core
deposits(2)
|
|
|
20.9
|
%
|
|
|
|
(1) |
|
$11.43 represents Superior Bancorps stock price utilized
to establish the exchange ratio. |
|
(2) |
|
Core deposits exclude time deposits with a balance over
$100,000. |
The aggregate transaction value was approximately
$71.2 million, based upon the offer price per share of
$18.29, 3,710,500 Kensington Bankshares common shares
outstanding and the intrinsic value of options to acquire
182,355 shares of Kensington Bankshares common stock at a
weighted-average exercise price of $8.14.
Comparable Company Analysis. Sandler
ONeill also used publicly available information to perform
a comparison of selected financial and market trading
information for Superior Bancorp and Kensington Bankshares.
Sandler ONeill used publicly available information to
compare selected financial and market trading information for
Kensington Bankshares and a group of financial institutions
selected by Sandler ONeill. The Kensington Bankshares peer
group consisted of the following publicly traded commercial
banks headquartered in Florida with total assets between
$115 million and $900 million:
|
|
|
|
|
Florida Community Banks Inc.(1)
|
|
Old Florida Bankshares Inc.(1)
|
|
Pilot Bancshares Inc.(1)
|
Vision Bancshares Inc.(1)
|
|
Jacksonville Bancorp Inc.(1)
|
|
Marco Community Bancorp Inc.(1)
|
Bancshares of Florida Inc.
|
|
Sun American Bancorp(1)
|
|
Horizon Bancorp Inc.
|
Coast Financial Holdings Inc.
|
|
Regent Bancorp Inc.(1)
|
|
FPB Bancorp Inc.(1)
|
Community Bank of South FL Inc.(1)
|
|
Atlantic BancGroup Inc.(1)
|
|
Suncoast Bancorp Inc.(1)
|
First State Financial Corp.
|
|
OptimumBank Holdings Inc.(1)
|
|
Old Harbor Bank
|
|
|
|
(1) |
|
As of or for the twelve months ended September 30, 2005 |
50
The analysis compared publicly available financial
information for Kensington Bankshares and the high, low, mean,
and median financial and market trading data for the Kensington
Bankshares peer group as of and for the twelve months ended
December 31, 2005 (or in cases where December data was not
available, as of or for the twelve months ended
September 30, 2005). The table below sets forth the data
for Kensington Bankshares and the median data for the Kensington
Bankshares peer group as of and for the twelve months ended
December 31, 2005 (or in cases where December data was not
available, as of or for the twelve months ended
September 30, 2005), with pricing data as of
February 10, 2006.
Comparable
Group Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
Kensington Bankshares
|
|
Median Result
|
|
Total Assets (in millions)
|
|
$
|
324.7
|
|
|
$
|
239.5
|
|
Tangible Equity / Tangible Assets
|
|
|
8.68
|
%
|
|
|
9.56
|
%
|
Intangible Assets / Total Equity
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Net Loans / Total Assets
|
|
|
38.35
|
%
|
|
|
78.82
|
%
|
Gross Loans / Total Deposits
|
|
|
45.04
|
%
|
|
|
93.42
|
%
|
Total Borrowings / Total Assets
|
|
|
1.60
|
%
|
|
|
3.02
|
%
|
Non-performing Assets / Assets
|
|
|
0.00
|
%
|
|
|
0.11
|
%
|
Loan Loss Reserve / Gross Loans
|
|
|
0.81
|
%
|
|
|
1.01
|
%
|
Net Interest Margin
|
|
|
3.48
|
%
|
|
|
4.26
|
%
|
Non-interest Income / Average
Assets
|
|
|
0.09
|
%
|
|
|
0.53
|
%
|
Fees / Revenues
|
|
|
2.55
|
%
|
|
|
13.21
|
%
|
Non-interest Expense / Average
Assets
|
|
|
1.91
|
%
|
|
|
2.93
|
%
|
Efficiency Ratio
|
|
|
53.95
|
%
|
|
|
67.34
|
%
|
Return on Average Assets
|
|
|
0.99
|
%
|
|
|
0.88
|
%
|
Return on Average Equity
|
|
|
10.35
|
%
|
|
|
9.03
|
%
|
Price / Book Value
|
|
|
NA
|
|
|
|
196.49
|
%
|
Price / Tangible Book Value
|
|
|
NA
|
|
|
|
199.03
|
%
|
Price / Last Twelve Months
Earnings per Share
|
|
|
NA
|
|
|
|
26.18
|
x
|
Price / 2006 Estimated Earnings
per Share(1)
|
|
|
NA
|
|
|
|
17.95
|
x
|
Dividend Payout Ratio
|
|
|
NA
|
|
|
|
0.00
|
%
|
Dividend Yield
|
|
|
NA
|
|
|
|
0.00
|
%
|
Market Capitalization (in
thousands)
|
|
|
NA
|
|
|
$
|
51,375
|
|
|
|
|
(1) |
|
Based on IBES estimates. |
The Superior Bancorp peer group consisted of the following
publicly traded commercial banks headquartered in Alabama,
Florida, Georgia, Mississippi, North Carolina, South Carolina,
Tennessee, Virginia or West Virginia with total assets between
$1 billion and $1.7 billion:
|
|
|
|
|
Security Bank Corp.
|
|
Cardinal Financial Corp.
|
|
Colony Bankcorp Inc.
|
Greene County Bancshares Inc.
|
|
NBC Capital Corp.
|
|
Bank of Granite Corp.
|
GB&T Bancshares Inc.
|
|
Fidelity Southern Corp.
|
|
FNB Corp.
|
Coastal Financial Corp.
|
|
BancTrust Financial Group Inc.
|
|
TIB Financial Corp.
|
Virginia Commerce Bancorp
Inc.
|
|
Southern Community Financial
|
|
First Security Group Inc.
|
Virginia Financial Group
|
|
First M & F Corp.
|
|
Commercial Bankshares Inc.
|
FNB Corp.
|
|
Summit Financial Group Inc.
|
|
|
51
The analysis compared publicly available financial and market
trading information for Superior Bancorp and the high, low,
mean, and median data for Superior Bancorp peer group as of and
for the twelve months ended December 31, 2005. The table
below sets forth the data for Superior Bancorp and the median
data for the Superior Bancorp peer group as of and for the
twelve months ended December 31, 2005, with pricing data as
of February 10, 2006.
Comparable
Group Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Group
|
|
|
Superior Bancorp
|
|
Median Result
|
|
Total Assets (in millions)
|
|
$
|
1,415.8
|
|
|
$
|
1,355.6
|
|
Tangible Equity / Tangible Assets
|
|
|
6.61
|
%
|
|
|
7.23
|
%
|
Intangible Assets / Total Equity
|
|
|
11.34
|
%
|
|
|
14.05
|
%
|
Net Loans / Total Assets
|
|
|
68.70
|
%
|
|
|
75.03
|
%
|
Gross Loans / Total Deposits
|
|
|
94.28
|
%
|
|
|
96.29
|
%
|
Total Borrowings / Total Assets
|
|
|
15.42
|
%
|
|
|
9.05
|
%
|
Non-performing Assets / Assets
|
|
|
0.56
|
%
|
|
|
0.31
|
%
|
Loan Loss Reserve / Gross Loans
|
|
|
1.22
|
%
|
|
|
1.22
|
%
|
Net Interest Margin
|
|
|
3.13
|
%
|
|
|
4.10
|
%
|
Non-interest Income / Average
Assets
|
|
|
0.70
|
%
|
|
|
1.05
|
%
|
Fees / Revenues
|
|
|
20.18
|
%
|
|
|
20.29
|
%
|
Non-interest Expense / Average
Assets
|
|
|
3.19
|
%
|
|
|
2.96
|
%
|
Efficiency Ratio
|
|
|
91.63
|
%
|
|
|
64.20
|
%
|
Return on Average Assets
|
|
|
(0.44
|
)%
|
|
|
1.12
|
%
|
Return on Average Equity
|
|
|
(6.01
|
)%
|
|
|
11.83
|
%
|
Price / Book Value
|
|
|
212.52
|
%
|
|
|
182.35
|
%
|
Price / Tangible Book Value
|
|
|
239.69
|
%
|
|
|
227.63
|
%
|
Price / Last Twelve Months
Earnings per Share
|
|
|
NM
|
|
|
|
15.93
|
x
|
Price / 2006 Estimated Earnings
per Share(1)
|
|
|
35.94
|
x
|
|
|
15.20
|
x
|
Dividend Payout Ratio
|
|
|
0.00
|
%
|
|
|
32.98
|
%
|
Dividend Yield
|
|
|
0.00
|
%
|
|
|
1.79
|
%
|
Market Capitalization (in
thousands)
|
|
$
|
222,580
|
|
|
$
|
229,048
|
|
|
|
|
(1) |
|
Based on IBES estimates. |
52
Discounted Dividend Stream and Terminal Value
Analysis. Sandler ONeill performed an
analysis that estimated the future stream of after-tax dividend
flows of Kensington Bankshares through December 31, 2010
under various circumstances. The analysis assumed Kensington
Bankshares projected dividend stream and that Kensington
Bankshares performed in accordance with the 2006 net income
projection and earnings per share growth rate projections for
2006 through 2010 provided by management of Kensington
Bankshares and discussed with Superior Bancorps
management. To approximate the terminal value of Kensington
Bankshares common stock at December 31, 2010, Sandler
ONeill applied price to Last Twelve Months (LTM) earnings
multiples of 16.0x to 26.0x and multiples of tangible book value
ranging from 150% to 275%. The dividend income streams and
terminal values were then discounted to present values using
different discount rates ranging from 10.6% to 16.6% chosen to
reflect different assumptions regarding required rates of return
of holders or prospective buyers of Kensington Bankshares common
stock. In addition, the terminal value of Kensington
Bankshares common stock at December 31, 2005 was
calculated using the same range of price to LTM earnings
multiples (16.0x 26.0x) applied to a range of
discounts and premiums to managements budget projections.
The range applied to the budgeted net income was 25% under
budget to 25% over budget, using a discount rate of 10.6% for
the tabular analysis. As illustrated in the following tables,
this analysis indicated an imputed range of values per share for
Kensington Bankshares common stock of $12.38 to $26.21
when applying the price/earnings multiples to the matched
budget, $9.72 to $23.21 when applying multiples of tangible book
value to the matched budget, and $12.09 to $32.76 when applying
the price/earnings multiples to the -25% / +25% budget range.
Earnings
Per Share Multiples
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
16.0x
|
|
|
18.0x
|
|
|
20.0x
|
|
|
22.0x
|
|
|
24.0x
|
|
|
26.0x
|
|
|
10.60%
|
|
$
|
16.13
|
|
|
$
|
18.14
|
|
|
$
|
20.16
|
|
|
$
|
22.17
|
|
|
$
|
24.19
|
|
|
$
|
26.21
|
|
11.60%
|
|
|
15.42
|
|
|
|
17.34
|
|
|
|
19.27
|
|
|
|
21.20
|
|
|
|
23.13
|
|
|
|
25.05
|
|
12.60%
|
|
|
14.74
|
|
|
|
16.59
|
|
|
|
18.43
|
|
|
|
20.27
|
|
|
|
22.12
|
|
|
|
23.96
|
|
13.60%
|
|
|
14.11
|
|
|
|
15.87
|
|
|
|
17.63
|
|
|
|
19.40
|
|
|
|
21.16
|
|
|
|
22.92
|
|
14.60%
|
|
|
13.50
|
|
|
|
15.19
|
|
|
|
16.88
|
|
|
|
18.56
|
|
|
|
20.25
|
|
|
|
21.94
|
|
15.60%
|
|
|
12.93
|
|
|
|
14.54
|
|
|
|
16.16
|
|
|
|
17.78
|
|
|
|
19.39
|
|
|
|
21.01
|
|
16.60%
|
|
|
12.38
|
|
|
|
13.93
|
|
|
|
15.48
|
|
|
|
17.03
|
|
|
|
18.57
|
|
|
|
20.12
|
|
Earnings
Per Share Multiples
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Budget Variance
|
|
16.0x
|
|
|
18.0x
|
|
|
20.0x
|
|
|
22.0x
|
|
|
24.0x
|
|
|
26.0x
|
|
|
(25.0)%
|
|
$
|
12.09
|
|
|
$
|
13.61
|
|
|
$
|
15.12
|
|
|
$
|
16.63
|
|
|
$
|
18.14
|
|
|
$
|
19.65
|
|
(20.0)%
|
|
|
12.90
|
|
|
|
14.51
|
|
|
|
16.13
|
|
|
|
17.74
|
|
|
|
19.35
|
|
|
|
20.96
|
|
(15.0)%
|
|
|
13.71
|
|
|
|
15.42
|
|
|
|
17.13
|
|
|
|
18.85
|
|
|
|
20.56
|
|
|
|
22.27
|
|
(10.0)%
|
|
|
14.51
|
|
|
|
16.33
|
|
|
|
18.14
|
|
|
|
19.96
|
|
|
|
21.77
|
|
|
|
23.58
|
|
(5.0)%
|
|
|
15.32
|
|
|
|
17.24
|
|
|
|
19.15
|
|
|
|
21.07
|
|
|
|
22.98
|
|
|
|
24.90
|
|
0.0%
|
|
|
16.13
|
|
|
|
18.14
|
|
|
|
20.16
|
|
|
|
22.17
|
|
|
|
24.19
|
|
|
|
26.21
|
|
5.0%
|
|
|
16.93
|
|
|
|
19.05
|
|
|
|
21.17
|
|
|
|
23.28
|
|
|
|
25.40
|
|
|
|
27.52
|
|
10.0%
|
|
|
17.74
|
|
|
|
19.96
|
|
|
|
22.17
|
|
|
|
24.39
|
|
|
|
26.61
|
|
|
|
28.83
|
|
15.0%
|
|
|
18.55
|
|
|
|
20.86
|
|
|
|
23.18
|
|
|
|
25.50
|
|
|
|
27.82
|
|
|
|
30.14
|
|
20.0%
|
|
|
19.35
|
|
|
|
21.77
|
|
|
|
24.19
|
|
|
|
26.61
|
|
|
|
29.03
|
|
|
|
31.45
|
|
25.0%
|
|
|
20.16
|
|
|
|
22.68
|
|
|
|
25.20
|
|
|
|
27.72
|
|
|
|
30.24
|
|
|
|
32.76
|
|
53
Tangible
Book Value Per Share Multiples
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
150%
|
|
|
175%
|
|
|
200%
|
|
|
225%
|
|
|
250%
|
|
|
275%
|
|
|
10.60%
|
|
$
|
12.66
|
|
|
$
|
14.77
|
|
|
$
|
16.88
|
|
|
$
|
18.99
|
|
|
$
|
21.10
|
|
|
$
|
23.21
|
|
11.60%
|
|
|
12.11
|
|
|
|
14.12
|
|
|
|
16.14
|
|
|
|
18.16
|
|
|
|
20.18
|
|
|
|
22.19
|
|
12.60%
|
|
|
11.58
|
|
|
|
13.51
|
|
|
|
15.44
|
|
|
|
17.37
|
|
|
|
19.30
|
|
|
|
21.22
|
|
13.60%
|
|
|
11.08
|
|
|
|
12.92
|
|
|
|
14.77
|
|
|
|
16.61
|
|
|
|
18.46
|
|
|
|
20.31
|
|
14.60%
|
|
|
10.60
|
|
|
|
12.37
|
|
|
|
14.14
|
|
|
|
15.90
|
|
|
|
17.67
|
|
|
|
19.44
|
|
15.60%
|
|
|
10.15
|
|
|
|
11.84
|
|
|
|
13.53
|
|
|
|
15.23
|
|
|
|
16.92
|
|
|
|
18.61
|
|
16.60%
|
|
|
9.72
|
|
|
|
11.34
|
|
|
|
12.96
|
|
|
|
14.58
|
|
|
|
16.20
|
|
|
|
17.83
|
|
Sandler ONeill performed an analysis that estimated the
future stream of after-tax dividend flows of Superior Bancorp
through December 31, 2010 under various circumstances,
assuming Superior Bancorps projected dividend stream and
that Superior Bancorp performed in accordance with the
2006 net income projection and earnings per share growth
rate projections for 2006 through 2010 provided by management.
To approximate the terminal value of Superior Bancorps
common stock at December 31, 2010, Sandler ONeill
applied price to LTM earnings multiples of 14.0x to 24.0x and
multiples of tangible book value ranging from 150% to 275%. The
dividend income streams and terminal values were then discounted
to present values using different discount rates ranging from
10.6% to 14.6% chosen to reflect different assumptions regarding
required rates of return of holders or prospective buyers of
Superior Bancorp common stock. In addition, the terminal value
of Superior Bancorps common stock at December 31,
2005 was calculated using the same range of price to LTM
earnings multiples (14.0x 24.0x) applied to a
range of discounts and premiums to managements budget
projections. The range applied to the budgeted net income was
25% under budget to 25% over budget, using a discount rate of
10.6% for the tabular analysis. As illustrated in the following
tables, this analysis indicated an imputed range of values per
share for Superior Bancorps common stock of $6.78 to
$13.88 when applying the price/earnings multiples to the matched
budget, $6.36 to $12.52 when applying multiples of tangible book
value to the matched budget, and $6.07 to $17.35 when applying
the price/earnings multiples to the -25% / +25% budget range.
Earnings
Per Share Multiples
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
14.0x
|
|
|
16.0x
|
|
|
18.0x
|
|
|
20.0x
|
|
|
22.0x
|
|
|
24.0x
|
|
|
10.60%
|
|
$
|
8.09
|
|
|
$
|
9.25
|
|
|
$
|
10.41
|
|
|
$
|
11.56
|
|
|
$
|
12.72
|
|
|
$
|
13.88
|
|
11.60%
|
|
|
7.74
|
|
|
|
8.84
|
|
|
|
9.95
|
|
|
|
11.06
|
|
|
|
12.16
|
|
|
|
13.27
|
|
12.60%
|
|
|
7.40
|
|
|
|
8.46
|
|
|
|
9.52
|
|
|
|
10.57
|
|
|
|
11.63
|
|
|
|
12.69
|
|
13.60%
|
|
|
7.08
|
|
|
|
8.09
|
|
|
|
9.10
|
|
|
|
10.12
|
|
|
|
11.13
|
|
|
|
12.14
|
|
14.60%
|
|
|
6.78
|
|
|
|
7.75
|
|
|
|
8.71
|
|
|
|
9.68
|
|
|
|
10.65
|
|
|
|
11.62
|
|
Earnings
Per Share Multiples
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Budget Variance
|
|
14.0x
|
|
|
16.0x
|
|
|
18.0x
|
|
|
20.0x
|
|
|
22.0x
|
|
|
24.0x
|
|
|
(25.0)%
|
|
$
|
6.07
|
|
|
$
|
6.94
|
|
|
$
|
7.81
|
|
|
$
|
8.67
|
|
|
$
|
9.54
|
|
|
$
|
10.41
|
|
(20.0)%
|
|
|
6.48
|
|
|
|
7.40
|
|
|
|
8.33
|
|
|
|
9.25
|
|
|
|
10.18
|
|
|
|
11.10
|
|
(15.0)%
|
|
|
6.88
|
|
|
|
7.86
|
|
|
|
8.85
|
|
|
|
9.83
|
|
|
|
10.81
|
|
|
|
11.80
|
|
(10.0)%
|
|
|
7.29
|
|
|
|
8.33
|
|
|
|
9.37
|
|
|
|
10.41
|
|
|
|
11.45
|
|
|
|
12.49
|
|
(5.0)%
|
|
|
7.69
|
|
|
|
8.79
|
|
|
|
9.89
|
|
|
|
10.99
|
|
|
|
12.08
|
|
|
|
13.18
|
|
0.0%
|
|
|
8.09
|
|
|
|
9.25
|
|
|
|
10.41
|
|
|
|
11.56
|
|
|
|
12.72
|
|
|
|
13.88
|
|
5.0%
|
|
|
8.50
|
|
|
|
9.71
|
|
|
|
10.93
|
|
|
|
12.14
|
|
|
|
13.36
|
|
|
|
14.57
|
|
10.0%
|
|
|
8.90
|
|
|
|
10.18
|
|
|
|
11.45
|
|
|
|
12.72
|
|
|
|
13.99
|
|
|
|
15.26
|
|
15.0%
|
|
|
9.31
|
|
|
|
10.64
|
|
|
|
11.97
|
|
|
|
13.30
|
|
|
|
14.63
|
|
|
|
15.96
|
|
20.0%
|
|
|
9.71
|
|
|
|
11.10
|
|
|
|
12.49
|
|
|
|
13.88
|
|
|
|
15.26
|
|
|
|
16.65
|
|
25.0%
|
|
|
10.12
|
|
|
|
11.56
|
|
|
|
13.01
|
|
|
|
14.46
|
|
|
|
15.90
|
|
|
|
17.35
|
|
54
Tangible
Book Value Per Share Multiples
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate
|
|
150%
|
|
|
175%
|
|
|
200%
|
|
|
225%
|
|
|
250%
|
|
|
275%
|
|
|
10.60%
|
|
$
|
6.83
|
|
|
$
|
7.97
|
|
|
$
|
9.10
|
|
|
$
|
10.24
|
|
|
$
|
11.38
|
|
|
$
|
12.52
|
|
11.60%
|
|
|
6.71
|
|
|
|
7.82
|
|
|
|
8.94
|
|
|
|
10.06
|
|
|
|
11.18
|
|
|
|
12.29
|
|
12.60%
|
|
|
6.59
|
|
|
|
7.69
|
|
|
|
8.78
|
|
|
|
9.88
|
|
|
|
10.98
|
|
|
|
12.08
|
|
13.60%
|
|
|
6.47
|
|
|
|
7.55
|
|
|
|
8.63
|
|
|
|
9.71
|
|
|
|
10.79
|
|
|
|
11.86
|
|
14.60%
|
|
|
6.36
|
|
|
|
7.42
|
|
|
|
8.48
|
|
|
|
9.54
|
|
|
|
10.60
|
|
|
|
11.66
|
|
In connection with its analyses, Sandler ONeill considered
and discussed with the Superior Bancorp board how the present
value analyses would be affected by changes in the underlying
assumptions, including variations with respect to net income.
Sandler ONeill noted that the discounted dividend stream
and terminal value analysis is a widely used valuation
methodology, but the results of such methodology are highly
dependent upon the numerous assumptions that must be made, and
the results thereof are not necessarily indicative of actual
values or future results.
Analysis of Selected Merger
Transactions. Sandler ONeill reviewed 33
merger transactions announced from January 1, 2003 through
February 10, 2006 involving Florida-based commercial banks
as the acquired institution with a transaction value greater
than $15 million. Sandler ONeill reviewed the
following multiples: transaction price at announcement to last
twelve months net income, transaction value to book value,
transaction value to tangible book value, and tangible book
premium to core deposits and then computed high, low, mean,
median multiples and premiums for the transactions. The median
multiples were applied to Kensington Bankshares financial
information as of and for the twelve months ended
December 31, 2005. As illustrated in the following tables,
Sandler ONeill derived an imputed range of aggregate
values for Kensington Bankshares of $78.9 million to
$86.0 million based upon the median multiples for the
Florida transactions. The implied transaction value of the
merger as calculated by Sandler ONeill was
$71.2 million.
Transaction
Multiples
|
|
|
|
|
|
|
|
|
|
|
Florida Transactions
|
|
|
|
|
Median
|
|
Implied
|
|
|
Multiple
|
|
Value
|
|
|
(Dollar values in
million)
|
|
|
|
|
|
|
|
|
|
|
Transaction value/LTM Net Income
|
|
|
28.61
|
x
|
|
$
|
82.4
|
|
Transaction value/book value
|
|
|
297.77
|
%
|
|
$
|
83.9
|
|
Transaction value/tangible book
value
|
|
|
305.21
|
%
|
|
$
|
86.0
|
|
Tangible book premium/core
deposits(1)
|
|
|
24.61
|
%
|
|
$
|
78.9
|
|
|
|
|
(1) |
|
Core deposits are defined as total deposits less time deposits
over $100,000. The core deposit premium is calculated by taking
transaction value, less tangible book value, divided by core
deposits. |
Stock Trading History. Sandler ONeill
reviewed the history of the reported trading prices and volume
of Superior Bancorps common stock and the relationship
between the movements in the price of Superior Bancorps
common stock and the movements in the prices of the
Standard & Poors 500 Index, the Nasdaq Bank
Index, the Standard & Poors Bank Index and the
median performance of a composite peer group of publicly traded
commercial banks selected by Sandler ONeill for Superior
Bancorp. The composition of the respective peer groups for
Superior Bancorp is discussed under the relevant section under
Comparable Company Analysis above.
Sandler ONeill analyzed Superior Bancorps common
stock for the one year period ended February 10, 2006.
During this period, Superior Bancorps common stock
generally outperformed each of the indices and the peer group to
which it was compared.
55
Superior
Bancorps One Year Stock Performance
|
|
|
|
|
|
|
|
|
|
|
Beginning Index Value
|
|
Ending Index Value
|
|
|
February 10, 2005
|
|
February 10, 2006
|
|
Superior Bancorp
|
|
|
100.00
|
%
|
|
|
114.33
|
%
|
Superior Bancorp Peer Group
|
|
|
100.00
|
|
|
|
106.27
|
|
S&P Index
|
|
|
100.00
|
|
|
|
105.85
|
|
NASDAQ Bank Index
|
|
|
100.00
|
|
|
|
100.96
|
|
S&P Bank Index
|
|
|
100.00
|
|
|
|
97.73
|
|
Sandler ONeill also analyzed Superior Bancorps
common stock for the three year period ended February 10,
2006. During this period, Superior Bancorps common stock
generally outperformed each of the indices and the peer group to
which it was compared.
Superior
Bancorps Three Year Stock Performance
|
|
|
|
|
|
|
|
|
|
|
Beginning Index Value
|
|
Ending Index Value
|
|
|
February 10, 2003
|
|
February 10, 2006
|
|
Superior Bancorp
|
|
|
100.00
|
%
|
|
|
185.86
|
%
|
Superior Bancorp Peer Group
|
|
|
100.00
|
|
|
|
160.50
|
|
S&P Index
|
|
|
100.00
|
|
|
|
151.56
|
|
NASDAQ Bank Index
|
|
|
100.00
|
|
|
|
142.34
|
|
S&P Bank Index
|
|
|
100.00
|
|
|
|
139.06
|
|
Pro Forma Merger Analysis. Sandler
ONeill analyzed certain potential pro forma effects of the
merger, assuming the following: (1) the merger closes on
September 30, 2006; (2) 100.0% of Kensington
Bankshares shares are exchanged for Superior Bancorp common
stock at a fixed exchange ratio of 1.60x; (3) the gain
on Kensington Bankshares stock options are converted into
Superior Bancorp common stock at a fixed exchange ratio of
1.6000x; (4) Kensington Bankshares 2006 and
2006 net income projections and earnings per share growth
rates for 2007 provided by and reviewed with Superior
Bancorps management; (5) The Bancs 2006
budgeted net income and earnings per share growth rate
projections for 2007 provided by and review with Superior
Bancorps management; (6) purchase accounting
adjustments, charges and transaction costs associated with the
merger and cost savings determined by the senior managements of
Superior Bancorp and Kensington Bankshares. The analyses
indicated that for the year ending December 31, 2007 (the
first full year of combined operations), the merger would be
accretive to Superior Bancorps projected earnings per
share and, at September 30, 2006 (the assumed closing date
of the merger) the merger would be dilutive to Superior
Bancorps tangible book value per share. The actual results
achieved by the combined company may vary from projected results
and the variations may be material.
Superior Bancorp has agreed to pay Sandler ONeill a
transaction fee in connection with the merger of approximately
$263,412 (based upon the aggregate transaction value of
$71.2 million), of which $50,000 has been paid and the
balance of which is contingent, and payable, upon closing of the
merger. Superior Bancorp has also agreed to reimburse certain of
Sandler ONeills reasonable
out-of-pocket
expenses incurred in connection with its engagement and to
indemnify Sandler ONeill and its affiliates and their
respective partners, directors, officers, employees, agents, and
controlling persons against certain expenses and liabilities,
including liabilities under securities laws.
Sandler ONeill may provide investment banking services to
Superior Bancorp in the future and may receive compensation for
such services. The services may include raising capital in
connection with the merger
and/or other
services to be performed during the period prior to the closing
of the merger.
In the ordinary course of our business as a broker-dealer,
Sandler ONeill may purchase securities from and sell
securities to Superior Bancorp and Kensington Bankshares and
their respective affiliates. Sandler ONeill may also
actively trade the debt
and/or
equity securities of Superior Bancorp or Kensington Bankshares
or respective their affiliates for our own account and for the
accounts of our customers and, accordingly, may at any time hold
a long or short position in such securities.
56
Opinion
of Kensington Bankshares Financial Advisor
Kensington Bankshares retained Sheshunoff to provide its opinion
as to the fairness from a financial viewpoint of the merger
consideration to the stockholders of Kensington Bankshares. As
part of its investment banking business, Sheshunoff is regularly
engaged in the valuation of securities in connection with
mergers and acquisitions and valuations for estate, corporate
and other purposes. The Kensington Bankshares board of directors
retained Sheshunoff based upon its experience as a financial
advisor in mergers and acquisitions of financial institutions
and its knowledge of financial institutions.
On February 28, 2006, Sheshunoff rendered its oral fairness
opinion to Kensington Bankshares board of directors that,
as of such date, the merger consideration was fair, from a
financial point of view, to the stockholders of Kensington
Bankshares. Sheshunoff subsequently issued its written opinion
dated March 3, 2006 that the merger consideration was fair
from a financial point of view.
The full text of the fairness opinion which sets forth, among
other things, assumptions made, procedures followed, matters
considered, and limitations on the review undertaken, is
attached as Annex D to this joint proxy
statement/prospectus. You are urged to read Sheshunoffs
fairness opinion carefully and in its entirety. The fairness
opinion is addressed to the board of directors of Kensington
Bankshares and does not constitute a recommendation to any
Kensington Bankshares stockholder as to how such stockholder
should vote at the special meeting of Kensington
Bankshares stockholders.
In connection with the fairness opinion, Sheshunoff:
|
|
|
|
|
reviewed a draft of the merger agreement;
|
|
|
|
reviewed Kensington Bankshares audited financial
statements for the period ending December 31, 2005;
|
|
|
|
evaluated Kensington Bankshares subsidiary banks
general ledger statements as of December 31, 2005;
|
|
|
|
evaluated Kensington Bankshares consolidated results based upon
a review of its regulatory reports for the five-year period
ending December 31, 2005;
|
|
|
|
reviewed publicly available financial statements and other
business and financial information of Superior Bancorp;
|
|
|
|
reviewed certain internal business and other operating data of
Superior Bancorp;
|
|
|
|
conducted conversations regarding recent and projected financial
performance of Kensington Bankshares and Superior Bancorp with
respective members of executive management;
|
|
|
|
compared Kensington Bankshares recent operating results
with those of certain other banks in Florida that have recently
been acquired;
|
|
|
|
compared the pricing multiples for Kensington Bankshares in the
merger to those of certain other banks in Florida that have
recently been acquired;
|
|
|
|
compared the pricing multiples for Kensington Bankshares in the
merger to those of certain other banks in the United States that
have recently been acquired;
|
|
|
|
analyzed the present value of the after-tax cash flows
Kensington Bankshares could produce through the year 2010 based
on projections provided by Kensington Bankshares
management;
|
|
|
|
reviewed the potential pro forma impact of the merger on the
combined companys results and certain financial
performance measures of Kensington Bankshares and Superior
Bancorp;
|
|
|
|
reviewed the historical stock price data and trading volume of
Superior Bancorps common stock and the lack of an active
market for the common stock of Kensington Bankshares;
|
|
|
|
reviewed previous expressions of interest received by Kensington
from potential acquirers;
|
|
|
|
compared the historical stock price data and trading volume of
Superior Bancorps common stock with that of certain other
comparable publicly traded companies;
|
57
|
|
|
|
|
compared certain financial characteristics and performance
measures of Superior Bancorp with that of certain other
comparable publicly traded companies;
|
|
|
|
compared the historical stock price performance of Superior
Bancorps common stock with that of selected indices
Sheshunoff deemed relevant;
|
|
|
|
held various
on-site
meetings with Kensington Bankshares management to discuss
the potential sale of Kensington Bankshares; and
|
|
|
|
performed such other analyses, as Sheshunoff deemed appropriate.
|
In connection with its review, Sheshunoff relied upon and
assumed the accuracy and completeness of all of the foregoing
information provided to it or made publicly available, and
Sheshunoff did not assume any responsibility for independent
verification of such information. Sheshunoff assumed that
internal confidential financial projections provided by
Kensington Bankshares were reasonably prepared reflecting the
best currently available estimates and judgments of the future
financial performance of Kensington Bankshares, and did not
independently verify the validity of such assumptions.
Sheshunoff did not make any independent evaluation or appraisal
of the assets or liabilities of Kensington Bankshares or
Superior Bancorp, nor was Sheshunoff furnished with any such
appraisals. Sheshunoff did not examine any individual loan files
of Kensington Bankshares or Superior Bancorp. Sheshunoff is not
an expert in the evaluation of loan portfolios for the purposes
of assessing the adequacy of the allowance for losses with
respect thereto and has assumed that such allowances were, in
the aggregate, adequate to cover such losses.
The fairness opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made
available to Sheshunoff as of March 2, 2006.
In rendering the fairness opinion, Sheshunoff performed a
variety of financial analyses. The preparation of an opinion
involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of
those methods to the particular circumstances. Consequently, the
fairness opinion is not readily susceptible to partial analysis
or summary description. Moreover, the evaluation of fairness,
from a financial point of view, of the merger consideration is
to some extent subjective, based on the experience and judgment
of Sheshunoff, and not merely the result of mathematical
analysis of financial data. Sheshunoff did not attribute
particular weight to any analysis or factor considered by it.
Accordingly, notwithstanding the separate factors summarized
below, Sheshunoff believes that its analyses must be considered
as a whole and that selecting portions of its analyses and of
the factors considered by it, without considering all analyses
and factors, could create an incomplete view of the evaluation
process underlying its opinion. The ranges of valuations
resulting from any particular analysis described below should
not be taken to be Sheshunoffs view of the actual value of
Kensington Bankshares, Superior Bancorp, or the combined entity.
In performing its analyses, Sheshunoff made numerous assumptions
with respect to industry performance, business, and economic
conditions and other matters, many of which are beyond the
control of Kensington Bankshares or Superior Bancorp. The
analyses performed by Sheshunoff are not necessarily indicative
of actual values or future results, which may be significantly
more or less favorable than suggested by such analyses, nor are
they appraisals. In addition, Sheshunoffs analyses should
not be viewed as determinative of the opinion of the Board of
Directors or the management of Kensington Bankshares with
respect to the value of Kensington Bankshares or Superior
Bancorp or to the fairness of the merger consideration.
The following is a summary of the analyses performed by
Sheshunoff in connection with its opinion. The discussion
utilizes financial information concerning Kensington Bankshares
and Superior Bancorp as of December 31, 2005 and for
Superior Bancorp and certain publicly traded companies as of
September 30, 2005.
For the purposes of the following analyses, Sheshunoff utilized
a price of $11.43 per share for Superior Bancorps
common stock for determining the value of the merger
consideration for Kensington Bankshares outstanding common
stock and stock options. Using this price, the value of the
merger consideration to be received for each share of Kensington
Bankshares outstanding common stock was $18.2880, which
was rounded to $18.29. The value of the stock options was
determined by deducting the strike price for the options from
$18.29. The total value of the merger consideration was thus
$71.193 million. The value of the merger consideration to
be received by
58
the stockholders would be $67.857 million. The value of the
merger consideration to be received by the optionholders would
be $3.335 million. The merger consideration may have a
value higher or lower than the merger consideration used in the
analyses depending on Superior Bancorps stock price at the
time of the merger.
Kensington Bankshares Discounted Cash Flow
Analysis. Using discounted cash flow analysis,
Sheshunoff estimated the present value of the future after-tax
cash flow streams that Kensington Bankshares could produce on a
stand-alone basis through the year 2010 under various
circumstances, assuming that it performed in accordance with the
projections provided by Kensington Bankshares management.
Sheshunoff estimated the terminal value for Kensington
Bankshares at the end of 2010 by capitalizing the final period
projected earnings using a discount rate that is the quotient of
(i) the assumed annual long-term growth rate of the
earnings of Kensington Bankshares of 5.0% plus one and
(ii) the difference between a range of required rates of
return and the assumed annual long-term growth rate of earnings
in (i) above. Sheshunoff discounted the annual cash flow
streams (defined as all earnings in excess of that required to
maintain a tangible equity to asset ratio of 7.0%) and the
terminal values using discount rates ranging from 12.0% to
14.0%. The discount range was chosen to reflect different
assumptions regarding the required rates of return of Kensington
Bankshares and the inherent risk surrounding the underlying
projections. This discounted cash flow analysis indicated a
range of values per share of $9.65 to $12.51 as shown in the
table below compared to the merger consideration of
$18.29 per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
|
14.0%
|
|
|
13.0%
|
|
|
12.0%
|
|
|
Present Value (in millions)
|
|
$
|
35,814
|
|
|
$
|
40,446
|
|
|
$
|
46,424
|
|
Present Value (per share)
|
|
$
|
9.65
|
|
|
$
|
10.90
|
|
|
$
|
12.51
|
|
Analysis of Selected
Transactions. Sheshunoff performed an
analysis of premiums paid in selected recently completed
acquisitions of banking organizations with comparable
characteristics to the merger. Two sets of comparable
transactions were selected to ensure a thorough analysis.
The first set of comparable transactions consisted of a group of
transactions for banks in the state of Florida for which pricing
data were available. These comparable transactions consisted of
sixteen mergers and acquisitions of banks with assets between
$100 million and $500 million that were announced
between January 1, 2004 and February 23, 2006. The
analysis yielded multiples of the purchase prices in these
transactions as shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price/
|
|
|
|
|
|
|
|
|
|
Price/
|
|
|
Price/
|
|
|
LTM
|
|
|
Price/
|
|
|
Price/
|
|
|
|
Book
|
|
|
Tg Book
|
|
|
Earnings
|
|
|
Assets
|
|
|
Deposits
|
|
|
|
(x)
|
|
|
(x)
|
|
|
(x)
|
|
|
(%)
|
|
|
(%)
|
|
|
Maximum
|
|
|
5.69
|
|
|
|
5.69
|
|
|
|
34.42
|
|
|
|
37.02
|
|
|
|
50.16
|
|
Minimum
|
|
|
1.27
|
|
|
|
1.27
|
|
|
|
9.83
|
|
|
|
8.34
|
|
|
|
10.30
|
|
Median
|
|
|
2.72
|
|
|
|
2.72
|
|
|
|
24.25
|
|
|
|
25.45
|
|
|
|
28.80
|
|
Superior Bancorp Offer*
|
|
|
2.60
|
|
|
|
2.60
|
|
|
|
24.72
|
|
|
|
21.93
|
|
|
|
25.55
|
|
|
|
|
* |
|
Assumes offer of $71.193 million, or $18.288 per share. |
The median pricing multiples to assets and deposits in the
comparable Florida transactions were moderately higher than
those in the merger while the median price to book multiple and
the median price to tangible book ratio were slightly higher
than the comparable multiples in the merger. The price to last
twelve months earnings (LTM earnings) multiples
for the comparable Florida transactions and the merger were
similar.
59
The comparable Florida transactions in which the selling bank
was located in a high-growth, large metropolitan area were
selected. Certain characteristics of these selling banks were
compared to those of Kensington Bankshares. The results are
shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
|
|
|
Loan
|
|
|
Deposit
|
|
|
|
|
|
Non-Interest
|
|
|
Transaction
|
|
|
|
|
|
|
Growth
|
|
|
Growth
|
|
|
Growth
|
|
|
Loans/
|
|
|
Bearing/
|
|
|
Accts/
|
|
|
Jumbo CDs/
|
|
|
|
Rate(1)
|
|
|
Rate(1)
|
|
|
Rate(1)
|
|
|
Deposits(2)
|
|
|
Deposits(2)
|
|
|
Deposits(2)
|
|
|
Deposits(2)
|
|
|
Kensington Bankshares,
Inc.
|
|
|
35.56
|
%
|
|
|
103.12
|
%
|
|
|
35.94
|
%
|
|
|
40.46
|
%
|
|
|
12.21
|
%
|
|
|
24.63
|
%
|
|
|
19.36
|
%
|
Median
|
|
|
89.75
|
%
|
|
|
123.50
|
%
|
|
|
78.35
|
%
|
|
|
91.76
|
%
|
|
|
15.89
|
%
|
|
|
30.14
|
%
|
|
|
13.57
|
%
|
Florida Choice Bankshares,
Inc.
|
|
|
180.51
|
%
|
|
|
172.69
|
%
|
|
|
160.81
|
%
|
|
|
101.50
|
%
|
|
|
15.89
|
%
|
|
|
23.74
|
%
|
|
|
19.35
|
%
|
First Capital Bank Holding
Corporation
|
|
|
78.57
|
%
|
|
|
50.16
|
%
|
|
|
71.18
|
%
|
|
|
89.99
|
%
|
|
|
10.61
|
%
|
|
|
21.84
|
%
|
|
|
23.84
|
%
|
Palm Beach County Bank
|
|
|
256.46
|
%
|
|
|
244.16
|
%
|
|
|
228.38
|
%
|
|
|
96.51
|
%
|
|
|
14.56
|
%
|
|
|
19.23
|
%
|
|
|
13.31
|
%
|
Tarpon Coast Bancorp, Inc.
|
|
|
52.77
|
%
|
|
|
87.11
|
%
|
|
|
53.27
|
%
|
|
|
78.66
|
%
|
|
|
26.25
|
%
|
|
|
42.95
|
%
|
|
|
9.07
|
%
|
Century National Bank
|
|
|
89.75
|
%
|
|
|
173.88
|
%
|
|
|
94.32
|
%
|
|
|
34.14
|
%
|
|
|
27.86
|
%
|
|
|
46.45
|
%
|
|
|
3.24
|
%
|
Pointe Financial Corporation
|
|
|
23.94
|
%
|
|
|
27.04
|
%
|
|
|
37.23
|
%
|
|
|
91.76
|
%
|
|
|
29.95
|
%
|
|
|
38.37
|
%
|
|
|
8.14
|
%
|
Banking Corporation of Florida
|
|
|
354.19
|
%
|
|
|
421.01
|
%
|
|
|
355.90
|
%
|
|
|
100.90
|
%
|
|
|
7.49
|
%
|
|
|
18.49
|
%
|
|
|
28.56
|
%
|
Destin Bancshares, Inc.
|
|
|
93.44
|
%
|
|
|
123.50
|
%
|
|
|
78.35
|
%
|
|
|
94.70
|
%
|
|
|
16.01
|
%
|
|
|
30.54
|
%
|
|
|
15.96
|
%
|
First National Bancshares,
Inc.
|
|
|
49.48
|
%
|
|
|
61.64
|
%
|
|
|
52.85
|
%
|
|
|
87.71
|
%
|
|
|
11.88
|
%
|
|
|
30.14
|
%
|
|
|
13.57
|
%
|
|
|
|
(1) |
|
-Three year growth rates based on last three full years until
sold. 2004 was the last year-end used as not all companies have
reported 2005 year-end numbers at the time of data pull. |
|
(2) |
|
- Data based on year-end numbers of year prior to sale. |
Generally the comparable selling banks experienced asset, loan,
and deposit growth rates for the three years prior to sale that
were significantly higher than the growth rates experienced by
Kensington Bankshares. Kensington Bankshares had somewhat lower
levels of non-interest bearing accounts and transaction accounts
than the comparable selling banks and higher levels of jumbo CDs
(certificates of deposit of $100,000 or more). Kensington
Bankshares had a much lower level of loans to deposits than the
comparable selling banks. The selling banks with high growth
rates of assets, loans, and deposits and high levels of loans to
deposits generally received higher relative prices than
Kensington Bankshares.
The second set of comparable transactions consisted of banks in
the United States with asset size and characteristics similar to
Kensington Bankshares for which pricing data were available.
These comparable transactions consisted of thirty-seven mergers
and acquisitions of banks in the United States with total assets
between $200 million and $400 million that were
announced between January 1, 2005 and February 23,
2006. The analysis yielded multiples of the purchase prices in
these transactions as shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price/
|
|
|
|
|
|
|
|
|
|
Price/
|
|
|
Price/
|
|
|
LTM
|
|
|
Price/
|
|
|
Price/
|
|
|
|
Book
|
|
|
Tg Book
|
|
|
Earnings
|
|
|
Assets
|
|
|
Deposits
|
|
|
|
(x)
|
|
|
(x)
|
|
|
(x)
|
|
|
(%)
|
|
|
(%)
|
|
|
Maximum
|
|
|
4.48
|
|
|
|
4.57
|
|
|
|
53.91
|
|
|
|
37.02
|
|
|
|
50.16
|
|
Minimum
|
|
|
1.10
|
|
|
|
1.10
|
|
|
|
12.93
|
|
|
|
8.34
|
|
|
|
10.30
|
|
Median
|
|
|
2.37
|
|
|
|
2.60
|
|
|
|
24.15
|
|
|
|
22.42
|
|
|
|
27.04
|
|
Superior Bancorp Offer*
|
|
|
2.60
|
|
|
|
2.60
|
|
|
|
24.72
|
|
|
|
21.93
|
|
|
|
25.55
|
|
|
|
|
* |
|
Assumes offer of $71.193 million, or $18.288 per share. |
The price to book multiple and the price to LTM earnings
multiple in the merger were slightly higher than the comparable
median multiples for the U.S. transactions. The price to
tangible book in the merger was slightly below the comparable
median multiple for the U.S. transactions. The price to assets
multiple in the transaction was similar
60
to the comparable multiple in the US transactions while the
price to deposits multiple was somewhat lower than the
comparable median for the US transactions.
Contribution Analysis. Sheshunoff reviewed the
relative contributions of Superior Bancorp and Kensington
Bankshares to the combined company based on the
December 31, 2005 financial data. Sheshunoff compared the
pro forma ownership interests of Kensington Bankshares and
Superior Bancorp of 23.8% and 76.2%, respectively, to:
(i) total assets of 18.7% and 81.3%, respectively;
(ii) total loans of 11.3% and 88.7%, respectively;
(iii) total deposits of 21.1% and 78.9%, respectively;
(iv) total equity of 20.8% and 79.2%, respectively;
(v) total tangible equity of 22.8% and 77.2%, respectively;
(vi) non-interest income of 2.4% and 97.6%, respectively;
(vii) non-interest expense of 10.7% and 89.3%,
respectively; and (viii) estimated 2006 earnings of 30.5%
and 69.5%, respectively. The contribution analysis shows that
Kensington Bankshares stockholders ownership in the
combined company is equivalent to the contribution of tangible
equity and is in excess of Kensington Bankshares
contribution of assets, loans, or deposits to the combined
company. Kensington Bankshares stockholders ownership in
the combined company was less than Kensington Bankshares
contribution to estimated 2006 earnings. The contributions are
shown in the table following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
%
|
|
|
Loans
|
|
|
%
|
|
|
Deposits
|
|
|
%
|
|
|
|
($000s)
|
|
|
Kensington Bankshares, Inc.
|
|
$
|
324,654
|
|
|
|
18.7
|
%
|
|
$
|
125,289
|
|
|
|
11.3
|
%
|
|
$
|
278,688
|
|
|
|
21.1
|
%
|
Superior Bancorp
|
|
$
|
1,415,806
|
|
|
|
81.3
|
%
|
|
$
|
984,608
|
|
|
|
88.7
|
%
|
|
$
|
1,044,361
|
|
|
|
78.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Company
|
|
$
|
1,740,460
|
|
|
|
100.0
|
%
|
|
$
|
1,109,897
|
|
|
|
100.0
|
%
|
|
$
|
1,323,049
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
%
|
|
|
Tg. Equity
|
|
|
%
|
|
|
Earnings *
|
|
|
%
|
|
|
Kensington Bankshares, Inc.
|
|
$
|
27,426
|
|
|
|
20.8
|
%
|
|
$
|
27,426
|
|
|
|
22.8
|
%
|
|
$
|
2,800
|
|
|
|
30.5
|
%
|
Superior Bancorp
|
|
$
|
104,736
|
|
|
|
79.2
|
%
|
|
$
|
92,860
|
|
|
|
77.2
|
%
|
|
$
|
6,394
|
|
|
|
69.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Company
|
|
$
|
132,162
|
|
|
|
100.0
|
%
|
|
$
|
120,286
|
|
|
|
100.0
|
%
|
|
$
|
9,194
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest
|
|
|
|
|
|
Non-Interest
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Inc
|
|
|
%
|
|
|
Exp
|
|
|
%
|
|
|
(actual)
|
|
|
%
|
|
|
Kensington Bankshares, Inc.
|
|
$
|
247
|
|
|
|
2.4
|
%
|
|
$
|
5,364
|
|
|
|
10.7
|
%
|
|
|
6,228,568
|
|
|
|
23.8
|
%
|
Superior Bancorp
|
|
$
|
9,864
|
|
|
|
97.6
|
%
|
|
$
|
44,798
|
|
|
|
89.3
|
%
|
|
|
19,980,261
|
|
|
|
76.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Company
|
|
$
|
10,111
|
|
|
|
100.0
|
%
|
|
$
|
50,162
|
|
|
|
100.0
|
%
|
|
|
26,208,829
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Earnings are estimated 2006 |
Pro Forma Financial Impact. Sheshunoff
analyzed the pro forma impact of the merger on estimated
earnings per share for calendar year 2006 and the book value for
calendar year 2006, based on the projections provided by
Kensington Bankshares management for Kensington Bankshares on a
stand-alone basis assuming no synergies resulting from the
merger. The analysis indicated that the earnings per share
dilution (on a cash basis) to estimated earnings per share on a
stand-alone basis was $.18 per share, or 23.8%. The
analysis further indicated the accretion to book value to be
$.31 per share, or 4.2%.
61
Comparable Company Analysis. Sheshunoff
compared the operating and market results of Superior Bancorp to
the results of other publicly traded companies. The comparable
publicly traded companies were selected primarily on the basis
of two criteria: geographic location and total asset size. The
geographic location of the companies was the Southeast Region of
the United States (as defined by SNL Financial LC). Superior
Bancorp was compared to banks with total assets between
$1 billion and $2 billion (Superior Bancorp Peer
Group). The data for the following tables were based on
information provided by SNL Financial. Some of the ratios
presented are proprietary to SNL Financial and may not strictly
conform to the common industry determination.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Superior
|
|
|
|
Superior
|
|
|
Bancorp Peer
|
|
|
|
Bancorp
|
|
|
Group Median
|
|
|
Net Interest Margin
|
|
|
3.17
|
%
|
|
|
4.06
|
%
|
Efficiency Ratio
|
|
|
118.6
|
%
|
|
|
60.8
|
%
|
Return on Average Assets
|
|
|
NM
|
|
|
|
1.07
|
%
|
Return on Average Equity
|
|
|
NM
|
|
|
|
11.57
|
%
|
Equity to Asset Ratio
|
|
|
7.50
|
%
|
|
|
9.16
|
%
|
Tangible Equity to Tangible Asset
Ratio
|
|
|
6.68
|
%
|
|
|
7.43
|
%
|
Ratio of Non-performing Assets to
Total Assets
|
|
|
0.60
|
%
|
|
|
0.40
|
%
|
Ratio of Non-performing Loans to
Total Loans
|
|
|
0.66
|
%
|
|
|
0.40
|
%
|
Ratio of Loan Loss Reserves to
Loans
|
|
|
1.31
|
%
|
|
|
1.21
|
%
|
Ratio of Loan Loss Reserves to
Non-performing Assets
|
|
|
145
|
%
|
|
|
224
|
%
|
Superior Bancorp installed a new management team in
January 2005 to address outstanding issues and to
restructure the company. During the first nine months
of 2005, the company incurred a net loss resulting from
non-operating charges related to management changes, recognition
of losses in the bond portfolio, losses on other real estate,
losses from the sale of certain assets, and an increase in the
provision for loan losses. Some of Superior Bancorps
performance measures were affected as a result.
Superior Bancorps performance as measured by its net
interest margin was lower than that of its peers. Superior
Bancorps return on average assets and return on average
equity were not meaningful because the company reported a loss
for the
2005 year-to-date
period. Its capital level was somewhat below that of the
Superior Bancorp Peer Group. Superior Bancorps asset
quality, as measured by its ratio of non-performing assets to
total assets and its ratio of non-performing loans to total
loans, and as shown by the ratio of loan loss reserves to
non-performing assets, was below the Superior Bancorp Peer Group
Median.
Sheshunoff compared Superior Bancorps trading results to
the Superior Bancorp Peer Group. The results are contained in
the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Superior
|
|
|
|
|
|
|
Bancorp Peer
|
|
|
|
Superior Bancorp
|
|
|
Group Median
|
|
|
Market Price as a Multiple of
Stated Book Value (times)
|
|
|
2.18x
|
|
|
|
1.81
|
x
|
Market Price as a Multiple of
Stated Tangible Book Value (times)
|
|
|
2.46x
|
|
|
|
2.43
|
x
|
Price as a Multiple of LTM
Earnings (times)
|
|
|
NM
|
|
|
|
16.13
|
x
|
Market Price as a Percent of Assets
|
|
|
16.1%
|
|
|
|
16.5
|
%
|
Dividend Yield per Share
|
|
|
NM
|
|
|
|
1.84
|
%
|
Dividend Payout per Share
|
|
|
NM
|
|
|
|
33.50
|
%
|
Superior Bancorps
price-to-book
multiple as measured by its market price as a multiple of stated
book value was higher than the comparable median Superior
Bancorp Peer Group. Superior Bancorps market price to
stated tangible book value and market price to assets ratios
were similar to the comparable Superior Bancorp Peer Group
ratios. Its
price-to-earnings
multiple as shown in the price as a multiple of last
12 months earnings through September 30, 2005 was not
meaningful due to the reported loss. Superior Bancorps
dividend yield and dividend payout were not meaningful as
Superior Bancorp did not pay dividends during 2005.
62
Sheshunoff compared selected stock market results of Superior
Bancorp to the publicly available corresponding data of other
composites that Sheshunoff deemed to be relevant, including
(i) the SNL index for all publicly traded banks in the
United States, and (ii) the SNL index of banks with assets
between $1 billion and $5 billion in the United
States. Superior Bancorps common stock price generally
underperformed the selected indices for the period from February
2003 until January 2005. Since January 2005, Superior
Bancorps stock price has outperformed both of the selected
indices.
No company or transaction used in the comparable company and
comparable transaction analyses is identical to Kensington
Bankshares, Superior Bancorp, or Superior Bancorp as the
surviving corporation in the Merger. Accordingly, an analysis of
the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial
and operational characteristics of Kensington Bankshares and
Superior Bancorp and other factors that could affect the public
trading value of the companies to which they are being compared.
Mathematical analysis (such as determining the average or
median) is not in and of itself a meaningful method of using
comparable transaction data or comparable company data.
Pursuant to its engagement letter with Kensington Bankshares,
Sheshunoff will receive approximately $710,000 in fees of which
$45,000 was received for rendering the fairness opinion and is
not contingent upon the closing of the merger. In addition,
Kensington Bankshares agreed to reimburse Sheshunoff for its
reasonable
out-of-pocket
expenses. Kensington Bankshares also agreed to indemnify and
hold harmless Sheshunoff and its officers and employees against
certain liabilities in connection with its services under the
engagement letter, except for liabilities resulting from the
negligence, violation of law or regulation or bad faith of
Sheshunoff or any matter for which Sheshunoff may have strict
liability.
The fairness opinion is directed only to the question of whether
the merger consideration is fair from a financial perspective
and does not constitute a recommendation to any Kensington
Bankshares stockholder to vote in favor of the merger. No
limitations were imposed on Sheshunoff regarding the scope of
its investigation or otherwise by Kensington Bankshares.
Based on the results of the various analyses described above,
Sheshunoff concluded that the merger consideration to be paid by
Superior Bancorp pursuant to the merger is fair to Kensington
Bankshares stockholders, from a financial point of view.
The
Merger Agreement
The merger agreement has been included as Annex A to
this joint proxy statement/prospectus in order to provide you
with information regarding its terms. It is not intended to
provide any other factual information about the parties. The
merger agreement contains representations and warranties the
parties made to each other. The assertions contained in those
representations and warranties are qualified by information
contained in confidential disclosure schedules that the parties
have exchanged. These disclosure schedules contain information
that modifies, qualifies and creates exceptions to the
representations and warranties set forth in the merger
agreement. Accordingly, you should not rely on the
representations and warranties contained in the merger agreement
as characterizations of the actual state of facts, since they
are modified in important part by the underlying disclosure
schedules. In addition, information concerning the subject
matter of the representations and warranties may have changed
since the date of the merger agreement. You should rely only on
this joint proxy statement/prospectus, other filings made by the
parties with the SEC and other public announcements or
statements by the parties for factual information about the
parties.
Effect
of the Merger
Subject to the terms of the merger agreement, and in accordance
with Delaware law and Florida law, Kensington Bankshares will
merge with and into Superior Bancorp and the separate legal
existence of Kensington Bankshares will cease. Superior Bancorp
will be the surviving corporation. All property, rights, powers,
duties, obligations, debts and liabilities of Kensington
Bankshares will automatically be deemed transferred to Superior
Bancorp, as the surviving corporation in the merger. The
restated certificate of incorporation and the bylaws of Superior
Bancorp in effect at the effective time of the merger will
govern Superior Bancorp until amended or
63
repealed in accordance with applicable law. Superior Bancorp
will continue as the surviving corporation under the same name
after the merger is completed.
Kensington
Bank
Superior Bancorp and Kensington Bankshares anticipate that, on
or after the effective date of the merger, Superior Bank will
acquire substantially all of the assets of, and assume
substantially all of the liabilities of, Kensington Bank.
Kensington Bankshares has agreed to cooperate with Superior
Bancorp, including calling any special meetings of the board of
directors of Kensington Bank and the filing of any regulatory
applications, in the execution of appropriate documentation
relating to such transaction. In the event that following the
effective date of the merger Kensington Bank remains a separate
legal entity owned by Superior Bancorp, Superior Bancorp and
Kensington Bankshares have agreed that prior to the effective
date of the merger they will determine which existing members of
the board of directors of Kensington Bank, if any, will remain
as directors. Superior Bancorp has agreed that it will accept
the resignations of any such existing members who desire to
resign as of effective date of the merger.
What
Kensington Bankshares Stockholders Will Receive
On the effective date of the merger, each share of Kensington
Bankshares common stock will be converted into the right to
receive 1.60 shares of Superior Bancorp common stock,
subject to Kensington Bankshares price termination right
described in the next section below.
In addition, Superior Bancorp will not issue fractional shares
of Superior Bancorp common stock to Kensington Bankshares
stockholders. If, as a Kensington Bankshares stockholder, you
are otherwise entitled to receive a fractional share of Superior
Bancorp common stock under the exchange procedure described
below, you will instead have the right to receive cash, without
interest, in an amount equal to the product of the fractional
part of a share that would otherwise be due to you and the final
closing price per share of Superior Bancorp common stock on the
last business day immediately preceding the effective date of
the merger.
Kensington
Bankshares Price Termination Right
Kensington Bankshares may, but is not required to, terminate the
merger agreement during the five day period after the date all
consents and regulatory approvals have been received (the
determination date) if the ten-day average price per share of
Superior Bancorp common stock as reported on the NASDAQ National
Market System on the determination date is less than $10.50, and
Superior Bancorp does not increase the consideration for the
merger by paying additional consideration in stock, cash or a
combination of both so that the aggregate consideration will be
at least $10.50 per share. No assurance can be given as to
whether Kensington Bankshares board of directors would
exercise such right to terminate the merger agreement if these
conditions occur or whether Superior Bancorp would agree to pay
additional consideration.
Superior
Bancorp Common Stock
Each share of Superior Bancorp common stock outstanding
immediately prior to completion of the merger will remain
outstanding and unchanged by the merger.
Treatment
of Kensington Bankshares Stock Options
The merger agreement provides that, at the effective time of the
merger, each outstanding option to purchase Kensington
Bankshares common stock will cease to represent a right to
purchase Kensington Bankshares common stock and each holder of
such options will be entitled to receive in exchange the right
to receive the number of shares of Superior Bancorp common stock
equal to the amount resulting when (1) the number of
options held by such a holder is multiplied by the Per Option
Value and (2) the resulting amount is divided by $11.43;
provided, however, that no fractional shares of Superior Bancorp
common stock will be issued and the number of shares of Superior
Bancorp common stock to be issued, if a fractional share exists,
will equal the number of whole shares obtained by rounding down
to the nearest whole share. The Per Option Value equals
(1) $18.2880 less (2) the exercise price for each
share of Kensington Bankshares common stock subject to such
option.
64
Closing
and Effective Date of the Merger
The merger will be consummated only when all conditions,
including obtaining all stockholder and regulatory approvals and
consents, have been fulfilled or waived, or as soon as
practicable thereafter as Superior Bancorp and Kensington
Bankshares may mutually agree. The effective date of the merger
will be the date specified in the Certificate of Merger to be
issued by the Secretary of State of the State of Delaware. We
currently expect to close the merger on or
about ,
2006, although we cannot guarantee when or if the merger will be
completed. See The Merger The Merger
Agreement Conditions to the Completion of the
Merger and The Merger The Merger
Agreement Regulatory Approvals, beginning
at pages
and ,
respectively.
Representations
and Warranties
In the merger agreement, Superior Bancorp and Kensington
Bankshares have each made a number of customary representations
and warranties relating to the organization and capital
structures of the respective companies and their subsidiaries,
their operations, financial condition and other matters,
including their authority to enter into the merger agreement and
to consummate the merger.
Covenants
with Respect to the Merger
The merger agreement provides that, during the period from the
date of the merger agreement to the effective time, except as
specifically provided for in the merger agreement, Superior
Bancorp and Kensington Bankshares will each do the following:
|
|
|
|
|
conduct its respective businesses in the ordinary course in
material compliance with all applicable laws;
|
|
|
|
use its best efforts to cooperate with the other party and take
certain actions under the merger agreement in order to
consummate the merger;
|
|
|
|
coordinate with the other party with respect to any public
release of any information or announcement relating to the
merger;
|
|
|
|
furnish the other party with access to certain public filings
not precluded from disclosure by law including but not limited
to call reports, SEC filings, regulatory filings, quarterly or
special reports to stockholders, tax returns, and similar
filings;
|
|
|
|
provide the other party access to its assets, books and records
in order to make any investigations and furnish to the other
party any additional financial and operating data and other
information as to its business and assets as may be reasonably
requested; and
|
|
|
|
give written notice promptly to the other party upon becoming
aware of the occurrence or impending occurrence of any event
which is reasonably likely to have, individually or in the
aggregate, a material adverse effect on it or would cause or
constitute a material breach of any of its representations,
warranties or covenants, and to use its reasonable efforts to
remedy the breach.
|
In addition, until the effective date of the merger, Kensington
Bankshares has agreed to do the following:
|
|
|
|
|
not amend its articles of incorporation or bylaws;
|
|
|
|
conduct its business and the business of Kensington Bank in a
proper and prudent manner, use its best efforts to maintain its
relationships with its depositors, customers and employees and
will not engage in any material transaction outside ordinary
course of business or make material changes in its accounting
methods or operations;
|
|
|
|
cooperate with Superior Bancorp in the preparation of any
regulatory filings and cause a meeting of its stockholders to be
held for the purpose of approving the merger agreement and the
merger as soon as practicable after the effective date of the
registration statement of which this joint proxy
statement/prospectus is a part;
|
|
|
|
provide Superior Bancorp with copies of its loan authorization
sheets five business days prior to the closing of any loan after
the date of the merger agreement for all loans approved by
Kensington Bank in excess of
|
65
|
|
|
|
|
$500,000 and consult with and advise Superior Bancorp of any
loan request outside the normal course of business of Kensington
Bank;
|
|
|
|
|
|
consult with Superior Bancorp in advance on any agreement to
make or to permit any amendment or termination of any contract
by or with any subsidiary of Kensington Bankshares requiring
capital expenditures of more than $25,000, other than capital
expenditures associated with the construction, equipping and
furnishing of the Spring Hill, Florida and Palm Harbor, Florida
office sites and consult with Superior Bancorp to coordinate
various business issues mutually satisfactory to the parties;
|
|
|
|
provide access to its banking facilities for purposes of
Superior Bancorps engaging one or more firms to conduct a
Phase I environmental site assessment or transaction screen
of each of the banking facilities currently owned or leased by
Kensington Bankshares or any subsidiary;
|
|
|
|
purchase for, and on behalf of, its current and former officers
and directors extended coverage under the current
directors and officers liability insurance policy
maintained by Kensington Bankshares to provide for continued
coverage of such insurance for a period of four years following
the effective date of the merger with respect to matters
occurring prior to such date and
|
|
|
|
before the effective time, Kensington Bankshares will take all
necessary steps requested by Superior Bancorp to ensure that
(1) no director or officer of Kensington Bankshares will
own, manage, control, operate, or be employed by a competing
entity to Kensington Bankshares, (2) all directors and
officers satisfy their fiduciary duties and (3) its
executive officers will not communicate, divulge or use any
confidential information of Kensington Bankshares without
Kensington Bankshares written consent.
|
In addition, until the effective date of the merger, Superior
Bancorp has agreed to do the following:
|
|
|
|
|
prepare and file with the SEC a registration statement on
Form S-4
that includes this joint proxy statement/prospectus and all
amendments and supplements thereto, in form reasonably
satisfactory to Kensington Bankshares and its counsel, with
respect to Superior Bancorp common stock to be issued in the
merger and take any actions required to be taken under any
applicable securities laws in connection with the merger;
|
|
|
|
use its best efforts to obtain, prior to the effective date of
such registration statement, all necessary state securities law
or blue sky permits and approvals required to carry
out the transactions contemplated by the merger agreement;
|
|
|
|
provide Kensington Bankshares copies of certain financial
reports and loan reports;
|
|
|
|
cause the listing of the shares of Superior Bancorp common stock
to be issued in the merger on the NASDAQ National Market System
or other quotation system on which such shares are primarily
traded;
|
|
|
|
provide certain indemnification rights to each current and
former director
and/or
officer of Kensington Bankshares and its subsidiaries arising
out of or pertaining to matters existing or occurring at or
prior to the effective date of the merger for a period of four
years from the effect date of the merger; and
|
|
|
|
not suffer any losses or waive any rights of value which, in
either event, in the aggregate are material considering Superior
Bancorps business as a whole; and
|
|
|
|
except in the ordinary course of business or as otherwise
disclosed, not make or permit any amendment or termination of
any contract, agreement or license to which it is a party if
such amendment or termination is material considering Superior
Bancorps business as a whole.
|
|
|
|
Superior Bancorp and its transfer agent will comply with
Rule 145 with respect to transfers of Superior Bancorp
common stock by affiliates of Kensington Bankshares.
|
Conditions
to the Completion of the Merger
The completion of the merger is subject to a number of
conditions, some of which are mutual and others of which are
applicable to either Superior Bancorp or Kensington Bankshares.
Although most of the conditions will not be satisfied until
immediately before the effective time of the merger, the
companies believe that they each are currently in material
compliance with the conditions.
66
The obligation of Superior Bancorp to complete the merger is
subject to the following conditions:
|
|
|
|
|
The representations and warranties of Kensington Bankshares
contained in the merger agreement will be true and correct in
all material respects at the effective time of the merger.
|
|
|
|
Kensington Bankshares will have performed in all material
respects all covenants and agreements required by the merger
agreement.
|
|
|
|
No material adverse changes will have occurred in the business,
operations or financial condition of Kensington Bankshares.
|
|
|
|
Superior Bancorp will have received certain closing certificates
with respect to the merger and the financial and regulatory
condition of Kensington Bankshares and its subsidiaries.
|
|
|
|
Superior Bancorp will have received an opinion of Kensington
Bankshares legal counsel, Coleman, Talley, Newbern,
Kurrie, Preston & Holland LLP, as to certain legal
matters.
|
|
|
|
Superior Bancorp will have received prior to the mailing, but no
earlier than five business days prior to the mailing, of the
joint proxy statement/prospectus a letter (acceptable in form to
Superior Bancorp) from Sandler ONeill & Partners,
L.P. reconfirming its earlier opinion that the exchange ratio is
fair to the stockholders of Superior Bancorp from a financial
point of view, and such opinion will not have been withdrawn
before the effective time of the merger.
|
|
|
|
On the effective date of the merger, Kensington Bank will have
maintained satisfactory ratings and compliance with the
requisite regulatory agencies as required in the merger
agreement.
|
|
|
|
Each of the officers and directors of Kensington Bankshares will
have delivered a letter to Superior Bancorp confirming that he
or she is not aware of any claims he or she may have against
Kensington Bankshares other than routine compensation benefits
and the like as an employee or ordinary rights as a customer.
|
|
|
|
The board of directors will have made no determination that the
merger has become impractical because of any state of war,
declaration of a banking moratorium or a general suspension of
trading of Superior Bancorp common stock on the NASDAQ National
Market System.
|
|
|
|
Kensington Bankshares will have taken all necessary action to
cancel all outstanding stock options as provided for in the
merger agreement.
|
|
|
|
Kensington Bankshares will have complied, to the reasonable
satisfaction of Superior Bancorp, with any applicable reporting
obligations to any governmental agency and will have obtained
all necessary consents.
|
|
|
|
Kensington Bankshares will use its reasonable best efforts to
obtain an agreement from each officer, director or affiliate of
Kensington Bankshares regarding the sale and disposition of such
persons stock.
|
The obligation of Kensington Bankshares to consummate the merger
is subject to, among others, the following conditions:
|
|
|
|
|
The representations and warranties of Superior Bancorp contained
in the merger agreement will be true and correct in all material
respects on the effective date of the merger.
|
|
|
|
No material adverse changes will have occurred in the business,
operations or financial condition of Superior Bancorp.
|
|
|
|
Superior Bancorp will have performed in all material respects
all covenants and agreements required by the merger agreement.
|
|
|
|
Kensington Bankshares will have received certain closing
certificates with respect to the merger and the financial and
regulatory condition of Superior Bancorp and its subsidiaries.
|
|
|
|
Kensington Bankshares will have received an opinion of
Balch & Bingham LLP as to certain legal matters, and of
Haskell Slaughter Young & Rediker, LLC as to certain
securities matters.
|
67
|
|
|
|
|
Kensington Bankshares will have received prior to the mailing,
but no earlier than five business days prior to the mailing, of
the joint proxy statement/prospectus a letter (acceptable in
form to Kensington Bankshares) from Alex Sheshunoff &
Co. Investment Banking, LP reconfirming its earlier opinion that
the exchange ratio is fair to the stockholders of Kensington
Bankshares from a financial point of view, and such opinion will
not have been withdrawn before the effective time of the merger.
|
|
|
|
The shares of Superior Bancorp common stock to be issued in
connection with the merger will have been approved for listing
on the NASDAQ National Market System.
|
|
|
|
The board of directors will have made no determination that the
merger has become impractical because of any state of war,
declaration of a banking moratorium or a general suspension of
trading of Superior Bancorp common stock on the NASDAQ National
Market System.
|
|
|
|
Superior Bank will have maintained satisfactory ratings and
compliance with the requisite regulatory agencies as required in
the Agreement and Plant of Merger.
|
The obligation of each of Superior Bancorp and Kensington
Bankshares to consummate the merger is subject to certain
additional conditions, including the following:
|
|
|
|
|
The merger agreement will have been approved by holders of a
majority of the outstanding Kensington Bankshares common stock
and holders of a majority of the outstanding Superior Bancorp
common stock, in each case entitled to vote thereon.
|
|
|
|
All required orders, consents and approvals will have been
obtained from the Office of Thrift Supervision and other
appropriate bank regulatory authorities, the Securities and
Exchange Commission and other governmental authorities. Neither
Superior Bancorp nor Kensington Bankshares is obligated to
complete the merger if the banking regulatory approvals received
in connection with the completion of the merger include any
conditions or restrictions which, in the reasonable good faith
judgment of the board of directors of either company, would so
materially adversely impact the economic benefits of the
transaction so as to render inadvisable the consummation of the
merger.
|
|
|
|
All other consents will have been obtained that are required for
consummation of the merger for the prevention of any default
under any contract or permit which if not obtained is reasonably
likely to have individually or in the aggregate a material
adverse effect on the party; provided, however, that Superior
Bancorp is not obligated to complete the merger if a consent is
conditioned or restricted in a manner which, in the reasonable
judgment of the board of directors of Superior Bancorp, would so
materially adversely impact the economic or business benefits of
the transaction so as to render inadvisable the consummation of
the merger.
|
|
|
|
There will be no pending or threatened legal proceeding in any
court or any pending or threatened proceeding by any
governmental commission, board or agency, with a view to seeking
any restraint or prohibition on, or in which it is sought to
restrain or prohibit consummation of the transactions
contemplated by the merger agreement or in which it is sought to
obtain divestiture, rescission or damages in connection with the
transactions contemplated by the merger agreement, and no
investigation by any such entity will be pending or threatened.
|
|
|
|
The registration statement will have been declared effective by
the SEC and will not be subject to a stop order, and all
applicable federal securities and state blue sky laws will have
been complied with.
|
|
|
|
Superior Bancorp and Kensington Bankshares will have each
received an opinion of Balch & Bingham LLP, in form and
substance reasonably satisfactory to each of Superior Bancorp
and Kensington Bankshares, with respect to certain tax
consequences of the merger.
|
No assurance can be given as to when or if all of the foregoing
conditions to the merger can or will be satisfied or waived by
the respective parties. As of the date of this joint proxy
statement/prospectus, neither Superior Bancorp nor Kensington
Bankshares has any reason to believe that any of these
conditions will not be satisfied.
68
Amendment
and Waiver
Subject to applicable law, Superior Bancorp and Kensington
Bankshares may amend the merger agreement by written agreement
authorized by their respective boards of directors. Before or at
the effective time of the merger, either Superior Bancorp or
Kensington Bankshares may waive in writing any inaccuracies in
the representations and warranties of the other party, or,
subject to applicable law, may waive compliance by the other
party with any of the other agreements or conditions contained
in the merger agreement.
Termination
Events
The merger agreement may be terminated at any time prior to or
on the effective date of the merger in the following
circumstances:
|
|
|
|
|
by the mutual consent of the respective boards of directors of
Superior Bancorp and Kensington Bankshares;
|
|
|
|
by the board of directors of either Superior Bancorp and
Kensington Bankshares (provided that the terminating party is
not then in material breach of any representation, warranty,
covenant or other agreement contained in the merger agreement)
in the event of a material breach by the other party of any
representation, warranty, covenant or other agreement contained
in the merger agreement (determined without regard to any
qualifications regarding materiality which may be contained in
any applicable representation or warranty) which cannot be or
has not been cured within 30 days after the giving of
written notice to the breaching party and which breach would
provide the non-breaching party the ability to refuse to
consummate the merger;
|
|
|
|
by the board of directors of either Superior Bancorp or
Kensington Bankshares (provided that the terminating party is
not then in material breach of any representation, warranty,
covenant, or other agreement contained in merger agreement) in
the event of a material breach by the other party of any
covenant or agreement contained in the merger agreement which
cannot be or has not been cured within 30 days after the
giving of written notice to the breaching party or if any of the
conditions to the obligations of such party will have not been
satisfied in full;
|
|
|
|
by the board of directors of either Superior Bancorp or
Kensington Bankshares if all transactions contemplated by the
merger agreement will not have been consummated on or prior to
December 31, 2006, unless the failure to complete the
merger by that date is due to the terminating partys
actions;
|
|
|
|
by Superior Bancorp if its board of directors is informed and
determines that the number of shares of Kensington Bankshares
common stock as to which Kensington Bankshares stockholders have
exercised dissenters rights of appraisal exceeds 10% of
the outstanding shares of Kensington Bankshares common stock;
|
|
|
|
by Kensington Bankshares, if its board of directors so
determines by a vote of a majority of its entire board, at any
time during the five-business-day period commencing on the first
date on which all orders, consents and approvals (and waivers,
if applicable) necessary for consummation of the merger and the
transactions contemplated by the merger agreement have been
received (the determination date, such termination to be
effective on the 30th day following such determination
date, if on the determination date, Superior Bancorp common
stock value (being the average of the daily closing sales prices
of a share of Superior Bancorp common stock as reported on the
NASDAQ National Market System for the ten consecutive trading
days immediately preceding the determination date) is less than
$10.50; subject, however, to the next three sentences. If
Kensington Bankshares elects to exercise its termination right,
it will give prompt written notice thereof to Superior Bancorp.
During the five-business-day period commencing with its receipt
of such notice, Superior Bancorp will have the option of paying
additional consideration for the merger in the form of Superior
Bancorp common stock, cash or a combination of Superior Bancorp
common stock and cash, so that the aggregate consideration paid
by Superior Bancorp per share of Kensington Bankshares common
stock for the merger will be valued at $10.50. If within such
five-business-day period, Superior Bancorp delivers written
notice to Kensington Bankshares that it intends to proceed with
the merger by paying such additional consideration, as
contemplated by the previous sentence, then no termination will
have occurred and the merger agreement will remain in full force
and effect in accordance with its terms (except that the
consideration for the merger will have been so modified); or
|
69
|
|
|
|
|
by Kensington Bankshares, if its board of directors determines
that it is required to do so to comply with its fiduciary duties
to Kensington Bankshares stockholders in order to consider
alternative mergers or acquisition proposals.
|
Effect
of Termination; Termination Fee
If the merger agreement is terminated, it will become void, and
there will be no liability on the part of either Superior
Bancorp or Kensington Bankshares, except with respect to certain
provisions set forth in the merger agreement.
If the merger agreement is terminated by Superior Bancorp
because the number of shares as to which stockholders of
Kensington Bankshares have exercised dissenters rights of
appraisal exceeds 10% of the outstanding shares of Kensington
Bankshares, then Superior Bancorp is obligated under the merger
agreement to pay Kensington Bankshares, upon demand, a
termination fee of $420,000 to compensate Kensington Bankshares
for its direct and indirect costs and expenses associated with
the transaction.
If Kensington Bankshares enters into a letter of intent,
agreement in principle or definitive agreement regarding an
acquisition proposal with any third party (other than Superior
Bancorp or any of its subsidiaries) prior to the earlier of
(i) the effective date of the merger or (ii) the
termination of the merger agreement, or if Kensington Bankshares
receives an acquisition proposal from a third party (other than
Superior Bancorp or any of its subsidiaries) prior to the
termination of the merger agreement by Superior Bancorp pursuant
to the merger agreement, and the merger is not closed, then
Kensington Bankshares is obligated under the merger agreement to
pay Superior Bancorp, upon demand, a termination fee of
$2,100,000 to compensate Superior Bancorp for its direct and
indirect expenses associated with the transaction.
Agreement
Not to Solicit Other Offers
Under the merger agreement, Kensington Bankshares is restricted
in its ability to participate in discussions and negotiate with
any person concerning any proposal to acquire Kensington
Bankshares upon a merger, purchase of assets, purchase of or
tender offer for Kensington Bankshares common stock or similar
acquisition transaction. Kensington Bankshares has also agreed,
except to the extent legally required for the board of directors
of Kensington Bankshares to discharge its fiduciary duties, not
to make any information regarding Kensington Bankshares
available to any person for the purpose of affecting or causing
a merger, consolidation or disposition of Kensington Bankshares,
or its assets or common stock.
Expenses
and Fees
In general, each of Superior Bancorp and Kensington Bankshares
will be responsible for all expenses it incurs in connection
with the negotiation and completion of the transactions
contemplated by the merger agreement. However, Superior Bancorp
has agreed to pay the filing fees payable in connection with the
filing of this joint proxy statement/prospectus with the SEC and
printing costs incurred in connection with the printing of this
document.
Regulatory
Approvals
Completion of the merger and related transactions is subject to
several federal and state regulatory filings and approvals. The
merger and related transactions cannot be completed unless the
companies receive prior approvals, waivers or exemptions from
the Office of Thrift Supervision, the Florida Office of
Financial Regulation and the Board of Governors of the Federal
Reserve System. Superior Bancorp filed its application with the
Office of Thrift Supervision on April 28, 2006, and amended
on May 19, 2006. Superior Bancorp filed its application
with the Florida Office of Financial Regulation on May 19,
2006.
Superior Banks acquisition of Kensington Bank is subject
to the approval of the Office of Thrift Supervision under the
Bank Merger Act. This approval requires consideration by the
Office of Thrift Supervision of various factors, including
assessments of the competitive effect of the contemplated
transactions, the managerial and financial resources and future
prospects of the resulting institutions and the effect of the
contemplated transactions on the convenience and needs of the
communities to be served.
70
The Community Reinvestment Act of 1977, as amended, also
requires that the Office of Thrift Supervision, in deciding
whether to approve the merger, assess the records of performance
of Superior Bank in meeting the credit needs of the communities
it serves, including low and moderate income neighborhoods. As
part of the review process under the Community Reinvestment Act,
it is not unusual for the Office of Thrift Supervision to
receive protests and other adverse comments from community
groups and others. Superior Bank currently maintains a Community
Reinvestment Act rating of Satisfactory from its
primary regulator, and First Kensington Bank also currently
maintains a Community Reinvestment Act rating of
Satisfactory from its primary regulator.
The regulations of the Office of Thrift Supervision require
publication of notice of, and an opportunity for public comment
with respect to, the application filed in connection with the
merger and authorize the Office of Thrift Supervision to conduct
a meeting if it finds that written submissions are insufficient
to address facts or issues raised in an application, or
otherwise determines that a meeting will benefit the Office of
Thrift Supervisions decision-making process in connection
with the application. Any such meeting or comments provided by
third parties could prolong the period during which the merger
is subject to review by the Office of Thrift Supervision.
Consummation of the merger is also subject to, and conditioned
upon, receipt of approvals or waivers from the Florida Division
of Financial Institutions and the Board of Governors of the
Federal Reserve System. Superior Bancorp believes that, pursuant
to the regulations and advisory letters of the Board of
Governors of the Federal Reserve System, the Federal Reserve
will waive any approval requirements in connection with the
transactions contemplated by the merger.
Superior Bancorp has filed its application and related notices
seeking the requisite approval from the above agencies. Superior
Bancorp and Kensington Bankshares cannot be certain that such
approvals will be granted and, if granted, of the date of this
approval or as to what conditions to such grant of approval, if
any, may be imposed.
Superior Bancorp and Kensington Bankshares are not aware of any
other significant governmental approvals that are required for
consummation of the merger. If any other approval or action is
required, it is presently contemplated that Superior Bancorp and
Kensington Bankshares would seek to obtain such approval. There
can be no assurance that any other approvals, if required, will
be obtained.
The approval of any application merely implies the satisfaction
of regulatory criteria for approval, which do not include review
of the merger from the standpoint of the adequacy of the
consideration to be received by Kensington Bankshares
stockholders. Further, regulatory approvals do not constitute an
endorsement or recommendation of the merger.
Management
and Operations After the Merger
After the effective date of the merger, the boards of directors
and the officers of Superior Bancorp and its subsidiaries,
including Superior Bank, will consist of those persons serving
in such capacities of Superior Bancorp before such date.
Superior Bancorp has agreed that after the effective date of the
merger but not later than December 31, 2006 (if the merger
is then completed), it will cause to be appointed to its board
of directors one person who will (a) be representative of
the Tampa-area market, (b) be mutually satisfactory to
Superior Bancorps board of directors and to a majority of
the persons who are members of Kensington Bankshares board
of directors as of the business day prior to the effective date
of the merger and (c) be selected in accordance with
applicable law and subject to approval by any applicable
regulatory agency. See The
Merger Interests of Directors, Officers and
Others in the Merger, and The
Merger The Merger
Agreement Kensington Bank, beginning on
pages
and ,
respectively.
Employment;
Severance; Employee Benefit Plans
On the effective date of the merger, all employees of Kensington
Bankshares and its subsidiaries will, at the option of Superior
Bancorp, either become employees of Superior Bancorp or its
subsidiaries or be entitled to severance benefits under the
severance policy of either Kensington Bank or Superior Bank,
whichever had the greater benefits as of the date of the merger
agreement (except Gerald K. Archibald, who will enter into an
agreement to provide consulting services to Superior Bancorp as
of the effective date of the merger for a term of one year,
renewal by mutual agreement with Superior Bancorp). All
employees of Kensington Bankshares and its
71
subsidiaries who become employees of Superior Bancorp or its
subsidiaries on the effective date of the merger will be
entitled, to the extent permitted by applicable law, to
participate as soon as administratively and financially
practicable in all benefit plans of Superior Bank to the same
extent as Superior Bank employees, except as otherwise provided
in the merger agreement.
Superior Bancorp will continue each existing benefit plan of
Kensington Bankshares and its subsidiaries until such benefit
plan is replaced with the benefit plan of Superior Bank. With
respect to employee benefits maintained by Superior Bancorp or
by Superior Bank in which employees of Kensington Bankshares and
its subsidiaries participate after the effective date of the
merger, Superior Bancorp has agreed: (i) to treat service
by employees of Kensington Bankshares and its subsidiaries prior
to the effective date of the merger as service with Superior
Bancorp or Superior Bank, for eligibility and vesting purposes
only, for all retirement, vacation, sick pay, severance and
other benefit plans of Superior Bank and (ii) to waive
waiting periods and pre-existing condition limitations, if any,
as would otherwise be applied to participating employees of
Kensington Bankshares and its subsidiaries upon the
implementation of such employee benefits constituting
group health plans within the meaning of such term
under the Internal Revenue Code. In addition, if the effective
date of the merger falls within an annual period of coverage
under any group health plan of Superior Bancorp and its
subsidiaries, each such employee of Kensington Bankshares and
its subsidiaries will be given credit for covered expenses paid
by that employee under comparable employee benefit plans of
Kensington Bankshares and its subsidiaries during the applicable
coverage period through the effective date of the merger towards
satisfaction of any annual deductible limitation and
out-of-pocket
maximum that may apply under that group health plan of Superior
Bancorp and its subsidiaries. Superior Bancorp will give the
required notifications when due pursuant to COBRA to all
employees of Kensington Bankshares and its subsidiaries who do
not become employees of Superior Bancorp and its subsidiaries on
the effective date of the merger and administer all elections of
such employees under its group health plan.
Interests
of Directors, Officers and Others in the Merger
In considering the recommendations of the respective boards of
directors of Superior Bancorp and Kensington Bankshares that you
vote For the merger agreement and the merger, you
should be aware that some of Kensington Bankshares
executive officers and directors have interests in the merger
that are different from, or in addition to, your interests as
our stockholder. Our respective boards of directors were aware
of these interests and took them into account in our respective
decisions to approve the merger.
These interests relate to or arise from, among other things:
|
|
|
|
|
the continued indemnification of Kensington Bankshares
current directors and executive officers under the merger
agreement and the obligation by Kensington Bankshares to provide
these individuals with extended directors and
officers insurance for a period of four years following
the effective date of the merger;
|
|
|
|
the possibility that a person who may be currently affiliated
with Kensington Bankshares will be appointed to the board of
directors of Superior Bancorp;
|
|
|
|
the fact that Gerald K. Archibald, Chairman and Chief Executive
Officer of Kensington Bankshares, will enter into an agreement
to provide consulting services to Superior Bancorp for a term of
one year, renewable by mutual agreement with Superior
Bancorp; and
|
|
|
|
the fact that William R. Bender, Jr. and Arthur E. Williams
of Kensington Bankshares will enter into employment agreements
with Superior Bancorp.
|
Indemnification
and Directors and Officers Insurance
Superior Bancorps restated certificate of incorporation
and bylaws provide for the elimination of directors
liability for monetary damages arising from a breach of certain
fiduciary obligations and for the indemnification of directors,
officers and agents to the full extent permitted by Delaware
law. These provisions generally provide for indemnification in
the absence of gross negligence or willful misconduct and cannot
be amended without the affirmative vote of a majority of the
outstanding shares of Superior Bancorp common stock entitled to
vote thereon.
72
By operation of law under Delaware law and Florida law, all
rights to indemnification for acts or omissions occurring prior
to the effective time now existing in favor of the current or
former directors or officers of Kensington Bankshares as
provided in its articles of incorporation or bylaws will survive
the merger and will continue in effect in accordance with their
terms.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling Superior Bancorp and Kensington Bankshares
pursuant to the foregoing provisions, the companies have been
informed that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is
therefore unenforceable.
Superior Bancorp has agreed in the merger agreement that, for
four years following the effective time of the merger, it will
indemnify and hold harmless each of Kensington Bankshares
present and former directors, officers and employees and those
of its subsidiaries against any costs or expenses including
reasonable attorneys fees, judgments, fines, losses,
claims, damages or liabilities incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of
matters existing or occurring at or prior to the effective time
of the merger including the transactions contemplated by the
merger agreement, whether asserted or claimed prior to, at or
after the effective time of the merger, to the fullest extent
that the person would have been indemnified pursuant to
(i) Kensington Bankshares articles of incorporation
and bylaws and (ii) any agreement, arrangement or
understanding disclosed by Kensington Bankshares to Superior
Bancorp in each case as in effect on the date of the merger
agreement.
Kensington Bankshares has also agreed in the merger agreement
that it will purchase for, and on behalf of, its current and
former officers and directors, extended coverage under the
current directors and officers liability insurance
policy maintained by Kensington Bankshares to provide for
continued coverage of such insurance for a period of four years
following the effective date of the merger with respect to
matters occurring prior to such date.
Share
Ownership of Directors and Executive Officers
As
of ,
2006, the record date for the special meeting of Kensington
Bankshares stockholders, the directors and executive officers of
Kensington Bankshares and Kensington Bank may be deemed to be
the beneficial owners
of shares,
representing % of the outstanding
shares of Kensington Bankshares common stock. See
Information About Kensington
Bankshares Stock Ownership of Principal
Stockholders and Management, beginning on
page .
As
of ,
2006, the record date for the special meeting of Superior
Bancorp stockholders, the directors and executive officers of
Superior Bancorp may be deemed to be the beneficial owners
of shares,
representing % of the outstanding shares of Superior
Bancorp common stock.
Existing
Employment Agreements
On December 21, 2005, Kensington Bank entered into
employment agreements with four employees. The term of each
agreement begins on December 21, 2005 and ends in
December 31, 2007. Although Kensington Bank may terminate
the agreements at any time, if such termination is without
cause, Kensington Bank must pay the terminated employee the
balance of what would have been earned under the agreement
within 30 days after the effective date of termination. The
agreements also require that, in the event of a change in
control of Kensington Bankshares, the surviving entity assume in
writing Kensington Bankshares obligations under the
agreement for period of time not to exceed the lesser of one
year or the remainder of the term of the agreement. Superior
Bancorp has agreed to assume all of Kensington Bankshares
obligations under the agreements.
Lock-Up
and Non-Competition Agreements
Each non-director officer of Kensington Bankshares who owns 5%
or more of the outstanding voting securities of Kensington
Bankshares, and each director of Kensington Bankshares, has
executed a Lock-Up and Non-Competition Agreement, in which each
such person agrees to vote all their shares of Kensington
Bankshares common stock in favor of the merger and the merger
agreement.
73
A form of the Lock-Up and Non-Competition Agreement is
Exhibit A to the merger agreement, which is attached to
this document as Annex A. This agreement may have the
effect of discouraging third parties from making a proposal for
an acquisition transaction involving Kensington Bankshares. The
following is a brief summary of the material provisions of this
agreement:
|
|
|
|
|
Each such person agrees to vote, or cause to be voted, in person
or by proxy, all of the Kensington Bankshares common stock as to
which the he or she has voting power, individually or jointly
with other persons.
|
|
|
|
Each such person agrees, except for certain specific transfers
set forth in the agreement, not to directly or indirectly
transfer any of his or her Kensington Bankshares common stock
until the vote upon the merger agreement and the merger by
Kensington Bankshares stockholders has been taken or until the
merger agreement has been terminated.
|
|
|
|
Each such person agrees that, for a period of two years
following the effective date of the merger, he or she will not
serve as an officer or director, or acquire 5% or more of the
outstanding equity securities, of any bank or savings and loan
association or bank holding company, or federal or state
chartered bank, savings bank, thrift, homestead association,
savings association, savings and loan association or cooperative
bank that has its principal business location within the Florida
counties of Hillsborough, Hernando or Pasco.
|
Board of
Directors of Superior Bancorp and Superior Bank Following the
Merger
After completion of the merger but not later than
December 31, 2006, Superior Bancorp has agreed to cause to
be appointed to its board of directors one person who will
(a) be representative of the Tampa area market, (b) be
mutually satisfactory to Superior Bancorps board of
directors and to a majority of the persons who are members of
Kensington Bankshares board of directors as of the
business day prior to the effective date of the merger and
(c) be selected in accordance with applicable law and
subject to approval by any applicable regulatory agency. That
person will be entitled to compensation in such capacity on the
same basis as other directors.
Superior Bancorp and Kensington Bankshares have agreed that
prior to the effective date of the merger, they will determine
which existing members of the board of directors of Kensington
Bank, if any, will remain as directors. Superior Bancorp has
agreed that it will accept the resignations of any such existing
members who desire to resign as of effective date of the merger.
See The Merger The Merger
Agreement Kensington Bank, beginning at
pages .
Public
Trading Markets
Superior Bancorp common stock is listed on the NASDAQ National
Market System stock exchange under the ticker symbol
SUPR. Superior Bancorp was listed under the ticker
symbol TBNC through May 18, 2006, when The Banc
Corporation changed its name to Superior Bancorp following
approval at its annual stockholders meeting on
May 18, 2006. Kensington Bankshares common stock is not
traded on any public stock exchange and any trade of its common
stock occurs in privately negotiated transactions. Upon
completion of the merger, all shares of Kensington Bankshares
common stock will be exchanged for shares of common stock of
Superior Bancorp. Superior Bancorp common stock issuable
pursuant to the merger agreement will be listed on the NASDAQ
National Market System.
The shares of Superior Bancorp common stock to be issued in
connection with the merger will be freely transferable under the
Securities Act, except for shares issued to any of our
stockholders that may be deemed either to be an affiliate of
(i) Kensington Bankshares at or after the effective time of
the merger or (ii) Superior Bancorp at the time of its
special meeting, as discussed in Resale of
Superior Bancorp Common Stock by Affiliates beginning on
page .
Accounting
Treatment
We expect the merger to be treated for accounting and financial
reporting purposes as a purchase, meaning that the
assets and liabilities of Kensington Bankshares will be recorded
at their respective estimated fair values and combined with the
historical basis of Superior Bancorp, Therefore, the financial
statements of Superior Bancorp issued after the merger will
reflect these values from Kensington Bankshares and will not be
restated retroactively to
74
reflect the historical financial position or results of
operations of Kensington Bankshares. Goodwill
and/or other
intangible assets may be created by the excess of the purchase
price over the net fair value of Kensington Bankshares
assets and liabilities.
The unaudited pro forma financial information contained in this
joint proxy statement/prospectus has been prepared using the
purchase accounting method to account for the merger. See
Pro Forma Condensed Financial Information beginning
on page .
Certain
Federal Income Tax Consequences
The following discussion is a general summary of the anticipated
material United States federal income tax consequences of the
exchange of Kensington Bankshares common stock for Superior
Bancorp common stock pursuant to the merger. This summary does
not address any tax consequences arising under the laws of any
state, local or foreign jurisdiction. This discussion is based
upon the Internal Revenue Code of 1986, as amended (the
Code), regulations promulgated by the United States
Treasury Department, court cases and administrative rulings in
each case as in effect as of the date hereof and all of which
are subject to change at any time, possibly with retroactive
effect. This discussion assumes that you hold your Kensington
Bankshares common stock as a capital asset within the meaning of
Section 1221 of the Code. The federal income tax laws are
complex and the tax consequences of the merger may vary
depending upon each stockholders individual circumstances
or tax status. Accordingly, this description is not a complete
description of all of the consequences of the merger and, in
particular, may not address United States federal income tax
considerations that may affect the treatment of stockholders
subject to special treatment under United States federal income
tax law (including, for example, foreign persons, financial
institutions, dealers in securities, traders in securities who
elect to apply a
mark-to-market
method of accounting, insurance companies, tax-exempt entities,
pass-through entities or investors in such entities, holders who
acquired their shares of Kensington Bankshares common stock
pursuant to the exercise of an employee stock option or right,
pursuant to a tax qualified retirement plan or otherwise as
compensation and holders who hold Kensington Bankshares common
stock as part of a hedge, straddle or
conversion transaction). This discussion is based on
laws, regulations, rulings and judicial decisions as in effect
on the date of this document, without consideration of the
particular facts or circumstances of any holder of Kensington
Bankshares common stock. These authorities are all subject to
change and any such change may be made with retroactive effect.
No assurance can be given that, after any such change, this
discussion would not be different.
The obligations of the parties to complete the merger are
conditioned upon the receipt by each party of a tax opinion from
Balch & Bingham LLP that the merger will be treated as
a reorganization within the meaning of Section 368(a) of
the Code.
Balch & Bingham LLP will render its tax opinion to each
of Superior Bancorp and Kensington Bankshares, subject to the
limitations discussed above, on the basis of facts,
representations and assumptions set forth or referred to in such
opinion which are consistent with the state of facts existing at
the effective time of the merger. In rendering its tax opinion,
counsel will rely upon representations and covenants, including
those contained in certificates of officers of Superior Bancorp
and Kensington Bankshares, reasonably satisfactory in form and
substance to such counsel. The opinion represents counsels
best legal judgment, but has no binding effect or official
status of any kind, and no assurance can be given that contrary
positions will not be taken by the Internal Revenue Service or a
court considering the issues. Neither Superior Bancorp nor
Kensington Bankshares has requested, nor do either of them
intend to request, a ruling from the Internal Revenue Service as
to the tax consequences of the merger and as a result there can
be no assurances that the Internal Revenue Service will not
disagree with or challenge any of the conclusions herein.
Subject to the limitations and qualifications referred to in
this joint proxy statement/prospectus and assuming that the
merger will be completed as described in the merger agreement
and this joint proxy statement/prospectus and that the merger is
treated as a reorganization within the meaning of
Section 368(a) of the Code, the following are the material
United States federal income tax consequences to the Kensington
Bankshares stockholders:
|
|
|
|
|
the merger will constitute a reorganization within
the meaning of Section 368 of the Code;
|
|
|
|
no gain or loss will be recognized by Superior Bancorp or
Kensington Bankshares;
|
75
|
|
|
|
|
no gain or loss will be recognized by the stockholders of
Kensington Bankshares who receive shares of Superior
Bancorps common stock except to the extent of any taxable
boot received by stockholders from Superior Bancorp,
and except to the extent of any dividends received from
Kensington Bankshares prior to the effective date of the merger;
|
|
|
|
the basis of Superior Bancorps common stock received in
the merger will be equal to the sum of the basis of the shares
of Kensington Bankshares common stock exchanged in the merger
and the amount of gain, if any, which was recognized by the
exchanging Kensington Bankshares stockholder, including any
portion treated as a dividend, less the value of taxable boot,
if any, received by the stockholder in the merger;
|
|
|
|
the holding period of Superior Bancorps common stock will
include the holding period of the shares of Kensington
Bankshares common stock exchanged therefor if the shares of
Kensington Bankshares common stock were capital assets in the
hands of the exchanging Kensington Bankshares
stockholder; and
|
|
|
|
cash received by a Kensington Bankshares stockholder in lieu of
a fractional share interest of Superior Bancorp common stock
will be treated as having been received as a distribution in
full payment in exchange for the fractional share interest of
Superior Bancorp common stock which he or she would otherwise be
entitled to receive and will qualify as capital gain or loss,
assuming the Kensington Bankshares stock was a capital asset in
his or her hands as of the effective date of the merger.
|
A stockholder who receives cash in lieu of a fractional share of
Superior Bancorp common stock in the merger will be treated for
United States federal income tax purposes as if the fractional
share of Superior Bancorp common stock had been received and
then redeemed for cash by Superior Bancorp. A stockholder will
recognize a capital gain or loss in an amount equal to the
difference between the cash received and the tax basis allocable
to the fractional share of Superior Bancorp common stock, unless
such payment, under each such stockholders particular
facts and circumstances, is deemed to have the effect of a
dividend distribution and not a redemption treated as an
exchange under the principles of Section 302 of the Code,
described above.
A stockholder who receives cash for his or her Kensington
Bankshares common stock because he or she exercised his or her
dissenters rights will be treated for United States
federal income tax purposes as if Superior Bancorp common stock
had been received and then redeemed for cash by Superior
Bancorp. A stockholder will recognize a capital gain or loss in
an amount equal to the difference between the cash received and
the tax basis in Superior Bancorp common stock, unless such
payment, under each such stockholders particular facts and
circumstances, is deemed to have the effect of a dividend
distribution and not a redemption treated as an exchange under
the principles of Section 302 of the Code, described above.
Unless an exemption applies under the backup withholding rules
of Section 3406 of the Internal Revenue Code, the Exchange
Agent will be required to withhold, and will withhold, 28% of
any cash payments to which a Kensington Bankshares stockholders
is entitled pursuant to the merger, unless the stockholder
provides the appropriate form. A stockholder should complete and
sign the substitute Internal Revenue Service
Form W-9
enclosed with the letter of transmittal sent by the exchange
agent. Unless an applicable exemption exists and is proved in a
manner satisfactory to the exchange agent, this completed form
provides the information, including the holders taxpayer
identification number, and certification necessary to avoid
backup withholding.
A stockholder of Kensington Bankshares who receives Superior
Bancorp common stock and cash as a result of the merger will
generally be required to retain records pertaining to the merger
and will be required to file with such stockholders United
States federal income tax return for the year in which the
merger takes place a statement setting forth certain facts
relating to the merger as provided in Treasury Regulations
Section 1.368-3(b).
A holder of Kensington Bankshares stock options will realize
gross income, which will be characterized as ordinary
compensation income, from the cancellation of such options
pursuant to the merger agreement in an amount equal to the fair
market value of Superior Bancorp common stock received in
exchange for the cancellation of such options.
The foregoing is a summary discussion of material federal income
tax consequences of the merger and is not a complete analysis or
listing of potential tax effects relevant to a decision whether
to vote in favor of approval of the merger agreement. You
are urged to consult your personal tax and financial advisors as
to the particular tax
76
consequences to you of the merger, including the
application of state, local and foreign tax laws and possible
future changes in federal income tax laws and the interpretation
thereof, which can have retroactive effects.
IRS
Circular 230 Notice
To ensure compliance with the requirements of the Internal
Revenue Service, we inform you that any federal tax information
provided herein may not be used to avoid any federal tax
penalty. Any such information provided herein is provided on the
basis and with the intent that the information may not be used
to avoid any federal tax penalty.
Resale of
Superior Bancorp Common Stock by Affiliates
Superior Bancorp common stock to be issued to Kensington
Bankshares stockholders in connection with the merger will be
registered under the Securities Act. Superior Bancorp common
stock received by the Kensington Bankshares stockholders upon
consummation of the merger will be freely transferable under the
Securities Act, except for shares issued to any person who may
be deemed an affiliate of Kensington Bankshares or
Superior Bancorp within the meaning of Rule 145 under the
Securities Act. Affiliates are generally defined as
persons who control, are controlled by, or are under common
control with Kensington Bankshares or Superior Bancorp, as the
case may be. Affiliates generally include directors, certain
executive officers and major stockholders of Superior Bancorp
and Kensington Bankshares. In addition, affiliates of Kensington
Bankshares or Superior Bancorp must sell their shares of
Superior Bancorp common stock acquired in connection with the
merger in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities
Act.
In general, under Rule 145, for one year following the
effective time of the merger, an affiliate (together with
certain related persons) would be entitled to sell shares of
Superior Bancorp common stock acquired in the merger only
through unsolicited broker transactions or in
transactions directly with a market maker, as such
terms are defined in Rule 144 under the Securities Act.
Additionally, during the one-year period, the number of shares
to be sold by an affiliate (together with certain related
persons and certain persons acting in concert) within any
three-month period for purposes of Rule 145 may not exceed
the greater of 1% of the outstanding shares of Superior Bancorp
common stock or the average weekly trading volume of the stock
during the four calendar weeks preceding such sale.
Rule 145 will remain available to affiliates only if
Superior Bancorp remains current with its information filings
with the SEC under the Securities Exchange Act of 1934. One year
after the effective time, an affiliate of Kensington Bankshares
would be able to sell its shares of Superior Bancorp common
stock without the manner of sale or volume limitations, provided
that Superior Bancorp was current with its Securities Exchange
Act information filings and such affiliate was no longer an
affiliate of Superior Bancorp. Two years after the effective
time, an affiliate of Kensington Bankshares would be able to
sell its shares of Superior Bancorp common stock without any
restrictions so long as the affiliate was not, and had not been
for at least three months before selling, an affiliate of
Superior Bancorp.
Kensington Bankshares has agreed in the merger agreement to use
its reasonable best efforts to identify each person who may be
deemed to be an affiliate for purposes of Rule 145 and to
cause such persons to deliver to Kensington Bankshares, prior to
the date of the Kensington Bankshares special meeting, a written
agreement intended to ensure compliance with the Securities Act
in connection with the sale or other transfer of Superior
Bancorp common stock received in the merger.
Appraisal
Rights of Kensington Bankshares Stockholders
Only stockholders of Kensington Bankshares will have
dissenters rights of appraisal under the merger agreement.
A dissenting stockholder of Kensington Bankshares must take each
step in the indicated order and in strict compliance with the
provisions of the law in order to perfect his or her appraisal
rights. The failure of a Kensington Bankshares stockholder to
comply precisely with the procedural steps on a timely basis
will result in a loss of that stockholders appraisal
rights. The following discussion is not a complete statement of
the law relating to dissenters rights of appraisal and is
qualified in its entirety in Annex B, which contains the
full text of Section 607.1301 through 607.1333 of the
Florida Business Corporation Act.
77
Pursuant to the Florida Business Corporation Act, any
stockholder of record of Kensington Bankshares common stock who
objects to the merger, and who fully complies with all the
provisions of Section 607.1301 through 603.1333 of the
Florida Business Corporation Act, will be entitled to demand and
receive payment in cash of an amount equal to the fair value of
his or her shares of Kensington Bankshares common stock if the
merger is consummated.
Any Kensington Bankshares stockholder desiring to receive
payment of the fair value of his or her Kensington Bankshares
common stock in accordance with the requirements of
Sections 607.1301 through 607.1333 of the Florida Business
Corporation Act:
|
|
|
|
|
must deliver to Kensington Bankshares prior to the special
meeting at which the vote will be taken on the merger, or at the
special meeting, but before the vote is taken, written notice of
intent to demand payment for his or her Kensington Bankshares
shares if the merger is consummated; and
|
|
|
|
must not vote in favor of the merger.
|
A vote against the merger or abstention from voting will not by
itself satisfy the notice requirements.
A stockholder must demand appraisal with respect to all of the
shares registered in his or her name, except that a record
stockholder may assert appraisal rights as to fewer than all of
the shares registered in the record stockholders name but
that are owned by one or more beneficial owners, if the record
stockholder objects with respect to all shares owned by each
dissenting beneficial stockholder. A record stockholder must
notify Kensington Bankshares in writing of the name and address
of each beneficial stockholder on whose behalf appraisal rights
are being asserted. A beneficial stockholder may assert
appraisal rights as to any shares held on behalf of the
stockholder only if the stockholder submits to Kensington
Bankshares the record stockholders written consent to the
assertion of such rights before the date specified in the
appraisal notice as the due date to execute and return the form,
and does so with respect to all shares that are beneficially
owned by the beneficial stockholder.
Within 10 days after the effective date of the merger,
Superior Bancorp, as successor to Kensington Bankshares in the
merger, will provide each former stockholder of Kensington
Bankshares who has voted against the merger and properly
provided a notice of intent to demand payment of fair value a
written appraisal notice and form, which will indicate Superior
Bancorps estimate of the fair value of Kensington
Bankshares common stock, contain an offer by Superior Bancorp to
pay the stockholder this estimate of fair value, and be
accompanied by a copy of Superior Bancorps financial
statements and a copy of Sections 607.1301 through 607.1333
of the Florida Business Corporation Act. The appraisal notice
will provide that a stockholder may obtain information on the
number of stockholders who return the appraisal form and the
number of shares owned by those stockholders. It will also
indicate the date by which Superior Bancorp must be notified if
a stockholder wishes to withdraw from the appraisal process.
A stockholder asserting appraisal rights must execute and return
the appraisal form to Superior Bancorp, as successor to
Kensington Bankshares, and deposit the stockholders
certificates in accordance with the terms of the notice, before
the date specified in the appraisal notice, which will not be
fewer than 40 or more than 60 days after the appraisal
notice and form were sent to the stockholder. A stockholder who
timely returns the form and deposits shares in accordance with
the appraisal notice has no further rights as a stockholder, but
only has the right to receive fair value for the
shares in accordance with the appraisal procedures, unless the
appraisal demand is withdrawn.
A stockholder who does not execute and return the form and
deposit his or her certificates by the date set forth in the
appraisal notice will no longer be entitled to appraisal rights,
will be bound by the terms of the merger agreement and will
receive the merger consideration consisting of Superior Bancorp
common stock. A stockholder who complies with the terms of the
notice but wishes to withdraw from the appraisal process may do
so by notifying Superior Bancorp in writing no more than
20 days after the date set forth in the appraisal notice as
the due date to execute and return the form. A stockholder who
fails to withdraw from the appraisal process in a timely manner
may not thereafter withdraw without Superior Bancorps
written consent.
If a stockholder timely accepts the offer to pay the fair value
of the shares as set forth in the appraisal notice, payment will
be made within 90 days after Superior Bancorp receives the
form from the stockholder. A stockholder who is dissatisfied
with the offer must include in his or her returned form a demand
for payment of that
78
stockholders estimate of the fair value of the shares plus
interest; otherwise the stockholder will be entitled to payment
of only the amount offered. Interest is to be calculated at the
interest rate on judgments in Florida in effect at the
mergers effective time. Once Superior Bancorp has made
payment of an agreed value as described above, the stockholder
will cease to have any further appraisal rights in the shares.
If Superior Bancorp and the stockholder asserting appraisal
rights are unable to agree on the fair value of the shares,
under Section 607.1330 of the Florida Business Corporation
Act, Superior Bancorp will be required to file within
60 days after receipt of the stockholders demand, an
appraisal action in the appropriate court in Hillsborough
County. The court would be required to determine the fair value
for the shares of Superior Bancorp common stock. If Superior
Bancorp fails to file such proceeding within 60 days, any
stockholder asserting appraisal rights may do so in the name of
Superior Bancorp. All stockholders asserting appraisal rights,
except for those that have agreed upon a value with Superior
Bancorp, are deemed to be parties to the proceeding. In such a
proceeding, the court may, if it so elects, appoint one or more
persons as appraisers to receive evidence and recommend a
decision on the question of fair value. Superior Bancorp would
be required to pay each stockholder asserting appraisal rights
the amount found to be due within 10 days after final
determination of the proceedings. At the courts
discretion, the judgment may include interest at a rate
determined by the court. Upon payment of this judgment, the
stockholder would cease to have any further appraisal rights
with respect to his or her Kensington Bankshares shares.
The court in any appraisal proceeding will determine the costs
and expenses (including attorneys and experts fees)
of any appraisal proceeding and such costs and expenses will be
assessed against Superior Bancorp. However, all or any part of
such costs and expenses (including attorneys and
experts fees) may be apportioned and assessed against all
or some of the stockholders that request an appraisal, in such
amount as the court deems equitable, if the court determines
that the stockholders acted arbitrarily or not in good faith
with respect to the stockholders appraisal rights. If the
court finds that counsel for one stockholder substantially
benefited other stockholders, and attorneys fees should
not be assessed against Superior Bancorp, the court may award
counsel fees to be paid out of the amounts awarded to benefited
stockholders.
If you should decide to exercise your dissenters rights of
appraisal, you must do all of the things described in this
section and as set forth in Sections 607.1301 through
607.1333 of the Florida Business Corporation Act in order to
preserve your appraisal rights and to receive the fair value of
your shares of Kensington Bankshares common stock in cash (as
determined in accordance with those provisions). If you do not
follow each of the steps as described above, you will have no
right to receive cash for your shares as provided for appraisal
rights by the Florida Business Corporation Act. In view of the
complexity of these provisions of Florida law, stockholders of
Kensington Bankshares who are considering exercising their
appraisal rights should consult their legal advisors.
If a Kensington Bankshares stockholder fails to comply
with any requirements of the provisions relating to
dissenters rights of appraisal that failure will result in
a forfeiture of such rights.
References in the foregoing discussion to applicable statutes
are summaries of portions of those statutes, do not purport to
be complete and are qualified in their entirety by reference to
applicable law. Sections 607.1301 through 607.1333 of the
Florida Business Corporations Act are attached to this joint
proxy statement/prospectus as Annex B. You are urged
to read Annex B carefully if you intend to exercise your
dissenters rights of appraisal.
Exchange
of Certificates
As promptly as practicable, but in no case later than
15 business days after the effective date of the merger,
Computerserve (the Exchange Agent) will mail to each
Kensington Bankshares stockholder of record (1) the
election form, (2) a letter of transmittal and
(3) instructions for use in effecting the surrender of the
certificates representing shares of Kensington Bankshares common
stock in exchange for certificates representing shares of
Superior Bancorp common stock. The letter of transmittal will
specify that delivery will be effected, and risk of loss and
title to the certificates will pass, only upon delivery of the
certificates to Superior Bancorp. When a Kensington Bankshares
stockholder surrenders his or her certificate to the Exchange
Agent, together with a properly completed letter of transmittal,
and any other documents as may be necessary, that stockholder
will receive in exchange a certificate representing that number
of whole shares of Superior Bancorp common stock which that
stockholder is entitled, if any, and a check for the amount to
be paid instead of any fractional share of Superior Bancorp
common
79
stock. The Exchange Agent will deliver the merger consideration
to Kensington Bankshares stockholders within ten business
days of receipt of their certificates of Kensington Bankshares
common stock, duly executed and in property form for transfer.
If a prior transfer of ownership of Kensington Bankshares common
stock is not registered in the transfer records of Kensington
Bankshares, a certificate representing the proper number of
shares of Superior Bancorp common stock may be issued to a
person other than the person in whose name the certificate so
surrendered is registered, if the certificate will be properly
endorsed or otherwise be in proper form for transfer and the
person requesting the issuance will pay any transfer or other
taxes required by reason of the issuance of shares of Superior
Bancorp common stock to a person other than the registered
holder of the certificate or establish to the satisfaction of
Superior Bancorp that such tax has been paid or is not
applicable.
Until surrendered as contemplated by the merger agreement, each
certificate will be deemed at any time after the effective time
to represent only the right to receive such stockholders
pro rata share of the merger consideration under the terms of
the merger agreement. No interest will be paid or will accrue on
any cash payable in lieu of any fractional shares of Superior
Bancorp common stock. After the merger is completed, to the
extent permitted by law, holders of record of Kensington
Bankshares common stock at the time we complete the merger will
be entitled to vote at any meeting of Superior Bancorp
stockholders the number of shares of Superior Bancorp common
stock into which their respective shares of Kensington
Bankshares common stock are converted after the effective time,
regardless of whether such holders have received their
certificates representing Superior Bancorp common stock in
accordance with the merger agreement.
No dividend or other distribution payable after the completion
of the merger with respect to Superior Bancorp common stock
will, however, be paid to the holder of any unsurrendered
Kensington Bankshares certificate until the holder properly
surrenders such certificate along with the properly completed
transmittal materials. Upon surrender, all undelivered dividends
and other distributions and, if applicable, a check for the
amount to be paid instead of any fractional share interest will
be delivered to such stockholder, in each case without interest.
No certificates or scrip representing fractional shares of
Superior Bancorp common stock will be issued upon conversion of
Kensington Bankshares common stock, and the fractional share
interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Superior Bancorp. Notwithstanding any
other provision of the merger agreement, each holder of
Kensington Bankshares common stock exchanged pursuant to the
merger who would otherwise have been entitled to receive a
fraction of a share of Superior Bancorp common stock will
receive cash instead of fractional shares of Superior Bancorp
common stock.
At the effective time of the merger, Kensington Bankshares
stockholders will cease to be, and will have no rights as,
Kensington Bankshares stockholders other than:
|
|
|
|
|
the right to receive the number of shares of Superior Bancorp
common stock into which the shares of Kensington Bankshares
common stock have been converted or, if elected, cash,
|
|
|
|
the right to receive any fractional share payment,
|
|
|
|
the right to receive any dividends or other distributions to
which they may be entitled under the merger agreement, or
|
|
|
|
the right to perfect dissenters rights of appraisal, if
such have been properly exercised.
|
None of Superior Bancorp, Kensington Bankshares or the Exchange
Agent will be liable to any holder of Kensington Bankshares
common stock for any shares of Superior Bancorp common stock or
any related dividends or other distributions or cash in lieu of
fractional shares delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
Exchange
of Kensington Bankshares Options
The merger agreement provides that, at the effective time of the
merger, each outstanding option to purchase Kensington
Bankshares common stock shall be cancelled, and each holder of
such options will be entitled to receive in exchange the right
to receive the number of shares of Superior Bancorp common stock
equal to the amount resulting when (1) the number of
options held by a holder is multiplied by the Per Option
Value (as calculated
80
directly below) and (2) the resulting amount is divided by
$11.43; provided, however, that no fractional shares of Superior
Bancorp common stock will be issued and the number of shares of
Superior Bancorp common stock to be issued, if a fractional
share exists, will equal the number of whole shares obtained by
rounding down to the nearest whole share. The term Per
Option Value means (1) $18.2880 less (2) the
exercise price for each share of Kensington Bankshares common
stock subject to such option. As promptly as practicable after
the effective date of the merger, Superior Bancorp shall have
shares of Superior Bancorp common stock issued to each holder of
a Kensington Bankshares option who has executed a termination
agreement. It is a condition of Superior Bancorps
obligation to consummate the merger that each holder of a
Kensington Bankshares option shall have executed an agreement to
cancel such option as of the effective date of the merger. Such
holder of a Kensington Bankshares option will receive, in
exchange for such termination agreement, a certificate
representing that number of whole shares of Superior Bancorp
common stock which that holder of Kensington Bankshares option
is entitled.
Until cancelled as contemplated by the merger agreement, each
option will be deemed at any time after the effective time to
represent only the right to receive such option merger
consideration under the terms of the merger agreement.
INFORMATION
ABOUT SUPERIOR BANCORP
General
Superior Bancorp is a Delaware-chartered thrift holding company
headquartered in Birmingham, Alabama. Superior Bancorp was known
as The Banc Corporation until May 18, 2006, when its
stockholders voted to change its name to Superior Bancorp.
Superior Bancorp offers a broad range of banking and related
services in 26 locations in Alabama and the Florida panhandle
through Superior Bank (formerly The Bank), its principal
subsidiary. Superior Bancorp had assets of approximately
$1.432 billion, loans of approximately $977.6 million,
deposits of approximately $1.078 billion and
stockholders equity of approximately $105.8 million
at March 31, 2006. Its principal executive offices are
located at 17 North 20th Street, Birmingham, Alabama 35203,
and telephone number is
(205) 327-1400.
Superior Bancorp was founded in 1997 and completed its initial
public offering in December 1998. Beginning in the fall of 1998,
Superior Bancorp grew through the acquisition of various
financial institutions in Alabama and Florida. Superior
Bancorps growth activities have most recently focused on
increasing its market share in Alabama, especially in the
Birmingham- and Huntsville-area markets, and in the eastern
panhandle of Florida.
In January 2005, Superior Bancorp began the transition from its
founding management team to a new senior management team
composed of veteran bankers with a strong operational track
record and a history of enhancing stockholder value. During the
remainder of 2005, Superior Bancorp completed that management
transition. In addition, in November 2005 Superior Bancorp
converted its principal subsidiary, now known as Superior Bank,
from an Alabama state-chartered bank to a federally chartered
thrift under the regulation of the Office of Thrift Supervision.
Superior Bancorp believes that this conversion will allow
greater flexibility in its operations, as well as allowing
Superior Bank to operate efficiently under a single regulatory
system rather than the dual federal/state regulatory system that
had been applicable to it.
On March 6, 2006, Superior Bancorp announced that it had
signed a definitive agreement to merge with Kensington
Bankshares, Inc. Kensington Bankshares is the holding company
for First Kensington Bank, a Florida state bank with nine
branches in the Tampa Bay area. Under the terms of the merger
agreement, Superior Bancorp has agreed to issue 1.60 shares
of its common stock for each share of Kensington Bankshares
common stock. Based on recent closing prices per share for
Superior Bancorp common stock, the transaction would be valued
at approximately $71.2 million. The actual value at
consummation will be based on Superior Bancorp share price at
that time. The Tampa Bay area would be Superior Bancorps
largest market and has a higher projected population growth than
any of Superior Bancorps current banking markets.
Completion of the merger is subject to approval by the
stockholders of both corporations, to the receipt of required
regulatory approvals and to the satisfaction of usual and
customary closing conditions.
On April 29, 2006, Superior Bancorp and Community
Bancshares, Inc. entered into a definitive agreement under which
Community Bancshares will merge with and into Superior Bancorp
in a stock transaction valued at
81
approximately $99 million based on current market prices of
Superior Bancorp common stock. Under the terms of the merger
agreement, Superior Bancorp will exchange 0.8974 shares of
its common stock for each share of Community Bancshares common
stock, subject to adjustment as provided in the merger
agreement. In addition, Community Bankshares stockholders could
receive a special cash dividend of up to $0.50 per share,
with a maximum of $4.4 million in the aggregate, payable
and consummation of the transaction subject to various
conditions specified in the merger agreement. Completion of the
merger is subject to approval of the transaction by the
stockholders of both companies, to the receipt of required
regulatory approvals and to the satisfaction of usual and
customary closing conditions.
Strategy
Operations. Superior Bancorp focuses on small-
to medium-sized businesses, as well as professionals and
individuals, emphasizing its local decision-making, effective
response time and personalized service. As a result, Superior
Bancorp conducts its business on a decentralized basis with
respect to deposit gathering and most credit decisions,
emphasizing local knowledge and authority to make these
decisions. Superior Bancorp supplements this decentralized
management approach with centralized loan administration, policy
oversight, credit review, audit, asset/liability management,
data processing, human resources and risk management systems.
Superior Bancorp implements these standardized administrative
and operational policies at each of its locations while
retaining local management and advisory directors to capitalize
on their knowledge of the local community.
Products and Services. Superior Bank provides
a wide range of retail and small business services, including
noninterest-bearing and interest-bearing checking, savings and
money market accounts, negotiable order of withdrawal
(NOW) accounts, certificates of deposit and
individual retirement accounts. In addition, Superior Bank
offers an extensive array of real estate, consumer, small
business and commercial real estate loan products. Other
financial services include annuities, automated teller machines,
debit cards, credit-related life and disability insurance,
safety deposit boxes, internet banking, bill payment and
telephone banking. Superior Bank attracts primary banking
relationships through the customer-oriented service environment
created by Superior Banks personnel combined with
competitive financial products.
Market Areas. Currently, Superior
Bancorps primary markets are located in northern and
central Alabama and the panhandle of Florida. If its merger with
Kensington Bankshares is approved and completed, Superior
Bancorp will have established a presence in the Tampa Bay,
Florida area which will be larger than any of its current
markets. If its merger with Community Bancshares is approved and
completed, Superior Bancorp will have an expanded presence and
broadened services in Alabama.
Superior Bancorp is headquartered in Birmingham, Alabama.
Superior Bancorp also currently has branches in:
|
|
|
|
|
Alabama
|
|
Florida
|
|
Albertville
|
|
Andalusia
|
|
Altha
|
Boaz
|
|
Childersburg
|
|
Apalachicola
|
Decatur
|
|
Frisco City
|
|
Blountstown
|
Gadsden
|
|
Guntersville
|
|
Bristol
|
Huntsville
|
|
Kinston
|
|
Carrabelle
|
Madison
|
|
Monroeville
|
|
Mexico Beach
|
Mt. Olive
|
|
Opp
|
|
Port St. Joe
|
Rainbow City
|
|
Samson
|
|
|
Sylacauga
|
|
Warrior
|
|
|
In addition to these branches, Superior Bancorp operates loan
production offices in Montgomery, Alabama, and Panama City and
Tallahassee, Florida.
Growth. Superior Bancorps future growth
depends primarily on the expansion of the business of its
primary wholly owned subsidiary, Superior Bank. That expansion
will depend on internal growth and the opening of new branch
offices in new and existing markets. Superior Bank also plans to
engage in the strategic acquisition of other financial
institutions and branches that have relatively high earnings and
low-cost deposits or that it believes to have
82
growth potential, such as the Kensington Bankshares and
Community Bancshares transactions described above. Superior
Bancorps ability to increase profitability and grow
internally depends primarily on its ability to attract and
retain low-cost and core deposits coupled with the continued
opportunity to generate high-yielding, quality loans. Superior
Bancorps ability to grow profitably through the opening or
acquisition of new branches will depend primarily on, among
other things, its ability to identify profitable, growing
markets and branch locations within such markets, attract
necessary deposits to operate such branches profitably and
identify lending and investment opportunities within such
markets.
Superior Bancorp periodically evaluates business combination
opportunities and conduct discussions, due diligence activities
and negotiations in connection with those opportunities. As a
result, Superior Bancorp may pursue business combination
transactions involving cash, debt or equity securities from time
to time. Any future business combination or series of business
combinations that Superior Bancorp might undertake may be
material to its business, financial condition or results of
operations in terms of assets acquired or liabilities assumed.
Any future acquisition is subject to approval by the appropriate
regulatory agencies.
Available
Information
Superior Bancorp maintains an Internet website at
www.superiorbank.com. Superior Bancorp makes available free of
charge through its website various reports that Superior Bancorp
files with the SEC, including its annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to these reports which are incorporated herein by
reference. These reports are made available as soon as
reasonably practicable after these reports are filed with, or
furnished to, the SEC. From its home page at
www.superiorbank.com, go to and click on Investor
Relations and click on SEC Filings to access
these reports. See Where You Can Find More
Information and Incorporation of Certain Documents
by Reference beginning on page .
INFORMATION
ABOUT KENSINGTON BANKSHARES
General
Kensington Bankshares is registered as a bank holding company
under the Bank Holding Act of 1956, as amended, and subject to
the supervision and regulation of the Federal Reserve System.
Kensington Bankshares was incorporated under the laws of the
State of Florida on January 26, 2001, and it commenced
operations in January 2002, when it acquired all of the
outstanding shares of common stock of Kensington Bank through an
exchange offer. Kensington Bank is the principal asset and the
only subsidiary of Kensington Bankshares.
Kensington Bank was incorporated as a state-chartered bank on
December 8, 1999, under the laws of the State of Florida,
and it began operations on February 28, 2000. Kensington
Bank is subject to the supervision and regulation of the Federal
Deposit Insurance Corporation and the Florida Office of
Financial Regulation. Kensington Bank conducts its business
operations under the management of its officers, who have
substantial authority in making decisions regarding investments,
loan policies, interest rates and service charges.
Kensington Bank conducts a commercial banking business through
its twelve office locations, its main office and branch offices
located in Hernando County, Pasco County, and Hillsborough
County, Florida. Hernando, Pasco and Hillsborough Counties,
located on the Gulf of Mexico, are the banks primary
service area.
Kensington Bank offers a variety of consumer and commercial
banking services to individuals and businesses. As a community
bank, Kensington Banks management has placed special
emphasis on the importance of individualized attention to its
customers. The business of Kensington Bank consists primarily of
attracting deposits from the general public and applying those
funds to investments in securities, originating loans for the
purchase, construction, financing and refinancing of commercial
and residential real estate in its primary service area and
originating various types of collateralized and uncollateralized
consumer loans. Kensington Banks income is derived
primarily from the interest and fees earned in connection with
its lending activities, interest from investment securities and
short-term investments. Its main expenses are the interest paid
on deposits and operating expenses. Kensington Bank does not
offer trust services. The deposits of Kensington Bank are
insured by the Federal Deposit Insurance Corporation up to the
maximum limits permitted by federal law.
83
Kensington Bank encounters vigorous competition in the banking
industry in its primary service area. Kensington Bank competes
with other commercial banks, savings and loan associations,
credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking companies, and other
financial intermediaries operating in and around its primary
service area. Most of the competitors, some of which are
affiliated with large bank holding companies, have substantially
greater resources and lending limits, and may offer certain
services, such as trust services, that Kensington Bank does not
currently provide. In addition, many of the banks non-bank
competitors are not subject to the same extensive federal
regulations that govern bank holding companies and state
chartered banks. Kensington Banks principal competitors
are branches of major regional holding company banks, which, for
the most part, are headquartered in Florida, Alabama, Georgia
and North Carolina.
Despite the level of competition, management believes that
Kensington Bank is well positioned to compete successfully in
its primary service area, although no assurances can be given
that it will be successful.
Employees
As of December 31, 2005, Kensington Bankshares and
Kensington Bank had 58 employees. Management believes that its
employee relations have been and continue to be good. No
employees are represented by any union or similar group and
Kensington Bankshares and Kensington Bank have never experienced
any strike or labor dispute.
Property
Kensington Bankshares main office is located at 13246
North Dale Mabry Highway, Tampa, Florida 33624. Kensington Bank
also either owns or leases branch facilities at the following
addresses:
1300 Pinehurst Drive, Spring Hill, Florida 34606
14363 Spring Hill Drive, Spring Hill, Florida 34609
4842 State Road 674, Sun City Center, Florida 33573
1311 Aston Gardens Court, Sun City Center, Florida 33573
231 Courtyards Boulevard, Sun City Center, Florida 33573
101 Trinity Lakes Drive, Sun City Center, Florida 33573
8623 Regency Park Boulevard, Port Richey, Florida 34668
4010 Little Road, New Port Richey, Florida 34655
1932 Bruce B. Downs, Wesley Chapel, Florida 33543
2440 Sunset Point Road, Clearwater, Florida 33765
36301 U.S. Highway 19N, Palm Harbor, Florida 34684
Regulation
and Supervision
Kensington Bankshares is a registered bank holding company
subject to supervision and regulation by the Board of Governors
of the Federal Reserve System under the Bank Holding Company Act
of 1956 and by the Florida Office of Financial Regulation.
Kensington Bankshares subsidiary bank is a Florida
state-chartered bank subject to primary federal regulation and
examination by the FDIC and, in addition, is regulated and
examined by the Florida Division of Financial Institutions.
Numerous other federal and state laws, as well as regulations
promulgated by the Federal Reserve Board, the Florida banking
regulators and the FDIC, govern almost all aspects of the
operations of Kensington Bank.
Capital
Requirements
Kensington Bankshares is required to comply with the capital
adequacy standards established by the Federal Reserve Board, and
Kensington Bank must comply with similar capital adequacy
standards established by the FDIC.
There are two basic measures of capital adequacy for bank
holding companies and their banking subsidiaries that have been
promulgated by the Federal Reserve Board and the FDIC: a
risk-based measure and a leverage measure. All applicable
capital standards must be satisfied for a bank holding company
or a bank to be considered in compliance.
84
The bank regulatory agencies use a risk-adjusted calculation to
aid them in their determination of capital adequacy by weighting
assets based on the credit risk associated with on- and
off-balance sheet assets. Capital is categorized into two types,
Tier 1 and Tier 2.
In addition to the risk-based capital standards, a minimum
leverage ratio (also referred to as the Tier 1 leverage
ratio) of 4% is required for the highest-rated financial holding
companies that are not undertaking significant expansion
programs. An additional 1% to 2% may be required for other
companies, depending upon their regulatory ratings and expansion
plans. The leverage ratio is defined as Tier 1 capital
divided by quarterly average assets, net of certain intangibles.
At December 31, 2005, Kensington Bankshares total
risk-based capital ratio was 16.59%, its Tier 1 capital
ratio was 15.99% and its Tier 1 leverage ratio was 9.75%.
Each of these ratios exceeds the current requirements under the
Federal Reserve Boards capital guidelines, and as
described below, Kensington Bankshares is considered
well-capitalized.
Kensington Bank is subject to similar risk-based and leverage
capital requirements adopted by the FDIC, and it was in
compliance with the applicable minimum capital requirements as
of December 31, 2005.
Failure to meet capital guidelines could subject a bank to a
variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a
prohibition on the taking of brokered deposits and other
restrictions on its business. As described below, substantial
additional restrictions can be imposed upon FDIC-insured
depository institutions that fail to meet applicable capital
requirements. See Prompt Corrective Action below.
Prompt
Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of
1991 establishes a system of prompt corrective action to resolve
the problems of undercapitalized institutions. Under this system
the federal banking regulators are required to rate supervised
institutions on the basis of five capital categories as
described below. The federal banking regulators are also
required to take mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to
institutions in the three undercapitalized categories, the
severity of which will depend upon the capital category in which
the institution is placed. Generally, subject to a narrow
exception, the Federal Deposit Insurance Corporation Improvement
Act requires the banking regulator to appoint a receiver or
conservator for an institution that is critically
undercapitalized. The federal banking agencies have specified by
regulation the relevant capital level for each category.
Under the Federal Deposit Insurance Corporation Improvement Act,
the Federal Reserve Board, the FDIC, the Office of the
Comptroller of the Currency and the Office of Thrift Supervision
have adopted regulations setting forth a five-tier scheme for
measuring the capital adequacy of the financial institutions
they supervise. Under the regulations, an institution would be
placed in one of the following capital categories:
|
|
|
|
|
Well Capitalized an institution that has a
Total risk-based capital ratio of at least 10%, a Tier 1
capital ratio of at least 6% and a Tier 1 leverage ratio of
at least 5%;
|
|
|
|
Adequately Capitalized an institution that has
a Total risk-based capital ratio of at least 8%, a Tier 1
capital ratio of at least 4% and a Tier 1 leverage ratio of
at least 4%;
|
|
|
|
Undercapitalized an institution that has a
Total risk-based capital ratio of under 8%, a Tier 1
capital ratio of under 4% or a Tier 1 leverage ratio of
under 4%;
|
|
|
|
Significantly Undercapitalized an institution
that has a Total risk-based capital ratio of under 6%, a
Tier 1 capital ratio of under 3% or a Tier 1 leverage
ratio of under 3%; and
|
|
|
|
Critically Undercapitalized an institution
whose tangible equity is not greater than 2% of total tangible
assets.
|
The regulations permit the appropriate federal banking agency to
downgrade an institution to the next lower category if the
regulator determines (1) after notice and opportunity for
hearing or response, that the institution is in an unsafe or
unsound condition or (2) that the institution has received
and not corrected a
less-than-satisfactory
85
rating for any of the categories of asset quality, management,
earnings or liquidity in its most recent examination.
Supervisory actions by the appropriate federal banking regulator
depend upon an institutions classification within the five
categories. Kensington Bankshares management believes that
Kensington Bankshares and Kensington Bank have the requisite
capital levels to qualify as well capitalized institutions under
the Federal Deposit Insurance Corporation Improvement Act
regulations.
The Federal Deposit Insurance Corporation Improvement Act
generally prohibits a depository institution from making any
capital distribution, including payment of a dividend, or paying
any management fee to its holding company if the depository
institution would thereafter be undercapitalized.
Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve System. In
addition, undercapitalized depository institutions are subject
to growth limitations and are required to submit capital
restoration plans. A depository institutions holding
company must guarantee the capital plan, up to an amount equal
to the lesser of 5% of the depository institutions assets
at the time it becomes undercapitalized or the amount of the
capital deficiency when the institution fails to comply with the
plan. Federal banking agencies may not accept a capital plan
without determining, among other things, that the plan is based
on realistic assumptions and is likely to succeed in restoring
the depository institutions capital. If a depository
institution fails to submit an acceptable plan, it is treated as
if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be
subject to a number of requirements and restrictions, including
orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and cessation
of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to
appointment of a receiver or conservator.
Safety
and Soundness Standards
The Federal Deposit Insurance Act, as amended by the Federal
Deposit Insurance Corporation Improvement Act and the Riegle
Community Development and Regulatory Improvement Act of 1994,
requires the federal bank regulatory agencies to prescribe
standards, by regulations or guidelines, relating to internal
controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate risk exposure,
asset growth, asset quality, earnings, stock valuation and
compensation, fees and benefits and such other operational and
managerial standards as the agencies deem appropriate. The
federal bank regulatory agencies have adopted a set of
guidelines prescribing safety and soundness standards under the
Federal Deposit Insurance Corporation Improvement Act. The
guidelines establish general standards relating to internal
controls and information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure,
asset growth and compensation, fees and benefits. In general,
the guidelines require, among other things, appropriate systems
and practices to identify and manage the risks and exposures
specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable
or disproportionate to the services performed by an executive
officer, employee, director or principal stockholder. The
federal banking agencies determined that stock valuation
standards were not appropriate. In addition, the agencies have
adopted regulations that authorize, but do not require, an
agency to order an institution that has been given notice by an
agency that it is not satisfying any of such safety and
soundness standards to submit a compliance plan. If, after being
so notified, an institution fails to submit an acceptable
compliance plan, the agency must issue an order directing action
to correct the deficiency and may issue an order directing other
actions of the types to which an undercapitalized institution is
subject under the prompt corrective action provisions of the
Federal Deposit Insurance Corporation Improvement Act. See
Prompt Corrective Action above. If an institution
fails to comply with such an order, the agency may seek to
enforce such order in judicial proceedings and to impose civil
money penalties.
Gramm-Leach-Bliley
Act
The Gramm-Leach-Bliley Act permits bank holding companies that
elect to become a federal holding company to engage in a wider
range of non-banking activities, including greater authority to
engage in securities and insurance activities than was the case
prior to its enactment in 1999. Kensington Bankshares has not
elected to be treated as a financial holding company.
86
USA
Patriot Act
The USA Patriot Act of 2001 substantially broadens anti-money
laundering legislation and the extraterritorial jurisdiction of
the United States, imposes new compliance and due diligence
obligations, creates new crimes and penalties, compels the
production of documents located both inside and outside the
United States, including those of foreign institutions that have
a correspondent relationship in the United States, and clarifies
the safe harbor from civil liability to customers. The
U.S. Treasury Department has issued a number of regulations
implementing the USA Patriot Act that apply certain of its
requirements to financial institutions such as our banking and
broker-dealer subsidiaries. The regulations impose new
obligations on financial institutions to maintain appropriate
policies, procedures and controls to detect, prevent and report
money laundering and terrorist financing.
In addition to the enactments discussed above, there have been a
number of legislative and regulatory proposals that would have
an impact on bank holding companies and their financial
institution and nonbank subsidiaries. It is impossible to
predict whether or in what form these proposals may be adopted
in the future and if adopted, what their effect will be.
Legal
Proceedings
There were no material legal proceedings as of December 31,
2005.
Market
for Common Equity and Related Stockholder Matters
There is no trading market for the common stock of Kensington
Bankshares. Kensington Bankshares acts as its own transfer
agent. As of December 31, 2005, the approximate number of
record stockholders was 370.
Kensington Bankshares paid its first cash dividends in 2005
amounting to a total of $.45 per share. Future payment of
dividends by Kensington Bankshares is necessarily dependent upon
adequate earnings of Kensington Bank. The ability of Kensington
Bank to pay cash dividends is, in turn, regulated by federal and
state statutes and regulations and is also affected by national
and local economic conditions and other pertinent conditions. In
January 2006, Kensington Bankshares paid its stockholders a
quarterly cash dividend of $.15 per share plus a year-end
bonus cash dividend of $.05 per share for a total cash
dividend of $.20 per share. This dividend was declared and
recorded in December 2005.
Management
of Kensington Bankshares
The following table sets forth the names and ages of the
directors and executive officers of Kensington Bankshares and
Kensington Bank, the positions and offices that each director
and executive officer, and the period during which each served
in such positions and offices.
|
|
|
|
|
|
|
|
|
|
|
|
|
Position
|
|
|
|
|
Kensington
|
|
Kensington
|
Name
|
|
Age
|
|
Bankshares
|
|
Bank
|
|
Gerald K.
Archibald (1) (3) (4)(5)
|
|
|
66
|
|
|
President, Chief Executive
Officer and Chairman
|
|
President, Chief Executive
Officer and Chairman
|
William R.
Bender, Jr.(1) (2) (3)(4)
|
|
|
59
|
|
|
Secretary and Treasurer
|
|
Executive Vice President and
Chief Financial Officer,
Secretary and Director
|
Gary L.
Blackwell (1) (3) (4)(5*)
|
|
|
62
|
|
|
Director
|
|
Director
|
Bryan Gates (2)(5)
|
|
|
62
|
|
|
|
|
Director
|
Ronald S. Hockman (1)(2)
|
|
|
54
|
|
|
Director
|
|
Director
|
D. Dewey
Mitchell (1) (2)(5)
|
|
|
49
|
|
|
Director
|
|
Director
|
|
|
|
* |
|
Alternate |
|
(1) |
|
Member of Executive Committee of Kensington Bank. |
|
(2) |
|
Member of Audit Committee of Kensington Bank. The Audit
Committee assists the board of directors in such areas as
accounting and financial reporting practices, internal controls
and compliance with financial policies of Kensington Bank. |
87
|
|
|
(3) |
|
Member of the Executive Management Loan Committee of
Kensington Bank. |
|
(4) |
|
Member of Investment Committee of Kensington Bank. |
|
(5) |
|
Member of Compensation Committee of Kensington Bank. |
Directors of Kensington Bankshares are elected for one-year
terms. Kensington Bank has a staggered board and its directors
are elected for three-year terms.
Gerald K. Archibald. Mr. Archibald
may be deemed the founder of Kensington Bankshares and
Kensington Bank and has been President, Chief Executive Officer
and Chairman of the Board of each since their inception.
Mr. Archibald began his career in banking in 1961 as a bank
examiner with the State of Florida. In 1967, Mr. Archibald
began work for Peoples Bank, Tampa, Florida serving as Executive
Vice President/Cashier. Mr. Archibald served as President,
Chief Executive Officer, and Chairman of Village Bank of Florida
from 1985 to 1998 it was sold to Regions Bank.
Mr. Archibald resides in Lutz, Florida.
William R. Bender, Jr. Mr. Bender
has been the Secretary and Treasurer of Kensington Bankshares
since its inception and Executive Vice President, Chief
Financial Officer and director of Kensington Bank since its
inception. Prior thereto, Mr. Bender was Senior Executive
Vice President and Chief Financial Officer of Village Bank of
Florida from 1985 to 1998 when it was sold to Regions Bank.
Mr. Bender is a graduate of the University of South Florida
and prior to joining Village Bank worked as a bank examiner with
the State of Florida from 1974 to 1985. Mr. Bender resides
in Tampa, Florida.
Gary L. Blackwell. Mr. Blackwell
has been a real estate developer, builder and investor for over
39 years in the Tampa Bay area. Mr. Blackwell holds a
real estate license, general contractor, electrical contractor
and plumbing contractor licenses. Mr. Blackwell has served
as a director on the boards of Ellis First National Bank, New
Port Richey, Florida; Bank of Pasco County, New Port Richey,
Florida; First National Bank of the South, Wesley Chapel,
Florida; and Village Bank of Florida, Tampa, Florida.
Mr. Blackwell has been a director of Kensington Bankshares
and Kensington Bank since each companys inception.
Mr. Blackwell resides in New Port Richey, Florida.
Bryan Gates. Mr. Gates is a
federally authorized tax practitioner, tax advisor and since
1973 is the owner of Tax Analysis Advisory Services, Inc. From
1963 to 1972, Mr. Gates served with the Internal Revenue
Service in a variety of positions. Mr. Gates has written
and lectured extensively on tax issues. In addition,
Mr. Gates has both authored and edited several
authoritative tax guides. Mr. Gates is a graduate of
Florida State University, Tallahassee, Florida and also holds a
real estate brokers license. Mr. Gates has been a
director of Kensington Bank since its inception. Mr. Gates
resides in Clearwater, Florida.
Ronald S. Hockman. Mr. Hockman has
been involved in the field of insurance since completing his
military career as a member of the U.S. Navy in 1972. In
1977, Mr. Hockman joined the Harmon Insurance Agency, Inc.
as an insurance agent and in 1981 he purchased the company. The
company is now known as Hockman Lackey Insurance, Inc. and
specializes in commercial and industrial insurance.
Mr. Hockman has been a director of Kensington Bankshares
and Kensington Bank since January 2002. Mr. Hockman resides
in Tampa, Florida.
D. Dewey Mitchell. Mr. Mitchell is
a realtor and has been President of Prudential Tropical Realty
in New Port Richey, Florida since 1984. Mr. Mitchell is a
graduate of the University of Alabama in Tuscaloosa, Alabama and
holds a Certified Commercial Investment Member certification
from the National Association of Realtors. Mr. Mitchell
served as a director of Village Bank of Florida from 1990 to
1992 and as a director of Barnett Bank of Pasco from 1992 to
1998. Mr. Mitchell has been a director of Kensington
Bankshares and Kensington Bank since each companys
inception. Mr. Mitchell resides in New Port Richey, Florida.
88
Key
Employees
Arthur E. Williams, 64, has been employed by
Kensington Bank since September 2000 and currently serves as
Senior Vice President and Chief Operations Officer and is
responsible for all areas of Kensington Banks operations.
Prior to joining Kensington Bank, Mr. Williams was Vice
President of Operations for Mercantile Bank Leasing in St.
Petersburg, Florida from October 1997 to September 2000. From
January 1989 to September 1996, Mr. Williams served as
Senior Vice President and Senior Operations Officer at The
Village Bank of Florida in Tampa, Florida. Mr. Williams
holds a Bachelor Degree in Management from the University of
South Florida, Tampa, Florida.
Michael R. Nemetz, 56, has been employed by
Kensington Bank since November 2001. He currently serves as a
Senior Vice President and Loan Officer and is responsible for
developing corporate, commercial, and real estate loan activity.
Prior to moving to Florida, Mr. Nemetz served as an officer
and commercial lender for several banks in Connecticut and Ohio.
From December 1999 to June 2001, Mr. Nemetz was a Vice
President and Commercial Lender for The Terrace Bank of Florida
in Tampa, Florida. Mr. Nemetz holds a Bachelor of Arts
Degree from Sacred Heart University in Fairfield, Connecticut.
Stock
Option Plan
Kensington Bankshares adopted an Incentive and Non-Statutory
Stock Option Plan (the Plan) effective April 9,
2001, as amended effective November 2, 2005, under which
600,000 shares of common stock were reserved for issuance
upon exercise of stock options. The plan is designed as a means
to retain and motivate key employees. The board of directors
administers and interprets the plan. Options may be granted to
all employees and directors of Kensington Bankshares and
Kensington Bank, and others who perform services for Kensington
Bankshares and Kensington Bank.
The Plan provides for the granting of both incentive stock
options (as defined in Section 422 of the Internal Revenue
Code) and non-statutory (non-incentive) stock options. Options
are granted under the Plan on such terms and at such prices as
determined by the board of directors, except that the per share
exercise price of incentive stock options cannot be less than
the fair market value of the common stock on the date of grant.
Each option is exercisable after the period or periods specified
in the option agreement, but no option may be exercisable after
the expiration of five years from the date of grant. Options
granted under the Plan are not transferable other than by will
or by the laws of descent and distribution.
In December 2005, options were granted to directors for the
purchase of 150,000 shares of common stock and to employees
for the purchase of 61,650 shares of common stock. These
options are exercisable at $8.50 per share, the fair market
value on the date of grant as determined by the board of
directors at approximately 115% of book value. In addition, all
options expire five years from the date of grant and become
exercisable 10% for the first three years from date of grant and
fully vested and exercisable four years from date of grant.
The following table summarizes certain information about the
Plan as of December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of Securities
|
|
|
Weighted-Average
|
|
|
Remaining Available
|
|
|
|
to Be Issued upon
|
|
|
Exercise Price of
|
|
|
for Future Issuance
|
|
|
|
Exercise of
|
|
|
Outstanding Options,
|
|
|
Under Equity
|
|
Plan Category
|
|
Outstanding Options
|
|
|
Warrants and Rights
|
|
|
Compensation Plans
|
|
|
Equity Compensation Plan Approved
by Security Holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive and Non-Statutory Stock
Option Plan
|
|
|
328,750
|
|
|
$
|
8.14
|
|
|
|
270,750
|
|
89
Executive
Compensation
Kensington Bankshares pays no compensation to its executive
officers. All compensation is paid by Kensington Bank. The
following table provides information with respect to aggregate
direct remuneration paid by Kensington Bank to the officers
listed below whose aggregate remuneration from Kensington Bank
exceeded $100,000 during 2005, 2004, and 2003. Remuneration
information is also provided with respect to Kensington
Banks executive officers as a group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
Award/Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
Name and Principal
Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Options Granted
|
|
|
Gerald K. Archibald
|
|
|
2005
|
|
|
$
|
261,368
|
(2)
|
|
$
|
25,000
|
|
|
|
30,000
|
|
President (1) President
and CEO of
|
|
|
2004
|
|
|
|
198,265
|
|
|
|
25,000
|
|
|
|
5,000
|
|
Kensington Bankshares and
Kensington Bank
|
|
|
2003
|
|
|
|
187,750
|
|
|
|
25,000
|
|
|
|
5,000
|
|
Arthur E. Williams
|
|
|
2005
|
|
|
|
100,044
|
|
|
|
3,000
|
|
|
|
25,000
|
|
Senior Vice President and Chief
Operations
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
17,500
|
|
Officer of Kensington Bank
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
17,500
|
|
Michael Nemetz
|
|
|
2005
|
|
|
|
95,907
|
|
|
|
5,000
|
|
|
|
12,500
|
|
Senior Vice President of
Kensington Bank
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
|
|
|
(1) |
|
Kensington Bank has a $500,000 key-man life insurance policy on
Mr. Archibald, payable to Kensington Bank. |
|
(2) |
|
Includes directors fees of $21,000 in 2005, $12,750 in
2004 and $12,750 in 2003. Directors of Kensington Bankshares and
Kensington Bank receive a fee of $1,000 per board meeting
and $250 per bank committee meetings attended. |
Option
Grants In Last Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
Percent of Total Options
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Granted to Employees in
|
|
|
Exercise
|
|
|
Expiration
|
|
Name
|
|
Options Granted
|
|
|
Fiscal Year
|
|
|
Price
|
|
|
Date
|
|
|
Gerald K. Archibald
|
|
|
25,000
|
|
|
|
40.5
|
%
|
|
$
|
8.50
|
|
|
|
December 2010
|
|
Arthur E. Williams
|
|
|
7,500
|
|
|
|
12.2
|
%
|
|
|
8.50
|
|
|
|
December 2010
|
|
Michael Nemetz
|
|
|
5,000
|
|
|
|
8.1
|
%
|
|
|
8.50
|
|
|
|
December 2010
|
|
Year
End Option Values
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
Value of Unexercised
|
|
|
|
Underlying
|
|
|
In-the-Money
Options(1)
|
|
|
|
Unexercised Options
|
|
|
at Year-End
|
|
Name
|
|
Exercisable/Unexercisable
|
|
|
Exercisable/Unexercisable
|
|
|
Gerald K. Archibald
|
|
|
1,500/28,500
|
|
|
$
|
11,250/$238,750
|
|
Arthur E. Williams
|
|
|
4,500/20,500
|
|
|
$
|
3,375/$161,250
|
|
Michael Nemetz
|
|
|
1,750/10,750
|
|
|
$
|
13,125/$85,625
|
|
|
|
|
(1) |
|
Includes options granted in December 2005 at $8.50/share
considered to be at market value. |
90
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table sets forth as of December 31, 2005,
information with respect to the beneficial ownership of
Kensington Bankshares common stock by (i) each person who
is known by Kensington Bankshares to be the beneficial owner of
more than 5% of Kensington Bankshares outstanding shares
of common stock, (ii) each director and executive officer
of Kensington Bankshares and (iii) all directors and
executive officers of Kensington Bankshares as a group. Unless
otherwise indicated, each of the stockholders listed below has
sole voting and investment power with respect to the shares of
common stock beneficially owned.
|
|
|
|
|
|
|
|
|
|
|
Number and
|
|
|
|
Percent of Shares
|
|
|
|
Beneficially Owned
|
|
Name and Address
|
|
Number
|
|
|
Percent
|
|
|
Gerald K. Archibald(a)
|
|
|
304,977
|
|
|
|
7.14
|
|
William R. Bender, Jr.(a)
|
|
|
19,250
|
|
|
|
0.50
|
|
Gary L. Blackwell
|
|
|
274,372
|
|
|
|
7.39
|
|
6915 SR 54
|
|
|
|
|
|
|
|
|
New Port Richey, Florida 34653
|
|
|
|
|
|
|
|
|
Ronald S. Hockman
|
|
|
164,827
|
|
|
|
4.44
|
|
3438 Colwell Avenue
|
|
|
|
|
|
|
|
|
Tampa, Florida 33614
|
|
|
|
|
|
|
|
|
D. Dewey Mitchell
|
|
|
158,894
|
|
|
|
4.28
|
|
4532 US Highway 19,
2nd Floor
|
|
|
|
|
|
|
|
|
New Port Richey, Florida 34652
|
|
|
|
|
|
|
|
|
Carl Minieri
|
|
|
200,000
|
|
|
|
5.39
|
|
29656 US Highway 19 No.
|
|
|
|
|
|
|
|
|
Clearwater, Florida 33761
|
|
|
|
|
|
|
|
|
Joseph Idicula, M.D.
|
|
|
200,000
|
|
|
|
5.39
|
|
10065 Cortez Boulevard
|
|
|
|
|
|
|
|
|
Brooksville, Florida 34613
|
|
|
|
|
|
|
|
|
Director and executive officers as
a group (5 persons)
|
|
|
922,320
|
|
|
|
24.85
|
|
|
|
|
(a) |
|
The address of Messrs. Archibald and Bender is the address
of Kensington Bankshares executive offices,
13246 N. Dale Mabry Highway, Tampa, Florida 33618. |
Certain
Relationships and Related Transactions
Kensington Bankshares directors and their affiliates, including
corporations and firms of which they are officers or in which
they and/or
their families have an ownership interest, are customers of
Kensington Bank. These persons, corporations and firms have had
transactions in the ordinary course of business with Kensington
Bank, including borrowing of material amounts, all of which, in
the opinion of management, were on substantially the same terms,
including interest rates and collateral, as those prevailing at
the time for comparable transactions with unaffiliated persons
and did not involve more than normal risk of collectability or
present other unfavorable features. The aggregate amount of
loans outstanding by Kensington Bank to directors, officers and
related parties of Kensington Bankshares and Kensington Bank as
of December 31, 2005, was $1,438,837.
All such transactions conform to the restrictions and
limitations imposed by the Financial Institutions Regulatory and
Interest Rate Control Act of 1978. For a discussion of the
restrictions and limitations imposed by that act, see
Description of Business Supervision and
Regulation.
91
STATISTICAL
INFORMATION ABOUT KENSINGTON BANKSHARES
The following tables and schedules contain statistical
information concerning the financial condition and operations of
Kensington Bankshares for the period or periods or as of the
date or dates indicated in each table or schedule.
Average
Daily Balance Sheets
The following table shows Kensington Bankshares balances of
assets, liabilities and capital computed on an average daily
basis.
Table
1
Average
Daily Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
4,326
|
|
|
$
|
3,420
|
|
|
$
|
2,571
|
|
Federal funds sold
|
|
|
2,722
|
|
|
|
3,541
|
|
|
|
3,404
|
|
Taxable securities
|
|
|
164,925
|
|
|
|
183,750
|
|
|
|
174,003
|
|
Loans (Net)
|
|
|
112,315
|
|
|
|
94,852
|
|
|
|
87,873
|
|
Premises and equipment (Net)
|
|
|
3,138
|
|
|
|
2,594
|
|
|
|
2,715
|
|
Other
|
|
|
2,628
|
|
|
|
2,722
|
|
|
|
2,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
290,054
|
|
|
$
|
290,879
|
|
|
$
|
273,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing demand
deposits
|
|
$
|
32,398
|
|
|
$
|
22,318
|
|
|
$
|
13,561
|
|
Interest-bearing demand deposits
|
|
|
31,740
|
|
|
|
36,981
|
|
|
|
22,944
|
|
Savings deposits
|
|
|
15,440
|
|
|
|
15,647
|
|
|
|
11,196
|
|
Other time deposits
|
|
|
171,968
|
|
|
|
183,541
|
|
|
|
190,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
251,546
|
|
|
|
258,487
|
|
|
|
238,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowed funds
|
|
|
10,426
|
|
|
|
6,546
|
|
|
|
11,654
|
|
Other liabilities
|
|
|
786
|
|
|
|
456
|
|
|
|
573
|
|
Stockholders equity
|
|
|
27,296
|
|
|
|
25,390
|
|
|
|
22,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders Equity
|
|
$
|
290,054
|
|
|
$
|
290,879
|
|
|
$
|
273,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
Income
and Average Yield on Interest Earning Assets and Interest
Expense and Average Rate on Interest Bearing
Liabilities
The following table shows the interest income and average yield
on interest earning assets and the interest expense and average
rate on interest-bearing liabilities for the periods indicated.
The calculations of average yields or rates are based upon the
average daily balances. The yield on loans is calculated on
average loans gross of unearned fees and the allowance for
possible credit losses.
Table
2
Interest
Income and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
Interest
|
|
|
Avg. Rate
|
|
|
Interest
|
|
|
Avg. Rate
|
|
|
Interest
|
|
|
Avg. Rate
|
|
|
|
(Dollars in thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities
|
|
$
|
7,603
|
|
|
|
4.61%
|
|
|
$
|
7,513
|
|
|
|
4.09%
|
|
|
$
|
6,916
|
|
|
|
3.97%
|
|
Loans
|
|
|
8,374
|
|
|
|
7.39%
|
|
|
|
6,616
|
|
|
|
6.91%
|
|
|
|
6,392
|
|
|
|
7.20%
|
|
Federal funds sold
|
|
|
81
|
|
|
|
2.98%
|
|
|
|
45
|
|
|
|
1.27%
|
|
|
|
38
|
|
|
|
1.12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest earning assets
|
|
$
|
16,058
|
|
|
|
5.72%
|
|
|
$
|
14,174
|
|
|
|
5.01%
|
|
|
$
|
13,346
|
|
|
|
5.03%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
|
$
|
407
|
|
|
|
1.28%
|
|
|
$
|
416
|
|
|
|
1.12%
|
|
|
$
|
243
|
|
|
|
1.06%
|
|
Savings deposits
|
|
|
206
|
|
|
|
1.33%
|
|
|
|
156
|
|
|
|
1.00%
|
|
|
|
120
|
|
|
|
1.07%
|
|
Time deposits
|
|
|
5,284
|
|
|
|
3.07%
|
|
|
|
4,454
|
|
|
|
2.43%
|
|
|
|
5,376
|
|
|
|
2.82%
|
|
Other borrowed funds
|
|
|
350
|
|
|
|
3.36%
|
|
|
|
93
|
|
|
|
1.42%
|
|
|
|
152
|
|
|
|
1.30%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest bearing liabilities
|
|
$
|
6,247
|
|
|
|
2.72%
|
|
|
$
|
5,119
|
|
|
|
2.11%
|
|
|
$
|
5,891
|
|
|
|
2.49%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
Interest income and expense are affected by changes in interest
rates, by changes in the volumes of earning assets and
interest-bearing liabilities, and by changes in the mix of these
assets and liabilities. The following analysis shows the
year-to-year
changes in the components of net interest income:
Table
3
Rate/Volume
Variance Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 Compared to 2004
|
|
|
2004 Compared to 2003
|
|
|
|
Increase (Decrease) Due
to
|
|
|
Increase (Decrease) Due
to
|
|
|
|
Volume(1)
|
|
|
Rate
|
|
|
Change
|
|
|
Volume(1)
|
|
|
Rate
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Interest earned on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable securities
|
|
$
|
(368
|
)
|
|
$
|
458
|
|
|
$
|
90
|
|
|
$
|
395
|
|
|
$
|
202
|
|
|
$
|
597
|
|
Loans, net(1)
|
|
|
1,276
|
|
|
|
482
|
|
|
|
1,758
|
|
|
|
475
|
|
|
|
(251
|
)
|
|
|
224
|
|
Federal funds sold
|
|
|
(7
|
)
|
|
|
43
|
|
|
|
36
|
|
|
|
2
|
|
|
|
5
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
900
|
|
|
$
|
984
|
|
|
$
|
1,884
|
|
|
$
|
871
|
|
|
$
|
(43
|
)
|
|
$
|
828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
|
$
|
(706
|
)
|
|
$
|
697
|
|
|
$
|
(9
|
)
|
|
$
|
157
|
|
|
$
|
16
|
|
|
$
|
173
|
|
Savings deposits
|
|
|
(2
|
)
|
|
|
52
|
|
|
|
50
|
|
|
|
44
|
|
|
|
(8
|
)
|
|
|
36
|
|
Time deposits
|
|
|
(258
|
)
|
|
|
1,088
|
|
|
|
830
|
|
|
|
(188
|
)
|
|
|
(734
|
)
|
|
|
(922
|
)
|
Other borrowed funds
|
|
|
78
|
|
|
|
179
|
|
|
|
257
|
|
|
|
(74
|
)
|
|
|
15
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
(888
|
)
|
|
$
|
2,016
|
|
|
$
|
1,128
|
|
|
$
|
(61
|
)
|
|
$
|
(711
|
)
|
|
$
|
(772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income
|
|
$
|
1,788
|
|
|
$
|
(1,032
|
)
|
|
$
|
756
|
|
|
$
|
933
|
|
|
$
|
667
|
|
|
$
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Non-accruing loans are excluded from the average volumes used in
calculating the table. |
Composition
of Investment Securities
The tables below set forth the investment securities at the
dates indicated (dollars in thousands):
Table
4
Book
Value of Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
U.S. government agencies
|
|
$
|
184,025
|
|
|
$
|
158,399
|
|
|
$
|
173,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table indicates the maturities, scheduled by the
average lives of Kensington Banks U.S. government
agency securities as of December 31, 2005, and the weighted
average yields of such securities. The table below does not
reflect contractual maturities of the investment securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Maturity
|
|
Par
|
|
|
Book
|
|
|
Market
|
|
|
Average Yield
|
|
|
3 Months or less
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
Over 3 through 12 months
|
|
|
15,560
|
|
|
|
15,541
|
|
|
|
15,231
|
|
|
|
5.40
|
%
|
Over 1 year through
5 years
|
|
|
37,370
|
|
|
|
37,341
|
|
|
|
36,687
|
|
|
|
4.62
|
%
|
Over 5 years through
10 years
|
|
|
119,116
|
|
|
|
119,083
|
|
|
|
117,454
|
|
|
|
4.99
|
%
|
Over 10 years
|
|
|
12,110
|
|
|
|
12,060
|
|
|
|
11,839
|
|
|
|
4.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
184,156
|
|
|
$
|
184,025
|
|
|
$
|
181,211
|
|
|
|
4.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
Lending
Activities
Lending activities are conducted pursuant to a comprehensive
written loan policy that was approved by the banks board
of directors and is reviewed and re-affirmed by that same body
at least annually. Kensington Banks loan approval process
provides for various levels of lending authority to loan
officers, the Senior Lender, the President and Chief Executive
Officer, and the Executive Management Loan Committee. In
addition, loans in excess of $1,500,000 require the approval of
the board of directors prior to funding. Loan purchases, when
applicable, will be made subject to the same underwriting
standards as loan originations. Florida Banking Statutes limits
the amount of credit to any one person to a maximum amount of
25% of the banks capital accounts, subject to certain
conditions (approximately $7.0 million as of
December 31, 2005).
Kensington Bank manages the loan portfolio on an ongoing basis
following written policies and portfolio management strategies,
guidelines for underwriting standards and risk assessment, and
procedures for ongoing identification and management of credit
deterioration. Kensington Bank undertakes regular portfolio
reviews to estimate loss exposure and determine compliance with
bank policies.
Kensington Bank is primarily in the real estate market and
provides construction and permanent financing and residential
real estate loans to qualified applicants without discrimination
and under the guidelines set forth in Kensington Banks
loan policy. Kensington Bank also provides commercial loans and
installment loans to small to medium-sized businesses and to
individuals with satisfactory cash flows.
Kensington Banks real estate loan portfolio mostly
consists of commercial real estate, commercial and single-family
residential construction, and acquisition and development loans.
Kensington Banks loan terms vary from short-term for
construction and acquisition and development loans to maturities
generally in the 10, 15, 20, and
25-year
range with mostly three-year adjustable interest rate terms for
commercial real estate loans. The adjustable interest rate
feature affords Kensington Bank a degree of protection against
interest rate fluctuations and will give management the ability
to review the quality of the loan portfolio more frequently.
These re-pricing opportunities allow for interest rate
adjustments that are commensurate with the quality of Kensington
Banks loans. The ratio and loan mix of Kensington
Banks real estate portfolio will vary from
time-to-time
based on the investment criteria determined by management and
the needs of the communities Kensington Bank serves.
Real estate and construction loans generally originate in
amounts of up to 85% of appraised value and are secured by a
note and mortgage on the real estate. Construction loans are
structured either to be converted to permanent loans with
Kensington Bank at the end of the construction phase or to be
paid off upon receiving financing from another financial
institution. These type loans are supported by the
builders financial capacity and their ability to sell
their finished product. Real estate risk is associated with the
ability of borrowers to service their monthly debt obligations
and the value of the real estate being held as collateral.
Commercial real estate risk is associated with the financial
capacity of the borrowers to meet their monthly debts; the value
of the real estate held as collateral, the success of the
borrowers business along with any fluctuation in the value of
business assets. Construction real estate risk is centered on
the ability of the borrowers to complete the project and service
their monthly payments.
Kensington Bank offers a variety of commercial loans including
term loans, both collateralized and un-collateralized, made to
businesses for working capital (including real estate
acquisitions and improvements), and the purchase of equipment
and machinery. As a general practice, Kensington Bank takes a
security interest in any available real estate, equipment, or
other chattel. Commercial loans are primarily underwritten in
Kensington Banks service area on the basis of the
borrowers ability to service such debt from cash flows
from their business. As a result, the risk in this type of
credit is in the availability of funds for repayment and the
success of the business to be substantially dependent on the
success of the business itself. Further, the collateral
underlying the loans may depreciate over time, cannot be
appraised with as much precision as real estate, and may
fluctuate in value based on the success of the business.
Installment loans, while not a significant part of Kensington
Banks loan portfolio, are made to qualified borrowers for
automobiles, recreation vehicles, boats, second mortgages, home
improvements, home equity lines of credit, personal
(collateralized and un-collateralized) and deposit account
collateralized loans. The terms on these types of credit
typically range from 12 to 60 months and vary based on the
kind of collateral and size of the loan.
95
These types of loans generally have a shorter term and carry a
higher interest rate than that charged on other types of loans.
Installment loans, however, do pose additional risks of
collectability when compared to traditional types of loans
granted by commercial banks such as real estate loans. In many
instances, Kensington Bank is required to rely on the
borrowers ability to repay since the collateral may be of
reduced value at the time of collection. Accordingly, the
determination of the borrowers ability to repay the debt
is of primary importance in the underwriting of consumer loans.
The following table sets forth the gross amount and percent of
loans outstanding at the indicated dates according to the type
of loan and total loans, netting deferred loan fees and
allowance for possible credit loss (dollars in thousands):
Table
5
Loans
Outstanding as of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Real estate
|
|
$
|
119,488
|
|
|
|
94.86
|
%
|
|
|
93,380
|
|
|
|
95.21
|
%
|
|
|
80,343
|
|
|
|
88.92
|
%
|
Commercial
|
|
|
4,529
|
|
|
|
3.60
|
%
|
|
|
3,574
|
|
|
|
3.64
|
%
|
|
|
7,686
|
|
|
|
8.51
|
%
|
Consumer
|
|
|
1,952
|
|
|
|
1.55
|
%
|
|
|
1,129
|
|
|
|
1.15
|
%
|
|
|
2,324
|
|
|
|
2.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
|
125,969
|
|
|
|
100.00
|
%
|
|
|
98,083
|
|
|
|
100.00
|
%
|
|
|
90,353
|
|
|
|
100.00
|
%
|
Net deferred loan fees
|
|
|
(434
|
)
|
|
|
|
|
|
|
(313
|
)
|
|
|
|
|
|
|
(283
|
)
|
|
|
|
|
Allowance for possible credit loss
|
|
|
(1,017
|
)
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
(900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
124,518
|
|
|
|
|
|
|
$
|
96,770
|
|
|
|
|
|
|
$
|
89,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005, 22.0% of gross loans were fixed
rate loans and 78.0% were variable rate loans. For the year
ended December 31, 2005, the average interest yield on the
loan portfolio was 7.39%.
96
Loan
Maturities and Sensitivity to Changes in Interest
Rates
The amount of gross loans outstanding as of December 31,
2005, which, based on remaining scheduled repayments of
principal that are due in (1) one year or less,
(2) more than one year, but less than five years, and
(3) more than five years and the mix of fixed rate and
variable rate loans, are shown in the following table (in
thousands):
Table
6
Aggregate
Maturities of Loan Balances
as of December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In One Year
|
|
|
After One Year But
|
|
|
After Five
|
|
|
|
Or Less
|
|
|
Within Five Years
|
|
|
Years
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
5,601
|
|
|
$
|
6,775
|
|
|
$
|
499
|
|
Commercial
|
|
|
14,652
|
|
|
|
53,085
|
|
|
|
3,462
|
|
Construction
|
|
|
24,464
|
|
|
|
10,828
|
|
|
|
236
|
|
All Other Loans
|
|
|
3,010
|
|
|
|
3,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
47,727
|
|
|
$
|
74,045
|
|
|
$
|
4,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
$
|
9,661
|
|
|
$
|
13,824
|
|
|
$
|
4,197
|
|
Variable Rate(1)
|
|
|
38,066
|
|
|
|
60,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
47,727
|
|
|
$
|
74,045
|
|
|
$
|
4,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These loans are generally tied to the prime rate or a similar
index. The range of interest rate charges is governed by State
usury ceilings. |
Risk
Elements
There is a certain degree of risk inherent in any loan. To limit
these risks, Kensington Bank operates under a comprehensive loan
policy that is approved by its board of directors. The board of
directors recognizes that the loan portfolio is one of
Kensington Banks greatest earning assets and that every
effort must be made to protect the depositors money, earn
adequate returns for its stockholders and provide lending
services on a broad and constructive basis in the community.
The allowance for possible credit losses, established by
Kensington Bank to absorb unidentified loan losses in the loan
portfolio, was 0.80% of total loans outstanding at
December 31, 2005, 1.02% at December 31, 2004, and
1.00% at December 31, 2003. It is managements desire
to maintain a level adequate to provide protection against
possible losses from problem loans, including Kensington
Banks internal and external loan portfolio review, review
by regulatory authorities, the actual loan loss experience of
Kensington Bank, the extent of existing risks in the loan
portfolio and level of the loan loss allowance, and Kensington
Banks review of prevailing economic conditions. Kensington
Banks allowance for loan loss is a general loan loss
reserve and does not presently allocate loan loss provisions to
the various types of loans.
Kensington Banks Allowance for Loan and Lease Loss
(ALLLCOM) Committee meets on a quarterly basis to review its
loan loss reserve and to monitor the current economic
environment. The committee consists of Kensington Banks
President and Chief Executive Officer and Executive Vice
President and Chief Financial Officer.
The committee reviews Kensington Banks watch
list of problem credits, past due loans, non-accrual loans
and evaluates its reserve position. Kensington Banks
methodology for this reserve is to categorized its loans by FASB
114 loans, FASB 5 loans, and follow with loan dollar amounts
listed by the Call Report identifier codes of 1415 for
Construction & Development, 1420 for Farmland,
5367/5368/1797 for 1-4 Family Residential, 1460 for Multifamily,
1480 for Commercial Real Estate, 1766 for Commercial, 8539 for
Other Revolving Credit Plans, and
97
2011 for Other Consumer Loans, then allocate an estimated loss
factor based on historical trends to obtain a Factor Amount.
Then management adds an estimate on Other Factors based on its
estimates of unforeseen factors due to adverse situations in the
future that are calculated at .85% of the loan portfolio
balance. These reserve percentages are determined and evaluated
by management on a regular basis based on regulatory guidance
and upon managements periodic review of the collectability
of the loans in light of historical experience, the nature and
volume of the loan portfolio, adverse situations that may affect
the borrowers ability to repay, estimated value of any
underlying collateral and prevailing economic conditions.
Recommendations are made to the board of directors for loans
that are deemed uncollectable and need to be charged-off.
As of December 31, 2005, 2004, and 2003 Kensington Bank had
non-accrual loans of $6,000, $23,000, and $477,000,
respectively, and there were no loans, which had been
renegotiated to provide a reduction or deferral of interest or
principal because of deterioration in the financial position of
the borrower. Generally, once loans are placed on a non-accrual
status, no interest income is recognized until all principal has
been liquidated unless there are extenuating circumstances, such
as adequate protection payments being made in a bankruptcy case.
Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and
collection efforts that the borrowers financial condition
is such that collection of interest is doubtful.
It is Kensington Banks policy to charge-off all
installment and consumer loans on which there has not been a
scheduled interest payment within the past 180 days and
which are deemed uncollectable. A loan is charged-off as the
result of a determination made by Kensington Banks senior
management and approved by the board of directors or is
recommended for charge-off by bank regulatory agencies who
believe that the collection or liquidation of the account is
seriously impaired. All loans, regardless of whether they are
real estate, commercial, or installment, are placed on a
non-accrual basis when collection of the principal balances of
such loans is in jeopardy. For the year ended December 31,
2005, Kensington Bank charged-off $2,000 compared with $27,000
for the year ended December 31, 2004, and $3,000 for the
year ended December 31, 2003.
Table
7
Loan Loss
Experience and Provision for Possible Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands)
|
|
|
Daily average amount of net loans
outstanding
|
|
$
|
112,315
|
|
|
$
|
94,852
|
|
|
$
|
87,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of allowance for loan
losses at beginning of period
|
|
$
|
1,000
|
|
|
$
|
900
|
|
|
$
|
700
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and
agricultural
|
|
|
|
|
|
|
23
|
|
|
|
|
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment loans to individuals
|
|
|
2
|
|
|
|
4
|
|
|
|
3
|
|
Recoveries of loans previously
charged off
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans charged off (recovered)
|
|
|
(17
|
)
|
|
|
27
|
|
|
|
3
|
|
Additions to allowance charged to
operations(1)
|
|
|
|
|
|
|
127
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,017
|
|
|
$
|
1,000
|
|
|
$
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge offs to the
daily average of loans outstanding
|
|
|
-0.02
|
%
|
|
|
0.03
|
%
|
|
|
0.00
|
%
|
|
|
|
(1) |
|
Additions to the allowance were based primarily on current
economic conditions and the condition of the loan portfolio. |
98
Allocation
of Allowance
Since Kensington Bank has no significant loans considered to be
impaired under FAS 114, no portion of the allowance is in
any way restricted to any individual loan or group of loans and
the entire allowance is available to absorb losses from any and
all loans. The following table represents managements
allocation of the allowance for possible credit losses to
specific loan categories.
Table
8
Allocation
of Allowance for Possible Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands)
|
|
|
Real estate commercial
|
|
$
|
572,740
|
|
|
$
|
576,933
|
|
|
$
|
445,370
|
|
Real estate construction
|
|
|
281,567
|
|
|
|
271,720
|
|
|
|
250,954
|
|
Real estate residential
|
|
|
93,896
|
|
|
|
91,157
|
|
|
|
110,840
|
|
Real estate multifamily
|
|
|
12,116
|
|
|
|
12,956
|
|
|
|
25,190
|
|
Commercial
|
|
|
48,177
|
|
|
|
38,545
|
|
|
|
48,483
|
|
Consumer
|
|
|
8,242
|
|
|
|
8,689
|
|
|
|
19,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for possible loan
losses
|
|
$
|
1,016,738
|
|
|
$
|
1,000,000
|
|
|
$
|
900,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a loan delinquency table as reported in
Kensington Banks Call Report to the regulatory authorities
as of December 31, 2005, 2004 and 2003 of past due loans 30
to 89 days delinquent and still accruing interest. There
were no loans past due for 90 days or more that were still
accruing interest.
Table
9
Delinquent
Loan Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands)
|
|
|
Real estate loans
|
|
$
|
247
|
|
|
$
|
|
|
|
$
|
152
|
|
Commercial loans
|
|
|
608
|
|
|
|
|
|
|
|
|
|
Other loan
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
867
|
|
|
$
|
|
|
|
$
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
The following table presents the average daily amount of
deposits (dollars in thousands):
Table
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Non interest-bearing demand
deposits
|
|
$
|
32,398
|
|
|
|
|
|
|
$
|
22,318
|
|
|
|
|
|
|
$
|
13,561
|
|
|
|
|
|
Interest-bearing demand deposits
|
|
|
31,740
|
|
|
|
1.28
|
%
|
|
|
36,981
|
|
|
|
1.12
|
%
|
|
|
22,944
|
|
|
|
1.06
|
%
|
Savings deposits
|
|
|
15,440
|
|
|
|
1.33
|
%
|
|
|
15,647
|
|
|
|
1.00
|
%
|
|
|
11,196
|
|
|
|
1.07
|
%
|
Time deposits
|
|
|
171,968
|
|
|
|
3.07
|
%
|
|
|
183,541
|
|
|
|
2.43
|
%
|
|
|
190,393
|
|
|
|
2.82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
$
|
251,546
|
|
|
|
2.34
|
%
|
|
$
|
258,487
|
|
|
|
1.94
|
%
|
|
$
|
238,094
|
|
|
|
2.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
Time deposits of $100,000 or more outstanding at
December 31, 2005, will mature as follows (in thousands):
|
|
|
|
|
Under 3 Months
|
|
$
|
9,175
|
|
3 to 12 Months
|
|
|
29,709
|
|
Over 12 Months
|
|
|
42,961
|
|
|
|
|
|
|
Total
|
|
$
|
81,845
|
|
|
|
|
|
|
At December 31, 2005, time deposits represented
approximately 72.2% of total deposits. Time deposits over
$100,000 represented 32.5% of average total deposits at
December 31, 2005. As a percentage, noninterest-bearing
demand deposits increased from 5.7% of average total deposits at
December 31, 2003 to 8.61% of average total deposits at
December 31, 2004 to 12.9% at December 31, 2005.
Interest-bearing demand deposits decreased from 14.3% of average
total deposits at December 31, 2004 to 12.6% at
December 31, 2005. Interest-bearing demand deposits were
9.6% of average total deposits at December 31, 2003.
Savings deposits were 6.1% of average total deposits at
December 31, 2004 and December 31, 2005, compared to
4.7% of average total deposits at December 31, 2003 and
time deposits (certificates of deposit) decreased from 71.0% of
average total deposits at December 31, 2004 to 68.4% at
December 31, 2005. Time deposits were 79.9% of average
total deposits at December 31, 2003.
Other
Borrowed Funds
The following table presents the average daily amount of other
borrowed funds (dollars in thousands):
Table
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
Average
|
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
|
Securities sold under agreement to
repurchase
|
|
$
|
9,423
|
|
|
|
3.36
|
%
|
|
$
|
5,383
|
|
|
|
1.52
|
%
|
|
$
|
10,516
|
|
|
|
1.33
|
%
|
Other (Federal Funds Purchased)
|
|
|
1,003
|
|
|
|
3.29
|
%
|
|
|
1,163
|
|
|
|
0.95
|
%
|
|
|
1,138
|
|
|
|
1.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Borrowed Funds
|
|
$
|
10,426
|
|
|
|
3.36
|
%
|
|
$
|
6,546
|
|
|
|
1.42
|
%
|
|
$
|
11,654
|
|
|
|
1.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on
Equity
The ratio of net income to average shareholders equity and
daily average total assets and certain other ratios are
presented below for Kensington Bank:
Table
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Percentage of net income to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets
|
|
|
1.01
|
%
|
|
|
0.93
|
%
|
|
|
0.76
|
%
|
Average shareholders equity
|
|
|
10.54
|
%
|
|
|
10.63
|
%
|
|
|
8.97
|
%
|
Percentage of average
shareholders equity to daily average total assets
|
|
|
9.41
|
%
|
|
|
8.73
|
%
|
|
|
8.41
|
%
|
100
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS KENSINGTON BANKSHARES
The following discussion and analysis is designed to provide a
better understanding of the significant factors related to
Kensington Bankshares results of operations, financial
condition, liquidity, and capital resources. (dollars in
thousands)
General
Kensington Bankshares principal asset is Kensington Bank.
Accordingly, results of operations are primarily dependent upon
the results of operations of Kensington Bank. Kensington Bank
conducts a general commercial banking business, which consists
of attracting deposits from the general public and applying
those funds to the origination of loans for commercial, consumer
and residential purposes. Kensington Banks profitability
depends primarily on net interest income, which is the
difference between interest income generated from
interest-earning assets (i.e., loans and investments) less the
interest expense incurred on interest-bearing liabilities (i.e.,
customer deposits and borrowed funds). Net interest income is
affected by the relative amounts of interest-earning assets and
interest-bearing liabilities, and the interest rate paid on
these balances. Net interest income is dependent upon Kensington
Banks interest rate spread, which is the difference
between the average yield earned on its interest-earnings assets
and the average rate paid on its interest-bearing liabilities.
When interest-earning assets approximate or exceed
interest-bearing liabilities, any positive interest rate spread
will generate net interest income. The interest rate spread is
impacted by interest rates, deposit flows, and loan demands.
Additionally, to a lesser extent, Kensington Banks
profitability is affected by such factors as the level of
non-interest income and expenses, the provision for loan losses,
and the effective tax rate. Non-interest income consists of
service charges and other income. Non-interest expenses consist
of compensation and benefits, occupancy related expense,
equipment and data processing expenses, professional fees and
other operating expenses.
Critical
Accounting Policies and Estimates
Kensington Bankshares accounting policies are critical to
understanding the results of operations and financial position
as reported in the consolidated financial statements.
Significant accounting policies used by Kensington Bankshares
are discussed in more detail in the notes to the consolidated
financial statements.
In preparing financial statements in conformity with GAAP,
management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the
date of the statements of financial condition and reported
amounts of revenues and expenses during the reporting periods.
Actual results could differ from these estimates. Material
estimates that are particularly susceptible to significant
change in the near term relate to the determination of the
allowance for possible credit losses.
The allowance for possible credit losses is maintained at a
level, which, in managements judgment, is adequate to
absorb possible credit losses inherent in the loan portfolio.
The amount of the allowance is based on managements
evaluation of the collectibility of the loan portfolio,
including the nature of the portfolio, credit concentrations,
trends in historical loss experience, specific impaired loans,
economic conditions, and other risks inherent in the portfolio.
Allowances for impaired loans are generally determined based on
collateral values or the present value of estimated cash flows.
In connection with the determination of the estimated losses on
loans, management will obtain independent appraisals for
significant collateral.
While management uses available information to recognize losses
on loans, further reductions in the carrying amounts of loans
may be necessary based on changes in local economic conditions
and changes in the capacity of borrowers to repay their
debts. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the estimated
losses on loans. Such agencies may require Kensington Bank to
recognize additional losses based on their judgments about
information available to them at the time of their examination.
Because of these factors, it is possible that the estimated
losses on loans may change materially in the near term. However,
the amount of the change cannot be estimated.
101
Results
of Operations and Financial Condition
Comparison
of year ended December 31, 2005 to the year ended
December 31, 2004.
Kensington Bankshares experienced continued asset, investment,
loan, and deposit growth during 2005. Total assets increased
20.8% to $324,654 at December 31, 2005 from $268,674 at
December 31, 2004. This increase is primarily attributable
to an increase in securities of $25,625 and an increase in loans
of $27,765 during the year. Securities held to maturity
increased to $184,025 at December 31, 2005 from $153,338 at
December 31, 2004, while securities available for sale
decreased to $-0- at December 31, 2005 from $5,062 at
December 31, 2004. These increases are attributable to the
increase in deposit accounts during the year by 15.9%, or
$38,242, from $240,446 at December 31, 2004 to $278,688 at
December 31, 2005. In addition, other borrowed funds
increased to $17,321 at December 31, 2005 from $991 at
December 31, 2004.
Total interest income increased 13.3% to $16,058 for the year
ended December 31, 2005, from $14,174 at December 31,
2004. The increase was due primarily to a rise in interest rates
and a rise in interest-earning assets, loans and investments,
resulting from a $38,242 growth in deposits from 2004 to 2005.
The 15.9% increase in deposits from 2004 to 2005 is attributable
to a general growth in Kensington Banks service area. In
addition, the existing branches have become more established in
their market area. Loan interest income in 2005 increased 26.6%
to $8,374 from $6,616 in 2004. Interest income from investment
securities increased by 1.2% to $7,603 during 2005 from $7,513
in 2004. Interest income from federal funds sold increased by
78.8% to $81 during 2005 from $45 in 2004. Interest expense
increased by 22% to $6,247 during 2005 from $5,119 in 2004.
Non-interest income, which consists of service charges and other
income, increased by 14.7% to $257 during 2005 from $224 in
2004. Non-interest expense, which consists of salaries and
employee benefits, occupancy expense and other expense increased
by 12.2% to $5,430 during 2005 from $4,841 in 2004. Net earnings
after income taxes increased to $2,880 or $0.78 per share
in 2005 from $2,685 or $0.72 per share in 2004.
Comparison
of year ended December 31, 2004 to the year ended
December 31, 2003.
Kensington Bankshares experienced a decrease in asset growth
during 2004. Total assets decreased 6.5% to $268,674 at
December 31, 2004 from $287,257 at December 31, 2003.
This decrease is primarily attributable to a decrease in
securities of $14,880 offset by an increase in loans of $7,700
during the year. Securities available for sale decreased to
$5,062 at December 31, 2004 from $5,117 at
December 31, 2003, while securities held to maturity
decreased 8.8% or $14,826 to $153,338 at December 31, 2004
from $168,163 at December 31, 2003. These decreases are
attributable to the decrease in deposit accounts during the year
by 4.6%, or $11,665, from $252,111 at December 31, 2003 to
$240,446 at December 31, 2004. The decrease in deposits at
December 31, 2004 compared to December 31, 2003 was a
result of managements decision not to match
competitors interest rates on time deposits in the fourth
quarter of 2004.
Total interest income increased 6.2% to $14,174 for the year
ended December 31, 2004, from $13,345 for the year ended
December 31, 2003. The increase in interest income was
primarily due to an increase in loans from 2003 to 2004. The
4.6% decrease in deposits from 2003 to 2004 is attributable to
management decisions to slow growth at the end of 2004. Loan
interest income in 2004 increased 3.5% to $6,616 from $6,392 in
2003. Interest income from investment securities increased by
8.6% to $7,513 during 2004 from $6,916 in 2003. Interest income
from federal funds sold increased by 18.4% to $45 during 2004
from $38 in 2003. Interest expense decreased by 13.1% to $5,119
during 2004 from $5,891 in 2003. Non-interest income, which
consists of service charges and other income, decreased by 34.8%
to $224 during 2004 from $344 in 2003 as a result of a decrease
in security gains of $175 from $183 in 2003 to $8 in 2004.
Non-interest expense, which consists of salaries and employee
benefits, occupancy expense and other expense increased by 11.8%
to $4,841 during 2004 from $4,332 in 2003. Net earnings after
income taxes increased to $2,685 or $0.72 per share in 2004
from $2,029 or $0.55 per share in 2003.
Net
Interest Income
Net interest income is the difference between interest and fees
earned on interest-earning assets, primarily loans and
investment securities, and interest paid on deposits and
borrowed funds. Accordingly, net interest income depends upon
the volume of average earning assets and average
interest-bearing liabilities and the rates earned or paid on
them. An analysis of interest earned on average earning assets
and the interest paid on average interest
102
bearing liabilities and the related average rates earned or paid
on them is set forth under Statistical Information about
Kensington Bankshares Income and Average Yield on Interest
Earning Assets and Interest Expense and Average Rate of Interest
Bearing Liabilities beginning on page .
Net yield or net interest margin on interest earning assets is
net interest revenue, divided by total interest earning assets.
This ratio is a measure of Kensington Banks effectiveness
in pricing interest-earning assets and funding them with both
interest and non-interest-bearing liabilities. Kensington
Banks net yield increased to 3.46% for the year ending
December 31, 2005 compared to 3.18% for the year ending
December 31, 2004 and 2.8% for the year ending
December 31, 2003. The numerous interest rate increases in
2005 caused rates earned on loans and other interest-earning
assets to increase more rapidly than rates paid on the
liabilities, primarily deposits, used to fund those assets.
Net interest income totaled $9,811 for the year ended
December 31, 2005, an 8.4% increase from $9,055 at
December 31, 2004. Net interest income totaled $7,454 for
the year ended December 31, 2003. Average interest-earning
assets and interest-bearing liabilities decreased from $282,143
and $242,770, respectively, for the year ending
December 31, 2004 to $279,962 and $229,574, respectively,
for the year ended December 31, 2005. Average
interest-earning assets and interest-bearing liabilities were
$265,280 and $224,533, respectively, for the year ended
December 31, 2003.
Provision
for Possible Credit Losses
The provision for possible credit losses reflects
managements current assessment of risks inherent in the
lending process, the level of past due loans and problem assets.
In managements opinion, the allowance for possible credit
losses as of December 31, 2005, is adequate to absorb
potential losses in the loan portfolio. The ratio of loan loss
allowance to total loans was 0.81% as of December 31, 2005
and 1.02% as of December 31, 2004. Although management uses
the best information available to make determinations with
respect to the allowance for possible credit losses, future
adjustments may be necessary if economic conditions differ
substantially from the assumptions used or adverse developments
arise with respect to Kensington Bankshares non-performing or
performing loans. Material additions to Kensington Bankshares
allowance for possible credit losses would result in a decrease
in net income and capital.
Non-Interest
Income and Expenses
Table
13
Non-Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands)
|
|
|
Service charges on deposit accounts
|
|
$
|
218
|
|
|
$
|
190
|
|
|
$
|
142
|
|
Securities gains
|
|
|
3
|
|
|
|
1
|
|
|
|
118
|
|
Other income
|
|
|
36
|
|
|
|
33
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
$
|
257
|
|
|
$
|
224
|
|
|
$
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income increased $33 to $257 for the year ended
December 31, 2005 from $224 for the year ended
December 31, 2004. The increases in non-interest income are
primarily attributable to increases in service charges on
deposit accounts as a result of the $38,242 or 15.9% increase in
deposits from December 31, 2004 to December 31, 2005.
Non-interest income decreased $110 to $224 for the year ended
December 31, 2004 from $344 for the year ended
December 31, 2003. The decrease in non-interest income from
2003 to 2004 is primarily due to a decrease in securities gains
of $117.
103
Table
14
Non-Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands)
|
|
|
Salaries and employee benefits
|
|
$
|
3,017
|
|
|
$
|
2,536
|
|
|
$
|
2,280
|
|
Occupancy expense
|
|
|
589
|
|
|
|
506
|
|
|
|
462
|
|
Equipment expense
|
|
|
429
|
|
|
|
453
|
|
|
|
391
|
|
Data processing
|
|
|
312
|
|
|
|
367
|
|
|
|
337
|
|
Professional and directors fees
|
|
|
288
|
|
|
|
253
|
|
|
|
192
|
|
Office expense
|
|
|
155
|
|
|
|
151
|
|
|
|
154
|
|
Advertising and marketing expense
|
|
|
136
|
|
|
|
89
|
|
|
|
101
|
|
Other expense
|
|
|
504
|
|
|
|
486
|
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
5,430
|
|
|
$
|
4,841
|
|
|
$
|
4,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense increased $589 to $5,430 for the year ended
December 31, 2005 from $4,841 for the year ended
December 31, 2004. The increase in non-interest expenses is
attributable to several factors including the hiring of new
employees during 2004 and 2005, resulting in an increase in the
average number of employees from 57 in 2004 to 65 in 2005, and
the overall growth in total assets to $324,654 at
December 31, 2005 from $268,674 at December 31, 2004.
Non-interest expense increased $509 to $4,841 for the year ended
December 31, 2004 from $4,332 for the year ended
December 31, 2003. The increase in non-interest expenses
from 2003 to 2004 is attributable primarily to the hiring of new
employees in 2004 and the continued expansion of Kensington
Banks branch network.
Due to strong asset growth, expenses as a percent of average
assets increased from 1.67% in 2004 to 1.88% for year ended
December 31, 2005. Management does not anticipate any
significant reductions in non-interest expenses as a percent of
average assets.
Income
Tax Expense (Benefit)
The income tax provision for the year ended December 31,
2005 was $1,758, or 37.9% of earnings before income taxes,
compared to $1,626, or 37.7% of earnings before income taxes for
the year ended December 31, 2004, and $1,234, or 37.8% of
earnings before income taxes for the year ended
December 31, 2003. The change in the effective tax rates
between the years is primarily due to changes in non-deductible
permanent differences related to business development expenses.
Asset/Liability
Management
Volatile interest rates have made managing interest rate
sensitivity of Kensington Banks asset and liability
portfolios increasingly important. The principal objectives of
asset/liability management are to achieve an optimum and stable
net interest margin, after tax return on assets and return on
equity capital, as well as to maintain adequate liquidity and
capital. In order to accomplish these goals, management attempts
to structure Kensington Banks balance sheet by shortening
maturities of loans and investment securities to match the
corresponding maturities of deposits that are being repriced at
market rates.
Kensington Bank has a comprehensive asset/liability management
policy. Its main objective is to maintain adequate margins of
rate sensitivity and protect capital through the maintenance of
liquidity while achieving adequate profitability. Kensington
Banks asset/liability management committee meets quarterly
and consists of the banks President and Chief Executive
Officer, Executive Vice President/Chief Financial Officer and
Senior Loan Officer. Minutes are recorded at the meeting with a
copy provided to each member of Kensington Banks board of
directors.
104
Kensington Banks asset/liability committee
(ALCO) report is produced by an outside servicing
agent on a quarterly basis. Management provides the servicing
agent with all of Kensington Banks financial data in order
for the servicing agent to complete the report in a timely
manner.
Management and the board of directors of Kensington Bank review
all of the information provided by the ALCO in assessing
exposure of Kensington Bank to interest rate risk. As a part of
Kensington Banks interest rate risk management policy, the
ALCO Committee examines the extent to which its assets and
liabilities are interest rate-sensitive and monitors
Kensington Banks interest rate-sensitivity
gap. An asset or liability is considered to be
interest rate-sensitive if it will reprice or mature within the
time period analyzed, usually one year or less. The interest
rate-sensitive gap is the difference between interest-bearing
assets and interest-bearing liabilities scheduled to mature or
reprice within such time period. A gap is considered positive
when the amount of interest rate-sensitive assets exceeds the
amount of interest rate-sensitive liabilities. A gap is
considered negative when the amount of interest rate-sensitive
liabilities exceeds interest rate-sensitive assets. During a
period of rising interest rates, a negative gap would tend to
adversely affect net interest income, while a positive gap would
tend to result in an increase in net interest income. During a
period of falling interest rates, a negative gap would tend to
result in an increase in net interest income, while a positive
gap would tend to adversely affect net interest income. If the
repricing of Kensington Banks assets and liabilities were
equally flexible and moved concurrently, the impact of any
increase or decrease in interest rates on net interest income
would be minimal.
105
The following table sets forth the interest rate-sensitive
assets and liabilities of Kensington Bank at December 31,
2005, which are expected to mature or are subject to repricing
in each of the time periods indicated. Dollar amounts are
presented in thousands.
Table
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Sensitivity Due to
Maturing or Repricing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More
|
|
|
|
|
|
|
90 Days
|
|
|
90-180
|
|
|
181 Days
|
|
|
|
|
|
|
|
|
Than 5
|
|
|
|
|
|
|
or Less
|
|
|
Days
|
|
|
to 1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
Years
|
|
|
Total
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
$
|
1,953
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,953
|
|
Investment securities
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
9,060
|
|
|
|
24,720
|
|
|
|
149,376
|
|
|
|
184,156
|
|
Loans
|
|
|
37,317
|
|
|
|
5,946
|
|
|
|
9,510
|
|
|
|
53,920
|
|
|
|
17,377
|
|
|
|
1,195
|
|
|
|
125,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
39,270
|
|
|
$
|
6,946
|
|
|
$
|
9,510
|
|
|
$
|
62,980
|
|
|
$
|
42,097
|
|
|
$
|
150,571
|
|
|
$
|
311,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
|
$
|
5,889
|
|
|
$
|
1,224
|
|
|
$
|
2,448
|
|
|
$
|
9,792
|
|
|
$
|
9,743
|
|
|
|
|
|
|
$
|
29,096
|
|
Savings deposits
|
|
|
633
|
|
|
|
633
|
|
|
|
1,266
|
|
|
|
5,068
|
|
|
|
5,042
|
|
|
|
|
|
|
|
12,642
|
|
Time deposits
|
|
|
34,696
|
|
|
|
30,728
|
|
|
|
46,809
|
|
|
|
85,889
|
|
|
|
3,468
|
|
|
|
|
|
|
|
201,590
|
|
Customer repurchase agreements
|
|
|
2,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,118
|
|
Securities sold under agreements
to repurchase
|
|
|
15,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
58,539
|
|
|
$
|
32,585
|
|
|
$
|
50,523
|
|
|
$
|
100,749
|
|
|
$
|
18,253
|
|
|
|
|
|
|
$
|
260,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-sensitivity gap per period
|
|
$
|
(19,269
|
)
|
|
$
|
(25,639
|
)
|
|
$
|
(41,013
|
)
|
|
$
|
(37,769
|
)
|
|
$
|
23,844
|
|
|
$
|
150,571
|
|
|
$
|
50,725
|
|
Cumulative gap
|
|
$
|
(19,269
|
)
|
|
$
|
(44,908
|
)
|
|
$
|
(85,921
|
)
|
|
$
|
(123,690
|
)
|
|
$
|
(99,846
|
)
|
|
$
|
50,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative ratio of interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets to interest-bearing
Liabilities
|
|
|
.67
|
|
|
|
.21
|
|
|
|
0.19
|
|
|
|
.63
|
|
|
|
2.31
|
|
|
|
|
|
|
|
|
|
Cumulative gap to total assets
|
|
|
(0.06
|
)
|
|
|
(0.14
|
)
|
|
|
(0.26
|
)
|
|
|
(0.38
|
)
|
|
|
(0.31
|
)
|
|
|
.16
|
|
|
|
|
|
Rate
Sensitive Assets/Rate Sensitive Liabilities (RSA/RSL)
Kensington Bank is liability sensitive in each of the measured
ranges. Kensington Banks
90-day and
180-day
forward cumulative RSA/RSL were 0.67% and 0.21% as of
December 31, 2005. Kensington Banks rate sensitivity
is not a significant concern to management because Kensington
Banks performance in the simulation model of its
asset/liability-servicing agent indicates that the risk is not
substantial.
Liquidity
and Capital Resources
Kensington Bank continually monitors the maturity of its
monetary assets and liabilities (liquidity management) in an
attempt to properly match source and use availability of funds
to provide the best overall yield
106
opportunities. The role of liquidity management is to ensure
that Kensington Bank has a ready access to sufficient liquid
funds to meet normal transaction requirements, to take advantage
of market opportunities requiring flexibility and speed and to
provide a cushion against unforeseeable liquidity needs. The
need for a program of liquidity management has been heightened
substantially by economic development in recent years. Interest
rates have become more volatile, creating major new
uncertainties and risks in the decision making process.
Kensington Banks liquidity ratios, as calculated using the
regulatory formula (essentially liquid assets, except for loans,
which can be converted to cash within one year divided by
liabilities due within one year) are set forth below as of the
dates indicated:
Table
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Liquidity ratio
|
|
|
57.89
|
%
|
|
|
59.18
|
%
|
|
|
65.88
|
%
|
Net loan to deposit ratio
|
|
|
44.29
|
%
|
|
|
40.05
|
%
|
|
|
35.26
|
%
|
Management believes that short-term and long-term liquidity
needs can be met by active monitoring of Kensington Banks
asset/liability position. For the year ended December 31,
2005, Kensington Bank was able to meets its liquidity needs from
the following: Kensington Bank received $54,572 from deposit
growth and short-term borrowed funds and $49,180 from maturities
and calls of investment securities. These sources of funds were
used by Kensington Bank to fund a net increase in loans of
$27,765 and the purchase of $75,080 in investment securities.
Additionally, Kensington Bank has available, if needed, $11,000
of federal funds lines of credits with correspondent banks.
Since inception, in anticipation of a continued decline in
interest rates, it has been the policy of Kensington Bank to
pursue the sale of short-term time deposits. As a result, a
significant portion of Kensington Banks time deposits
mature in 2006 and 2007. Kensington Banks asset/liability
policy enables management to continuously evaluate its interest
rate exposure and use various strategies to manage interest rate
risks. With regard to time deposits, management can adjust
interest rates paid on new or renewing certificates of deposit,
set withdrawal penalties at levels to discourage early
withdrawals and eliminate any dependency on public funds from
government agencies. Since time deposits are a competitive
product among banks, the most common method for managing
interest rate exposure is to increase or decrease interest rate
pricing as the need for funds increases or decreases. Therefore,
Kensington Bank does not expect any adverse effect from early
withdrawals or the non-renewing of time deposits. If, for some
reason, a significant portion of the short-term time deposits
were not renewed or covered by the sale of new time deposits,
Kensington Bank would be required to sell a portion of its
investment securities to meet the payment of such obligations.
In accordance with risk-based capital guidelines by the FDIC,
Kensington Bank is expected to meet a minimum ratio of
qualifying total capital to risk-weighted assets of 8%, of which
at least four percentage points should be in the form of core
capital (Tier I).
A bank is considered well capitalized if it has a total
risk-based capital ratio of 10% or greater; and has a
Tier I risk-based capital ratio of 6% or greater; and has a
leveraged ratio of 5% or greater (8% for banks in operation for
less than three years) and is not subject to any corrective
agreement or order.
107
The following table summarizes the risk-based and leverage
ratios of Kensington Bankshares as of December 31, 2005
(dollars in thousands):
Table
17
|
|
|
|
|
Tier I Capital
|
|
|
|
|
Common Shareholders equity
less intangible assets
|
|
$
|
27,426
|
|
Tier II Capital
|
|
|
|
|
Allowance for possible credit loss
|
|
|
1,017
|
|
|
|
|
|
|
Total Capital
|
|
$
|
28,443
|
|
|
|
|
|
|
Risk-adjusted assets
|
|
$
|
171,473
|
|
|
|
|
|
|
Risk-based capital ratios:
|
|
|
|
|
Tier I Capital
|
|
|
15.99
|
%
|
Total Capital
|
|
|
16.59
|
%
|
Leverage Ratio
|
|
|
9.75
|
%
|
The various components of Kensington Bankshares regulatory
capital and certain ratios are shown below on the dates
indicated (dollars in thousands):
Table
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Equity capital
|
|
$
|
27,426
|
|
|
$
|
26,940
|
|
|
$
|
24,194
|
|
Allowance for possible credit loss
|
|
$
|
1,017
|
|
|
$
|
1,000
|
|
|
$
|
900
|
|
Primary capital
|
|
$
|
28,443
|
|
|
$
|
27,940
|
|
|
$
|
25,094
|
|
Primary capital to total assets
|
|
|
8.76
|
%
|
|
|
10.40
|
%
|
|
|
8.74
|
%
|
Equity capital to total assets
|
|
|
8.45
|
%
|
|
|
10.03
|
%
|
|
|
8.42
|
%
|
Contractual
Obligations
Kensington Bankshares has contractual obligations to make future
payments on lease agreements. These operating lease obligations
for office space and equipment are not recorded on the
consolidated statements of financial condition. Kensington
Bankshares has no unconditional purchase obligations or other
long-term obligations. These lease obligations are more fully
discussed in Note 5 of the Consolidated Financial
Statements of Kensington Bankshares which are included in this
joint proxy statement/prospectus.
In addition, at December 31, 2005, Kensington Bankshares
had recorded approximately $1.4 million in construction in
process related to completion of two new branch facilities.
Additional costs to complete the facilities are anticipated to
be $300,000.
Credit
Extension Commitments
Many of Kensington Bankshares lending relationships, including
those with commercial and consumer customers, contain both
funded and unfunded elements. The unfunded component of these
commitments is not recorded on Kensington Bankshares
Consolidated Statements of Financial Condition. These
commitments are more fully discussed in Note 14 of the
Consolidated Financial Statements which are included in joint
proxy statement/prospectus.
Accounting
Pronouncements
Statement of Financial Accounting Standards No. 123R,
Share Based Payments
(SFAS 123R) establishes standards for
accounting for transactions in which an enterprise receives
employee services in exchange for
108
(a) equity instruments of the enterprise or
(b) liabilities that are based on the fair value of the
enterprises equity instruments or that may be settled by
the issuance of such equity instruments. SFAS 123R
eliminates the ability to account for stock based compensation
using the intrinsic value based method of accounting and
requires that such transactions be recognized as compensation
cost in the income statement based on their fair values on the
date of the grant. SFAS 123R applies to new awards and
towards modified, repurchased, or cancelled awards in fiscal
years beginning after December 15, 2005. Kensington
Bankshares plans to transition to fair value based accounting
for stock based compensation using a prospective application
effective January 1, 2006.
In May 2005, the FASB issued Statement of Financial Accounting
Standards No. 154, Accounting For Changes and
Error Corrections (SFAS 154), which
replaces APB Opinion No. 20, Accounting
Changes, and supersedes FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial
Statements an amendment of APB Opinion No. 28.
SFAS 154 requires retrospective application to prior
periods financial statements of changes in accounting principle,
unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change.
When it is impracticable to determine the period-specific
effects of an accounting change on one or more individual prior
periods presented, SFAS 154 requires that the new
accounting principle be applied to the balances of assets and
liabilities as of the beginning of the earliest period for which
retrospective application is practicable and that a
corresponding adjustment be made to the opening balance of
retained earnings for that period rather than being reported in
the income statement. When it is impracticable to determine the
cumulative effect of applying a change in accounting principle
to all prior periods, SFAS 154 requires that the new
accounting principle be applied as if it were adopted
prospectively from the earliest date practicable. SFAS 154
is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005.
Kensington Bankshares does not expect the provisions of
SFAS 154 to have a significant impact on its results of
operations.
In July 2005, the FASB published an Exposure Draft of a proposed
Interpretation, Accounting for Uncertain Tax
Positions. The Exposure Draft seeks to reduce the
significant diversity in practice associated with recognition
and measurement in the accounting for income taxes. It would
apply to all tax positions accounted for in accordance with
SFAS 109, Accounting for Income Taxes. The
Exposure Draft requires that a tax position meet a
probable recognition threshold for the benefit of
the uncertain tax position to be recognized in the financial
statements. This threshold is to be met assuming that the tax
authorities will examine the uncertain tax position. The
Exposure Draft contains guidance with respect to the measurement
of the benefit that is recognized for an uncertain tax position,
when that benefit should be recognized, and other matters. This
proposed Interpretation would clarify the accounting for
uncertain tax positions in accordance with SFAS 109.
Kensington Bankshares does not expect the provisions of the
Exposure Draft to have a significant impact on its results of
operations.
On March 17, 2006, the FASB issued Statement No. 156,
Accounting for Servicing of Financial Assets an amendment
of FASB Statement No. 140
(Statement 156), Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities. Statement 156 requires that all
servicing assets and liabilities be initially measured at fair
value and allows for two alternatives in the subsequent
accounting for servicing assets and liabilities: the
amortization method and the fair value method. The amortization
method requires that the servicing assets and liabilities be
amortized over the remaining estimated lives of the serviced
assets with impairment testing to be performed periodically. The
fair value method requires the servicing assets and liabilities
to be measured at fair value each period with an offset to
income. Statement 156 is to be adopted in the first fiscal
year that begins after September 15, 2006 and early
adoption is permitted. An entity can elect the fair value method
at the beginning of any fiscal year provided that interim
financial statements have not been issued. However, once the
fair value election is made, an entity cannot revert back to the
amortization method. Kensington Bankshares is currently
reviewing the potential impact of Statement 156, as well as
the accounting alternatives available.
Effects
of Inflation
As is the case with most financial institutions, Kensington
Banks monetary assets exceed monetary liabilities. Thus, a
loss in purchasing power occurs during periods of high
inflation. Inflation impacts the interest rate structure. The
effect of inflation on Kensington Banks non-monetary
assets (primarily premises and equipment) has not been material.
109
Net
Unrealized Depreciation on
Available-For-Sale
(AFS) Securities
Investment securities that management has the ability and intent
to hold to maturity are classified as
held-to-maturity
and are reported at cost, adjusted for amortization of premiums
and accretion of discounts using methods approximating the
interest method. Other investment securities are classified as
available-for-sale
and are reported at fair value. As of December 31, 2005,
Kensington Bank would have incurred a net loss after tax effect
of $1.8 million if it had sold and liquidated its entire
investment portfolio. Each month Kensington Bank reprices its
investment portfolio and by book entry makes the current market
price adjustment to net unrealized gains/losses for all
securities classified as
available-for-sale.
The effect of this would decrease Kensington Bankshares
primary capital to total assets as of December 31, 2005 to
8.21% from 8.76% and equity capital to total assets to 7.89%
from 8.45%.
COMPARISON
OF RIGHTS OF KENSINGTON BANKSHARES
STOCKHOLDERS AND SUPERIOR BANCORP STOCKHOLDERS
Kensington Bankshares is incorporated in Florida, and Superior
Bancorp is incorporated in Delaware. After the merger, the
former Kensington Bankshares stockholders will have their rights
and obligations as stockholders of Superior Bancorp governed by
Delaware law. A summary comparison of the material rights of
Superior Bancorp stockholders under Superior Bancorps
restated certificate of incorporation and bylaws and the rights
of a Kensington Bankshares stockholder under the Kensington
Bankshares articles of incorporation and bylaws is
described below. The information set forth below is qualified in
its entirety by reference to Superior Bancorps restated
certificate of incorporation and its bylaws and to the articles
of incorporation and the bylaws of Kensington Bankshares.
Classes
and Series of Capital Stock
Kensington Bankshares. Kensington Bankshares
is authorized by its articles of incorporation to issue up to
10,000,000 shares of capital stock, all of which are
designated common stock, par value $.01 per share. As of
December 31, 2005, there were 3,710,500 shares of
Kensington Bankshares common stock outstanding. In addition,
328,750 shares of Kensington Bankshares common stock have
been reserved for future option grants under Kensington
Bankshares stock option plans. The board of directors of
Kensington Bankshares does not have the authority under the
Kensington Bankshares articles of incorporation to issue
preferred stock.
Superior Bancorp. Superior Bancorp is
authorized by its restated certificate of incorporation to issue
up to 55,000,000 shares of capital stock, of which
50,000,000 shares are designated common stock, par value
$.001 per share, and 5,000,000 shares are designated
preferred stock, par value $.001 per share. As of
March 31, 2006, there were 20,084,587 shares of
Superior Bancorp common stock outstanding. In addition,
2,500,000 shares of Superior Bancorp common stock have been
reserved for future option grants under Superior Bancorps
stock option plans. The board of directors of Superior Bancorp
has the authority to issue preferred stock in one or more series
and fix the rights, preferences, privileges and restrictions for
each such series, without any further vote or action by the
stockholders. As of March 31, 2006, there were no shares of
preferred stock of Superior Bancorp issued and outstanding.
Size and
Election of the Board of Directors
Kensington Bankshares. Kensington
Bankshares bylaws provide that its board of directors will
consist of not more than four directors, nor less than one
director, and that the directors shall be elected by a plurality
of the votes cast by the shares entitled to vote at a meeting at
which a quorum is present.
Superior Bancorp. Superior Bancorps
bylaws provide that the board of directors of Superior Bancorp
will consist of not more than 30 directors, nor less than
three directors. The board of directors of Superior Bancorp will
fix the size of the board by the resolution. There are currently
13 directors. Directors of Superior Bancorp are elected by
a plurality of votes cast at the annual meeting of stockholders
to one-year terms.
110
Removal
of Directors
Kensington Bankshares. Kensington
Bankshares bylaws provide that a director may be removed
with or without cause by the vote of the holders of a majority
of the shares of Kensington Bankshares common stock entitled to
vote at an election of directors.
Superior Bancorp. Superior Bancorps
bylaws provide that a director may be removed with or without
cause by the vote of the holders of a majority of the shares of
Superior Bancorp common stock entitled to vote at an election of
directors, except as otherwise provided by applicable law.
Dividends
Kensington Bankshares. The bylaws of
Kensington Bankshares authorize the board of directors to
declare a dividend to the stockholders, in cash or property,
without a vote of the stockholders. Such dividends would be paid
pursuant to applicable provisions of Florida law.
Superior Bancorp. The restated certificate of
incorporation of Superior Bancorp authorizes the board of
directors of Superior Bancorp to declare a dividend to
distribute to the stockholders, without a vote of the
stockholders, any portion of the assets of Superior Bancorp
which are available under Delaware law for distribution.
Conversion
and Dissolution
Kensington Bankshares. Kensington Bankshares
common stock cannot be converted into any other type of stock.
No preferred stock is authorized by the articles of
incorporation.
Superior Bancorp. Superior Bancorp common
stock cannot be converted into any other type of stock of
Superior Bancorp. The restated certificate of incorporation of
Superior Bancorp authorizes the issuance of
5,000,000 shares of preferred stock, par value
$.001 per share, and provides that shares of preferred
stock may have the voting powers, preferences and other special
rights (including, without limitation, the right to convert the
shares of preferred stock into shares of Superior Bancorp common
stock) as described in Superior Bancorps restated
certificate of incorporation or resolutions providing for the
issuance of preferred stock. If the board of directors of
Superior Bancorp designated a series of preferred stock, such
preferred stock could be entitled to preferential payments in
the event of dissolution of Superior Bancorp.
Amendment
or Repeal of the Incorporation Documents and Bylaws
Kensington Bankshares. Under Florida law, the
articles of incorporation of Kensington Bankshares may be
amended by either the board of directors or, upon the
recommendation of the board, a majority of the stockholders of
Kensington Bankshares. The bylaws of Kensington Bankshares
provide that the board of directors may alter, amend or repeal
the bylaws, provided that any amendment adopted by the
Kensington Bankshares board of directors may be altered, amended
or repealed by the stockholders and the stockholders may
prescribe that such bylaws may not be amended, altered or
repealed by the board of directors.
Superior Bancorp. Under Delaware law, unless
its certificate of incorporation or bylaws require a greater
vote, amendment of a corporations certificate of
incorporation generally requires the approval of the holders of
a majority of the outstanding stock entitled to vote thereon. If
the amendment would increase or decrease the number of
authorized shares of any class or series or the par value of
such shares or would adversely affect the shares of such class
or series, the approval of the holders of a majority of the
outstanding stock of such class or series is required to amend
the certificate of incorporation. The restated certificate of
incorporation and the bylaws of Superior Bancorp impose no
greater voting requirement.
The restated certificate of incorporation and bylaws of Superior
Bancorp provide that the bylaws may be altered, amended or
repealed by a vote of a majority of the entire board of
directors of Superior Bancorp, or by a majority of the
outstanding stock entitled to vote thereon.
111
Special
Meetings of Stockholders
Kensington Bankshares. The bylaws of
Kensington Bankshares provide that a special meeting of the
stockholders may be called at any time by the President or by
order of the board of directors of Kensington Bankshares. The
business transacted at a special meeting of the stockholders is
limited to the purpose or purposes stated in the notice of the
special meeting.
Superior Bancorp. Superior Bancorps
bylaws provide that a special meeting of Superior Bancorp
stockholders may, unless otherwise prescribed by law, be called
at any time by the chairman of the board or the President or by
order of the board of directors of Superior Bancorp. Special
meetings of stockholders prescribed by law for the election of
directors will be called by the board of directors of Superior
Bancorp, the chairman of the board, the president or the
secretary whenever they are required to do so by applicable law.
Liability
of Directors
Kensington Bankshares. Florida law generally
provides that a director is not personally liable for monetary
damages to the corporation or any other person for any
statement, vote, decision, or failure to act, regarding
corporate management or policy, by a director, unless:
(a) The director breached or failed to perform his or her
duties as a director; and
(b) The directors breach of, or failure to perform,
those duties constitutes:
1. A violation of the criminal law, unless the director had
reasonable cause to believe his or her conduct was lawful or had
no reasonable cause to believe his or her conduct was unlawful.
A judgment or other final adjudication against a director in any
criminal proceeding for a violation of the criminal law estops
that director from contesting the fact that his or her breach,
or failure to perform, constitutes a violation of the criminal
law; but does not estop the director from establishing that he
or she had reasonable cause to believe that his or her conduct
was lawful or had no reasonable cause to believe that his or her
conduct was unlawful;
2. A transaction from which the director derived an
improper personal benefit, either directly or indirectly;
3. A circumstance under which the liability provisions
under Florida law for unlawful distributions to stockholders are
applicable;
4. In a proceeding by or in the right of the corporation to
procure a judgment in its favor or by or in the right of a
stockholder, conscious disregard for the best interest of the
corporation, or willful misconduct; or
5. In a proceeding by or in the right of someone other than
the corporation or a stockholder, recklessness or an act or
omission which was committed in bad faith or with malicious
purpose or in a manner exhibiting wanton and willful disregard
of human rights, safety, or property.
Superior Bancorp. Delaware law permits a
corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of
a director to a corporation or its stockholders for damages for
breach of the directors fiduciary duty, subject to certain
limitations. The restated certificate of incorporation of
Superior Bancorp includes such a provision which, as described
below, limits the liability to the fullest extent permitted
under applicable law.
The restated certificate of incorporation of Superior Bancorp
provides that a director will not be personally liable to the
corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability:
|
|
|
|
|
for any breach of the directors duty of loyalty to
Superior Bancorp or its stockholders;
|
|
|
|
for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
|
112
|
|
|
|
|
under Section 174 of the Delaware General Corporation Law,
which concerns unlawful payments of dividends or expenditures of
funds for unlawful stock purchases or redemptions; or
|
|
|
|
for any transaction from which the director derived an improper
personal benefit.
|
While these provisions provide directors with protection from
awards of monetary damages for breaches of their duty of care,
they do not eliminate such duty. Accordingly, these provisions
will have no effect on the availability of equitable remedies
such as an injunction or rescission based on a directors
breach of his or her duty of care. The provisions described
above apply to an officer of Superior Bancorp only if he or she
is a director of Superior Bancorp and is acting in his or her
capacity as director, and do not apply to officers of Superior
Bancorp who are not directors.
DESCRIPTION
OF CAPITAL STOCK OF SUPERIOR BANCORP
Authorized
Capital Stock
Superior Bancorps restated certificate of incorporation
provides that Superior Bancorp may issue 5,000,000 shares
of preferred stock, par value $.001 per share, and
50,000,000 shares of common stock, par value $.001 per
share.
Superior
Bancorp Common Stock
Holders of Superior Bancorp common stock are entitled to one
vote for each share held of record on all matters to be
submitted to a vote of the stockholders and do not have
pre-emptive rights. Cumulative voting is not permitted. This
means that the holders of shares entitled to exercise more than
50% of the voting rights in the election of directors, for
example, will be able to elect all Superior Bancorps
directors.
The holders of Superior Bancorp common stock are entitled to
dividends and other distributions as and if declared by the
board of directors of Superior Bancorp out of funds legally
available. See Market Price and Dividend
Information. All outstanding shares of Superior Bancorp
common stock are, and the shares to be issued in the merger will
be, when issued pursuant to the merger agreement, fully paid and
nonassessable. Upon the liquidation, dissolution or winding up
of Superior Bancorp, the holders of Superior Bancorp common
stock would be entitled to share pro rata in the distribution of
all assets, if any, of Superior Bancorp remaining after payment
or provision for payment of all Superior Bancorps debts
and obligations and preferred liquidation payments, if any, to
holders of any outstanding shares of preferred stock. Shares of
Superior Bancorp common stock are not subject to any redemption
provisions and are not convertible into any other security or
other property of Superior Bancorp. No share of Superior Bancorp
common stock is subject to any call or assessment.
Superior
Bancorp Preferred Stock
The board of directors of Superior Bancorp is authorized to
issue shares of preferred stock in one or more series. The board
of directors of Superior Bancorp will determine and fix the
rights, preferences and privileges of each series, including
dividend rights and preferences over dividends on Superior
Bancorp common stock and one or more series of preferred stock,
conversion rights, voting rights (in addition to those provided
by law), redemption rights and the terms of any sinking fund
therefor, and rights upon liquidation, dissolution or winding
up, including preferences over Superior Bancorp common stock and
one or more series of preferred stock. Although Superior Bancorp
has no present plans to issue any shares of preferred stock, the
issuance of shares of preferred stock, or the issuance of rights
to purchase such shares, may have the effect of delaying,
deferring or preventing a change in control of Superior Bancorp
or an unsolicited acquisition proposal.
Certain
Provisions of Superior Bancorps Restated Certificate of
Incorporation and Delaware Law
No Classified Board of Directors. Superior
Bancorps restated certificate of incorporation and bylaws
provide for the directors of Superior Bancorp to be annually
elected for a term of one year.
113
Advance Notice Provisions for Stockholder Proposals and
Stockholder Nominations of Directors. Superior
Bancorps restated certificate of incorporation provides
that at an annual meeting of stockholders, only such business
will be conducted as will have been properly brought before the
meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of such
meeting (or any supplement thereof, given by or at the direction
of the board of directors of Superior Bancorp),
(b) otherwise properly brought before the meeting by or at
the direction of the board of directors of Superior Bancorp, or
(c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given
timely notice thereto in writing to the Secretary of Superior
Bancorp.
Delaware Takeover Statute. Superior Bancorp is
subject to Section 203 of the Delaware General Corporation
Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business
combinations with any interested stockholder for a
period of three years following the date that such stockholder
became an interested stockholder, unless:
|
|
|
|
|
before that date, the board of directors of the corporation
approved either the business combination or the transaction
which resulted in the stockholder becoming an interested
stockholder;
|
|
|
|
upon consummation of the transaction which resulted in the
stockholders becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of
the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of
shares outstanding those shares owned:
|
|
|
|
|
|
by persons who are directors and also officers; and
|
|
|
|
by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange
offer; or
|
|
|
|
on or after such date, the business combination is approved by
the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the
affirmative vote of at least
662/3%
of the outstanding voting stock which is not owned by the
interested stockholder.
|
An interested stockholder is defined as any person
that is (a) the owner of 15% or more of the outstanding
voting stock of the corporation or (b) an affiliate or
associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time
within the three-year period immediately prior to the date on
which it is sought to be determined whether such person is an
interested stockholder.
Limitations
on Liability of Officers and Directors
Superior Bancorps restated certificate of incorporation
contains a provision eliminating or limiting a directors
liability to Superior Bancorp and its stockholders for monetary
damages arising from acts or omissions in the directors
capacity as a director, as described above under
Comparison of Rights of Kensington Bankshares Stockholders
and Superior Bancorp Stockholders Liability of
Directors. Superior Bancorp
This provision offers persons who serve on the board of
directors of Superior Bancorp protection against awards of
monetary damages resulting from breaches of their duty of care
except as indicated above. As a result of this provision, the
ability of Superior Bancorp or a stockholder of Superior Bancorp
to successfully prosecute an action against a director for a
breach of his duty of care is limited. However, the provision
does not affect the availability of equitable remedies such as
an injunction or rescission based upon a directors breach
of his duty of care. The SEC has taken the position that the
provision will have no effect on claims arising under the
federal securities laws.
In addition, Superior Bancorps restated certificate of
incorporation and bylaws provide for mandatory indemnification
rights, subject to limited exceptions, to any director, officer,
employee or agent of Superior Bancorp who by reason of the fact
that he or she is a director, officer, employee or agent of
Superior Bancorp, is involved in a legal proceeding of any
nature. Such indemnification rights include reimbursement for
expenses incurred by such director, officer, employee or agent
in advance of the final disposition of such proceeding in
accordance with the applicable provisions of Delaware law.
114
Transfer
Agent and Registrar
The transfer agent and registrar for Superior Bancorp common
stock is Computerserve, 250 Royall Street, Canton,
Massachusetts 02021, Attn: Corporate Actions, Telephone
1-877-282-1168.
EXPERTS
The consolidated financial statements of Superior Bancorp
(formerly The Banc Corporation) incorporated by reference in
this joint proxy statement/prospectus have been audited by Carr,
Riggs & Ingram, LLC, an independent registered public
accounting firm, to the extent and for the periods indicated in
their report thereon, and to the year 2003, by Ernst &
Young, LLP, independent registered public accountants, to the
extent indicated in their report thereon. Such consolidated
financial statements have been included in reliance upon such
reports and upon the authority of such firms as experts in
accounting and auditing.
The consolidated financial statements of Kensington Bankshares
appearing in this joint proxy statement/prospectus have been
audited by Harper Pearson & Company, P.C., an
independent registered public accounting firm, to the extent and
for the periods indicated in their report appearing elsewhere
herein. Such consolidated financial statements have been
included in reliance upon such report given on the authority of
such firm as an expert in accounting and auditing.
LEGAL
MATTERS
The validity of the shares of Superior Bancorp common stock to
be issued to the stockholders of Kensington Bankshares pursuant
to the merger will be passed upon by Haskell Slaughter
Young & Rediker, LLC, Birmingham, Alabama.
OTHER
MATTERS
Superior Bancorp and Kensington Bankshares know of no other
matters which may be brought before the special meetings. If any
matter other than the merger or related matters should properly
come before the special meetings, however, the persons named in
the enclosed proxies will vote proxies in accordance with their
judgment on those matters.
WHERE YOU
CAN FIND MORE INFORMATION
Superior Bancorp is subject to the informational requirements of
the Securities and Exchange Act of 1934, which means that
Superior Bancorp is required to file reports, proxy statements
and other information, all of which are available at the Public
Reference Room of the Securities and Exchange Commission (the
SEC) at 100 F Street, N.E., Washington, D.C.
20549. You may also obtain copies of the reports, proxy
statements and other information from the Public Reference
Section of the SEC, at prescribed rates, by calling
1-800-SEC-0330.
The SEC maintains a World Wide Web site on the Internet at
http://www.sec.gov where you can access reports, proxy,
information and registration statements and other information
regarding registrants that file electronically with the SEC
through the EDGAR system. Superior Bancorp has filed a
registration statement on
Form S-4
to register Superior Bancorp common stock to be issued to the
Kensington Bankshares stockholders in the merger. This joint
proxy statement/prospectus is a part of that registration
statement and constitutes a prospectus of Superior Bancorp in
addition to being a proxy statement of both Superior Bancorp and
Kensington Bankshares for the special meetings of their
stockholders to be held
on ,
2006, as described in this joint proxy statement/prospectus. As
allowed by SEC rules, this joint proxy statement/prospectus does
not contain all of the information you can find in the
registration statement or the exhibits to the registration
statement. This joint proxy statement/prospectus summarizes some
of the documents that are exhibits to the registration
statement, and you should refer to the exhibits for a more
complete description of the matters covered by these documents.
Kensington Bankshares is subject to certain information
requirements of the Securities Exchange Act of 1934, which means
that Kensington Bankshares is required to file periodic reports
and other information, all of which are
115
available at the Public Reference Room of the SEC at 100 F
Street, N.E., Washington, D.C. 20549. You may also obtain
copies of the reports, proxy statements and other information
from the Public Reference Section of the SEC, at prescribed
rates, by calling
1-800-SEC-0330.
The SEC maintains a World Wide Web site on the Internet at
http://www.sec.gov where you can access reports, proxy,
information and registration statements and other information
regarding registrants that file electronically with the SEC
through the EDGAR system.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows Superior Bancorp to incorporate by reference
certain information into this document, which means that
Superior Bancorp can disclose important information to you by
referring you to another document filed separately with the SEC.
The information incorporated by reference is considered part of
this document, except for any information superseded by
information contained directly in this document or in later
filed documents incorporated by reference in this document.
This document incorporates by reference the documents set forth
below that Superior Bancorp has previously filed with the SEC.
These documents contain important information about Superior
Bancorp and their respective businesses:
Superior Bancorp Filings (File
No. 0-25033)
|
|
|
|
|
Superior Bancorps Annual Report on
Form 10-K
for the year ended December 31, 2005, filed March 16,
2006;
|
|
|
|
Superior Bancorps Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006, filed May 10,
2006;
|
|
|
|
Superior Bancorps Proxy Statement for its Annual Meeting
of Stockholders filed April 17, 2006; and
|
|
|
|
Superior Bancorps Current Reports on
Form 8-K
filed January 4, 2006, January 26, 2006, March 6,
2006, April 18, 2006, April 28, 2006, May 1, 2006
and May 22, 2006.
|
Superior Bancorp also incorporates by reference additional
documents that may be filed with the SEC under
sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act between the date of this joint proxy
statement/prospectus and prior to the special meetings.
Notwithstanding any other provision of this joint proxy
statement/prospectus, no portion of any document which is
furnished to, but not filed with, the SEC shall be deemed to be
incorporated by reference herein unless such furnished portion
is expressly so incorporated. Any statements in a document
incorporated by reference herein shall be deemed to be modified
or superseded for purposes hereof to the extent that a statement
contained herein (or in any subsequently filed document which is
also incorporated by reference herein) modifies or supersedes
any such statement. Any statement so modified or superseded
shall not be deemed to be a part of this joint proxy
statement/prospectus except as so modified or superseded.
All information concerning Superior Bancorp and its subsidiaries
has been furnished by Superior Bancorp, and all information
concerning Kensington Bankshares has been furnished by
Kensington Bankshares. You should rely only on the information
contained or incorporated by reference in this joint proxy
statement/prospectus in making your decision to vote on the
merger agreement and the merger. We have not authorized anyone
to provide you with information that is different from that
contained in this joint proxy statement/prospectus.
116
This joint proxy statement/prospectus is
dated ,
2006. You should not assume that the information contained in
this joint proxy statement/prospectus is accurate as of any date
other than such date, and neither the mailing of this joint
proxy statement/prospectus to stockholders nor the issuance of
Superior Bancorp common stock in the merger will create any
implication to the contrary.
This joint proxy statement/prospectus does not constitute an
offer to sell, or a solicitation of any offer to buy, any
securities, or the solicitation of a proxy, in any jurisdiction
to or from any person to whom it is not lawful to make any such
offer or solicitation in such jurisdiction. Neither the delivery
of this joint proxy statement/prospectus nor any distribution of
securities made hereunder will, under any circumstances, create
an implication that there has been no change in information set
forth or incorporated in this document by reference or in the
affairs of Superior Bancorp or Kensington Bankshares since the
date of this joint proxy statement/prospectus.
117
Index to
Financial Statements
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
F-1
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-26
|
|
|
|
|
F-28
|
|
|
|
|
F-30
|
|
|
|
|
F-33
|
|
REPORT OF
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors
Kensington Bankshares, Inc. and Subsidiary
Tampa, Florida
We have audited the accompanying consolidated statements of
financial condition of Kensington Bankshares, Inc. and
Subsidiary as of December 31, 2005, 2004, and 2003 and the
related consolidated statements of income, changes in
stockholders equity and comprehensive income and cash
flows for the years then ended. These financial statements are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Kensington Bankshares, Inc. and Subsidiary as of
December 31, 2005, 2004, and 2003 and the results of their
operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the
United States of America.
/s/ Harper & Pearson Company, P.C.
Houston, Texas
July 7, 2006
F-1
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
DECEMBER 31,
2005, 2004, AND 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
ASSETS
|
Cash and due from banks
|
|
$
|
5,177,112
|
|
|
$
|
3,527,305
|
|
|
$
|
4,297,610
|
|
Interest-bearing deposits due from
banks
|
|
|
|
|
|
|
62,189
|
|
|
|
61,519
|
|
Federal funds sold
|
|
|
1,953,326
|
|
|
|
4,279,612
|
|
|
|
14,865,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
7,130,438
|
|
|
|
7,869,106
|
|
|
|
19,224,950
|
|
Securities available for sale
|
|
|
|
|
|
|
5,062,000
|
|
|
|
5,117,200
|
|
Securities held to maturity
|
|
|
184,025,332
|
|
|
|
153,337,768
|
|
|
|
168,163,298
|
|
Loans, net of unearned fees
|
|
|
125,534,310
|
|
|
|
97,770,318
|
|
|
|
90,070,413
|
|
Less allowance for possible credit
losses
|
|
|
1,016,738
|
|
|
|
1,000,000
|
|
|
|
900,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
|
124,517,572
|
|
|
|
96,770,318
|
|
|
|
89,170,413
|
|
Accrued interest receivable
|
|
|
2,606,687
|
|
|
|
2,163,940
|
|
|
|
2,484,674
|
|
Premises and equipment, net
|
|
|
5,609,780
|
|
|
|
3,101,276
|
|
|
|
2,627,313
|
|
Deferred tax assets
|
|
|
247,887
|
|
|
|
232,708
|
|
|
|
252,858
|
|
Other real estate
|
|
|
407,951
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
108,733
|
|
|
|
136,561
|
|
|
|
216,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
324,654,380
|
|
|
$
|
268,673,677
|
|
|
$
|
287,257,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
|
$
|
35,801,529
|
|
|
$
|
29,313,370
|
|
|
$
|
15,167,580
|
|
Interest-bearing demand deposits
|
|
|
29,096,458
|
|
|
|
36,405,899
|
|
|
|
30,434,468
|
|
Savings deposits
|
|
|
12,621,732
|
|
|
|
17,315,151
|
|
|
|
12,081,108
|
|
Time deposits
|
|
|
201,168,004
|
|
|
|
157,411,626
|
|
|
|
194,427,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
278,687,723
|
|
|
|
240,446,046
|
|
|
|
252,110,561
|
|
Securities sold under agreements to
repurchase
|
|
|
15,203,225
|
|
|
|
|
|
|
|
9,737,000
|
|
Customer repurchase agreements
|
|
|
2,118,072
|
|
|
|
990,865
|
|
|
|
937,660
|
|
Dividends payable
|
|
|
742,100
|
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
|
|
315,191
|
|
|
|
169,541
|
|
|
|
239,125
|
|
Accrued expenses and other
liabilities
|
|
|
161,572
|
|
|
|
126,962
|
|
|
|
39,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
297,227,883
|
|
|
|
241,733,414
|
|
|
|
263,063,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and
Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value;
10,000,000 shares authorized, 3,710,500, 3,710,000, and
3,710,000 shares issued and outstanding in 2005, 2004, and
2003, respectively
|
|
|
37,105
|
|
|
|
37,100
|
|
|
|
37,100
|
|
Additional paid-in capital
|
|
|
21,111,647
|
|
|
|
21,107,902
|
|
|
|
21,107,902
|
|
Retained earnings
|
|
|
6,277,745
|
|
|
|
5,809,458
|
|
|
|
3,124,810
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
(14,197
|
)
|
|
|
(75,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
27,426,497
|
|
|
|
26,940,263
|
|
|
|
24,193,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders Equity
|
|
$
|
324,654,380
|
|
|
$
|
268,673,677
|
|
|
$
|
287,257,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-2
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
FOR THE
YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Interest Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable and fees on loans
|
|
$
|
8,373,575
|
|
|
$
|
6,615,483
|
|
|
$
|
6,391,823
|
|
Investment securities
|
|
|
7,603,142
|
|
|
|
7,512,796
|
|
|
|
6,915,633
|
|
Federal funds sold
|
|
|
81,306
|
|
|
|
45,483
|
|
|
|
37,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
16,058,023
|
|
|
|
14,173,762
|
|
|
|
13,345,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
5,896,781
|
|
|
|
5,026,451
|
|
|
|
5,738,653
|
|
Other borrowed funds
|
|
|
349,869
|
|
|
|
92,630
|
|
|
|
152,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
6,246,650
|
|
|
|
5,119,081
|
|
|
|
5,891,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
9,811,373
|
|
|
|
9,054,681
|
|
|
|
7,453,972
|
|
Provision for Possible Credit
Losses
|
|
|
|
|
|
|
127,151
|
|
|
|
203,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for possible credit losses
|
|
|
9,811,373
|
|
|
|
8,927,530
|
|
|
|
7,250,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
218,446
|
|
|
|
190,429
|
|
|
|
141,651
|
|
Securities gains
|
|
|
2,500
|
|
|
|
606
|
|
|
|
118,244
|
|
Other income
|
|
|
36,108
|
|
|
|
33,094
|
|
|
|
84,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
257,054
|
|
|
|
224,129
|
|
|
|
343,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
3,016,581
|
|
|
|
2,536,363
|
|
|
|
2,279,629
|
|
Occupancy expense
|
|
|
589,490
|
|
|
|
505,861
|
|
|
|
462,452
|
|
Equipment expense
|
|
|
429,447
|
|
|
|
452,691
|
|
|
|
391,288
|
|
Data processing
|
|
|
311,542
|
|
|
|
366,998
|
|
|
|
336,498
|
|
Professional and director fees
|
|
|
287,441
|
|
|
|
253,281
|
|
|
|
191,291
|
|
Office expense
|
|
|
155,220
|
|
|
|
150,554
|
|
|
|
154,174
|
|
Advertising and marketing expense
|
|
|
136,538
|
|
|
|
88,656
|
|
|
|
100,974
|
|
Other expenses
|
|
|
504,102
|
|
|
|
486,552
|
|
|
|
415,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
5,430,361
|
|
|
|
4,840,956
|
|
|
|
4,331,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Tax
Expense
|
|
|
4,638,066
|
|
|
|
4,310,703
|
|
|
|
3,263,138
|
|
Income Tax Expense
|
|
|
1,758,104
|
|
|
|
1,626,055
|
|
|
|
1,233,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
2,879,962
|
|
|
$
|
2,684,648
|
|
|
$
|
2,029,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.78
|
|
|
$
|
0.72
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.77
|
|
|
$
|
0.72
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Number
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
of Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
Balance, January 1,
2003
|
|
|
3,710,000
|
|
|
$
|
37,100
|
|
|
$
|
21,107,902
|
|
|
$
|
1,095,657
|
|
|
$
|
58,824
|
|
|
$
|
22,299,483
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,029,153
|
|
|
|
|
|
|
|
2,029,153
|
|
Other comprehensive income (loss),
net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on
securities
available-for-sale,
net of tax of $84,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(134,696
|
)
|
|
|
(134,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,894,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2003
|
|
|
3,710,000
|
|
|
|
37,100
|
|
|
|
21,107,902
|
|
|
|
3,124,810
|
|
|
|
(75,872
|
)
|
|
|
24,193,940
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,684,648
|
|
|
|
|
|
|
|
2,684,648
|
|
Other comprehensive income (loss),
net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on
securities
available-for-sale,
net of tax of $38,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,675
|
|
|
|
61,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,746,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2004
|
|
|
3,710,000
|
|
|
|
37,100
|
|
|
|
21,107,902
|
|
|
|
5,809,458
|
|
|
|
(14,197
|
)
|
|
|
26,940,263
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,879,962
|
|
|
|
|
|
|
|
2,879,962
|
|
Other comprehensive income (loss),
net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on
securities available-for-sale, net of tax of $8,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,197
|
|
|
|
14,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,894,159
|
|
Exercise of stock option
|
|
|
500
|
|
|
|
5
|
|
|
|
3,745
|
|
|
|
|
|
|
|
|
|
|
|
3,750
|
|
Cash dividends paid, $.45 per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,669,575
|
)
|
|
|
|
|
|
|
(1,669,575
|
)
|
Cash dividends declared, $.20 per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(742,100
|
)
|
|
|
|
|
|
|
(742,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2005
|
|
|
3,710,500
|
|
|
$
|
37,105
|
|
|
$
|
21,111,647
|
|
|
$
|
6,277,745
|
|
|
$
|
|
|
|
$
|
27,426,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
FOR THE
YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Cash Flows From Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
2,879,962
|
|
|
$
|
2,684,648
|
|
|
$
|
2,029,153
|
|
Adjustments to reconcile net income
to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
327,573
|
|
|
|
322,951
|
|
|
|
299,405
|
|
Provision for possible credit losses
|
|
|
|
|
|
|
127,151
|
|
|
|
203,000
|
|
Deferred tax benefit
|
|
|
(24,067
|
)
|
|
|
(18,459
|
)
|
|
|
(13,203
|
)
|
Net amortization of securities
|
|
|
299,923
|
|
|
|
1,630,837
|
|
|
|
2,105,102
|
|
Securities gains
|
|
|
(2,500
|
)
|
|
|
(606
|
)
|
|
|
(118,244
|
)
|
Changes in
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
(442,747
|
)
|
|
|
320,734
|
|
|
|
679,181
|
|
Other assets
|
|
|
27,828
|
|
|
|
80,181
|
|
|
|
5,892
|
|
Accrued interest payable and other
liabilities
|
|
|
180,260
|
|
|
|
18,216
|
|
|
|
(86,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
3,246,232
|
|
|
|
5,165,653
|
|
|
|
5,103,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available for sale
securities
|
|
|
(4,997,500
|
)
|
|
|
|
|
|
|
(7,830,156
|
)
|
Purchases of held to maturity
securities
|
|
|
(70,082,402
|
)
|
|
|
(144,686,286
|
)
|
|
|
(252,461,006
|
)
|
Proceeds from sales of available
for sale securities
|
|
|
5,000,000
|
|
|
|
550,000
|
|
|
|
7,468,750
|
|
Proceeds from maturities and calls
of available for sale securities
|
|
|
5,000,000
|
|
|
|
|
|
|
|
28,990,000
|
|
Proceeds from maturities and calls
of held to maturity securities
|
|
|
39,180,000
|
|
|
|
157,487,069
|
|
|
|
232,811,791
|
|
Net increase in loans
|
|
|
(27,747,254
|
)
|
|
|
(7,727,056
|
)
|
|
|
(9,600,601
|
)
|
Purchase of other real estate
|
|
|
(407,951
|
)
|
|
|
|
|
|
|
|
|
Purchase of premises and equipment
|
|
|
(2,836,077
|
)
|
|
|
(796,914
|
)
|
|
|
(297,106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
investing activities
|
|
|
(56,891,184
|
)
|
|
|
4,826,813
|
|
|
|
(918,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in demand
and savings deposits
|
|
|
(5,514,701
|
)
|
|
|
25,351,264
|
|
|
|
16,832,364
|
|
Net increase (decrease) in time
deposits
|
|
|
43,756,378
|
|
|
|
(37,015,779
|
)
|
|
|
(2,968,620
|
)
|
Net increase (decrease) in
securities sold under agreements to repurchase
|
|
|
15,203,225
|
|
|
|
(9,737,000
|
)
|
|
|
(263,000
|
)
|
Net decrease in federal funds
purchased
|
|
|
|
|
|
|
|
|
|
|
(1,000,000
|
)
|
Net increase in customer repurchase
agreements
|
|
|
1,127,207
|
|
|
|
53,205
|
|
|
|
74,603
|
|
Proceeds from common stock options
exercised
|
|
|
3,750
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(1,669,575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
52,906,284
|
|
|
|
(21,348,310
|
)
|
|
|
12,675,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash
Equivalents
|
|
|
(738,668
|
)
|
|
|
(11,355,844
|
)
|
|
|
16,860,549
|
|
Cash and Cash Equivalents at
Beginning of Year
|
|
|
7,869,106
|
|
|
|
19,224,950
|
|
|
|
2,364,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End
of Year
|
|
$
|
7,130,438
|
|
|
$
|
7,869,106
|
|
|
$
|
19,224,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash
Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid on deposits
|
|
$
|
5,776,149
|
|
|
$
|
5,081,699
|
|
|
$
|
5,789,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other interest paid
|
|
$
|
324,851
|
|
|
$
|
106,966
|
|
|
$
|
152,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
1,775,030
|
|
|
$
|
1,639,258
|
|
|
$
|
1,102,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
DECEMBER 31,
2005, 2004, AND 2003
|
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Organization:
Kensington Bankshares, Inc. (the Company) is a
one-bank holding company. The Company owns 100% of the
outstanding common stock of First Kensington Bank (the
Bank).
Principles
of Consolidation:
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All material
intercompany balances and transactions have been eliminated in
consolidation.
Nature
of Business:
The Bank operates eleven branch facilities and provides a full
range of banking services to individuals and businesses in the
Tampa Bay area. The Bank is chartered as a state bank in Florida
and therefore is regulated by various Federal and State agencies
and is subject to periodic examinations by those regulatory
authorities.
Summary
of Significant Accounting and Reporting Policies
The accounting and reporting policies of the Company are in
accordance with generally accepted accounting principles (GAAP)
in the United States and the prevailing practices within the
banking industry. A summary of significant accounting policies
is as follows:
Use of
Estimates:
In preparing financial statements in conformity with GAAP,
management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the
date of the statements of financial condition and reported
amounts of revenues and expenses during the reporting periods.
Actual results could differ from these estimates. Material
estimates that are particularly susceptible to significant
change in the near term relate to the determination of the
allowance for possible credit losses.
The allowance for possible credit losses is maintained at a
level, which, in managements judgment, is adequate to
absorb possible credit losses inherent in the loan portfolio.
The amount of the allowance is based on managements
evaluation of the collectibility of the loan portfolio,
including the nature of the portfolio, credit concentrations,
trends in historical loss experience, specific impaired loans,
economic conditions, and other risks inherent in the portfolio.
Allowances for impaired loans are generally determined based on
collateral values or the present value of estimated cash flows.
In connection with the determination of the estimated losses on
loans, management will obtain independent appraisals for
significant collateral.
While management uses available information to recognize losses
on loans, further reductions in the carrying amounts of loans
may be necessary based on changes in local economic conditions
and changes in the capacity of borrowers to repay their
debts. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the estimated
losses on loans. Such agencies may require the Bank to recognize
additional losses based on their judgments about information
available to them at the time of their examination. Because of
these factors, it is possible that the estimated losses on loans
may change materially in the near term. However, the amount of
the change cannot be estimated.
Cash
Equivalents:
For purposes of the consolidated statements of cash flows, cash
and cash equivalents include cash and balances due from banks,
interest-bearing deposits due from banks, and Federal funds
sold, all of which mature within 90 days.
F-6
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Cash
and Due from Banks:
The Bank, as a member of the Federal Reserve System, is required
to maintain reserves for the purpose of facilitating the
implementation of monetary policy. These reserves may be
maintained in the form of balances at the Federal Reserve Bank
or vault cash. The Banks reserve requirement was
$2,210,000 at December 31, 2005. Accordingly, cash and due
from bank balances were restricted to that extent.
A significant portion of cash and cash equivalents are
maintained with the Federal Reserve Bank. Other cash deposits
are maintained with major financial institutions in the United
States. Deposits with these financial institutions may exceed
the amount of insurance provided on such deposits; however,
these deposits typically may be redeemed upon demand and
therefore, bear minimal risk. In monitoring this credit risk,
the Bank periodically evaluates the stability of the financial
institutions with which they have deposits. The Bank had
deposits in correspondent financial institutions in excess of
the amount insured by agencies of the federal government in the
amounts of $1,903,326 $4,291,836 and $14,877,382 at
December 31, 2005, 2004 and 2003, respectively.
Investment
Securities:
Investments in debt securities for which the Bank has both the
ability and intent to hold to maturity are classified as
investments held to maturity and are stated at amortized cost.
Investments in securities which management believes may be sold
prior to maturity are classified as investments available for
sale and are stated at fair value. Securities within the
available for sale portfolio may be used as part of the
Banks asset/liability strategy and may be sold in response
to changes in interest rate risk, prepayment risk or other
similar economic factors. Unrealized net gains and temporary
losses are excluded from income and reported as a separate
component of stockholders equity in accumulated other
comprehensive income. Realized gains and losses from sales of
investments available for sale are recorded in earnings as a
separate component of non-interest income or expense using the
specific identification method. The Bank does not have trading
securities.
Declines in the fair value of individual securities below their
cost that are other than temporary would result in write-downs,
as a realized loss, of the individual securities to their fair
value. However, management believes that based upon the credit
quality of the debt securities and the Banks intent and
ability to hold the securities until their recovery, none of the
unrealized losses on securities should be considered other than
temporary.
Interest income earned on securities are recognized in interest
income, including amortization of premiums and accretion of
discounts computed using the interest method. Realized gains and
losses on securities are computed based upon specifically
identified amortized cost and are reported as a separate
component of noninterest income or expense.
Investment
Risk:
The Banks investments potentially subject the Bank to
various levels of risk associated with economic and political
events beyond managements control. Consequently,
managements judgment as to the level of losses that
currently exist or may develop in the future involves the
consideration of current and anticipated conditions and their
potential effects on the Banks investments. In determining
fair value of these investments, management obtains information,
which is considered reliable, from third parties in order to
value its investments. Due to the level of uncertainty related
to changes in the value of investment securities, it is possible
that changes in risks could materially impact the amounts
reflected herein.
Concentrations
of Credit:
Generally all of the Banks loans, commitments, and letters
of credit have been granted to customers who are in the
Banks market area, which is primarily the Tampa Bay Area.
The Banks loans are generally secured by specific items of
collateral including cash and marketable securities, real
property, consumer assets, and business assets. A substantial
portion of the Banks debtors ability to honor their
contracts is dependent on economic conditions in the
F-7
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
location where the borrower or the borrowers property is
located. Concentrations of credit by type of loan are set forth
in Note 3. It is the Banks policy to not extend
credit to any single borrower or group of related borrowers in
excess of the Banks legal lending limit as defined by
federal banking regulations.
Interest
Rate Risk:
The Bank is principally engaged in providing short-term
commercial loans with interest rates that fluctuate with various
market indices and intermediate-term, fixed rate real estate
loans. These loans are primarily funded through short-term
demand deposits and longer-term certificates of deposit with
fixed rates. Deposits that are not utilized to fund loans are
invested in securities that meet the Banks investment
quality guidelines. Unrealized investment gains and losses
resulting from changing market interest rates on the Banks
available for sale portfolio are reflected in other
comprehensive income.
Loans:
Loans are stated at unpaid principal balances, less deferred
fees and the allowance for possible credit losses. Loan
origination and commitment fees, less managements
estimation of certain direct origination costs, are deferred and
recognized as an adjustment of the related loan yield using the
straight line method, which approximates the interest method.
Non-Performing
and Past Due Loans:
Non-performing loans are loans which have been categorized by
management as non-accrual because collection of interest is
doubtful or which have been restructured to provide a reduction
in the interest rate or a deferral of interest or principal
payments.
When the payment of principal or interest on a loan is
delinquent for 90 days, or earlier in some cases, the loan
is placed on non-accrual status, unless the loan is in the
process of collection and the underlying collateral fully
supports the carrying value of the loan. If the decision is made
to continue accruing interest on the loan, periodic reviews are
made to confirm the accruing status of the loan.
When a loan is placed on non-accrual status or identified as
impaired, interest accrued during the current year prior to the
judgment of uncollectibility, is charged to operations. Interest
accrued during prior periods that has not been paid by the
borrower is generally charged to the allowance for possible
credit losses. Any payments received on non-accrual loans are
applied first to outstanding principal amounts and next to the
recovery of charged-off loan amounts. Any excess is treated as
recovery of lost interest. Loans are returned to accrual status
when all the principal and interest amounts contractually due
are brought current and future payments are reasonably assured.
Impaired loans are defined as loans for which, based on current
information and events, it is probable that the Bank will be
unable to collect all amounts due, both interest and principal,
according to the contractual terms of the loan agreement. The
allowance for possible credit losses related to impaired loans
is determined based on the present value of expected cash flows
discounted at the loans effective interest rate or, as a
practical expedient, the loans observable market price or
the fair value of the collateral if the loan is collateral
dependent.
Restructured loans are those loans on which concessions in terms
have been granted because of a borrowers financial
difficulty. Interest is generally accrued on such loans in
accordance with the new terms. The Bank did not have any
restructured loans at December 31, 2005, 2004, and 2003.
Allowance
for Possible Credit Losses:
The allowance for possible credit losses is a valuation
allowance available for losses incurred on loans and other
commitments to extend credit. All losses are charged to the
allowance for possible credit losses when the loss
F-8
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
actually occurs or when a determination is made that a loss is
likely to occur. Recoveries are credited to the allowance at the
time of recovery.
The allowance for possible credit losses consists of specific,
general, and unallocated components. The specific component
relates to loans that are classified as doubtful, substandard,
or special mention. For such loans that are also classified as
impaired, an allowance is established when the discounted cash
flows, or collateral value or observable market price, of the
impaired loan is lower than the carrying value of that loan. The
general component covers non-classified loans and is based on
historical loss experience adjusted for qualitative factors. The
unallocated component of the allowance reflects the margin of
imprecision inherent in the underlying assumptions used in the
methodologies for estimating specific and general losses in the
portfolio. Based on these estimates, an amount is charged to the
provision for possible credit losses and credited to the
allowance for possible credit losses in order to adjust the
allowance to a level determined by management to be adequate to
absorb losses.
Managements judgment as to the level of losses on existing
loans involves the consideration of current and anticipated
economic conditions and their potential effects on specific
borrowers; an evaluation of the existing relationships among
loans, potential loan losses, and the present level of the
allowance; results of examinations of the loan portfolio by
regulatory agencies; results of examinations of the loan
portfolio through an external review; and managements
internal review of the loan portfolio. In determining the
collectibility of certain loans, management also considers the
fair value of any underlying collateral. The amounts ultimately
realized may differ from the carrying value of these assets
because of economic, operating, or other conditions beyond the
Banks control.
It should be understood that estimates of possible credit losses
involve judgment. While it is possible that in particular
periods the Bank may sustain losses which are substantial
relative to the allowance for possible credit losses, it is the
judgment of management that the allowance for possible credit
losses reflected in the statements of financial condition are
adequate to absorb losses which may exist in the current loan
portfolio.
Premises
and Equipment:
Bank premises and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation expense is computed
principally on the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized
over the life of the lease plus renewal options. Land is carried
at cost. Gains and losses on dispositions are included in other
income or other expense.
Advertising
Costs:
The Company expenses the cost of advertising when those costs
are incurred.
Real
Estate Acquired Through Foreclosure:
Real estate acquired through foreclosure is recorded at the fair
value of the property less any selling costs, as applicable, at
the time of foreclosure. Carrying amounts are reduced to reflect
this value through charges to the allowance for possible credit
losses. Subsequent to foreclosure, real estate is carried at the
lower of its new cost basis or fair value, less estimated costs
to sell. Subsequent adjustments to reflect declines in value
below the recorded amounts are recognized and are charged to
expense in the period such determinations are assessed. Required
developmental costs associated with foreclosed property under
construction are capitalized and considered in determining the
fair value of the property. Operating expenses of such
properties, net of related income, and gains and losses on their
disposition are included in other noninterest expense. The Bank
held no real estate acquired through foreclosure at
December 31, 2005, 2004, and 2003.
F-9
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Income
Taxes:
Income taxes are provided for the tax effects of the
transactions reported in the financial statements and consist of
taxes currently due plus deferred taxes related primarily to
differences between financial and income tax methods of
recording the allowance for possible credit losses and
depreciation expense. The deferred tax assets and liabilities
represent the future tax return consequences of those
differences, which will be either taxable or deductible when the
assets and liabilities are recovered or settled. Deferred tax
assets and liabilities are reflected at income tax rates
applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes
in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
Share-Based
Compensation:
The Company utilizes the intrinsic value method for its stock
compensation plans. Under the provisions of Accounting
Principles Board (APB) No. 25, Accounting for
Stock Issued to Employees, no compensation cost is
recognized for the options granted in which the exercise price
was equal to or greater than the estimated market value price on
the date of grant. The company granted all options at a price
equal to or greater than the estimated market price at the date
of grant and therefore no compensation expense has been
recorded. The proforma disclosures required by
SFAS No. 123 are included in Note 11.
Earnings
Per Share of Common Stock:
Basic earnings per common share is calculated by dividing net
earnings available for common stockholders by the weighted
average number of common shares outstanding during the period.
Diluted earnings per share is calculated by dividing net
earnings available for common stockholders by the weighted
average number of common and potentially dilutive common shares.
Stock options are dilutive common shares and are therefore
considered in diluted earnings per share calculation. The number
of potentially dilutive common shares is determined using the
treasury stock method.
Recently
Issued Accounting Standards:
Statement of Financial Accounting Standards No. 123R,
Share Based Payments establishes standards
for accounting for transactions in which an enterprise receives
employee services in exchange for (a) equity instruments of
the enterprise or (b) liabilities that are based on the
fair value of the enterprises equity instruments or that
may be settled by the issuance of such equity instruments.
SFAS No. 123R eliminates the ability to account for
stock based compensation using the intrinsic value based method
of accounting and requires that such transactions be recognized
as compensation cost in the income statement based on their fair
values on the date of the grant. SFAS No. 123R applies
to new awards and towards modified, repurchased, or cancelled
awards in fiscal years beginning after December 15, 2005.
The Company plans to transition to fair value based accounting
for stock based compensation using a prospective application
effective January 1, 2006.
In May 2005, the FASB issued Statement of Financial Accounting
Standards No. 154, Accounting For Changes and
Error Corrections (SFAS 154), which
replaces APB Opinion No. 20, Accounting
Changes, and supersedes FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial
Statements an amendment of APB Opinion
No. 28. SFAS 154 requires retrospective
application to prior periods financial statements of changes in
accounting principle, unless it is impracticable to determine
either the period-specific effects or the cumulative effect of
the change. When it is impracticable to determine the
period-specific effects of an accounting change on one or more
individual prior periods presented, SFAS 154 requires that
the new accounting principle be applied to the balances of
assets and liabilities as of the beginning of the earliest
period for which retrospective application is practicable and
that a corresponding adjustment be made to the opening balance
of retained earnings for that period rather than being reported
in the income statement. When it is impracticable to determine
the cumulative effect of applying a change in accounting
principle to all prior periods, SFAS 154 requires
F-10
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
that the new accounting principle be applied as if it were
adopted prospectively from the earliest date practicable.
SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 15, 2005. The Company does not expect the
provisions of SFAS 154 to have a significant impact on its
results of operations.
In July 2005, the FASB published an Exposure Draft of a proposed
Interpretation, Accounting for Uncertain Tax
Positions. The Exposure Draft seeks to reduce the
significant diversity in practice associated with recognition
and measurement in the accounting for income taxes. It would
apply to all tax positions accounted for in accordance with
SFAS 109, Accounting for Income Taxes. The
Exposure Draft requires that a tax position meet a
probable recognition threshold for the benefit of
the uncertain tax position to be recognized in the financial
statements. This threshold is to be met assuming that the tax
authorities will examine the uncertain tax position. The
Exposure Draft contains guidance with respect to the measurement
of the benefit that is recognized for an uncertain tax position,
when that benefit should be recognized, and other matters. This
proposed Interpretation would clarify the accounting for
uncertain tax positions in accordance with SFAS 109. The
Company does not expect the provisions of this exposure draft to
have a significant impact on its results of operations.
On March 17, 2006, the FASB issued Statement No. 156,
Accounting for Servicing of Financial Assets an amendment
of FASB Statement No. 140
(Statement 156), Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities. The Statement requires that all servicing
assets and liabilities be initially measured at fair value and
allows for two alternatives in the subsequent accounting for
servicing assets and liabilities: the amortization method and
the fair value method. The amortization method requires that the
servicing assets and liabilities be amortized over the remaining
estimated lives of the serviced assets with impairment testing
to be performed periodically. The fair value method requires the
servicing assets and liabilities to be measured at fair value
each period with an offset to income. This Statement is to be
adopted in the first fiscal year that begins after
September 15, 2006 and early adoption is permitted. An
entity can elect the fair value method at the beginning of any
fiscal year provided that interim financial statements have not
been issued. However, once the fair value election is made, an
entity cannot revert back to the amortization method. The
Company is currently reviewing the potential impact of this
Statement, as well as the accounting alternatives available.
NOTE 2 INVESTMENT
SECURITIES
Investment securities have been classified in the consolidated
statements of financial condition according to managements
intent. The carrying amount of securities and their approximate
fair values were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2005 U.S. government agency securities
|
|
$
|
184,025,332
|
|
|
$
|
2,500
|
|
|
$
|
(2,817,174
|
)
|
|
$
|
181,210,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2004 U.S. government agency securities
|
|
$
|
153,337,768
|
|
|
$
|
120,909
|
|
|
$
|
(446,323
|
)
|
|
$
|
153,012,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2003 U.S. government agency securities
|
|
$
|
168,163,298
|
|
|
$
|
591,334
|
|
|
$
|
(779,891
|
)
|
|
$
|
167,974,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-11
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2004 U.S. government agency securities
|
|
$
|
5,085,085
|
|
|
$
|
|
|
|
$
|
(23,085
|
)
|
|
$
|
5,062,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2003 U.S. government agency securities
|
|
$
|
5,240,570
|
|
|
$
|
|
|
|
$
|
(123,370
|
)
|
|
$
|
5,117,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains and losses on available for sale securities
amounted to $2,500 and $0, respectively, in 2005, $606 and $0,
respectively, in 2004 and $120,094 and $1,850, respectively in
2003.
The amortized cost and estimated fair value of debt securities
at December 31, 2005, by contractual maturities, 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.
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Due in one year or less
|
|
$
|
|
|
|
$
|
|
|
Due from one to five years
|
|
|
28,554,488
|
|
|
|
28,097,430
|
|
Due from five to ten years
|
|
|
133,830,566
|
|
|
|
131,961,281
|
|
Due after ten years
|
|
|
21,640,278
|
|
|
|
21,151,947
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
184,025,332
|
|
|
$
|
181,210,658
|
|
|
|
|
|
|
|
|
|
|
Investment securities with a carrying value and fair value of
approximately $3,330,000 and $3,280,100 at December 31,
2005, respectively, $2,345,000 and $2,348,600 at
December 31, 2004, respectively, and $3,430,000 and
$3,507,200 at December 31, 2003, respectively, were pledged
to secure public deposits and for other purposes required or
permitted by law.
Information pertaining to securities with gross unrealized
losses at December 31, 2005, aggregated by investment
category and length of time that individual securities have been
in a continuous loss position, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than Twelve
Months
|
|
|
Over Twelve Months
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
U.S. government agency
securities
|
|
$
|
(2,117,347
|
)
|
|
$
|
143,990,714
|
|
|
$
|
(699,827
|
)
|
|
$
|
31,217,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management evaluates whether unrealized losses on securities
represent impairment that is other than temporary. If such
impairment is identified, the carrying amount of the security is
reduced with a charge to operations. In making this evaluation,
management first considers the reasons for the indicated
impairment. These reasons include changes in market rates
relative to those available when the security was acquired,
changes in market expectations about the timing of cash flows
from securities that can be prepaid, and changes in the
markets perception of the issuers financial health
and the securitys credit quality. Management then
considers the likelihood of a recovery in fair value sufficient
to eliminate the indicated impairment and the length of time
over which an anticipated recovery would occur, which could
extend the securitys maturity. Finally, management
determines whether there is both the ability and intent to hold
the impaired security until an anticipated recovery, in which
case the impairment would be considered temporary. In making
this assessment, management considers whether a security
continues to be a suitable holding from the perspective of the
Banks overall portfolio and asset/liability management
strategies.
F-12
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Substantially all the unrealized losses at December 31,
2005 resulted from increases in market interest rates over the
yields available at the time the underlying securities were
purchased. Management identified no impairment related to credit
quality and at December 31, 2005, management had both the
intent and ability to hold impaired securities until full
recovery of cost is achieved and no impairment was evaluated as
other than temporary. No impairment losses were recognized
during the years ended December 31, 2005, 2004, and 2003.
NOTE 3 LOANS
RECEIVABLE
The components of loans in the consolidated statements of
financial condition at December 31, 2005, 2004 and 2003
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
99,660,103
|
|
|
$
|
75,757,698
|
|
|
$
|
61,971,947
|
|
Residential
|
|
|
19,827,693
|
|
|
|
17,622,256
|
|
|
|
18,371,056
|
|
Commercial
|
|
|
4,528,606
|
|
|
|
3,574,498
|
|
|
|
7,685,812
|
|
Consumer
|
|
|
1,951,805
|
|
|
|
1,129,283
|
|
|
|
2,324,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,968,207
|
|
|
|
98,083,735
|
|
|
|
90,353,102
|
|
Deferred loan fees
|
|
|
(433,897
|
)
|
|
|
(313,417
|
)
|
|
|
(282,689
|
)
|
Allowance for possible credit
losses
|
|
|
(1,016,738
|
)
|
|
|
(1,000,000
|
)
|
|
|
(900,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
124,517,572
|
|
|
$
|
96,770,318
|
|
|
$
|
89,170,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank primarily grants real estate, commercial and consumer
loans in the State of Florida with primary concentration being
in the Tampa Bay area. Although the Banks loan portfolio
is diversified, a significant portion of its loans are secured
by real estate.
NOTE 4 ALLOWANCE
FOR POSSIBLE CREDIT LOSSES AND NON PERFORMING LOANS
An analysis of the change in the allowance for possible credit
losses follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Balance at January 1
|
|
$
|
1,000,000
|
|
|
$
|
900,000
|
|
|
$
|
700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans charged-off
|
|
|
(1,362
|
)
|
|
|
(27,151
|
)
|
|
|
(3,000
|
)
|
Recoveries
|
|
|
18,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans recovered (charged-off)
|
|
|
16,738
|
|
|
|
(27,151
|
)
|
|
|
(3,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision charged to operations
|
|
|
|
|
|
|
127,151
|
|
|
|
203,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
1,016,738
|
|
|
$
|
1,000,000
|
|
|
$
|
900,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on which the accrual of interest has been discontinued or
reduced, for which impairment had not been recognized, amounted
to approximately $6,300 at December 31, 2005, $23,000 at
December 31, 2004 and $476,600 at December 31, 2003.
If interest on those loans had been accrued, such income would
have approximated $500 in 2005, $4,300 in 2004 and $16,400 in
2003. Interest income on those loans is recorded only when
received.
The Bank did not have any other loans considered to be impaired
or that had been restructured as of December 31, 2005,
2004, and 2003.
F-13
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
NOTE 5 PREMISES
AND EQUIPMENT
Components of premises and equipment included in the
consolidated statements of financial condition at
December 31, 2005, 2004 and 2003 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Land
|
|
$
|
2,075,000
|
|
|
$
|
750,000
|
|
|
$
|
350,000
|
|
Buildings and improvements
|
|
|
760,584
|
|
|
|
760,584
|
|
|
|
475,584
|
|
Leasehold improvements
|
|
|
1,023,308
|
|
|
|
1,021,934
|
|
|
|
1,013,365
|
|
Furniture, fixtures &
equipment
|
|
|
1,743,902
|
|
|
|
1,602,926
|
|
|
|
1,511,508
|
|
Construction in process
|
|
|
1,361,750
|
|
|
|
11,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,964,544
|
|
|
|
4,147,370
|
|
|
|
3,350,457
|
|
Less: accumulated depreciation and
amortization
|
|
|
(1,354,764
|
)
|
|
|
(1,046,094
|
)
|
|
|
(723,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,609,780
|
|
|
$
|
3,101,276
|
|
|
$
|
2,627,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense charged to operations
amounted to $327,573 in 2005, $322,951 in 2004 and $299,405 in
2003.
In December of 2005, the Bank exercised an option to acquire a
piece of commercial real estate that was occupied by one of the
Banks borrowers in anticipation of future default on the
amount due to Bank. The property was acquired for approximately
$408,000 and management believes there will be adequate equity
in the property to pay off the amounts owed should the borrower
go into default on the loan. The Bank currently leases the
property to the tenant/borrower and records rental income of
approximately $6,000 per month.
At December 31, 2005, the Bank had recorded approximately
$1.4 million in construction in process related to the
completion of two new branch facilities. Additional costs to
complete the facilities are anticipated to be $300,000.
Leases:
The Bank is obligated under certain non-cancelable operating
leases for Bank premises. The operating leases relating to Bank
premises expire during various years from 2006 to 2010 with the
leases having various renewal options. The leases require the
payment of taxes, insurance, and maintenance cost in addition to
rental payments.
Future minimum lease payments under these operating leases
including one revenue option, at December 31, 2005 are
summarized as follows:
|
|
|
|
|
2006
|
|
$
|
469,428
|
|
2007
|
|
|
462,612
|
|
2008
|
|
|
441,635
|
|
2009
|
|
|
350,230
|
|
2010
|
|
|
354,078
|
|
Thereafter
|
|
|
637,000
|
|
|
|
|
|
|
|
|
$
|
2,714,983
|
|
|
|
|
|
|
Rental expense relating to the operating leases amounted to
approximately $452,300 in 2005, $392,200 in 2004, and $369,300
in 2003.
F-14
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
NOTE 6 ACCRUED
INTEREST RECEIVABLE
Accrued interest receivable consists of the following at
December 31, 2005, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Loans
|
|
$
|
447,088
|
|
|
$
|
290,159
|
|
|
$
|
286,579
|
|
Investments and other
|
|
|
2,159,599
|
|
|
|
1,873,781
|
|
|
|
2,198,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,606,687
|
|
|
$
|
2,163,940
|
|
|
$
|
2,484,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7 TIME
DEPOSITS
The aggregate amount of time deposits with a minimum
denomination of $100,000 were approximately $81,844,800,
$46,785,400, and $58,183,300 at December 31, 2005, 2004 and
2003, respectively.
At December 31, 2005, the scheduled maturities of time
deposits were as follows:
|
|
|
|
|
2006
|
|
$
|
111,811,394
|
|
2007
|
|
|
82,100,527
|
|
2008
|
|
|
3,781,447
|
|
2009
|
|
|
2,611,381
|
|
2010
|
|
|
863,255
|
|
|
|
|
|
|
|
|
$
|
201,168,004
|
|
|
|
|
|
|
NOTE 8 SECURITIES
SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase at
December 31, 2005, 2004 and 2003 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Securities sold under agreements
to repurchase
|
|
$
|
15,203,225
|
|
|
$
|
|
|
|
$
|
9,737,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average amount outstanding during
the year
|
|
$
|
9,423,451
|
|
|
$
|
5,382,807
|
|
|
$
|
10,516,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate of
the agreements
|
|
|
3.36
|
%
|
|
|
1.53
|
%
|
|
|
1.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The agreements mature within one month. The securities
underlying the agreements were delivered to the dealer who
arranged the transactions. The dealer may have sold, loaned, or
otherwise disposed of such securities to other parties in the
normal course of operation and has agreed to resell to the Bank
substantially identical securities at the maturity of the
agreement. The Bank is required under a master agreement with
the dealer to maintain a minimum margin of 100% for the value of
all collateral securities backing the agreements. If the market
value of securities underlying such agreements falls below the
minimum margin requirement, the Bank is required to deposit
additional securities or cash with the dealer.
|
|
NOTE 9
|
CUSTOMER
REPURCHASE AGREEMENTS
|
At December 31, 2005, 2004, and 2003, the Bank had entered
into repurchase agreements with Bank customers. The repurchase
agreements generally mature within one business day from the
transaction date. The average balance and interest rate under
the repurchase agreements amounted to approximately $923,800 and
1.75% in 2005, $978,400 and .79% in 2004, and $753,500 and .91%
in 2003.
F-15
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
NOTE 10
|
EARNINGS
PER SHARE
|
The Company accounts for earnings per share (EPS) in compliance
with Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings per Share. Under
SFAS No. 128, because the Company has common stock
equivalents, the Company has a complex capital structure and
must disclose both basic and diluted EPS. Basic EPS is computed
by dividing consolidated net income available to common
stockholders by the weighted-average number of common shares
outstanding for the year. Diluted EPS reflects the potential
dilution that could occur if all dilutive securities and other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that
then shared in the consolidated net income of the Company. The
following table sets forth the computation of basic and diluted
earnings per share for the years ended December 31, 2005,
2004, and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Numerator for earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,879,962
|
|
|
$
|
2,684,648
|
|
|
$
|
2,029,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,710,167
|
|
|
|
3,710,000
|
|
|
|
3,710,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
3,724,943
|
|
|
|
3,710,000
|
|
|
|
3,710,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.78
|
|
|
$
|
.72
|
|
|
$
|
.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
.77
|
|
|
$
|
.72
|
|
|
$
|
.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has adopted SFAS No. 123, Accounting
for Stock-Based Compensation, and accounts for these options
under APB Opinion No. 25, Accounting for Stock Issued to
Employees, for which no compensation cost has been
recognized.
The Company has established an Incentive and Non-Statutory Stock
Option Plan, under which 350,000 shares of the
Companys common stock is reserved for issuance. This plan
was revised during 2005 to allow for 600,000 shares of the
Companys common stock to be reserved for issuance. Options
are granted under the Plan on such terms and at such prices as
determined by the Board of Directors, except that the per share
exercise price of incentive stock options cannot be less than
the fair market value of the common stock at the date of the
grant. In September 2002, options were granted to directors for
the purchase of 30,000 shares of common stock and to
employees for the purchase of 75,000 shares of common
stock. In December 2003, options were granted to employees for
the purchase of 36,300 shares of common stock. In December
2005, options were granted to directors for the purchase of
150,000 shares of common stock and to employees for the
purchase of 61,650 shares of common stock. All options
expire five years from the date of grant and vest and become
exercisable 10% annually for the first three years from date of
grant and fully vested and exercisable four years from grant
date.
F-16
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
A summary of the status of the Companys outstanding stock
options at December 31, 2005, 2004 and 2003 is presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Number
|
|
|
Price
|
|
|
Number
|
|
|
Price
|
|
|
Number
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
140,000
|
|
|
$
|
7.50
|
|
|
|
140,000
|
|
|
$
|
7.50
|
|
|
|
104,700
|
|
|
$
|
7.50
|
|
Granted
|
|
|
211,650
|
|
|
|
8.50
|
|
|
|
|
|
|
|
|
|
|
|
36,300
|
|
|
|
7.50
|
|
Forfeited
|
|
|
(22,400
|
)
|
|
|
7.50
|
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
7.50
|
|
Exercised
|
|
|
(500
|
)
|
|
|
7.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
328,750
|
|
|
$
|
8.14
|
|
|
|
140,000
|
|
|
$
|
7.50
|
|
|
|
140,000
|
|
|
$
|
7.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
31,910
|
|
|
$
|
8.14
|
|
|
|
20,200
|
|
|
$
|
7.50
|
|
|
|
8,490
|
|
|
$
|
7.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Had compensation expense for the Companys stock options
been recognized based on the fair value on the grant date under
the methodology prescribed by SFAS No. 123, the
Companys net earnings and earnings per share for the years
ended December 31, 2005, 2004, and 2003 would have been
impacted as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Reported net earnings
|
|
$
|
2,879,962
|
|
|
$
|
2,684,648
|
|
|
$
|
2,029,153
|
|
Compensation expense, net of taxes
|
|
|
12,104
|
|
|
|
12,104
|
|
|
|
8,646
|
|
Pro forma net earnings
|
|
|
2,867,858
|
|
|
|
2,672,544
|
|
|
|
2,020,507
|
|
Reported basic earnings per share
|
|
|
0.78
|
|
|
|
0.72
|
|
|
|
0.55
|
|
Proforma basic earnings per share
|
|
|
0.77
|
|
|
|
0.72
|
|
|
|
0.54
|
|
Reported diluted earnings per share
|
|
|
0.77
|
|
|
|
0.72
|
|
|
|
0.55
|
|
Pro forma diluted earnings per
share
|
|
|
0.77
|
|
|
|
0.72
|
|
|
|
0.54
|
|
The fair value of options granted, which is amortized to expense
over the option vesting period in determining the pro forma
impact, is estimated on the date of grant using the
Black-Scholes option-pricing model.
The fair value of each option granted is estimated on the grant
date using the minimum value method. In using the minimum value
method, the Company assumed (a) no dividend yield through
2004 and a 6% dividend yield in 2005; (b) an expected life
of five years; and (c) a risk-free interest rate of 2.94%
at date of grant in September 2002, a risk-free interest rate of
2.10% at date of grant in December 2003, a risk-free interest
rate of 4.35% at date of grant in December 2005, and a
volatility of effectively zero.
NOTE 12 EMPLOYEE
BENEFIT PLAN
The Bank maintains a 401(k) benefit plan for all eligible Bank
employees. Benefit plan administration expense in 2005, 2004 and
2003 amounted to $2,225, $2,080 and $1,620, respectively. The
Bank made no contributions to the plan in 2005, 2004 and 2003.
F-17
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
NOTE 13 INCOME
TAXES
The provision for income taxes charged to earnings for the years
ending December 31, 2005, 2004 and 2003 are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,535,189
|
|
|
$
|
1,404,311
|
|
|
$
|
1,065,311
|
|
State
|
|
|
246,982
|
|
|
|
240,203
|
|
|
|
181,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,782,171
|
|
|
|
1,644,514
|
|
|
|
1,247,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(20,550
|
)
|
|
|
(15,690
|
)
|
|
|
(11,273
|
)
|
State
|
|
|
(3,517
|
)
|
|
|
(2,769
|
)
|
|
|
(1,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,067
|
)
|
|
|
(18,459
|
)
|
|
|
(13,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,758,104
|
|
|
$
|
1,626,055
|
|
|
$
|
1,233,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The differences between the actual income tax expense and the
amount computed by applying the statutory federal income tax
rate to income before income taxes at December 31, 2005,
2004 and 2003 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Tax based on statutory rate
|
|
$
|
1,576,942
|
|
|
$
|
1,465,639
|
|
|
$
|
1,109,467
|
|
State tax, net of federal benefit
|
|
|
160,687
|
|
|
|
156,706
|
|
|
|
118,765
|
|
Other, net
|
|
|
20,475
|
|
|
|
3,710
|
|
|
|
5,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,758,104
|
|
|
$
|
1,626,055
|
|
|
$
|
1,233,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of deferred taxes at December 31, 2005, 2004
and 2003 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
382,599
|
|
|
$
|
381,035
|
|
|
$
|
345,570
|
|
Pre-opening expenses
|
|
|
|
|
|
|
3,920
|
|
|
|
32,236
|
|
Net unrealized loss on securities
available for sale
|
|
|
|
|
|
|
8,888
|
|
|
|
47,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382,599
|
|
|
|
393,843
|
|
|
|
425,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(134,712
|
)
|
|
|
(161,135
|
)
|
|
|
(172,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
247,887
|
|
|
$
|
232,708
|
|
|
$
|
252,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In managements opinion, based on expectations of future
taxable income and other relevant considerations, it is more
likely than not that future taxable income will be sufficient to
utilize the deferred tax assets which existed at
December 31, 2005, 2004, and 2003.
F-18
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
NOTE 14 COMMITMENTS
AND CONTINGENCIES
Unused
Lines of Credit:
The Bank has unsecured federal funds lines of credit with
financial institutions enabling the Bank to borrow up to
$11,000,000 with interest determined at the time of any advance.
The arrangements are reviewed annually for renewal of the credit
line.
Credit
Related Financial Instruments:
The Bank is a party to credit related 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, standby
letters-of-credit
and financial guarantees. Such commitments involve, to varying
degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the consolidated statements of
financial condition.
The Banks exposure to credit loss is represented by the
contractual amount of these commitments. The Bank follows the
same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
At December 31, 2005, 2004 and 2003 the following financial
instruments were outstanding whose contract amounts represent
credit risk:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Commitments to extend credit
|
|
$
|
21,353,806
|
|
|
$
|
21,096,747
|
|
|
$
|
25,428,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit
|
|
$
|
2,024,759
|
|
|
$
|
2,134,506
|
|
|
$
|
3,958,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit are agreements to lend to customers
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.
The commitments to extend credit may expire without being drawn
upon. Therefore, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral
obtained, if it is deemed necessary by the Bank, is based on
managements credit evaluation of the customer.
Letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party.
Those letters of credit are primarily issued to support private
borrowing arrangements. The credit risk involved in issuing
letters of credit is essentially the same as that involved in
extending loan facilities to customers. The Bank generally holds
collateral for those commitments for which collateral is deemed
necessary.
The Bank has not incurred any losses on its commitments in 2005,
2004 and 2003.
Other:
Various legal claims arise from time to time in the normal
course of business, which, in the opinion of management, will
have no material effect on the Companys consolidated
financial statements. At December 31, 2005, management is
not aware of any unresolved claims against the Company or the
Bank.
NOTE 15 RELATED
PARTY TRANSACTIONS
In the ordinary course of business, the Bank has and expects to
continue to conduct routine banking business with related
parties including its directors, stockholders, and their
affiliates.
F-19
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Loans In the opinion of
management, loans to related parties were on substantially the
same terms, including interest rates and collateral, as those
prevailing at the time of comparable transactions with other
persons and did not involve more than a normal risk of
collectibility or present any other unfavorable features to the
Bank.
Loans to such borrowers at December 31, 2005, 2004 and 2003
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Balance, beginning of period
|
|
$
|
1,328,460
|
|
|
$
|
2,202,488
|
|
|
$
|
2,201,019
|
|
New loans during the period
|
|
|
225,000
|
|
|
|
900,000
|
|
|
|
328,000
|
|
Repayments during the period
|
|
|
(114,623
|
)
|
|
|
(1,774,028
|
)
|
|
|
(326,531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
1,438,837
|
|
|
$
|
1,328,460
|
|
|
$
|
2,202,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded commitments to related
parties
|
|
$
|
64,389
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits The Bank held deposits
from related parties of approximately $17,517,300, $8,984,200
and $2,593,800 at December 31, 2005, 2004 and 2003,
respectively.
NOTE 16 REGULATORY
MATTERS
The Company and the Bank are subject to various regulatory
capital requirements administered by the federal banking
agencies. These regulations for the Bank include, but are not
limited to, the payment of dividends in excess of the sum of the
current years earnings plus undistributed earnings from
the prior two years. As of December 31, 2005, the Bank had
$5,964,188 of retained earnings that could be paid under this
restriction. These regulations for the Company include but are
not limited to the payment of dividends out of income available
over the past year only if prospective earnings retention is
consistent with the Companys expected future needs and
financial condition. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the
Companys and the Banks financial statements. Under
capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures
of the Companys and the Banks assets, liabilities,
and certain off-balance-sheet items as calculated under
regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Prompt corrective action provisions are not applicable to bank
holding companies.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and the Bank to maintain
minimum amounts and ratios (set forth in the table below) of
total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). Management
believes, as of December 31, 2005, that the Company and the
Bank meet all capital adequacy requirements to which they are
subject.
F-20
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
As of December 31, 2005, the Bank was considered well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the table. There are
no conditions or events that management believes have changed
the Banks category. The Companys and the Banks
actual capital amounts and ratios as of December 31, 2005,
2004, and 2003 are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
Minimum
|
|
|
Capitalized Under
|
|
|
|
|
|
|
Capital
|
|
|
Prompt Corrective
|
|
|
|
Actual
|
|
|
Requirement:
|
|
|
Action Provisions:
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
As of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
(to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
28,443,235
|
|
|
|
16.59
|
%
|
|
$
|
13,717,829
|
|
|
|
8.0
|
%
|
|
$
|
N/A
|
|
|
|
|
|
Bank
|
|
$
|
28,282,439
|
|
|
|
16.49
|
%
|
|
$
|
13,717,829
|
|
|
|
8.0
|
%
|
|
$
|
17,147,286
|
|
|
|
10.0
|
%
|
Tier I Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
27,426,497
|
|
|
|
15.99
|
%
|
|
$
|
6,858,914
|
|
|
|
4.0
|
%
|
|
$
|
N/A
|
|
|
|
|
|
Bank
|
|
$
|
27,265,701
|
|
|
|
15.90
|
%
|
|
$
|
6,858,914
|
|
|
|
4.0
|
%
|
|
$
|
10,288,372
|
|
|
|
6.0
|
%
|
Tier I Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
27,426,497
|
|
|
|
9.75
|
%
|
|
$
|
11,246,893
|
|
|
|
4.0
|
%
|
|
$
|
N/A
|
|
|
|
|
|
Bank
|
|
$
|
27,265,701
|
|
|
|
9.70
|
%
|
|
$
|
11,246,893
|
|
|
|
4.0
|
%
|
|
$
|
14,058,616
|
|
|
|
5.0
|
%
|
As of December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
27,954,460
|
|
|
|
20.46
|
%
|
|
$
|
10,932,804
|
|
|
|
8.0
|
%
|
|
$
|
N/A
|
|
|
|
|
|
Bank
|
|
$
|
27,880,187
|
|
|
|
20.40
|
%
|
|
$
|
10,932,804
|
|
|
|
8.0
|
%
|
|
$
|
13,666,005
|
|
|
|
10.0
|
%
|
Tier I Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
26,954,460
|
|
|
|
19.72
|
%
|
|
$
|
5,466,402
|
|
|
|
4.0
|
%
|
|
$
|
N/A
|
|
|
|
|
|
Bank
|
|
$
|
26,880,187
|
|
|
|
19.67
|
%
|
|
$
|
5,466,402
|
|
|
|
4.0
|
%
|
|
$
|
8,199,603
|
|
|
|
6.0
|
%
|
Tier I Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
26,954,460
|
|
|
|
10.03
|
%
|
|
$
|
10,746,575
|
|
|
|
4.0
|
%
|
|
$
|
N/A
|
|
|
|
|
|
Bank
|
|
$
|
26,880,187
|
|
|
|
10.01
|
%
|
|
$
|
10,746,575
|
|
|
|
4.0
|
%
|
|
$
|
13,433,218
|
|
|
|
5.0
|
%
|
As of December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
25,169,812
|
|
|
|
17.78
|
%
|
|
$
|
11,322,726
|
|
|
|
8.0
|
%
|
|
$
|
N/A
|
|
|
|
|
|
Bank
|
|
$
|
25,065,470
|
|
|
|
17.71
|
%
|
|
$
|
11,322,726
|
|
|
|
8.0
|
%
|
|
$
|
14,153,408
|
|
|
|
10.0
|
%
|
F-21
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
Minimum
|
|
|
Capitalized Under
|
|
|
|
|
|
|
Capital
|
|
|
Prompt Corrective
|
|
|
|
Actual
|
|
|
Requirement:
|
|
|
Action Provisions:
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Tier I Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
24,269,812
|
|
|
|
17.15
|
%
|
|
$
|
5,661,363
|
|
|
|
4.0
|
%
|
|
$
|
N/A
|
|
|
|
|
|
Bank
|
|
$
|
24,165,470
|
|
|
|
17.07
|
%
|
|
$
|
5,661,363
|
|
|
|
4.0
|
%
|
|
$
|
8,492,045
|
|
|
|
6.0
|
%
|
Tier I Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
24,269,812
|
|
|
|
9.24
|
%
|
|
$
|
10,511,097
|
|
|
|
4.0
|
%
|
|
$
|
N/A
|
|
|
|
|
|
Bank
|
|
$
|
24,165,470
|
|
|
|
9.20
|
%
|
|
$
|
10,511,097
|
|
|
|
4.0
|
%
|
|
$
|
13,138,871
|
|
|
|
5.0
|
%
|
NOTE 17 FAIR
VALUES OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is best determined based
upon quoted market prices. However, in many instances, there is
no quoted market prices for the Companys various financial
instruments. In cases where quoted market prices are not
available, fair values are based on estimates using present
value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the
discount rate used and estimates of future cash flows.
Accordingly, the fair value estimates may not be realized in an
immediate settlement of the instrument. Statement of Financial
Accounting Standards No. 107, Disclosure about Fair
Value of Financial Instruments, excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts
presented may not necessarily represent the underlying fair
value of the Company.
The following methods and assumptions were used by the Company
in estimating fair values of financial instruments as disclosed
herein:
Cash and cash equivalents. The carrying
amounts of cash and cash equivalents approximate their fair
value.
Securities. Fair values for securities are
based on quoted market prices.
Loans receivable. For variable-rate loans that
reprice frequently and have no significant change in credit
risk, fair values are based on carrying values. Fair values for
other loans are estimated using discounted cash flow analyses
using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Deposit liabilities. The fair values disclosed
for demand deposits are, by definition, equal to the amount
payable on demand at the reporting date (that is, their carrying
amounts). The carrying amounts of savings accounts approximate
their fair values at the reporting date. Fair values for
fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates
currently being offered to a schedule of aggregated expected
maturities of time deposits.
Securities sold under agreements to
repurchase. The carrying amounts of securities
sold under agreements to repurchase approximate their fair
values.
Customer repurchase agreements. The carrying
amounts of customer repurchase agreements approximate their fair
values.
Off-balance-sheet instruments. Fair values for
off-balance-sheet lending commitments are based on fees
currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and
F-22
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
the counterparties credit standings. The estimated fair
value for these instruments was insignificant at
December 31, 2005, 2004, and 2003.
The estimated fair values of the Companys financial
instruments at December 31, 2005, 2004 and 2003 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,130,438
|
|
|
$
|
7,130,438
|
|
|
$
|
7,869,106
|
|
|
$
|
7,869,106
|
|
|
$
|
19,224,950
|
|
|
$
|
19,224,950
|
|
Securities held to maturity
|
|
|
184,025,332
|
|
|
|
181,210,658
|
|
|
|
153,337,768
|
|
|
|
153,012,354
|
|
|
|
168,163,298
|
|
|
|
167,974,741
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
5,062,000
|
|
|
|
5,062,000
|
|
|
|
5,117,200
|
|
|
|
5,117,200
|
|
Loans receivable
|
|
|
124,517,572
|
|
|
|
124,304,747
|
|
|
|
96,770,318
|
|
|
|
97,006,630
|
|
|
|
89,170,413
|
|
|
|
89,516,763
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
278,687,723
|
|
|
|
277,646,137
|
|
|
|
240,446,046
|
|
|
|
240,443,697
|
|
|
|
252,110,561
|
|
|
|
253,207,897
|
|
Securities sold under agreements to
repurchase
|
|
|
15,203,225
|
|
|
|
15,203,225
|
|
|
|
|
|
|
|
|
|
|
|
9,737,000
|
|
|
|
9,737,000
|
|
Customer repurchase agreements
|
|
|
2,118,072
|
|
|
|
2,118,072
|
|
|
|
990,865
|
|
|
|
990,865
|
|
|
|
937,660
|
|
|
|
937,660
|
|
NOTE 18 SUBSEQUENT
EVENTS
On March 6, 2006, the Company announced that it had signed
a definitive agreement to merge with and into Superior Bancorp,
a Delaware chartered thrift holding company headquartered in
Birmingham, Alabama. Superior Bancorp offers a broad range of
banking and related services through Superior Bank, a federal
savings bank. Under the terms of the merger agreement, Superior
Bancorp has agreed to issue 1.60 shares of its common stock
for each outstanding share of the Companys common stock.
Based on recent closing prices per share for Superior Bancorp
common stock, the transaction would be valued at approximately
$71.2 million. The actual value at consummation will be
based on Superior Bancorp share price at that time. Completion
of the merger is subject to approval by the stockholders of both
corporations, to the receipt of required regulatory approvals
and to the satisfaction of usual and customary closing
conditions.
F-23
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
NOTE 19
|
CONDENSED
PARENT COMPANY INFORMATION
|
The condensed financial information of the parent company only
as of December 31, 2005, 2004, and 2003 and for the years
ended December 31, 2005, 2004, and 2003 is presented as
follows:
Balance
Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
170,990
|
|
|
$
|
48,673
|
|
|
$
|
78,742
|
|
Other assets
|
|
|
|
|
|
|
25,600
|
|
|
|
25,600
|
|
Investment in Bank subsidiary
|
|
|
28,007,801
|
|
|
|
26,865,990
|
|
|
|
24,089,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
28,178,791
|
|
|
$
|
26,940,263
|
|
|
$
|
24,193,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities &
Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends payable and other
liabilities
|
|
$
|
752,294
|
|
|
$
|
|
|
|
$
|
|
|
Stockholders equity
|
|
|
27,426,497
|
|
|
|
26,940,263
|
|
|
|
24,193,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities &
Stockholders Equity
|
|
$
|
28,178,791
|
|
|
$
|
26,940,263
|
|
|
$
|
24,193,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements
of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Noninterest Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from Bank subsidiary
|
|
$
|
1,776,000
|
|
|
$
|
|
|
|
$
|
|
|
Noninterest Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
38,083
|
|
|
|
43,272
|
|
|
|
68,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
and equity in undistributed earnings of subsidiary
|
|
|
1,737,917
|
|
|
|
(43,272
|
)
|
|
|
(68,031
|
)
|
Income tax benefit
|
|
|
(14,431
|
)
|
|
|
(13,203
|
)
|
|
|
(25,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in
undistributed earnings of subsidiary
|
|
|
1,752,348
|
|
|
|
30,069
|
|
|
|
(42,431
|
)
|
Equity in undistributed earnings
of subsidiary
|
|
|
1,127,614
|
|
|
|
2,714,717
|
|
|
|
2,071,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,879,962
|
|
|
$
|
2,684,648
|
|
|
$
|
2,029,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Statements
of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Cash Flows From Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,879,962
|
|
|
$
|
2,684,648
|
|
|
$
|
2,029,153
|
|
Adjustments to reconcile net
income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in other assets
|
|
|
25,600
|
|
|
|
|
|
|
|
(3,740
|
)
|
Net change in other liabilities
|
|
|
10,194
|
|
|
|
|
|
|
|
|
|
Equity in undistributed earnings
of Bank subsidiary
|
|
|
(1,127,614
|
)
|
|
|
(2,714,717
|
)
|
|
|
(2,071,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
1,788,142
|
|
|
|
(30,069
|
)
|
|
|
(46,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(1,669,575
|
)
|
|
|
|
|
|
|
|
|
Proceeds from options exercised
|
|
|
3,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(1,665,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
122,317
|
|
|
|
(30,069
|
)
|
|
|
(46,171
|
)
|
Cash at beginning of year
|
|
|
48,673
|
|
|
|
78,742
|
|
|
|
124,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
170,990
|
|
|
$
|
48,673
|
|
|
$
|
78,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
QUARTERLY
FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended
December 31, 2005 and 2004 is as follows:
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
QUARTERLY FINANCIAL INFORMATION
FOR THE QUARTERS IN 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2005
|
|
|
6/30/2005
|
|
|
9/30/2005
|
|
|
12/31/2005
|
|
|
|
(Unaudited)
|
|
|
ASSETS:
|
Cash and due from banks
|
|
$
|
4,582,894
|
|
|
$
|
3,830,579
|
|
|
$
|
5,569,391
|
|
|
$
|
5,177,112
|
|
Interest-bearing deposits in bank
|
|
|
62,448
|
|
|
|
62,695
|
|
|
|
63,036
|
|
|
|
|
|
Federal funds sold
|
|
|
2,546,939
|
|
|
|
1,927,842
|
|
|
|
2,694,218
|
|
|
|
1,953,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
7,192,281
|
|
|
|
5,821,116
|
|
|
|
8,326,645
|
|
|
|
7,130,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
5,032,000
|
|
|
|
5,007,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
|
|
|
153,668,300
|
|
|
|
148,148,998
|
|
|
|
175,923,507
|
|
|
|
184,025,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
107,177,271
|
|
|
|
116,105,287
|
|
|
|
115,508,386
|
|
|
|
125,534,310
|
|
Less allowance for loans losses
|
|
|
1,030,000
|
|
|
|
1,085,000
|
|
|
|
1,125,000
|
|
|
|
1,016,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
106,147,271
|
|
|
|
115,020,287
|
|
|
|
114,383,386
|
|
|
|
124,517,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
3,158,619
|
|
|
|
3,311,799
|
|
|
|
3,779,385
|
|
|
|
5,609,780
|
|
Interest receivable and other
assets
|
|
|
2,351,909
|
|
|
|
2,569,715
|
|
|
|
2,445,596
|
|
|
|
3,371,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
277,550,380
|
|
|
$
|
279,879,415
|
|
|
$
|
304,858,519
|
|
|
$
|
324,654,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY:
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
33,296,285
|
|
|
$
|
31,471,996
|
|
|
$
|
37,741,535
|
|
|
$
|
35,801,529
|
|
Interest bearing
|
|
|
199,521,244
|
|
|
|
216,225,770
|
|
|
|
232,170,816
|
|
|
|
242,886,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
232,817,529
|
|
|
|
247,697,766
|
|
|
|
269,912,351
|
|
|
|
278,687,723
|
|
Securities sold under agreements
to repurchase
|
|
|
14,767,000
|
|
|
|
2,892,000
|
|
|
|
5,210,000
|
|
|
|
15,203,225
|
|
Customer repurchase agreements
|
|
|
1,276,852
|
|
|
|
638,303
|
|
|
|
837,943
|
|
|
|
2,118,072
|
|
Dividends payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
742,100
|
|
Accrued expenses and other
liabilities
|
|
|
915,065
|
|
|
|
761,914
|
|
|
|
849,091
|
|
|
|
476,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
249,776,446
|
|
|
|
251,989,983
|
|
|
|
276,809,385
|
|
|
|
297,227,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
37,100
|
|
|
|
37,100
|
|
|
|
37,105
|
|
|
|
37,105
|
|
Additional paid-in capital
|
|
|
21,107,902
|
|
|
|
21,107,902
|
|
|
|
21,111,647
|
|
|
|
21,111,647
|
|
Retained earnings
|
|
|
6,637,673
|
|
|
|
6,744,333
|
|
|
|
6,900,382
|
|
|
|
6,277,745
|
|
Accumulated other comprehensive
income (loss)
|
|
|
(8,741
|
)
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
27,773,934
|
|
|
|
27,889,432
|
|
|
|
28,049,134
|
|
|
|
27,426,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
277,550,380
|
|
|
$
|
279,879,415
|
|
|
$
|
304,858,519
|
|
|
$
|
324,654,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
QUARTERLY FINANCIAL INFORMATION FOR THE QUARTERS IN 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2004
|
|
|
6/30/2004
|
|
|
9/30/2004
|
|
|
12/31/2004
|
|
|
|
(Unaudited)
|
|
|
ASSETS:
|
Cash and due from banks
|
|
$
|
2,741,921
|
|
|
$
|
3,763,984
|
|
|
$
|
3,810,620
|
|
|
$
|
3,527,305
|
|
Interest-bearing deposits in bank
|
|
|
61,642
|
|
|
|
61,726
|
|
|
|
61,880
|
|
|
|
62,189
|
|
Federal funds sold
|
|
|
316,625
|
|
|
|
1,422,082
|
|
|
|
76,245
|
|
|
|
4,279,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
3,120,188
|
|
|
|
5,247,792
|
|
|
|
3,948,745
|
|
|
|
7,869,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
5,212,500
|
|
|
|
5,017,200
|
|
|
|
5,103,150
|
|
|
|
5,062,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
|
|
|
183,061,073
|
|
|
|
173,564,184
|
|
|
|
200,965,717
|
|
|
|
153,337,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
97,345,863
|
|
|
|
100,593,324
|
|
|
|
93,146,916
|
|
|
|
97,770,318
|
|
Less allowance for loans losses
|
|
|
935,000
|
|
|
|
960,000
|
|
|
|
980,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
96,410,863
|
|
|
|
99,633,324
|
|
|
|
92,166,916
|
|
|
|
96,770,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
|
64,919
|
|
|
|
396,786
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
2,589,246
|
|
|
|
2,559,298
|
|
|
|
2,490,425
|
|
|
|
3,101,276
|
|
Interest receivable and other
assets
|
|
|
2,799,334
|
|
|
|
3,072,667
|
|
|
|
2,893,581
|
|
|
|
2,533,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
293,258,123
|
|
|
$
|
289,491,251
|
|
|
$
|
307,568,534
|
|
|
$
|
268,673,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY:
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
19,952,388
|
|
|
$
|
23,133,530
|
|
|
$
|
22,244,430
|
|
|
$
|
29,313,370
|
|
Interest bearing
|
|
|
232,970,810
|
|
|
|
239,405,678
|
|
|
|
240,995,367
|
|
|
|
211,132,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
252,923,198
|
|
|
|
262,539,208
|
|
|
|
263,239,797
|
|
|
|
240,446,046
|
|
Securities sold under agreements
to repurchase
|
|
|
12,616,406
|
|
|
|
|
|
|
|
16,317,450
|
|
|
|
|
|
Federal funds purchased
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer repurchase agreements
|
|
|
901,538
|
|
|
|
877,877
|
|
|
|
1,149,586
|
|
|
|
990,865
|
|
Accrued expenses and other
liabilities
|
|
|
796,229
|
|
|
|
453,808
|
|
|
|
498,572
|
|
|
|
296,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
268,237,371
|
|
|
|
263,870,893
|
|
|
|
281,205,405
|
|
|
|
241,733,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
37,100
|
|
|
|
37,100
|
|
|
|
37,100
|
|
|
|
37,100
|
|
Additional paid-in capital
|
|
|
21,107,902
|
|
|
|
21,107,902
|
|
|
|
21,107,902
|
|
|
|
21,107,902
|
|
Retained earnings
|
|
|
3,869,107
|
|
|
|
4,564,917
|
|
|
|
5,230,923
|
|
|
|
5,809,458
|
|
Accumulated other comprehensive
income (loss)
|
|
|
6,643
|
|
|
|
(89,561
|
)
|
|
|
(12,796
|
)
|
|
|
(14,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
25,020,752
|
|
|
|
25,620,358
|
|
|
|
26,363,129
|
|
|
|
26,940,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
293,258,123
|
|
|
$
|
289,491,251
|
|
|
$
|
307,568,534
|
|
|
$
|
268,673,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
QUARTERLY FINANCIAL INFORMATION FOR THE QUARTERS IN
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2005
|
|
|
6/30/2005
|
|
|
9/30/2005
|
|
|
12/31/2005
|
|
|
|
(Unaudited)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable and fees on loans
|
|
$
|
1,778,684
|
|
|
$
|
2,064,550
|
|
|
$
|
2,190,446
|
|
|
$
|
2,339,895
|
|
Investment securities
|
|
|
1,757,950
|
|
|
|
1,782,851
|
|
|
|
1,912,159
|
|
|
|
2,150,182
|
|
Federal funds sold
|
|
|
18,986
|
|
|
|
14,506
|
|
|
|
29,275
|
|
|
|
18,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
3,555,620
|
|
|
|
3,861,907
|
|
|
|
4,131,880
|
|
|
|
4,508,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,122,725
|
|
|
|
1,292,838
|
|
|
|
1,590,232
|
|
|
|
1,890,986
|
|
Other
|
|
|
41,727
|
|
|
|
152,153
|
|
|
|
67,747
|
|
|
|
88,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
1,164,452
|
|
|
|
1,444,991
|
|
|
|
1,657,979
|
|
|
|
1,979,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
2,391,168
|
|
|
|
2,416,916
|
|
|
|
2,473,901
|
|
|
|
2,529,388
|
|
Provision for loan losses
|
|
|
11,900
|
|
|
|
55,000
|
|
|
|
39,087
|
|
|
|
(105,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for loan losses
|
|
|
2,379,268
|
|
|
|
2,361,916
|
|
|
|
2,434,814
|
|
|
|
2,635,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposits
accounts
|
|
|
45,004
|
|
|
|
60,912
|
|
|
|
63,168
|
|
|
|
49,362
|
|
Securities gains
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
7,701
|
|
|
|
8,625
|
|
|
|
10,083
|
|
|
|
9,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
55,205
|
|
|
|
69,537
|
|
|
|
73,251
|
|
|
|
59,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
677,362
|
|
|
|
701,434
|
|
|
|
762,299
|
|
|
|
875,486
|
|
Occupancy and equipment expense
|
|
|
190,877
|
|
|
|
228,283
|
|
|
|
272,269
|
|
|
|
327,508
|
|
Other expenses
|
|
|
302,019
|
|
|
|
319,576
|
|
|
|
355,948
|
|
|
|
417,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
1,170,258
|
|
|
|
1,249,293
|
|
|
|
1,390,516
|
|
|
|
1,620,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
1,264,215
|
|
|
|
1,182,160
|
|
|
|
1,117,549
|
|
|
|
1,074,142
|
|
Income tax expense
|
|
|
436,000
|
|
|
|
519,000
|
|
|
|
405,000
|
|
|
|
398,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
828,215
|
|
|
$
|
663,160
|
|
|
$
|
712,549
|
|
|
$
|
676,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
.22
|
|
|
$
|
.18
|
|
|
$
|
.19
|
|
|
$
|
.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
.22
|
|
|
$
|
.18
|
|
|
$
|
.19
|
|
|
$
|
.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding
|
|
|
3,710,000
|
|
|
|
3,710,000
|
|
|
|
3,710,167
|
|
|
|
3,710,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding
|
|
|
3,710,000
|
|
|
|
3,827,600
|
|
|
|
3,827,267
|
|
|
|
3,827,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend per share
|
|
$
|
.15
|
|
|
$
|
.15
|
|
|
$
|
.15
|
|
|
$
|
.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
828,215
|
|
|
$
|
663,160
|
|
|
$
|
712,549
|
|
|
$
|
676,038
|
|
Other Comprehensive Income (Loss),
net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gain
arising during the period
|
|
|
5,456
|
|
|
|
8,838
|
|
|
|
(97
|
)
|
|
|
|
|
Less: Reclassification adjustment
for gains included in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,456
|
|
|
|
8,838
|
|
|
|
(97
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
833,671
|
|
|
$
|
671,998
|
|
|
$
|
712,452
|
|
|
$
|
676,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
KENSINGTON
BANKSHARES, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
QUARTERLY
FINANCIAL INFORMATION FOR THE QUARTERS IN 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2004
|
|
|
6/30/2004
|
|
|
9/30/2004
|
|
|
12/31/2004
|
|
|
|
(Unaudited)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable and fees on loans
|
|
$
|
1,628,488
|
|
|
$
|
1,633,284
|
|
|
$
|
1,657,916
|
|
|
$
|
1,695,795
|
|
Investment securities
|
|
|
1,896,317
|
|
|
|
1,781,300
|
|
|
|
1,894,472
|
|
|
|
1,940,707
|
|
Federal funds sold
|
|
|
9,697
|
|
|
|
3,567
|
|
|
|
14,829
|
|
|
|
17,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
3,534,502
|
|
|
|
3,418,151
|
|
|
|
3,567,217
|
|
|
|
3,653,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,292,173
|
|
|
|
1,233,713
|
|
|
|
1,281,404
|
|
|
|
1,219,161
|
|
Other
|
|
|
25,069
|
|
|
|
15,860
|
|
|
|
11,771
|
|
|
|
39,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
1,317,242
|
|
|
|
1,249,573
|
|
|
|
1,293,175
|
|
|
|
1,259,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
2,217,260
|
|
|
|
2,168,578
|
|
|
|
2,274,042
|
|
|
|
2,394,801
|
|
Provision for loan losses
|
|
|
35,000
|
|
|
|
25,000
|
|
|
|
23,958
|
|
|
|
43,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for loan losses
|
|
|
2,182,260
|
|
|
|
2,143,578
|
|
|
|
2,250,084
|
|
|
|
2,351,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charge on deposits accounts
|
|
|
41,743
|
|
|
|
51,145
|
|
|
|
50,399
|
|
|
|
47,142
|
|
Securities gains
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
606
|
|
Other
|
|
|
4,808
|
|
|
|
5,197
|
|
|
|
7,710
|
|
|
|
7,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
54,551
|
|
|
|
56,342
|
|
|
|
58,109
|
|
|
|
55,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
549,551
|
|
|
|
594,813
|
|
|
|
657,805
|
|
|
|
734,194
|
|
Occupancy and equipment expense
|
|
|
195,447
|
|
|
|
212,818
|
|
|
|
239,850
|
|
|
|
310,437
|
|
Other expenses
|
|
|
310,515
|
|
|
|
318,479
|
|
|
|
304,532
|
|
|
|
412,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
1,055,513
|
|
|
|
1,126,110
|
|
|
|
1,202,187
|
|
|
|
1,457,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
1,181,298
|
|
|
|
1,073,810
|
|
|
|
1,106,006
|
|
|
|
949,589
|
|
Income tax expense
|
|
|
437,000
|
|
|
|
378,000
|
|
|
|
440,000
|
|
|
|
371,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
744,298
|
|
|
$
|
695,810
|
|
|
$
|
666,006
|
|
|
$
|
578,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
.20
|
|
|
$
|
.19
|
|
|
$
|
.18
|
|
|
$
|
.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
.20
|
|
|
$
|
.19
|
|
|
$
|
.18
|
|
|
$
|
.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding
|
|
|
3,710,000
|
|
|
|
3,710,000
|
|
|
|
3,710,000
|
|
|
|
3,710,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding
|
|
|
3,710,000
|
|
|
|
3,710,000
|
|
|
|
3,710,000
|
|
|
|
3,710,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend per share
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
744,298
|
|
|
$
|
695,810
|
|
|
$
|
666,006
|
|
|
$
|
578,534
|
|
Other Comprehensive Income (Loss),
net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gain
arising during the period
|
|
|
82,515
|
|
|
|
(96,204
|
)
|
|
|
76,765
|
|
|
|
(1,401
|
)
|
Less: Reclassification adjustment
for gains included in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,515
|
|
|
|
(96,204
|
)
|
|
|
76,765
|
|
|
|
(1,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
826,813
|
|
|
$
|
599,606
|
|
|
$
|
742,771
|
|
|
$
|
577,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
KENSINGTON
BANKSHARES, INC.
STATEMENTS
OF CONDITION
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Unaudited
|
|
|
Audited
|
|
|
ASSETS:
|
Cash and due from banks
|
|
$
|
5,213,286
|
|
|
$
|
5,177,112
|
|
Federal funds sold
|
|
|
5,739,529
|
|
|
|
1,953,326
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
10,952,815
|
|
|
|
7,130,438
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
|
|
|
184,127,142
|
|
|
|
184,025,332
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
137,153,357
|
|
|
|
125,534,310
|
|
Less Allowance for possible credit
losses
|
|
|
1,011,254
|
|
|
|
1,016,738
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
136,142,103
|
|
|
|
124,517,572
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
|
|
5,630,828
|
|
|
|
5,609,780
|
|
Interest receivable and other
assets
|
|
|
3,072,505
|
|
|
|
3,371,258
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
339,925,393
|
|
|
$
|
324,654,380
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY:
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
41,356,405
|
|
|
$
|
35,801,529
|
|
Interest bearing
|
|
|
256,849,416
|
|
|
|
242,886,194
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
298,205,821
|
|
|
|
278,687,723
|
|
Securities sold under agreements
to repurchase
|
|
|
10,043,825
|
|
|
|
15,203,225
|
|
Customer repurchase agreements
|
|
|
2,227,321
|
|
|
|
2,118,072
|
|
Accrued expenses and other
liabilities
|
|
|
1,142,675
|
|
|
|
1,218,863
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
311,619,642
|
|
|
|
297,227,883
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock,
10,000,000 shares authorized of $.01 par value;
3,710,500 shares issued and outstanding
|
|
|
37,105
|
|
|
|
37,105
|
|
Additional paid-in capital
|
|
|
21,111,647
|
|
|
|
21,111,647
|
|
Retained earnings
|
|
|
7,156,999
|
|
|
|
6,277,745
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
28,305,751
|
|
|
|
27,426,497
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
339,925,393
|
|
|
$
|
324,654,380
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Unaudited Interim Consolidated Financial
Statements
F-30
KENSINGTON
BANKSHARES INC.
FOR THE
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
Loans receivable and fees on loans
|
|
$
|
2,641,496
|
|
|
$
|
1,778,684
|
|
Investment securities
|
|
|
2,220,353
|
|
|
|
1,757,950
|
|
Federal funds sold
|
|
|
45,521
|
|
|
|
18,986
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
4,907,370
|
|
|
|
3,555,620
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,160,620
|
|
|
|
1,122,725
|
|
Other
|
|
|
183,048
|
|
|
|
41,727
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
2,343,668
|
|
|
|
1,164,452
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
2,563,702
|
|
|
|
2,391,168
|
|
Provision for possible credit
losses
|
|
|
|
|
|
|
11,900
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for possible credit losses
|
|
|
2,563,702
|
|
|
|
2,379,268
|
|
|
|
|
|
|
|
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
Service charge on deposits accounts
|
|
|
53,788
|
|
|
|
45,004
|
|
Securities gains
|
|
|
|
|
|
|
2,500
|
|
Other income
|
|
|
25,905
|
|
|
|
7,701
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
79,693
|
|
|
|
55,205
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense:
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
771,845
|
|
|
|
677,362
|
|
Occupancy and equipment expense
|
|
|
223,651
|
|
|
|
190,877
|
|
Other expenses
|
|
|
339,713
|
|
|
|
302,019
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
1,335,209
|
|
|
|
1,170,258
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
1,308,186
|
|
|
|
1,264,215
|
|
Income tax expense
|
|
|
428,932
|
|
|
|
436,000
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
879,254
|
|
|
$
|
828,215
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
.24
|
|
|
$
|
.22
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
.24
|
|
|
$
|
.22
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding
|
|
|
3,710,500
|
|
|
|
3,710,000
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding
|
|
|
3,725,276
|
|
|
|
3,710,000
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared per share
|
|
$
|
|
|
|
$
|
.15
|
|
Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
879,254
|
|
|
$
|
828,215
|
|
Other Comprehensive Income, net of
tax:
|
|
|
|
|
|
|
|
|
Unrealized holding gain arising
during the period
|
|
|
|
|
|
|
5,456
|
|
Less: Reclassification adjustment
for gains included in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
879,254
|
|
|
$
|
833,671
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Unaudited Interim Consolidated Financial
Statements
F-31
Kensington
Bankshares, Inc.
For the
Three Months Ended March 31, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
879,254
|
|
|
$
|
828,215
|
|
Adjustments to reconcile net
income to net cash provided by operating activities Provision
for possible credit losses
|
|
|
|
|
|
|
11,900
|
|
Depreciation on premises and
equipment
|
|
|
57,481
|
|
|
|
84,199
|
|
(Accretion) amortization of
securities
|
|
|
(4,560
|
)
|
|
|
163,985
|
|
Gain on sale of securities
available for sale
|
|
|
|
|
|
|
(2,500
|
)
|
Decrease in interest receivable
and other assets
|
|
|
298,753
|
|
|
|
181,300
|
|
Increase in accrued expenses and
other liabilities
|
|
|
665,912
|
|
|
|
618,562
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating
Activities
|
|
|
1,896,840
|
|
|
|
1,885,661
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Proceeds from sales of securities
available for sale
|
|
|
|
|
|
|
5,000,000
|
|
Purchases of securities held to
maturity
|
|
|
|
|
|
|
(4,997,500
|
)
|
Proceeds from maturities of
securities held to maturity
|
|
|
|
|
|
|
20,365,000
|
|
Purchases of securities held to
maturity
|
|
|
(97,250
|
)
|
|
|
(20,824,061
|
)
|
Net increase in loans
|
|
|
(11,624,531
|
)
|
|
|
(9,388,853
|
)
|
Purchase of premises and equipment
|
|
|
(78,529
|
)
|
|
|
(141,542
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing
Activities
|
|
|
(11,800,310
|
)
|
|
|
(9,986,956
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits
|
|
|
19,518,098
|
|
|
|
(7,628,517
|
)
|
Net (decrease) increase in
securities sold under agreement to repurchase
|
|
|
(5,159,400
|
)
|
|
|
14,767,000
|
|
Increase in customer repurchase
agreements
|
|
|
109,249
|
|
|
|
285,987
|
|
Dividends paid
|
|
|
(742,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing
Activities
|
|
|
13,725,847
|
|
|
|
7,424,470
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Cash and
Cash Equivalents
|
|
|
3,822,377
|
|
|
|
(676,825
|
)
|
Cash and Cash Equivalents at
Beginning of Period
|
|
|
7,130,438
|
|
|
|
7,869,106
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End
of Period
|
|
$
|
10,952,815
|
|
|
$
|
7,192,281
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
$
|
2,096,449
|
|
|
$
|
1,098,926
|
|
|
|
|
|
|
|
|
|
|
Other Interest paid
|
|
$
|
208,030
|
|
|
$
|
41,721
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Unaudited Interim Consolidated Financial
Statements
F-32
KENSINGTON
BANKSHARES, INC.
NOTE 1 General
This report includes interim consolidated financial statements
of Kensington Bankshares, Inc. (the Company) and its
wholly-owned subsidiary, First Kensington Bank (the
Bank). The interim consolidated financial statements
in this report have not been audited. In the opinion of
management, all adjustments necessary to present fairly the
financial position and the results of operations for the interim
periods have been made. All such adjustments are of a normal
recurring nature. The results of operations are not necessarily
indicative of the results of operations for the full year or any
other interim periods. For further information, refer to the
consolidated financial statements and footnotes included in the
Companys Annual Report on
Form 10-KSB
for the year ended December 31, 2005.
NOTE 2 Critical
Accounting Estimates
Critical
Accounting Estimates
The consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States of America, which require management to make estimates
and assumptions. Management believes that its determination of
the allowance for possible credit losses is a critical
accounting policy and involves a higher degree of judgment and
complexity than the Banks other significant accounting
policies. Further, these estimates can be materially impacted by
changes in market conditions or the actual or perceived
financial condition of the Banks borrowers, subjecting the
Bank to significant volatility of earnings.
The allowance for possible credit losses is regularly evaluated
by management and reviewed by the Board of Directors for
accuracy by taking into consideration factors such as changes in
the nature and volume of the loan portfolio; trends in actual
and forecasted portfolio credit quality, including delinquency,
charge-off and bankruptcy rates; and current economic conditions
that may affect a borrowers ability to pay. The use of
different estimates or assumptions could produce different
provisions for loan losses. The allowance for possible credit
losses is established through the provision for loan losses,
which is a charge against earnings. In managements
opinion, the current level of the Banks reserve for
possible credit losses is adequate to absorb losses inherent in
the loan portfolio, and therefore, no provision has been made
during the three months ended March 31, 2006.
NOTE 3 Net
Earnings per Share
Basic net earnings per share were computed by dividing net
earnings by the weighted average number of shares of common
stock outstanding during the three month periods ended
March 31, 2006 and 2005. Common stock outstanding consists
of issued shares. Diluted net earnings per share for the three
month periods ended March 31, 2006 and 2005 were computed
by dividing net earnings by the weighted average number of
shares of common stock and the dilutive effects of the shares
subject to options awarded under the Companys Stock Option
Plan, based on the treasury stock method. Presented below is a
summary of the components used to calculate diluted earnings per
share for the three months ended March 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March
|
|
|
|
2006
|
|
|
2005
|
|
|
Diluted earnings per share
|
|
$
|
0.24
|
|
|
$
|
0.22
|
|
Weighted average common shares
outstanding
|
|
|
3,710,500
|
|
|
|
3,710,000
|
|
Effect of the assumed exercise of
stock options based on the treasury stock method
|
|
|
14,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average common
shares and potential common stock outstanding
|
|
|
3,725,276
|
|
|
|
3,710,000
|
|
|
|
|
|
|
|
|
|
|
F-33
KENSINGTON
BANKSHARES, INC.
Notes to
Condensed Unaudited Interim Consolidated Financial
Statements (Continued)
NOTE 4 Allowance
for Possible Credit Losses
The following table summarizes the activity in the allowance for
possible credit losses for the three month periods ended
March 31, 2006 and 2005 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
|
2006
|
|
|
2005
|
|
|
Balance at beginning of year
|
|
$
|
1,017
|
|
|
$
|
1,000
|
|
Provision charged to expense
|
|
|
|
|
|
|
12
|
|
Less Loans charged off
|
|
|
6
|
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,011
|
|
|
$
|
1,030
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2006 and 2005, the amounts of nonaccrual loans
were $-0- and $5,227, respectively.
NOTE 5 Operating
Segments
Statement of Financial Accounting Standard 131 (SFAS 131),
Disclosures about Segments of an Enterprise and Related
Information, establishes standards for the disclosure
made by public business enterprises to report information about
operating segments in annual financial statements and requires
those enterprises to report selected information about operating
segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about
products and services, geographic areas, and major customers.
The Company operates in only one segment commercial
banking.
NOTE 6 New
Accounting Standards
In December 2004, the Financial Accounting Standards Board
(FASB) published FASB Statement No. 123
(revised 2004), Share-Based Payment
(FAS 123(R) or the Statement).
FAS 123(R) requires that the compensation cost relating to
share-based payment transactions, including grants of employee
stock options, be recognized in financial statements. That cost
will be measured based on the fair value of the equity or
liability instruments issued. FAS 123(R) covers a wide
range of share-based compensation arrangements including stock
options, restricted share plans, performance-based awards, share
appreciation rights, and employee share purchase plans.
FAS 123(R) is a replacement of FASB Statement No. 123,
Accounting for Stock-Based Compensation, and supersedes
APB Opinion No. 25, Accounting for Stock Issued to
Employees, and its related interpretive guidance.
The effect of the Statement will be to require entities to
measure the cost of employee services received in exchange for
stock options based on the grant-date fair value of the award,
and to recognize the cost over the period the employee is
required to provide services for the award. FAS 123(R)
permits entities to use any option-pricing model that meets the
fair value objective in the Statement.
The Company has adopted FAS 123(R) effective
January 1, 2006. In adopting this statement, the Company
will use the prospective transition method. The impact of this
Statement on the Company in fiscal 2006 and beyond will depend
upon various factors, among them being the Companys future
compensation strategy. The pro forma compensation costs
presented in the table above for the Company have been
calculated using a Black-Scholes option pricing model and may
not be indicative of amounts which should be expected in future
years. No decisions have been made as to which option-pricing
model is most appropriate for the Company for any future awards.
NOTE 7 Stock
Based Compensation
The Company applied the intrinsic value-based method of
accounting prescribed by Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations, in accounting for its fixed plan
stock options. As such, compensation expense would be recorded
if the current market price on the
F-34
KENSINGTON
BANKSHARES, INC.
Notes to
Condensed Unaudited Interim Consolidated Financial
Statements (Continued)
date of grant of the underlying stock exceeds the exercise
price. The Company has not granted any stock option awards
during the period January 1, 2006 through March 31,
2006.
For stock option awards granted through December 31, 2005,
the Statement of Financial Accounting Standard
(SFAS) No. 123 prescribes the recognition of
compensation expense based on the fair value of options on the
grant date and allows companies to apply APB No. 25 as long
as certain pro forma disclosures are made assuming a
hypothetical fair value method application.
Had compensation expense for the Companys stock options
been recognized based on the fair value on the grant date under
the methodology prescribed by SFAS No. 123, the
Companys net earnings and earnings per share for the three
months ended March 31, 2006 and 2005 would have been
impacted as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31
|
|
|
|
2006
|
|
|
2005
|
|
|
Reported net earnings
|
|
$
|
879,254
|
|
|
$
|
828,215
|
|
Compensation expense, net of taxes
|
|
|
(17,868
|
)
|
|
|
(3,026
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings
|
|
$
|
861,386
|
|
|
$
|
825,189
|
|
|
|
|
|
|
|
|
|
|
Reported basic earnings per share
|
|
$
|
.24
|
|
|
$
|
.22
|
|
Pro forma basic earnings per share
|
|
$
|
.23
|
|
|
$
|
.22
|
|
Reported diluted earnings per share
|
|
$
|
.24
|
|
|
$
|
.22
|
|
Pro forma diluted earnings per
share
|
|
$
|
.23
|
|
|
$
|
.22
|
|
F-35
ANNEX A
AGREEMENT
AND PLAN OF MERGER
by and between
KENSINGTON BANKSHARES, INC.
and
THE BANC CORPORATION
dated as of
March 6, 2006
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
|
Caption
|
|
|
|
Page
|
|
ARTICLE 1
|
|
|
A-1
|
|
NAME
|
|
|
A-1
|
|
|
1.1
|
|
|
Name
|
|
|
A-1
|
|
ARTICLE 2
|
|
|
A-1
|
|
MERGER TERMS AND CONDITIONS
|
|
|
A-1
|
|
|
2.1
|
|
|
Applicable Law
|
|
|
A-1
|
|
|
2.2
|
|
|
Corporate Existence
|
|
|
A-1
|
|
|
2.3
|
|
|
Certificate of Incorporation and
Bylaws
|
|
|
A-1
|
|
|
2.4
|
|
|
Resulting Corporations
Officers and Board
|
|
|
A-1
|
|
|
2.5
|
|
|
Stockholder Approvals
|
|
|
A-2
|
|
|
2.6
|
|
|
Further Acts
|
|
|
A-2
|
|
|
2.7
|
|
|
Effective Date and Closing
|
|
|
A-2
|
|
|
2.8
|
|
|
Subsidiary Bank
|
|
|
A-2
|
|
ARTICLE 3
|
|
|
A-2
|
|
CONVERSION OF ACQUIRED CORPORATION
STOCK
|
|
|
A-2
|
|
|
3.1
|
|
|
Conversion of Acquired Corporation
Stock
|
|
|
A-2
|
|
|
3.2
|
|
|
Surrender of Acquired Corporation
Stock
|
|
|
A-3
|
|
|
3.3
|
|
|
Fractional Shares
|
|
|
A-3
|
|
|
3.4
|
|
|
Adjustments
|
|
|
A-3
|
|
|
3.5
|
|
|
Buyer Stock
|
|
|
A-3
|
|
|
3.6
|
|
|
Dissenting Stockholder Rights
|
|
|
A-3
|
|
ARTICLE 4
|
|
|
A-4
|
|
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF BUYER
|
|
|
A-4
|
|
|
4.1
|
|
|
Organization
|
|
|
A-4
|
|
|
4.2
|
|
|
Capital Stock.
|
|
|
A-4
|
|
|
4.3
|
|
|
Taxes
|
|
|
A-4
|
|
|
4.4
|
|
|
No Conflict with Other Instrument
|
|
|
A-5
|
|
|
4.5
|
|
|
Absence of Material Adverse Change
|
|
|
A-5
|
|
|
4.6
|
|
|
Approval of Agreement
|
|
|
A-5
|
|
|
4.7
|
|
|
Tax Treatment
|
|
|
A-5
|
|
|
4.8
|
|
|
Title and Related Matters
|
|
|
A-5
|
|
|
4.9
|
|
|
Subsidiaries
|
|
|
A-5
|
|
|
4.10
|
|
|
Contracts
|
|
|
A-5
|
|
|
4.11
|
|
|
Litigation
|
|
|
A-5
|
|
|
4.12
|
|
|
Compliance
|
|
|
A-6
|
|
|
4.13
|
|
|
Registration Statement
|
|
|
A-6
|
|
|
4.14
|
|
|
SEC Filings and Financial
Statements; NASDAQ
|
|
|
A-6
|
|
|
4.15
|
|
|
Form S-4
|
|
|
A-7
|
|
|
4.16
|
|
|
Brokers
|
|
|
A-7
|
|
|
4.17
|
|
|
Government Authorization
|
|
|
A-7
|
|
|
4.18
|
|
|
Absence of Regulatory
Communications
|
|
|
A-7
|
|
|
4.19
|
|
|
Disclosure
|
|
|
A-7
|
|
|
4.20
|
|
|
Absence of Certain Changes or
Events
|
|
|
A-7
|
|
i
|
|
|
|
|
|
|
|
|
Caption
|
|
|
|
Page
|
|
|
4.21
|
|
|
Commitments
|
|
|
A-8
|
|
|
4.22
|
|
|
Litigation
|
|
|
A-8
|
|
|
4.23
|
|
|
Material Contract Defaults
|
|
|
A-8
|
|
|
4.24
|
|
|
No Conflict with Other Instrument
|
|
|
A-8
|
|
|
4.25
|
|
|
Governmental Authorization
|
|
|
A-8
|
|
|
4.26
|
|
|
Absence of Material Adverse Change
|
|
|
A-8
|
|
|
4.27
|
|
|
Approval of Agreements
|
|
|
A-8
|
|
|
4.28
|
|
|
Loans; Adequacy of Allowance for
Loan Losses
|
|
|
A-9
|
|
|
4.29
|
|
|
Environmental Matters
|
|
|
A-9
|
|
|
4.30
|
|
|
Labor Disputes
|
|
|
A-9
|
|
|
4.31
|
|
|
Derivative Contracts
|
|
|
A-9
|
|
|
4.32
|
|
|
Accounting; Tax and Regulatory
Matters
|
|
|
A-10
|
|
|
4.33
|
|
|
Opinion of Counsel
|
|
|
A-10
|
|
|
4.34
|
|
|
Transactions with Management
|
|
|
A-10
|
|
|
4.35
|
|
|
Accounting Controls
|
|
|
A-10
|
|
|
4.36
|
|
|
Deposit Insurance
|
|
|
A-10
|
|
ARTICLE 5
|
|
|
A-10
|
|
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF ACQUIRED CORPORATION
|
|
|
A-10
|
|
|
5.1
|
|
|
Organization
|
|
|
A-10
|
|
|
5.2
|
|
|
Capital Stock
|
|
|
A-10
|
|
|
5.3
|
|
|
Subsidiaries
|
|
|
A-10
|
|
|
5.4
|
|
|
Financial Statements; Taxes
|
|
|
A-11
|
|
|
5.5
|
|
|
Absence of Certain Changes or
Events
|
|
|
A-11
|
|
|
5.6
|
|
|
Title and Related Matters
|
|
|
A-12
|
|
|
5.7
|
|
|
Commitments
|
|
|
A-13
|
|
|
5.8
|
|
|
Charter and Bylaws
|
|
|
A-13
|
|
|
5.9
|
|
|
Litigation; Compliance with Laws
|
|
|
A-13
|
|
|
5.10
|
|
|
Material Contract Defaults
|
|
|
A-14
|
|
|
5.11
|
|
|
No Conflict with Other Instrument
|
|
|
A-14
|
|
|
5.12
|
|
|
Governmental Authorization
|
|
|
A-14
|
|
|
5.13
|
|
|
Absence of Regulatory
Communications
|
|
|
A-14
|
|
|
5.14
|
|
|
Absence of Material Adverse Change
|
|
|
A-14
|
|
|
5.15
|
|
|
Insurance
|
|
|
A-14
|
|
|
5.16
|
|
|
Pension and Employee Benefit Plans
|
|
|
A-14
|
|
|
5.17
|
|
|
Buy-Sell Agreement
|
|
|
A-15
|
|
|
5.18
|
|
|
Brokers
|
|
|
A-15
|
|
|
5.19
|
|
|
Approval of Agreements
|
|
|
A-15
|
|
|
5.20
|
|
|
Disclosure
|
|
|
A-15
|
|
|
5.21
|
|
|
Registration Statement
|
|
|
A-15
|
|
|
5.22
|
|
|
Loans; Adequacy of Allowance for
Loan Losses
|
|
|
A-16
|
|
|
5.23
|
|
|
Environmental Matters
|
|
|
A-16
|
|
|
5.24
|
|
|
Transfer of Shares
|
|
|
A-16
|
|
|
5.25
|
|
|
Collective Bargaining
|
|
|
A-16
|
|
|
5.26
|
|
|
Labor Disputes
|
|
|
A-16
|
|
ii
|
|
|
|
|
|
|
|
|
Caption
|
|
|
|
Page
|
|
|
5.27
|
|
|
Derivative Contracts
|
|
|
A-17
|
|
|
5.28
|
|
|
Accounting, Tax and Regulatory
Matters
|
|
|
A-17
|
|
|
5.29
|
|
|
Offices
|
|
|
A-17
|
|
|
5.30
|
|
|
Data Processing Systems
|
|
|
A-17
|
|
|
5.31
|
|
|
Intellectual Property
|
|
|
A-17
|
|
|
5.32
|
|
|
Administration of Trust Accounts
|
|
|
A-17
|
|
|
5.33
|
|
|
Regulatory Approvals
|
|
|
A-17
|
|
|
5.34
|
|
|
Opinion of Counsel
|
|
|
A-17
|
|
|
5.35
|
|
|
Anti-takeover Provisions
|
|
|
A-18
|
|
|
5.36
|
|
|
Transactions with Management
|
|
|
A-18
|
|
|
5.37
|
|
|
Deposits
|
|
|
A-18
|
|
|
5.38
|
|
|
Accounting Controls
|
|
|
A-18
|
|
|
5.39
|
|
|
Deposit Insurance
|
|
|
A-18
|
|
|
5.40
|
|
|
Registration Obligations
|
|
|
A-18
|
|
ARTICLE 6
|
|
|
A-18
|
|
ADDITIONAL COVENANTS
|
|
|
A-18
|
|
|
6.1
|
|
|
Additional Covenants of Buyer
|
|
|
A-18
|
|
|
6.2
|
|
|
Additional Covenants of Acquired
Corporation
|
|
|
A-20
|
|
ARTICLE 7
|
|
|
A-23
|
|
MUTUAL COVENANTS AND AGREEMENTS
|
|
|
A-23
|
|
|
7.1
|
|
|
Best Efforts, Cooperation
|
|
|
A-23
|
|
|
7.2
|
|
|
Press Release
|
|
|
A-23
|
|
|
7.3
|
|
|
Mutual Disclosure
|
|
|
A-23
|
|
|
7.4
|
|
|
Access to Properties and Records
|
|
|
A-23
|
|
|
7.5
|
|
|
Notice of Adverse Changes
|
|
|
A-24
|
|
ARTICLE 8
|
|
|
A-24
|
|
CONDITIONS TO OBLIGATIONS OF ALL
PARTIES
|
|
|
A-24
|
|
|
8.1
|
|
|
Approval by Shareholders
|
|
|
A-24
|
|
|
8.2
|
|
|
Regulatory Authority Approval
|
|
|
A-24
|
|
|
8.3
|
|
|
Litigation
|
|
|
A-24
|
|
|
8.4
|
|
|
Registration Statement
|
|
|
A-24
|
|
|
8.5
|
|
|
Tax Opinion
|
|
|
A-25
|
|
ARTICLE 9
|
|
|
A-25
|
|
CONDITIONS TO OBLIGATIONS OF
ACQUIRED CORPORATION
|
|
|
A-25
|
|
|
9.1
|
|
|
Representations, Warranties and
Covenants
|
|
|
A-25
|
|
|
9.2
|
|
|
Adverse Changes
|
|
|
A-25
|
|
|
9.3
|
|
|
Closing Certificate
|
|
|
A-25
|
|
|
9.4
|
|
|
Opinion of Counsel
|
|
|
A-26
|
|
|
9.5
|
|
|
Fairness Opinion
|
|
|
A-26
|
|
|
9.6
|
|
|
NASDAQ Listing
|
|
|
A-26
|
|
|
9.7
|
|
|
Support for Legal Opinion
|
|
|
A-26
|
|
|
9.8
|
|
|
Material Events
|
|
|
A-26
|
|
|
|
|
|
|
|
|
|
|
iii
|
|
|
|
|
|
|
|
|
Caption
|
|
|
|
Page
|
|
ARTICLE 10
|
|
|
A-26
|
|
CONDITIONS TO OBLIGATIONS OF BUYER
|
|
|
A-26
|
|
|
10.1
|
|
|
Representations, Warranties and
Covenants
|
|
|
A-26
|
|
|
10.2
|
|
|
Adverse Changes
|
|
|
A-27
|
|
|
10.3
|
|
|
Closing Certificate
|
|
|
A-27
|
|
|
10.4
|
|
|
Opinion of Counsel
|
|
|
A-27
|
|
|
10.5
|
|
|
Controlling Shareholders
|
|
|
A-27
|
|
|
10.6
|
|
|
Support for Legal Opinions
|
|
|
A-28
|
|
|
10.8
|
|
|
Material Events
|
|
|
A-28
|
|
|
10.10
|
|
|
Other Matters
|
|
|
A-28
|
|
ARTICLE 11
|
|
|
A-28
|
|
TERMINATION OF REPRESENTATIONS AND
WARRANTIES
|
|
|
A-28
|
|
ARTICLE 12
|
|
|
A-28
|
|
NOTICES
|
|
|
A-28
|
|
ARTICLE 13
|
|
|
A-29
|
|
AMENDMENT OR TERMINATION
|
|
|
A-29
|
|
|
13.1
|
|
|
Amendment
|
|
|
A-29
|
|
|
13.2
|
|
|
Termination
|
|
|
A-29
|
|
ARTICLE 14
|
|
|
A-30
|
|
DEFINITIONS
|
|
|
A-30
|
|
ARTICLE 15
|
|
|
A-35
|
|
MISCELLANEOUS
|
|
|
A-35
|
|
|
15.1
|
|
|
Expenses
|
|
|
A-35
|
|
|
15.2
|
|
|
Benefit and Assignment
|
|
|
A-35
|
|
|
15.3
|
|
|
Governing Law
|
|
|
A-35
|
|
|
15.4
|
|
|
Counterparts
|
|
|
A-35
|
|
|
15.5
|
|
|
Headings
|
|
|
A-35
|
|
|
15.6
|
|
|
Severability
|
|
|
A-35
|
|
|
15.7
|
|
|
Construction
|
|
|
A-35
|
|
|
15.8
|
|
|
Confidentiality; Return of
Information
|
|
|
A-36
|
|
|
15.9
|
|
|
Equitable Remedies
|
|
|
A-36
|
|
|
15.10
|
|
|
Attorneys Fees
|
|
|
A-36
|
|
|
15.11
|
|
|
No Waiver
|
|
|
A-36
|
|
|
15.12
|
|
|
Remedies Cumulative
|
|
|
A-36
|
|
|
15.13
|
|
|
Entire Contract
|
|
|
A-36
|
|
iv
AGREEMENT
AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered
into as of this the 6th day of March, 2006, by and between
KENSINGTON BANKSHARES, INC. (Acquired
Corporation), a Florida corporation, and THE BANC
CORPORATION (Buyer), a Delaware corporation.
WITNESSETH
WHEREAS, Acquired Corporation operates as a bank holding company
for its wholly owned subsidiary, First Kensington Bank (the
Bank), with its principal office in Tampa, Florida;
WHEREAS, Buyer is a thrift holding company with a Subsidiary
federal savings bank in Alabama and Florida;
WHEREAS, Acquired Corporation wishes to merge with Buyer; and
WHEREAS, it is the intention of Buyer and Acquired Corporation
that such Merger shall qualify for federal income tax purposes
as a reorganization within the meaning of
Section 368(a) of the Code, as defined herein;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the Parties hereto agree as follows:
ARTICLE 1
Name
1.1 Name. The name of the
corporation resulting from the Merger shall be The Banc
Corporation, or such other name as Buyer shall have
adopted as of the Effective Date.
ARTICLE 2
Merger Terms
and Conditions
2.1 Applicable Law. On the
Effective Date, Acquired Corporation shall be merged with and
into Buyer (herein referred to as the Resulting
Corporation whenever reference is made to it as of the
time of merger or thereafter). The Merger shall be undertaken
pursuant to the provisions of and with the effect provided in
the DGCL and, to the extent applicable, the FBCA. The offices
and facilities of Acquired Corporation and of Buyer shall become
the offices and facilities of the Resulting Corporation.
2.2 Corporate Existence. On the
Effective Date, the corporate existence of Acquired Corporation
and of Buyer shall, as provided in the DGCL and the FBCA,
be merged into and continued in the Resulting Corporation,
and the Resulting Corporation shall be deemed to be the same
corporation as Acquired Corporation and Buyer. All rights,
franchises and interests of Acquired Corporation and Buyer,
respectively, in and to every type of property (real, personal
and mixed) and choses in action shall be transferred to and
vested in the Resulting Corporation by virtue of the Merger
without any deed or other transfer. The Resulting Corporation on
the Effective Date, and without any order or other action on the
part of any court or otherwise, shall hold and enjoy all rights
of property, franchises and interests, including appointments,
designations and nominations and all other rights and interests
as trustee, executor, administrator, transfer agent and
registrar of stocks and bonds, guardian of estates, assignee,
and receiver and in every other fiduciary capacity and in every
agency, and capacity, in the same manner and to the same extent
as such rights, franchises and interests were held or enjoyed by
Acquired Corporation and Buyer, respectively, on the Effective
Date.
2.3 Certificate of Incorporation and
Bylaws. On the Effective Date, the certificate of
incorporation and bylaws of the Resulting Corporation shall be
the restated certificate of incorporation and bylaws of Buyer as
they exist immediately before the Effective Date.
2.4 Resulting Corporations Officers and
Board. The board of directors and the officers of
the Resulting Corporation on the Effective Date shall consist of
those persons serving in such capacities of Buyer as of the
Effective Date. Buyer agrees that after the Effective Date but
not later than December 31, 2006, it will cause to be
A-1
appointed to such board one individual who shall (a) be
representative of the Resulting Corporations Tampa-area
market, (b) be mutually satisfactory to Buyers board
of directors and to a majority of the individuals who are
members of Acquired Corporations board of directors as of
the business day prior to the Effective Date and (c) be
selected in accordance with applicable Law and subject to
approval by any applicable Agency.
2.5 Stockholder Approvals. This
Agreement shall be submitted to the respective stockholders of
Acquired Corporation and of Buyer at the Stockholders
Meetings to be held as promptly as practicable consistent with
the satisfaction of the conditions set forth in this Agreement.
Upon approval by the requisite vote of the stockholders of
Acquired Corporation and of Buyer as required by applicable Law,
the Merger shall become effective as soon as practicable
thereafter in the manner provided in Section 2.7 hereof.
2.6 Further Acts. If, at any time
after the Effective Date, the Resulting Corporation shall
consider or be advised that any further assignments or
assurances in law or any other acts are necessary or desirable
(i) to vest, perfect confirm or record, in the Resulting
Corporation, title to and possession of any property or right of
Acquired Corporation or Buyer, acquired as a result of the
Merger, or (ii) otherwise to carry out the purposes of this
Agreement, Buyer and its officers and directors shall execute
and deliver all such proper deeds, assignments and assurances in
law and do all acts necessary or proper to vest, perfect or
confirm title to, and possession of, such property or rights in
the Resulting Corporation and otherwise to carry out the
purposes of this Agreement; and the proper officers and
directors of the Resulting Corporation are fully authorized in
the name of Acquired Corporation or Buyer, or otherwise, to take
any and all such action.
2.7 Effective Date and
Closing. Subject to the terms of all requirements
of Law and the conditions specified in this Agreement the Merger
shall become effective on the date specified in the Certificate
of Merger to be issued by the Secretary of State of the State of
Delaware (such time being herein called the Effective
Date). Assuming all other conditions stated in this
Agreement have been or will be satisfied as of the Closing, the
Closing shall take place at the offices of Buyer, in Birmingham,
Alabama, at 5:00 p.m. on a date specified by Buyer that
shall be as soon as reasonably practicable after the later to
occur of the Stockholders Meetings or all required regulatory
approvals under Section 8.2, or at such other place and
time that the Parties may mutually agree.
2.8 Subsidiary Bank. Buyer and
Acquired Corporation anticipate that, on or after the Effective
Date, Buyers savings bank Subsidiary, Superior Bank, a
federal savings bank, will acquire the Bank by merger,
acquisition of assets or otherwise. The exact timing and
structure of such acquisition have not been finalized at this
time, and Buyer in its discretion will finalize such timing and
structure at a later date. Acquired Corporation will cooperate
with Buyer, including the call of any special meetings of the
board of directors of the Bank and the filing of any regulatory
applications, in the execution of appropriate documentation
relating to such merger or other transaction. In the event that
following the Effective Date the Bank remains a separate legal
entity owned by Buyer, Buyer and Acquired Corporation will
mutually agree prior to the Effective Date upon which existing
members of the board of directors of the Bank, if any, shall
remain as directors thereof following the Effective Date. Buyer
agrees that it will accept the resignations of any such existing
members who desire to resign as such as of the Effective Date.
ARTICLE 3
Conversion
of Acquired Corporation Stock
3.1 Conversion of Acquired Corporation Stock.
(a) Subject to the potential adjustment provided for in
Section 3.4 below, on the Effective Date, each share of
common stock of Acquired Corporation outstanding and held of
record by the Acquired Corporations stockholders, but
excluding shares held by the Acquired Corporation or any of its
Subsidiaries, other than in a fiduciary capacity or as a result
of debts previously contracted, and excluding shares held by
stockholders who perfect their dissenters rights of
appraisal as provided in Section 3.6 of this Agreement (the
Acquired Corporation Stock), shall be converted by
operation of law and without any action by any holder thereof
into and exchanged for the right to receive 1.60 shares of
Buyers Common Stock (the Exchange Ratio).
A-2
(b) On the Effective Date, all outstanding Acquired
Corporation Options shall be cancelled and each holder of such
options shall be entitled to receive in exchange therefor the
right to receive the number of shares of Buyers Common
Stock equal to the amount resulting when (i) the number of
Acquired Corporation Options held by a holder thereof is
multiplied by the Per Option Value and (ii) the resulting
amount is divided by $11.43; provided, however, that no
fractions of shares of Buyers Common Stock shall be issued
and the number of shares of Buyers Common Stock to be
issued hereunder, if a fractional share exists, shall equal the
number of whole shares obtained by rounding down to the nearest
whole share. As used herein, the term Per Option
Value shall mean (i) $18.2880 less (ii) the
exercise price for each share of Acquired Corporation Stock
subject to such option. Schedule 3.1 to the Acquired
Corporations Disclosure Supplement sets forth the names of
all persons holding Acquired Corporation Options, the number of
shares of Acquired Corporation common stock subject to such
options, the exercise price and the expiration date of such
options.
3.2 Surrender of Acquired Corporation
Stock. As promptly as practicable, but in no case
later than fifteen (15) business days after the Effective
Date, Buyer (or an exchange agent appointed by Buyer) shall send
to each holder of record of shares of Acquired Company Stock
outstanding on the Effective Date transmittal materials for use
in exchanging the certificates for such shares for certificates
for shares of Buyers Common Stock into which such shares
of Acquired Company Stock have been converted pursuant hereto.
Each holder of an outstanding certificate or certificates which
prior thereto represented shares of Acquired Corporation Stock
who is entitled to receive Buyers Common Stock shall be
entitled, upon surrender to Buyer of their certificate or
certificates representing shares of Acquired Corporation Stock
(or an affidavit or affirmation by such holder of the loss,
theft, or destruction of such certificate or certificates in
such form as Buyer may reasonably require and, if Buyer
reasonably requires, a bond of indemnity in form and amount, and
issued by such sureties, as Buyer may reasonably require), to
receive in exchange therefor a certificate or certificates
representing the number of whole shares of Buyers Common
Stock into and for which the shares of Acquired Corporation
Stock so surrendered shall have been converted, such
certificates to be of such denominations and registered in such
names as such holder may reasonably request. Until so
surrendered and exchanged, each such outstanding certificate
which, prior to the Effective Date, represented shares of
Acquired Corporation Stock and which is to be converted into
Buyers Common Stock shall for all purposes evidence
ownership of the Buyers Common Stock into and for which
such shares shall have been so converted, except that dividends
or other distributions with respect to such Buyers Common
Stock, if any, shall be held by Buyer until the certificates
previously representing shares of Acquired Corporation Stock
shall have been properly tendered. After the Effective Date,
there shall be no transfers on the stock transfer books of
Acquired Corporation of shares of Acquired Corporation Stock
which were issued and outstanding on the Effective Date and
converted pursuant to the provisions hereof. If after the
Effective Date certificates are presented for transfer to
Acquired Corporation, they shall be canceled and exchanged for
the shares of Buyers Common Stock deliverable in respect
thereof as determined in accordance with the provisions of this
paragraph.
3.3 Fractional Shares. No
fractional shares of Buyers Common Stock shall be issued,
and each holder of shares of Acquired Corporation Stock having a
fractional interest arising upon the conversion of such shares
into shares of Buyers Common Stock shall, at the time of
surrender of the certificates previously representing Acquired
Corporation Stock, be paid by Buyer an amount in cash, without
interest, in an amount equal to such fractional part of a share
of Buyers Common Stock multiplied by the closing price per
share of Buyers Common Stock on NASDAQ on the last
business day immediately preceding the Effective Date.
3.4 Adjustments. In the event that
prior to the Effective Date Buyers Common Stock shall be
changed into a different number of shares or a different class
of shares by reason of any recapitalization or reclassification,
stock dividend, combination, stock split, or reverse stock split
of the Buyers Common Stock, an appropriate and
proportionate adjustment shall be made in the number of shares
of Buyers Common Stock into which the Acquired Corporation
Stock shall be converted.
3.5 Buyer Stock. The shares of
Common Stock of Buyer issued and outstanding immediately before
the Effective Date shall continue to be issued and outstanding
shares of the Resulting Corporation.
3.6 Dissenting Stockholder
Rights. Any stockholder of Acquired Corporation
who perfects such stockholders dissenters rights in
accordance with the FBCA shall be entitled to receive from the
Resulting Corporation
A-3
the value of such shares in cash as determined pursuant to the
provisions of the FBCA; provided, that no such payment shall be
made to any dissenting stockholder unless and until such
dissenting stockholder has complied with the applicable
provisions of the FBCA and surrendered to the Resulting
Corporation the certificate or certificates representing the
shares for which payment is being made. If after the Effective
Date a dissenting shareholder of Acquired Corporation fails to
perfect, or effectively withdraws or loses his or her right to
appraisal and payment for his shares of Acquired Corporation
Stock, Buyer shall issue and deliver the consideration to which
such holder of shares of Acquired Corporation Stock is entitled
under Section 3.1(a) (without interest) upon surrender by
such holder of the certificate or certificates representing
shares of Acquired Corporation Stock held by him or her.
ARTICLE 4
Representations,
Warranties and Covenants of Buyer
Buyer represents, warrants and covenants to and with Acquired
Corporation as follows:
4.1 Organization. Buyer is a
corporation duly organized, validly existing and in good
standing under the Laws of the State of Delaware. Buyer has the
necessary corporate powers to carry on its business as presently
conducted and is qualified to do business in every jurisdiction
in which the character and location of the Assets owned by it or
the nature of the business transacted by it requires
qualification or in which the failure to qualify could,
individually or in the aggregate, have a Material Adverse Effect.
4.2 Capital Stock.
(a) The authorized capital stock of Buyer consists of
(A) 35,000,000 shares of Common Stock, $0.001 par
value per share, of which as of December 31, 2005,
22,221,256 shares were validly issued and
19,980,261 shares were outstanding, fully paid and
nonassessable under the DGCL and are not subject to preemptive
rights (not counting additional shares reserved for issuance
pursuant to stock option and other plans and outstanding options
issued under such plans or otherwise), and
(B) 5,000,000 shares of Convertible Preferred Stock,
$0.001 par value per share, none of which is issued and
outstanding. The shares of Buyers Common Stock to be
issued in the Merger are duly authorized and, when so issued,
will be validly issued and outstanding, fully paid and
nonassessable under the DGCL, will have been registered under
the 1933 Act and will have been registered or qualified
under the securities laws of all jurisdictions in which such
registration or qualification is required, based upon
information provided by Acquired Corporation.
(b) The authorized capital stock of each Subsidiary of
Buyer is validly issued and outstanding, fully paid and
nonassessable under the Laws of the jurisdiction in which such
Subsidiary is organized, and each Subsidiary is wholly owned,
directly or indirectly, by Buyer.
4.3 Taxes. All Tax returns required
to be filed by or on behalf of Buyer have been timely filed (or
requests for extensions therefor have been timely filed and
granted and have not expired), and all returns filed are
complete and accurate in all material respects. All Taxes shown
on these returns to be due and all additional assessments
received have been paid. The amounts recorded for Taxes on the
balance sheets contained in the reports described in
Section 4.14 are, to the Knowledge of Buyer, sufficient in
all material respects for the payment of all unpaid federal,
state, county, local, foreign or other Taxes (including any
interest or penalties) of Buyer accrued for or applicable to the
period ended on the dates thereof, and all years and periods
prior thereto and for which Buyer may at such dates have been
liable in its own right or as transferee of the Assets of, or as
successor to, any other corporation or other party. Except as
disclosed on Schedule 4.3 to Buyers Disclosure
Supplement, no audit, examination or investigation is presently
being conducted or, to the Knowledge of Buyer, threatened by any
taxing authority which is likely to result in a material Tax
Liability, no material unpaid Tax deficiencies or additional
liabilities of any sort have been proposed by any governmental
representative and no agreements for extension of time for the
assessment of any material amount of Tax have been entered into
by or on behalf of Buyer. Buyer has withheld from its employees
(and timely paid to the appropriate governmental entity) proper
and accurate amounts for all periods in material compliance with
all Tax withholding provisions of applicable federal, state,
foreign and local Laws (including without limitation, income,
Social Security and employment Tax withholding for all types of
compensation).
A-4
4.4 No Conflict with Other
Instrument. The consummation of the transactions
contemplated by this Agreement will not result in a breach of or
constitute a Default (without regard to the giving of notice or
the passage of time) under any material Contract, indenture,
mortgage, deed of trust or other material agreement or
instrument to which Buyer or any of its Subsidiaries is a party
or by which they or their Assets may be bound; will not conflict
with any provision of the certificate of incorporation or bylaws
of Buyer or the certificate or articles of incorporation or
bylaws of any of its Subsidiaries; and will not violate any
provision of any Law, regulation, judgment or decree binding on
them or any of their Assets.
4.5 Absence of Material Adverse
Change. Since September 30, 2005, there have
been no events, changes or occurrences which have had or are
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Buyer, except as disclosed in
Buyers SEC Reports.
4.6 Approval of Agreement. The
board of directors of Buyer has approved this Agreement and the
transactions contemplated by it and has authorized the execution
and delivery by Buyer of this Agreement. This Agreement
constitutes the legal, valid and binding obligation of Buyer,
enforceable against it in accordance with its terms. Subject to
(a) the matters referred to in Section 8.2 and
(b) approval by the stockholders of Buyer of the Merger and
the transactions contemplated by this Agreement, Buyer has full
power, authority and legal right to enter into this Agreement
and to consummate the transactions contemplated by this
Agreement. Buyer has no Knowledge of any fact or circumstance
under which the appropriate regulatory approvals required by
Section 8.2 will not be granted without the imposition of
material conditions or material delays.
4.7 Tax Treatment. Buyer has no
present plan to sell or otherwise dispose of any material
portion of the Assets of Acquired Corporation, subsequent to the
Merger, and Buyer intends to continue the historic business of
Acquired Corporation.
4.8 Title and Related
Matters. Buyer has good and marketable title to
all the properties, interests in properties and Assets, real and
personal, that are material to the business of Buyer, reflected
in the balance sheet dated as of September 30, 2005
incorporated by reference in the SEC Reports, or acquired after
the date of such balance sheet (except properties, interests and
Assets sold or otherwise disposed of since such date, in the
ordinary course of business, or, if other than in the ordinary
course of business, of a nature and amount not material to the
business of Buyer), free and clear of all mortgages, Liens,
pledges, charges or encumbrances except (i) mortgages and
other encumbrances referred to in the notes of such balance
sheet, (ii) liens for current Taxes not yet due and payable
and (iii) such imperfections of title and easements as do
not materially detract from or interfere with the present use of
the properties subject thereto or affected thereby, or otherwise
materially impair present business operations at such
properties. To the Knowledge of Buyer, the material structures
and equipment of Buyer comply in all material respects with the
requirements of all applicable Laws.
4.9 Subsidiaries. Each Subsidiary
of Buyer has been duly incorporated and is validly existing as a
corporation in good standing under the Laws of the jurisdiction
of its incorporation and each Subsidiary has been duly qualified
as a foreign corporation to transact business and is in good
standing under the Laws of each other jurisdiction in which it
owns or leases properties, or conducts any business so as to
require such qualification and in which the failure to be duly
qualified could have a Material Adverse Effect upon Buyer and
its Subsidiaries considered as one enterprise; the federal
savings bank Subsidiary of Buyer has its deposits fully insured
by the Federal Deposit Insurance Corporation to the extent
provided by the Federal Deposit Insurance Act; and the
businesses of the non-bank Subsidiaries of Buyer are permitted
to subsidiaries of registered thrift holding companies.
4.10 Contracts. Neither Buyer nor
any of its Subsidiaries is in violation of its respective
certificate of incorporation or bylaws or in Default in the
performance or observance of any material obligation, agreement,
covenant or condition contained in any Contract, indenture,
mortgage, loan agreement, note, lease or other instrument to
which it is a party or by which it or its property may be bound,
except for such Defaults, if any, as would not, individually or
in the aggregate, have a Material Adverse Effect upon Buyer.
4.11 Litigation. Except as
disclosed in or reserved for in Buyers financial
statements included in the SEC Reports as of the date of this
Agreement, there is no Litigation before or by any court or
Agency, domestic or foreign, now pending, or, to the Knowledge
of Buyer, threatened against or affecting Buyer or any of its
Subsidiaries
A-5
(nor does Buyer have knowledge of any facts which could give
rise to any such Litigation) which is reasonably likely to have
any Material Adverse Effect or prospective Material Adverse
Effect, or which is reasonably likely to materially affect or
delay the consummation of the transactions contemplated by this
Agreement; and all pending legal or governmental proceedings to
which Buyer or any Subsidiary is a party or of which any of
their properties is the subject, including ordinary routine
litigation incidental to the business, are, considered in the
aggregate not material.
4.12 Compliance. Buyer and its
Subsidiaries, in the conduct of their businesses, are to the
Knowledge of Buyer, in material compliance with all material
federal, state or local Laws applicable to their or the conduct
of their businesses, including Laws imposing Taxes.
4.13 Registration
Statement. (a) At the time the Registration
Statement becomes effective and at the time of the
Stockholders Meetings, the Registration Statement,
including the Buyer Proxy Statement which shall constitute a
part thereof, will comply in all material respects with the
requirements of the 1933 Act and the rules and regulations
thereunder, and will not contain an untrue statement of a
material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in
this subsection shall not apply to statements in or omissions
from the Buyer Proxy Statement made in reliance upon and in
conformity with information furnished in writing to Buyer by
Acquired Corporation or any of its representatives expressly for
use in the Buyer Proxy Statement or information included in the
Buyer Proxy Statement regarding the business of Acquired
Corporation, its operations, Assets and capital.
(b) At the time of the Stockholders Meetings, the
Acquired Corporation Proxy Statement will not contain an untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in
this subsection shall only apply to statements in or omissions
from the Acquired Corporation Proxy Statement made in reliance
upon and in conformity with information furnished in writing to
Acquired Corporation by Buyer or any of its representatives
expressly for use in the Acquired Corporation Proxy Statement or
information included in the Acquired Corporation Proxy Statement
regarding the business of Buyer, its operations, Assets and
capital.
4.14 SEC Filings and Financial Statements;
NASDAQ. (a) Since December 31, 2003,
Buyer has filed all forms, reports and documents with the SEC
required to be filed by it pursuant to the federal securities
Laws and SEC rules and regulations thereunder (the SEC
Reports), each of which complied as to form, at the time
such form, report or document was filed (and subject to any
subsequent amendments thereto), in all material respects with
the applicable requirements of the 1933 Act, the
1934 Act and the applicable rules and regulations
thereunder. To the Knowledge of Buyer, each member of
Buyers board of directors has filed all forms, reports and
documents with the SEC required to be filed by him pursuant to
the federal securities Laws and SEC rules and regulations
thereunder. As of their respective dates, none of the SEC
Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading.
Each of the balance sheets in or incorporated by reference into
the SEC Reports (including the related notes and schedules, and
subject to any subsequent amendments to such SEC Reports) fairly
presents the financial condition of the entity or entities to
which it relates for the periods set forth therein (subject, in
the case of unaudited interim statements, to normal year-end
audit adjustments that are not material in amount or effect), in
each case in accordance with generally accepted accounting
principles consistently applied during the periods involved,
except as may be noted therein. Buyer has no material
obligations or liabilities (contingent or otherwise) except as
disclosed in the SEC Reports. For purposes of this paragraph,
material shall have the meaning of such term as
defined under the 1933 Act, the 1934 Act and the rules
promulgated thereunder.
(b) The documents incorporated by reference into the
Registration Statement, at the time they are filed with the SEC,
when read together and with the other information in the
Registration Statement will not contain an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading at the time the Registration Statement becomes
effective or at the time of the Stockholders Meetings.
A-6
(c) Since December 31, 2003, Buyer has filed all
forms, reports and documents with NASDAQ required to be filed by
it pursuant to the requirements of NASDAQ (the NASDAQ
Reports), each of which complied as to form, at the time
such form, report or document was filed (and subject to any
subsequent amendments thereto), in all material respects with
the applicable requirements of NASDAQ. As of their respective
dates, none of the NASDAQ Reports contained any untrue statement
of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were
made, not misleading. Buyer is in material compliance with all
rules and requirements of NASDAQ applicable to it.
4.15 Form S-4. The
conditions for use of a registration statement on SEC
Form S-4
set forth in the General Instructions on
Form S-4
will be satisfied with respect to Buyer and the Registration
Statement.
4.16 Brokers. Except for services
provided by Sandler ONeill & Partners, L.P.,
which has been retained by Buyer and the arrangements with
which, including fees, have been disclosed to Acquired
Corporation prior to the date hereof, all negotiations relative
to this Agreement and the transactions contemplated by this
Agreement have been carried on by Buyer directly with Acquired
Corporation and without the intervention of any other person,
either as a result of any act of Buyer or otherwise in such
manner as to give rights to any valid claim against Buyer for
finders fees, brokerage commissions or other like payments.
4.17 Government
Authorization. Buyer and its Subsidiaries have
all Permits that, to the Knowledge of Buyer and its
Subsidiaries, are or will be legally required to enable Buyer or
any of its Subsidiaries to conduct their businesses in all
material respects as now conducted by each of them.
4.18 Absence of Regulatory
Communications. Except as disclosed in
Schedule 4.18 to Buyers Disclosure Supplement,
neither Buyer nor any of its Subsidiaries is subject to, or has
received during the past three years, any written communication
directed specifically to it from any Agency to which it is or
has been subject or pursuant to which such Agency has imposed or
has indicated it may impose any material restrictions on the
operations of it or the business conducted by it or in which
such Agency has raised a material question concerning the
condition, financial or otherwise, of such company.
4.19 Disclosure. No representation
or warranty, or any statement or certificate furnished or to be
furnished to Acquired Corporation by Buyer, contains or will
contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the
statements contained in this Agreement or in any such statement
or certificate not misleading.
4.20 Absence of Certain Changes or
Events. Since September 30, 2005, neither
Buyer nor any of its Subsidiaries has
(a) issued, delivered or agreed to issue or deliver any
stock, bonds or other corporate securities (whether authorized
and unissued or held in the treasury) except shares of common
stock issued upon the exercise of existing options to purchase
shares of Buyers common stock under its Third Amended and
Restated 1998 Stock Option Plan;
(b) borrowed or agreed to borrow any funds or incurred, or
become subject to, any Liability (absolute or contingent) except
borrowings, obligations (including purchase of federal funds)
and Liabilities incurred in the ordinary course of business and
consistent with past practice;
(c) paid any material obligation or Liability (absolute or
contingent) other than current Liabilities reflected in or shown
on the most recent balance sheet incorporated by reference in
the SEC Reports and current Liabilities incurred since that date
in the ordinary course of business and consistent with past
practice;
(d) declared or made, or agreed to declare or make, any
payment of dividends or distributions of any Assets of any kind
whatsoever to shareholders, or purchased or redeemed, or agreed
to purchase or redeem, directly or indirectly, or otherwise
acquire, any of its outstanding securities;
(e) except in the ordinary course of business, sold or
transferred, or agreed to sell or transfer, any of its Assets,
or canceled, or agreed to cancel, any debts or claims;
A-7
(f) except in the ordinary course of business, entered or
agreed to enter into any agreement or arrangement granting any
preferential rights to purchase any of its Assets, or requiring
the consent of any party to the transfer and assignment of any
of its Assets;
(g) suffered any Losses or waived any rights of value which
in either event in the aggregate are material considering
Buyers business as a whole;
(h) except in the ordinary course of business or as
disclosed in the SEC Reports, made or permitted any amendment or
termination of any Contract, agreement or license to which it is
a party if such amendment or termination is material considering
Buyers business as a whole;
(i) except in accordance with normal and usual practice or
as disclosed in the SEC Reports, made any accrual or arrangement
for or payment of bonuses or special compensation of any kind or
any severance or termination pay to any present or former
officer or employee;
(j) except in accordance with normal and usual practice,
increased the rate of compensation payable to or to become
payable to any of its officers or employees or made any material
increase in any profit sharing, bonus, deferred compensation,
savings, insurance, pension, retirement or other employee
benefit plan, payment or arrangement made to, for or with any of
its officers or employees;
(k) received notice or had Knowledge or reason to believe
that any of its substantial customers has terminated or intends
to terminate its relationship, which termination would have a
Material Adverse Effect;
(l) failed to operate its business in the ordinary course
so as to preserve its business intact and to preserve the
goodwill of its customers and others with whom it has business
relations;
(m) entered into any other transaction other than in the
ordinary course of business; or
(n) agreed, in writing or otherwise, to take any action
described in clauses (a) through (m) above.
4.21 Commitments. Buyer has
disclosed in the SEC Reports as of the date of this Agreement
all material contracts required to be disclosed
pursuant to Item 601(b)(10) of
Regulation S-K
under the 1933 Act.
4.22 Litigation. Buyer has
disclosed in the SEC Reports all Litigation required to be
disclosed by pursuant to Item 103 of
Regulation S-K
under the 1933 Act.
4.23 Material Contract
Defaults. Neither Buyer nor any of its
Subsidiaries is in Default in any material respect under the
terms of any material Contract, agreement, lease or other
commitment which is or may be material to the business,
operations or Assets, or the condition, financial or otherwise,
of Buyer and, to the Knowledge of Buyer, there is no event
which, with notice or lapse of time, or both, may be or become
an event of Default under any such material Contract, agreement
lease or other commitment in respect of which adequate steps
have not been taken to prevent such a Default from occurring.
4.24 No Conflict with Other
Instrument. The consummation of the transactions
contemplated by this Agreement will not result in the breach of
any term or provision of or constitute a Default under any
material Contract indenture, mortgage, deed of trust or other
material agreement or instrument to which Buyer or any of its
Subsidiaries is a party and will not conflict with any provision
of the charter or bylaws of Buyer or any of its Subsidiaries.
4.25 Governmental
Authorization. Buyer and its Subsidiaries have
all Permits that, to the Knowledge of Buyer, are or will be
legally required to enable Buyer and its Subsidiaries to conduct
their respective businesses in all material respects as now
conducted by Buyer and each of its Subsidiaries.
4.26 Absence of Material Adverse
Change. To the Knowledge of Buyer, since
September 30, 2005, there have been no events, changes or
occurrences which have had, or are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on
Buyer.
4.27 Approval of Agreements. The
board of directors of Buyer has approved this Agreement and the
transactions contemplated by this Agreement and has authorized
the execution and delivery by Buyer of this Agreement. Subject
to (a) the matters referred to in Section 8.2 and
(b) approval by the stockholders of Buyer of the
A-8
Merger and the transactions contemplated by this Agreement,
Buyer has full power, authority and legal right to enter into
this Agreement, and, upon appropriate vote of the stockholders
of Buyer in accordance with this Agreement, Buyer shall have
full power, authority and legal right to consummate the
transactions contemplated by this Agreement.
4.28 Loans; Adequacy of Allowance for Loan
Losses. All reserves for loan losses shown on the
September 30, 2005 financial statements of Buyer
incorporated by reference in the SEC Reports are adequate in all
material respects. Buyer has no Knowledge of any fact which is
likely to require a future material increase in the provision
for loan losses or a material decrease in the loan loss reserve
reflected in such financial statements. To the Knowledge of
Buyer, each loan reflected as an Asset on the financial
statements of Buyer is the legal, valid and binding obligation
of the obligor of each loan, enforceable in accordance with its
terms subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, or other similar laws relating to
creditors rights generally and to general equitable
principles and complies with all Laws to which it is subject.
Buyer does not have in its portfolio any loan exceeding its
legal lending limit, and except as disclosed to Acquired
Corporation, to the Knowledge of Acquired Corporation, it has no
material loans that are delinquent in payment for more than
30 days, substandard, doubtful, loss, or nonperforming.
4.29 Environmental Matters. Buyer
and each of its Subsidiaries are in material compliance with all
Environmental Laws, and Buyer has no Knowledge that Buyer or any
of its Subsidiaries has not complied with all regulations and
requirements promulgated by the Occupational Safety and Health
Administration that are applicable to Buyer or any of its
Subsidiaries. To the Knowledge of Buyer, there is no Litigation
pending or threatened with respect to any violation or alleged
violation of the Environmental Laws. To the Knowledge of Buyer,
with respect to Assets of Buyer or any of its Subsidiaries,
including any Loan Property of any material loan, (i) there
has been no spillage, leakage, contamination or release of any
substances for which the appropriate remedial action has not
been completed; (ii) no owned or leased property is
contaminated with or contains any hazardous substance or waste;
and (iii) there are no underground storage tanks on any
premises owned or leased by Buyer or any of its Subsidiaries.
Neither Buyer nor any of its Subsidiaries has participated in
the management of any property of any third party including
without limitation any Loan Property. Moreover, to the Knowledge
of Buyer, neither Buyer nor any of its Subsidiaries has extended
credit, either on a secured or unsecured basis, to any person or
other entity engaged in any activities which would require or
requires such person or entity to obtain any Permits which are
required under any Environmental Law which have not been
obtained.
4.30 Labor Disputes. To the
Knowledge of Buyer, Buyer and each of its Subsidiaries is in
material compliance with all federal and state laws respecting
employment and employment practices, terms and conditions of
employment, wages and hours. Neither Buyer nor any of its
Subsidiaries is or has been engaged in any unfair labor
practice, and, to the Knowledge of Buyer, no unfair labor
practice complaint against Buyer or any of its Subsidiaries is
pending before the National Labor Relations Board. Relations
between management of Buyer and its Subsidiaries and the
employees are amicable and there have not been, nor to the
Knowledge of Buyer, are there presently, any attempts to
organize employees, nor to the Knowledge of Buyer, are there
plans for any such attempts.
4.31 Derivative Contracts. Neither
Buyer nor any of its Subsidiaries is a party to or has agreed to
enter into a swap, forward, future, option, cap, floor or collar
financial contract, or any other interest rate or foreign
currency protection contract or derivative security not included
in Buyers September 30, 2005 financial statements
incorporated by reference in the SEC Reports which is a
financial derivative contract (including various combinations
thereof). With respect to all agreements currently outstanding
pursuant to which Buyer or any of its Subsidiaries has purchased
securities subject to an agreement to resell, Buyer or such
Subsidiary has a valid, perfected first lien or security
interest in the securities or other collateral securing such
agreement, and the value of such collateral equals or exceeds
the amount of the debt secured thereby. With respect to all
agreements currently outstanding pursuant to which Buyer or any
of its Subsidiaries has sold securities subject to an agreement
to repurchase, neither Buyer nor any of its Subsidiaries has
pledged collateral in excess of the amount of the debt secured
thereby. Neither Buyer nor any of its Subsidiaries has pledged
collateral in excess of the amount required under any interest
rate swap or other similar agreement currently outstanding.
A-9
4.32 Accounting, Tax and Regulatory
Matters. Neither Buyer nor any of its
Subsidiaries has taken any action or has any Knowledge of any
fact or circumstance that is reasonably likely to
(i) prevent the transactions provided for herein, including
the Merger, from qualifying as a reorganization within the
meaning of Section 368(a) of the IRC, or
(ii) materially impede or delay receipt of any Consents of
Agencies referred to in subsection 8.2 of this Agreement.
4.33 Opinion of Counsel. Buyer has
no Knowledge of any facts that would preclude issuance of the
opinion of counsel referred to in Section 9.4.
4.34 Transactions with
Management. Buyer has disclosed in the SEC
Reports as of the date of this Agreement all matters required to
be disclosed pursuant to Item 404 of
Regulation S-K
under the 1933 Act, Certain Relationships and Related
Transactions.
4.35 Accounting Controls. Buyer and
its Subsidiaries have devised and maintained systems of internal
accounting control sufficient to provide reasonable assurances
that: (i) all material transactions are executed in
accordance with general or specific authorization of the Board
of Directors of Buyer and the duly authorized executive officers
of Buyer or the applicable Subsidiary of Buyer; (ii) all
material transactions are recorded as necessary to permit the
preparation of financial statements in conformity with GAAP with
respect to Buyer or the applicable Subsidiary of Buyer or any
other criteria applicable to such financial statements, and to
maintain proper accountability for items therein;
(iii) access to the material Assets of Buyer and its
Subsidiaries is permitted only in accordance with general or
specific authorization of the Board of Directors of Buyer and
the duly authorized executive officers; and (iv) the
recorded accountability for items is compared with the actual
levels at reasonable intervals and appropriate actions taken
with respect to any differences.
4.36. Deposit Insurance. The
deposit accounts of Superior Bank are insured by the FDIC in
accordance with the provisions of the FDIC Act. Superior Bank
has paid all regular premiums and special assessments and filed
all reports required under the FDIC Act.
ARTICLE 5
Representations,
Warranties and Covenants of Acquired Corporation
Acquired Corporation represents, warrants and covenants to and
with Buyer, as follows:
5.1 Organization. Acquired
Corporation is a Florida corporation, and the Bank is a Florida
state-chartered bank. Each is duly organized, validly existing
and in good standing under the respective Laws of its
jurisdiction of incorporation and has all requisite power and
authority to carry on its business as it is now being conducted
and is qualified to do business in every jurisdiction in which
the character and location of the Assets owned by it or the
nature of the business transacted by it requires qualification
or in which the failure to qualify could, individually, or in
the aggregate, have a Material Adverse Effect.
5.2 Capital Stock. As of
December 31, 2005, the authorized capital stock of Acquired
Corporation consisted of 10,000,000 shares of common stock,
$.01 par value per share, 3,710,500 shares of which are
issued and outstanding. All of such shares which are outstanding
are validly issued, fully paid and nonassessable under the FBCA
and not subject to preemptive rights. Acquired Corporation has
328,750 shares of its common stock subject to exercise at
any time pursuant to stock options under its stock option plans.
Except for the foregoing, Acquired Corporation does not have any
other arrangements or commitments obligating it to issue shares
of its capital stock or any securities convertible into or
having the right to purchase shares of its capital stock,
including the grant or issuance of Acquired Corporation Options.
5.3 Subsidiaries. Acquired
Corporation has no direct Subsidiaries other than the Bank, and
there are no Subsidiaries of the Bank. Acquired Corporation owns
all of the issued and outstanding capital stock of the Bank free
and clear of any liens, claims or encumbrances of any kind. All
of the issued and outstanding shares of capital stock of the
Subsidiaries have been validly issued and are fully paid and
non-assessable. As of December 31, 2005, there were
1,000,000 shares of the common stock, par value
$10.25 per share, authorized of the Bank, 740,000 of which
are issued and outstanding and wholly owned by Acquired
Corporation. The Bank has no arrangements or
A-10
commitments obligating it to issue shares of its capital stock
or any securities convertible into or having the right to
purchase shares of its capital stock.
5.4 Financial Statements;
Taxes. (a) Acquired Corporation has
delivered to Buyer copies of the following financial statements
of Acquired Corporation:
(i) Consolidated statements of financial condition as of
December 31, 2003, 2004 and 2005;
(ii) Consolidated statements of income for each of the
three years ended December 31, 2003, 2004 and 2005;
(iii) Consolidated statements of stockholders equity
for each of the three years ended December 31, 2003, 2004
and 2005; and
(iv) Consolidated statements of cash flows for the three
years ended December 31, 2003, 2004 and 2005.
All of the foregoing financial statements are in all material
respects in accordance with the books and records of Acquired
Corporation and have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods indicated,
except for changes required by GAAP, all as more particularly
set forth in the notes to such statements. Each of such
financial statements presents fairly as of its date the
financial condition and results of operations of Acquired
Corporation for the year then ended. Except as and to the extent
reflected or reserved against in such financial statements
(including the notes thereto), Acquired Corporation did not
have, as of the date of such financial statements, any material
Liabilities or obligations (absolute or contingent) of a nature
customarily reflected in financial statements or the notes
thereto.
(b) Except as set forth on Schedule 5.4(b) to Acquired
Corporations Disclosure Supplement, all Tax returns
required to be filed by or on behalf of Acquired Corporation
have been timely filed (or requests for extensions therefor have
been timely filed and granted and have not expired), and all
returns filed are complete and accurate in all material
respects. All Taxes shown on these returns to be due and all
additional assessments received have been paid or will be paid
before the date on which they would be delinquent. The amounts
recorded for Taxes on the financial statements provided under
Section 5.4(a) are, to the Knowledge of Acquired
Corporation, sufficient in all material respects for the payment
of all unpaid federal, state, county, local, foreign and other
Taxes (including any interest or penalties) of Acquired
Corporation accrued for or applicable to the period ended on the
dates thereof, and all years and periods prior thereto and for
which Acquired Corporation may at such dates have been liable in
its own right or as a transferee of the Assets of, or as
successor to, any other corporation or other party. No audit,
examination or investigation is presently being conducted or, to
the Knowledge of Acquired Corporation, threatened by any taxing
authority which is likely to result in a material Tax Liability,
no material unpaid Tax deficiencies or additional liability of
any sort has been proposed by any governmental representative
and no agreements for extension of time for the assessment of
any material amount of Tax have been entered into by or on
behalf of Acquired Corporation. Acquired Corporation has not
executed an extension or waiver of any statute of limitations on
the assessment or collection of any Tax due that is currently in
effect.
(c) To the Knowledge of the Acquired Corporation, each
Acquired Corporation Company has withheld from its employees
(and timely paid to the appropriate governmental entity) proper
and accurate amounts for all periods in material compliance with
all Tax withholding provisions of applicable federal, state,
foreign and local Laws (including without limitation, income,
Social Security and employment Tax withholding for all types of
compensation). Each Acquired Corporation Company is in material
compliance with, and its records contain all information and
documents (including properly completed IRS
Forms W-9)
necessary to comply with, all applicable information reporting
and Tax withholding requirements under federal, state and local
Tax Laws, and such records identify with specificity all
accounts subject to backup withholding under Section 3406
of the Code.
5.5 Absence of Certain Changes or
Events. Except as set forth on Schedule 5.5
to Acquired Corporations Disclosure Supplement, since
December 31, 2005, no Acquired Corporation Company has
(a) issued, delivered or agreed to issue or deliver any
stock, bonds or other corporate securities (whether authorized
and unissued or held in the treasury) except shares of common
stock issued upon the exercise of existing Acquired Corporation
Options;
A-11
(b) borrowed or agreed to borrow any funds or incurred, or
become subject to, any Liability (absolute or contingent) except
borrowings, obligations (including purchase of federal funds)
and Liabilities incurred in the ordinary course of business and
consistent with past practice;
(c) paid any material obligation or Liability (absolute or
contingent) other than current Liabilities reflected in or shown
on the most recent balance sheet referred to in
Section 5.4(a)(i) and current Liabilities incurred since
that date in the ordinary course of business and consistent with
past practice;
(d) declared or made, or agreed to declare or make, any
payment of dividends or distributions of any Assets of any kind
whatsoever to shareholders, or purchased or redeemed, or agreed
to purchase or redeem, directly or indirectly, or otherwise
acquire, any of its outstanding securities;
(e) except in the ordinary course of business, sold or
transferred, or agreed to sell or transfer, any of its Assets,
or canceled, or agreed to cancel, any debts or claims;
(f) except in the ordinary course of business, entered or
agreed to enter into any agreement or arrangement granting any
preferential rights to purchase any of its Assets, or requiring
the consent of any party to the transfer and assignment of any
of its Assets;
(g) suffered any Losses or waived any rights of value which
in either event in the aggregate are material considering its
business as a whole;
(h) except in the ordinary course of business, made or
permitted any amendment or termination of any Contract,
agreement or license to which it is a party if such amendment or
termination is material considering its business as a whole;
(i) except in accordance with normal and usual practice,
made any accrual or arrangement for or payment of bonuses or
special compensation of any kind or any severance or termination
pay to any present or former officer or employee;
(j) except in accordance with normal and usual practice,
increased the rate of compensation payable to or to become
payable to any of its officers or employees or made any material
increase in any profit sharing, bonus, deferred compensation,
savings, insurance, pension, retirement or other employee
benefit plan, payment or arrangement made to, for or with any of
its officers or employees;
(k) received notice or had Knowledge or reason to believe
that any of its substantial customers has terminated or intends
to terminate its relationship, which termination would have a
Material Adverse Effect;
(l) failed to operate its business in the ordinary course
so as to preserve its business intact and to preserve the
goodwill of its customers and others with whom it has business
relations;
(m) entered into any other transaction other than in the
ordinary course of business; or
(n) agreed, in writing or otherwise, to take any action
described in clauses (a) through (m) above.
Between the date hereof and the Effective Date, no Acquired
Corporation Company, without the express written approval of
Buyer, will do any of the things listed in clauses (a)
through (n) of this Section 5.5 except as permitted
therein or as contemplated in this Agreement, and no Acquired
Corporation Company will enter into or amend any material
Contract wherein either the Acquired Corporation Company has an
obligation to pay or the other party thereto has an obligation
to provide goods or services, in either case in excess of
$15,000 during the term thereof, other than Loans or renewals
thereof entered into in the ordinary course of business, without
the express written consent of Buyer. Buyer consents to the Bank
making provision for the payment of bonus compensation to its
employees and non-director officers in an aggregate amount not
to exceed $100,000 on or before the Effective Date.
5.6 Title and Related Matters.
(a) Title. Each Acquired Corporation Company has
good and marketable title to all Assets that are material to the
business of Acquired Corporation, reflected in the most recent
financial statement referred to in Section 5.4(a)(i), or
acquired after the date of such financial statement (except
Assets sold or otherwise disposed of since such date, in
A-12
the ordinary course of business), free and clear of all
mortgages, Liens, pledges, charges or encumbrances except
(i) mortgages and other encumbrances referred to in the
notes to such balance sheet, (ii) Liens for current Taxes
not yet due and payable and (iii) such imperfections of
title and easements as do not materially interfere with the
present use of the properties subject thereto or affected
thereby, or otherwise materially impair present business
operations at such properties. To the Knowledge of Acquired
Corporation, the material structures and equipment of each
Acquired Corporation Company comply in all material respects
with the requirements of all applicable Laws.
(b) Leases. Schedule 5.6(b) to Acquired
Corporations Disclosure Supplement sets forth a list and
description of all real and personal property owned or leased by
any Acquired Corporation Company, either as lessor or lessee,
all of which are in full force and effect and under which no
breach or Default on the part of such Acquired Corporation
Company or, to the Knowledge of Acquired Corporation, any other
party has occurred or is continuing.
(c) Depreciation Schedule. Schedule 5.6(c) to
Acquired Corporations Disclosure Supplement sets forth a
depreciation schedule for financial reporting purposes of each
Acquired Corporation Companys fixed Assets as of
December 31, 2005.
(d) Computer Hardware and Software.
Schedule 5.6(d) to Acquired Corporations Disclosure
Supplement contains a description of all material agreements
relating to data processing computer software and hardware now
being used in the business operations of any Acquired
Corporation Company. Acquired Corporation has no Knowledge of
any defects, irregularities or problems with any of its computer
hardware or software which renders such hardware or software
unable to satisfactorily perform the tasks and functions to be
performed by them in the business of any Acquired Corporation
Company. Except as set forth in Schedule 5.6(d) to Acquired
Corporations Disclosure Supplement, each applicable
Acquired Corporation Company owns or has the uncontested right,
and after the Effective Date will continue to own or have the
uncontested right, to use all such computer software and
hardware.
5.7 Commitments. Except as set
forth in Schedule 5.7 to Acquired Corporations
Disclosure Supplement or in the most recent financial statements
referred to in Section 5.4(a), no Acquired Corporation
Company is a party to any oral or written (i) Contracts for
the employment of any officer or employee which is not
terminable on 30 days (or less) notice,
(ii) profit sharing, bonus, deferred compensation, savings,
stock option, severance pay, pension or retirement plan,
agreement or arrangement, (iii) loan agreement, indenture
or similar agreement relating to the borrowing of money by such
party, except for such agreements for borrowing made in the
ordinary course of business, (iv) guaranty of any
obligation for the borrowing of money or otherwise, excluding
endorsements made for collection, letters of credit and
guaranties made in the ordinary course of business,
(v) consulting Contracts, (vi) collective bargaining
agreement, (vii) agreement with any present or former
officer, director or shareholder of such party, or
(viii) any Contract (A) which limits the freedom of
any of the Acquired Corporation Companies to compete in any line
of business or with any Person or (B) which limits the
freedom of any other Person to compete in any line of business
with any Acquired Corporation Company; or (ix) other
Contract, agreement or other commitment which involves the
payment by any Acquired Corporation Company of amounts
aggregating $50,000 or more in any twelve-month period or is
otherwise material to the business, operations, prospects or
Assets or to the condition, financial or otherwise, of any
Acquired Corporation Company. Complete and accurate copies of
all Contracts, plans and other items so listed will be made
available to Buyer for inspection.
5.8 Charter and
Bylaws. Schedule 5.8 to Acquired
Corporations Disclosure Supplement contains true and
correct copies of the articles of incorporation and bylaws of
each Acquired Corporation Company, including all amendments
thereto, as currently in effect. There will be no changes in
such articles of incorporation or bylaws prior to the Effective
Date without the prior written consent of Buyer.
5.9 Litigation; Compliance with
Laws. There is no Litigation (whether or not
purportedly on behalf of Acquired Corporation) pending or, to
the Knowledge of Acquired Corporation, threatened against or
affecting any Acquired Corporation Company (nor does Acquired
Corporation have Knowledge of any facts which are likely to give
rise to any such Litigation) at law or in equity, or before or
by any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or before any
arbitrator of any kind, which involves the possibility of any
judgment or Liability not fully covered by insurance in excess
of a reasonable deductible amount or which may have a Material
Adverse Effect on Acquired Corporation, and no Acquired
Corporation Company is in Default with respect to any judgment,
order, writ, injunction, decree, award, rule or regulation of
any
A-13
court, arbitrator or governmental department, commission, board,
bureau, agency or instrumentality, which Default would have a
Material Adverse Effect on Acquired Corporation. Except as
disclosed in Schedule 5.9 to Acquired Corporations
Disclosure Supplement, to the Knowledge of Acquired Corporation,
each Acquired Corporation Company has complied in all material
respects with all material applicable Laws and Regulations
including those imposing Taxes, of any applicable jurisdiction
and of all states, municipalities, other political subdivisions
and Agencies, in respect of the ownership of its Assets and the
conduct of its business, which, if not complied with, would have
a Material Adverse Effect on Acquired Corporation.
5.10 Material Contract
Defaults. Except as disclosed on
Schedule 5.10 to Acquired Corporations Disclosure
Supplement, no Acquired Corporation Company is in Default in any
material respect under the terms of any material Contract,
agreement, lease or other commitment which is or may be material
to the business, operations or Assets, or the condition,
financial or otherwise, of such company and, to the Knowledge of
Acquired Corporation, there is no event which, with notice or
lapse of time, or both, may be or become an event of Default
under any such material Contract, agreement lease or other
commitment in respect of which adequate steps have not been
taken to prevent such a Default from occurring.
5.11 No Conflict with Other
Instrument. Upon the receipt of all required
Consents, the consummation of the transactions contemplated by
this Agreement will not result in the breach of any term or
provision of or constitute a Default under any material Contract
indenture, mortgage, deed of trust, lease identified on
Schedule 5.6(b) to Acquired Corporations Disclosure
Schedule or other material agreement or instrument to which any
Acquired Corporation Company is a party and will not conflict
with any provision of the charter or bylaws of any Acquired
Corporation Company.
5.12 Governmental
Authorization. Each Acquired Corporation Company
has all Permits that, to the Knowledge of Acquired Corporation,
are or will be legally required to enable any Acquired
Corporation Company to conduct its business in all material
respects as now conducted by each Acquired Corporation Company.
5.13 Absence of Regulatory
Communications. Except as provided in
Schedule 5.13 to Acquired Corporations Disclosure
Supplement, no Acquired Corporation Company is subject to, nor
has any Acquired Corporation Company received during the past
three years, any written communication directed specifically to
it from any Agency to which it is or has been subject or
pursuant to which such Agency has imposed or has indicated it
may impose any material restrictions on the operations of it or
the business conducted by it or in which such Agency has raised
any material question concerning the condition, financial or
otherwise, of such company.
5.14 Absence of Material Adverse
Change. To the Knowledge of Acquired Corporation,
since the date of the most recent balance sheet provided under
Section 5.4(a)(i), there have been no events, changes or
occurrences which have had, or are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on
any Acquired Corporation Company.
5.15 Insurance. Each Acquired
Corporation Company has in effect insurance coverage and bonds
with reputable insurers which, in respect to amounts, types and
risks insured, management of Acquired Corporation reasonably
believes to be adequate for the type of business conducted by
such company, and all of which are identified on
Schedule 5.15 to Acquired Corporations Disclosure
Supplement. No Acquired Corporation Company is liable for any
material retroactive premium adjustment. All insurance policies
and bonds are valid, enforceable and in full force and effect,
and no Acquired Corporation Company has received any notice of
any material premium increase or cancellation with respect to
any of its insurance policies or bonds. Within the last three
years, no Acquired Corporation Company has been refused any
insurance coverage which it has sought or applied for, and it
has no reason to believe that existing insurance coverage cannot
be renewed as and when the same shall expire, upon terms and
conditions as favorable as those presently in effect, other than
possible increases in premiums that do not result from any
extraordinary loss experience. All policies of insurance
presently held or policies containing substantially equivalent
coverage will be outstanding and in full force with respect to
each Acquired Corporation Company at all times from the date
hereof to the Effective Date.
5.16 Pension and Employee Benefit Plans.
(a) To the Knowledge of Acquired Corporation, all employee
benefit plans of each Acquired Corporation Company have been
established in compliance with, and such plans have been
operated in material compliance
A-14
with, all applicable Laws. Except as set forth in
Schedule 5.16 to Acquired Corporations Disclosure
Supplement, no Acquired Corporation Company sponsors or
otherwise maintains a pension plan within the
meaning of Section 3(2) of ERISA or any other retirement
plan other than the First Kensington Bank 401(k) Plan effective
as of January 1, 2002 of Acquired Corporation that is
intended to qualify under Section 401 of the Code, nor do
any unfunded Liabilities exist with respect to any employee
benefit plan, past or present. To the Knowledge of Acquired
Corporation, no employee benefit plan, any trust created
thereunder or any trustee or administrator thereof has engaged
in a prohibited transaction, as defined in
Section 4975 of the Code, which may have a Material Adverse
Effect on the condition, financial or otherwise, of any Acquired
Corporation Company. No Acquired Corporation Company has any
Liability to the Pension Benefit Guaranty Corporation. No
Acquired Corporation Company is a party to, or otherwise bound
by or subject to, any multi-employer plan.
(b) To the Knowledge of Acquired Corporation, no amounts
payable to any employee of any Acquired Corporation Company will
fail to be deductible for federal income tax purposes by virtue
of Section 280G of the Code and regulations thereunder.
5.17 Buy-Sell Agreement. To the
Knowledge of Acquired Corporation, there are no agreements among
any of its shareholders granting to any person or persons a
right of first refusal in respect of the sale, transfer, or
other disposition of shares of outstanding securities by any
shareholder of Acquired Corporation, any similar agreement or
any voting agreement or voting trust in respect of any such
shares.
5.18 Brokers. Except for services
provided by Alex Sheshunoff & Co., which has been
retained by Acquired Corporation and the arrangements with
which, including fees, have been disclosed to Buyer prior to the
date hereof, all negotiations relative to this Agreement and the
transactions contemplated by this Agreement have been carried on
by Acquired Corporation directly with Buyer and without the
intervention of any other person, either as a result of any act
of Acquired Corporation, or otherwise, in such manner as to give
rise to any valid claim against Acquired Corporation for a
finders fee, brokerage commission or other like payment.
5.19 Approval of Agreements. The
board of directors of Acquired Corporation has approved this
Agreement and the transactions contemplated by this Agreement
and has authorized the execution and delivery by Acquired
Corporation of this Agreement. Subject to (a) the matters
referred to in Section 8.2 and (b) approval by the
stockholders of Acquired Corporation of the Merger and the
transactions contemplated by this Agreement, Acquired
Corporation has full power, authority and legal right to enter
into this Agreement, and, upon appropriate vote of the
shareholders of Acquired Corporation in accordance with this
Agreement, Acquired Corporation shall have full power, authority
and legal right to consummate the transactions contemplated by
this Agreement.
5.20 Disclosure. No representation
or warranty, nor any statement or certificate furnished or to be
furnished to Buyer by Acquired Corporation, contains or will
contain any untrue statement of a material fact or omits or will
omit to state a material fact necessary to make the statements
contained in this Agreement or in any such statement or
certificate not misleading.
5.21 Registration
Statement. (a) Acquired Corporation shall
furnish all information to Buyer with respect to any Acquired
Corporation Company including financial statements of Acquired
Corporation as Buyer may reasonably request for inclusion in the
Registration Statement, the Buyer Proxy Statement and the
Buyers application for listing on NASDAQ of Buyers
Common Stock to be registered by the Registration Statement, and
such information and financial statements shall satisfy the
requirements of SEC
Form S-4
and SEC
Regulation S-X
under the 1933 Act, as applicable.
(b) At the time the Registration Statement becomes
effective and at the time of the Stockholders Meetings, the
Registration Statement, including the Buyer Proxy Statement
which shall constitute part thereof, will not contain an untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in
this Section shall only apply to statements in or omissions from
the Buyer Proxy Statement relating to descriptions of the
business of Acquired Corporation, its Assets, properties,
operations, and capital stock or to information furnished in
writing by Acquired Corporation or its representatives expressly
for inclusion in the Buyer Proxy Statement.
A-15
(c) At the time of the Stockholders Meetings, the
Acquired Corporation Proxy Statement will not contain an untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in
this subsection shall not apply to statements in or omissions
from the Acquired Corporation Proxy Statement made in reliance
upon and in conformity with information furnished in writing to
Acquired Corporation by Buyer or any of its representatives
expressly for use in the Acquired Corporation Proxy Statement or
information included in the Acquired Corporation Proxy Statement
regarding the business of Buyer, its operations, Assets and
capital.
5.22 Loans; Adequacy of Allowance for Loan
Losses. All reserves for loan losses shown on the
financial statements of Acquired Corporation for the year ended
December 31, 2005 are adequate in all material respects.
Acquired Corporation has no Knowledge of any fact which is
likely to require a future material increase in the provision
for loan losses or a material decrease in the loan loss reserve
reflected in such financial statements. To the Knowledge of
Acquired Corporation, each loan reflected as an Asset on the
financial statements of Acquired Corporation is the legal, valid
and binding obligation of the obligor of each loan, enforceable
in accordance with its terms subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, or other
similar laws relating to creditors rights generally and to
general equitable principles and complies with all Laws to which
it is subject. Acquired Corporation does not have in its
portfolio any loan exceeding its legal lending limit, and except
as disclosed on Schedule 5.22 to Acquired
Corporations Disclosure Supplement, to the Knowledge of
Acquired Corporation, it has no material loans that are
delinquent in payment for more than 30 days, substandard,
doubtful, loss, or nonperforming.
5.23 Environmental Matters. Except
as provided in Schedule 5.23 to Acquired Corporations
Disclosure Supplement, to the Knowledge of Acquired Corporation,
each Acquired Corporation Company is in material compliance with
all Laws and other governmental requirements relating to the
generation, management, handling, transportation, treatment,
disposal, storage, delivery, discharge, release or emission of
any waste, pollution, or toxic, hazardous or other substance
(the Environmental Laws), and Acquired Corporation
has no Knowledge that any Acquired Corporation Company has not
complied with all regulations and requirements promulgated by
the Occupational Safety and Health Administration that are
applicable to any Acquired Corporation Company. To the Knowledge
of Acquired Corporation, there is no Litigation pending or
threatened with respect to any violation or alleged violation of
the Environmental Laws. To the Knowledge of Acquired
Corporation, with respect to Assets of any Acquired Corporation
Company, including any Loan Property of any material loan,
(i) there has been no spillage, leakage, contamination or
release of any substances for which the appropriate remedial
action has not been completed; (ii) no owned or leased
property is contaminated with or contains any hazardous
substance or waste; and (iii) there are no underground
storage tanks on any premises owned or leased by any Acquired
Corporation Company. No Acquired Corporation Company has
participated in the management of any property of any third
party including without limitation any Loan Property. Moreover,
to the Knowledge of Acquired Corporation, no Acquired
Corporation Company has extended credit, either on a secured or
unsecured basis, to any person or other entity engaged in any
activities which would require or requires such person or entity
to obtain any Permits which are required under any Environmental
Law which have not been obtained.
5.24 Transfer of Shares. Acquired
Corporation has no Knowledge of any plan or intention on the
part of Acquired Corporations shareholders to sell or
otherwise dispose of any of the Buyers Common Stock to be
received by them in the Merger that would reduce such
shareholders ownership to a number of shares having, in
the aggregate, a fair market value of less than fifty (50%)
percent of the total fair market value of Acquired Corporation
common stock outstanding immediately before the Merger.
5.25 Collective Bargaining. There
are no labor contracts, collective bargaining agreements,
letters of undertakings or other arrangements, formal or
informal, between any Acquired Corporation Company and any union
or labor organization covering any Acquired Corporation
Companys employees and none of said employees are
represented by any union or labor organization.
5.26 Labor Disputes. To the
Knowledge of Acquired Corporation, each Acquired Corporation
Company is in material compliance with all federal and state
laws respecting employment and employment practices, terms and
conditions of employment, wages and hours. No Acquired
Corporation Company is or has been engaged in any
A-16
unfair labor practice, and, to the Knowledge of Acquired
Corporation, no unfair labor practice complaint against any
Acquired Corporation Company is pending before the National
Labor Relations Board. Relations between management of each
Acquired Corporation Company and the employees are amicable and
there have not been, nor to the Knowledge of Acquired
Corporation, are there presently, any attempts to organize
employees, nor to the Knowledge of Acquired Corporation, are
there plans for any such attempts.
5.27 Derivative Contracts. No
Acquired Corporation Company is a party to or has agreed to
enter into a swap, forward, future, option, cap, floor or collar
financial contract, or any other interest rate or foreign
currency protection contract or derivative security not included
in Acquired Corporations financial statements delivered
under Section 5.4 hereof which is a financial derivative
contract (including various combinations thereof). With respect
to all agreements currently outstanding pursuant to which any
Acquired Corporation Company has purchased securities subject to
an agreement to resell, such Acquired Corporation Company has a
valid, perfected first lien or security interest in the
securities or other collateral securing such agreement, and the
value of such collateral equals or exceeds the amount of the
debt secured thereby. With respect to all agreements currently
outstanding pursuant to which any Acquired Corporation Company
has sold securities subject to an agreement to repurchase, no
Acquired Corporation Company has pledged collateral in excess of
the amount of the debt secured thereby. No Acquired Corporation
Company has pledged collateral in excess of the amount required
under any interest rate swap or other similar agreement
currently outstanding.
5.28 Accounting, Tax and Regulatory
Matters. No Acquired Corporation Company has
taken any action or has any Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the
transactions provided for herein, including the Merger, from
qualifying as a reorganization within the meaning of
Section 368(a) of the IRC, or (ii) materially impede
or delay receipt of any Consents of Agencies referred to in
subsection 8.2 of this Agreement.
5.29 Offices. The headquarters of
Acquired Corporation and each other office, branch or facility
maintained and operated by each Acquired Corporation Company
(including without limitation representative and loan production
offices and operations centers) and the locations thereof are
listed on Schedule 5.29 to Acquired Corporations
Disclosure Supplement. None of the Acquired Corporation
Companies maintains any other office or branch or conducts
business at any other location, or has applied for or received
permission to open any additional office or branch or to operate
at any other location.
5.30 Data Processing Systems. The
electronic data processing systems and similar systems utilized
in processing the work of each of the Acquired Corporation
Companies, including both hardware and software, are wholly
within the possession and control of one of the Acquired
Corporation Companies or its third party provider such that
physical access to all software, documentation, passwords,
access codes, backups, disks and other data storage devices and
similar items readily can be made accessible to and delivered
into the possession of Buyer or Buyers third party
provider.
5.31 Intellectual Property. Each of
the Acquired Corporation Companies owns or possesses valid and
binding licenses and other rights to use without additional
payment all material patents, copyrights, trade secrets, trade
names, service marks, trademarks, computer software and other
intellectual property used in its business; and none of the
Acquired Corporation Companies has received any notice of
conflict with respect thereto that asserts the rights of others.
The Acquired Corporation Companies have in all material respects
performed all the obligations required to be performed by them
and are not in default in any material respect under any
contract, agreement, arrangement or commitment relating to any
of the foregoing. Schedule 5.31 to Acquired
Corporations Disclosure Supplement lists all of the
trademarks, trade names, licenses and other intellectual
property used to conduct the businesses of the Acquired
Corporation Companies. Each of the Acquired Corporation
Companies has taken reasonable precautions to safeguard its
trade secrets from disclosure to third-parties.
5.32 Administration of
Trust Accounts. The Bank does not possess
and does not exercise trust powers.
5.33 Regulatory Approvals. Acquired
Corporation has no Knowledge of any reason why all requisite
regulatory approvals regarding the Merger should not or cannot
be obtained.
5.34 Opinion of Counsel. Acquired
Corporation has no Knowledge of any facts that would preclude
issuance of the opinion of counsel referred to in
Section 10.4.
A-17
5.35 Anti-takeover Provisions. The
provisions of Section 607.0901 and Section 607.0902 of
the FBCA do not apply to Acquired Corporation. Except for state
and/or
federal bank regulatory change in control Laws, no provisions of
an anti-takeover nature contained in their respective
organizational documents or the provisions of any federal or
state anti-takeover, fair price,
control share acquisition or similar Laws
(Takeover Laws) apply to Acquired Corporation, this
Agreement or the Merger.
5.36 Transactions with
Management. Except for (a) deposits, all of
which are on terms and conditions comparable in all material
respects to those made available to other nonaffiliated
similarly situated customers of the Bank at the time such
deposits were entered into, (b) the loans listed on
Schedule 5.36 to Acquired Corporations Disclosure
Supplement, (c) the agreements designated on
Schedule 5.36 to Acquired Corporations Disclosure
Supplement, (d) obligations under employee benefit plans of
the Acquired Corporation Companies set forth in
Schedule 5.16 to Acquired Corporations Disclosure
Supplement and (e) any other items described on
Schedule 5.36 to Acquired Corporations Disclosure
Supplement, there are no contracts with or commitments to
present or former stockholders who own or owned more than 1% of
the Acquired Corporation Stock, directors, officers or employees
(or their Related Interests) involving the expenditure of more
than $1,000 as to any one individual (including any business
directly or indirectly controlled by any such person), or more
than $5,000 for all such contracts for commitments in the
aggregate for all such individuals.
5.37 Deposits. Except as set forth
on Schedule 5.37 to Acquired Corporations Disclosure
Supplement, none of the deposits of the Bank are subject to any
encumbrance, legal restraint or other legal process (other than
garnishments, pledges, set off rights, limitations applicable to
public deposits, escrow limitation, arrangements for
sweeps of business deposit accounts and similar
actions taken in the ordinary course of business), and other
than deposits of Acquired Corporation no portion of deposits of
the Bank represents a deposit of any other Acquired Corporation
Company.
5.38 Accounting Controls. Each of
the Acquired Corporation Companies has devised and maintained
systems of internal accounting control sufficient to provide
reasonable assurances that: (i) all material transactions
are executed in accordance with general or specific
authorization of the Board of Directors and the duly authorized
executive officers of the applicable Acquired Corporation
Company; (ii) all material transactions are recorded as
necessary to permit the preparation of financial statements in
conformity with GAAP with respect to the applicable Acquired
Corporation Company or any other criteria applicable to such
financial statements, and to maintain proper accountability for
items therein; (iii) access to the material Assets of each
of the Acquired Corporation Companies is permitted only in
accordance with general or specific authorization of the Board
of Directors and the duly authorized executive officers; and
(iv) the recorded accountability for items is compared with
the actual levels at reasonable intervals and appropriate
actions taken with respect to any differences.
5.39 Deposit Insurance. The deposit
accounts of the Bank are insured by the FDIC in accordance with
the provisions of the FDIC Act. The Bank has paid all regular
premiums and special assessments and filed all reports required
under the FDIC Act.
5.40 Registration
Obligations. Neither of Acquired Corporation or
the Bank is under any obligation, contingent or otherwise, which
will survive the Merger to register its securities under the
1933 Act or any state securities laws.
ARTICLE 6
Additional Covenants
6.1 Additional Covenants of
Buyer. Buyer covenants to and with Acquired
Corporation as follows:
(a) Registration Statement and Other Filings. As
soon as reasonably practicable after the execution of this
Agreement, Buyer shall prepare and file with the SEC the
Registration Statement on
Form S-4
(or such other form as may be appropriate) and all amendments
and supplements thereto, in form reasonably satisfactory to
Acquired Corporation and its counsel, with respect to the Common
Stock to be issued pursuant to this Agreement. Buyer shall use
reasonable good faith efforts to prepare all necessary filings
with any Agencies which may be necessary for approval to
consummate the transactions contemplated by this Agreement and
shall use its reasonable efforts to cause the Registration
Statement to become effective under
A-18
the 1933 Act as soon as reasonably practicable after the filing
thereof and take any action required to be taken under other
applicable securities laws in connection with the issuance of
the shares of Buyers Common Stock upon consummation of the
Merger. Copies of all such filings (and any amendments thereto)
shall be furnished no less than five (5) business days in
advance to Acquired Corporation and its counsel.
(b) Blue Sky Permits. Buyer shall use its best
efforts to obtain, prior to the effective date of the
Registration Statement, all necessary state securities law or
blue sky permits and approvals required to carry out
the transactions contemplated by this Agreement.
(c) Reports. Buyer shall furnish to Acquired
Corporation:
(i) Promptly upon receipt thereof, true and complete copies
of all reports prepared by Buyers internal audit staff and
copies of audit reports, reports on internal control and other
reports or comment letters submitted to Buyer by independent
auditors in connection with each annual, interim or special
audit of the books of Buyer made by such accountants;
(ii) As soon as practicable, copies of all such financial
statements and loan reports as it shall provide the members of
its board of directors and of such regular and periodic reports
as Buyer may file with the SEC or any other Agency; and
(iii) With reasonable promptness, such additional financial
data as Acquired Corporation may reasonably request.
(d) No Control of Acquired Corporation by Buyer.
Notwithstanding any other provision hereof, until the Effective
Date, the authority to establish and implement the business
policies of Acquired Corporation shall continue to reside solely
in Acquired Corporations officers and board of directors.
(e) Listing. Prior to the Effective Date, Buyer
shall cause the listing of the shares of Buyers Common
Stock to be issued in the Merger on the NASDAQ or other
quotations system on which such shares are primarily traded.
(f) Employee Benefit Matters. On the Effective Date,
all employees of any Acquired Corporation Company shall, at
Buyers option, either become employees of the Resulting
Corporation or its Subsidiaries or be entitled to severance
benefits under the severance policy of either the Bank or
Superior Bank having the greater benefits as of the date of this
Agreement (except Gerald K. Archibald and William R.
Bender, Jr., who shall resign as employees of the Bank as
of the Effective Date). All employees of any Acquired
Corporation Company who become employees of the Resulting
Corporation or its Subsidiaries on the Effective Date shall be
entitled, to the extent permitted by applicable Law, to
participate as soon as administratively and financially
practicable after the Effective Date in all benefit plans of
Superior Bank to the same extent as Superior Bank employees,
except as stated otherwise in this Section. Buyer shall continue
each existing benefit plans of any Acquired Corporation Company
until such benefit plan is replaced with the like benefit plan
of Superior Bank. With respect to employee benefits maintained
by Buyer or by Superior Bank in which employees of any Acquired
Corporation Company participate after the Effective Date, Buyer
agrees: (i) to treat service by Acquired Corporation
Company employees prior to the Effective Date as service with
Buyer or Superior Bank, for eligibility and vesting purposes
only, for all retirement, vacation, sick pay, severance and
other benefit plans of Superior Bank and (ii) to waive
waiting periods and pre-existing condition limitations, if any,
as would otherwise be applied to participating employees of an
Acquired Corporation Company upon the implementation of such
employee benefits constituting group health plans
within the meaning of Section 5000(b)(i) of the Code. In
addition, if the Effective Date falls within an annual period of
coverage under any group health plan of the Resulting
Corporation and its Subsidiaries, each such Acquired Corporation
Company employee shall be given credit for covered expenses paid
by that employee under comparable employee benefit plans of the
Acquired Corporation Company during the applicable coverage
period through the Effective Date towards satisfaction of any
annual deductible limitation and
out-of-pocket
maximum that may apply under that group health plan of the
Resulting Corporation and its Subsidiaries. Buyer shall give the
required notifications when due pursuant to COBRA to all
employees of any Acquired Corporation Company who do not become
employees of the Resulting Corporation or its Subsidiaries on
the Effective Date and administer all elections of such
employees under its group health plan.
A-19
(g) Indemnification. (i) Subject to the
conditions set forth in subsection (ii) hereof, for a
period of four years from and after the Effective Time, Buyer
shall indemnify and hold harmless each present and former
director
and/or
officer of any Acquired Corporation Company (the
Indemnified Parties) against any costs or expenses
(including reasonable attorneys fees), judgments, fines
losses, claims, damages, settlements or liabilities incurred in
connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal administrative or
investigative (each, a Claim), arising out of or
pertaining to matters existing or occurring at or prior to the
Effective Date, whether asserted or claimed prior to, at or
after the Effective Date, to the fullest extent that any
Acquired Corporation Company would have been permitted to
indemnify such person under the FBCA, the articles of
incorporation, certificate of incorporation or bylaws of any
such Acquired Corporation Company in effect on the date hereof.
(ii) Any Indemnified Party wishing to claim indemnification
under this Section 6.1(g) shall notify Buyer within
45 days after the Indemnified Partys receipt of a
notice of any Claim, but the failure to so notify shall not
relieve Buyer of any Liability it may have to such Indemnified
Party, unless such failure materially prejudices Buyer in the
defense of the Claim or otherwise. In the event of any claim
(whether arising before or after the Effective Date),
(A) Buyer shall have the right to assume the defense
thereof, and Buyer shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if Buyer elects
not to assume such defense, or counsel for the Indemnified
Parties advises that there are issues which raise conflicts of
interest between Buyer and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and
Buyer shall pay the reasonable fees and expenses of such counsel
for the Indemnified Parties promptly after statements therefor
are received; provided, however, that Buyer shall be obligated
pursuant to this Section 6.1(g)(ii)(A) to pay for only one
firm of counsel for all Indemnified Parties in any jurisdiction,
unless the interests of any Indemnified Party conflict with the
interests of another Indemnified Party, then, in such event,
Buyer shall pay for the counsel for each Indemnified Party
having a conflicting interest, (B) the Indemnified Parties
will cooperate in the defense of any such matter and
(C) Buyer shall not be liable for any settlement effected
without its prior written consent which shall not be
unreasonably withheld; and provided further that Buyer shall not
have any obligation hereunder to any Indemnified Party when and
if a court of competent jurisdiction shall determine, and such
determination shall have become final, that the indemnification
of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law.
(h) Payment to Acquired Corporation upon
Termination. If this Agreement is terminated by Buyer
pursuant to Section 13.2 (g) hereof, Buyer covenants
and agrees that it shall pay to Acquired Corporation upon demand
$420,000 by wire transfer of same-day funds to compensate
Acquired Corporation for its direct and indirect costs and
expenses (and not as a penalty) in connection with the
transactions contemplated by this Agreement, including Acquired
Corporations management time devoted to negotiation and
preparation for the Merger and Acquired Corporations loss
as a result of the Merger not being consummated.
(i) Transfer of Shares by Affiliate of Acquired
Corporation. Neither Buyer nor Buyers transfer agent
will take any action with respect to the sale of shares of
Buyers Common Stock after the Effective Date by any
affiliate of Acquired Corporation who is not an affiliate of
Buyer inconsistent with the opinion of Haskell Slaughter
Young & Rediker, LLC, counsel to Buyer, to be delivered
pursuant to Section 9.4 hereof.
6.2 Additional Covenants of Acquired
Corporation. Acquired Corporation covenants to
and with Buyer as follows:
(a) Operations. Acquired Corporation will conduct
its business and the business of each Acquired Corporation
Company in a proper and prudent manner and will use its best
efforts to maintain its relationships with its depositors,
customers and employees. No Acquired Corporation Company will
engage in any material transaction outside the ordinary course
of business or make any material change in its accounting
policies or methods of operation, nor will Acquired Corporation
permit the occurrence of any change or event which would render
any of the representations and warranties in Article 5
hereof untrue in any material respect at and as of the Effective
Date with the same effect as though such representations and
warranties had been made at and as of such Effective Date.
Acquired Corporation shall contact any person who may be
required to execute an undertaking under Section 10.5
hereof to request such undertaking and shall take all such
reasonable steps
A-20
as are necessary to obtain such undertaking. Acquired
Corporation will take no action that would prevent or impede the
Merger from qualifying as a tax-free reorganization within the
meaning of Section 368 of the Code.
(b) Stockholders Meeting; Best Efforts. Acquired
Corporation will cooperate with Buyer in the preparation of the
Registration Statement and any regulatory filings and will cause
a stockholders meeting of Acquired Companys stockholders
to be held for the purpose of approving the Merger as soon as
practicable after the effective date of the Registration
Statement, and will use its best efforts to bring about the
transactions contemplated by this Agreement, including
stockholder approval of this Agreement, as soon as practicable
unless this Agreement is terminated as provided herein.
(c) Prohibited Negotiations. (i) Except with
respect to this Agreement and the transactions contemplated
hereby, no Acquired Corporation Company nor any affiliate
thereof nor any investment banker, attorney, accountant, or
other representative (collectively, Representatives)
retained by an Acquired Corporation Company shall directly or
indirectly solicit any Acquisition Proposal by any Person.
Except to the extent necessary as determined by the board of
directors of Acquired Corporation to comply with the fiduciary
duties of Acquired Corporations Board of Directors, no
Acquired Corporation Company or any Representative thereof shall
furnish any non-public information that it is not legally
obligated to furnish, negotiate with respect to, or enter into
any Contract with respect to, any Acquisition Proposal, and each
Acquired Corporation Company shall direct and use its reasonable
efforts to cause all of its Representatives not to engage in any
of the foregoing, but Acquired Corporation may communicate
information about such an Acquisition Proposal to its
shareholders if and to the extent that it is required to do so
in order to comply with its fiduciary duties as advised in
writing by counsel to such Board of Directors. Acquired
Corporation shall promptly notify Buyer orally and in writing in
the event that any Acquired Corporation Company receives any
inquiry or proposal relating to any such Acquisition Proposal
and, unless the board of directors of Acquired Corporation
determines with the advice of counsel that such action is
inconsistent with its fiduciary duties, shall advise Buyer of
the identity of the person making such Acquisition Proposal.
Acquired Corporation shall immediately cease and cause to be
terminated any existing activities, discussions, or negotiations
with any Persons other than Buyer conducted heretofore with
respect to any of the foregoing.
(ii) In the event that Acquired Corporation enters into a
letter of intent, agreement in principle or definitive agreement
regarding an Acquisition Proposal with any third party (other
than Buyer or any of its Subsidiaries) prior to the earlier of
(i) the Effective Date or (ii) the termination of this
Agreement pursuant to Article 13 hereof, or if Acquired
Corporation receives an Acquisition Proposal from a third party
(other than Buyer and its Subsidiaries) prior to the termination
of this Agreement by Buyer pursuant to Section 13.2(b),
(c) or (d) or by Acquired Corporation pursuant to
Section 13(d) hereof, and the Merger is not closed as
contemplated by this Agreement (unless it is not closed because
this Agreement has been terminated pursuant to the foregoing
Sections of Article 13), Acquired Corporation covenants and
agrees that it shall pay to Buyer upon demand an amount equal to
$2,100,000 by wire transfer of same-day funds to compensate
Buyer for its direct and indirect costs and expenses (and not as
a penalty) in connection with the transactions contemplated by
this Agreement, including Buyers management time devoted
to negotiation and preparation for the Merger and Buyers
loss as a result of the Merger not being consummated. Upon
receipt of such payment, this Agreement shall terminate, have no
further force or effect and all obligations of Buyer and
Acquired Corporation to the other shall be deemed released and
discharged, except as provided in Article 11.
(d) Director Recommendation. The members of the
Board of Directors of Acquired Corporation agree to vote their
shares of Acquired Corporation Stock in favor of and to support
publicly the Merger, and to recommend to the stockholders of
Acquired Corporation the approval of the Merger.
(e) Stockholder Voting. If requested by Buyer,
Acquired Corporation shall as soon as practicable after the date
of such request cause each non-director officer of Acquired
Corporation who owns 5% or more of the outstanding voting
securities of Acquired Corporation, and each director of
Acquired Corporation, to execute a Lock-Up and Non-Competition
Agreement in substantially the form of Exhibit A hereto.
A-21
(f) Financial Statements and Monthly Status Reports.
Acquired Corporation shall furnish to Buyer:
(i) As soon as practicable and in any event for the
quarterly period ending March 31, 2006 within the time
period reasonably to allow Buyer to prepare the Registration
Statement and thereafter within 30 days after the end of
each quarterly period, consolidated statements of operations of
Acquired Corporation for such period and for the period
beginning at the commencement of the fiscal year and ending at
the end of such quarterly period, and a consolidated statement
of financial condition of Acquired Corporation as of the end of
such quarterly period, setting forth in each case in comparative
form figures for the corresponding periods ending in the
preceding fiscal year, subject to changes resulting from
year-end adjustments;
(ii) Promptly upon receipt thereof, copies of all audit
reports submitted to Acquired Corporation by independent
auditors in connection with each annual, interim or special
audit of the books of Acquired Corporation made by such
accountants, including any management letters;
(iii) As soon a practicable, copies of all such financial
statements and reports as it shall send to its stockholders and
of such regular and periodic reports as Acquired Corporation may
file with the SEC or any other Agency;
(iv) With reasonable promptness, such additional financial
data and information with respect to the loan and investment
portfolio of any Acquired Corporation Company as Buyer may
reasonably request; and
(v) Within 10 calendar days after the end of each month
(or, if the financial statements referred to in clause (d)
are not then available, as soon as possible thereafter)
commencing with the next calendar month following the date of
this Agreement and ending at the Effective Date, a written
description of (a) any non-compliance with the terms of
this Agreement, together with its then current estimate of the
out-of-pocket
costs and expenses incurred or reasonably accruable in
connection with the transactions contemplated by this Agreement;
(b) the status, as of the date of the report, of all
existing or threatened Litigation against any Acquired
Corporation Company; (c) copies of minutes of any meeting
of the board of directors of any Acquired Corporation Company
and any committee thereof occurring in the month for which such
report is made, including all documents presented to the
directors at such meetings; (d) copies of minutes of any
meeting of senior management committee of any Acquired Company
including without limitation risk management, technology,
operations and similar committees; and (e) monthly
financial statements, including a balance sheet and income
statement.
(g) Fiduciary Duties. Prior to the Effective Date,
Acquired Corporation shall take all necessary steps requested by
Buyer or otherwise to ensure that (i) no director or
officer (each an Executive) of Acquired Corporation
shall, directly or indirectly, own, manage, operate, join,
control, be employed by or participate in the ownership,
proposed ownership, management, operation or control of or be
connected in any manner with, any business, corporation or
partnership which is competitive to the business of any Acquired
Corporation Company, (ii) all Executives, at all times,
shall satisfy their fiduciary duties to Acquired Corporation and
its Subsidiaries, and (iii) such Executives shall not
(except as required in the course of his or her employment with
any Acquired Corporation Company) communicate or divulge to, or
use for the benefit of himself or herself or any other person,
firm, association or corporation, without the express written
consent of Acquired Corporation, any confidential information
which is possessed, owned or used by or licensed by or to any
Acquired Corporation Company or confidential information
belonging to third parties which any Acquired Corporation
Company shall be under obligation to keep secret or which may be
communicated to, acquired by or learned of by the Executive in
the course of or as a result of his or her employment with any
Acquired Corporation Company.
(h) Certain Practices. Acquired Corporation shall
(i) provide Buyer with copies of its loan authorization
sheets five (5) business days prior to the closing of any
loan after the date of this Agreement for all loans approved by
the Bank in excess of $500,000; (ii) consult with Buyer and
advise Buyer of any loan request outside the normal course of
business of the Bank, (iii) consult with Buyer in advance
on any agreement to make or to permit any amendment or
termination of any Contract by or with any Acquired Corporation
A-22
Company requiring capital expenditures of more than $25,000,
other than capital expenditures associated with the
construction, equipping and furnishing of the Spring Hill,
Florida and Palm Harbor, Florida office sites; and
(iv) consult with Buyer to coordinate various business
issues on a basis mutually satisfactory to Acquired Corporation
and Buyer. Acquired Corporation and the Bank shall not be
required to undertake any of such activities, however, except as
such activities may be in compliance with existing Law and
Regulations.
(i) Environmental Matters. Acquired Corporation will
provide access to its banking facilities for purposes of Buyer
engaging one or more firms to conduct a Phase I
environmental site assessment or transaction screen of each of
the banking facilities currently owned or leased by any Acquired
Corporation Company. Buyer has requested such inspection and
testing in an effort reasonable to determine whether potential
liabilities exist relating to Environmental Laws. Buyer will
engage any such firms for such purposes within thirty
(30) days after the date hereof. Delivery of the
Phase I assessments and transaction screens satisfactory to
Buyer is an express condition precedent to the consummation of
the Merger. Within fifteen days after receipt of these reports,
Buyer shall notify Acquired Corporation in writing, with a copy
of such assessments and screens, if, in the reasonable judgment
of Buyer, any potential liabilities identified in such reports
could reasonably be expected to have or result in a Material
Adverse Effect on Acquired Corporation and, if so, that it
intends to terminate this Agreement based upon the results of
such reports; otherwise, the Phase I assessments and
transaction screens shall be deemed satisfactory to Buyer.
(j) Insurance. Prior to the Effective Date, Acquired
Corporation shall purchase for, and on behalf of, its current
and former officers and directors, extended coverage under the
current directors and officers liability insurance
policy maintained by Acquired Corporation to provide for
continued coverage of such insurance for a period of four years
following the Effective Date with respect to matters occurring
prior to the Effective Date.
ARTICLE 7
Mutual
Covenants and Agreements
7.1 Best Efforts,
Cooperation. Subject to the terms and conditions
herein provided, Buyer and Acquired Corporation each agrees to
use its best efforts promptly to take, or cause to be taken, all
actions and do, or cause to be done, all things necessary,
proper or advisable under applicable Laws or otherwise,
including, without limitation, promptly making required
deliveries of stockholder lists and stock transfer reports and
attempting to obtain all necessary Consents and waivers and
regulatory approvals, including the holding of any regular or
special board meetings, to consummate and make effective, as
soon as practicable, the transactions contemplated by this
Agreement. The officers of each Party to this Agreement shall
fully cooperate with officers and employees, accountants,
counsel and other representatives of the other Parties not only
in fulfilling the duties hereunder of the Party of which they
are officers but also in assisting, directly or through
direction of employees and other persons under their supervision
or control, such as stock transfer agents for the Party, the
other Parties requiring information which is reasonably
available from such Party.
7.2 Press Release. Each Party
hereto agrees that, unless approved by the other Parties in
advance, such Party will not make any public announcement, issue
any press release or other publicity or confirm any statements
by any person not a party to this Agreement concerning the
transactions contemplated hereby. Notwithstanding the foregoing,
each Party hereto reserves the right to make any disclosure if
such Party, in its reasonable discretion, deems such disclosure
required by Law. In that event, such Party shall provide to the
other Party the text of such disclosure sufficiently in advance
to enable the other Party to have a reasonable opportunity to
comment thereon.
7.3 Mutual Disclosure. Each Party
hereto agrees to promptly furnish to each other Party hereto its
public disclosures and filings not precluded from disclosure by
Law including but not limited to call reports,
Form 8-K,
Form 10-Q
and
Form 10-K
filings, Y-3 applications, reports on
Form Y-6,
quarterly or special reports to shareholders, Tax returns,
Form S-8
registration statements and similar documents.
7.4 Access to Properties and
Records. Each Party hereto shall afford the
officers and authorized representatives of the other Party full
access to the Assets, books and records of such Party in order
that such other Parties may have full opportunity to make such
investigation as they shall desire of the affairs of such Party
and shall furnish to such Parties such additional financial and
operating data and other information as to its businesses and
A-23
Assets as shall be from time to time reasonably requested. All
such information that may be obtained by any such Party will be
held in confidence by such party, will not be disclosed by such
Party or any of its representatives except in accordance with
this Agreement, and will not be used by such Party for any
purpose other than the accomplishment of the Merger as provided
herein.
7.5 Notice of Adverse Changes. Each
Party agrees to give written notice promptly to the other Party
upon becoming aware of the occurrence or impending occurrence of
any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on
it or (ii) would cause or constitute a material breach of
any of its representations, warranties, or covenants contained
herein, and to use its reasonable efforts to prevent or promptly
to remedy the same.
ARTICLE 8
Conditions
to Obligations of all Parties
The obligations of Buyer and Acquired Corporation to cause the
transactions contemplated by this Agreement to be consummated
shall be subject to the satisfaction, in the sole discretion of
the Party relying upon such conditions, on or before the
Effective Date of all the following conditions, except as such
Parties may waive such conditions in writing:
8.1 Approval by Shareholders. At
the Stockholders Meetings, this Agreement and the matters
contemplated by this Agreement shall have been duly approved by
the vote of the respective holders of not less than the
requisite number of the issued and outstanding voting securities
of Acquired Corporation and of Buyer as is required by
applicable Law and Acquired Corporations articles of
incorporation and bylaws and Buyers certificate of
incorporation and bylaws.
8.2 Regulatory Authority
Approval. (a) Orders, Consents and
approvals, in form and substance reasonably satisfactory to
Buyer and Acquired Corporation, shall have been entered by the
Office of Thrift Supervision and other appropriate bank
regulatory Agencies (i) granting the authority necessary
for the consummation of the transactions contemplated by this
Agreement; and (ii) satisfying all other requirements
prescribed by Law. No Order, Consent or approval so obtained
which is necessary to consummate the transactions as
contemplated hereby shall be conditioned or restricted in a
manner which in the reasonable good faith judgment of the Board
of Directors of either Buyer or Acquired Corporation would so
materially adversely impact the economic benefits of the
transaction as contemplated by this Agreement so as to render
inadvisable the consummation of the Merger.
(b) Each Party shall have obtained any and all other
Consents required for consummation of the Merger (other than
those referred to in Section 8.2(a) of this Agreement) for
the preventing of any Default under any Contract or Permit of
such Party which, if not obtained or made, is reasonably likely
to have, individually or in the aggregate, a Material Adverse
Effect on such Party. No Consent obtained which is necessary to
consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable
judgment of the Board of Directors of Buyer would so materially
adversely impact the economic or business benefits of the
transactions contemplated by this Agreement so as to render
inadvisable the consummation of the Merger.
8.3 Litigation. There shall be no
pending or threatened Litigation in any court or any pending or
threatened proceeding by any governmental commission, board or
Agency, with a view to seeking or in which it is sought to
restrain or prohibit consummation of the transactions
contemplated by this Agreement or in which it is sought to
obtain divestiture, rescission or damages in connection with the
transactions contemplated by this Agreement and no investigation
by any Agency shall be pending or threatened which might result
in any such suit, action or other proceeding.
8.4 Registration Statement. The
Registration Statement shall be effective under the
1933 Act and no stop order suspending the effectiveness of
the Registration Statement shall be in effect; no proceedings
for such purpose, or under the proxy rules of the SEC or any
bank regulatory authority pursuant to the 1934 Act, with
respect to the transactions contemplated hereby, shall be
pending before or threatened by the SEC or any bank regulatory
authority; and all approvals or authorizations for the offer of
Buyers Common Stock shall have been received or
A-24
obtained pursuant to any applicable state securities Laws, and
no stop order or proceeding with respect to the transactions
contemplated hereby shall be pending or threatened under any
such state law.
8.5 Tax Opinion. Buyer and Acquired
Corporation shall have received an opinion of Balch &
Bingham LLP, in form and substance reasonably satisfactory to
Acquired Corporation and Buyer to the effect that (i) the
Merger will constitute a reorganization within the
meaning of Section 368 of the Code; (ii) no gain or
loss will be recognized by Buyer or Acquired Corporation;
(iii) no gain or loss will be recognized by the
shareholders of Acquired Corporation who receive shares of
Buyers Common Stock except to the extent of any taxable
boot received by such persons from Buyer, and except
to the extent of any dividends received from Acquired
Corporation prior to the Effective Date; (iv) the basis of
the Buyers Common Stock received in the Merger will be
equal to the sum of the basis of the shares of Acquired
Corporation common stock exchanged in the Merger and the amount
of gain, if any, which was recognized by the exchanging Acquired
Corporation shareholder, including any portion treated as a
dividend, less the value of taxable boot, if any, received by
such shareholder in the Merger; (v) the holding period of
the Buyers Common Stock will include the holding period of
the shares of Acquired Corporation common stock exchanged
therefor if such shares of Acquired Corporation common stock
were capital assets in the hands of the exchanging Acquired
Corporation shareholder; and (vi) cash received by an
Acquired Corporation shareholder in lieu of a fractional share
interest of Buyers Common Stock will be treated as having
been received as a distribution in full payment in exchange for
the fractional share interest of Buyers Common Stock which
he or she would otherwise be entitled to receive and will
qualify as capital gain or loss (assuming the Acquired
Corporation Stock was a capital asset in his or her hands as of
the Effective Date).
ARTICLE 9
Conditions
to Obligations of Acquired Corporation
The obligations of Acquired Corporation to cause the
transactions contemplated by this Agreement to be consummated
shall be subject to the satisfaction on or before the Effective
Date of all the following conditions except as Acquired
Corporation may waive such conditions in writing:
9.1 Representations, Warranties and
Covenants. Notwithstanding any investigation made
by or on behalf of Acquired Corporation, all representations and
warranties of Buyer contained in this Agreement shall be true in
all material respects on and as of the Effective Date as if such
representations and warranties were made on and as of such
Effective Date (and without regard to any qualifications in such
representations and warranties relating to materiality), and
Buyer shall have performed in all material respects all
agreements and covenants required by this Agreement to be
performed by it on or prior to the Effective Date.
9.2 Adverse Changes. There shall
have been no changes after September 30, 2005 in the
results of operations, Assets, Liabilities, financial condition
or affairs of Buyer which in their total effect constitute a
Material Adverse Effect, nor shall there have been any material
changes in the Laws governing the business of Buyer which would
impair the rights of Acquired Corporation or its shareholders
pursuant to this Agreement.
9.3 Closing Certificate. In
addition to any other deliveries required to be delivered
hereunder, Acquired Corporation shall have received a
certificate from the President or a Vice President and from the
Secretary or Assistant Secretary of Buyer dated as of the
Closing certifying that:
(a) the Board of Directors of Buyer has duly adopted
resolutions approving the substantive terms of this Agreement
and authorizing the consummation of the transactions
contemplated by this Agreement and such resolutions have not
been amended or modified and remain in full force and effect;
(b) each person executing this Agreement on behalf of Buyer
is an officer of Buyer holding the office or offices specified
therein and the signature of each person set forth on such
certificate is his or her genuine signature;
(c) the certificate of incorporation and bylaws of Buyer
referenced in Section 4.4 hereof remain in full force and
effect;
A-25
(d) such persons have no knowledge of a basis for any
material claim, in any court or before any Agency or arbitration
or otherwise against, by or affecting Buyer or the business,
prospects, condition (financial or otherwise), or Assets of
Buyer which would prevent the performance of this Agreement or
the transactions contemplated by this Agreement or declare the
same unlawful or cause the rescission thereof;
(e) to such persons knowledge, the Buyer Proxy
Statement delivered to Buyers shareholders, or any
amendments or revisions thereto so delivered, as of the date
thereof, did not contain or incorporate by reference any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances
under which they were made (it being understood that such
persons need not express a statement as to information
concerning or provided by Acquired Corporation for inclusion in
such Buyer Proxy Statement); and
(f) the conditions set forth in Article 8 and this
Article 9 have been satisfied insofar as they relate to
Buyer.
9.4 Opinion of Counsel. Acquired
Corporation shall have received an opinion of Balch &
Bingham LLP, counsel to Buyer, dated as of the Closing, in form
and substance as set forth in Exhibit 9.4 hereto. Such
counsel may rely on representations and certificates of officers
and directors of Buyer and certificates of public officials. The
opinion of counsel to Buyer shall also be subject to reasonable
and customary qualifications. In addition, Acquired Corporation
shall have received an opinion of Haskell Slaughter
Young & Rediker, LLC, counsel to Buyer, dated as of the
Closing, to the effect that, assuming the Registration Statement
has become effective, Rule 145(d)(1) under the
1933 Act shall be applicable to any person who was an
affiliate (as defined in the 1933 Act) of
Acquired Corporation prior to the Merger and who will not be an
affiliate of Buyer following the Merger, with the
result that the holding periods of Rule 145(d)(2) and
145(d)(3) shall not be applicable to such persons.
9.5 Fairness Opinion. Acquired
Corporation shall have received prior to the mailing of the
Acquired Corporation Proxy Statement, but no earlier than five
(5) business days prior to the mailing, from Alex
Sheshunoff & Co. a letter (acceptable in form to
Acquired Corporation) reconfirming as of such date its written
opinion as of or prior to the date of this Agreement, that the
Exchange Ratio is fair to the stockholders of Acquired
Corporation from a financial point of view, and such opinion
shall not have been withdrawn prior to or as of the Effective
Date.
9.6 NASDAQ Listing. The shares of
Buyers Common Stock to be issued under this Agreement
shall have been approved for listing on the NASDAQ.
9.7 Support for Legal
Opinion. There shall have been furnished to
counsel for Acquired Corporation delivering the opinion under
Section 10.4 certified copies of such corporate records of
Buyer and copies of such other documents as such counsel may
reasonably have requested for such purpose.
9.8 Material Events. There shall
have been no determination by the board of directors of Acquired
Corporation that the transactions contemplated by this Agreement
have become impractical because of any state of war, declaration
of a banking moratorium in the United States or a general
suspension of trading on the NASDAQ or any other exchange on
which Buyers Common Stock may be traded.
9.9 Other Matters. On the Effective
Date, (a) Superior Bank will have a CAMELS rating of at
least 2 and a Compliance Rating and Community
Reinvestment Act rating of at least Satisfactory; and
(b) the results of any regulatory exam of Buyer and
Superior Bank will be reasonably satisfactory to Acquired
Corporation.
ARTICLE 10
Conditions to Obligations of Buyer
The obligations of Buyer to cause the transactions contemplated
by this Agreement to be consummated shall be subject to the
satisfaction on or before the Effective Date of all of the
following conditions except as Buyer may waive such conditions
in writing:
10.1 Representations, Warranties and
Covenants. Notwithstanding any investigation made
by or on behalf of Buyer, all representations and warranties of
Acquired Corporation contained in this Agreement shall be true
in all material respects on and as of the Effective Date as if
such representations and warranties were made on and as of
A-26
the Effective Date (and without regard to any qualifications in
such representations and warranties relating to materiality),
and Acquired Corporation shall have performed in all material
respects all agreements and covenants required by this Agreement
to be performed by it on or prior to the Effective Date.
10.2 Adverse Changes. There shall
have been no changes after the date of the most recent balance
sheet provided under Section 5.4(a)(i) hereof in the
results of operations (as compared with the corresponding period
of the prior fiscal year), Assets, Liabilities, financial
condition, or affairs of Acquired Corporation which constitute a
Material Adverse Effect, nor shall there have been any material
changes in the laws governing the business of Acquired
Corporation which would impair Buyers rights pursuant to
this Agreement.
10.3 Closing Certificate. In
addition to any other deliveries required to be delivered
hereunder, Buyer shall have received a certificate from Acquired
Corporation executed by the President or Vice President and from
the Secretary or Assistant Secretary of Acquired Corporation
dated as of the Closing certifying that:
(a) the Board of Directors of Acquired Corporation has duly
adopted resolutions approving the substantive terms of this
Agreement and authorizing the consummation of the transactions
contemplated by this Agreement and such resolutions have not
been amended or modified and remain in full force and effect;
(b) the shareholders of Acquired Corporation have duly
adopted resolutions approving the substantive terms of the
Merger and the transactions contemplated thereby and such
resolutions have not been amended or modified and remain in full
force and effect;
(c) each person executing this Agreement on behalf of
Acquired Corporation is an officer of Acquired Corporation
holding the office or offices specified therein and the
signature of each person set forth on such certificate is his or
her genuine signature;
(d) the articles of incorporation and bylaws of Acquired
Corporation and the Bank referenced in Section 5.8 hereof
remain in full force and effect and have not been amended or
modified since the date hereof;
(e) to such persons knowledge, the Acquired
Corporation Proxy Statement delivered to Acquired
Corporations shareholders, or any amendments or revisions
thereto so delivered, as of the date thereof, did not contain or
incorporate by reference any untrue statement of a material fact
or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in
light of the circumstances under which they were made (it being
understood that such persons need not express a statement as to
information concerning or provided by Buyer for inclusion in
such Acquired Corporation Proxy Statement); and
(f) the conditions set forth in Article 8 and this
Article 10 have been satisfied insofar as they relate to
Acquired Corporation.
10.4 Opinion of Counsel. Buyer
shall have received an opinion of Coleman, Talley, Newbern,
Kurrie, Preston & Holland, LLP, counsel to Acquired
Corporation, dated as of the Closing, as set forth in
Exhibit 10.4 hereto. Such counsel may rely on
representations and certificates of officers and directors of
Acquired Corporation and certificates of public officials.
The opinion of counsel to Acquired Corporation shall also be
subject to reasonable and customary qualifications.
10.5 Controlling
Shareholders. Acquired Corporation shall use its
reasonable best efforts to cause each director, executive
officer and other person who is an affiliate of
Acquired Corporation (for purposes of Rule 145 under the
1933 Act) to deliver to Buyer as soon as practicable after
the date hereof, but in no event after the date of the Acquired
Corporations Stockholders Meeting, a written agreement (in
form and substance as set forth on Exhibit 10.5 hereto),
providing that such person will not sell, pledge, transfer or
otherwise dispose of the shares of the shares of Buyers
Common Stock to be received by such affiliate upon
the Effective Date, except in compliance with the applicable
provisions of the 1933 Act, SEC Rule 145(d) and other
rules and regulations of the SEC as may be applicable. Acquired
Corporation acknowledges that the certificates of Buyers
Common Stock issued to such affiliates of Acquired
Corporation will bear an appropriate legend reflecting the
agreement described above.
A-27
10.6 Support for Legal
Opinions. There shall have been furnished to
counsel for Buyer delivering the opinions under 8.5 and
Section 10.4 certified copies of such corporate records of
Acquired Corporation and copies of such other documents as such
counsel may reasonably have requested for such purpose.
10.7 [Reserved]
10.8 Material Events. There shall
have been no determination by the board of directors of Buyer
that the transactions contemplated by this Agreement have become
impractical because of any state of war, declaration of a
banking moratorium in the United States or general suspension of
trading on the NASDAQ or any exchange on which Buyers
Common Stock may be traded.
10.9 Fairness Opinion. Buyer shall
have received prior to the mailing, but no earlier than five
(5) business days prior to the mailing, of the Buyer Proxy
Statement from Sandler ONeill & Partners, L.P. a
letter (acceptable in form to Buyer) setting forth its opinion
(or reconfirming any earlier opinion thereof) that the Exchange
Ratio is fair to the stockholders of Buyer from a financial
point of view, and such opinion shall not have been withdrawn
prior to or as of the Effective Date.
10.10 Other Matters. On the
Effective Date, (a) the Bank will have a CAMELS rating of
at least 2 and a Compliance Rating and Community
Reinvestment Act rating of at least Satisfactory;
(b) the results of any regulatory exam of any Acquired
Corporation Company will be reasonably satisfactory to Buyer;
(c) each of the executive officers and directors of each
Acquired Corporation Company will have delivered a letter to
Buyer to the effect that such person is not aware of any claims
he or she might have against Buyer other than routine
compensation, benefits and the like as an employee, or ordinary
rights as a customer; (d) Acquired Corporation shall have
taken all actions deemed reasonably necessary by Buyer in order
to effect the cancellation and other transactions with respect
to the Acquired Corporation Options contemplated by
Section 3.1(b) hereof; and (e) Acquired Corporation
shall have complied, to the reasonable satisfaction of Buyer,
with respect to any applicable reporting obligations to any
Agency prior to the Effective Date, or shall have obtained all
necessary Consents from any applicable Agency (or waivers, if
applicable) in such respect.
ARTICLE 11
Termination of Representations and Warranties
All representations and warranties provided in Articles 4
and 5 of this Agreement or in any closing certificate pursuant
to Articles 9 and 10 shall terminate and be extinguished at
and shall not survive the Effective Date. All covenants,
agreements and undertakings required by this Agreement to be
performed by any Party hereto following the Effective Date shall
survive such Effective Date and be binding upon such Party. If
the Merger is not consummated, all representations, warranties,
obligations, covenants, or agreements hereunder or in any
certificate delivered hereunder relating to the transaction
which is not consummated shall be deemed to be terminated or
extinguished, except that the last sentence of Section 7.4,
and Sections 7.2, 6.2(c)(ii), 13.3, Article 11,
Article 12, Article 15 and any applicable definitions
of Article 14, shall survive. Items disclosed in the
Schedules to a Disclosure Supplement attached hereto (including
any exhibits to such Schedules) are incorporated into this
Agreement and form a part of the representations, warranties,
covenants or agreements to which they relate.
ARTICLE 12
Notices
All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if
delivered by hand, by facsimile transmission, by registered or
certified mail, postage pre-paid, or by courier or overnight
carrier, to the persons at the addresses set forth below (or at
such other address as may be provided hereunder), and shall be
deemed to have been delivered as of the date so received:
(a) If to Acquired Corporation to: Gerald K. Archibald,
Chairman and Chief Executive Officer, Kensington Bankshares,
Inc., 13246 North Dale Mabry Highway, Tampa, FL 33264, facsimile
813-961-0444, with copies to Stanley H. Pollock, Coleman,
Talley, Newbern, Kurrie, Preston & Holland, LLP, 7000
Central Parkway, N.E.,
A-28
Suite 1150, Atlanta, GA
30328-4579,
facsimile, 770-698-9729, or as may otherwise be specified by
Acquired Corporation in writing to Buyer.
(b) If to Buyer, to Marvin Scott, President, 17 North
20th Street, Birmingham, AL 35203, facsimile 205-327-3611,
with copies to Stephen A. Yoder, Balch & Bingham LLP,
1901 Sixth Avenue North, Birmingham, AL 35203, facsimile
205-488-5645, or as may otherwise be specified in writing by
Buyer to Acquired Corporation.
ARTICLE 13
Amendment or Termination
13.1 Amendment. This Agreement may
be amended by the mutual consent of Buyer and Acquired
Corporation before or after approval of the transactions
contemplated herein by the shareholders of Acquired Corporation.
13.2 Termination. This Agreement
may be terminated at any time prior to or on the Effective Date
whether before or after action thereon by the shareholders of
Acquired Corporation, as follows:
(a) by the mutual consent of the respective boards of
directors of Acquired Corporation and Buyer;
(b) by the board of directors of either Party (provided
that the terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained
in this Agreement) in the event of a material breach by the
other Party of any representation or warranty contained in this
Agreement (determined without regard to any qualifications
regarding materiality which may be contained in such
representation or warranty) which cannot be or has not been
cured within thirty (30) days after the giving of written
notice to the breaching Party of such breach and which breach
would provide the non-breaching Party the ability, to refuse to
consummate the Merger under the standard set forth in
Section 10.1 of this Agreement in the case of Buyer and
Section 9.1 of this Agreement in the case of Acquired
Corporation;
(c) by the board of directors of either Party (provided
that the terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained
in this Agreement) in the event of a material breach by the
other Party of any covenant or agreement contained in this
Agreement which cannot be or has not been cured within thirty
(30) days after the giving of written notice to the
breaching Party of such breach, or if any of the conditions to
the obligations of such Party contained in this Agreement in
Article 9 as to Acquired Corporation or Article 10 as
to Buyer shall not have been satisfied in full;
(d) by the board of directors of either Buyer or Acquired
Corporation if all transactions contemplated by this Agreement
shall not have been consummated on or prior to December 31,
2006, if the failure to consummate the transactions provided for
in this Agreement on or before such date is not caused by any
breach of this Agreement by the Party electing to terminate
pursuant to this Section 13.2(d);
(e) by Acquired Corporation, if its board of directors so
determines by a majority vote of the members of its entire
board, at any time during the five-business-day period
commencing on the Determination Date, such termination to be
effective on the 30th day following such Determination
Date, if on the Determination Date, the Determination Date Buyer
Common Stock Value is less than $10.50; subject, however, to the
next three sentences. If Acquired Corporation elects to exercise
its termination right pursuant to this Section 13.2(e), it
shall give prompt written notice thereof to Buyer. During the
five-business-day period commencing with its receipt of such
notice, Buyer shall have the option of paying additional
consideration for the Merger in the form of Buyers Common
Stock, cash or a combination of Buyers Common Stock and
cash, so that the aggregate consideration paid by Buyer per
share of Acquired Corporation Stock for the Merger shall be
valued at $10.50. If within such five-business-day period, Buyer
delivers written notice to Acquired Corporation that it intends
to proceed with the Merger by paying such additional
consideration, as contemplated by the previous sentence, then no
termination shall have occurred pursuant to this
Section 13.2(e) and this Agreement shall remain in full
force and effect in accordance with its terms (except that the
consideration for the Merger shall have been so modified
A-29
For purposes of Section 13.2(e), the following terms shall
have the meanings assigned below:
Determination Date shall mean the first date on
which all Orders, Consents and approvals (and waivers, if
applicable) necessary for consummation of the Merger and the
transactions contemplated by this Agreement have been received
as provided in Section 8.2(a) hereof.
Determination Date Buyer Common Stock Value shall
mean the average of the daily closing sales prices of a share of
Buyers Common Stock as reported on the NASDAQ for the ten
consecutive trading days immediately preceding the Determination
Date.
In the event that prior to the Determination Date, Buyers
Common Stock shall be changed into a different number of shares
or a different class of shares by reason of any recapitalization
or reclassification, stock dividend, stock split, or reverse
stock split of Buyers Common Stock between the date of
this Agreement and the Determination Date, the prices for the
Buyers Common Stock shall be appropriately adjusted for
purposes of applying this Section 13.2(e) with respect to
the change in the per share market value of Buyers Common
Stock as a result thereof.
This Section 13.2(e) shall not apply to the consideration
received by holders of Acquired Corporation Options provided in
Section 3.1(b) hereof.
(f) by Acquired Corporation pursuant to
Section 6.2(c)(ii) of this Agreement.
(g) by Buyer, if the number of shares as to which
stockholders of Acquired Corporation have exercised dissenters
rights of appraisal under Section 3.6 hereof exceeds 10% of
the outstanding shares of Acquired Corporation.
13.3 Damages. In the event of
termination pursuant to Section 13.2, this Agreement shall
become void and have no effect, except as provided in
Article 11, and except that Acquired Corporation and Buyer
shall be liable for damages for any willful breach of warranty,
representation, covenant or other agreement contained in this
Agreement.
ARTICLE 14
Definitions
(a) The following terms, which are capitalized in this
Agreement, shall have the meanings set forth below for the
purpose of this Agreement:
|
|
|
Acquired Corporation |
|
Kensington Bankshares, Inc., a Florida corporation. |
|
Acquired Corporation Company |
|
Acquired Corporation, the Bank, any Subsidiary of Acquired
Corporation or the Bank, or any person or entity acquired as a
Subsidiary of Acquired Corporation or the Bank in the future and
owned by Acquired Corporation or the Bank at the Effective Date. |
|
Acquired Corporation Options |
|
Options respecting the issuance of a maximum of
328,750 shares of Acquired Corporation common stock
pursuant to Acquired Corporations stock option plans. |
|
Acquired Corporation Stock |
|
Shares of common stock, par value $.01 per share, of
Acquired Corporation. |
|
Acquired Corporation Proxy Statement |
|
The proxy statement used by Acquired Corporation to solicit the
approval of its stockholders of the transactions contemplated by
this Agreement, which shall include the prospectus of Buyer
relating to the issuance of the Buyers Common Stock to the
shareholders of Acquired Corporation. |
|
Acquisition Proposal |
|
Any tender offer or exchange offer or any proposal for a merger,
acquisition of all or substantially all of the stock or assets
of, or other |
A-30
|
|
|
|
|
business combination involving Acquired Corporation or any other
Acquired Corporation Company or the acquisition of a substantial
equity interest in, or a substantial portion of the assets of,
Acquired Corporation or any other Acquired Corporation Company. |
|
Agencies |
|
Shall mean, collectively, the Federal Trade Commission, the
United States Department of Justice, the Board of the Governors
of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, all state
regulatory agencies having jurisdiction over the Parties and
their respective Subsidiaries, HUD, the VA, the FHA, the GNMA,
the FNMA, the FHLMC, the NASDAQ, and the SEC. |
|
Agreement |
|
This Agreement and Plan of Merger (including the exhibits
hereto, which are hereby incorporated by reference herein and
made a part hereof, and may be referred to in this Agreement an
any other related instrument or document without being attached
hereto) and the Schedules (including the exhibits thereto) to a
Disclosure Supplement delivered pursuant hereto and incorporated
herein by reference. |
|
Assets |
|
With respect to any Person shall mean all of the assets,
properties, businesses and rights of such Person of every kind,
nature, character and description, whether real, personal or
mixed, tangible or intangible, accrued or contingent, or
otherwise relating to or utilized in such Persons
business, directly or indirectly, in whole or in part, whether
or not carried on the books and records of such Person, and
whether or not owned in the name of such Person or any Affiliate
of such Person and wherever located. |
|
Bank |
|
First Kensington Bank, a Florida state bank. |
|
Buyer |
|
The Banc Corporation, a Delaware corporation with its principal
offices in Birmingham, Alabama. |
|
Buyer Proxy Statement |
|
The proxy statement used by Buyer to solicit the approval of its
stockholders of the transactions contemplated by this Agreement,
which shall include the prospectus of Buyer relating to the
issuance of the Buyers Common Stock to the shareholders of
Acquired Corporation. |
|
Buyers Common Stock |
|
Buyers Common Stock authorized and defined in the
certificate of incorporation of Buyer, as amended. |
|
Closing |
|
The submission of the certificates of officers, legal opinions
and other actions required to be taken in order to consummate
the Merger in accordance with this Agreement. |
|
Code |
|
The Internal Revenue Code of 1986, as amended, and the
regulations thereunder. |
|
Consent |
|
Any consent, approval, authorization, clearance, exemption,
waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit. |
|
Contract |
|
Any written or oral agreement, arrangement, authorization,
commitment, contract, indenture, instrument, lease, obligation,
plan, practice, restriction, understanding or undertaking of any
kind or character, or |
A-31
|
|
|
|
|
other document to which any Person is a party or that is binding
on any Person or its capital stock, Assets or business. |
|
Default |
|
(i) Any breach or violation of or default under any
Contract, Order or Permit, (ii) any occurrence of any event
that with the passage of time or the giving of notice or both
would constitute a breach or violation of or default under any
Contract, Order or Permit, or (iii) any occurrence of any
event that with or without the passage of time or the giving of
notice would give rise to a right to terminate or revoke, change
the current terms of, or renegotiate, or to accelerate,
increase, or impose any Liability under, any Contract Order or
Permit. |
|
DGCL |
|
The Delaware General Corporation Law, as amended. |
|
Disclosure Supplement |
|
The disclosure supplement delivered by Acquired Corporation to
Buyer or by Buyer to Acquired Corporation, as the case may be,
concurrently with the execution and delivery of this Agreement.
Each such Disclosure Supplement is hereby incorporated by
reference herein and made a part hereof, and may be referred to
in this Agreement and any other related instrument or document
without being attached hereto. |
|
Effective Date |
|
The date and time at which the Merger becomes effective as
defined in Section 2.7 hereof. |
|
Environmental Laws |
|
The laws, regulations and governmental requirements referred to
in Section 5.23 hereof. |
|
ERISA |
|
The Employee Retirement Income Security Act of 1974, as amended. |
|
Exchange Ratio |
|
1.60 to 1.0, as provided in Section 3.1(a). |
|
FBCA |
|
The Florida Business Corporation Act, as amended. |
|
FDIC Act |
|
The Federal Deposit Insurance Act, as amended. |
|
GAAP |
|
Generally accepted accounting principles applicable to banks and
bank holding companies consistently applied during the periods
involved. |
|
Knowledge |
|
The actual knowledge of the Chief Executive Officer, Chief
Financial Officer, Chief Accounting Officer, Chief Credit
Officer or any Senior or Executive Vice President of Buyer, in
the case of Knowledge of Buyer, or of such executive officers
with comparable responsibility of Acquired Corporation and the
Bank, in the case of knowledge of Acquired Corporation. |
|
Law |
|
Any code, law, ordinance, regulation, reporting or licensing
requirement, rule, or statute applicable to a Person or its
Assets, Liabilities or business, including, without limitation,
those promulgated, interpreted or enforced by any Agency. |
|
Liability |
|
Any direct or indirect, primary or secondary, liability,
indebtedness, obligation, penalty, cost or expense (including,
without limitation, costs of investigation, collection and
defense), deficiency, guaranty or endorsement of or by any
Person (other than endorsements of notes, bills, checks, and
drafts presented for collection or deposit in the ordinary
course of business) of any type, whether accrued, absolute or |
A-32
|
|
|
|
|
contingent, liquidated or unliquidated, matured or unmatured, or
otherwise. |
|
Lien |
|
Any conditional sale agreement, defect of title, easement,
encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest,
title retention or other security arrangement, or any adverse
right or interest, charge, or claim of any nature whatsoever of,
on, or with respect to any property or property interest, other
than (i) Liens for current property Taxes not yet due and
payable, (ii) for depository institution Subsidiaries of a
Party, pledges to secure deposits and other Liens incurred in
the ordinary course of the banking business, (iii) Liens in
the form of easements and restrictive covenants on real property
which do not materially adversely affect the use of such
property by the current owner thereof, and (iv) Liens which
are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on a Party. |
|
Litigation |
|
Any action, arbitration, complaint, criminal prosecution,
governmental or other examination or investigation, hearing,
inquiry, administrative or other proceeding relating to or
affecting a Party, its business, its Assets (including Contracts
related to it), or the transactions contemplated by this
Agreement relating to or affecting a Party, its business, its
Assets (including Contracts related to it), or the transactions
contemplated by this Agreement; provided that such term shall
not include regular, periodic examinations of depository
institutions and their affiliates by any Agency). |
|
Loan Property |
|
Any property owned by the Party in question or by any of its
Subsidiaries or in which such Party or Subsidiary holds a
security interest, and, where required by the context, includes
the owner or operator of such property, but only with respect to
such property. |
|
Loss |
|
Any and all direct or indirect payments, obligations,
recoveries, deficiencies, fines, penalties, interest,
assessments, losses, diminution in the value of Assets, damages,
punitive, exemplary or consequential damages (including, but not
limited to, lost income and profits and interruptions of
business), liabilities, costs, expenses (including without
limitation, reasonable attorneys fees and expenses, and
consultants fees and other costs of defense or
investigation), and interest on any amount payable to a third
party as a result of the foregoing. |
|
material |
|
For purposes of this Agreement shall be determined in light of
the facts and circumstances of the matter in question; provided
that any specific monetary amount stated in this Agreement shall
determine materiality in that instance. |
|
Material Adverse Effect |
|
On a Party shall mean an event, change or occurrence which has a
material adverse impact on (i) the financial position,
Assets, business, or results of operations of such Party and its
Subsidiaries, taken as a whole, or (ii) the ability of such
Party to perform its obligations under this Agreement or to
consummate the Merger or the other transactions contemplated by
this Agreement, provided that material adverse
effect shall not be deemed to include the impact of
(w) changes in banking and similar laws of general
applicability or interpretations thereof by courts or
governmental authorities, (x) changes in generally accepted
accounting principles or regulatory accounting principles |
A-33
|
|
|
|
|
generally applicable to banks and their holding companies,
(y) actions and omissions of a Party (or any of its
Subsidiaries) taken with the prior written consent of the other
Party in contemplation of the transactions contemplated hereby,
and (z) the Merger and compliance with the provisions of
this Agreement on the operating performance of the Parties. |
|
Merger |
|
The merger of Acquired Corporation with Buyer as contemplated in
this Agreement. |
|
NASDAQ |
|
National Association of Securities Dealers Automated Quotation
System. |
|
Order |
|
Any administrative decision or award, decree, injunction,
judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court,
arbitrator, mediator, tribunal, administrative agency or Agency. |
|
Party |
|
Acquired Corporation or Buyer, and Parties shall
mean both Acquired Corporation and Buyer. |
|
Permit |
|
Any federal, state, local, and foreign governmental approval,
authorization, certificate, easement filing, franchise, license,
notice, permit, or right to which any Person is a party or that
is or may be binding upon or inure to the benefit of any Person
or its securities, Assets or business. |
|
Person |
|
A natural person or any legal, commercial or governmental
entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited
liability company, trust, business association, group acting in
concert, or any person acting in a representative capacity. |
|
Registration Statement |
|
The registration statement on
Form S-4,
or such other appropriate form, to be filed with the SEC by the
Buyer, and which has been agreed to by Acquired Corporation, to
register the shares of Buyers Common Stock offered to
stockholders of the Acquired Corporation pursuant to this
Agreement, including the Buyer Proxy Statement and the Acquired
Corporation Proxy Statement. |
|
Resulting Corporation |
|
Buyer, as the surviving corporation resulting from the Merger. |
|
SEC |
|
United States Securities and Exchange Commission. |
|
SEC Reports |
|
The forms, reports and documents filed by Buyer as described in
Section 4.14. |
|
Stockholders Meetings |
|
The special meetings of stockholders of Acquired Corporation and
of Buyer called to approve the transactions contemplated by this
Agreement. |
|
Subsidiaries |
|
All those corporations, banks, associations, or other entities
of which the entity in question owns or controls 5% or more of
the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which 5% or more of the
outstanding equity securities is owned directly or indirectly by
its parent; provided, however, there shall not be included any
such entity acquired through foreclosure or any such entity the
equity securities of which are owned or controlled in a
fiduciary capacity. |
A-34
|
|
|
Tax or Taxes |
|
Any federal, state, county, local, foreign, and other taxes,
assessments, charges, fares, and impositions, including interest
and penalties thereon or with respect thereto. |
|
1933 Act |
|
The Securities Act of 1933, as amended, and the regulations
thereunder. |
|
1934 Act |
|
The Securities Exchange Act of 1934, as amended, and the
regulations thereunder. |
ARTICLE 15
Miscellaneous
15.1 Expenses. (a) Except as
otherwise provided in this Section 15.1, each of the
Parties shall bear and pay all direct costs and expenses
incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including filing,
registration and application fees, printing fees, and fees and
expenses of its own financial or other consultants, investment
bankers, accountants, and counsel (the Transaction
Expenses), except that Buyer shall bear and pay the filing
fees payable in connection with the Registration Statement and
the Buyer Proxy Statement and printing costs incurred in
connection with the printing of the Registration Statement and
the Buyer Proxy Statement. After the Effective Date, Buyer
agrees to pay when due the amount of any unpaid Transaction
Expenses incurred by Acquired Corporation by or on its behalf
prior to the Effective Date to the extent disclosed to Buyer on
or before the Effective Date; provided that Acquired Corporation
shall use its best efforts to identify and pay all of its
Transaction Expenses on or prior to the Effective Date and
provided further that in no event shall Buyer pay more than
$10,000 in Acquired Corporations Transaction Expenses
after the Effective Date.
(b) Nothing contained in this Section 15.1 shall
constitute or shall be deemed to constitute liquidated damages
for the willful breach by a Party of the terms of this Agreement
or otherwise limit the rights of the nonbreaching Party.
15.2 Benefit and Assignment. Except
as expressly contemplated hereby, neither this Agreement nor any
of the rights, interests, or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or
otherwise) without the prior written consent of the other Party.
Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by,
the Parties and their respective successors and assigns.
15.3 Governing Law. Except to the
extent the Laws of the State of Florida apply to the Merger,
this Agreement shall be governed by, and construed in accordance
with the Laws of the State of Delaware without regard to any
conflict of Laws.
15.4 Counterparts. This Agreement
may be executed in counterparts, each of which shall be deemed
to constitute an original. Each such counterpart shall become
effective when one counterpart has been signed by each Party
thereto.
15.5 Headings. The headings of the
various articles and sections of this Agreement are for
convenience of reference only and shall not be deemed a part of
this Agreement or considered in construing the provisions
thereof.
15.6 Severability. Any term or
provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining terms and
provisions thereof or affecting the validity or enforceability
of such provision in any other jurisdiction, and if any term or
provision of this Agreement is held by any court of competent
jurisdiction to be void, voidable, invalid or unenforceable in
any given circumstance or situation, then all other terms and
provisions, being severable, shall remain in full force and
effect in such circumstance or situation and the term or
provision shall remain valid and in effect in any other
circumstances or situation.
15.7 Construction. Use of the
masculine pronoun herein shall be deemed to refer to the
feminine and neuter genders and the use of singular references
shall be deemed to include the plural and vice versa, as
A-35
appropriate. No inference in favor of or against any Party shall
be drawn from the fact that such Party or such Partys
counsel has drafted any portion of this Agreement.
15.8 Confidentiality; Return of
Information. Between the date of this Agreement
and the Effective Date, Buyer and Acquired Company will maintain
in confidence, and will cause the directors, officers,
employees, agents and advisors of Buyer and Acquired Corporation
Companies to maintain in confidence any written, oral or other
information obtained in confidence from another Person or from
an Acquired Company in connection with this Agreement or the
Merger, including any such information obtained prior to the
date of this Agreement, unless (a) such information is
already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available
through no fault of such Party, (b) the use of such
information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the Merger to be
consummated, or (c) the furnishing or use of such
information is required by legal proceedings.
In the event of termination of this Agreement prior to the
Effective Date, each Party shall return to the other, without
retaining copies thereof, all confidential or non-public
documents, work papers and other materials obtained from the
other Party in connection with the transactions contemplated in
this Agreement and shall keep such information confidential, not
disclose such information to any other person or entity, and not
use such information in connection with its business.
15.9 Equitable Remedies. The
parties hereto agree that, in the event of a breach of this
Agreement by either Party, the other Party may be without an
adequate remedy at law owing to the unique nature of the
contemplated transactions. In recognition thereof, in addition
to (and not in lieu of) any remedies at law that may be
available to the nonbreaching Party, the non-breaching Party
shall be entitled to obtain equitable relief, including the
remedies of specific performance and injunction, in the event of
a breach of this Agreement by the other Party, and no attempt on
the part of the non-breaching Party to obtain such equitable
relief shall be deemed to constitute an election of remedies by
the non-breaching Party that would preclude the non-breaching
Party from obtaining any remedies at law to which it would
otherwise be entitled.
15.10 Attorneys Fees. If any
Party hereto shall bring an action at law or in equity to
enforce its rights under this Agreement (including an action
based upon a misrepresentation or the breach of any warranty,
covenant, agreement or obligation contained herein), the
prevailing Party in such action shall be entitled to recover
from the other Party its costs and expenses incurred in
connection with such action (including fees, disbursements and
expenses of attorneys and costs of investigation).
15.11 No Waiver. No failure, delay
or omission of or by any Party in exercising any right, power or
remedy upon any breach or Default of any other Party shall
impair any such rights, powers or remedies of the Party not in
breach or Default, nor shall it be construed to be a wavier of
any such right, power or remedy, or an acquiescence in any
similar breach or Default; nor shall any waiver of any single
breach or Default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any
Party of any provisions of this Agreement must be in writing and
be executed by the Parties to this Agreement and shall be
effective only to the extent specifically set forth in such
writing.
15.12 Remedies Cumulative. All
remedies provided in this Agreement, by law or otherwise, shall
be cumulative and not alternative.
15.13 Entire Contract. This
Agreement and the documents and instruments referred to herein
constitute the entire contract between the parties to this
Agreement and supersede all other understandings with respect to
the subject matter of this Agreement.
A-36
IN WITNESS WHEREOF, Acquired Corporation and Buyer have caused
this Agreement to be signed by their respective duly authorized
officers as of the date first above written.
KENSINGTON BANKSHARES, INC
|
|
|
|
BY:
|
/s/ Gerald
K. Archibald
|
ITS: Chairman
THE BANC CORPORATION
|
|
|
|
BY:
|
/s/ C.
Stanley Bailey
|
ITS: Chief Executive Officer
A-37
Exhibit A
Form of
Lock-Up and Non-Competition Agreement
THIS LOCK-UP AND NON-COMPETITION AGREEMENT is made and
entered into as of this the 6th day of March, 2006, by and
between THE BANC CORPORATION (Buyer), a
Delaware corporation, and the undersigned officer or director
(the Kensington Official) of Kensington Bankshares,
Inc., a Florida corporation (Acquired Corporation),
or of First Kensington Bank, a Florida bank (the
Bank).
WITNESSETH
WHEREAS, Buyer and Acquired Corporation have entered into an
Agreement and Plan of Merger (the Plan of Merger),
pursuant to which the parties thereto agree that Acquired
Corporation will merge (the Merger) with and into
Buyer, and Buyer shall be the surviving entity of the Merger;
NOW, THEREFORE, in consideration of the expenses that Buyer will
incur in connection with the transactions contemplated by the
Plan of Merger, and in order to preserve the value of the
franchise to be purchased by Buyer and induce Buyer to proceed
to incur such expenses, the Kensington Official makes the
following agreements in favor of Buyer:
|
|
1.
|
Undertakings
of Kensington Official
|
1.1 The Kensington Official agrees and
undertakes to vote or cause to be voted in favor of the approval
of the Plan of Merger all shares of Acquired Corporation Stock
(as defined in the Plan of Merger), as to which he has voting
power (other than shares held in a fiduciary capacity), which
amount of shares is shown on the schedule attached hereto and
made a part hereof, at any meeting or meetings (including any
and all adjournments thereof) held on or before
December 31, 2006. The parties hereto acknowledge and agree
that nothing in this Section or this Agreement is intended to
dictate or require that the Kensington Official vote as a
director in any manner.
1.2 The Kensington Official further agrees
that he will not transfer any of the shares of Acquired
Corporation Stock over which he has dispositive power, which
number of shares is shown on the schedule attached hereto and
made a part hereof, until the vote upon the Plan of Merger by
Acquired Corporations stockholders has been taken or until
the Plan of Merger has been terminated pursuant to the
provisions thereof, except (i) for transfers by operation
of law, and (ii) for transfers in connection with which
Buyer has consented to the transfer and the transferee shall
agree in writing with Buyer to be bound by this Agreement as
fully as the undersigned.
1.3 This Section 1 shall terminate at
such time as the Plan of Merger terminates or on the Effective
Date.
|
|
2.
|
Agreement
Not to Compete
|
The Kensington Official agrees that for a period of two years
following the Effective Date (as defined in the Plan of Merger),
the Kensington Official will not serve as an officer or
director, or acquire 5% or more of the outstanding equity
securities, of any bank or savings and loan association or bank
holding company, or federal or state chartered bank, savings
bank, thrift, homestead association, savings association,
savings and loan association or cooperative bank that has its
principal business location within the Florida counties of
Hillsborough, Hernando or Pasco.
3.1 The provisions of this Agreement shall be
enforceable through an action for damages at law or a suit for
specific performance or other appropriate extraordinary relief,
the Kensington Official acknowledging that remedies at law for
breach or default might be or become inadequate.
3.2 The Kensington Official acknowledges and
agrees that this Agreement is executed in connection with the
sale of all of the business of Acquired Corporation. The
Kensington Official further acknowledges and represents
A-38
that the provisions of this Agreement will not work a hardship
on him and will not prevent him from engaging in his occupation.
3.3 To the extent permitted under applicable
law, any provision of this Agreement may be amended or modified
at any time, either before or after its approval by an agreement
in writing among the parties hereto.
3.4 This Agreement may be executed in
counterparts, each of which shall be deemed to constitute an
original. Each such counterpart shall become effective when one
counterpart has been signed by each party hereto.
3.5 This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Florida
applicable to agreements made and entirely to be performed
within such State, except as federal law may be applicable.
3.6 The Kensington Official may not assign any
of his rights or obligations under this Agreement to any other
person.
3.7 This Agreement supersedes any and all oral
or written agreements and understandings heretofore made between
the parties hereto relating to the subject matter hereof and
contains the entire agreement of the parties relating to the
subject matter hereof; provided, however, that notwithstanding
the foregoing, this Agreement does not modify or amend any stock
option agreement, employment agreement, option or similar
employee benefit agreement between any Acquired Corporation
Company and the Kensington Official. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors, heirs and
legatees.
IN WITNESS WHEREOF, the parties have signed this
Agreement effective as of the date first set forth above.
THE BANC CORPORATION
Title:
KENSINGTON OFFICIAL
SCHEDULE TO
LOCK-UP AND NON-COMPETITION AGREEMENT
Number of shares of common stock,
$ par value, of Kensington
Bankshares, Inc. owned by the Kensington
Official: shares.
A-39
Exhibit 9.4
[Letterhead of Balch & Bingham LLP]
,
2006
Kensington Bankshares, Inc.
13246 North Dale Mabry Highway
Tampa, FL 33264
Re: Merger of Kensington Bankshares with and into The Banc
Corporation
Gentlemen:
We are counsel to The Banc Corporation (The Banc
Corporation), a corporation organized and existing under
the laws of the State of Delaware, and have represented The Banc
Corporation in connection with the execution and delivery of the
Agreement and Plan of Merger, dated as of March 6, 2006
(the Agreement), by and between Kensington
Bankshares, Inc. (Kensington) and The Banc
Corporation.
This opinion is delivered pursuant to Section 9.4 of the
Agreement. Unless otherwise defined herein, capitalized terms
used in this opinion shall have the meanings set forth in the
Agreement.
In rendering this opinion, we have examined the corporate books
and records of The Banc Corporation and made such other
investigations as we have deemed necessary. We have relied upon
certificates of public officials and officers of The Banc
Corporation as to certain questions of fact.
Based upon and subject to the foregoing, we are of the opinion
that:
1. The Banc Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware with full corporate power and authority to
carry on the business in which it is engaged, as described in
the Registration Statement, and to own the properties owned by
it.
2. The execution and delivery of the Agreement and
compliance with its terms do not and will not violate or
contravene any provision of the Certificate of Incorporation or
Bylaws of The Banc Corporation or, to our knowledge, result in
any conflict with, breach of, or default or acceleration under
any mortgage, agreement, lease, indenture, or other instrument,
order, judgment or decree to which The Banc Corporation is a
party or by which The Banc Corporation is bound.
3. In accordance with the Bylaws of The Banc Corporation
and pursuant to resolutions duly adopted by its Board of
Directors and stockholders, the Agreement has been duly adopted
and approved by the Board of Directors of The Banc Corporation
and by the stockholders of The Banc Corporation.
4. The Agreement has been duly and validly executed and
delivered by The Banc Corporation. Assuming valid authorization,
execution and delivery by Kensington, the Agreement is a binding
obligation of The Banc Corporation, enforceable against The Banc
Corporation in accordance with its terms.
5. The authorized capital stock of The Banc Corporation
consists of shares of Buyers Common Stock, of which
22,221,256 shares were issued and 19,980,261 shares
were outstanding as of December 31, 2005. The shares of
Buyers Common Stock that are issued and outstanding were
not issued in violation of any statutory preemptive rights of
shareholders, were duly issued and are fully paid and
nonassessable under the DGCL. The shares of Buyers Common
Stock to be issued to the stockholders of Kensington as
contemplated by the Agreement are duly authorized, have been
registered under the 1933 Act and when properly issued and
delivered following consummation of the Merger will be validly
issued, fully paid and nonassessable.
This opinion is delivered solely for reliance by Kensington.
Sincerely,
A-40
Exhibit 10.4
[Letterhead of Coleman, Talley, Newbern, Kurrie,
Preston & Holland, LLP]
,
2006
The Banc Corporation, Inc.
17 North 20th Street
Birmingham, Alabama 35203
Re: Merger of Kensington Bankshares, Inc. with and
into The Banc Corporation
Gentlemen:
We are counsel Kensington Bankshares, Inc.
(Kensington), a corporation organized and existing
under the laws of the State of Florida, and have represented
Kensington in connection with the execution and delivery of the
Agreement and Plan of Merger, dated as of March 6, 2006
(the Agreement), by and between Kensington and The
Banc Corporation, Inc. (The Banc Corporation).
This opinion is delivered pursuant to Section 10.4 of the
Agreement. Unless otherwise defined herein, capitalized terms
used in this opinion shall have the meanings set forth in the
Agreement.
In rendering this opinion, we have examined the corporate books
and records of Kensington, and made such other investigations as
we have deemed necessary. We have relied upon certificates of
public officials and officers of Kensington as to certain
questions of fact.
Based upon and subject to the foregoing, we are of the opinion
that:
1. Kensington is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Florida with full corporate power and authority to carry on the
business in which it is engaged as described in the Registration
Statement, and to own the properties owned by it. The Bank is a
Florida state banking corporation duly organized, validly
existing and in good standing under the laws of the State of
Florida with full corporate power and authority to carry on the
business in which it is engaged as described in the Registration
Statement and to own the properties owned by it.
2. The execution and delivery of the Agreement and
compliance with its terms do not and will not violate or
contravene any provision of the Articles of Incorporation or
Bylaws of Kensington or, to our knowledge, result in any
conflict with, breach of, or default or acceleration under any
mortgage, agreement, lease, indenture, or other instrument,
order, judgment or decree to which Kensington is a party or by
which Kensington is bound.
3. In accordance with the Bylaws of Kensington and pursuant
to resolutions duly adopted by its Board of Directors and
stockholders, the Agreement has been duly adopted and approved
by the Board of Directors and stockholders of Kensington.
4. The Agreement has been duly and validly executed and
delivered by Kensington. Assuming valid authorization, execution
and delivery by The Banc Corporation, the Agreement is a binding
obligation of Kensington, enforceable against Kensington in
accordance with its terms.
5. The authorized capital stock of Kensington consists of
10,000,000 shares of Kensington Common Stock, of which
3,710,500 shares were issued and outstanding as of
December 31, 2005, The shares of Acquired Corporation Stock
that are issued and outstanding were not issued in violation of
any statutory preemptive rights of stockholders, were duly
issued and are fully paid and nonassessable under the FBCA. To
our knowledge, there are no options, subscriptions, warrants,
calls, rights or commitments obligating Kensington to issue any
equity securities or acquire any of its equity securities.
This opinion is delivered solely for reliance by The Banc
Corporation.
Yours very truly,
COLEMAN, TALLEY, NEWBERN, KURRIE,
PRESTON & HOLLAND, LLP
A-41
Exhibit 10.5
Form of Rule 145 Agreement
[ ]
The Banc Corporation
17 North 20th Street
Birmingham, Alabama 35203
Ladies and Gentlemen:
The undersigned has been advised that as of the date of this
letter the undersigned may be deemed to be an
affiliate of Kensington Bankshares, Inc., a Florida
corporation (Kensington), as the term
affiliate is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the
rules and regulations (the Rules and Regulations) of
the Securities and Exchange Commission (the
Commission) under the Securities Act of 1933, as
amended (the 1933 Act). Pursuant to the terms
of the Agreement and Plan of Merger dated as of March 6,
2006 (the Merger Agreement), executed by Kensington
and The Banc Corporation, a Delaware corporation (The Banc
Corporation), Kensington will be merged with and into The
Banc Corporation (the Merger).
As a result of the Merger, the undersigned will receive shares
of common stock, par value $.0001 per share, of The Banc
Corporation (such shares received by the undersigned as a result
of the Merger are hereinafter referred to as the The Banc
Corporation Securities) in exchange for any shares of
common stock of Kensington owned by the undersigned.
Any capitalized terms used herein shall have the meanings given
to them in the Merger Agreement unless otherwise defined herein.
The undersigned represents, warrants and covenants to The Banc
Corporation that:
(a) The undersigned shall not make any sale, transfer or
other disposition of the The Banc Corporation Securities in
violation of the Act or the Rules and Regulations. In connection
therewith, the undersigned will rely on that opinion of Haskell
Slaughter Young & Rediker, LLC, counsel to Buyer, to be
delivered pursuant to Section 9.4 of the Merger Agreement,
to the effect that, assuming the Registration Statement has
become effective, Rule 145(d)(1) under the 1933 Act
shall be applicable to any person who was an
affiliate (as defined in the 1933 Act) of
Acquired Corporation prior to the Merger and who will not be an
affiliate of Buyer following the Merger, with the
result that the holding periods of Rules 145(d)(2) and
145(d)(3) shall not be applicable to the undersigned.
(b) The undersigned has carefully read this letter and the
Merger Agreement and discussed the requirements of such
documents and other applicable limitations upon the
undersigneds ability to sell, transfer or otherwise
dispose of The Banc Corporation Securities, to the extent the
undersigned has considered necessary, with the
undersigneds counsel or counsel for Kensington.
(c) The undersigned has been advised that the issuance of
The Banc Corporation Securities to the undersigned pursuant to
the Merger has been registered with the Commission under the
1933 Act on a Registration Statement on
Form S-4.
However, the undersigned has also been advised that the
undersigned may not sell, transfer or otherwise dispose of The
Banc Corporation Securities issued to the undersigned in the
Merger unless (i) such sale, transfer or other disposition
has been registered under the 1933 Act, (ii) such
sale, transfer or other disposition is made in conformity with
the volume and other limitations of Rule 145 promulgated by
the Commission under the Act (as hereafter amended,
Rule 145), or (iii) The Banc Corporation
has received an opinion of counsel reasonably acceptable to The
Banc Corporation (or other evidence reasonably acceptable to The
Banc Corporation) that such sale, transfer or other disposition
is otherwise exempt from registration under the Act.
(d) The undersigned understands that The Banc Corporation
is under no obligation to register the sale, transfer or other
disposition of the The Banc Corporation Securities by the
undersigned or on the undersigneds
A-42
behalf under the 1933 Act or to take any other action
necessary in order to make compliance with an exemption from
such registration available.
(e) The undersigned also understands that stop transfer
instructions will be given to The Banc Corporations
transfer agent with respect to the The Banc Corporation
Securities and that there will be placed on the certificates for
the The Banc Corporation Securities issued to the undersigned,
or any substitutions therefor, a legend stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE
ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER
THE SECURITIES ACT OF 1933 APPLIES. THE SHARES REPRESENTED
BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH
THE TERMS OF AN AGREEMENT DATED AS OF MARCH 6, 2006 BETWEEN
THE REGISTERED HOLDER HEREOF AND THE BANC CORPORATION, A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF THE BANC
CORPORATION.
(f) The undersigned also understands that unless the
transfer by the undersigned of the undersigneds The Banc
Corporations Securities has been registered under the
1933 Act or is a sale made in conformity with the
provisions of Rule 145, The Banc Corporation reserves the
right to put the following legend on the certificates issued to
the undersigneds transferee:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE
ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN
ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF
THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933.
(g) It is understood and agreed that the legends set forth
in paragraphs (e) and (f) above shall be removed
by delivery of substitute certificates without such legend and
the related stop transfer instructions will be lifted forthwith,
at such time as (i) the undersigned is not an affiliate of
The Banc Corporation and a period of at least one year (as
determined in accordance with paragraph (d) of
Rule 144 under the 1933 Act) has elapsed since the date of
consummation of the Merger, and The Banc Corporation meets the
requirements of paragraph (c) of Rule 144 under
the 1933 Act, (ii) the undersigned is not, and has not
been for at least three months, an affiliate of The Banc
Corporation, and a period of at least two years (as determined
in accordance with paragraph (d) of Rule 144
under the 1933 Act) has elapsed since the date of
consummation of the Merger or (iii) The Banc Corporation
shall have received an opinion of counsel or other evidence, in
each case reasonably acceptable to The Banc Corporation, that
such legend and stop transfer instructions are not required for
purposes of the Act.
A-43
Execution of this letter should not be considered an admission
on the part of the undersigned that the undersigned is an
affiliate of Kensington as described in the first
paragraph of this letter, or as a waiver of any rights the
undersigned may have to object to any claim that the undersigned
is such an affiliate on or after the date of this letter.
Very truly yours,
[signature]
[typed or printed name]
Accepted this day
of ,
by
THE BANC CORPORATION
By: _
_
Name: _
_
Title: _
_
A-44
Appraisal
Rights under the Florida Business Corporation Act
607.1301 Appraisal
rights; definitions.
The following definitions apply to
§§ 607.1302-607.1333:
(1) Affiliate means a person that directly or
indirectly through one or more intermediaries controls, is
controlled by, or is under common control with another person or
is a senior executive thereof. For purposes of
§ 607.1302(2)(d), a person is deemed to be an
affiliate of its senior executives.
(2) Beneficial shareholder means a person who
is the beneficial owner of shares held in a voting trust or by a
nominee on the beneficial owners behalf.
(3) Corporation means the issuer of the shares
held by a shareholder demanding appraisal and, for matters
covered in § 607.1322-607.1333, includes the surviving
entity in a merger.
(4) Fair value means the value of the
corporations shares determined:
(a) Immediately before the effectuation of the corporate
action to which the shareholder objects.
(b) Using customary and current valuation concepts and
techniques generally employed for similar businesses in the
context of the transaction requiring appraisal, excluding any
appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable to the corporation
and its remaining shareholders.
(c) For a corporation with 10 or fewer shareholders,
without discounting for lack of marketability or minority status.
(5) Interest means interest from the effective
date of the corporate action until the date of payment, at the
rate of interest on judgments in this state on the effective
date of the corporate action.
(6) Preferred shares means a class or series of
shares the holders of which have preference over any other class
or series with respect to distributions.
(7) Record shareholder means the person in
whose name shares are registered in the records of the
corporation or the beneficial owner of shares to the extent of
the rights granted by a nominee certificate on file with the
corporation.
(8) Senior executive means the chief executive
officer, chief operating officer, chief financial officer, or
anyone in charge of a principal business unit or function.
(9) Shareholder means both a record shareholder
and a beneficial shareholder.
607.1302 Right
of shareholders to appraisal.
(1) A shareholder of a domestic corporation is entitled to
appraisal rights, and to obtain payment of the fair value of
that shareholders shares, in the event of any of the
following corporate actions:
(a) Consummation of a conversion of such corporation
pursuant to § 607.1112 if shareholder approval is
required for the conversion and the shareholder is entitled to
vote on the conversion under §§ 607.1103 and
607.1112(6), or the consummation of a merger to which such
corporation is a party if shareholder approval is required for
the merger under § 607.1103 and the shareholder is
entitled to vote on the merger or if such corporation is a
subsidiary and the merger is governed by § 607.1104;
(b) Consummation of a share exchange to which the
corporation is a party as the corporation whose shares will be
acquired if the shareholder is entitled to vote on the exchange,
except that appraisal rights shall not be available to any
shareholder of the corporation with respect to any class or
series of shares of the corporation that is not exchanged;
B-1
(c) Consummation of a disposition of assets pursuant to
§ 607.1202 if the shareholder is entitled to vote on
the disposition, including a sale in dissolution but not
including a sale pursuant to court order or a sale for cash
pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed to the shareholders
within 1 year after the date of sale;
(d) An amendment of the articles of incorporation with
respect to the class or series of shares which reduces the
number of shares of a class or series owned by the shareholder
to a fraction of a share if the corporation has the obligation
or right to repurchase the fractional share so created;
(e) Any other amendment to the articles of incorporation,
merger, share exchange, or disposition of assets to the extent
provided by the articles of incorporation, bylaws, or a
resolution of the board of directors, except that no bylaw or
board resolution providing for appraisal rights may be amended
or otherwise altered except by shareholder approval; or
(f) With regard to a class of shares prescribed in the
articles of incorporation prior to October 1, 2003,
including any shares within that class subsequently authorized
by amendment, any amendment of the articles of incorporation if
the shareholder is entitled to vote on the amendment and if such
amendment would adversely affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to
any of his or her shares;
2. Altering or abolishing the voting rights pertaining to
any of his or her shares, except as such rights may be affected
by the voting rights of new shares then being authorized of any
existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification
of any of his or her shares, when such exchange, cancellation,
or reclassification would alter or abolish the
shareholders voting rights or alter his or her percentage
of equity in the corporation, or effecting a reduction or
cancellation of accrued dividends or other arrearages in respect
to such shares;
4. Reducing the stated redemption price of any of the
shareholders redeemable shares, altering or abolishing any
provision relating to any sinking fund for the redemption or
purchase of any of his or her shares, or making any of his or
her shares subject to redemption when they are not otherwise
redeemable;
5. Making noncumulative, in whole or in part, dividends of
any of the shareholders preferred shares which had
theretofore been cumulative;
6. Reducing the stated dividend preference of any of the
shareholders preferred shares; or
7. Reducing any stated preferential amount payable on any
of the shareholders preferred shares upon voluntary or
involuntary liquidation.
(2) Notwithstanding subsection (1), the availability
of appraisal rights under paragraphs (1)(a), (b), (c), and
(d) shall be limited in accordance with the following
provisions:
(a) Appraisal rights shall not be available for the holders
of shares of any class or series of shares which is:
1. Listed on the New York Stock Exchange or the American
Stock Exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc.; or
2. Not so listed or designated, but has at least
2,000 shareholders and the outstanding shares of such class
or series have a market value of at least $10 million,
exclusive of the value of such shares held by its subsidiaries,
senior executives, directors, and beneficial shareholders owning
more than 10 percent of such shares.
(b) The applicability of paragraph (a) shall be
determined as of:
1. The record date fixed to determine the shareholders
entitled to receive notice of, and to vote at, the meeting of
shareholders to act upon the corporate action requiring
appraisal rights; or
B-2
2. If there will be no meeting of shareholders, the close
of business on the day on which the board of directors adopts
the resolution recommending such corporate action.
(c) Paragraph (a) shall not be applicable and
appraisal rights shall be available pursuant to
subsection (1) for the holders of any class or series of
shares who are required by the terms of the corporate action
requiring appraisal rights to accept for such shares anything
other than cash or shares of any class or any series of shares
of any corporation, or any other proprietary interest of any
other entity, that satisfies the standards set forth in
paragraph (a) at the time the corporate action becomes
effective.
(d) Paragraph (a) shall not be applicable and
appraisal rights shall be available pursuant to
subsection (1) for the holders of any class or series of
shares if:
1. Any of the shares or assets of the corporation are being
acquired or converted, whether by merger, share exchange, or
otherwise, pursuant to the corporate action by a person, or by
an affiliate of a person, who:
a. Is, or at any time in the
1-year
period immediately preceding approval by the board of directors
of the corporate action requiring appraisal rights was, the
beneficial owner of 20 percent or more of the voting power
of the corporation, excluding any shares acquired pursuant to an
offer for all shares having voting power if such offer was made
within 1 year prior to the corporate action requiring
appraisal rights for consideration of the same kind and of a
value equal to or less than that paid in connection with the
corporate action; or
b. Directly or indirectly has, or at any time in the
1-year
period immediately preceding approval by the board of directors
of the corporation of the corporate action requiring appraisal
rights had, the power, contractually or otherwise, to cause the
appointment or election of 25 percent or more of the
directors to the board of directors of the corporation; or
2. Any of the shares or assets of the corporation are being
acquired or converted, whether by merger, share exchange, or
otherwise, pursuant to such corporate action by a person, or by
an affiliate of a person, who is, or at any time in the
1-year
period immediately preceding approval by the board of directors
of the corporate action requiring appraisal rights was, a senior
executive or director of the corporation or a senior executive
of any affiliate thereof, and that senior executive or director
will receive, as a result of the corporate action, a financial
benefit not generally available to other shareholders as such,
other than:
a. Employment, consulting, retirement, or similar benefits
established separately and not as part of or in contemplation of
the corporate action;
b. Employment, consulting, retirement, or similar benefits
established in contemplation of, or as part of, the corporate
action that are not more favorable than those existing before
the corporate action or, if more favorable, that have been
approved on behalf of the corporation in the same manner as is
provided in § 607.0832; or
c. In the case of a director of the corporation who will,
in the corporate action, become a director of the acquiring
entity in the corporate action or one of its affiliates, rights
and benefits as a director that are provided on the same basis
as those afforded by the acquiring entity generally to other
directors of such entity or such affiliate.
(e) For the purposes of paragraph (d) only, the
term beneficial owner means any person who, directly
or indirectly, through any contract, arrangement, or
understanding, other than a revocable proxy, has or shares the
power to vote, or to direct the voting of, shares, provided that
a member of a national securities exchange shall not be deemed
to be a beneficial owner of securities held directly or
indirectly by it on behalf of another person solely because such
member is the recordholder of such securities if the member is
precluded by the rules of such exchange from voting without
instruction on contested matters or matters that may affect
substantially the rights or privileges of the holders of the
securities to be voted. When two or more persons agree to act
together for the purpose of voting their shares of the
corporation, each member of the group formed thereby shall be
deemed to have acquired beneficial ownership, as of the date of
such agreement, of all voting shares of the corporation
beneficially owned by any member of the group.
B-3
(3) Notwithstanding any other provision of this section,
the articles of incorporation as originally filed or any
amendment thereto may limit or eliminate appraisal rights for
any class or series of preferred shares, but any such limitation
or elimination contained in an amendment to the articles of
incorporation that limits or eliminates appraisal rights for any
of such shares that are outstanding immediately prior to the
effective date of such amendment or that the corporation is or
may be required to issue or sell thereafter pursuant to any
conversion, exchange, or other right existing immediately before
the effective date of such amendment shall not apply to any
corporate action that becomes effective within 1 year of
that date if such action would otherwise afford appraisal rights.
(4) A shareholder entitled to appraisal rights under this
chapter may not challenge a completed corporate action for which
appraisal rights are available unless such corporate action:
(a) Was not effectuated in accordance with the applicable
provisions of this section or the corporations articles of
incorporation, bylaws, or board of directors resolution
authorizing the corporate action; or
(b) Was procured as a result of fraud or material
misrepresentation.
607.1303 Assertion
of rights by nominees and beneficial
owners.
(1) A record shareholder may assert appraisal rights as to
fewer than all the shares registered in the record
shareholders name but owned by a beneficial shareholder
only if the record shareholder objects with respect to all
shares of the class or series owned by the beneficial
shareholder and notifies the corporation in writing of the name
and address of each beneficial shareholder on whose behalf
appraisal rights are being asserted. The rights of a record
shareholder who asserts appraisal rights for only part of the
shares held of record in the record shareholders name
under this subsection shall be determined as if the shares as to
which the record shareholder objects and the record
shareholders other shares were registered in the names of
different record shareholders.
(2) A beneficial shareholder may assert appraisal rights as
to shares of any class or series held on behalf of the
shareholder only if such shareholder:
(a) Submits to the corporation the record
shareholders written consent to the assertion of such
rights no later than the date referred to in
§ 607.1322(2)(b)2.
(b) Does so with respect to all shares of the class or
series that are beneficially owned by the beneficial shareholder.
607.1320 Notice
of appraisal rights.
(1) If proposed corporate action described in
§ 607.1302(1) is to be submitted to a vote at a
shareholders meeting, the meeting notice must state that
the corporation has concluded that shareholders are, are not, or
may be entitled to assert appraisal rights under this chapter.
If the corporation concludes that appraisal rights are or may be
available, a copy of
§§ 607.1301-607.1333
must accompany the meeting notice sent to those record
shareholders entitled to exercise appraisal rights.
(2) In a merger pursuant to § 607.1104, the
parent corporation must notify in writing all record
shareholders of the subsidiary who are entitled to assert
appraisal rights that the corporate action became effective.
Such notice must be sent within 10 days after the corporate
action became effective and include the materials described in
§ 607.1322.
(3) If the proposed corporate action described in
§ 607.1302(1) is to be approved other than by a
shareholders meeting, the notice referred to in
subsection (1) must be sent to all shareholders at the time
that consents are first solicited pursuant to
§ 607.0704, whether or not consents are solicited from
all shareholders, and include the materials described in
§ 607.1322.
B-4
607.1321 Notice
of intent to demand payment.
(1) If proposed corporate action requiring appraisal rights
under § 607.1302 is submitted to a vote at a
shareholders meeting, or is submitted to a shareholder
pursuant to a consent vote under § 607.0704, a
shareholder who wishes to assert appraisal rights with respect
to any class or series of shares:
(a) Must deliver to the corporation before the vote is
taken, or within 20 days after receiving the notice
pursuant to § 607.1320(3) if action is to be taken
without a shareholder meeting, written notice of the
shareholders intent to demand payment if the proposed
action is effectuated.
(b) Must not vote, or cause or permit to be voted, any
shares of such class or series in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of
subsection (1) is not entitled to payment under this
chapter.
607.1322 Appraisal
notice and form.
(1) If proposed corporate action requiring appraisal rights
under § 607.1302(1) becomes effective, the corporation
must deliver a written appraisal notice and form required by
paragraph (2)(a) to all shareholders who satisfied the
requirements of § 607.1321. In the case of a merger
under § 607.1104, the parent must deliver a written
appraisal notice and form to all record shareholders who may be
entitled to assert appraisal rights.
(2) The appraisal notice must be sent no earlier than the
date the corporate action became effective and no later than
10 days after such date and must:
(a) Supply a form that specifies the date that the
corporate action became effective and that provides for the
shareholder to state:
1. The shareholders name and address.
2. The number, classes, and series of shares as to which
the shareholder asserts appraisal rights.
3. That the shareholder did not vote for the transaction.
4. Whether the shareholder accepts the corporations
offer as stated in subparagraph (b)4.
5. If the offer is not accepted, the shareholders
estimated fair value of the shares and a demand for payment of
the shareholders estimated value plus interest.
(b) State:
1. Where the form must be sent and where certificates for
certificated shares must be deposited and the date by which
those certificates must be deposited, which date may not be
earlier than the date for receiving the required form under
subparagraph 2.
2. A date by which the corporation must receive the form,
which date may not be fewer than 40 nor more than 60 days
after the date the subsection (1) appraisal notice and form
are sent, and state that the shareholder shall have waived the
right to demand appraisal with respect to the shares unless the
form is received by the corporation by such specified date.
3. The corporations estimate of the fair value of the
shares.
4. An offer to each shareholder who is entitled to
appraisal rights to pay the corporations estimate of fair
value set forth in subparagraph 3.
5. That, if requested in writing, the corporation will
provide to the shareholder so requesting, within 10 days
after the date specified in subparagraph 2., the number of
shareholders who return the forms by the specified date and the
total number of shares owned by them.
6. The date by which the notice to withdraw under
§ 607.1323 must be received, which date must be within
20 days after the date specified in subparagraph 2.
B-5
(c) Be accompanied by:
1. Financial statements of the corporation that issued the
shares to be appraised, consisting of a balance sheet as of the
end of the fiscal year ending not more than 15 months prior
to the date of the corporations appraisal notice, an
income statement for that year, a cash flow statement for that
year, and the latest available interim financial statements, if
any.
2. A copy of
§§ 607.1301-607.1333.
607.1323 Perfection
of rights; right to withdraw.
(1) A shareholder who wishes to exercise appraisal rights
must execute and return the form received pursuant to
§ 607.1322(1) and, in the case of certificated shares,
deposit the shareholders certificates in accordance with
the terms of the notice by the date referred to in the notice
pursuant to § 607.1322(2)(b)2. Once a shareholder
deposits that shareholders certificates or, in the case of
uncertificated shares, returns the executed forms, that
shareholder loses all rights as a shareholder, unless the
shareholder withdraws pursuant to subsection (2).
(2) A shareholder who has complied with
subsection (1) may nevertheless decline to exercise
appraisal rights and withdraw from the appraisal process by so
notifying the corporation in writing by the date set forth in
the appraisal notice pursuant to § 607.1322(2)(b)6. A
shareholder who fails to so withdraw from the appraisal process
may not thereafter withdraw without the corporations
written consent.
(3) A shareholder who does not execute and return the form
and, in the case of certificated shares, deposit that
shareholders share certificates if required, each by the
date set forth in the notice described in subsection (2),
shall not be entitled to payment under this chapter.
607.1324 Shareholders
acceptance of corporations
offer.
(1) If the shareholder states on the form provided in
§ 607.1322(1) that the shareholder accepts the offer
of the corporation to pay the corporations estimated fair
value for the shares, the corporation shall make such payment to
the shareholder within 90 days after the corporations
receipt of the form from the shareholder.
(2) Upon payment of the agreed value, the shareholder shall
cease to have any interest in the shares.
607.1326 Procedure
if shareholder is dissatisfied with
offer.
(1) A shareholder who is dissatisfied with the
corporations offer as set forth pursuant to
§ 607.1322(2)(b)4. must notify the corporation on the
form provided pursuant to § 607.1322(1) of that
shareholders estimate of the fair value of the shares and
demand payment of that estimate plus interest.
(2) A shareholder who fails to notify the corporation in
writing of that shareholders demand to be paid the
shareholders stated estimate of the fair value plus
interest under subsection (1) within the timeframe set
forth in § 607.1322(2)(b)2. waives the right to demand
payment under this section and shall be entitled only to the
payment offered by the corporation pursuant to
§ 607.1322(2)(b)4.
607.1330 Court
action.
(1) If a shareholder makes demand for payment under
§ 607.1326 which remains unsettled, the corporation
shall commence a proceeding within 60 days after receiving
the payment demand and petition the court to determine the fair
value of the shares and accrued interest. If the corporation
does not commence the proceeding within the
60-day
period, any shareholder who has made a demand pursuant to
§ 607.1326 may commence the proceeding in the name of
the corporation.
(2) The proceeding shall be commenced in the appropriate
court of the county in which the corporations principal
office, or, if none, its registered office, in this state is
located. If the corporation is a foreign corporation without a
registered office in this state, the proceeding shall be
commenced in the county in this state in which the principal
office or registered office of the domestic corporation merged
with the foreign corporation was located at the time of the
transaction.
B-6
(3) All shareholders, whether or not residents of this
state, whose demands remain unsettled shall be made parties to
the proceeding as in an action against their shares. The
corporation shall serve a copy of the initial pleading in such
proceeding upon each shareholder party who is a resident of this
state in the manner provided by law for the service of a summons
and complaint and upon each nonresident shareholder party by
registered or certified mail or by publication as provided by
law.
(4) The jurisdiction of the court in which the proceeding
is commenced under subsection (2) is plenary and
exclusive. If it so elects, the court may appoint one or more
persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers shall
have the powers described in the order appointing them or in any
amendment to the order. The shareholders demanding appraisal
rights are entitled to the same discovery rights as parties in
other civil proceedings. There shall be no right to a jury trial.
(5) Each shareholder made a party to the proceeding is
entitled to judgment for the amount of the fair value of such
shareholders shares, plus interest, as found by the court.
(6) The corporation shall pay each such shareholder the
amount found to be due within 10 days after final
determination of the proceedings. Upon payment of the judgment,
the shareholder shall cease to have any interest in the shares.
607.1331 Court
costs and counsel fees.
(1) The court in an appraisal proceeding shall determine
all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court.
The court shall assess the costs against the corporation, except
that the court may assess costs against all or some of the
shareholders demanding appraisal, in amounts the court finds
equitable, to the extent the court finds such shareholders acted
arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this chapter.
(2) The court in an appraisal proceeding may also assess
the fees and expenses of counsel and experts for the respective
parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all
shareholders demanding appraisal if the court finds the
corporation did not substantially comply with
§§ 607.1320 and 607.1322; or
(b) Against either the corporation or a shareholder
demanding appraisal, in favor of any other party, if the court
finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this chapter.
(3) If the court in an appraisal proceeding finds that the
services of counsel for any shareholder were of substantial
benefit to other shareholders similarly situated, and that the
fees for those services should not be assessed against the
corporation, the court may award to such counsel reasonable fees
to be paid out of the amounts awarded the shareholders who were
benefited.
(4) To the extent the corporation fails to make a required
payment pursuant to § 607.1324, the shareholder may
sue directly for the amount owed and, to the extent successful,
shall be entitled to recover from the corporation all costs and
expenses of the suit, including counsel fees.
607.1332 Disposition
of acquired shares.
Shares acquired by a corporation pursuant to payment of the
agreed value thereof or pursuant to payment of the judgment
entered therefor, as provided in this chapter, may be held and
disposed of by such corporation as authorized but unissued
shares of the corporation, except that, in the case of a merger
or share exchange, they may be held and disposed of as the plan
of merger or share exchange otherwise provides. The shares of
the surviving corporation into which the shares of such
shareholders demanding appraisal rights would have been
converted had they assented to the merger shall have the status
of authorized but unissued shares of the surviving corporation.
B-7
607.1333 Limitation
on corporate payment.
(1) No payment shall be made to a shareholder seeking
appraisal rights if, at the time of payment, the corporation is
unable to meet the distribution standards of
§ 607.06401. In such event, the shareholder shall, at
the shareholders option:
(a) Withdraw his or her notice of intent to assert
appraisal rights, which shall in such event be deemed withdrawn
with the consent of the corporation; or
(b) Retain his or her status as a claimant against the
corporation and, if it is liquidated, be subordinated to the
rights of creditors of the corporation, but have rights superior
to the shareholders not asserting appraisal rights, and if it is
not liquidated, retain his or her right to be paid for the
shares, which right the corporation shall be obliged to satisfy
when the restrictions of this section do not apply.
(2) The shareholder shall exercise the option under
paragraph (1)(a) or paragraph (b) by written notice
filed with the corporation within 30 days after the
corporation has given written notice that the payment for shares
cannot be made because of the restrictions of this section. If
the shareholder fails to exercise the option, the shareholder
shall be deemed to have withdrawn his or her notice of intent to
assert appraisal rights.
B-8
March 6,
2006
Board of Directors
The Banc Corporation
17 North
20th
Street
Birmingham, AL 35203
Ladies and
Gentlemen:
The Banc Corporation (TBNC) and Kensington
Bankshares, Inc. (Kensington) have entered into an
Agreement and Plan of Merger, dated as of March 6, 2006
(the Agreement), pursuant to which Kensington will
be merged with and into TBNC (the Merger), with TBNC
as the surviving entity. Under the terms of the Agreement, at
the Effective Time and as a result of the Merger, each
outstanding share of Kensington common stock (the
Kensington Common Stock), other then certain shares
as specified in the Agreement, will be converted into the right
to receive 1.60 shares of TBNC common stock (the
Exchange Ratio). Cash will be paid in lieu of
fractional shares. Capitalized terms used herein without
definition shall have the meanings assigned to them in the
Agreement. The other terms and conditions of the Merger are more
fully set forth in the Agreement. You have requested our opinion
as to the fairness, from a financial point of view, of the
Exchange Ratio to TBNC.
Sandler ONeill & Partners, L.P., as part of its
investment banking business, is regularly engaged in the
valuation of financial institutions and their securities in
connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed,
among other things: (i) the Agreement; (ii) certain
publicly available financial statements and other historical
financial information of TBNC that we deemed relevant;
(iii) certain audited financial statements and other
historical financial information of Kensington that we deemed
relevant; (iv) earnings per share estimates for TBNC for
the years ending December 31, 2006 and 2007 as provided by,
and reviewed with, senior management of TBNC; (v) internal
financial projections for Kensington for the years ending
December 31, 2006 and 2007 as provided by and reviewed with
senior management of Kensington; (vi) the pro forma
financial impact of the Merger on TBNC, based on assumptions
relating to transaction expenses, purchase accounting
adjustments and cost savings determined by the senior management
of TBNC; (vii) the publicly reported historical price and
trading activity for TBNCs common stock, including a
comparison of certain financial and stock market information for
TBNC and Kensington and similar publicly available information
for certain other companies the securities of which are publicly
traded; (viii) the financial terms of certain recent
business combinations in the commercial banking industry, to the
extent publicly available; (ix) the current market
environment generally and the banking environment in particular;
and (x) such other information, financial studies, analyses
and investigations and financial, economic and market criteria
as we considered relevant. We also discussed with certain
members of senior management of TBNC, the business, financial
condition, results of operations and prospects of TBNC and held
similar discussions with certain members of senior management of
Kensington regarding the business, financial condition, results
of operations and prospects of Kensington.
In performing our review, we have relied upon the accuracy and
completeness of all of the financial and other information that
was available to us from public sources or that was provided to
us by TBNC and Kensington or their respective representatives
and have assumed such accuracy and completeness for purposes of
rendering this opinion. We have further relied on the assurances
of management of TBNC and Kensington that they are not aware of
any facts or circumstances that would make any of such
information inaccurate or misleading. We have not been asked to
and have not undertaken an independent verification of any of
such information and we do not assume any responsibility or
liability for the accuracy or completeness thereof. We did not
make an independent evaluation or appraisal of the specific
assets, the collateral securing assets or the liabilities
(contingent or otherwise) of TBNC or Kensington or any of their
subsidiaries, or the collectibility of any such assets, nor have
we been furnished with any such evaluations or appraisals. We
did not make an independent evaluation of the adequacy of the
allowance for loan losses of TBNC and Kensington nor have we
reviewed any individual credit files relating to TBNC and
Kensington. We have assumed, with your consent, that the
respective allowances for loan losses for both TBNC and
Kensington are adequate to cover such losses.
C-1
With respect to the earnings estimates for TBNC and the internal
financial projections of Kensington reviewed with the
managements of TBNC and Kensington, respectively, and used by us
in our analyses, TBNCs and Kensingtons managements
confirmed to us that they reflected the best currently available
estimates and judgments of the respective managements of the
respective future financial performances of TBNC and Kensington,
respectively, and we assumed that such performances would be
achieved. With respect to the projections of transaction
expenses, purchase accounting adjustments, cost savings and
stock repurchases determined by and reviewed with the senior
management of TBNC, management confirmed to us that they
reflected the best currently available estimates and judgments
of such management and we assumed that such performances would
be achieved. We express no opinion as to such financial
projections or the assumptions on which they are based. We have
also assumed that there has been no material change in
TBNCs or Kensingtons assets, financial condition,
results of operations, business or prospects since the date of
the most recent financial statements made available to us. We
have assumed in all respects material to our analysis that TBNC
and Kensington will remain as going concerns for all periods
relevant to our analyses, that all of the representations and
warranties contained in the Agreement and all related agreements
are true and correct, that each party to the agreements will
perform all of the covenants required to be performed by such
party under the agreements, that the conditions precedent in the
agreements are not waived and that the Merger will be a tax-free
reorganization for federal income tax purposes. Finally, with
your consent, we have relied upon the advice TBNC has received
from its legal, accounting and tax advisors as to all legal,
accounting and tax matters relating to the Merger and the other
transactions contemplated by the Agreement.
Our opinion is necessarily based on financial, economic, market
and other conditions as in effect on, and the information made
available to us as of, the date hereof. Events occurring after
the date hereof could materially affect this opinion. We have
not undertaken to update, revise, reaffirm or withdraw this
opinion or otherwise comment upon events occurring after the
date hereof. We are expressing no opinion herein as to what the
value of TBNCs common stock will be when issued to
Kensingtons shareholders pursuant to the Agreement or the
prices at which TBNCs common stock may trade at any time.
We have acted as TBNCs financial advisor in connection
with the Merger and will receive a fee for our services, a
substantial portion of which is contingent upon consummation of
the Merger. TBNC has also agreed to indemnify us against certain
liabilities arising out of our engagement. As you are aware, we
have provided certain other investment banking services to TBNC
in the past and have received compensation for such services.
In the ordinary course of our business as a broker-dealer, we
may purchase securities from and sell securities to TBNC and
Kensington and their affiliates. We may also actively trade the
equity or debt securities of TBNC and Kensington or their
affiliates for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short
position in such securities.
Our opinion is directed to the Board of Directors of TBNC in
connection with its consideration of the Merger and is directed
only to the fairness, from a financial point of view, of the
Exchange Ratio to TBNC and does not address the underlying
business decision of TBNC to engage in the Merger, the relative
merits of the Merger as compared to any other alternative
business strategies that might exist for TBNC or the effect of
any other transaction in which TBNC might engage. Our opinion is
not to be quoted or referred to, in whole or in part, in a
registration statement, prospectus, proxy statement or in any
other document, nor shall this opinion be used for any other
purposes, without our prior written consent.
Based upon and subject to the foregoing, it is our opinion, as
of the date hereof, that the Exchange Ratio is fair to TBNC from
a financial point of view.
Very truly yours,
C-2
ANNEX D
March 3, 2006
Board of Directors
Kensington Bankshares, Inc.
13246 North Dale Mabry Highway
Tampa, Florida 33624
Members of the Board:
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of the outstanding
shares of common stock of Kensington Bankshares, Inc., a Florida
corporation, (KBI) of the Agreement and Plan of
Merger, as defined below, in the proposed merger between KBI and
The Banc Corporation, Inc., a Delaware corporation, Birmingham,
Alabama (the Company).
Pursuant to the Agreement and Plan of Merger dated on or about
March 6, 2006 (the Merger Agreement), the
Company has agreed to exchange 1.6 shares of common
stock of the Company for all of outstanding shares of common
stock of KBI (the Exchange Ratio). The outstanding
options to purchase KBI common stock will be exchanged for
shares of Company common stock determined by subtracting the
exercise price for the options from $18.2880 and dividing the
result by $11.43. The approximate value of stock to be received
for the outstanding shares and options of KBI is $71,192,529.
Collectively, the exchange of shares for the outstanding shares
of KBI and for the outstanding options of KBI is the
Merger Consideration. The value received and the
composition of the Merger Consideration may be adjusted pursuant
to the terms of the Merger Agreement.
Pursuant to the Merger Agreement, KBI will be merged with and
into the Company.
Alex Sheshunoff & Co. Investment Banking, LP
(Sheshunoff) is regularly engaged in the valuation
of securities in connection with mergers and acquisitions and
valuations for estate, corporate and other purposes. We are
experienced in these activities and have performed assignments
similar in nature to that requested by KBI on numerous occasions.
In connection with our opinion, we, among other things:
1. Reviewed a draft of the Merger Agreement;
2. Reviewed KBIs audited financial statements for the
period ending December 31, 2005;
3. Evaluated KBIs subsidiary banks general
ledger statements as of December 31, 2005;
4. Evaluated KBIs consolidated results based upon a
review of its regulatory reports for the five-year period ending
December 31, 2005;
5. Reviewed publicly available financial statements and
other business and financial information of the Company;
6. Reviewed certain internal business and other operating
data of the Company;
7. Conducted conversations regarding recent and projected
financial performance of KBI and the Company with respective
members of executive management;
8. Compared KBIs recent operating results with those
of certain other banks in Florida that have recently been
acquired;
Kensington Bankshares, Inc.
March 3, 2006
Page 3
9. Compared the pricing multiples for KBI in the Merger to
those of certain other banks in Florida that have recently been
acquired;
10. Compared the pricing multiples for KBI in the Merger to
those of certain other banks in the United States that have
recently been acquired;
11. Analyzed the present value of the after-tax cash flows
KBI could produce through the year 2010 based on projections
provided by KBIs management;
12. Reviewed the potential pro forma impact of the Merger
on the combined companys results and certain financial
performance measures of KBI and the Company;
13. Reviewed the historical stock price data and trading
volume of the Companys common stock and the lack of an
active market for the common stock of KBI;
14. Reviewed previous expressions of interest received by
KBI from potential acquirers;
15. Held various
on-site
meetings with KBIs management to discuss the potential
sale of KBI; and
16. Performed such other analyses, as we deemed appropriate.
We assumed and relied upon, without independent verification,
the accuracy and completeness of the information provided to us
by KBI for the purposes of this opinion. We have assumed that
any projections provided by KBI were reasonably prepared on a
basis reflecting the best currently available estimates and
judgments of KBI management. In addition, where appropriate, we
relied upon publicly available information that we believe to be
reliable, accurate, and complete; however, we cannot guarantee
the reliability, accuracy, or completeness of any such publicly
available information.
We did not make an independent evaluation of the assets or
liabilities of KBI or the Company, nor were we furnished with
any such appraisals. We are not experts in the evaluation of
loan portfolios for the purposes of assessing the adequacy of
the allowance for loan and lease losses and assumed that such
allowances for KBI and the Company, respectively, are, in the
aggregate, adequate to cover such losses.
We assumed that all required regulatory and third-party
approvals will be received in a timely fashion and without any
conditions or requirements that could adversely affect KBI, the
Company, the Merger or the Companys operations following
the Merger. We have also assumed that the executed Merger
Agreement will conform in all material respects to the latest
draft of the Merger Agreement that we have been provided.
Our opinion is necessarily based on economic, market, and other
conditions as they existed on the date hereof, and the
information made available to us as the date hereof. Events
occurring after the date hereof could materially affect the
assumptions used in preparing this opinion and the resulting
conclusion. KBIs management has informed Sheshunoff that
it knows of no additional information that would have a material
effect on our opinion. Other than for the proxy statement and at
the Effective Date as defined in the Merger Agreement, we are
not obligated to update, revise, or affirm this opinion.
Our opinion is not an appraisal or opinion of value but is
limited to the fairness of the Exchange Ratio and the Merger
Consideration, from a financial point of view, to all holders of
KBI common stock. We express no opinion on the underlying
decision by KBI to engage in the Merger or the relative merits
of the Merger as compared to the other transactions or business
strategies that might be available to KBI. Moreover, this letter
and the opinion expressed herein do not constitute a
recommendation to any stockholder as to any approval of the
Merger or the Merger Agreement.
It is understood that this opinion is for the information of the
Board of Directors of KBI and may not be used for any other
purpose without our prior written consent, except as may be
required by law or by a court of competent jurisdiction and
except that this opinion may be included in its entirety in any
filing, if required, with respect to the Merger with the
Securities and Exchange Commission or proxy statement sent to
KBI shareholders.
Kensington Bankshares, Inc.
March 3, 2006
Page 4
Based on the foregoing and such other matters we have deemed
relevant, it is our opinion, as of the date hereof, that the
Exchange Ratio and the Merger Consideration to be received by
the KBI shareholders pursuant to the Merger is fair, from a
financial point of view.
Very truly yours,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING, LP
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification
of directors and officers.
Superior Bancorp Section 102(b)(7) of Delaware General
Corporation Law grants corporations the right to limit or
eliminate the personal liability of their directors in certain
circumstances in accordance with provisions therein set forth.
Superior Bancorps restated certificate of incorporation
contains a provision eliminating or limiting director liability
to Superior Bancorp and its stockholders for monetary damages
arising from acts or omissions in the directors capacity
as a director. The provision does not, however, eliminate or
limit the personal liability of a director
|
|
|
|
|
for any breach of such directors duty of loyalty to
Superior Bancorp or its stockholders.
|
|
|
|
for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law.
|
|
|
|
under the Delaware statutory provision making directors
personally liable, under a negligence standard, for unlawful
dividends or unlawful stock purchases or redemptions.
|
|
|
|
for any transaction from which the director derived an improper
personal benefit. This provision offers persons who serve on the
board of directors of Superior Bancorp protection against awards
of monetary damages resulting from breaches of their duty of
care (except as indicated above). As a result of this provision,
the ability of Superior Bancorp or a stockholder thereof to
successfully prosecute an action against a director for a breach
of his duty of care is limited. However, the provision does not
affect the availability of equitable remedies such as an
injunction or rescission based upon a directors breach of
his duty of care. The SEC has taken the position that the
provision will have no effect on claims arising under the
federal securities laws.
|
Section 145 of the Delaware General Corporation Law grants
corporations the right to indemnify their directors, officers,
employees and agents in accordance with the provisions therein
set forth. Superior Bancorps bylaws provide for mandatory
indemnification rights, subject to limited exceptions, to any
director, officer, employee, or agent of Superior Bancorp who,
by reason of the fact that he or she is a director, officer,
employee, or agent of Superior Bancorp, is involved in a legal
proceeding of any nature. Such indemnification rights include
reimbursement for expenses incurred by such director, officer,
employee, or agent in advance of the final disposition of such
proceeding in accordance with the applicable provisions of
Delaware law.
Superior Bancorp has entered into agreements with all of its
directors and its executive officers pursuant to which Superior
Bancorp has agreed to indemnify such directors and executive
officers against liability incurred by them by reason of their
services of a director to the fullest extent allowable under
applicable law.
See Item 22 of this Registration Statement on
Form S-4.
Exhibits:
|
|
|
|
|
|
|
|
(2)
|
-1
|
|
|
|
Agreement and Plan of Merger
between Kensington Bankshares, Inc. and The Banc Corporation,
dated March 6, 2006, filed as Exhibit 10 to The Banc
Corporations Current Report on
Form 8-K
dated March 6, 2006, is hereby incorporated herein by
reference.
|
|
(2)
|
-2
|
|
|
|
Agreement and Plan of Merger
between Community Bancshares and The Banc Corporation dated
April 29, 2006, field as Exhibit 10 to The Banc
Corporations Current Report on
Form 8-K
dated April 29, 2006, is hereby incorporated herein by
reference.
|
|
(3)
|
-l
|
|
|
|
Restated Certificate of
Incorporation of Superior Bancorp, filed as Exhibit 3 to
the Corporations Current Report on
Form 8-K
dated May 18, 2006, is hereby incorporated herein by
reference.
|
|
(3)
|
-2
|
|
|
|
Bylaws of The Banc Corporation,
filed as Exhibit (3)-2 to The Banc Corporations
Registration Statement on
Form S-4
(Registration
No. 333-58493),
is hereby incorporated herein by reference.
|
II-1
|
|
|
|
|
|
|
|
(4)
|
-1
|
|
|
|
Amended and Restated Declaration
of Trust, dated as of September 7, 2000, by and among State
Street Bank and Trust Company of Connecticut, National
Association, as Institutional Trustee, The Banc Corporation, as
Sponsor, David R. Carter and James A. Taylor, Jr., as
Administrators, filed as Exhibit (4)-1 to The Banc
Corporations Annual Report on Form
10-K for the
year ended December 31, 2000, is hereby incorporated herein
by reference.
|
|
(4)
|
-2
|
|
|
|
Guarantee Agreement, dated as of
September 7, 2000, by and between The Banc Corporation and
State Street Bank and Trust Company of Connecticut, National
Association, filed as Exhibit(4)-2 to The Banc
Corporations Annual Report on
Form 10-K
for the year ended December 31, 2000, is hereby
incorporated herein by reference.
|
|
(4)
|
-3
|
|
|
|
Indenture, dated as of
September 7, 2000, by and among The Banc Corporation as
issuer and State Street Bank and Trust Company of Connecticut,
National Association, as Trustee, filed as Exhibit(4)-3 to The
Banc Corporations Annual Report on
Form 10-K
for the year ended December 31, 2000, is hereby
incorporated herein by reference.
|
|
(4)
|
-4
|
|
|
|
Placement Agreement, dated as of
August 31, 2000, by and among The Banc Corporation, TBC
Capital Statutory Trust II, Keefe Bruyette &
Woods, Inc., and First Tennessee Capital Markets, filed as
Exhibit (4)-4 to The Banc Corporations Annual Report
on
Form 10-K
for the year ended December 31, 2000, is hereby
incorporated herein by reference.
|
|
(4)
|
-5
|
|
|
|
Amended and Restated Declaration
of Trust, dated as of July 16, 2001, by and among The Banc
Corporation, The Bank of New York, David R. Carter, and James A.
Taylor, Jr. filed as Exhibit(4)-5 to The Banc
Corporations Registration Statement on
Form S-4
(Registration
No. 333-69734)
is hereby incorporated herein by reference.
|
|
(4)
|
-6
|
|
|
|
Guarantee Agreement, dated as of
July 16, 2001, by The Banc Corporation and The Bank of New
York filed as Exhibit (4)-6 to The Banc Corporations
Registration Statement on
Form S-4
(Registration
No. 333-69734)
is hereby incorporated herein by reference.
|
|
(4)
|
-7
|
|
|
|
Indenture, dated as of
July 16, 2001, by The Banc Corporation and The Bank of New
York filed as Exhibit (4)-7 to The Banc Corporations
Registration Statement on
Form S-4
(Registration
No. 333-69734)
is hereby incorporated herein by reference.
|
|
(4)
|
-8
|
|
|
|
Placement Agreement, dated as of
June 28, 2001, among TBC Capital Statutory Trust III,
and The Banc Corporation and Sandler ONeill &
Partners, L.P. filed as Exhibit (4)-8 to The Banc
Corporations Registration Statement on
Form S-4
(Registration
No. 333-69734)
is hereby incorporated herein by reference.
|
|
(4)
|
-9
|
|
|
|
Stock Purchase Agreement, dated
January 24, 2005, between The Banc Corporation and the
investors named therein, filed as
Exhibit 4-1
to The Banc Corporations Current Report on
Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
|
|
(4)
|
-10
|
|
|
|
Registration Rights Agreement,
dated January 24, 2005, between The Banc Corporation and
the investors named therein, filed as
Exhibit 4-2
to The Banc Corporations Current Report on
Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
|
|
(5)
|
|
|
|
|
Form of Opinion of legality of
issuance of shares*
|
|
(8)
|
|
|
|
|
Form of Tax Opinion*
|
|
(10)
|
-1
|
|
|
|
Third Amended and Restated 1998
Stock Incentive Plan of The Banc Corporation, filed as
Exhibit (10)-1 to The Banc Corporations Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2004, is hereby
incorporated herein by reference.
|
|
(10)
|
-2
|
|
|
|
Commerce Bank of Alabama Incentive
Stock Compensation Plan, filed as Exhibit (4)-3 to The Banc
Corporations Registration Statement on
Form S-8,
dated February 22, 1999 (Registration
No. 333-72747),
is hereby incorporated herein by reference.
|
|
(10)
|
-3
|
|
|
|
The Banc Corporation 401(k) Plan,
filed as Exhibit (4)-2 to The Banc Corporations
Registration Statement on
Form S-8,
dated January 21, 1999 (Registration
No. 333-7953),
is hereby incorporated herein by reference.
|
|
(10)
|
-4
|
|
|
|
Employment Agreement by and
between The Banc Corporation and James A. Taylor, filed as
Exhibit (10)-1 to The Banc Corporations Quarterly
Report on
Form 10-Q
for quarter ended March 31, 2002 is hereby incorporated
herein by reference.
|
II-2
|
|
|
|
|
|
|
|
(10)
|
-5
|
|
|
|
Deferred Compensation Agreement by
and between The Banc Corporation and James A. Taylor, filed as
Exhibit (10)-2 to The Banc Corporations Registration
Statement on Form S-1 (Registration
No. 333-67011),
is hereby incorporated herein by reference.
|
|
(10)
|
-6
|
|
|
|
Employment Agreement, dated as of
September 19, 2000, by and between The Banc Corporation and
James A. Taylor, Jr., filed as Exhibit (10)-8 to The
Banc Corporations Annual Report on
Form 10-K
for the year ended December 31, 2001, is hereby
incorporated herein by reference.
|
|
(10)
|
-7
|
|
|
|
Form of Deferred Compensation
Agreement by and between The Banc Corporation and the
individuals listed on Schedule A attached thereto filed as
Exhibit (10)-11 to The Banc Corporations Annual
Report on
Form 10-K
for the year ended December 31, 1999, is hereby
incorporated herein by reference.
|
|
(10)
|
-8
|
|
|
|
Form of Deferred Compensation
Agreement by and between The Bank and the individuals listed on
Schedule A attached thereto filed as Exhibit (10)-11
to The Banc Corporations Annual Report on
Form 10-K
for the year ended December 31, 1999, is hereby
incorporated herein by reference.
|
|
(10)
|
-9
|
|
|
|
Agreement dated as of
June 30, 2005, by and between The Banc Corporation and
David R. Carter, filed as
Exhibit 10-3
to The Banc Corporations Current Report on
Form 8-K
dated July 21, 2005, is hereby incorporated herein by
reference.
|
|
(10)
|
-10
|
|
|
|
Agreement, dated as of
June 30, 2005, by and between The Banc Corporation and F.
Hampton McFadden, Jr., filed as
Exhibit 10-4
to The Banc Corporations Current Report on
Form 8-K
dated July 21, 2005, is hereby incorporated herein by
reference.
|
|
(10)
|
-11
|
|
|
|
The Banc Corporation and
Subsidiaries Employee Stock Ownership Plan, filed as
Exhibit (10)-13 to The Banc Corporations Annual
Report on
Form 10-K
for the year ended December 31, 2002, is hereby
incorporated herein by reference.
|
|
(10)
|
-12
|
|
|
|
Agreement, dated January 24,
2005, between The Banc Corporation and James A.
Taylor, Sr., filed as
Exhibit 10-3
to The Banc Corporations Current Report on
Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
|
|
(10)
|
-13
|
|
|
|
Agreement, dated January 24,
2005, between The Banc Corporation and James A.
Taylor, Jr., filed as
Exhibit 10-4
to The Banc Corporations Current Report on
Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
|
|
(10)
|
-14
|
|
|
|
Employment Agreement, dated
January 24, 2005, by and between The Banc Corporation, The
Bank and C. Stanley Bailey, filed as
Exhibit 10-5
to The Banc Corporations Current Report on
Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
|
|
(10)
|
-15
|
|
|
|
Employment Agreement, dated
January 24, 2005, by and between The Banc Corporation, The
Bank and C. Marvin Scott, filed as
Exhibit 10-6
to The Banc Corporations Current Report on
Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
|
|
(10)
|
-16
|
|
|
|
Employment Agreement, dated
January 24, 2005, by and between The Banc Corporation, The
Bank and Rick D. Gardner, filed as
Exhibit 10-7
to The Banc Corporations Current Report on
Form 8-K
dated January 24, 2005, is hereby incorporated herein by
reference.
|
|
(16)
|
|
|
|
|
Letter from Ernst & Young
LLP dated September 21, 2004, filed as Exhibit (16)-1
to The Banc Corporations Current Report on
Form 8-K/A
dated June 14, 2004, is hereby incorporated herein by
reference.
|
|
(21)
|
|
|
|
|
Subsidiaries of The Banc
Corporation, filed as Exhibit 21 to The Banc
Corporations Annual Report on
Form 10-K
for the year ended December 31, 2005, is hereby
incorporated herein by reference.
|
|
(23)
|
-1
|
|
|
|
Consent of Carr, Riggs &
Ingram, LLC.
|
|
(23)
|
-2
|
|
|
|
Consent of Ernst & Young
LLP.
|
|
(23)
|
-3
|
|
|
|
Consent of Harper Pearson &
Company, P.C.
|
|
(23)
|
-4
|
|
|
|
Consent of Alex Sheshunoff &
Co. Investment Banking, L.P.
|
|
(23)
|
-5
|
|
|
|
Consent of Sandler ONeill
& Partners, L.P.
|
|
|
* |
To be filed by Amendment.
|
(1) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the
II-3
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(2) The undersigned Registrant hereby undertakes as
follows: that prior to any public re-offering of the securities
registered hereunder through use of a prospectus which is part
of the registration statement, by any person or party who is
deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such re-offering
prospectus will contain the information called for by the
applicable registration form with respect to re-offerings by
persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(3) The Registrant undertakes that every prospectus:
(i) that is filed pursuant to
paragraph (2) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of
the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(4) The undersigned Registrant hereby undertakes to supply
by means of a post-effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not subject of and included in the
Registration Statement when it became effective.
(5) The undersigned Registrant hereby undertakes to respond
to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or
13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the
request.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the
Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized in the City of Birmingham, Alabama, on July 10,
2006.
SUPERIOR BANCORP
C. Stanley Bailey
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints C. Stanley Bailey and
Rick D. Gardner, and each of them, his
attorney-in-fact
with power of substitution for him in any and all capacities, to
sign any amendments, supplements, subsequent registration
statements relating to the offering to which this Registration
relates, or other instruments he deems necessary or appropriate,
and to file the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorney-in-fact
or his substitute may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ C.
Stanley Bailey
C.
Stanley Bailey
|
|
Chief Executive Officer (Principal
Executive Officer) and Director
|
|
July 10, 2006
|
|
|
|
|
|
/s/ James
C. Gossett
James
C. Gossett
|
|
Chief Accounting Officer
(Principal Financial and Accounting Officer)
|
|
July 10, 2006
|
|
|
|
|
|
/s/ James
A. Taylor
James
A. Taylor
|
|
Chairman of the Board
|
|
July 10, 2006
|
|
|
|
|
|
/s/ Roger
Barker
Roger
Barker
|
|
Director
|
|
July 10, 2006
|
|
|
|
|
|
/s/ K.
Earl Durden
K.
Earl Durden
|
|
Director
|
|
July 10, 2006
|
|
|
|
|
|
/s/ Rick
D. Gardner
Rick
D. Gardner
|
|
Chief Operating Officer
and Director
|
|
July 10, 2006
|
|
|
|
|
|
/s/ Thomas
E. Jernigan, Jr.
Thomas
E. Jernigan, Jr.
|
|
Director
|
|
July 10, 2006
|
|
|
|
|
|
/s/ James
Mailon Kent, Jr.
James
Mailon Kent, Jr.
|
|
Director
|
|
July 10, 2006
|
|
|
|
|
|
/s/ James
M. Link
James
M. Link
|
|
Director
|
|
July 10, 2006
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Barry
Morton
Barry
Morton
|
|
Director
|
|
July 10, 2006
|
|
|
|
|
|
/s/ Robert
R. Parrish, Jr.
Robert
R. Parrish, Jr.
|
|
Director
|
|
July 10, 2006
|
|
|
|
|
|
/s/ C.
Marvin Scott
C.
Marvin Scott
|
|
President and
Director
|
|
July 10, 2006
|
|
|
|
|
|
/s/ Michael
E. Stephens
Michael
E. Stephens
|
|
Director
|
|
July 10, 2006
|
|
|
|
|
|
/s/ James
C. White, Sr.
James
C. White, Sr.
|
|
Director
|
|
July 10, 2006
|