Registration No. 333-28881
As filed with the Securities and Exchange Commission on August 7, 1997
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3
TO
FORM SB-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
AMERICASBANK CORP.
(Name of small business issuer in its charter)
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Maryland 6035 52-1948980
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification Number)
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515 East Joppa Road, Towson, Maryland 21286
(410) 825-5580
(Address and telephone number of principal executive offices)
3621 East Lombard Street, Baltimore, Maryland 21224
(410) 342-8303
(Address of principal place of business or intended principal place of business)
J. Clarence Jameson, III
AmericasBank Corp.
515 East Joppa Road, Towson, Maryland 21286
(410) 825-5580
(Name, address and telephone number of agent for service)
Copies of communications, including copies of all communications sent to
agent for service, should be sent to:
Frank C. Bonaventure, Jr., Esquire,
Ober, Kaler, Grimes & Shriver, a Professional Corporation
120 E. Baltimore Street, 9th Floor, Baltimore, Maryland 21202
(410) 685-1120
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
Disclosure alternative used (check one): Alternative 1 ; Alternative 2 x
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AMERICASBANK CORP.
CROSS REFERENCE SHEET
BETWEEN FORM SB-1 AND PROSPECTUS
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REGISTRATION STATEMENT ITEM AND LOCATION OR PROSPECTUS CAPTION
HEADING
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1. Inside Front and Outside Back Cover Pages of
Prospectus................................................... Inside Front and Outside Back Cover
Pages; Additional Information; Reports to
Stockholders
2. Significant Parties.......................................... Management
3. Relationship with Issuer of Experts Named in
Registration Statement....................................... Not Applicable
4. Legal Proceedings ........................................ Not Applicable
5. Changes in and Disagreements with
Accountants.................................................. Not Applicable
6. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................................. Indemnification of Officers and Directors
MODEL B ITEMS
1. Cover Page................................................... Front Cover Page
2. Distribution Spread.......................................... Front Cover Page
3. Summary Information, Risk Factors and
Dilution..................................................... Prospectus Summary; Risk Factors
4. Plan of Distribution......................................... Terms of the Offering, Plan of Distribution
5. Use of Proceeds to Issuer.................................... Use of Proceeds
6. Description of Business...................................... Organization of the Company and the Bank; The
Acquisition; Business of the Company; Business of
the Bank; Regulation
7. Description of Property...................................... Business of the Company; Business of the Bank
8. Directors, Executive Officers and Significant
Employees.................................................... Management
9. Remuneration of Directors and Officers....................... Management
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10. Security Ownership of Management and
Certain Security Holders .................................... Management
11. Interest of Management and Others in Certain
Transactions................................................. Management
12. Securities Being Offered..................................... Description of Capital Stock
PART F/S
1. Financial Information Required in Prospectus................. Financial Statements
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[Logo of AmericasBank:
AmericasBANK
your community is our business.]
AMERICASBANK CORP.
A Proposed Holding Company For
AMERICASBANK (In Organization)
OFFERING OF COMMON STOCK
($0.01 par value per share)
240,000 Shares (Minimum); 300,000 Shares (Maximum)
AmericasBank Corp., a Maryland corporation (the "Company"), hereby offers
for sale a minimum of 240,000 shares (the "Minimum Number of Shares"), and a
maximum of 300,000 shares (the "Maximum Number of Shares"), of its common stock,
$0.01 par value per share (the "Common Stock"), at a per share offering price of
Ten Dollars ($10.00) (the "Offering"). Prior to the Offering, there has been no
public market for the Common Stock. See "TERMS OF THE OFFERING; PLAN OF
DISTRIBUTION."
The Company has been organized primarily to own all of the capital stock
of AmericasBank, a federal stock savings bank in organization (the "Bank"). The
Company and the Bank have not yet conducted active business operations, and the
authority to commence such operations is dependent upon, among other things, the
receipt of various regulatory approvals and the sale of the Minimum Number of
Shares in the Offering. As soon as possible after the satisfaction of the
conditions of the Offering, the Bank will purchase certain assets from, and will
assume certain liabilities of, Rushmore Trust & Savings, FSB ("Rushmore"),
including most of the assets and liabilities related to Rushmore's Baltimore,
Maryland branch office, which is located at 3621 East Lombard Street, Baltimore,
Maryland 21224 (the "Acquisition"). See "ORGANIZATION OF THE COMPANY AND THE
BANK" and "THE ACQUISITION."
The Company's executive offices and the Bank's sole banking office will be
located at 3621 East Lombard Street, Baltimore, Maryland 21224, which, as stated
above, is currently occupied by the Baltimore, Maryland branch office of
Rushmore. The telephone number of the Company and the Bank will be (410)
342-8303. The Company's interim address is 515 East Joppa Road, Towson, Maryland
21286 and its interim telephone number is (410) 825-5580.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
AN INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK AND
INVESTORS SHOULD NOT INVEST ANY FUNDS IN THE OFFERING UNLESS THEY CAN AFFORD TO
LOSE THEIR ENTIRE INVESTMENT. IF THE CONDITIONS OF THE OFFERING ARE MET AND
SUBSCRIPTION FUNDS ARE RELEASED FROM ESCROW BUT FINAL REGULATORY APPROVALS FOR
THE BANK TO COMMENCE BANKING OPERATIONS ARE NOT OBTAINED OR THE BANK DOES NOT
OPEN FOR ANY OTHER REASON OR THE ACQUISITION IS NOT CONSUMMATED FOR ANY REASON,
THE COMPANY'S BOARD OF DIRECTORS INTENDS TO PROPOSE THAT THE STOCKHOLDERS
APPROVE A PLAN TO LIQUIDATE THE COMPANY. UPON SUCH LIQUIDATION, SUBSCRIBERS
COULD BE RETURNED AN AMOUNT LESS THAN THEIR ORIGINAL SUBSCRIPTION AMOUNT. SEE
"RISK FACTORS - INVESTORS COULD SUFFER IMMEDIATE LOSS OF INVESTMENT."
THE SECURITIES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS
AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
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CORPORATION, THE SAVINGS ASSOCIATION INSURANCE FUND, THE BANK INSURANCE FUND OR
ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price to Underwriting Fees Proceeds
Public(1) and Commissions(2) to Issuer(3)
--------- ------------------ ------------
Per Share ............. $10.00 $0 $10.00
Total Minimum ......... $2,400,000.00 $0 $2,400,000.00
Total Maximum ......... $3,000,000.00 $0 $3,000,000.00
(1) The offering price of the Common Stock was arbitrarily determined by the
Company. See "RISK FACTORS - Arbitrary Pricing of Securities."
(2) The Offering is not underwritten. The Common Stock will be offered by the
Company and sold solely by one of the Company's directors, to whom no
commissions or other compensation will be paid on account of such activity,
although such person will be reimbursed for reasonable expenses incurred in the
Offering. The Company believes such person will not be deemed a broker under the
Securities Exchange Act of 1934 (the "Exchange Act") based on reliance on Rule
3a4-1 of the Exchange Act. See "TERMS OF THE OFFERING; PLAN OF DISTRIBUTION."
(3) Before the deduction of expenses related to the Offering, estimated at
$150,000. See "USE OF PROCEEDS."
Sale of the Common Stock will commence on or about August 8, 1997. This
is a "best efforts" offering by the Company, and it will be terminated by the
organizers of the Company and the Bank (the "Organizers") upon the sale of the
Maximum Number of Shares or December 31, 1997, whichever occurs first, unless
the Offering is extended, at the discretion of the Company, for additional
periods ending no later than March 31, 1998. However, the Organizers reserve the
right to terminate the Offering at any time after the sale of the Minimum Number
of Shares. Subscriptions are binding on subscribers and may not be revoked
without the consent of the Company.
The Company has established a minimum subscription of 250 shares and a
maximum subscription of 20,050 shares. However, the Organizers reserve the right
to waive these limits without notifying any subscriber. In addition, the
Organizers reserve the right to reject subscriptions for the purchase of shares
of Common Stock in whole or in part. It is anticipated that the Organizers and
certain other persons will purchase shares in the Offering. See "TERMS OF THE
OFFERING; PLAN OF DISTRIBUTION," "USE OF PROCEEDS" and "MANAGEMENT - Interest of
Management and Others in Certain Transactions."
Subscription proceeds will be deposited promptly in an interest-earning
escrow account at The First National Bank of Maryland, as escrow agent, pending
satisfaction of the conditions of the Offering, including receipt of
subscriptions and subscription proceeds for the Minimum Number of Shares. If the
Offering is terminated prior to completion, all subscription proceeds will be
returned promptly to subscribers, together with any interest earned thereon. In
the event of the successful completion of the Offering, all interest earned on
subscription funds
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will be retained by the Company. The Company will use all interest earned to
repay a portion of the expenses incurred in organizing the Company and the Bank.
After the Minimum Number of Shares are sold and the other condition of the
Offering is satisfied, the Company may continue to sell shares of Common Stock
until termination of the Offering, and all subscription proceeds from those
sales will be deposited in a non-escrow Company deposit account at The First
National Bank of Maryland pending acceptance or rejection of subscriptions. Upon
acceptance, such proceeds will be available for immediate use by the Company to
fund Offering and organizational expenses and for working capital. See "TERMS OF
THE OFFERING; PLAN OF DISTRIBUTION."
The date of this Prospectus is August 8, 1997.
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement under the Securities Act of 1933, as amended,
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement. For
further information with respect to the Company and the Common Stock, reference
is hereby made to the Registration Statement and the exhibits thereto. The
Registration Statement may be examined at, and copies of the Registration
Statement may be obtained at prescribed rates from, the Public Reference Section
of the SEC, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the Company is required to file electronic versions of these documents
with the SEC through the SEC's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
The Company and the Organizers have filed various applications with the
Office of Thrift Supervision (the "OTS") and the Federal Deposit Insurance
Corporation (the "FDIC"). As required by the applicable regulatory authorities,
these applications contain financial projections relating to the Bank. These
projections are not a part of this Prospectus and while they are based on
assumptions that the Organizers believe are reasonable, they should not be
relied upon by prospective investors. Prospective investors should rely only on
information contained in this Prospectus and in the Company's related
Registration Statement in making an investment decision. To the extent that
other available information not presented in this Prospectus, including
information available from the Company and information in public files and
records maintained by the OTS and the FDIC is inconsistent with information
presented in this Prospectus, such other information is superseded by the
information presented in this Prospectus.
REPORTS TO STOCKHOLDERS
Upon the effective date of the Registration Statement, the Company will be
subject to the reporting requirements of the Securities Exchange Act of 1934
(the "Exchange Act"), which include requirements to file annual reports on Form
10-KSB and quarterly reports on Form 10-QSB with the SEC. This reporting
obligation will exist for at least one year and will continue for fiscal years
thereafter, except that such reporting obligations may be suspended for any
subsequent fiscal year if at the beginning of such year the Common Stock of the
Company is held of record by less than three hundred persons or if the Common
Stock of the Company is held of record by less than five hundred persons and the
total assets of the Company have not exceeded $10 million on the last day of
each of the Company's three most recent fiscal years.
Regardless of whether the Company is subject to the reporting requirements
of the Exchange Act, the Company intends to furnish its stockholders with annual
reports containing audited financial information for each fiscal year and
intends to distribute quarterly reports for the first three quarters of each
fiscal year containing unaudited summary financial information. The Company's
fiscal year ends on December 31.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
APPEARING ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO THE HISTORICAL
INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE
CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE
TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS
PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTION ENTITLED "RISK
FACTORS."
Organization of the Company and the Bank
AmericasBank Corp. (the "Company") was incorporated under the laws of the
State of Maryland on June 4, 1996, primarily to own all of the outstanding
shares of capital stock of a federal stock savings bank to be named AmericasBank
(in organization) (the "Bank"). The Company may not acquire the capital stock of
the Bank without the approval of the Office of Thrift Supervision (the "OTS") to
become a savings and loan holding company of the Bank. On June 5, 1996, the
Company filed an application with the OTS to obtain the necessary approvals and
these approvals were granted by the OTS on April 15, 1997. The Company has not
conducted any business activities to date other than those deemed necessary by
the Company to proceed with this Offering. The Company initially will engage in
no business other than owning all of the outstanding shares of capital stock of
the Bank. See "ORGANIZATION OF THE COMPANY AND THE BANK - The Company."
On June 5, 1996, the organizers of the Company and the Bank (the
"Organizers") filed an application with the OTS to organize the Bank as a
federal stock savings bank. On April 15, 1997, the OTS conditionally approved
the application. However, before the Bank obtains final regulatory approval to
commence banking operations, the Bank, among other things, must obtain
membership in the Federal Home Loan Bank System, obtain federal deposit
insurance for its deposit accounts from the Federal Deposit Insurance
Corporation (the "FDIC") and complete the sale to the Company of a minimum of
$2,150,000 of its fully-paid capital stock. On April 23, 1997, the FDIC
conditionally approved the Bank's application for federal deposit insurance. See
"ORGANIZATION OF THE COMPANY AND THE BANK - The Bank."
Transaction with Rushmore Trust and Savings, FSB
On May 31, 1996, the Bank, through its Organizers, entered into a Branch
Purchase and Assumption Agreement, as amended, and a Loan Purchase and
Assumption Agreement, as amended (collectively, the "Agreements"), with Rushmore
Trust & Savings, FSB ("Rushmore"), for the acquisition of certain assets and the
assumption of certain deposit liabilities primarily related to Rushmore's
Baltimore, Maryland branch office located at 3621 East Lombard Street,
Baltimore, Maryland 21224 (the "Baltimore Branch"). The transactions
contemplated by the Agreements are referred to in this Prospectus as the
"Acquisition." The proposed Acquisition was initiated when Kenneth Pezzula, a
director of the Company and Organizer of the Bank, as well as a director of
Rushmore, approached management of Rushmore to propose the sale of the Baltimore
Branch to a group desiring to establish a new community bank.
It is contemplated that the Acquisition will close as soon as possible
after the satisfaction of the conditions of the Offering. In the event the Bank
fails to consummate the Acquisition for any reason, the Board of Directors of
the Company intends to propose to the Company's stockholders that the Company be
liquidated. See "RISK FACTORS - Investors Could Suffer Immediate Loss of
Investment." Thus, while the closing of the Acquisition
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is not a condition precedent to the satisfaction of the conditions of the
Offering, it is a condition precedent to the opening of the Bank.
Upon consummation of the Acquisition, the Bank will assume liabilities
relating to deposits and certificates of deposit booked at the Baltimore Branch
(the "Baltimore Branch Deposits") and the Bank will pay Rushmore a premium for
such deposits. As of March 31, 1997, the Baltimore Branch Deposits totaled
approximately $8,138,000. This amount is subject to change due to the reduction
or growth of deposits occurring prior to the closing date of the Acquisition.
The Bank will acquire all of Rushmore's loans originated at the Baltimore Branch
(the "Baltimore Branch Loans") and certain of Rushmore's loans originated at
Rushmore's Montgomery County, Maryland branch office (the "Montgomery County
Loans") (the Baltimore Branch Loans and the Montgomery County Loans are
collectively referred to in this Prospectus as the "Rushmore Loans"), as well as
certain assets related to the operation of the Baltimore Branch (the "Baltimore
Branch Assets"), including the Baltimore Branch's real property, building and
improvements (the "Real Estate"), and all of the Baltimore Branch's fixtures,
furnishings, equipment, furniture and other tangible personal property (the
"Furnishings"). As of March 31, 1997, the Rushmore Loans totaled approximately
$7,004,000, at face value, consisting of approximately $5,846,000 in Baltimore
Branch Loans and approximately $1,158,000 in Montgomery County Loans.
The Bank will acquire the Rushmore Loans for the face value of such loans
on the closing date of the Acquisition, plus accrued interest, plus $50,000 less
aggregate escrow balances. The $50,000 payment will be offset by an equal credit
to the Bank, which the Bank will use to establish an allowance for loan losses.
See "BUSINESS OF THE BANK - Lending Activities - Allowance for Loan Losses." The
Bank will acquire the Real Estate for $50,000 and the Furnishings for $30,000.
The Bank will pay Rushmore $50,000 in exchange for Rushmore's agreement not to
compete with the Bank for a period of three years after the closing date of the
Acquisition (the "Covenant Not to Compete"). The Bank also will pay Rushmore a
deposit premium equal to the Baltimore Branch Deposits (plus accrued interest)
on the closing date of the Acquisition multiplied by 0.035 less $105,000.
Payment of the deposit premium, as well as the payment for the Rushmore Loans,
the Real Estate, the Furnishings and the Covenant Not to Compete, will be
effectuated through an appropriate reduction of the cash to be received by the
Bank from Rushmore to fund the deposits being assumed by the Bank.
Based upon March 31, 1997 estimates, upon consummation of the Acquisition,
the amount of net cash to be received by the Bank from Rushmore would be
approximately $789,000. This estimate is determined as follows: based on March
31, 1997 estimates, the gross amount to be paid to the Bank by Rushmore would be
approximately $8,139,000, consisting of (i) Baltimore Branch Deposits of
$8,138,000 and (ii) accrued interest on Baltimore Branch Deposits of
approximately $1,000. Based on March 31, 1997 estimates, approximately
$7,350,000 is to be netted against this gross amount consisting of (i) a deposit
premium totaling approximately $180,000 on $8,138,000 of Baltimore Branch
Deposits and accrued interest of $1,000; (ii) $7,004,000 of Rushmore Loans;
(iii) accrued interest receivable on the Rushmore Loans of approximately
$56,000; (iv) $130,000 for the Real Estate, the Furnishings and the Covenant Not
to Compete; less (v) a $20,000 deposit that the Bank paid Rushmore upon the
execution of the Agreements.
The parties have agreed that if the Acquisition has not been consummated
by June 30, 1997, the Bank, beginning on July 1, 1997 and continuing on the
first day of each month thereafter until the Acquisition has been consummated,
shall pay Rushmore one or more additional deposits of $20,000 each. Upon the
consummation of the Acquisition, the additional deposits will be added to the
amount of cash to be received by the Bank from Rushmore. In the event the Bank
fails to consummate the Acquisition for any reason other than the ability of
Rushmore to consummate the Acquisition, the Bank shall forfeit all deposits to
Rushmore.
It is currently contemplated that the Bank will employ all of the
Baltimore Branch's employees, including Patricia D'Alessandro, who currently is
a Vice President of Rushmore with managerial responsibilities for the Baltimore
Branch. Subject to regulatory approval, Ms. D'Alessandro will serve as the
President of the Bank and
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the Vice President of the Company. Ms. D'Alessandro has over 20 years of
experience in the commercial and retail banking industry. See "THE ACQUISITION"
and "MANAGEMENT."
Business to be Conducted by the Bank
The Bank will be a full service community-oriented financial institution.
Its business will be to attract retail deposits and to invest those deposits,
together with funds generated from operations and borrowing, primarily in one-
to four-family mortgage loans. To a lesser extent, the Bank will invest in home
equity loans, multi-family loans, commercial real estate loans, construction
loans (primarily for one- to four-family home construction for the borrower),
commercial business loans and consumer loans. The Bank's deposit base will be
comprised of traditional deposit products including checking accounts, NOW
accounts, money market accounts, statement savings accounts, individual
retirement accounts and certificates of deposit. Upon the commencement of its
operations, the Bank will be actively engaged in many of these activities as a
result of the Acquisition. See "BUSINESS OF THE BANK - Lending Activities," "-
Sources of Funds" and "THE ACQUISITION."
The Company's executive offices and the Bank's initial banking office will
be located at 3621 East Lombard Street, Baltimore, Maryland 21224 (the "Banking
Office"), which, as stated above, is currently occupied by the Baltimore,
Maryland branch office of Rushmore, and which is located in the eastern portion
of Baltimore City. The telephone number of the Company and the Bank will be
(410) 342-8303. The Company's interim address is 515 East Joppa Road, Towson,
Maryland 21286 and its interim telephone number is (410) 825-5580. See "BUSINESS
OF THE BANK - Description of Property."
The Organizers of the Bank anticipate that the Bank initially will draw
most of its customer deposits and conduct most of its lending transactions from
within the area surrounding its Banking Office as well as from within the
Baltimore metropolitan area. The Baltimore Branch Deposits and the Baltimore
Branch Loans were primarily drawn from these areas. The Organizers intend to
expand the business of the Bank by opening branches. At this time, the
Organizers have not identified any location for a branch of the Bank. See
"BUSINESS OF THE BANK - Location and Service Area."
The liberalization of the interstate banking laws of Maryland and
surrounding states has led to substantial consolidation of the banking industry
in Maryland and particularly the Baltimore metropolitan area. Many of the area's
financial institutions have been acquired by large regional organizations
headquartered outside the Baltimore area. As a result of such consolidation, the
Organizers believe that the competitive and economic environment is right for a
new, independent, locally owned and managed bank to serve the financial needs of
residents of Eastern Baltimore City as well as the needs of residents of the
Baltimore metropolitan area. The Bank intends to implement a strategy that
focuses on providing a superior level of customer service, close attention to
personal needs and quick response time. The Organizers believe that the
community will react favorably to this new enterprise.
Organizers and Directors
The Organizers of the Company and the Bank are King V. Cheek, Patricia
D'Alessandro, William A. Fogle, Jr., J. Clarence Jameson, III, Kemp Jayadeva,
Norman H. Katz, Larry D. Ohler and Kenneth D. Pezzulla. Subject to regulatory
approval, all of the Organizers, except for Ms. D'Alessandro, will serve as
directors of the Company and the Bank, with Mr. Jameson serving as Chairman of
the Board of each entity. As soon as the Bank commences its operations, subject
to regulatory approval, the Organizers intend to add Garbis Baklayan, Nicholas
J. Belitsos, M.D., Henry A. Berliner, Jr., Cynthia B. Conklin, Constantine
Frank, Shawki N. Malek, M.D., Michael W. Mekalian, Mark D. Noar, M.D., George E.
Rayme, Jr., Ramon F. Roig, Jr., M.D., Russell A. Rourke, Baldev Singh and
Melanie R. Sabelhaus as directors of the Company and the Bank (the "Additional
Directors"). See "MANAGEMENT."
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The Organizers and the Additional Directors are recognized and established
individuals in their local communities. As a group, they have significant
banking and business experience and many close personal ties in the Baltimore
metropolitan area. Subject to regulatory approval, Ms. D'Alessandro will serve
as Vice President of the Company and President of the Bank. She has over 20
years of experience in the commercial and retail banking industry and currently
is a Vice President of Rushmore with managerial responsibilities for the
Baltimore Branch. Subject to regulatory approval, Mr. Jameson will serve as
President of the Company, Vice President of the Bank and Chairman of the Board
of the Company and the Bank. Mr. Jameson also has extensive experience in the
banking industry. Jameson and Associates, P.A., a public accounting firm of
which Mr. Jameson is the President and a principal, provides public accounting
services to numerous federal and state financial institutions. Mr. Jameson was
Chairman of the Board of Maryland Bank Corp., the savings and loan holding
company of MarylandsBank, FSB from February 1994 to June 1995. Mr. Jameson also
was a director of MarylandsBank, FSB from February 1994 to June 1995. In
addition, Mr. Jameson was an organizer of the Bank of Maryland, a state
chartered commercial bank, and its holding company, Bank Maryland Corp., and he
served as Chairman of the Board of both entities from 1985 to 1990. Mr.
Pezzulla, who, subject to regulatory approval, will serve as a director of the
Company and the Bank and as the Secretary of the Company and the Bank, has been
a practicing attorney for almost 40 years, devoting a substantial part of his
practice to banking matters. He has been a director of Rushmore and its
predecessor, LaCorona Building and Loan Association, since 1963. From 1985 to
1988, Mr. Pezzulla was President of LaCorona Building and Loan Association.
The Organizers believe that Ms. D'Alessandro's banking experience,
particularly as it relates to her management experience at the Baltimore Branch,
the banking experience of Mr. Jameson and Mr. Pezzulla, and the extensive
business experience and contacts of the Organizers and the Additional Directors
in the Baltimore metropolitan area, should create immediate business
opportunities for the Bank.
Pre-Opening Activities
Although no assurances can be given that the Bank will open for business,
as of the date of this Prospectus, the Organizers are engaged in completing the
tasks necessary to open the Bank for business by the third quarter of 1997,
assuming the conditions of the Offering are satisfied at such time and the
Acquisition has been consummated at such time.
Compensation to Certain Organizers
In consideration of services performed on behalf of the Company and the
Bank in preparing the necessary bank regulatory applications, negotiating the
terms of and performing the necessary investigations related to the Acquisition,
upon the closing of the Offering, Organizers Jameson and Pezzulla each will be
paid $25,000 from the proceeds of the Offering, and Jameson and Associates,
P.A., and Pezzulla and Pezzulla, LLC, each will be paid $12,500 from the
proceeds of the Offering. See "USE OF PROCEEDS" and "MANAGEMENT Remuneration of
Directors and Officers."
Advisory Board
The Organizers have established an advisory board of directors (the
"Advisory Board of Directors") for the Bank, which is comprised primarily of
professionals and business persons (the "Advisory Directors"), who will provide
advice to the Board of Directors of the Bank and who will promote the interests
of the Bank. An advisory board of directors is not required by any Maryland or
federal law or regulation and Advisory Directors are not subject to regulatory
approval or supervision. The Advisory Directors will serve at the pleasure of
the Board of Directors of the Bank. See "MANAGEMENT - Advisory Board of
Directors."
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Organizational Loans
In order to assure that expenses related to the Acquisition and the
Offering and organizational expenses of the Company and the Bank are paid, the
Organizers, the Additional Directors and the Advisory Directors (collectively,
the "Lenders") have loaned an aggregate of $652,000 to the Company for the
benefit of the Company and the Bank (the "Organizational Loans"). The
Organizational Loans are only repayable from the proceeds of the Offering or
from proceeds of the Organizational Loans which were not expended by the
Company, and the Lenders may choose to receive repayment in full or in part
through their receipt in the Offering of shares of Common Stock valued at $10.00
per share. As of the date of this Prospectus, the Company has received no
communication from any Lender regarding his or her intention as to the method of
repayment of the Organizational Loans. Accordingly, the Company has no knowledge
as to whether repayment of the Organizational Loans will be requested in cash or
in shares of Common Stock. See "MANAGEMENT - Interest of Management and Others
in Certain Transactions."
Strategy
The Bank's objective will be to create a customer-driven financial
institution focused on providing value to clients by delivering products and
services matched to the clients' needs. It is believed that clients will be
drawn to a locally owned and managed institution that demonstrates an active
interest in its clients and their business and personal financial needs.
The banking industry in the Bank's market area has experienced substantial
consolidation in recent years. Many of the area's locally owned or managed
financial institutions have either been acquired by large regional bank holding
companies or have been consolidated into branches. This consolidation has been
accompanied by increasing fees for bank services, the dissolution of local
boards of directors, management and personnel changes and, in the perception of
the Organizers, a decline in the level of customer service. With recent changes
in interstate banking regulation, this type of consolidation is expected to
continue.
The Organizers believe that the present competitive and economic
environment is right for a new, independent, locally owned and managed bank to
serve the financial needs of residents of Eastern Baltimore City as well as the
needs of residents of the Baltimore metropolitan area. The Organizers further
believe that the Acquisition provides a unique opportunity for a new bank. Upon
consummation of the Acquisition, assuming the sale of the Minimum Number of
Shares in the Offering, the Bank will have approximately ten million dollars in
total assets, including approximately two million dollars raised through the
Offering and approximately seven million dollars in Rushmore Loans. See
"UNAUDITED PRO FORMA FINANCIAL INFORMATION." This amount of total assets will
immediately enable the Bank to make more loans than it would have been able to
make had it not engaged in the Acquisition. In addition, the Organizers believe
that as a result of the Acquisition the Bank will not experience many of the
growing pains typically experienced by new banks. The Bank will begin operations
from an existing, established facility, will succeed to an existing, established
customer base and will operate with a staff of personnel who are familiar with
the needs of the customers and who are known in the community. See "BUSINESS OF
THE BANK - Market Strategy."
The Offering
Securities Offered Common Stock of the Company, $0.01 par value
per share
Offering Price $10.00 per share
Number of Shares Offered Minimum: 240,000 shares (the "Minimum Number
of Shares") ($2,400,000)
Maximum: 300,000 shares (the "Maximum Number
of Shares") ($3,000,000)
Use of Proceeds The Company will use the net proceeds of the
Offering to capitalize the Bank at
$2,150,000 through the purchase of all of
the capital stock of the Bank, subject to
regulatory approval; to pay organizational
expenses of the Company, estimated at
$25,000, and the expenses of this Offering,
estimated
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at $150,000, and to provide working capital
to the Company, estimated at $75,000 in the
event the Minimum Number of Shares are sold
in the Offering and $675,000 in the event
the Maximum Number of Shares are sold in the
Offering.
The Bank will use the $2,150,000 received
from the Company for the sale of its stock
to pay organizational expenses of the Bank,
estimated at $110,000, and the legal fees
related to the Acquisition, estimated at
$40,000, and to provide working capital to
be used for banking purposes.
If the conditions of the Offering are met
and subscription funds are released from
escrow but final regulatory approvals for
the Bank to commence banking operations are
not obtained or the Bank does not open for
any other reason or the Acquisition is not
consummated for any reason, the Company's
Board of Directors intends to propose that
the stockholders approve a plan to liquidate
the Company. Upon liquidation, subscribers
could be returned an amount less than their
original subscription amount. See "RISK
FACTORS - Investors Could Suffer Immediate
Loss of Investment."
Conditions to Offering The Offering will be terminated and all
subscription funds will be returned promptly
to subscribers, together with any interest
earned thereon, unless on or before December
31, 1997 (or such later date if the Offering
is extended by the Company for additional
periods not to exceed beyond March 31, 1998)
(i) the Company has accepted subscriptions
and payment in full for the Minimum Number
of Shares and (ii) the Organizers have made
adequate provisions for satisfying (as they
determine in their reasonable discretion)
any regulatory or other conditions that must
be satisfied before the Bank may commence
banking operations and/or before the Bank
may consummate the Acquisition.
Subscription proceeds for shares subscribed
for will be deposited promptly in an
interest-earning escrow account with The
First National Bank of Maryland, as escrow
agent (the "Escrow Agent"), under the terms
of an escrow agreement (the "Escrow
Agreement"), pending the satisfaction of the
conditions set forth above or the
termination of the Offering. Neither the
Company nor any of its officers or directors
is affiliated with the Escrow Agent.
Subscription funds held in escrow will be
invested in bank accounts, including savings
accounts and bank money market accounts,
short-term certificates of deposit issued by
a bank or short-term securities issued or
guaranteed by the United States Government.
Subscriptions are binding on subscribers and
may not be revoked by subscribers except
with the consent of the Company. The Company
may, in its sole discretion, allocate shares
among subscribers in the event of an
oversubscription for the shares. In
determining which subscriptions to accept,
in whole or in part, the Company may take
into account any factors it considers
relevant, including the order in which
subscriptions are received and a
subscriber's potential to do business with
or to direct customers to the Bank. Upon
satisfaction of the conditions set forth
above, all subscription funds held in
escrow, including any interest earned
thereon, shall be released to the Company
for its immediate use. Any subscription
proceeds accepted after satisfaction of the
conditions set forth above but before
termination of the Offering will be
deposited in a non-escrow
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Company deposit account at The First
National Bank of Maryland pending acceptance
or rejection of subscriptions. Upon
acceptance, such proceeds will be available
for immediate use by the Company to fund
Offering and organizational expenses and for
working capital. See "TERMS OF THE OFFERING;
PLAN OF DISTRIBUTION."
Plan of Distribution Offers and sales of the Common Stock will be
made on behalf of the Company solely by Kemp
Jayadeva, a director of the Company. Mr.
Jayadeva will receive no commission or other
remuneration in connection with such
activities, but will be reimbursed for
reasonable expenses incurred in the
Offering. It is expected that an aggregate
of 7,500 shares will be purchased in the
Offering by Mr. Jayadeva and a pension plan
of which his wife is the sole trustee. See
"TERMS OF THE OFFERING; PLAN OF
DISTRIBUTION," and "MANAGEMENT."
It is anticipated that the Organizers and
the Additional Directors, together with
members of their immediate families, will
purchase, directly or indirectly, an
aggregate of at least 140,520 shares
(including shares which may be issued to
them in full or partial satisfaction of
organizational loans made by them to the
Company) of the Common Stock to be sold in
the Offering (58.55% if the Minimum Number
of Shares are sold and 46.84% if the Maximum
Number of Shares is sold), which shares have
been reserved for their purchase. The
Organizers and the Additional Directors may
purchase additional shares in the Offering
if necessary to permit the Company to
satisfy the conditions of the Offering, and
they may purchase additional shares even if
the Company has satisfied the conditions of
the Offering. Any shares purchased by the
Organizers and the Additional Directors in
excess of their original commitment will be
purchased for investment and not with a view
to the resale of such shares. See "TERMS OF
THE OFFERING; PLAN OF DISTRIBUTION," "USE OF
PROCEEDS" and "MANAGEMENT - Interest of
Management and Others in Certain
Transactions."
The Company will act as its own transfer
agent immediately after the Offering.
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<PAGE>
Risk Factors
An investment in the Common Stock offered hereby involves a high degree of
risk and should be considered only by investors who can afford a loss of their
entire investment. Prospective investors should consider all of the information
set forth herein, particularly the items set forth in the section entitled "Risk
Factors."
RISK FACTORS
IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION
IN THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL AS THOSE
DISCUSSED ELSEWHERE HEREIN.
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND SHOULD BE PURCHASED ONLY BY INVESTORS WHO CAN AFFORD A LOSS OF THEIR
ENTIRE INVESTMENT. PRIOR TO INVESTING IN THE COMMON STOCK, PROSPECTIVE INVESTORS
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND SPECULATIVE FACTORS INHERENT
IN AND AFFECTING THE BUSINESS OF THE COMPANY AND THE TERMS OF THE OFFERING. THE
ORDER OF THE FOLLOWING IS NOT INTENDED TO BE INDICATIVE OF THE RELATIVE
IMPORTANCE OF ANY DESCRIBED RISK NOR IS THE FOLLOWING INTENDED TO BE INCLUSIVE
OF ALL RISKS OF INVESTMENT IN THE COMMON STOCK. THE SHARES OF COMMON STOCK
OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS
ASSOCIATION INSURANCE FUND, THE BANK INSURANCE FUND OR ANY OTHER GOVERNMENT
AGENCY.
1. Investors Could Suffer Immediate Loss of Investment.
The amounts paid by subscribers in the Offering will be held in escrow
until (i) the Company has accepted subscriptions and payment in full for the
Minimum Number of Shares and (ii) the Organizers have made adequate provisions
for satisfying (as they determine in their reasonable discretion) any regulatory
or other conditions that must be satisfied before the Bank may commence banking
operations and/or before the Bank may consummate the Acquisition. If these
conditions are not met by December 31, 1997 or by such subsequent date, not
beyond March 31, 1998, to which the Offering may be extended by the Company, all
subscriptions will be returned promptly in full, along with all interest earned
thereon. The Offering may be extended by the Company to allow more time to
accept subscriptions for the Minimum Number of Shares or, even if such number of
shares is sold and the conditions to commencement of the Bank's operations are
otherwise satisfied, to allow more time to sell up to the Maximum Number of
Shares and thereby increase the amount of funds available to the Company. If
these conditions are satisfied, the subscription amounts held in escrow may be
paid to the Company, and shares issued to subscribers, and all interest earned
on the subscription proceeds will be retained by the Company. Any subscription
proceeds accepted after satisfaction of the conditions set forth above but
before termination of the Offering will be deposited in a non-escrow Company
deposit account at The First National Bank of Maryland pending acceptance or
rejection of subscriptions. Upon acceptance, such proceeds will be available for
immediate use by the Company to fund Offering and organizational expenses and
for working capital.
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<PAGE>
If the conditions for releasing subscriptions funds from escrow are met
and such funds are released from escrow but final regulatory approvals for the
Bank to commence banking operations are not obtained or the Bank does not open
for any other reason or the Acquisition is not consummated for any reason, the
Company's Board of Directors intends to propose that the stockholders approve a
plan to liquidate the Company. Upon such a liquidation, the Company would be
dissolved and the Company's net assets (generally consisting of the amounts
received in the Offering plus any interest earned thereon, less the amount of
all costs and expenses incurred by the Company and the Bank) would be
distributed to stockholders. In such event, the Company will have incurred
numerous expenses related to the Offering and the organization of the Company
and the Bank and nonrefundable deposits paid to Rushmore, estimated to be at
least $385,000 as of August 1, 1997, and the amounts distributed in liquidation
to stockholders may be substantially less than their subscription amount.
Assuming the Minimum Number of Shares was sold and such expenses equalled
$385,000, a stockholder would receive $8.40, or 84.0% of the original investment
of $10.00 per share, for each share purchased upon liquidation before giving
effect to expense incurred by the Company in connection with the liquidation
which would further reduce the amount received by the stockholder. The Company
is unable to estimate what the amount of such further reduction would be. See
"TERMS OF THE OFFERING; PLAN OF DISTRIBUTION" and "USE OF PROCEEDS."
2. Lack of Operating History. Both the Company and the Bank are newly formed and
neither has any operating history. Accordingly, prospective investors do not
have access to all of the information that, in assessing their proposed
investment, is available to the purchasers of securities of a financial
institution with a history of operations. Because the primary asset of the
Company will be the capital stock of the Bank, the Company's operating results
and financial position will be dependent upon the operating results and
financial position of the Bank. The business of the Bank is subject to the risks
inherent in the establishment of any new business and, specifically, of a new
federal stock savings bank. For the three months ended March 31, 1997, the
Company would have incurred net losses, on a pro forma basis, of $77,000,
excluding any interest income that would have been earned on excess cash. As a
result of the substantial start-up expenditures that must be incurred by a new
bank, the Bank (and therefore the Company) may not be profitable for several
years after commencing business, if ever. See "UNAUDITED PRO FORMA FINANCIAL
INFORMATION."
3. General Risks of the Acquisition. As the Bank is newly formed and without any
operating history, it has never made an acquisition of a branch of another bank.
Nevertheless, the future growth of the Bank and the Company will depend on,
among other things, the Acquisition. The success of the Acquisition will depend
on a number of factors, including, without limitation, the Bank's ability to
limit the reduction of deposits, its success in deploying the cash received in
the Acquisition into assets bearing sufficiently high yields without incurring
unacceptable credit or interest rate risk, and its ability to service the loans
purchased in the Acquisition. There can be no assurance that the Bank will be
successful in performing these tasks.
4. Interest Rate and Lending Risks Associated with the Acquisition. The Rushmore
Loans consist primarily of fixed rate, long-term, single family residential
mortgage loans while the Baltimore Branch Deposits consist of variable rate
short-term accounts. Since the loans will mature more slowly than the deposits,
the net portfolio value and net interest income will tend to decrease during
periods of rising interest rates, but will increase during periods of falling
interest rates. During the past several years, market interest rates have been
relatively lower than in prior years. There is no assurance that such favorable
conditions will continue. Upon commencement of the Bank's operations, management
will have to develop its strategy to mitigate interest rate risk. Lower market
interest rates also have the effect of causing borrowers to refinance their
mortgage loans. The refinancing of the Rushmore Loans into loans with lower
interest rates would negatively impact the Bank's net interest income as it
would be unlikely that the Bank would be able to make new loans at or above the
interest rates of the refinanced loans. Many of the Rushmore Loans were made
prior to the current documentation requirements of GNMA, FNMA or FHLMC and,
therefore, they may not be able to be resold in the traditional secondary
market. The Organizers estimate that, as of March 31, 1997, approximately 70% of
the Baltimore Branch Loans could not be resold in the traditional secondary
market. During periods of rising interest rates, the Bank's inability to resell
certain of the Rushmore Loans in the secondary market could have a material
adverse effect on the Bank's net portfolio value and its net interest income. In
addition, the Rushmore Loans include non-owner occupied (investor) residential
mortgage loans on townhouses located primarily in Baltimore City. These loans
generally carry a
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<PAGE>
higher degree of credit risk than owner occupied residential mortgage loans.
See "BUSINESS OF THE BANK - Liquidity and Interest Rate Sensitivity."
5. Risk of Loan Losses. The risk of credit losses on loans varies with, among
other things, general economic conditions, the type of loan being made, the
creditworthiness of the borrower over the term of the loan and, in the case of a
collateralized loan, the value and marketability of the collateral for the loan.
Management of the Bank will maintain an allowance for loan losses based upon
certain factors, and assumptions and judgments about the ultimate collectability
of the loan portfolio and will provide an allowance for loan losses based upon a
percentage of the outstanding balances and for specific loans when their
ultimate collectability is considered questionable. If management's assumptions
and judgments prove to be incorrect and the allowance for loan losses is
inadequate to absorb future losses, or if the bank regulatory authorities
require the Bank to increase the allowance for loan losses as a part of their
examination process, the Bank's earnings could be materially adversely affected.
Although the Bank's loans typically will be secured, certain lending activities
may involve greater risks and the percentage applied to specific loan types may
vary.
Upon the commencement of its operations, the Bank's loans will consist of
the loans acquired pursuant to the Acquisition. Although the Organizers believe
that the Bank's initial allowance for loan losses will be adequate, there can be
no assurance that the allowance will prove sufficient to cover future loan
losses. In addition, future adjustments may be necessary if economic conditions
differ substantially from the assumptions used or adverse developments arise
with respect to the Bank's loans. Additions to the Bank's allowance for loan
losses would result in a decrease in the Bank's net income and capital, and
could have a material adverse effect on the Bank and the Company. See "BUSINESS
OF THE BANK--Allowance for Loan Losses."
6. Reliance on Officers of Bank. The Bank's success will be materially dependent
on the performance of each of Patricia D'Alessandro, J. Clarence Jameson, III
and Kenneth D. Pezzulla, who, subject to regulatory approval, will serve as the
President, Vice President and Secretary of the Bank respectively. The loss of
the services of any of these officers for any reason could have a material
adverse effect on the operations of the Bank. Neither Ms. D'Alessandro nor
Messrs. Jameson and Pezzulla will be a party to any employment agreement with
the Bank and each could resign or be terminated at any time and for any reason.
The Bank does not intend to purchase "key man" life insurance on the life of any
personnel. See "MANAGEMENT."
7. Illiquid Securities; No Market for Issuer's Securities. There currently is no
trading market for the Common Stock. The Company anticipates that it will
attempt to seek an agreement with one or more broker-dealers to act as a market
maker in the Common Stock, subject to applicable laws and regulatory
requirements. The Company anticipates that the market maker(s), if any, will
submit quotations for the Common Stock to the National Daily Quotation Sheets,
popularly known as the "Pink Sheets," which are published by the National Daily
Quotation Bureau. There can be no assurance that a broker-dealer will agree to
act as a market maker in the Common Stock. Making a market in securities
involves maintaining bid and ask quotations and being able, as principal, to
effect transactions in reasonable quantities at those quoted prices, subject to
various securities laws and other regulatory requirements. The development of a
public trading market depends, however, upon the existence of willing buyers and
sellers, the presence of which is not within the control of the Company, the
Bank or any market maker. Even with a market maker, factors such as the limited
size of this Offering, the lack of earnings history for the Company and the
absence of a reasonable expectation of dividends within the near future mean
that there can be no assurance of the development in the foreseeable future of
an active and liquid market for the Common Stock.
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<PAGE>
Even if a market develops, there can be no assurance that a market will
continue, or that stockholders will be able to sell their shares at or above the
Offering price. In addition, the development of any trading market for the
Common Stock may be adversely impacted by purchases of large amounts of shares
of Common Stock in the Offering by the Organizers and the Additional Directors
since shares purchased by such persons will generally not be freely tradeable.
If a market for the Common Stock does not develop, any investment in the Common
Stock will be highly illiquid, and stockholders may not be able to liquidate
their investments in the event of an emergency or for any other reason.
Purchasers of Common Stock should carefully consider the potentially illiquid
and long-term nature of their investment in the shares being offered hereby. See
"DESCRIPTION OF CAPITAL STOCK - Restrictions on Transferability."
8. Arbitrary Pricing of Securities. Because the Company and the Bank are in
organization, the Offering price for the Common Stock was arbitrarily determined
by the Organizers without reference to traditional criteria for determining
value such as book value or historical or projected earnings. The price per
share was set to enable the Company to raise gross proceeds of between
$2,400,000 and $3,000,000 in the Offering through the sale of a reasonable
number of shares of Common Stock, and the price per share is essentially
equivalent to the initial book value per share prior to the payment of the
Offering expenses and the Company's and the Bank's organizational expenses and
the consummation of the Acquisition. No assurance can be given that any of the
shares could be resold for the Offering price or any other amount. See "TERMS OF
THE OFFERING; PLAN OF DISTRIBUTION" and "CAPITALIZATION."
9. Impact of Government Regulation on Operating Results. The Company and the
Bank will operate in a highly regulated environment and will be subject to
examination, supervision and comprehensive regulation by the OTS and the FDIC.
In addition, in certain respects, the Bank will be subject to regulation by the
State of Maryland. Banking regulations, designed primarily for the safety of
depositors, may limit a federal stock savings bank's growth and the return to
its investors by restricting such activities such as the payment of dividends,
mergers with or acquisitions by other institutions, investments, loans and
interest rates, interest rates paid on deposits and the creation of branch
offices. The Bank also will be subject to capitalization guidelines set forth in
federal legislation, and could be subject to enforcement actions to the extent
the Bank is found by regulatory examiners to be undercapitalized. Laws and
regulations applicable to the Company and the Bank could change at any time, and
there can be no assurance that such changes would not adversely affect the
business of the Company and/or the Bank. In addition, the cost of compliance
with regulatory requirements could adversely affect the Company's and the Bank's
ability to operate profitably. See "REGULATION."
10. Risks of Competitive Market. The Bank's market area of Eastern Baltimore
City, Maryland as well as the Baltimore metropolitan area are highly competitive
markets for financial services and the Bank will face intense competition both
in making loans and in attracting deposits. The Bank will face direct
competition from a significant number of financial institutions operating in the
Bank's market area, many with a state-wide or regional presence and in some
cases a national presence. Many of these financial institutions have been in
business for many years, have established customer bases, are significantly
larger and have greater financial resources than the Bank will have and are able
to offer certain services that the Bank is not able to offer. In addition, the
Bank will face competition for deposits and loans from non-bank institutions
such as brokerage firms, credit unions, insurance companies, money market mutual
funds and private lenders. See "BUSINESS OF THE BANK - Location and Service
Area" and "- Competition."
11. Effect of Interest Rates on Net Interest Income. The operations of the Bank
will be substantially dependent on its net interest income, which is the
difference between the interest expense incurred in connection with the Bank's
interest-bearing liabilities, such as interest on deposit accounts, and the
interest income received from its interest-earning assets, such as loans and
investment securities. Volatility in interest rates can result in the flow of
funds away from banks of the type similar to the Bank and into direct
investments, such as corporate securities and other investment vehicles which,
because of among other things the absence of federal deposit insurance,
generally pay higher rates of return. Such volatility could cause the Bank to
pay increased interest rates to obtain deposits, and if the Bank is not able to
increase the interest rates on its loans and the rate of return on its
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investment portfolio, its net interest income will suffer. See "BUSINESS OF THE
BANK - Liquidity and Interest Rate Sensitivity."
12. Impact of Monetary Policy and Other Economic Factors on Operating Results.
Any change in governmental economic and monetary policy, banking and credit
regulations and general economic conditions could affect the demand for the
Bank's services. The rates of interest payable on deposits and chargeable on
loans will be affected by fiscal policy as determined by various governmental
and regulatory authorities, in particular the Board of Governors of the Federal
Reserve System (the "Federal Reserve"), as well as by national, state and local
economic conditions. Through open market transactions, variations in the
discount rate and the establishment of reserve requirements, the Federal Reserve
exerts considerable influence over the cost and availability of funds obtainable
for lending or investing. These actions may at times result in significant
fluctuations in interest rates, which could have adverse effects on the
operations of the Bank. See BUSINESS OF THE BANK - Competition."
13. Control by Organizers and Additional Directors. It is anticipated that the
Organizers and the Additional Directors, together with their immediate families,
will purchase, directly or indirectly, an aggregate of at least 140,520 shares
(including shares which may be issued to them in full or partial satisfaction of
organizational loans made by them to the Company) of the Common Stock to be sold
in the Offering. If the Organizers and the Additional Directors purchase such
number of shares of Common Stock, the Organizers and the Additional Directors
would own approximately 58.55% of the Company's outstanding shares of Common
Stock in the event the Minimum Number of Shares are sold and 46.84% of the
Company's outstanding shares of Common Stock in the event the Maximum Number of
Shares are sold. In addition, the Organizers and the Additional Directors may
purchase additional shares in the Offering if necessary to permit the Company to
satisfy the conditions of the Offering, and they may purchase additional shares
even if the Company has satisfied the conditions of the Offering. Any shares
purchased by the Organizers and the Additional Directors in excess of their
original commitment will be purchased for investment and not with a view to the
resale of such shares. As a result of the anticipated stock ownership in the
Company by the Organizers and Additional Directors as described above, together
with the influence that may be exerted by such persons due to their positions
with the Company and/or the Bank, as a group such persons will have effective
control of the Company and the Bank following the Offering. Because purchases by
the Organizers and the Additional Directors are expected to be substantial,
investors should not place any reliance on the sale of the Minimum Number of
Shares as an indication of the merits of the Offering or that their investment
decision is shared by other unaffiliated investors. See "TERMS OF THE OFFERING;
PLAN OF DISTRIBUTION," "USE OF PROCEEDS" and "MANAGEMENT - Interest of
Management and Others in Certain Transactions."
14. Dividend Restrictions. The Company is a legal entity separate and distinct
from the Bank. Because the Company initially will engage in no business other
than owning all of the outstanding shares of capital stock of the Bank, the
Company's payment of dividends on the Common Stock will generally be funded only
from dividends received by the Company from the Bank, which dividends are
dependent on, among other things, the Bank's profitability. In addition, the
payment of dividends may be made only if the Bank and the Company are in
compliance with certain applicable regulatory requirements governing the payment
of dividends by each of them. No assurance can be given that dividends on the
Common Stock will ever be paid. The Company expects that earnings, if any, will
be used initially for operating capital and the Company does not foresee payment
of any dividends in the near future. THE COMMON STOCK SHOULD NOT BE PURCHASED BY
PERSONS WHO NEED OR DESIRE DIVIDEND INCOME FROM THIS INVESTMENT. See "REGULATION
- - Federal Savings Institution Regulation - Limitation on Capital Distributions"
and "DIVIDEND POLICY."
15. Risk of Expansion Strategies. The Organizers intend to expand the business
of the Bank by opening branches. At this time, the Organizers have not
identified any location for a branch of the Bank. The Bank's success in
expanding its business through the opening of branches will be dependent upon,
among other things, the Bank's access to capital, its ability to manage the
growth, its ability to attract and train qualified employees and its ability to
obtain regulatory approval. There can be no assurance that the Organizers will
be successful in implementing this expansion strategy or, if they are able to
implement the expansion strategy, that they will
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be able to manage the resultant growth. In addition, the Organizers inability to
implement the expansion strategy could negatively impact the Bank's ability to
successfully compete in the marketplace. See "BUSINESS OF THE BANK - Location
and Service Area" and "Market Strategy."
16. No Assurance of Ability to Raise Additional Capital. The Organizers believe
that the minimum proceeds of $2,400,000 from the Offering will satisfy the cash
requirements of the Company and the Bank for their respective first three years
of operations, assuming no new branches are opened during this period, but there
can be no assurance that this will be the case. This estimate is based on the
level of expenses commensurate with the estimated number of employees and
estimated size of the operations of the Bank during this period and the amount
of capital normally required for a bank with total assets in the range in which
the Organizers expect the Bank's assets to be during this period. The Company's
and the Bank's future capital requirements, however, will depend on many
factors, including the Bank's ability to successfully originate loans and
attract deposits and the Bank's ability to implement the expansion strategy
described above. To the extent that the funds generated from the Offering are
insufficient to fund the Company and the Bank's future operating requirements or
to implement the expansion strategy described above, it may be necessary to
raise additional funds, through public or private financings. As stated above,
the Bank may endeavor to open a new branch if an appropriate opportunity arises.
If an appropriate opportunity arises, and if it is determined that additional
funds are required to finance the new branch, the Company will seek to raise the
additional funds, regardless of the amount of funds raised in this Offering. Any
equity or debt financings, if available at all, may be on terms which are not
favorable to the Company or the Bank and, in the case of equity financings,
could result in dilution to the Company's shareholders. Accordingly, if adequate
capital is not available, the Bank may be required to curtail significantly its
expected operations and its expansion strategy. See "USE OF PROCEEDS" and
"BUSINESS OF THE BANK."
17. Transactions with Related Parties. In order to assure that expenses related
to the Acquisition and the Offering and organizational expenses of the Company
and the Bank are paid, the Organizers, the Additional Directors and the Advisory
Directors (collectively, the "Lenders") have loaned an aggregate of $652,000 to
the Company for the benefit of the Company and the Bank (the "Organizational
Loans"). The Organizational Loans are only repayable from the proceeds of the
Offering or from proceeds of the Organizational Loans which were not expended by
the Company, and the Lenders may choose to receive repayment in full or in part
through their receipt in the Offering of shares of Common Stock valued at $10.00
per share. As of the date of this Prospectus, the Company has received no
communication from any Lender regarding his or her intention as to the method of
repayment of the Organizational Loans. Accordingly, the Company has no knowledge
as to whether repayment of the Organizational Loans will be requested in cash or
in shares of Common Stock. Upon commencement of the Company's and the Bank's
operations, it is anticipated that Jameson and Associates, P.A., will provide
tax and other accounting services to the Company and the Bank and that Pezzulla
and Pezzulla, LLC, will provide legal services to the Company and the Bank.
Organizer J. Clarence Jameson, III is the President and a principal of Jameson
and Associates, P.A. and Organizer Kenneth D. Pezzulla is a member of Pezzulla
and Pezzulla, LLC. Mr. Pezzulla currently serves as a director of Rushmore and
he will resign from that position upon consummation of the Acquisition. Mr.
Pezzulla also currently provides legal services to the Baltimore Branch. In
addition, upon commencement of the Company's and the Bank's operations, it is
anticipated that National Mortgage Corporation will provide mortgage services to
the Bank, which services may include consulting services and the purchase and/or
sale of mortgages. Additional Director Henry A. Berliner, Jr. is the President
and a principal of National Mortgage Corporation. Although the Organizers
believe that the terms of each of these transactions are or will be as favorable
as could be obtained from unrelated third parties, each of these transactions
pose a conflict of interest for the involved parties. See "MANAGEMENT - Interest
of Management and Others in Certain Transactions."
18. Antitakeover Provision. Certain provisions included in the Charter and
Bylaws of the Company are designed to encourage potential acquirors to negotiate
directly with the Board of Directors of the Company and to discourage takeover
attempts. Such provisions may discourage non-negotiated takeover attempts which
certain stockholders could deem to be in their best interests. These provisions
also tend to perpetuate management. See "DESCRIPTION OF CAPITAL STOCK - Certain
Antitakeover Effects."
17
<PAGE>
19. Uncertainty as to Effects of New Federal Legislation. On September 30, 1996,
the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (the "1996
Act") was enacted. The 1996 Act changed a broad spectrum of prior banking laws.
Among other things, the 1996 Act requires the Secretary of the Treasury to
present a report to Congress before March 31, 1997 containing the Secretary of
the Treasury's recommendations for a common depository charter for all federally
chartered depository institutions, and the elimination of separate charters
between thrifts and commercial banks. The Secretary has made two alternative
recommendations to Congress. Under the first alternative, after a two-year
conversion period, all federally chartered thrifts would be required to convert
to national banks or state banks and the OTS would be abolished. Under the
second alternative, the thrift charter would remain intact. In addition,
legislation currently is pending before Congress that is substantially similar
to the Secretary's first alternative described above. If the Bank was required
to convert from a federal stock savings bank to a national bank or a state bank,
the Bank's regulatory structure could significantly change. At this time,
however, it is not possible to determine the effect of the Secretary's
recommendations or the extent to which the Secretary's recommendations,
Congress' action on the recommendations or Congress' actions on the pending
legislation would effect the operations of the Bank. See "REGULATION - New
Federal Legislation."
20. Effects of Recapitalization of SAIF on Assessment Payable by Bank. The 1996
Act requires institutions the deposits of which are insured by the Savings
Association Insurance Corporation ("SAIF"), which is administered by the Federal
Deposit Insurance Corporation ("FDIC"), to pay a one-time assessment to increase
the capitalization of SAIF. Currently, SAIF provides deposit insurance for
federal savings associations, such as federal stock savings banks. The purpose
of the assessment is to bring SAIF premiums in line with deposit insurance
premiums assessed by the Bank Insurance Fund ("BIF") (also administered by the
FDIC), which is the insurance fund which insures most commercial bank deposits.
The 1996 Act also provides for the eventual merger of SAIF and BIF into a new
insurance fund to be called the Deposit Insurance Fund ("DIF"). The 1996 Act is
unclear with respect to its effect on institutions like the Bank as the
legislation does not address how or if the one-time assessment will be applied
to federal stock savings banks chartered after the enactment of the legislation.
It is the Organizers' understanding from conversations with the applicable
regulatory authorities that the one-time assessment will not be assessed against
the Bank. However, there can be no assurance that that will be the case. See
"REGULATION - Insurance of Deposit Accounts."
21. Dilution. After the Offering, the Company expects to adopt a stock option
plan which will permit the Company to grant options to officers, directors, key
employees, advisors and/or consultants of the Company. The exercise of options
could have a dilutive effect on the stockholders' interest in the Company's
earnings and book value. In addition, the Company may issue additional shares of
Common Stock or preferred stock in the future. Any such stock offering by its
nature could be dilutive to the holdings of purchasers in this Offering.
See "MANAGEMENT - Stock Option Plan."
22. Direct Public Offering; No Underwriter. No commitment exists for an
underwriter to purchase any shares in this Offering. Instead, the Company is
offering shares of its Common Stock directly to the public on a "best efforts"
basis and no assurance can be given that any shares will be sold. See "TERMS OF
THE OFFERING; PLAN OF DISTRIBUTION."
18
<PAGE>
USE OF PROCEEDS
General
Although the amounts set forth below provide an indication of the proposed
use of funds based on the plans and estimates of the Organizers, actual expenses
may vary from the estimates. The Organizers believe that the minimum proceeds of
$2,400,000 from the Offering will satisfy the cash requirements of the Company
and the Bank for their respective first three years of operations, assuming no
new branches are opened during this period, but there can be no assurance that
this will be the case. This estimate is based on the level of expenses
commensurate with the estimated number of employees and estimated size of the
operations of the Bank during this period and the amount of capital normally
required for a bank with total assets in the range in which the Organizers
expect the Bank's assets to be during this period. In order for the Bank to open
additional branches however, the Company and/or the Bank may be required to
raise additional capital. See "RISK FACTORS - No Assurance of Ability to Raise
Additional Capital."
In order to assure that expenses related to the Acquisition and the
Offering and organizational expenses of the Company and the Bank are paid, the
Organizers, the Additional Directors and the Advisory Directors (collectively,
the "Lenders")
19
<PAGE>
have loaned an aggregate of $652,000 to the Company for the benefit of the
Company and the Bank (the "Organizational Loans"). The Organizational Loans are
only repayable from the proceeds of the Offering or from proceeds of the
Organizational Loans which were not expended by the Company, and the Lenders may
choose to receive repayment in full or in part through their receipt in the
Offering of shares of Common Stock valued at $10.00 per share. As of the date of
this Prospectus, the Company has received no communication from any Lender
regarding his or her intention as to the method of repayment of the
Organizational Loans. Accordingly, the Company has no knowledge as to whether
repayment of the Organizational Loans will be requested in cash or in shares of
Common Stock. See "MANAGEMENT - Interest of Management and Others in Certain
Transactions."
As of July 15, 1997, the Company had expended approximately $175,000 of
the Organizational Loans. After paying certain expenses of the Company and the
Bank as described below, the Company anticipates that it will expend a total of
approximately $385,000 of the Organizational Loans. Of that amount, and assuming
that the Lenders elect to have their loans repaid in cash, the Company
anticipates that $325,000 will be repaid from the proceeds of the Offering
($175,000 by the Company and $150,000 by the Bank), with the remainder, or
$60,000, being repaid from Acquisition proceeds as discussed below. The Company
anticipates that $267,000 of the Organizational Loans will not be expended by
the COmpany, and such amount will be returned to the Lenders, assuming that the
Lenders elect to have their loans repaid in cash.
By the Company
Upon satisfaction of the conditions discussed in "TERMS OF THE OFFERING;
PLAN OF DISTRIBUTION - Conditions of the Offering and Release of Funds," all
subscription funds held in escrow will be released and will become capital of
the Company. The gross proceeds to the Company from the sale of the shares of
Common Stock offered hereby will be between $2,400,000 and $3,000,000. The
Company will use at least $2,150,000 of the gross proceeds to acquire all of the
shares of capital stock of the Bank. The Company will use approximately $175,000
of the gross proceeds to repay the Lenders for the portion of the Organizational
Loans used to pay Offering expenses (estimated at $150,000) and organizational
expenses of the Company (estimated at $25,000), assuming that the Lenders elect
to have their loans repaid in cash. The Offering expenses include printing
costs, legal and accounting fees, reimbursement of reasonable expenses incurred
by a director of the Company in connection with making offers and sales on
behalf of the Company, filing fees, escrow fees and other miscellaneous costs.
The Company will retain the balance of the proceeds, estimated at $75,000
if the Minimum Number of Shares are sold and $675,000 if the Maximum Number of
Shares are sold, for working capital and other general corporate purposes and/or
for the provision of additional capital for the Bank.
The following table sets forth the anticipated use of proceeds by the
Company based on the sale of the Minimum Number of Shares and the Maximum Number
of Shares in the Offering.
<TABLE>
<CAPTION>
Minimum Percent Maximum Percent
Number of of Proceeds Number of of Proceeds
Shares (1) ----------- Shares (2) -----------
---------- ----------
<S> <C>
Gross proceeds from Offering ...................... $2,400,000 100% $3,000,000 100%
Repayment of Organizational Loans by the Company... (175,000)(3) 7.29% (175,000)(3) 5.83%
Investment in capital stock of the Bank............ (2,150,000)(4) 89.58% (2,150,000) 71.67%
------------- ------ ------------- ------
Remaining proceeds................................. $ 75,000(5) 3.13% $ 675,000(3) 22.50%
============= ====== ============= ======
</TABLE>
(1) Assumes that 240,000 shares of Common Stock are sold in this Offering
at $10.00 per share.
(2) Assumes that 300,000 shares of Common Stock are sold in this Offering
at $10.00 per share.
(3) Of this amount, $150,000 will have been used to pay Offering expenses
and $25,000 will have been used to pay organizational expenses of the
Company. This repayment of $175,000 of the Organizational Loan proceeds
assumes that the Lenders will elect to have their loans repaid in cash.
(4) Of this amount, $150,000 will be used to repay Organizational Loans as
described below.
20
<PAGE>
(5) This amount will be used by the Company for working capital and other
general corporate purposes and/or for the provision of additional
capital for the Bank.
By the Bank
The Bank will use the minimum $2,150,000 received from the sale of its
stock to the Company as follows:
The Bank will use approximately $150,000 of the proceeds to repay the
Company, which, in turn, will repay the Lenders for the portion of the
Organizational Loans used to pay the Bank's organizational expenses (estimated
at $110,000) and the Bank's Acquisition related legal fees (estimated at
$40,000), assuming that the Lenders elect to have their loans repaid in cash.
The Bank's organizational expenses include attorney, consulting and accounting
fees, and the fees to be paid to Mr. Jameson, Mr. Pezzulla, Jameson &
Associates, P.A., and Pezzulla and Pezzulla, LLC.
The Bank will use the balance of the proceeds from the sale of its
stock to the Company, estimated to be $2,000,000, for loans to customers,
investments and other general banking purposes.
The following table depicts the Bank's anticipated use of proceeds
from the sale of its stock to the Company.
Investment by the Company in the Bank's
capital stock......................................... $2,150,000
Repayment of Organizational Loans..................... (150,000)(1)
Remaining proceeds.................................... $2,000,000(2)
==========
(1) Of this amount, $110,000 will have been used to pay the Bank's
organizational expenses and $40,000 will have been used to pay
Acquisition related legal fees. This repayment of $150,000 of
Organizational Loan proceeds assumes that the Lenders will elect to
have their loans repaid in cash.
(2) This amount is to be used by the Bank for loans to customers,
investments and other general banking purposes.
The Bank will use up to $60,000 of the proceeds of the Acquisition to
repay the Company, which, in turn, will repay the Lenders, for the three
$20,000 deposits which will have been paid to Rushmore as of August 1, 1997 in
connection with the Acquisition, assuming that the Lenders elect to have their
loans repaid in cash. See "The Acquisition-Terms of the Acquisition."
21
<PAGE>
TERMS OF THE OFFERING; PLAN OF DISTRIBUTION
General
The Company is offering for sale a minimum of 240,000 shares and a maximum
of 300,000 shares of its Common Stock at a purchase price of $10.00 per share to
raise gross proceeds between $2,400,000 and $3,000,000 for the Company. The
Company has established a minimum subscription of 250 shares ($2,500) and a
maximum subscription of 20,050 shares ($200,500). However, the Company reserves
the right to waive these limits without notifying any subscriber. Because the
Company and the Bank are in organization, the Offering price of the Common Stock
was arbitrarily determined by the Organizers without reference to traditional
criteria for determining value such as book value or historical or projected
earnings. The Company will act as its own transfer agent immediately after the
Offering.
Subscribers should be aware that beneficial ownership of as little as 10%
of the outstanding shares of Common Stock could obligate the beneficial owner to
comply with certain reporting and disclosure requirements of federal banking
laws. The Company will notify any person of which the Company is aware who
subscribes for 10% or more of the outstanding shares of Common Stock in the
Offering that such person may be subject to certain reporting and disclosure
requirements.
It is anticipated that the Organizers and the Additional Directors,
together with their immediate families, will purchase, directly or indirectly,
an aggregate of at least 140,520 shares (including shares which may be issued to
them in full or partial satisfaction of organizational loans made by them to the
Company) of the Common Stock to be sold in the Offering. In addition, the
Organizers and the Additional Directors may purchase additional shares in the
Offering if necessary to permit the Company to satisfy the conditions of the
Offering, and they may purchase additional shares even if the Company has
satisfied the conditions of the Offering. Any shares purchased by the Organizers
and the Additional Directors in excess of their original commitment will be
purchased for investment and not with a view to the resale of such shares.
Because purchases by the Organizers and the Additional Directors are expected to
be substantial, investors should not place any reliance on the sale of the
Minimum Number of Shares as an indication of the merits of the Offering or that
their investment decision is shared by other unaffiliated investors. See
"MANAGEMENT."
The Common Stock will be offered by the Company and sold solely by one of
the Company's directors, to whom no commissions or other compensation will be
paid on account of such activity, although such person will be reimbursed for
reasonable expenses incurred in the Offering. No broker or dealer has been
retained by the Company.
Subscriptions to purchase shares of the Common Stock will be received
until 5:00 p.m. EST, on December 31, 1997, unless all of the Common Stock is
earlier sold or the Offering is earlier terminated or extended by the Company.
See "Conditions of the Offering and Release of Funds" below. The Company
reserves the right to terminate the Offering at any time or to extend the
expiration date for additional periods not to extend beyond March 31, 1998. The
date the Offering expires (as possibly extended) is referred to herein as the
"Expiration Date." No written notice of an extension of the Offering need be
given prior to any extension and any such extension will not alter the binding
nature of subscriptions already accepted by the Company.
Following acceptance by the Company, subscriptions are binding on
subscribers and may not be revoked by subscribers except with the consent of the
Company. In addition, the Company reserves the right to cancel accepted
subscriptions at any time and for any reason until the proceeds of the Offering
are released from escrow (as discussed in greater detail in "Conditions of the
Offering and Release of Funds" below), and the Company reserves the right to
reject, in whole or in part and in its sole discretion, any subscription. The
Company may, in its sole discretion, allocate shares of Common Stock among
subscribers in the event of an oversubscription for the Common Stock. In
determining which subscriptions to accept, in whole or in part, the Company may
take into account the order in which subscriptions are received and a
subscriber's potential to do business with or to direct customers to the Bank.
22
<PAGE>
In the event the Company rejects all, or accepts less than all, of any
subscription, the Company will refund promptly, without interest or deductions
of any kind, the amount remitted that corresponds to Ten Dollars ($10.00)
multiplied by the number of shares of Common Stock as to which the subscription
was not accepted. If the Company accepts a subscription but in its discretion
subsequently elects to cancel all or part of such subscription, the Company will
refund promptly the amount remitted that corresponds to Ten Dollars ($10.00)
multiplied by the number of shares of Common Stock as to which the subscription
was canceled, together with any interest earned thereon.
After the conditions of the Offering are satisfied and escrowed funds are
delivered to the Company, certificates representing shares of Common Stock duly
subscribed and paid for will promptly be issued by the Company to the
subscribers.
Conditions of the Offering and Release of Funds
Subscription proceeds for shares subscribed for will be deposited promptly
in an interest-earning escrow account with The First National Bank of Maryland,
as escrow agent (the "Escrow Agent"), under the terms of an escrow agreement
(the "Escrow Agreement"), pending the satisfaction of the conditions of the
Offering or the termination of the Offering. Neither the Company nor any of its
officers or directors is affiliated with the Escrow Agent. The Offering will be
terminated, no shares of Common Stock will be issued, and no subscription
proceeds will be released from escrow to the Company unless on or before the
Expiration Date (i) the Company has accepted subscriptions and payment in full
for the Minimum Number of Shares and (ii) the Organizers have made adequate
provisions for satisfying (as they determine in their reasonable discretion) any
regulatory or other conditions that must be satisfied before the Bank may
commence banking operations and/or before the Bank may consummate the
Acquisition. At the Organizers' discretion, and upon receipt of written
confirmation from a Lender that the Lender will seek payment for his
Organizational Loan through the issuance to him of shares of Common Stock in the
Offering, the Organizers may include the shares to be issued to such person in
determining whether the Company has accepted subscriptions and payment in full
for the Minimum Number of Shares.
If the above conditions are not satisfied by the Expiration Date or the
Offering is otherwise earlier terminated, accepted subscription agreements will
be of no further force or effect. In either event, the Company will return to
all subscribers all subscription funds together with any interest earned
thereon.
The Escrow Agent has not investigated the desirability or advisability of
an investment in the Common Stock by prospective investors and has not approved,
endorsed or passed upon the merits of an investment in the Common Stock.
Subscription funds held in escrow will, at the direction of the Company, be
invested by the Escrow Agent only in bank accounts, including savings accounts
and bank money market accounts, short-term certificates of deposit issued by a
bank or short-term securities issued or guaranteed by the United States
Government. In no event will the subscription proceeds held in escrow be
invested in instruments that would mature after the Expiration Date.
23
<PAGE>
If the above conditions are satisfied, the subscription amounts held in
escrow, including any interest earned thereon, shall be released to the Company
for its immediate use and shares may be issued to subscribers. Any subscription
proceeds accepted after satisfaction of the conditions set forth above but
before termination of the Offering will be deposited in a non-escrow Company
deposit account at The First National Bank of Maryland pending acceptance or
rejection of subscriptions. Upon acceptance, such proceeds will be available for
immediate use by the Company to fund Offering and organizational expenses and
for working capital. See "USE OF PROCEEDS."
If the conditions for releasing subscriptions funds from escrow are met
and such funds are released from escrow but final regulatory approvals for the
Bank to commence banking operations are not obtained or the Bank does not open
for any other reason or the Acquisition is not consummated for any reason, the
Company's Board of Directors intends to propose that the stockholders approve a
plan to liquidate the Company. Upon such a liquidation, the Company would be
dissolved and the Company's net assets (generally consisting of the amounts
received in the Offering plus any interest earned thereon, less the amount of
all costs and expenses incurred by the Company and the Bank) would be
distributed to stockholders. In such event, the Company will have incurred
numerous expenses related the Offering and the organization of the Company and
the Bank, and the amounts distributed in liquidation to stockholders may be
substantially less than their subscription amount.
How to Subscribe
Shares of Common Stock may be subscribed for by executing and delivering
to the Company the subscription agreement (the "Subscription Agreement")
attached hereto as Exhibit A on or prior to the Expiration Date, and by
delivering to the Company payment of the purchase price for the shares of Common
Stock subscribed. Payment must be made in United States dollars by cash or by
check, bank draft or money order drawn to the order of the First National Bank
of Maryland, Escrow Agent. An executed Subscription Agreement together with
payment of the purchase price for the Common Stock subscribed must be received
by the Company no later than the close of business (5:00 p.m. EST) on December
31, 1997, unless the Offering is extended by the Company for additional periods
not to extend beyond March 31, 1998. Subscribers should retain a copy of the
completed Subscription Agreement for their records.
24
<PAGE>
CAPITALIZATION
At March 31, 1997, the following table sets forth the unaudited pro
forma consolidated capitalization of the Company based on the sale of the
Minimum Number of Shares and the Maximum Number of Shares at $10 per share in
the Offering (less Offering expenses).
<TABLE>
<CAPTION>
March 31, 1997
Pro Forma Adjusted
------------------
Minimum Maximum
Stockholder's Equity Actual Number of Shares (1) Number of Shares (2)
- -------------------- ------ -------------------- --------------------
<S> <C>
Common stock, par value $.01 per $ -- $ 2,400 $ 3,000
share; 5,000,000 shares authorized;
240,000 shares (Minimum Number of
Shares) and 300,000 (Maximum Number
of Shares) issued and outstanding.
Preferred stock, par value $.01 per -- -- --
share; 5,000,000 shares authorized;
no shares issued or outstanding.
Additional paid-in capital(3) -- 2,247,600 2,847,000
Retained Earnings 4,000 4,000 4,000
------ ---------- ----------
Total shareholder's equity $4,000 $2,254,000 $2,854,000
====== ========== ==========
</TABLE>
(1) Based on 240,000 shares of Common Stock sold in the Offering.
(2) Based on 300,000 shares of Common Stock sold in the Offering.
(3) The expenses of the Offering, which include printing costs, legal and
accounting, reimbursement of reasonable expenses incurred by a director
of the Company in connection with making offers and sales on behalf of
the Company, filing fees, escrow fees and other miscellaneous costs,
will be charged against this account. Total Offering expenses are
estimated to be $150,000.
25
<PAGE>
DIVIDEND POLICY
The Board of Directors of the Company initially expects to follow a
policy of retaining any earnings to provide funds to operate and expand the
Company. Consequently, there are no plans for any cash dividends to be paid in
the near future. The Company's ability to pay any cash dividends to its
stockholders in the future will depend primarily on the Bank's ability to pay
cash dividends to the Company. The payment of dividends may be made only if the
Bank and the Company are in compliance with certain applicable regulatory
requirements governing the payment of dividends by each of them. In addition,
the payment of cash dividends by the Company is subject to the discretion of the
Company's Board of Directors, which will consider a number of factors, including
the Company's future earnings, financial condition, cash needs and general
business condition. See "REGULATION - Federal Savings Institution Regulation -
Limitation on Capital Distributions."
26
<PAGE>
ORGANIZATION OF THE COMPANY AND THE BANK
The Company
The Company was incorporated under the laws of the State of Maryland on
June 4, 1996, primarily to own all of the outstanding shares of capital stock of
the Bank. The Company has not conducted any business activities to date other
than those deemed necessary by the Company to proceed with the Offering. The
Company initially will engage in no business other than owning all of the
outstanding shares of capital stock of the Bank and, as of the date of this
Prospectus, the Company does not intend to engage in any additional business.
Accordingly, the Company's initial earnings will be dependent upon dividends
received by the Company from the Bank, which dividends are dependent on the
Bank's profitability and the Bank's compliance with certain regulatory
requirements. See "REGULATION - Federal Savings Institution Regulation -
Limitation on Capital Distributions."
The Company may not acquire the capital stock of the Bank without the
approval of the Office of Thrift Supervision (the "OTS"). On June 5, 1996, the
Company filed an application with the OTS to obtain the necessary approvals and
these approvals were granted by the OTS on April 15, 1997. Upon satisfaction of
the conditions of the Offering and the release of escrowed funds to the Company,
the Company will proceed to acquire all of the shares of capital stock of the
Bank and the Company will become, subject to the Bank's compliance with certain
regulatory requirements discussed below, a non-diversified unitary savings and
loan holding company. As such, the Company will be subject to examination and
comprehensive regulation by the OTS. See "REGULATION - Holding Company
Regulation."
The Bank
On June 5, 1996, the organizers of the Company and the Bank (the
"Organizers") filed an application with the OTS to organize the Bank as a
federal stock savings bank. On April 15, 1997, the OTS conditionally approved
the application. However, before the Bank obtains final regulatory approval to
commence banking operations, the Bank, among other things, must obtain
membership in the Federal Home Loan Bank System, obtain federal deposit
insurance for its deposit accounts from the Federal Deposit Insurance
Corporation (the "FDIC") and complete the sale to the Company of a minimum of
$2,150,000 of its fully-paid capital stock. On April 23, 1997, the FDIC
conditionally approved the Bank's application for federal deposit insurance.
As a federal stock savings bank, the Bank will be subject to
examination, supervision and comprehensive regulation by the OTS, the FDIC and,
in certain respects, the State of Maryland. There is no assurance that the Bank
will be successful in satisfying any condition that may be imposed upon it by
the OTS or the FDIC. See "REGULATION - Federal Savings Institution Regulation."
27
<PAGE>
THE ACQUISITION
General
On May 31, 1996, the Bank, through its Organizers, entered into a
Branch Purchase and Assumption Agreement, as amended, and a Loan Purchase and
Assumption Agreement, as amended (collectively, the "Agreements"), with Rushmore
Trust & Savings, FSB ("Rushmore"), for the acquisition of certain assets and the
assumption of certain deposit liabilities primarily related to Rushmore's
Baltimore, Maryland branch office located at 3621 East Lombard Street,
Baltimore, Maryland 21224 (the "Baltimore Branch"). The transactions
contemplated by the Agreements are referred to in this Prospectus as the
"Acquisition." The proposed Acquisition was initiated when Kenneth Pezzula, a
director of the Company and Organizer of the Bank, as well as a director of
Rushmore, approached management of Rushmore to propose the sale of the Baltimore
Branch to a group desiring to establish a new community bank.
It is contemplated that the Acquisition will close as soon as possible
after the satisfaction of the conditions of the Offering. In the event the Bank
fails to consummate the Acquisition for any reason, the Board of Directors of
the Company intends to propose to the Company's stockholders that the Company be
liquidated. See "RISK FACTORS - Investors Could Suffer Immediate Loss of
Investment." Thus, while the closing of the Acquisition is not a condition
precedent to the satisfaction of the conditions of the Offering, it is a
condition precedent to the opening of the Bank.
Upon consummation of the Acquisition, the Bank will assume liabilities
relating to deposits and certificates of deposit booked at the Baltimore Branch
(the "Baltimore Branch Deposits") and the Bank will pay Rushmore a premium for
such deposits. As of March 31, 1997, the Baltimore Branch Deposits totaled
approximately $8,138,000. This amount is subject to change due to the reduction
or growth of deposits occurring prior to the closing date of the Acquisition.
The Bank will acquire all of Rushmore's loans originated at the Baltimore Branch
(the "Baltimore Branch Loans") and certain of Rushmore's loans originated at
Rushmore's Montgomery County, Maryland branch office (the "Montgomery County
Loans") (the Baltimore Branch Loans and the Montgomery County Loans are
collectively referred to in this Prospectus as the "Rushmore Loans"), as well as
certain assets related to the operation of the Baltimore Branch (the "Baltimore
Branch Assets"), including the Baltimore Branch's real property, building and
improvements (the "Real Estate"), and all of the Baltimore Branch's fixtures,
furnishings, equipment, furniture and other tangible personal property (the
"Furnishings"). As of March 31, 1997, the Rushmore Loans totaled approximately
$7,004,000, at face value, consisting of approximately $5,846,000 in Baltimore
Branch Loans and approximately $1,158,000 in Montgomery County Loans. The
Acquisition will be accounted for as a purchase and the deposit premium (the
"Core Deposit Value") will be amortized over five years on a straight line
basis. For tax purposes, the Core Deposit Value will be amortized over a 15-year
period on a straight-line basis and is expected to be fully deductible under
current law.
The Organizers and/or their agents have reviewed the Rushmore Loans and
found them to be fully performing with acceptable risk ratings. The Agreement
provides that in the event any of the Rushmore Loans are repaid or the
collateral securing any of such loans are sold at a foreclosure sale, the Bank
will not purchase those loans. The Furnishings are being purchased in "as is
where is" condition. The Bank will acquire fee simple title to the Real Estate.
No environmental evaluation has been or will be made of the Real Estate.
It is currently contemplated that the Bank will employ the three
full-time and one part-time Rushmore employees who currently work at the
Baltimore Branch, including Patricia D'Alessandro, who currently is a Vice
President of Rushmore with managerial responsibilities for the Baltimore Branch.
Subject to regulatory approval, Ms. D'Alessandro will serve as the President of
the Bank and the Vice President of the Company. Ms. D'Alessandro has over 20
years of experience in the commercial and retail banking industry. See
"MANAGEMENT." The Bank will pay the former Rushmore employees the same
compensation that they were being paid by Rushmore and they will be eligible to
participate in any employee benefit plans offered by the Bank.
28
<PAGE>
Terms of the Acquisition
The Bank will acquire the Rushmore Loans for the face value of such
loans on the closing date of the Acquisition, plus accrued interest, plus
$50,000 less aggregate escrow balances. The $50,000 payment will be offset by an
equal credit to the Bank, which the Bank will use to establish an allowance for
loan losses. See "BUSINESS OF THE BANK - Lending Activities - Allowance for Loan
Losses." The Bank will acquire the Real Estate for $50,000 and the Furnishings
for $30,000. The Bank will pay Rushmore $50,000 in exchange for Rushmore's
agreement not to compete with the Bank for a period of three years after the
closing date of the Acquisition (the "Covenant Not to Compete"). The Core
Deposit Value will equal the Baltimore Branch Deposits (plus accrued interest)
on the closing date of the Acquisition multiplied by 0.035 less $105,000.
Payment of the Core Deposit Value, as well as the payment for the Rushmore
Loans, the Real Estate, the Furnishings and the Covenant Not to Compete, will be
effectuated through an appropriate reduction of the cash to be received by the
Bank from Rushmore to fund the deposits being assumed by the Bank.
Based upon March 31, 1997 estimates, upon consummation of the
Acquisition, the amount of net cash to be received by the Bank from Rushmore
would be approximately $789,000. This estimate is determined as follows: based
on March 31, 1997 estimates, the gross amount to be paid to the Bank by Rushmore
would be approximately $8,139,000, consisting of (i) Baltimore Branch Deposits
of $8,138,000 and (ii) accrued interest on Baltimore Branch Deposits of
approximately $1,000. Based on March 31, 1997 estimates, approximately
$7,350,000 is to be netted against this gross amount consisting of (i) a deposit
premium totaling approximately $180,000 on $8,138,000 of Baltimore Branch
Deposits and accrued interest of $1,000; (ii) $7,004,000 of Rushmore Loans;
(iii) accrued interest receivable on the Rushmore Loans of approximately
$56,000; (iv) $130,000 for the Real Estate, the Furnishings and the Covenant Not
to Compete; less (v) a $20,000 deposit that the Bank paid Rushmore upon the
execution of the Agreements.
The parties have agreed that if the Acquisition has not been
consummated by June 30, 1997, the Bank, beginning on July 1, 1997 and continuing
on the first day of each month thereafter until the Acquisition has been
consummated, shall pay Rushmore one or more additional deposits of $20,000 each.
Upon the consummation of the Acquisition, the additional deposits will be added
to the amount of cash to be received by the Bank from Rushmore. In the event the
Bank fails to consummate the Acquisition for any reason other than the ability
of Rushmore to consummate the Acquisition, the Bank shall forfeit all deposits
to Rushmore.
Conditions of the Acquisition
As stated above, it is contemplated that the Acquisition will close as
soon as possible after the satisfaction of the conditions of the Offering. The
closing of the Acquisition is conditioned upon, among other things, receipt by
the Bank and Rushmore of all necessary regulatory approvals, including approval
of the Acquisition by the OTS. In making its determination, the OTS is required
under applicable regulations to consider: (i) the capital level of the Bank;
(ii) the financial and managerial resources of the Bank; (iii) the future
prospects of the Bank; (iv) the convenience and needs of the community to be
served; (v) the conformity of the transaction to applicable law, regulation, and
supervisory policy; and (vi) factors relating to the fairness and disclosure
concerning the Acquisition. On April 15, 1997, the OTS conditionally approved
the Acquisition.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information and explanatory
notes have been derived from the historical financial statements of the Company,
adjusted to give effect to the sale of the Minimum Number of Shares and the
Maximum Number of Shares in the Offering and to the Acquisition. The Unaudited
Pro Forma Consolidated Balance Sheet assumes that such transactions occurred on
March 31, 1997 and the Unaudited Pro Forma Income Statements assume that such
transactions occurred at the beginning of the period presented. The unaudited
pro forma financial information is not necessarily indicative of the financial
position or results of
29
<PAGE>
operation that would have occurred had the transactions reflected therein
occurred on dates presented, nor are they indicative of the financial position
or results of operation of future periods. The pro forma adjustments with
respect to the Acquisition are subject to change prior to the closing date of
the Acquisition in accordance with the terms of the Agreements. For audited
information regarding the Company and the Baltimore Branch, see the Financial
Statements located elsewhere in this Prospectus.
30
<PAGE>
Pro Forma Balance Sheet
At March 31, 1997
<TABLE>
<CAPTION>
Purchase Company, Company,
Baltimore Price as adjusted as adjusted
Minimum No. Maximum No. Branch/ Adjustments/ Minimum No. Maximum No.
Company of Shares of Shares Acquisitions Acquisition of Shares of Shares
------- ----------- ----------- ------------ ------------ ------------ -----------
<S> <C>
Assets
Cash and Investments $ 528,000 1,531,000 (a) $2,131,000 (a) $ -- $ 789,000 (f) $ 2,848,000 $ 3,448,000
Loans Receivable, net -- -- -- 5,751,000 1,253,000 (g) 7,004,000 7,004,000
Accrued Interest Receivable -- -- -- 48,000 8,000 (g) 56,000 56,000
Real Estate Owned, net -- -- -- 10,000 (10,000)(h) -- --
Premises and Equipment -- -- -- 13,000 67,000 (f) 80,000 80,000
Organization Costs 135,000 -- -- -- -- 135,000 135,000
Intangible Assets 40,000 -- -- -- 230,000 (f) 270,000 270,000
Non Refundable Deposit -
Purchase of Deposits,
Loans and Branch Facility 20,000 -- -- -- (20,000)(f) -- --
Deferred Offering Costs 65,000 (65,000) (b) (65,000) (b) -- -- -- --
Due from Rushmore -- -- -- 2,317,000 (2,317,000)(f) -- --
---------- ---------- ---------- ---------- ----------- ----------- -----------
Total Assets $ 788,000 $1,466,000 $2,066,000 $8,139,000 $ -- $10,393,000 $10,993,000
========== ========== ========== ========== =========== =========== ===========
Liabilities and Stockholders' Equity
Deposits $ -- $ -- $ -- $8,138,000 $ -- $ 8,138,000 $ 8,138,000
Accrued Interest on Deposits -- -- -- 1,000 -- 1,000 1,000
Accrued Liabilities 182,000 (182,000) (c) (182,000) (c) -- -- -- --
Advances from Lenders 602,000 (602,000) (d) (602,000) (d) -- -- -- --
---------- ---------- ---------- ---------- ----------- ----------- -----------
Total Liabilities 784,000 (784,000) (784,000) 8,139,000 -- 8,139,000 8,139,000
---------- ---------- ---------- ---------- ----------- ----------- -----------
Stockholders' Equity
Common Stock -- 2,000 (e) 3,000 (e) -- -- 2,000 3,000
Preferred Stock -- -- -- -- -- -- --
Additional Paid-in Capital -- 2,248,000 (e) 2,847,000 (e) -- -- 2,248,000 2,847,000
Retained Earnings 4,000 -- -- -- -- 4,000 4,000
---------- ---------- ---------- ---------- ----------- ----------- -----------
Total Stockholders' Equity 4,000 2,250,000 2,850,000 -- -- 2,254,000 2,854,000
---------- ---------- ---------- ---------- ----------- ----------- -----------
Total Liabilities and
Stockholders' Equity $ 788,000 $1,466,000 $2,066,000 $8,139,000 $ -- $10,393,000 $10,993,000
========== ========== ========== ========== =========== =========== ===========
</TABLE>
Notes to Pro Forma Balance Sheet at March 31, 1997
(a) Reflects the cash received, after payments are made for certain costs,
if the Minimum Number of Shares or Maximum Number of Shares are sold in
the Offering:
<TABLE>
<CAPTION>
Number of Shares Sold
---------------------
Minimum Maximum
------- -------
<S> <C>
Proceeds from Offering $2,400,000 $3,000,000
Less: Payment for accrued and additional organizational costs (87,000) (87,000)
Payment for accrued Acquisition related legal fees (30,000) (30,000)
Payment for advances from Lenders (602,000) (602,000)
Payment of deferred and additional expected
offering costs ($65,000+$85,000) (150,000) (150,000)
---------- ----------
$1,531,000 $2,131,000
========== ==========
</TABLE>
(b) Reflects the charge off of the deferred Offering costs incurred against
the Offering proceeds.
(c) Reflects the payments of payables outstanding at March 31, 1997 for
Offering and organizational costs and Acquisition related legal fees.
(d) Reflects the repayment of the advances from the Lenders.
31
<PAGE>
(e) Reflects the stockholder's equity, after the payments are made for
certain costs, if the Minimum Number of Shares or Maximum Number of
Shares are sold in the Offering:
Number of Shares Sold
---------------------
Mininum Maximum
------- -------
Proceeds from Offering $2,400,000 $3,000,000
Less: Offering costs (150,000) (150,000)
---------- ----------
Net proceeds from Offering 2,250,000 2,850,000
Less: Par Value of Common Stock (2,000) (3,000)
---------- ----------
Additional Paid In Capital $2,248,000 $2,847,000
========== ==========
(f) Reflects the effect of the Acquisition:
<TABLE>
<S> <C>
1) Reflects the cash to be received from Rushmore:
Deposits and accrued interest to be assumed $8,139,000
Loans to be acquired 7,004,000
Property to be acquired 80,000
Premium on loans 50,000
Premium on deposits [($8,139,000x0.035)-$105,000] 180,000
Covenant not to compete 50,000
Discount for loan loss allowance (50,000)
-------
230,000
Accrued interest receivable 56,000
Deposit paid (20,000)
---------
(7,350,000)
----------
$ 789,000
==========
2) Reflects the write-up of the property to the amount
to be paid:
Amount per the Agreements $ 80,000
Less: Amount as of March 31, 1997 (13,000)
---------
$ 67,000
=========
3) Reflects the elimination of the Due From Rushmore of
$2,317,000 that will not be acquired.
4) Intangibles to be acquired or paid:
Covenant not to compete $ 50,000
Premium on deposits 180,000
---------
$ 230,000
=========
</TABLE>
(g) Reflects the additional loans of $1,158,000 to be acquired that were
originated at Rushmore's Montgomery County, Maryland branch office,
origination fees of $45,000 that will not be acquired, premium on
Rushmore Loans of $50,000, and the accrued interest on the loans
originated at Rushmore's Montgomery County, Maryland branch office of
$8,000.
(h) Reflects the real estate owned that will not be acquired.
32
<PAGE>
Pro Forma Income Statement
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1996
-------------------
Company
If in Operation Baltimore Pro Forma Company,
Company for the Entire Year Branch Adjustments as adjusted
------- ------------------- --------- ----------- -----------
<S> <C>
Interest Income
Interest on loans $ -- $ -- $ 643,000 $ 95,000 (b) $ 738,000
Interest on Investments 2,000 -- -- -- 2,000 (g)
--------------- ------------- ---------- ---------- ----------
Total interest income 2,000 643,000 95,000 740,000
Interest expense deposits -- -- 352,000 -- 352,000
--------------- ------------- ---------- ---------- ----------
Net interest income 2,000 -- 291,000 95,000 388,000
Provision for loan losses -- -- -- -- --
Late charges and other fees -- -- 29,000 -- 29,000
--------------- ------------- ---------- ---------- ----------
2,000 -- 320,000 95,000 417,000
--------------- ------------- ---------- ---------- ----------
Salaries and benefits -- -- 106,000 26,000 (c) 132,000
Collection and foreclosure -- -- 25,000 -- 25,000
Occupancy -- -- 8,000 4,000 (c) 12,000
Depreciation and amortization -- 5,000 (a) 6,000 81,000 (d) 92,000
Deposit insurance premiums -- -- 23,000 -- 23,000
Other expense -- -- -- 349,000 (c) 349,000
--------------- ------------- ---------- ---------- ----------
Total expenses charged to Bank -- 5,000 168,000 460,000 633,000
--------------- ------------- ---------- ---------- ----------
Income before income taxes 2,000 -- 152,000 (365,000) (216,000)
Income tax provision -- -- -- -- --
Transfer to Rushmore -- -- (152,000) 152,000 (e) --
--------------- ------------- ---------- ---------- ----------
Net Income (Loss) $ 2,000 $ ( 5,000) $ -- $ (213,000) $ (216,000)
=============== ============= ========== ========== ==========
</TABLE>
Sale of Sale of
Minimum Maximum
No. of Shares No. of Shares
------------- -------------
Net loss per share $(0.90)(f) $(0.72)(f)
Weighted average shares outstanding 240,000(f) 300,000(f)
Notes to Pro Forma Income Statement for the Year Ended December 31, 1996
(a) Reflects one year's amortization of the Company's organizational costs
of $25,000 being amortized over five years.
(b) Reflects the interest income earned on the additional loans to be
acquired that were originated at Rushmore's Montgomery County, Maryland
branch office.
(c) Reflects the estimated additional salary and benefit, occupancy and
other costs that the Baltimore Branch would have incurred, if it were
operating on a stand alone basis.
(d) Reflects estimated additional depreciation and amortization expense
which would be incurred while operating between January 1, 1996 and
December 31, 1996 as follows:
33
<PAGE>
<TABLE>
<S> <C>
Depreciation
Real Estate - $50,000 over 15 years $ 3,000
Furnishings - $30,000 over 5 years 6,000
Amortization
Organization Costs - $110,000 over 5 years 22,000
Premium on loans - $50,000 over 15 years 3,000
Premium on deposits - $181,000 over 5 years 36,000
Covenant not to compete - $50,000 over 3 years 17,000
--------
Total Estimated 87,000
Less: Depreciation expense recognized in the Baltimore
Branch income statement (6,000)
--------
Pro Forma Adjustment $81,000
========
</TABLE>
(e) Reflects the elimination of the transfer to Rushmore.
(f) Net loss per share is based on net loss divided by weighted averages
shares outstanding. The weighted average shares outstanding are
calculated by using the minimum and maximum shares to be offered.
(g) Does not include interest that would have been earned on cash available
for investing.
34
<PAGE>
Pro Forma Income Statement
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1997
--------------
Company
If in Operation
for the 1st Qtr. Baltimore Pro Forma Company,
Company 1997 Branch Adjustments as adjusted
------- ---------------- --------- ----------- -----------
<S> <C>
Interest Income
Interest on loans $ -- $ -- $ 146,000 $ 23,000 (b) $ 169,000
Interest on Investments 2,000 -- -- -- 2,000 (g)
--------- ------------ ------------ --------- ----------
Total interest income 2,000 1,000 146,000 23,000 171,000
Interest expense deposits -- -- 91,000 -- 91,000
--------- ------------ ------------ --------- ----------
Net interest income 2,000 -- 55,000 23,000 80,000
Provision for loan losses -- -- -- -- --
Late charges and other fees -- -- 5,000 -- 5,000
--------- ------------ ------------ --------- ----------
2,000 -- 60,000 23,000 85,000
--------- ------------ ------------ --------- ----------
Salaries and benefits -- -- 30,000 7,000 (c) 37,000
Collection and foreclosure -- -- 10,000 -- 10,000
Occupancy -- -- 2,000 1,000 (c) 3,000
Depreciation and amortization -- 1,000 (a) 2,000 20,000 (d) 23,000
Deposit insurance premiums -- -- 2,000 -- 2,000
Other expense -- -- -- 87,000 (c) 87,000
--------- ------------ ------------ --------- ----------
Total expenses charged to Bank -- 1,000 46,000 115,000 162,000
--------- ------------ ------------ --------- ----------
Income before income taxes 2,000 -- 14,000 (92,000) (77,000)
Income tax provision -- -- -- -- --
Transfer to Rushmore -- -- (14,000) 14,000 (e) --
--------- ------------ ------------ --------- ----------
Net Income (Loss) $ 2,000 $ (1,000) $ -- $ (78,000) $ (77,000)
========= ============ ============ ========= ==========
</TABLE>
Sale of Sale of
Minimum Maximum
No. of Shares No. of Shares
------------- -------------
Net loss per share $(0.32)(f) $(0.26)(f)
Weighted average shares outstanding 240,000(f) 300,000(f)
Notes to Pro Forma Income Statement for the Three Months Ended March 31, 1997
(a) Reflects three months amortization of the Company's organizational
costs of $25,000 being amortized over five years.
(b) Reflects the interest income earned on the additional loans to be
acquired that were originated at Rushmore's Montgomery County, Maryland
branch office.
(c) Reflects the estimated additional salary and benefits, occupancy and
other costs that the Baltimore Branch would have incurred, if it were
operating on a stand alone basis.
(d) Reflects estimated additional depreciation and amortization expense
which would be incurred while operating, between January 1, 1997 and
March 31, 1997 as follows:
35
<PAGE>
<TABLE>
<S> <C>
Depreciation
Real Estate - $50,000 over 15 years $ 3,000
Furnishings - $30,000 over 5 years 6,000
Amortization
Organization Costs - $110,000 over 5 years 22,000
Premium on Loans - $50,000 over 15 years 3,000
Premium on deposits - $180,000 over 5 years 36,000
Covenant not to compete - $50,000 over 3 years 17,000
--------
Total Estimated 87,000
Portion for three months 3/12
------
1st Quarter 22,000
Less: Depreciation expense recognized in the Baltimore
Branch income statement (2,000)
-------
Pro Forma Adjustment $20,000
=======
</TABLE>
(e) Reflects the elimination of the transfer to Rushmore.
(f) Net loss per share is based on net loss divided by weighted averages
shares outstanding. The weighted average shares outstanding are
calculated by using the minimum and maximum shares to be offered.
(g) Does not include interest that would have been earned on cash
available for investing.
36
<PAGE>
BUSINESS OF THE COMPANY
As stated above, upon satisfaction of the conditions of the Offering
and the release of escrowed funds to the Company, the Company will proceed to
acquire all of the shares of capital stock of the Bank and the Company will
become, subject to the Bank's compliance with certain regulatory requirements, a
non-diversified unitary savings and loan holding company. As a non-diversified
unitary savings and loan holding company, the Company may engage in certain
non-banking activities that the OTS has deemed to be closely related to banking.
See "REGULATION - Holding Company Regulation." Although the Company has no
present intention of engaging in any activity other than owning all of the
outstanding shares of capital stock of the Bank, if circumstances should lead
the Company's management to determine that it would be beneficial for the
Company to engage in other business activities, management of the Company would
have the flexibility to do so.
The Company is not expected to initially own or lease property for
office space. Instead, it intends to utilize the premises and equipment of the
Bank. At the present time, the Company does not intend to have any employees
other than its officers. The Company will utilize the support staff of the Bank
from time to time. If the Company pursues other lines of business, it may hire
employees. Because the Company initially will engage in no business other than
owning all of the outstanding shares of capital stock of the Bank, the
competitive conditions to be faced by the Company will be the same as those
faced by the Bank.
BUSINESS OF THE BANK
General
The Bank will be a full service community-oriented financial
institution. Its business will be to attract retail deposits and to invest those
deposits, together with funds generated from operations and borrowings,
primarily in one- to four-family mortgage loans. To a lesser extent, the Bank
will invest in home equity loans, multi-family loans, commercial real estate
loans, construction loans (primarily for one- to four-family home construction
for the borrower), commercial business loans and consumer loans. The Bank's
deposit base will be comprised of traditional deposit products including
checking accounts, NOW accounts, money market accounts, statement savings
accounts, individual retirement accounts and certificates of deposit. Upon the
commencement of its operations, the Bank will be actively engaged in many of
these activities as a result of the Acquisition. See "- Lending Activities," "-
Sources of Funds" and "THE ACQUISITION."
The Company's executive offices and the Bank's initial banking office
will be located at 3621 East Lombard Street, Baltimore, Maryland 21224 (the
"Banking Office"), which is currently occupied by the Baltimore, Maryland branch
office of Rushmore, and which is located in the eastern portion of Baltimore
City. The telephone number of the Company and the Bank will be (410) 342-8303.
The Company's interim address is 515 East Joppa Road, Towson, Maryland 21286 and
its interim telephone number is (410) 825-5580. See "- Description of Property."
The liberalization of the interstate banking laws of Maryland and
surrounding states has led to substantial consolidation of the banking industry
in Maryland and particularly the Baltimore metropolitan area. Many of the area's
financial institutions have been acquired by large regional organizations
headquartered outside the Baltimore area. As a result of such consolidation, the
Organizer's believe that the competitive and economic environment is right for a
new, independent, locally owned and managed bank to serve the financial needs of
residents of Eastern Baltimore City as well as the needs of residents of the
Baltimore metropolitan area. The Bank intends to implement a strategy that
focuses on providing a superior level of customer service, close attention to
personal needs and quick response time. The Organizers believe that the
community will react favorably to this new enterprise.
Location and Service Area
As stated above, the Banking Office will be located at 3621 East
Lombard Street, Baltimore, Maryland 21224. See "Description of Property." The
Organizers anticipate that the Bank will draw most of its customer deposits and
conduct most of its lending transactions from within the area surrounding its
Banking Office as well as from within the Baltimore metropolitan area. The
Baltimore Branch Deposits and the Baltimore Branch Loans were primarily drawn
from these areas. The Organizers intend to expand the business of the Bank by
opening branches. At this time, the Organizers have not identified any location
for a branch of the Bank.
37
<PAGE>
The Bank will be located in southeastern Baltimore City. The area
immediately surrounding the Bank has apporximately 71,000 residents and that
number has been relatively constant over the past five years, to the knowledge
of the Organizers. There is a mix a residential, commercial and industrial uses
in the area. The area surrounding the Banking Office is comprised of several
thousand, mostly residential, owner-occupied rowhomes, and there are many
schools and churches located within this area. There are several manufacturing
facilities located within a distance of three miles that employ many of the
area's residents. Eastern Avenue, which is a few blocks to the south of the
Banking Office, has extensive retail shopping stretching for a distance of
several miles from the Fells Point area of Baltimore City to well beyond the
Baltimore City/Baltimore County line into Eastern Baltimore County. A major
hospital, Bayview, a division of Johns Hopkins, is approximately two miles from
the Banking Office. Dundalk Community College and Essex Community College are
located nearby in Eastern Baltimore County. Major employers include The Johns
Hopkins Bayview Hospital, General Motors and the City of Baltimore. In 1995, the
latest year for which data was available to the Organizers, there were 17
industrial and commercial building permits issued in the area. Also in 1995, the
area experienced retail sales of approximately $3.4 billion and wholesale sales
of approximately $7.6. billion.
Although the Organizers have not undertaken any study of the
feasibility of a bank at the location where the Banking Office will be located
or of the economic conditions in the area, the Organizers believe, based on
their experience and based on their evaluation of the Baltimore Branch, that the
community will support the Bank.
Competition
The Bank's market area of Eastern Baltimore City as well as the
Baltimore metropolitan area are highly competitive markets for financial
services and the Bank will face intense competition both in making loans and in
attracting deposits. The Bank will face direct competition from a significant
number of financial institutions operating in the Bank's market area, many with
a state-wide or regional presence and in some cases a national presence. Many of
these financial institutions have been in business for many years, have
established customer bases, are significantly larger and have greater financial
resources than the Bank will have and are able to offer certain services that
the Bank is not able to offer. In particular, nine federal savings associations,
including one with approximately $70 million in deposits, and three commercial
bank branches, are all located in the area immediately surrounding the Banking
Office. In addition, the Bank will face competition for deposits and loans from
non-bank institutions such as brokerage firms, credit unions, insurance
companies, money market mutual funds and private lenders.
In the area immediately surrounding the Bank, several financial
institutions operate branches. Based on the anticipated amount of deposits and
assets that will be purchased from Rushmore pursuant to the Acquisition, the
Bank will have a very small percentage of the deposits and assets held in the
area immediately surrounding the Bank.
Any change in governmental economic and monetary policy, banking and
credit regulations and general economic conditions, which changes are beyond the
control of the Bank, also can affect the demand for the Bank's services. The
rates of interest payable on deposits and chargeable on loans will be affected
by fiscal policy as determined by various governmental and regulatory
authorities, in particular the Federal Reserve, as well as by national, state
and local economic conditions. Through open market transactions, variations in
the discount rate and the establishment of reserve requirements, the Federal
Reserve exerts considerable influence over the cost and availability of funds
obtainable for lending or investing. These actions may at times result in
significant fluctuations in interest rates, which could have adverse effects on
the operations of the Bank. The nature or extent of any effects which monetary
policies or economic conditions might have on the business and earnings of the
Bank cannot be predicted.
Market Strategy
The Bank's objective will be to create a customer-driven financial
institution focused on providing value to clients by delivering products and
services matched to the clients' needs. It is believed that clients will be
drawn to a locally owned and managed institution that demonstrates an active
interest in its clients and their business and personal financial needs.
The banking industry in the Bank's market area has experienced
substantial consolidation in recent years. Many of the area's locally owned or
managed financial institutions have either been acquired by large regional bank
holding companies or have been consolidated into branches. This consolidation
has been accompanied by increasing fees for bank services, the dissolution of
local
38
<PAGE>
boards of directors, management and personnel changes and, in the perception of
the Organizers, a decline in the level of customer service. With recent changes
in interstate banking regulation, this type of consolidation is expected to
continue.
The Organizers believe that the present competitive and economic
environment is right for a new, independent, locally owned and managed bank to
serve the financial needs of residents of Eastern Baltimore City as well as the
needs of residents of the Baltimore metropolitan area. The Organizers further
believe that the Acquisition provides a unique opportunity for a new bank. Upon
consummation of the Acquisition, assuming the sale of the Minimum Number of
Shares in the Offering, the Bank will have approximately ten million dollars in
total assets, including approximately two million dollars raised through the
Offering and approximately seven million dollars in Rushmore Loans. See
"UNAUDITED PRO FORMA FINANCIAL INFORMATION." This amount of total assets will
immediately enable the Bank to make more loans then it would have been able to
make had it not engaged in the Acquisition. In addition, the Organizers believe
that as a result of the Acquisition the Bank will not experience many of the
growing pains typically experienced by new banks. The Bank will begin operations
from an existing, established facility will succeed to an existing, established
customer base and will operate with a staff of personnel who are familiar with
the needs of the customers and who are known in the community. In the view of
the Organizers, these factors provide the Bank with a significant benefit over a
de novo organization of being able to open for business immediately.
In addition, the Organizers believe that Ms. D'Alessandro's banking
experience, particularly as it relates to her management experience at the
Baltimore Branch, the banking experience of Mr. Jameson and Mr. Pezzulla, and
the extensive business experience and contacts of the Organizers and the
Additional Directors in the Baltimore metropolitan area, should create immediate
business opportunities for the Bank. See MANAGEMENT."
Net Interest Income/Margins
The operations of the Bank will be substantially dependent on its net
interest income, which is the difference between the interest expense incurred
in connection with the Bank's interest-bearing liabilities, such as interest on
deposit accounts, and the interest income received from its interest-earning
assets, such as loans and investment securities. Volatility in interest rates
can result in the flow of funds away from banks of the type similar to the Bank
and into direct investments, such as corporate securities and other investment
vehicles which, because of among other things the absence of federal deposit
insurance, generally pay higher rates of return. Such volatility could cause the
Bank to pay increased interest rates to obtain deposits and, if the Bank is not
able to increase the interest rates on its loans and the rate of return on its
investment portfolio, the Bank's net interest income will suffer.
The level of net interest income is determined primarily by the average
balances ("volume") and the rate spreads between the interest-earning assets and
the Bank's funding sources. The Bank's ability to maximize its net interest
income will depend on increases or decreases in the volume of its
interest-earning assets and interest-bearing liabilities, increases or decreases
in the average rates earned and paid on such assets and liabilities, the ability
to manage the earning-asset portfolio, and the availability of particular
sources of funds, such as non-interest earning deposits.
The following table indicates the average volume of interest-earning
assets and interest-bearing liabilities and average yields and rates for the
Baltimore Branch Deposits and the Rushmore Loans for the years ended December
31, 1996 and 1995. The information in the table has been derived from
information provided by Rushmore.
39
<PAGE>
AVERAGE BALANCES -- YIELDS AND RATES (1)
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1995
---------------------------- ----------------------------
<S> <C>
Interest Earning Assets: Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- -------- ------ ------- -------- ------
Loans Receivable (net of unearned
income) (2) $7,588,000 $738,000 9.52% $7,852,000 $771,000 9.86%
Allowance for Loan Losses (50,000) (65,000)
----------- ----------
Total Assets $7,538,000 $7,787,000
========== ==========
Interest-Bearing Liabilities:
Statement Savings $1,995,000 $ 50,000 2.50% $2,499,000 $ 64,000 2.50%
Money Market 4,707,000 247,000 5.30 5,332,000 289,000 5.43
Certificates of Deposit 629,000 31,000 4.56 722,000 41,000(4) 3.97
Jumbo CD -- -- -- 206,000 --(4) 5.80
IRA 471,000 24,000(3) 4.06 652,000 27,000(3) 3.95
IRA Money Market 84,000 --(3) 5.30(3) 27,000 --(3) 5.64
---------- -------- ---- ---------- -------- ----
Total Interest-Bearing Liabilities 7,886,000 $352,000 4.45% 9,438,000 $421,000 3.46%
======== ========
Checking Accounts 221,000 230,000
----------- ----------
Total Liabilities $ 8,107,000 $9,668,000
=========== ==========
----- -----
Interest Rate Spread 5.07% 6.40%
===== =====
(Average Rate Earned Less Average
Rate Paid)
Net Interest Income $386,000 $350,000
======== ========
(Interest Earned Less Interest Paid)
Net Interest Margin 5.12% 4.49%
===== =====
(Net Interest Income/Total Earning
Assets)
</TABLE>
(1) Average balances were calculated using month-end balances, except for
money market accounts, where quarter-end balances were used. Daily
averages were not available for the periods presented.
(2) Loans on non-accrual status are included in the calculation of average
balances.
(3) Actual expense for IRA includes both IRA and IRA Money Market Accounts.
(4) Actual expense for Certificates of Deposit includes both Certificates
of Deposit and Jumbo Certificates of Deposit.
Changes in interest income and interest expense can result from
variances in both volume and rates. The Bank will establish an asset and
liability management policy designed to provide a proper balance between rate
sensitive assets and rate sensitive liabilities, to attempt to maximize interest
margins and to provide adequate liquidity for anticipated needs. The following
table indicates the changes in the net interest income as a result of changes in
volume and rates for the Baltimore Branch Deposits and the Rushmore Loans for
the years ended December 31, 1996 and December 31, 1995.
40
<PAGE>
Rate/Volume Analysis
1996 Compared to 1995
(variances in)
---------------------
Net
Average Average Increase/
Volume Rate (Decrease)
------- ------- ----------
Interest Income:
Loans.......................... ($16,000) ($17,000) ($33,000)
--------- --------- ---------
Total Interest Income...... (16,000) (17,000) (33,000)
--------- --------- ---------
Interest Expense:
Statement Savings............. (14,000) --- (14,000)
Money Market.................. (35,000) (7,000) (42,000)
Certificates of Deposit and
Jumbo CD........................ (14,000) 4,000 (10,000)
IRA and IRA Money Market (4,000) 1,000 (3,000)
--------- --------- ---------
Total Interest Expense..... (67,000) (2,000) (69,000)
--------- --------- ---------
Change in Net Interest Income... 51,000 (15,000) $ 36,000
========= ========= =========
Note: The change in interest income due to both rate and volume has been
allocated proportionally between volume and rate. Loan fees are
included in the interest income computation.
Liquidity and Interest Rate Sensitivity
The primary objective of asset/liability management is to ensure the
steady growth of the Bank's primary earnings component, net interest income. Net
interest income can fluctuate with significant interest rate movements. To
lessen the impact of these rate swings, management of the Bank will endeavor to
structure the Bank's balance sheet so that repricing opportunities exist for
both assets and liabilities in roughly equivalent amounts at approximately the
same time intervals. Imbalances in these repricing opportunities at any point in
time constitutes interest rate sensitivity.
The measurement of the Bank's interest rate sensitivity, or "gap," is
one of the principal techniques used in asset/liability management. The interest
sensitive gap is the dollar difference between assets and liabilities which are
subject to interest-rate pricing within a given time period, including both
floating rate or adjustable rate instruments and instruments which are
approaching maturity.
The following table sets forth the amount of the Baltimore Branch
Deposits and the Rushmore Loans outstanding at December 31, 1996 which are
expected to mature or reprice in each of the time periods shown. The information
in the table has been derived from information provided by Rushmore.
<TABLE>
<CAPTION>
Maturity and Rate Sensitivity Analysis
Maturity or Maturity or Maturity or Maturity or
Repricing Repricing Repricing Repricing
Percent Within Within Within Over
Amount of Total 0-3 Months 4-12 Months 1-5 Years 5 Years
------ -------- ---------- ----------- --------- -------
<S> <C>
Interest-Earning assets:
Loans receivable................. $7,011,000 100% $30,000 $9,000 $427,000 $6,545,000
---------- ----
Total Interest-Earning Assets.. $7,011,000 100% $30,000 $9,000 $427,000 $6,545,000
========== ==== ======= ====== ======== ==========
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Maturity or Maturity or Maturity or Maturity or
Repricing Repricing Repricing Repricing
Percent Within Within Within Over
Amount of Total 0-3 Months 4-12 Months 1-5 Years 5 Years
------ -------- ---------- ----------- --------- -------
<S> <C>
Interest-Bearing Liabilities:
Statement Savings..................... $1,699,000 21.36% $1,699,000 $--------- $--------- $ ---------
Money Market.......................... 5,186,000 65.20% 5,186,000 --------- --------- ---------
Certificate of Deposit,
Jumbo CD & IRA........................ 987,000 12.41% 338,000 383,000 266,000 ---------
IRA Money Market...................... 82,000 1.03% 82,000 --------- --------- ---------
------ ----- ---------- ---------- ---------- -----------
Total Interest-Bearing Liabilities. . $7,954,000 100% $7,305,000 $383,000 $ 266,000 $ ---------
========== ==== ========== ========== ========== ===========
Periodic Repricing Differences
(periodic gap)......................... $(7,275,000) $(374,000) $161,000 $6,545,000
============ ========== ======== ==========
Cumulative Repricing Differences
(cumulative gap)....................... $(7,275,000) $(7,649,000) $(7,488,000) $(943,000)
============ ============ ============ ==========
</TABLE>
Since all interest rates and yields do not adjust at the same velocity,
the gap is only a general indicator of interest rate sensitivity. The analysis
of the Baltimore Branch Deposits and the Rushmore Loans presents only a static
view of the timing of maturities and repricing opportunities, without taking
into consideration the fact that changes in interest rates do not affect all
assets and liabilities equally. Net interest income may be impacted by other
significant factors in a given interest rate environment, including changes in
the volume and mix of interest-earning assets and interest-bearing liabilities.
As indicated by the above table, the Rushmore Loans consist primarily
of fixed rate, long-term loans while the Baltimore Branch Deposits primarily
consist of variable rate short-term accounts. Since the loans will mature more
slowly than the deposits, the net portfolio value and net interest income would
tend to decrease during periods of rising interest rates, but would increase
during periods of falling interest rates. Many of the Rushmore Loans were made
prior to the current documentation requirements of GNMA, FNMA or FHLMC and,
therefore, they may not be able to be resold in the secondary market. During
periods of rising interest rates, the Bank's inability to resell certain of the
Rushmore Loans in the secondary market could have a material adverse effect on
the Bank's net portfolio value and its net interest income.
Bank management will seek to improve the interest rate sensitivity of
the Bank's loan portfolio. Bank management will meet periodically to monitor and
manage the structure of the Bank's balance sheet, control interest rate
exposure, and evaluate pricing strategies for the Bank. Strategies to better
match maturities of interest-earning assets and interest-bearing liabilities may
include call provisions, adjustable rate mortgages, residential construction
lending and other short term products. In the future, the Bank will generally
sell originations of fixed rate mortgages in the secondary market and portfolio
only rate sensitive products. All fixed rate mortgages will be underwritten in
accordance with GNMA, FNMA or FHLMC requirements.
In theory, interest rate risk can be diminished by maintaining a
nominal level of interest rate sensitivity. In practice, this is made difficult
by a number of factors, including cyclical variation in loan demand, different
impacts on interest-sensitive assets and liabilities when interest rates change,
and the availability of funding sources. Bank management will generally attempt
to maintain a balance between rate-sensitive assets and liabilities as the
exposure period is lengthened to minimize the overall interest rate risk to the
Bank.
42
<PAGE>
Lending Activities
The Bank anticipates that its lending activities will be primarily
comprised of the origination of mortgage loans for the purpose of financing and
refinancing one-to-four family residential properties. To a lesser extent, the
Bank anticipates that it will originate home equity loans, commercial real
estate loans, multi-family real estate loans (five units or more), construction
loans (primarily for one- to four-family home construction for the borrower),
commercial business loans and consumer loans. The types of loans the Bank will
originate generally will be subject to federal and state law and regulation.
The Bank's ability to originate loans will be dependent upon the
relative customer demand, which will be affected by the current and expected
future level of interest rates. Interest rates will be affected by the demand
for loans and the supply of money available for lending purposes and the rates
offered by competitors. Among other things, these factors are, in turn, affected
by economic conditions, monetary policies of the federal government, including
the Federal Reserve, and legislative tax policies.
Loan Portfolio Composition
As a result of the Acquisition, the Bank's initial loan portfolio will
be principally comprised of long-term fixed-rate mortgage loans for owner
occupied and non-owner occupied (investor) residential properties. As of
December 31, 1996, the Rushmore Loans were $7,011,000, of which $5,736,000 were
one-to-four-family mortgage loans, or approximately 81.81% of the Rushmore
Loans. At the same date, second trust mortgage loans were $72,000, or
approximately 1.03% of the Rushmore Loans. As of December 31, 1996, commercial
real estate loans were $942,000, or approximately 13.34% of the Rushmore Loans
and consumer loans were $261,000, or approximately 3.72% of the Rushmore Loans.
As of December 31, 1996, none of the Rushmore Loans consisted of loans
with adjustable interest rates. Since all of the Rushmore Loans are fixed-rate,
the Bank does not have the flexibility to adjust the rates of these loans to the
current interest rate environment. Adjustable rate loans allow this flexibility.
See "- Liquidity and Interest Rate Sensitivity."
The following table sets forth the composition of the Rushmore Loans in
dollar amounts and in percentage of the respective portfolio as of December 31,
1996 and 1995. The information in the table has been derived from information
provided by Rushmore.
43
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
Type of Loans Amount % of Total Amount % of Total
- ------------- ------ ---------- ------ ----------
<S> <C>
Commercial - Real Estate $ 942,000 13.44% $ 999,000 11.95%
Residential Real Estate
Owner Occupied 4,295,000 61.26 5,317,000 63.58
Investor 1,441,000 20.55 1,737,000 20.77
Second Trust 72,000 1.03 74,000 0.88
Consumer
Deposit Secured 235,000 3.35 219,000 2.62
Unsecured 26,000 0.37 17,000 0.20
---------- ------- ---------- -------
Total Loans $7,011,000 100.00% $8,363,000 100.00%
---------- ======= ---------- =======
Add:
Unamortized Premiums $ -- $ --
Accrued Interest Receivable $ 57,000 $ 73,000
Less:
Unearned Income 50,000 62,000
Allowance for Loan Losses 50,000 90,000
------ ----------
Net Loans $6,968,000 $8,284,000
========== ==========
</TABLE>
The following table sets forth the maturity distribution, classified
according to sensitivity to changes in interest rate, for the Rushmore Loans as
of December 31, 1996. Some of the loans may be renewed or repaid prior to
maturity. Therefore, the following table should not be used as a forecast of
future cash collections. The information in the table has been derived from
information provided by Rushmore.
<TABLE>
<CAPTION>
As of December 31, 1996
(dollars in thousandths)
------------------------
<S> <C>
More than
Up to 1 1 Year to 10+
Year 10 Years Years Total
---- -------- ----- -----
Real Estate (commercial and residential) $30,000 $1,692,000 $5,028,000 $6,750,000
Consumer 9,000 169,000 83,000 261,000
----- ---------- ---------- ----------
Total $39,000 $1,861,000 $5,111,000 $7,011,000
======= ========== ========== ==========
Fixed Interest Rate $39,000 $1,861,000 $5,111,000 $7,011,000
Variable Interest Rate -- -- -- --
------- ---------- ---------- ----------
Total $39,000 $1,861,000 $5,111,000 $7,011,000
======= ========== ========== ==========
</TABLE>
The scheduled repayments as shown above are reported in the maturity
category in which the payment is due.
Residential Real Estate Secured Loans. The Bank intends to offer
fixed-rate and adjustable-rate mortgage loans primarily secured by one- to
four-family residences, with maturities up to 30 years. It is anticipated that
such loans will be secured by properties located in the Bank's market areas. All
one- to four-family loans will be underwritten in accordance with GNMA, FNMA or
FHLMC standards. The Bank will originate loans for both owner occupied and
non-owner occupied (investor) residential properties. Non-
44
<PAGE>
owner occupied residential mortgage loans generally carry a higher degree of
credit risk than owner occupied residential mortgage loans.
The Bank intends to offer fixed-rate and adjustable-rate home equity
loans, primarily secured by one- to four-family, owner-occupied residences. It
is anticipated that the Bank will employ similar underwriting standards in
making home equity loans as those utilized in making residential mortgage loans.
The Bank also intends, in certain circumstances, to purchase or
participate in adjustable-rate mortgage loans.
As of December 31, 1996, of the $7,011,000 in Rushmore Loans,
$5,736,000 were one-to-four family mortgage loans, or approximately 81.81% of
the Rushmore Loans and $72,000 were second trust mortgage loans, or 1.03% of the
Rushmore Loans.
Commercial and Multi-Family Real Estate Loans. The Bank intends to
offer commercial and multi-family real estate loans (five units or more)
generally secured by property located in the Bank's market areas. The Bank also
intends, in certain circumstances, to purchase or participate in commercial and
multi-family loans. In reaching a decision on whether to make a commercial real
estate or multi-family loan, it is anticipated that the Bank will consider a
number of factors, including market conditions, the net operating income of the
mortgaged premises before debt service and depreciation, the debt service ratio
(the ratio of net operating income to debt service) and the ratio of loan amount
to appraised value.
Commercial real estate and multi-family loans are generally larger and
present a greater degree of risk than loans secured by one- to four-family
residences. Because payments on loans secured by commercial real estate and
multi-family properties are often dependent on the successful operation or
management of the properties, repayment of such loans may be subject to a
greater extent to adverse conditions in the real estate market or in the
economy. It is anticipated that the Bank will seek to minimize these risks
through its underwriting standards.
As of December 31, 1996, of the $7,011,000 in Rushmore Loans, $942,000
were commercial real estate loans, or approximately 13.44% of the Rushmore
Loans. The commercial real estate loans are primarily concentrated in loans
secured by restaurants and taverns. The Bank is not acquiring any multi-family
loans from Rushmore.
Construction Loans. It is anticipated that the Bank will, on a case by
case basis, originate loans for the development of property to customers in its
market areas. It is anticipated that the Bank's construction loans primarily
will be made to finance the construction of one- to four-family, owner-occupied
residential properties.
Construction financing is generally considered to involve a higher
degree of credit risk than long-term financing on improved, owner-occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development compared to the estimated cost (including interest)
of construction. If the estimate of value proves to be inaccurate, the Bank
would be confronted with a project, when completed, having a value which is
insufficient to ensure full repayment.
The Bank is not acquiring any construction loans from Rushmore.
Commercial Business Loans. The Bank intends to pursue opportunities to
offer commercial business loans, primarily to businesses located in the Bank's
market areas. Federally chartered savings institutions such as the Bank are
authorized to make secured or unsecured loans and letters of credit for
commercial, corporate, business and agricultural purposes and to engage in
commercial leasing activities. However, federally chartered savings institutions
generally are limited in the amount of commercial business loans they may hold
in their portfolio to a maximum of 20% of total assets.
Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income, and which are secured by real property whose value tends to be
more easily ascertainable, commercial business loans are of higher risk and
typically are made on the basis of the borrower's ability to make repayment from
the cash flow of the borrower's business. As a result, the availability of funds
for the repayment of commercial business loans may
45
<PAGE>
be substantially dependent on the success of the business itself. Further, the
collateral securing the loans may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the business.
The Bank is not acquiring any business loans from Rushmore.
Consumer Loans. The Bank intends to make a variety of consumer loans
which will primarily consist of fixed rate installment loans secured by
automobiles or by deposits at the Bank.
Consumer loans may entail greater credit risk than do residential
mortgage loans, particularly in the case of consumer loans that are unsecured or
that are secured by rapidly depreciable assets, such as automobiles. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. In addition, consumer
loan collections are dependent on the borrower's continuing financial stability,
and therefore are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans.
As of December 31, 1996, of the $7,011,000 in Rushmore Loans, $261,000
were consumer loans, or approximately 3.72% of the Rushmore Loans.
Marketing and Procedures for Loan Approvals
-------------------------------------------
The Bank's lending activity will be conducted primarily from its
Banking Office, primarily through contacts with existing and past customers of
the Baltimore Branch, advertising, customer calls and contacts by the Bank's
employees, officers and directors and solicitations to local real estate
brokers, builders and real estate developers. The Bank's lending will be subject
to written underwriting standards and to loan origination procedures. Decisions
on loan applications will be made on the basis of detailed applications and
property valuations. The loan applications will be designed primarily to
determine the borrower's ability to repay and the more significant items on the
applications will be verified through use of credit reports, financial
statements, tax returns and/or confirmations. The Bank generally will sell
originations of fixed rate loans in the secondary market and will retain in its
portfolio only rate sensitive products.
The Bank generally will require title insurance on its real estate
secured loans as well as fire and extended coverage casualty insurance in
amounts at least equal to the principal amount of the loan or the value of
improvements on the property, depending on the type of loan. The Bank also will
require flood insurance to protect the property securing its interest when the
property is located in a flood plain.
Delinquent Loans
----------------
Management of the Bank will perform reviews of all delinquent loans.
The procedures taken by the Bank with respect to delinquencies will vary
depending on the nature of the loan and period of delinquency. It is anticipated
that the Bank generally will require that delinquent mortgage loans be reviewed
and that a written late charge notice be mailed shortly after the date of
delinquency. It is anticipated that the Bank's policies will provide that
telephone contact will be attempted to ascertain the reasons for delinquency and
the prospects of repayment. When contact is made with the borrower at any time
prior to foreclosure, the Bank will attempt to obtain full payment or work out a
repayment schedule with the borrower to avoid foreclosure. It is anticipated
that it will be the Bank's policy to place all loans that are delinquent by
three or more payments on non-accrual status, resulting in the Bank no longer
accruing interest on such loans and reversing any interest previously accrued
but not collected. A non-accrual loan may be restored to accrual status when
delinquent principal and interest payments are brought current and future
monthly principal and interest payments are expected to be collected. Any
property acquired by the Bank as a result of foreclosure on a mortgage loan will
be classified as "real estate owned" and will be recorded at the lower of the
unpaid principal balance or fair value at the date of acquisition and
subsequently carried at the lower of cost or net realizable value. Upon
foreclosure, the Bank generally will require an appraisal of the property and,
thereafter, appraisals of the property on an annual basis and external
inspections on at least a quarterly basis.
The following table indicates delinquencies in the Rushmore Loans at
December 31, 1996. The information in the table has been derived from
information provided by Rushmore.
46
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1996
--------------------
30-89 Days 90 Days or More
---------- ---------------
Number Principal Balance Number Principal Balance
of Loans of Loans of Loans of Loans
-------- -------- -------- --------
<S> <C>
Commercial Real Estate -- $ -- -- $--
Residential Real Estate 3 97,000 -- --
Consumer -- -- -- --
----- ------- ------ -----
Total Loans 3 $97,000 -- --
===== ======= ====== =====
Delinquent Loans to Total Loans 1.38% --%
============= =============
</TABLE>
Classified Assets
-----------------
Federal regulations require and the Bank's policy will require that the
Bank utilize an internal asset classification system as a means of reporting
problem and potential problem assets. It is anticipated that the Bank will
classify problem and potential problem assets as "Substandard," "Doubtful" or
"Loss." An asset will be considered "Substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets will include those
characterized by the "distinct possibility" that the Bank will sustain "some
loss" if the deficiencies are not corrected. Assets classified as "Doubtful"
will have all of the weaknesses inherent in those classified "Substandard" with
the added characteristic that the weaknesses present make "collection or
liquidation in full," on the basis of currently existing facts, conditions and
values, "highly questionable and improbable." Assets classified as "Loss" will
be those considered "uncollectible" and of such little value that their
continuance as assets without the establishment of a specific loss allowance is
not warranted. Assets which do not expose the Bank to sufficient risk to warrant
classification in one of the aforementioned categories but posses weaknesses
will be designated "Special Mention."
When the Bank determines that an asset should be classified, it
generally will not establish a specific allowance for such asset unless it
determines that such asset should be classified as "Loss." When the Bank
classifies one or more assets, or portions thereof, as "Substandard" or
"Doubtful," it will establish a general valuation allowance for loan losses in
an amount deemed prudent by management. General valuation allowances represent
loss allowances which have been established to recognize the inherent risk
associated with lending activities, but which, unlike specific allowances, have
not been allocated to particular problem assets. In determining the amount of
the general valuation allowance, the Bank's management will consider, among
other matters, the net realizable value of the underlying collateral, national
and regional economic conditions, trends in the real estate market in the Bank's
market area, historical loan loss experience and other factors that warrant
recognition in providing for an adequate loan loss allowance. When the Bank
classifies one or more of its assets, or portions thereof, as "Loss," it will
either establish a specific allowance for losses equal to 100% of the amount of
the asset so classified or will charge off such amount.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS, which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies,
recently adopted an interagency policy statement on the allowance for loan and
lease losses. The policy statement provides guidance for financial institutions
on both the responsibilities of management for the assessment and establishment
of adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that institutions have effective systems and controls to
identify, monitor and address asset quality problems, that management has
analyzed all significant factors that affect the collect ability of the
portfolio in a reasonable manner, and that management has established acceptable
allowance evaluation processes that meet the objectives set forth in the policy
statement. While the Bank believes that it will establish an adequate allowance
for loan losses, there
47
<PAGE>
can be no assurance that regulators, in reviewing the Bank's loan portfolio,
will not request the Bank to materially increase at that time its allowance for
loan losses, thereby negatively affecting the Bank's financial condition and
earnings at that time.
As of December 31, 1996, Rushmore classified approximately $16,000 of
the Rushmore Loans as "Substandard." As of December 31, 1996, Rushmore did not
classify any Rushmore Loans as "Doubtful" or "Loss."
Allowance for Loan Losses
-------------------------
The Bank will attempt to manage the risk characteristics of its loan
portfolio through various control processes, such as credit evaluations of
borrowers, establishment of lending limits and application of lending
procedures, including the holding of adequate collateral and the maintenance of
compensating balances. However, the Bank will seek to rely primarily on the cash
flow of its borrowers as the principal source of repayment. Although credit
policies are designed to minimize risk, management of the Bank recognizes that
loan losses will occur and that the amount of these losses will fluctuate
depending on the risk characteristics of the loan portfolio as well as general
and regional economic conditions.
The allowance for loan losses represents a reserve for potential losses
in a bank's loan portfolio. The Bank will periodically evaluate the adequacy of
the allowance for loan losses based on a review of all significant loans, with a
particular emphasis on non-accruing, past due and other loans that management
believes requires special attention. For significant problem loans, management's
review will consist of an evaluation of the financial strengths of the borrower
and the guarantor, the related collateral, and the effects of economic
conditions. Specific reserves against the remaining loan portfolio will be based
on an analysis of historical loan loss ratios, loan charge-offs, delinquency
trends and collection experience, along with an assessment of the effects of
external economic conditions.
The following table summarizes the allowance activities for the
Baltimore Branch for the year ended December 31, 1996. The information in the
table has been derived from information provided by Rushmore. However, the
determination of the appropriate allowance level was based upon a number of
assumptions by Rushmore about future events, which may or may not prove valid.
Year Ended
December 31, 1996
-----------------
Allowance for loan losses, beginning of period $90,000
Loans charged off 40,000
Recoveries ---
Provision for loan losses ---
-------
Allowance for loan losses, end of period $50,000
=======
Upon the commencement of its operations, the Bank's loans will consist
of the loans acquired pursuant to the Acquisition. Because these loans were
originated by Rushmore, the Organizers have made an estimate of what they
believe to be a reasonable initial allowance account for the Bank. In
establishing the Bank's initial allowance for loan losses, the Organizer's have
relied on, among other things, conversations with Rushmore, a review of the
payment history of the Rushmore Loans and current economic conditions. Although
the Organizers' believe that the Bank' initial allowance for loan losses will be
adequate, there can be no assurance that the allowance will prove sufficient to
cover future loan losses. In addition, future adjustments may be necessary if
economic conditions differ substantially from the assumptions used or adverse
developments arise with respect to the Bank's loans. Thus, there can be no
assurance that charge-offs in future periods will not exceed the allowance for
loan losses or that additional increases in the loan loss allowance will not be
required. Upon the commencement of its operations, the Bank estimates its
allowance for loan losses will be $50,000, which will represent approximately
0.7% of the Bank's outstanding loans.
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The Company will adopt the provisions of Statements of Financial
Accounting Standards No. 114 ("SFAS 114"), Accounting by Creditors for
Impairment of Loan, as amended by Statements of Financial Accounting Standards
No. 118 ("SFAS 118), Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosure, effective January 1, 1995. SFAS 114 and 118 require
that impaired loans, which consist of all modified loans and other loans for
which collection of all contractual principal and interest is not probable, be
measured based on the present value of expected cash flows discounted at the
loan's effective interest rate or the fair value of the collateral. The Bank
will consider payments which are less than 60 days late to be a minimum delay in
the payment terms. The Bank will consider consumer loans as homogenous loans and
thus not apply the SFAS 114 impairment test to these loans. Impaired loans will
be written off when collection of the loan is doubtful. The Bank will acquire
one impaired loan from Rushmore with a carrying value of $16,000. As of December
31, 1996, Rushmore had established a valuation allowance related to such loan of
$4,000.
The Bank will classify loans as non-accrual when collection of full
principal and interest under the original terms of the loan is not expected.
Certain loans may become impaired but not reach non-accrual status because the
Bank expects to collect the full principal and interest, although such loans may
not be collected within the original contractual terms. The loans will be
classified as non-accrual even though the presence of collateral or the
borrower's financial strength may be sufficient to provide for ultimate
repayment. The Bank will recognize interest on non-accrual loans only when
received. Upon the commencement of its operations, the Bank does not anticipate
having any non-accrual loans in its loan portfolio.
The following table indicates the Rushmore Loans which were 90 days or
more delinquent as of December 31, 1996 and 1995 and which were placed on
non-accrual status by Rushmore. The information has derived from information
provided by Rushmore.
Non-Performing Assets
---------------------
At December 31,
---------------
1996 1995
---- ----
Loans on non-accrual basis .......................$ -- $ 55,000
Accruing loans delinquent 90 days or more.........$ -- $ 72,000
---- --------
Total non-performing loans ...................$ -- $127,000
==== ========
The following table indicates the amount of interest that would have
been recorded had all loans classified as non-accrual been current in accordance
with their original terms and the amount of interest actually accrued. The
information in the table has been derived from information provided by Rushmore.
Forgone Interest
----------------
For the Years Ended
December 31,
------------
1996 1995
---- ----
Interest income that would have been $ -- $4,000
accrued at original terms.. .....................
Interest recognized..............................$ -- $3,000
Based on conversations with Rushmore and a review by the Organizers of
the Rushmore Loans, it is anticipated that the Bank, upon commencement of its
business, will have loans in its portfolio with an aggregate outstanding balance
of approximately $34,000
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<PAGE>
as of December 31, 1996 with respect to which known information about the
possible credit problems of the borrowers or the cash flow of the security have
caused the Organizers to have some doubts as to the ability of the borrowers to
comply with present loan repayment terms and which may result in the future
inclusion of such items in the non-performing asset categories.
Securities Portfolio
As a federally chartered savings institutions, the Bank will have the
authority to invest in various types of liquid assets, including United States
Treasury obligations, securities of various federal agencies, certain
certificates of deposit of insured banks and savings institutions, certain
bankers' acceptances, repurchase agreements, mortgage-backed and related
securities and federal funds. Subject to various restrictions, the Bank also may
invest in commercial paper, corporate debt securities and mutual funds whose
assets conform to the investments that a federally chartered savings institution
is otherwise authorized to make directly. Additionally, the Bank will be
required to maintain minimum levels of investments that qualify as liquid assets
under OTS regulations. See "REGULATION - Federal Savings Institution Regulation
- - QTL Test."
While mortgage-backed and related securities carry a reduced credit risk
as compared to whole loans, such securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors such as the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loans and so affect the value of such
securities. Specifically, investments in mortgage-backed and related securities
involve risks that actual prepayments may exceed prepayments estimated over the
life of the security that may result in a loss of any premiums paid for such
securities thereby reducing their net yield. Conversely, if interest rates
increase, the market value of such securities may be adversely affected.
The Board of Directors of the Bank will set the investment policy of the
Bank. It is anticipated that the policy will dictate that investments be made
based on the safety of the principal, the liquidity requirements of the Bank and
the return on the investment and capital appreciation. It is anticipated that
all investment decisions will be made by the Bank's investment committee.
Sources of Funds
Deposits will be the primary source of the Bank's funds for use in
lending and for other general business purposes. In addition to deposits, the
Bank may obtain funds from advances from the Federal Home Loan Bank of Atlanta
and other borrowing.
Deposits
--------
It is anticipated that the Bank will offer a variety of deposit accounts
having a range of interest rates and terms. It is intended that the Bank's
deposits will consist of checking accounts, NOW accounts, money market accounts,
statement savings accounts, individual retirement accounts and certificates of
deposit. In addition to the Baltimore Branch Deposits being acquired pursuant to
the Acquisition, the Bank's deposits will be obtained primarily from its market
areas. The Bank will rely on relationships with existing and past customers of
the Baltimore Branch, advertising and customer calls and contacts by the Bank's
employees, officers and directors to attract and retain deposits. The Bank does
not intend to use brokers to obtain deposits. The Bank intends to pay
competitive interest rates on deposits, but other institutions in its area may
offer higher interest rates. All deposits will be insured by the Savings Account
Insurance Fund ("SAIF") administered by the FDIC up to the maximum amount
allowed by law (generally, $100,000 per depositor subject to aggregation rules).
It is anticipated that the variety of deposit accounts offered by the
Bank will allow it to be competitive in its market area in obtaining funds and
will enable it to respond with flexibility to changes in customer demand. The
ability of the Bank to attract and maintain deposit accounts will be affected by
market conditions.
The following table details the average amount, the average rate paid on
and the total of the following deposit categories for the Baltimore Branch
Deposits for the year ended December 31, 1996. The average balances were
calculated using month-end
50
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balances as daily averages were not available for the period presented. The
information in the table has been derived from information provided by Rushmore.
Year Ended
December 31, 1996
-----------------
Percent
Composition of Deposits Average Balance Average Rate of Total
- ----------------------- --------------- ------------ --------
Checking $ 221,000 --% 2.73%
Total Checking
Savings
Statement savings 1,995,000 2.50 24.60%
Money market 4,707,000 5.30 58.06
Certificates of deposit 629,000 4.56 7.76
Jumbo CD -- -- --
IRA 471,000 4.06 5.81
IRA Money Market 84,000 5.30 1.04
---------- ------ ------
Total Savings $7,886,000 4.45% 97.27%
---------- ------ ------
Total $8,107,000 100%
========== ------
Based on information provided by Rushmore, none of the Baltimore Branch
Deposits had remaining maturities in amounts of $100,000 or more as of December
31, 1996.
Borrowing
---------
The Federal Home Loan Bank System (the "FHLB System") functions as a
reserve credit capacity for savings associations and certain other home
financing institutions. Members of the FHLB System are required to own capital
stock in a Federal Home Loan Bank (a "FHLB"). The Bank will be a member of the
FHLB System and will be required to own stock in the FHLB of Atlanta. While
the Organizers currently do not contemplate that the Bank will seek funding
from other sources, the Bank may do so in the future.
It is anticipated that the Bank will be able to obtain advances from the
FHLB of Atlanta upon the security of its capital stock in the FHLB of Atlanta
and its mortgage loans and mortgage-backed securities. Such advances may be made
pursuant to several different credit programs, each of which has its own
interest rate and range of maturities. The FHLB of Atlanta will limit the
advances it makes to the Bank based upon its review and analysis of the Bank.
The Bank may use FHLB advances as an alternative source of funds to deposits in
order to fund its lending activities when it determines that it can profitably
invest the borrowed funds over their term. See "REGULATION - Federal Home Loan
Bank System."
Other Services
Other anticipated Bank services include cash management services, safe
deposit boxes, travelers checks, direct deposit of payroll and social security
checks and automatic drafts for various accounts. The Bank plans to become
associated with a network of automated teller machines that may be used by
customers of the Bank throughout Maryland and other regions.
The Bank does not plan to exercise trust powers during its initial years
of operation. The Bank may in the future offer a full-service trust department,
but cannot do so without the prior approval of the OTS. The Bank also currently
does not intend to operate outside the State of Maryland or internationally and
does not intend to offer investment banking services.
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<PAGE>
Description of Property
The Banking Office will be located at 3621 East Lombard Street,
Baltimore, Maryland 21224. Its telephone number will be (410) 342-8303. The
Banking Office contains approximately 2,000 square feet in a converted two-story
rowhome that has been utilized as a bank since 1927. The Banking Office is
located on the corner of two city streets, and is convenient to walk-in
customers and customers who use readily available street parking nearby.
Pending commencement of banking operations, the Bank's interim address
will be 515 East Joppa Road, Towson, Maryland 21286 and its interim telephone
number will be (410) 825-5580. The interim office will be used only for
administrative purposes.
Employees
It is anticipated that, upon commencement of banking operations, the
Bank will have three full-time employees and two part-time employee. It is
anticipated that all of these employees, except one part-time employee who will
be newly hired, will be former employees of Rushmore, including Patricia
D'Alessandro, who currently is a Vice President of Rushmore with managerial
responsibilities for the Baltimore Branch. Subject to regulatory approval, Ms.
D'Alessandro will serve as the President of the Bank and the Vice President of
the Company. Ms. D'Alessandro has over 20 years of experience in the commercial
and retail banking industry. See "THE ACQUISITION - General" and "MANAGEMENT."
REGULATION
General
As a federal stock savings bank, the Bank will be subject to
examination, supervision and comprehensive regulation by the OTS, as its
chartering agency, and the FDIC, as the deposit insurer. With respect to certain
consumer credit laws, the Bank will be subject to regulation by the Commissioner
of Financial Regulation of the State of Maryland. The Bank will be a member of
the FHLB System and its deposit accounts will be insured up to applicable limits
by the Savings Association Insurance Fund ("SAIF"), administered by the FDIC.
The Bank will be required to file reports with the OTS and the FDIC concerning
its activities and financial condition in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with, or
acquisitions of, other financial institutions. The OTS and the FDIC will perform
periodic examinations to test the Bank's compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which an institution can engage and is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes.
The Company, as a savings and loan holding company, also will be
required to file certain reports with and otherwise comply with the rules and
regulations of the OTS and of the SEC under the federal securities laws.
On September 30, 1996, the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (the "1996 Act") was enacted. The 1996 Act changed a broad
spectrum of prior banking laws. Among other things, the 1996 Act requires the
Secretary of the Treasury to present a report to Congress before March 31, 1997
containing the Secretary's recommendations for a common depository charter for
all federally chartered depository institutions, and the elimination of separate
charters between thrifts and commercial banks. The Secretary has made two
alternative recommendations to Congress. Under the first alternative, after a
two-year conversion period, all federally chartered thrifts would be required to
convert to national banks or state banks and the OTS would be abolished. Under
the second alternative, the thrift charter would remain intact. In addition,
legislation currently is pending before Congress that is substantially similar
to the Secretary's first alternative described above. If the Bank was required
to convert from a federal stock savings bank to a national bank or a state bank,
the Bank's regulatory structure could significantly change. At this time,
however, it is not possible to determine the effect of the Secretary's
recommendations or the extent to which the Secretary's
52
<PAGE>
recommendations, Congress' action on the recommendations or Congress' actions on
the pending legislation would effect the operations of the Bank.
The following is intended only as a summary of governmental supervision
and regulation of the Bank and the Company (as a savings and loan holding
company) and does not purport to be a complete analysis of the laws and
regulations which will govern the operations of the Bank and the Company.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings associations are
governed by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain
respects, the Federal Deposit Insurance Act ("FDI Act") and the regulations
issued by the agencies to implement these acts. These laws and regulations
delineate the nature and extent of the activities in which federal savings
associations may engage. For example, these laws and regulations limit to a
specified percentage of the association's capital or assets the types of loans
(commercial, non-residential real property loans and consumer loans) that may be
made by the association.
Loans-to-One Borrower. Under the HOLA, savings associations are
generally required to comply with the loans to one borrower limitations
applicable to national banks. National banks generally may make loans to one
borrower in amounts up to 15% of the bank's unimpaired capital and surplus, plus
an additional 10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain financial
instruments and bullion.
The HOLA provides exceptions under which a savings association may make
loans to one borrower in excess of the generally applicable national bank
limits. A savings association may make loans to one borrower in excess of such
limits under one of the following circumstances: (i) for any purpose, in any
amount not to exceed $500,000; or (ii) to develop domestic residential housing
units, in an amount not to exceed the lesser of $30 million or 30% of the
savings association's unimpaired capital and unimpaired surplus, provided other
conditions are satisfied. The Federal Institutions Reform, Recovery, and
Enforcement Act of 1989 provided that a savings association could make loans to
one borrower to finance the sale of real property acquired in satisfaction of
debts previously contracted in good faith in amounts up to 50% of the savings
association's unimpaired capital and unimpaired surplus. The OTS, however, has
modified this third standard by limiting loans to one borrower to finance the
sale of real property acquired in satisfaction of debts to 15% of unimpaired
capital and surplus. The OTS rule provides, however, that purchase money
mortgages received by a savings association to finance the sale of such real
property do not constitute "loans" (provided no new funds are advanced and the
savings association is not placed in a more detrimental position holding the
note than holding the real estate) and, therefore, are not subject to the loans
to one borrower limitations.
QTL Test. The HOLA requires savings associations to meet a qualified
thrift lender ("QTL") test. Under the QTL test, a savings association is
required to maintain at least 65% of its "portfolio assets" (total assets less:
(i) specified liquid assets up to 20% of total assets; (ii) intangibles,
including goodwill; and (iii) the value of property used to conduct business) in
certain "qualified thrift investments" (primarily residential mortgages and
related investments, including certain mortgage-backed and related securities)
on a monthly average basis in at least 9 months out of each 12 month period. A
savings association that fails the QTL test must either convert to a bank
charter or operate under certain restrictions.
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by savings associations, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to stockholders
of another institution in a cash-out merger and other distributions charged
against capital.
The regulations establish three tiers of institutions, which are based
primarily on an institution's capital level. An institution that exceeds all
fully phased-in regulatory capital requirements before and after a proposed
capital distribution ("Tier 1 Association") and has not been advised by the OTS
that it is in need of more than normal supervision, could after prior notice to,
but without the approval of the OTS, make capital distributions during a
calendar year equal to the greater of: (i) 100% of its net earnings to date
during the calendar year plus the amount that would reduce by one-half its
"surplus capital ratio" (the excess capital over its fully
53
<PAGE>
phased-in capital requirements) at the beginning of the calendar year or (ii)
75% of its net earnings for the previous four quarters. Any additional capital
distributions would require prior OTS approval. In the event the Bank's capital
fell below its capital requirements or the OTS notified it that it was in need
of more than normal supervision, the Bank's ability to make capital
distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by the Bank, which would otherwise be permitted by
the regulation, if the OTS determines that such distribution would constitute an
unsafe or unsound practice.
Liquidity. Under applicable federal regulations, savings associations
are required to maintain an average daily balance of specified liquid assets
equal to a monthly average of not less than a specified percentage (currently
5%) of the average daily balance of the savings association's net withdrawable
deposit accounts plus short-term borrowing. OTS regulations also require each
savings association to maintain an average daily balance of short-term liquid
assets at a specified percentage (currently 1%) of the total of the average
daily balance of its net withdrawable deposit accounts and short-term borrowing.
Monetary penalties may be imposed for failure to meet these liquidity
requirements.
Assessments. Savings associations are required by regulation to pay
assessments to the OTS to fund the agency's operations. The general assessment
is paid on a semi-annual basis and is computed upon the savings association's
total assets, including consolidated subsidiaries, as reported in the
institution's latest quarterly Thrift Financial Report.
Branching. OTS regulations permit savings associations to branch
nationwide under certain conditions. Generally, savings associations may
establish interstate networks and geographically diversify their loan portfolios
and lines of business. The OTS' authority preempts any state law purporting to
regulate branching by federal savings associations.
Transactions with Related Parties. Transactions engaged in by a savings
association with a related party or an "affiliate" (i.e., any company that
controls or is under common control with the savings association) will be
subject to the restrictions contained in Sections 23A and 23B of the Federal
Reserve Act (the "FRA"). Section 23A of the FRA limits the aggregate amount of
covered transactions with any individual affiliate to 10% of the capital and
surplus of the savings association and also limits the aggregate amount of
transactions with all affiliates to 20% of the savings association's capital and
surplus. Certain transactions with affiliates are required to be secured by
collateral in an amount and of a type described in Section 23A and the purchase
of low quality assets from affiliates is generally prohibited. Section 23B
generally requires that certain transactions with affiliates, including loans
and asset purchases, must be on terms and under circumstances including credit
standards that are substantially the same or at least as favorable to the
institution as those prevailing at the time for comparable transactions with
non-affiliated companies. Notwithstanding Sections 23A and 23B, savings
associations are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies under Section
4(c) of the Bank Holding Company Act ("BHC Act"). Further, no savings
association may purchase the securities of any affiliate other than a
subsidiary.
In addition, a savings association's authority to extend credit to its
executive officers, directors and 10% stockholders, as well as entities
controlled by such persons, is governed by Sections 22(g) and 22(h) of the FRA,
and Regulation O thereunder. Among other things, these laws and regulations
require that such loans be made on terms and conditions substantially the same
as those offered to unaffiliated individuals and may not involve more than the
normal risk of repayment. Regulation O also places individual and aggregate
limits on the amount of loans that a savings association may make to such
persons based, in part, on the savings association's capital position, and
requires that certain board approval procedures be followed.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings associations and has the authority to bring action
against all "institution-affiliated parties," including stockholders who
participate in the conduct of the affairs of a savings association, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on the institution. Formal
enforcement action may range from the issuance of a capital directive or cease
and desist order to removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $25,000 per day, or $1 million per
day in especially egregious cases. Under the FDI Act, the FDIC has the authority
to recommend to the Director of the OTS that enforcement action be taken with
respect
54
<PAGE>
to a particular savings association. If action is not taken by the Director, the
FDIC has authority to take such action under certain circumstances. Federal law
also establishes criminal penalties for certain violations.
Capital Requirements. OTS regulations require that savings associations
maintain (i) "tangible capital" in an amount of not less than 1.5% of total
assets; (ii) "core capital" in an amount not less than 3.0% of total assets; and
(iii) a level of risk-based (or "total") capital equal to at least 8% of
risk-weighted assets.
Capital standards established by the OTS for savings associations must
generally be no less stringent than those applicable to national banks. Under
OTS regulations, the term "core capital" generally includes common stockholders'
equity, noncumulative perpetual preferred stock and related surplus, and
minority interests in the equity accounts of consolidated subsidiaries less
unidentifiable intangible assets (other than certain amounts of supervisory
goodwill) and certain investments in certain subsidiaries plus 90% of the fair
market value of readily marketable purchased mortgage servicing rights ("PMSRs")
and purchased credit card relationships (subject to certain conditions).
"Tangible capital" generally is defined as core capital minus intangible assets
and investments in certain subsidiaries, except PMSRs.
In determining total risk-weighted assets for purposes of the risk-based
requirement, (i) each off-balance sheet asset must be converted to its
on-balance sheet credit equivalent amount by multiplying the face amount of each
such item by a credit conversion factor ranging from 0% to 100% (depending upon
the nature of the asset); (ii) the credit equivalent amount of each off-balance
sheet asset and each on-balance sheet asset must be multiplied by a risk factor
ranging from 0% to 200% (again depending upon the nature of the asset); and
(iii) the resulting amounts are added together and constitute total
risk-weighted assets. "Total capital," for purposes of the risk-based capital
requirement, equals the sum of core capital plus supplementary capital (which,
as defined, includes the sum of, among other items, perpetual preferred stock
not counted as core capital, limited life preferred stock, subordinated debt and
general loan and lease loss allowances up to 1.25% of risk-weighted assets) less
certain deductions. The amount of supplementary capital that may be counted
towards satisfaction of the total capital requirement may not exceed 100% of
core capital, and OTS regulations require the maintenance of a minimum ratio of
core capital to total risk-weighted assets of 4%.
OTS regulations have been amended to include an interest-rate risk
component to the risk-based capital requirement. Under this regulation, an
institution is considered to have excess interest rate-risk if, based upon a
200-basis point change in market interest rates, the market value of an
institution's capital changes by more than 2%. This new requirement, application
of which has been delayed indefinitely by the OTS, is not expected to have any
material effect on the ability of the Bank to meet the risk-based capital
requirement. The OTS also revised its risk-based capital standards to ensure
that its standards provide adequately for concentration of credit risk, risk
from nontraditional activities and actual performance and expected risk of loss
on multi-family mortgages.
Capital requirements higher than the generally applicable minimum may be
established for a particular savings association if the OTS determines that the
institution's capital was or may become inadequate in view of its particular
circumstances.
The following table sets forth the Bank's pro forma level of regulatory
capital and its required level of regulatory capital as of December 31, 1996,
giving effect to the Offering and the consummation of the Acquisition.
<TABLE>
<CAPTION>
Actual Capital Required Capital Excess Capital
-------------- ---------------- --------------
Amount Percentage Amount Percentage Amount Percentage
------ ---------- ------ ---------- ------ ----------
<S> <C>
Tangible........ $1,745,000 20.7% $126,000 1.5% $1,619,000 19.3%
Core............ $1,745,000 20.7% $252,000 3.0% $1,493,000 17.8%
Risk-based...... $1,745,000 37.3% $374,000 8.0%* $1,371,000 29.3%
</TABLE>
*Based on Risk Weighted Assets of $4,673,000.
55
<PAGE>
Prompt Corrective Regulatory Action. Pursuant to the FDI Act, the
federal banking agencies established for each capital measure levels at which an
insured institution is deemed to be well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. Federal banking agencies are required to take prompt
corrective action with respect to insured institutions that fall below minimum
capital standards. The degree of required regulatory intervention for
institutions that are not at least adequately capitalized is tied to an insured
institution's capital category, with increasing scrutiny and more stringent
restrictions being imposed as an institution's capital declines.
The prompt corrective action regulations generally are based upon an
institution's capital ratios. Under the prompt corrective action regulations
adopted by the OTS, an institution will be considered (i) "well capitalized" if
the institution has a total risk-based capital ratio of 10% or greater, a Tier 1
or core capital to risk-weighted assets ratio of 6% or greater, and a leverage
ratio of 5% or greater (provided that the institution is not subject to an
order, written agreement, capital directive or prompt corrective action
directive to meet and maintain a specific capital level for any capital
measure); (ii) "adequately capitalized" if the institution has a total risk-
based capital ratio of 8% or greater, a Tier 1 or core capital to risk-weighted
assets ratio of 4% or grater, and a leverage ratio of 4% or grater (3% or
greater if the institution is rated composite 1 in its most recent report of
examination); (iii) "undercapitalized" if the institution has a total risk-based
capital ratio that is less than 8%, a Tier 1 or core capital to risk-weighted
assets ratio of less than 4%, or a leverage ratio that is less than 4% (3% if
the institution is rated composite 1 in its most recent report of examination);
(iv) "significantly undercapitalized" if the institution has a total risk-based
capital ratio that is less than 6%, a Tier 1 or core capital to risk- weighted
assets ratio that is less than 3%, or a leverage ratio that is less than 3%; and
(v) "critically undercapitalized" if the institution has a ratio of tangible
equity to total assets that is less than or equal to 2%. The regulations also
permit the OTS to determine that a savings institution should be classified in a
lower category based on other information, such as the institution's examination
report, after written notice and an opportunity for a hearing.
Subject to a narrow exception, the regulations require the OTS to
appoint a receiver or conservator for an institution that is "critically
undercapitalized." The regulations also provide that a capital restoration plan
must be filed with the OTS within 45 days of the date an institution receives
notice that it is "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Compliance with the plan must be guaranteed by
any parent holding company. In addition, numerous mandatory supervisory actions
may become immediately applicable to the institution depending upon its
category, including, but not limited to, increased monitoring by regulators,
restrictions on growth and capital distributions and limitations on expansion.
The OTS also could take any one of a number of discretionary supervisory
actions, including the issuance of a capital directive and the replacement of
senior executive officers and directors.
Standards for Safety and Soundness. The FDI Act requires each federal
banking agency to prescribe standards relating to, among other things, internal
controls, information systems and audit systems, loan documentation, credit
underwriting, interest rate risk exposure, asset growth, and compensation, fees
and benefits and such other operational and managerial standards as the agency
deems appropriate. The federal banking agencies recently adopted a final
regulation and Interagency Guidelines Prescribing Standards for Safety and
Soundness ("Guidelines") to implement these safety and soundness standards.
The Guidelines set forth the safety and soundness standards that the
federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. Institutions are
required to establish and maintain a system to identify problem assets and
prevent deterioration of those assets in a manner commensurate with its size and
the nature and scope of their operations. In addition, institutions must
establish and maintain a system to evaluate and monitor earnings and ensure that
earnings are sufficient to maintain adequate capital and reserves in a manner
commensurate with their size and the nature and scope of their operations.
If the appropriate federal banking agency determines that an institution
fails to meet any standard prescribed by the Guidelines, the agency may require
the institution to submit to the agency an acceptable plan to achieve compliance
with the standard, as required by the FDI Act. The final regulation establishes
deadlines for the submission and review of such safety and soundness compliance
plans.
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Community Reinvestment Act. Under the Community Reinvestment Act (the
"CRA") and the implementing OTS regulations, the Bank will have a continuing and
affirmative obligation to help meet the credit needs of its local community,
including low and moderate-income neighborhoods, consistent with the safe and
sound operation of the institution. The CRA requires the board of directors of
financial institutions, such as the Bank, to adopt a CRA statement for each
assessment area that, among other things, describes its efforts to help meet the
communities credit needs and the specific types of credit that the institution
is willing to extend. The Bank's Board of Directors will be required to review
the appropriateness of the delineation of its community at least annually.
Insurance of Deposit Accounts. Federal deposit insurance is required for
all federally chartered savings associations. Deposits at the Bank will be
insured up to a maximum of $100,000 for each depositor by the SAIF, which
currently provides deposit insurance for federally chartered savings
associations. As a result of the 1996 Act, however, SAIF eventually will cease
to be the deposit insurer for federal savings associations. The 1996 Act
provides that SAIF and BIF, which is the insurance fund which insures most
commercial bank deposits, shall be merged into a new insurance fund to be called
the Deposit Insurance Fund ("DIF"). Like SAIF and BIF, DIF will be administered
by the FDIC. The 1996 Act provides that the SAIF/BIF merger shall occur by
January 1, 1999, provided that no federally chartered savings associations exist
as of such date.
The 1996 Act requires SAIF insured institutions to pay a one-time
assessment to increase the capitalization of SAIF. The purpose of the assessment
is to bring SAIF premiums in line with deposit insurance premiums assessed by
BIF. The 1996 Act is unclear with respect to its effect on institutions like the
Bank as the legislation does not address how or if the one-time assessment will
be applied to federal savings associations chartered after the enactment of the
legislation. It is the Organizers' understanding from conversations with the
applicable regulatory authorities that the one-time assessment will not be
assessed against the Bank. However, there can be no assurance that that will be
the case.
Under either SAIF or BIF, to evaluate a financial institution's deposit
insurance assessment, the FDIC has adopted a risk-based insurance assessment
system. Based on the institution's financial condition, the FDIC assigns an
institution to one of three capital categories: (i) well capitalized, (ii)
adequately capitalized or (iii) or less than adequately capitalized, as such
terms are defined under the OTS' prompt corrective regulatory action regulations
(discussed above), except that "less than adequately capitalized" includes any
institution that is not well capitalized or adequately capitalized. Within each
capital category, institutions are assigned to one of three supervisory
subgroups - "healthy" (institutions that are financially sound with only a few
minor weaknesses), "supervisory concern" (institutions with weaknesses which, if
not corrected, could result in significant deterioration of the institution and
increased risk to the deposit insurer) or "substantial supervisory concern"
(institutions that pose a substantial probability to the deposit insurer unless
corrective action is taken). An institution's assessment rate depends on the
capital category and supervisory subgroup to which it is assigned. The FDIC has
raised deposit insurance premiums several times in the past and may raise
insurance premiums in the future. If such action is taken by the FDIC, it could
have an adverse effect on the earnings of the Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS.
Holding Company Regulation
The Company will be a non-diversified unitary savings and loan holding
company within the meaning of the HOLA. As such, the Company will be required to
register with the OTS and will be subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS will have
enforcement authority over the Company and its non-savings association
subsidiaries. Among other things, this authority permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings association. The Bank will be required to notify the OTS thirty days
before declaring any dividend to the Company.
As a unitary savings and loan holding company, the Company generally
will not be restricted under existing laws as to the types of business
activities in which it may engage, provided that the Bank is a QTL. See
REGULATION - Federal Savings Institution Regulation" for a discussion of the QTL
requirements. Upon any non-supervisory acquisition by the Company of another
57
<PAGE>
savings association, the Company would become a multiple savings and loan
holding company (if the acquired institution is held as a separate subsidiary)
and would become subject to extensive limitations on the types of business
activities in which it could engage. The HOLA limits the activities of a
multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the BHC Act, subject to the prior approval of the OTS
and to other activities authorized by OTS regulation.
The HOLA prohibits a savings and loan holding company from acquiring
control of another savings association, or holding company thereof, without
prior written approval of the OTS. Control includes acquisition of more than 25%
of any class of voting stock or 10% of any class of voting stock if certain OTS
defined control criteria are present. In evaluating applications by holding
companies to acquire savings associations, the OTS must consider the financial
and managerial resources and future prospects of the company and association
involved, the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community and competitive factors. Except in
certain circumstances, the OTS is prohibited from approving any acquisition that
would result in a multiple savings and loan holding company controlling savings
associations in more than one state.
New Federal Legislation
The following is intended only as a summary of certain portions of the
1996 Act that may have a direct or indirect effect on the business and
operations of the Bank and the Company (as a savings and loan holding company)
and does not purport to be a complete analysis of the 1996 Act.
The 1996 Act modified or eliminated certain previously applicable
regulatory requirements and procedures. Bank holding companies that acquire a
controlling interest in a federally chartered thrift or a savings and loan
holding company may now do so without OTS approval. However, Federal Reserve
approval, with comments from the OTS, will be required before such a transaction
may occur. Capital requirements for individual branches of national banks and
state member banks has been eliminated as has the approval requirement for
automated teller machines. Also, national banks and state member banks, if they
are considered well capitalized and well managed, no longer need regulatory
approval to invest in bank premises or in the stock of a corporation holding
bank premises. In addition, prior regulatory approval of directors and executive
officers has been limited to depository institutions that do not meet minimum
capital requirements or that are required to submit a capital restoration plan.
The 1996 Act permits extensions of credit to be made to officers,
directors and principal stockholders of a depository institution pursuant to a
benefit or compensation program if the program is widely available to employees
of the institution and does not give preference to any officer, director,
principal stockholder or any related party over other employees of the
institution.
Under the 1996 Act, prior notice is no longer required for closure of an
automated teller machine. In addition, prior notice is no longer required for
the relocation or consolidation of one or more branches if the relocation or
consolidation occurs within the same immediate neighborhood and does not
substantially affect the nature of the business or the customers served.
The 1996 Act grants the OTS the authority to make, by regulation,
exceptions to the prohibitions against tying arrangements if such exceptions are
not contrary to existing law and are consistent with exceptions granted by the
Federal Reserve. It also raises the regulatory threshold to place a small bank
in an 18 month examination cycle (instead of the normal 12 month cycle) to
$250,000,000 in assets. The exemption threshold regarding disclosure under the
Home Mortgage Disclosure Act also has been raised and the threshold amount must
be adjusted annually for inflation.
The 1996 Act repeals the requirement that a depository institution's
independent auditor must attest to the institution's compliance with certain
laws and regulations. Similarly, the prior requirement that all members of a
depository institution's audit committee be comprised of outside directors may
now be waived by the appropriate regulatory authority.
The 1996 Act provides certain incentives for creditors to engage in
self-testing to determine compliance with the Equal Credit Opportunity Act and
the Fair Housing Act. A creditor who performs self testing will be able to keep
such results confidential provided
58
<PAGE>
that the creditor meets certain conditions. The results of such self-testing may
not be used in a proceeding or civil action in which violations of the Equal
Credit Opportunity Act and/or the Fair Housing Act are alleged.
Under the 1996 Act, savings associations may now make credit card loans
and educational loans without any limitation regarding the percentage of such
loans to total assets. The amount of commercial loans a savings association may
make has been raised to 20% of total assets although amounts in excess of 10% of
total assets may only be used for small business loans.
Federal Home Loan Bank System
The Bank will be a member of the FHLB System, which consists of twelve
regional FHLBs. Each FHLB provides a central credit facility primarily for
member savings associations. The Bank will be required to acquire and hold
shares of capital stock in the FHLB of Atlanta in an amount equal to at least 1%
of the aggregate principal amount of its unpaid residential mortgage loans and
similar obligations at the beginning of each year or 1/20 of its advances
(borrowings) from the FHLB of Atlanta, whichever is greater.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and also could result in the FHLBs imposing a higher rate of interest on
advances to their members. The Bank's net interest income would be reduced if
the FHLB reduces the amount of dividends it pays to its members or if the
interest rate on FHLB advances were to increase. Further, there can be no
assurance that any legislation relating to the FHLBs will not cause a decrease
in the value of the FHLB stock to be held by the Bank.
Federal Reserve System
Federal Reserve regulations require that savings associations maintain
non-interest-earning reserves against their transaction accounts (primarily NOW
and regular checking accounts). The Federal Reserve regulations generally
require that reserves be maintained against aggregate transaction accounts as
follows: for accounts aggregating $52.0 million or less (subject to adjustment
by the Federal Reserve) the reserve requirement is 3%; and for accounts greater
than $52.0 million, the reserve requirement is $1.6 million plus 10% (subject to
adjustment by the Federal Reserve between 8% and 14%) against that portion of
total transaction accounts in excess of $52.0 million. The first $4.3 million of
otherwise reservable balances (subject to adjustments by the Federal Reserve)
are exempted from the reserve requirements. Because required reserves must be
maintained in the form of either vault cash, a non-interest-bearing account at a
Federal Reserve Bank or a pass-through account as defined by the Federal
Reserve, the effect of this reserve requirement will be to reduce the Bank's
interest-earning assets.
Savings associations have the authority to borrow from the Federal
Reserve "discount windows," but Federal Reserve regulations require institutions
to exhaust all FHLB sources before borrowing from a Federal Reserve Bank.
59
<PAGE>
MANAGEMENT
The following table sets forth the respective names, residential or
business addresses, position with the Company and/or the Bank of the Organizers
and the Additional Directors and the number of shares of Common Stock which it
is anticipated that such persons, directly or indirectly, together with their
immediate families, will purchase (including shares which may be issued to them
in full or partial satisfaction of organizational loans made by them to the
Company) in the Offering. The table also provides the anticipated purchases of
Common Stock in the Offering of all officers and directors of the Company as a
group. The Organizers and the Additional Directors may purchase additional
shares in the Offering if necessary to permit the Company to satisfy the
conditions of the Offering, and they may purchase additional shares even if the
Company has satisfied the conditions of the Offering. Any shares purchased by
the Organizers and the Additional Directors in excess of their original
commitment will be purchased for investment and not with a view to the resale of
such shares.
[See Following Page]
60
<PAGE>
<TABLE>
<CAPTION>
Anticipated Common Stock Purchases(1)
-------------------------------------
Positions with
the Company and/or Anticipated Minimum Maximum
Name (Age) the Bank(2) Number (3)(4) Offering (5) Offering (6)
- ---------- ----------- ------------- ------------ ------------
<S> <C>
Garbis Baklayan (50) Director 10,050(4) 4.19% 3.35%
7900 Belair Road
Baltimore, MD 21236
Nicholas J. Belitsos, M.D. (46) Director 10,000(4) 4.17% 3.33%
20 East Eager Street
Baltimore, MD 21202
Henry A. Berliner, Jr. (62) Director 1,500 0.63% 0.50%
2444 Holly Ave., Suite 201
Annapolis, MD 21401
King V. Cheek (59) Director 8,220(4) 3.43% 2.74%
14009 Broomall Lane
Silver Spring, MD 20906
Cynthia B. Conklin (43) Director 2,550 1.06% 0.85%
230 E. Montgomery Street
Baltimore, MD 21230
Patricia D'Alessandro (52) Vice President (7), 250(4) 0.10% 0.08%
3621 E. Lombard Street President(8)
Baltimore, MD 21224
William A. Fogle, Jr. (61) Director 1,200(4) 0.50% 0.40%
RRI Box 192
Glen Rock, PA 17327
Constantine Frank (42) Director 10,000(4) 4.17% 3.33%
14721 Manor Road
Phoenix, MD 21131
J. Clarence Jameson, III (66) Director 20,050(4) 8.35% 6.68%
515 E. Joppa Road (Chairman of the Board),
Towson, MD 21286 President (7),
Vice President (8)
Kemp Jayadeva (46) Director 7,500(4) 3.13% 2.50%
3713 Michelle Way
Baltimore, MD 21208
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Anticipated Common Stock Purchases(1)
-------------------------------------
Positions with
the Company and/or Anticipated Minimum Maximum
Name (Age) the Bank(2) Number (3)(4) Offering (5) Offering (6)
- ---------- ----------- ------------- ------------ ------------
<S> <C>
Norman H. Katz (70) Director 2,500(4) 1.04% 0.83%
3420 Lynne Haven Drive
Baltimore, MD 21244
Shawki N. Malek, M.D. (53) Director 10,050(4) 4.19% 3.35%
120 Sister Pierre Drive
Suite 408
Towson, MD 21204
Michael W. Mekalian (54) Director 20,050(4) 8.35%(11) 6.68%(11)
1911 York Road
Timonium, MD 21093
Mark D. Noar, M.D. (44) Director 10,000(4) 4.17% 3.33%
7402 York Road, Suite 100
Towson, MD 21204
Larry D. Ohler (57) Director, Treasurer (7,8) 2,500 1.04% 0.83%
9570 Berger Road
Columbia, MD 21046
Kenneth D. Pezzulla (67) Director, Secretary (7,8) 2,500(4) 1.04% 0.83%
401 Washington Ave.
Suite 301
Towson, MD 21204-4804
George E. Rayme, Jr. (54) Director 20,050(4) 8.35%(11) 6.68%(11)
1911 York Road
Timonium, MD 21093
Ramon F. Roig, Jr., M.D. (64) Director 4,050(4) 1.69% 1.35%
15 Aigburth Road
Towson, MD 21204
Russell A. Rourke (65) Director 2,500(4) 1.04% 0.83%
15 Maryland Avenue
Annapolis, MD 21401
Melanie R. Sabelhaus (48) Director 5,000 2.08% 1.67%
1406 Shoemaker Road
Baltimore, MD 21209
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Anticipated Common Stock Purchases(1)
-------------------------------------
Positions with
the Company and/or Anticipated Minimum Maximum
Name (Age) the Bank(2) Number (3)(4) Offering (5) Offering (6)
- ---------- ----------- ------------- ------------ ------------
<S> <C>
Baldev Singh (60) Director 10,000 4.17% 3.33%
7401 Assateague Drive
Jessup, MD 20794
Officers and Directors as a -------------
Group(9) 140,520(10) 58.55% 46.84%
</TABLE>
- ----------
(1) Although it is anticipated that the Organizers and the Additional
Directors, together with members of their immediate families, will
purchase the number of shares (including shares which may be issued to
them in full or partial satisfaction of organizational loans made by
them to the Company) indicated, neither the Organizers nor the
Additional Directors nor any other subscriber will be obligated to
purchase shares.
(2) Subject to regulatory approval, all of the Organizers, except Ms.
D'Alessandro, will serve as directors of the Company and the Bank with
Mr. Jameson serving as Chairman of the Board of the Company and the
Bank. As soon as the Bank commences its operations, subject to
regulatory approval, the Organizers intend to add the Additional
Directors as directors of the Company and the Bank.
(3) This column includes shares which are expected to be beneficially owned
by the Organizers and the Additional Directors upon the successful
completion of the Offering (including shares as to which beneficial
ownership has been disclaimed.) The Organizers and the Additional
Directors may purchase additional shares in the Offering if necessary
to permit the Company to satisfy the conditions of the Offering, and
they may purchase additional shares even if the Company has satisfied
the conditions of the Offering. Any shares purchased by the Organizers
and the Additional Directors in excess of their original commitment
will be purchased for investment and not with a view to the resale of
such shares. The information contained in this column is based upon
information furnished to the Company by the persons named in the table
and the members of the designated group. The nature of beneficial
ownership for shares shown in this column is sole voting and investment
power, except as set forth in the footnote (4) below. All of such
purchases will be at a price of $10.00 per share, the same price at
which shares are being offered to the public.
(4) The listed amounts include shares as to which the named persons are
beneficial owners but not the sole beneficial owners as follows: (i)
Mr. Baklayan: Anticipated to include 10,000 shares held for the benefit
of Mr. Baklayan's IRA, as to which Mr. Baklayan has sole voting and
investment power. (ii) Dr. Belitsos: Anticipated to include 5,000
shares held for the benefit of the Nicholas J. Belitsos, M.D. Profit
Sharing Trust, as to which Dr. Belitsos is the sole trustee and 4,950
shares held jointly with Dr. Belitsos' wife, as to which Dr. Belitsos
will share voting and investment power. (iii) Mr. Cheek: Anticipated to
include 6,000 shares held for the benefit of the Albert C. Cheek Trust,
as to which Mr. Cheek is sole trustee, and 950 shares held jointly with
Mr. Cheek's wife, as to which Mr. Cheek will share voting and
investment power. Also anticipated to include 1,220 shares held for the
benefit of Mr. Cheek's wife's IRA, as to which Mrs. Cheek has sole
voting and investment power. (iv) Ms. Conklin: Anticipated to include
2,500 shares held for the benefit of the Cynthia B. Conklin Profit
Sharing Plan, as to which Ms. Conklin is the sole trustee. (v) Ms.
D'Alessandro: Anticipated to include 200 shares held jointly with Ms.
D'Alessandro's husband, as to which Ms. D'Alessandro will share voting
and investment power. (vi) Mr. Fogle: Anticipated to include 200 shares
held for the benefit of Mr. Fogle's IRA, as to which Mr. Fogle has sole
voting and investment power. (vii) Mr. Frank: Anticipated to include
9,950 shares held jointly with Mr. Frank's wife, as to which Mr. Frank
will share voting and investment power. (viii) Mr. Jameson: Anticipated
to include 10,000 shares held jointly with Mr. Jameson's wife, as to
which Mr. Jameson will share voting and investment power, and 10,000
shares held for the benefit of Mr. Jameson's IRA, as to which Mr.
Jameson has sole voting and investment power. (ix) Mr. Jayadeva:
Anticipated to include 5,000 shares held for the benefit of the Shobha
Jayadeva Pension Plan, as to which Mr. Jayadeva's wife, Shobha
Jayadeva, M.D., is the sole trustee and 2,450 shares held jointly with
Shobha Jayadeva, M.D., as to which Mr. Jayadeva will share voting and
investment power.(x) Mr. Katz: Anticipated to include 450 shares held
jointly with Mr. Katz's wife, as to which Mr. Katz will share voting
and investment power and 2,000 shares held for the benefit of Mr.
Katz's wife's IRA, as to which Mrs. Katz has sole voting and investment
power. (xi) Dr. Malek: Anticipated to include 10,000 shares held for
the benefit of the Shawki N. Malek KEOGH Plan, as to which Dr. Malek
has sole voting and investment power. (xii) Mr. Mekalian: Anticipated
to include 20,000 shares held by Black Star Industries, Inc. Mr.
Mekalian, together with Mr. Rayme, directly or indirectly control the
voting and investment power of Black Star Industries, Inc., as follows:
Sixty percent of the capital stock of Black Star Industries, Inc. is
owned by Mr. Mekalian's wife, Anne Mekalian, or trusts for which Ms.
Mekalian is sole trustee, and as to which Ms. Mekalian has sole voting
and investment power, and forty percent of the capital stock of Black
Star Industries, Inc. is owned by Mr. Rayme. (xiii) Dr. Noar:
Anticipated to include 9,950 shares held jointly with Dr. Noar's wife,
as to which Dr. Noar will share voting and investment power. (xiv) Mr.
Pezzulla: Anticipated to include 1,750 shares held for the benefit of
Mr. Pezzulla's IRA, as to which Mr. Pezzulla has sole voting and
investment power and 700 shares held jointly with Mr. Pezzulla's wife,
as to which Mr. Pezzulla will share voting and investment power. (xv)
Mr. Rayme: Anticipated to include 20,000 shares held by Black Star
Industries, Inc. See discussion above regarding Mr. Mekalian. (xvi) Dr.
Roig: Anticipated to include 2,000 shares held for the benefit of Dr.
Roig's IRA, as to which Dr. Roig has sole voting and investment power
and 2,000 shares held for the benefit of Dr. Roig's wife's IRA, as to
which Mrs. Roig has sole voting and investment power. (xvii) Mr.
Rourke: Anticipated to include 2,450 shares held jointly with Mr.
Rourke's wife, as to which Mr. Rourke will share voting and investment
power.
63
<PAGE>
(5) Indicates percentage of outstanding shares of Common Stock that would
be beneficially owned immediately after the Offering assuming that the
anticipated number of shares of Common Stock are purchased by the
Organizers and the Additional Directors and the Company accepts
subscriptions for the Minimum Number of Shares.
(6) Indicates percentage of outstanding shares of Common Stock that would
be owned immediately after the Offering assuming that the anticipated
number of shares of Common Stock are purchased by the Organizers and
the Additional Directors and the Company accepts subscriptions for the
Maximum Number of Shares.
(7) Subject to regulatory approval, the officers of the Company will be
President - J. Clarence Jameson, III; Executive Vice President -
Patricia D'Alessandro; Secretary - Kenneth D. Pezzulla, Esq.; and
Treasurer - Larry D. Ohler.
(8) Subject to regulatory approval, the officers of the Bank will be
Patricia D'Alessandro - President; J. Clarence Jameson, III -Vice
President; Secretary - Kenneth D. Pezzulla, Esq.; and Treasurer - Larry
D. Ohler.
(9) The Organizers and the Additional Directors may be deemed "control
persons" or "promoters" of the Company as those terms are defined in
Section 405 of the Securities Act of 1933, as amended.
(10) Includes 50 shares attributable to Mr. Mekalian, 50 shares attributable
to Mr. Rayme and 20,000 shares attributable to Mr. Mekalian and Mr.
Rayme through Black Star Industries, Inc. See Footnote (4) above.
(11) See Footnote (10) above.
64
<PAGE>
None of the Organizers or Additional Directors are related. Biographical
information concerning the Organizers and the Additional Directors is set forth
below.
GARBIS BAKLAYAN will, subject to regulatory approval, be added by the Organizers
as a director of the Company and the Bank. Mr. Baklayan is President and Chief
Executive Officer of Gary's Sportswear and Athletic Shoes, a shoe and sportswear
company, and has served in that capacity since 1978.
NICHOLAS J. BELITSOS, M.D. will, subject to regulatory approval, be added by the
Organizers as a director of the Company and the Bank. Dr. Belitsos currently
practices internal medicine and gastroenterology in Baltimore, Maryland and is
President of Nicholas J. Belitsos, M.D., P.A. He has served in that capacity for
the past ten years. He is also the Director of the Digestive Disease Center at
Saint Joseph's Medical Center and is an Assistant Professor of Medicine and
Lecturer in Pathology at The Johns Hopkins Hospital.
HENRY A. BERLINER, JR. will, subject to regulatory approval, be added by the
Organizers as a director of the Company and the Bank. Mr. Berliner is currently
"of counsel" to Berliner, Corcoran & Rowe, a law firm, and has served in such
capacity since 1992. Mr. Berliner also is President and a principal of National
Mortgage Corporation, a mortgage brokerage firm, and has served in such capacity
since 1993. He is the Senior Vice President and general counsel of National
Consulting Group, Inc., a consulting company to the insurance industry, and has
served in such capacity since July 1996. He also is the President of National
Asset Management Co., an asset management firm, and has held such position since
1993. Mr. Berliner was President of Second National Federal Savings Bank
("Second National") from 1984 to 1992 and was a director of Second National from
1972 to 1992. In 1992, the Office of Thrift Supervision appointed the Resolution
Trust Corporation as receiver for Second National. In December 1996, Mr.
Berliner and certain other former officers and directors of Second National
(together with Mr. Berliner, the "Settling Individuals") entered into a
Settlement and Release Agreement with the FDIC (successor to the Resolution
Trust Corporation), pursuant to which, among other things, the FDIC released the
Settling Individuals, upon satisfaction of certain conditions, from any actions
the FDIC may have against the Settling Individuals related to their duties as
officers or directors of Second National. Mr. Berliner has advised the Company
that the conditions to such release have been satisfied. From 1981 to 1984, Mr.
Berliner was a director, executive committee member and chairman of the loan
committee of the National Bank of Commerce.
KING V. CHEEK will be a director of the Company and the Bank. Mr. Cheek
currently is a Senior Adviser to the President of the New York Institute of
Technology, and has served in that capacity since February 1997. Mr. Cheek also
serves as a marketing representative for BCI Contractors, Inc., a construction
company, and has served in that capacity since February 1997. From January 1996
until January 1997, Mr. Cheek served as an Assistant Vice President and director
of marketing for BCI Contractors, Inc. Mr. Cheek was Vice President of Academic
Affairs at the New York Institute of Technology from September 1992 to January
1996 and was Vice President of Institutional Advancement from 1991 to September
1992. Mr. Cheek was a director of Union Trust Bancorp from 1971 to 1974 and is
currently a director of BCI Contractors, Inc.
CYNTHIA B. CONKLIN will, subject to regulatory approval, be added by the
Organizers as a director of the Company and the Bank. Ms. Conklin currently is a
licensed realtor with O'Connor Piper & Flynn, a real estate sales company, and
has served in that capacity for over eleven years.
PATRICIA D'ALESSANDRO will serve as Executive Vice President of the Company and
will serve as President of the Bank. Ms. D'Alessandro currently is a Vice
President of Rushmore Trust and Savings, FSB ("Rushmore") and has served in such
capacity for over six years. Ms. D'Alessandro was employed from 1962 to 1974 and
from 1984 to 1989 by Chesapeake Federal Savings and Loan Association, during
which time Ms. D'Alessandro served in a variety of capacities, including
assistant secretary of the association and manager of loan servicing.
WILLIAM A. FOGLE, JR. will be a director of the Company and the Bank. Mr. Fogle
currently is a licensed realtor with Coldwell Banker Grempler Realty, Inc., a
real estate sales company, and has served in that capacity since January 1997.
He was an Assistant Vice President of Marketing and Sales of BCI Contractors,
Inc., a construction company, from February 1995 to December 31, 1996. Mr. Fogle
was Secretary of the Maryland Department of Licensing and Regulation from 1987
to February 1995. Mr. Fogle was chairman of the credit committee and a member of
the audit committee of the Municipal Employees Credit Union from 1982 to 1987.
65
<PAGE>
CONSTANTINE FRANK will, subject to regulatory approval, be added by the
Organizers as a director of the Company and the Bank. Since 1972, Mr. Frank has
been employed by Nick Frank Vending, Inc., a vending company servicing customers
in the Baltimore area. Mr. Frank became President of Nick Frank Vending, Inc. on
July 1, 1997.
J. CLARENCE JAMESON, III will serve as President of the Company and Vice
President of the Bank and he will serve as Chairman of the Board of Directors of
both the Company and the Bank. Mr. Jameson currently is the President and a
principal of Jameson and Associates, P.A., a public accounting firm, and has
served in that capacity for over 13 years. From February 1994 to June 1995, Mr.
Jameson was Chairman of the Board of Maryland Bank Corp., the savings and loan
holding company of MarylandsBank, FSB. Mr. Jameson also was a director of
MarylandsBank, FSB from February 1994 to June 1995. Mr. Jameson also was an
organizer of the Bank of Maryland and its holding company, Bank Maryland Corp.,
and he served as Chairman of the Board of both entities from 1985 to 1990.
KEMP JAYADEVA will be a director of the Company and the Proposed Bank. Mr.
Jayadeva currently is the President and sole stockholder of Allied Physician
Services, Inc., a computer services firm, and has served in that capacity for
over nine years. Mr. Jayadeva also is a licensed engineer and a real estate
salesperson.
NORMAN H. KATZ will be a director of the Company and the Bank. Mr. Katz is an
attorney is solo practice in the Baltimore metropolitan area and has been a sole
practitioner for over 13 years. Mr. Katz was the assistant director of the
Division of Parole and Probation for the State of Maryland from 1955 to 1978.
SHAWKI N. MALEK, M.D. will, subject to regulatory approval, be added by the
Organizers as a director of the Company and the Bank. Dr. Malek is in private
practice specializing in adult and pediatric gastroenterology with offices in
Towson, Maryland and has served in that capacity since 1985. He has held
teaching appointments at the University of Maryland School of Medicine and the
University of Damascus, Syria.
MICHAEL W. MEKALIAN will, subject to regulatory approval, be added by the
Organizers as a director of the Company and the Bank. Mr. Mekalian is the Chief
Executive Officer of Blackstar Industries, Inc., a national manufacturer of
specialty products for the construction industry, and has served in that
capacity since its inception in November 1996. From 1979 until November 1996,
Mr. Mekalian was President of Management Administrative Services, Inc., a
provider of business and financial consulting services.
MARK D. NOAR, M.D., will, subject to regulatory approval, be added by the
Organizers as a director of the Company and the Bank. Dr. Noar currently is a
gastroenterologist in Baltimore, Maryland and is the Chief Executive Officer of
Endoscopic Microsurgery Associates, P.A. He has served in that capacity for the
past eight years.
LARRY D. OHLER will serve as Treasurer of the Company and the Bank and will be a
director of the Company and the Bank. Mr. Ohler currently is the Chief Financial
Officer of PATS, Inc., a manufacturing and engineering company, and has served
in such capacity for over 11 years. He is also a certified public accountant and
is Vice President of Columbia Leasing Company, Vice President of BMW
Enterprises, Inc. and a general partner in PLEDGE, a Maryland partnership.
KENNETH D. PEZZULLA will serve as Secretary of the Company and the Bank and will
be a director of the Company and the Bank. Mr. Pezzulla currently is a member of
Pezzulla and Pezzulla, LLC, a Towson law firm, and has served in that capacity
since 1995. Mr. Pezzulla had a solo legal practice from 1975 to 1995. Mr.
Pezzulla has been a director of Rushmore since 1989 and was a director of its
predecessor, LaCorona Building and Loan Association, from 1963 to 1989. Mr.
Pezzulla was President of LaCorona Building and Loan Association from 1985 to
1988.
GEORGE E. RAYME, JR. will, subject to regulatory approval, be added by the
Organizers as a director of the Company and the Bank. Mr. Rayme is President of
Black Star Industries, Inc., a national manufacturer of specialty products for
the construction industry, and has served in that capacity since its inception
in November 1996. From October 1994 to November 1996, Mr. Rayme was Vice
President of Sales and Marketing for Burns Russell, Inc., a licensor of
manufacturing processes for the building materials
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industry and a chemical sales company. From October 1991 to September 1994, Mr.
Rayme was General Manager of Valley Lighting Co., a retail and commercial
lighting and design company.
RAMON F. ROIG, JR., M.D. will, subject to regulatory approval, be added by the
Organizers as a director of the Company and the Bank. Dr. Roig currently
practices in internal medicine and gastroenterology in Baltimore, Maryland and
is President of Ramon F. Roig, M.D., P.A. He has served in that capacity since
1974. He is also General Manager of Endoscopy Associates, LLC and is the Medical
Director of the Endoscopy Associates Center at the Saint Joseph Professional
Building.
RUSSELL A. ROURKE will, subject to regulatory approval, be added by the
Organizers as a director of the Company and the Bank. Mr. Rourke currently is
the President of the EPP Company, a private real estate development company, and
has served in that capacity for over 24 years. Mr. Rourke was Secretary of the
Air Force during the Reagan administration and was Assistant Secretary of
Defense for Legislative Affairs from 1981-1985. Mr. Rourke was a Special
Assistant to President Gerald R. Ford from 1974-1977. Mr. Rourke retired from
the Marine Corps Reserves in 1985 with the rank of Colonel. He is a former
member of the Board of Visitors of the United States Naval Academy and is a
member of the Board of Directors of the Maryland State Fair.
MELANIE R. SABELHAUS will, subject to regulatory approval, be added by the
Organizers as a director of the Company and the Bank. Ms. Sabelhaus currently is
the President and majority owner of Exclusive Interim Properties, Limited, a
company which provides relocation services to executives on temporary assignment
in the Baltimore, Washington, D.C. and Virginia areas. She has served in that
capacity for over ten years. Prior to her association with Exclusive Interim
Properties, Limited, Ms. Sabelhaus was a marketing and branch manager for IBM
for 17 years. She is a director of the World Trade Center Institute, a member of
the steering committee for the University of Maryland's Dingman Center School
for Entrepreneurs and a member of the Greater Baltimore Committee, the Downtown
Partnership, the Howard County Chamber of Commerce, BWI Partnership and the
Baltimore Area Concierge Association.
BALDEV SINGH will, subject to regulatory approval, be added by the Organizers as
a director of the Company and the Bank. Mr. Singh currently is the President of
BGK Truckers Inn, Inc., a Maryland based developer and operator of truck stops,
gas stations and convenience stores, and has served in that capacity since 1991.
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At the first annual meeting of the stockholders of the Company, the
directors of the Company will be divided into three classes, with each class
containing one-third of the total number of directors, as near as is possible,
so that, after a phase-in period, each director will serve for a term ending on
the date of the third annual meeting of stockholders following the annual
meeting at which such director was elected. Pursuant to the Bylaws of the
Company, the term of office of one of the three classes of directors expires
each year. See "DESCRIPTION OF CAPITAL STOCK - Certain Antitakeover Effects."
The officers of the Company will be elected annually by the Board of Directors
following the annual meeting of stockholders and will serve for terms of one
year and until their successors are duly elected and qualified except where a
longer term is expressly provided in an employment contract duly authorized and
approved by the Board of Directors of the Company.
Advisory Directors
The Organizers have established an advisory board of directors (the
"Advisory Board of Directors") for the Bank, which is comprised primarily of
professionals and business persons (the "Advisory Directors"), who will provide
advice to the Board of Directors of the Bank and who will promote the interests
of the Bank. An advisory board of directors is not required by any Maryland or
federal law or regulation and Advisory Directors are not subject to regulatory
approval or supervision. The Advisory Directors will serve at the pleasure of
the Board of Directors of the Bank.
Remuneration of Directors and Officers
At the present time, the Company does not intend to have any employees
other than its officers, who will serve without compensation.
As of the date of this Prospectus, the Bank has arranged for the
employment of Patricia D'Alessandro as its President. Ms. D'Alessandro will be
paid $45,000 annually in connection with her duties as President of the Bank.
Ms. D'Alessandro will not be a party to any employment agreement with the Bank
or the Company and she could resign or be terminated at any time and for any
reason. The loss of the services of Ms. D'Alessandro for any reason could have a
material adverse effect on the operations of the Bank and the Company. The
Bank's other officers will serve without compensation.
During its first year of operation, it is not anticipated that any
officer or employee of the Bank will earn more than $100,000.
In consideration of services performed on behalf of the Company and the
Bank in preparing the necessary bank regulatory applications and negotiating the
terms of and performing the necessary investigations related to the Acquisition,
upon the closing of the Offering, Organizers Jameson and Pezzulla each will be
paid $25,000 from the proceeds of the Offering, and Jameson and Associates,
P.A., and Pezzulla and Pezzulla, LLC, each will be paid $12,500 from the
proceeds of the Offering. See "USE OF PROCEEDS."
The Organizers do not intend for the Company to pay directors' fees
until such time as the Company is profitable. The Bank intends to pay directors'
fees of $50.00 for each regular meeting attended. However, the Company and the
Bank reserve the right to pay directors' fees and/or to increase or decrease the
fees that will be paid.
Stock Option Plan
After the Offering, the Company expects (subject to stockholder approval
or ratification, if required) to adopt a stock option plan or plans which will
permit the Company to grant options to officers, directors, key employees,
advisors and/or consultants of the Company and the Bank. It is anticipated that
the aggregate number of shares of Common Stock to be issued pursuant to any such
plan or plans would be limited to 12,000 shares, or five percent of the
outstanding shares assuming the sale of the Minimum Number of Shares in the
Offering. At this time, the Organizers have not considered any of the terms of
such plan or plans, including, but not limited to, the basis for determining the
exercise price of any shares issuable upon exercise of an option, which price
may or may not be equal to the fair market value of the Common Stock on the date
of the grant of the option.
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Interest of Management and Others in Certain Transactions
In order to assure that expenses related to the Acquisition and the
Offering and organizational expenses of the Company and the Bank are paid, the
Organizers, the Additional Directors and the Advisory Directors (collectively,
the "Lenders") have loaned an aggregate of $652,000 (the "Loan Account") to the
Company for the benefit of the Company and the Bank (the "Organizational
Loans"). The Organizational Loans are only repayable from the proceeds of the
Offering or from proceeds of the Organizational Loans which have not been
expended by the Company, and the Lenders may choose to receive repayment in full
or in part through their receipt in the Offering of shares of Common Stock
valued at $10.00 per share. The Organizational Loans bear interest as follows:
(a) all money expended from the Loan Account after April 1, 1997 bears interest
accruing at the rate of 10% per annum, with interest being allocated
proportionately among the Lenders and (b) all money deposited into the Loan
Account but not expended by the Company bears no interest. As of the date of
this Prospectus, the Company has received no communication from any Lender
regarding his or her intention as to the method of repayment of the
Organizational Loans. Accordingly, the Company has no knowledge as to whether
repayment of the Organizational Loans will be requested in cash or in shares of
Common Stock.
The Company and the Bank expect to engage in transactions in the
ordinary course of business with Organizers, directors, and officers of the
Company and the Bank and their affiliates on substantially the same terms as
those prevailing at the time for comparable transactions with unrelated parties.
Such transactions are not expected to present any special unfavorable features
to the Company or the Bank. However, the Bank will not make loans to its
officers, directors or their affiliates, although any current Rushmore Loans
between Rushmore and the Bank's officers, director or their affiliates will be
purchased by the Bank. An overdraft checking account established by the Bank
will not be considered a loan for these purposes.
It is anticipated that the following related entities will provide
services to the Company and/or the Bank:
Jameson and Associates, P.A., will provide tax and other accounting
services to the Company and the Bank. J. Clarence Jameson, III, President of the
Company, Vice President of the Bank and Chairman of the Board of the Company and
the Bank, is the President and a principal of Jameson and Associates, P.A.
Pezzulla and Pezzulla, LLC, will provide legal services to the Company
and the Bank. Kenneth D. Pezzulla, Secretary of the Company and the Bank and a
director of the Company and the Bank, is a member of Pezzulla and Pezzulla, LLC.
Mr. Pezzulla currently serves as a director of Rushmore and he will resign from
that position upon consummation of the Acquisition. Mr. Pezzulla also currently
provides legal services to the Baltimore Branch.
National Mortgage Corporation will provide mortgage services to the Bank
which services may include consulting services and the purchase and/or sale of
mortgages. Henry A. Berliner, Jr., who, subject to regulatory approval, will be
added as a director of the Company and the Bank, is the President and a
principal of National Mortgage Corporation.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of five million
(5,000,000) shares of Common Stock, $0.01 par value, and five million
(5,000,000) shares of preferred stock, $0.01 par value. The Company has no
shares issued or outstanding as of the date of this Prospectus. The following
summary of certain terms of the Common Stock and preferred stock does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Company's Charter and Bylaws, copies of which are filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
In general, stockholders or subscribers for stock of the Company have no
personal liability for the debts and obligations of the Company solely as the
result of their status as stockholders or subscribers, except to the extent that
the subscription price or other agreed consideration for the stock has not been
paid. However, pursuant to Section 2-312(b) of the Maryland General Corporation
Law (the "MGCL"), a director of the Company held liable pursuant to Section
2-312(a) of the MGCL (relating to unlawful distributions) has a right of
contribution from each stockholder who knowingly accepts an unlawful
distribution, and pursuant to Section 3-419 of the MGCL, the dissolution of the
Company will not relieve the stockholders of the Company from any liability
imposed on them by law.
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Common Stock
The Company is authorized to issue five million (5,000,000) shares of
Common Stock, par value $0.01 per share. Upon the successful completion of the
Offering, up to 300,000 shares of Common Stock will be issued and outstanding.
All shares of Common Stock offered hereby will be duly authorized and will, upon
payment therefor as contemplated hereby, be fully paid and nonassessable.
Subject to all the rights of holders of any other class or series of stock,
holders of shares of Common Stock will be entitled to receive dividends on such
stock, if, as and when authorized and declared by the Board of Directors of the
Company from funds legally available therefor and to share ratably in the net
assets of the Company upon the voluntary or involuntary liquidation, dissolution
or winding up of the Company. The Company does not plan to declare any dividends
in the immediate future. See "DIVIDEND POLICY."
Except as otherwise required by law or except as provided with respect
to any other class or series of stock, each outstanding share of Common Stock
entitles the holder to vote for the election of directors and on all other
matters requiring stockholder action, each share being entitled to one vote.
There is no cumulative voting in the election of directors, which means that the
holders of a majority of the outstanding shares of Common Stock can elect all of
the directors then standing for election and the holders of the remaining shares
will not be able to elect any directors.
Holders of shares of Common Stock have no conversion, sinking fund,
redemption rights or preemptive rights to subscribe for any securities of the
Company.
The Charter of the Company grants to the Board of Directors the right to
classify or reclassify any unissued shares of Common Stock from time to time by
setting or changing the designations, preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms or conditions of redemption. Accordingly, the Board of Directors could
authorize the issuance of additional shares of Common Stock with terms and
conditions which could have the effect of discouraging a takeover or other
transaction which the holders of some, or a majority, of shares of Common Stock
might believe to be otherwise in their best interests or in which the holders of
some, or a majority, of shares of Common Stock might receive a premium for their
shares of Common Stock over the then market price of such shares. As of the date
hereof, the Board of Directors has no plans to classify or reclassify any
unissued shares of Common Stock.
There currently is no market for the shares of Common Stock. Although
the Company has filed a registration statement with the SEC to register the
issuance of the Common Stock in the Offering under the Securities Act of 1933,
as amended, and the Company anticipates that it will seek the agreement of one
or more broker-dealers to act as a market maker in the Common Stock, there can
be no assurance that a trading market will develop for the Common Stock in the
future. See "RISK FACTORS - Illiquid Securities; No Market for Issuer's
Securities."
Preferred Stock
The Company is authorized to issue five million (5,000,000) shares of
preferred stock, par value $0.01 per share. Shares of preferred stock may be
issued from time to time by the Board of Directors in one or more series. Prior
to issuance of shares of each series, the Board of Directors is required by the
MGCL to fix for each such series the designation, preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption. The Board of Directors
could authorize the issuance of shares of preferred stock with terms and
conditions which could have the effect of discouraging a takeover or other
transaction which the holders of some, or a majority, of shares of Common Stock
might believe to be otherwise in their best interests or in which the holders of
some, or a majority, of shares of Common Stock might receive a premium for their
shares of Common Stock over the then market price of such shares. As of the date
hereof, no shares of preferred stock are outstanding and the Company has no
present plans to issue any preferred stock.
Certain Antitakeover Effects
The provisions of the Charter, the Bylaws and the MGCL summarized in the
following paragraphs may be deemed to have antitakeover effects and may delay,
defer or prevent a tender offer or takeover attempt which the holders of some,
or a majority, of
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shares of Common Stock might believe to be otherwise in their best interests or
in which the holders of some, or a majority, of shares of Common Stock might
receive a premium for their shares of Common Stock over the then market price of
such shares. In addition, certain of the provisions could make removal of
management more difficult.
Authorized Shares of Capital Stock. As discussed above, the Company's
Board of Directors may classify or reclassify any unissued shares of Common
Stock from time to time by setting or changing the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption. In addition, the Company's
Board of Directors may issue shares of preferred stock in one or more series,
provided, however, that prior to issuing any such shares, the Board of Directors
of the Company is required by the MGCL to fix for each such series the
designation, preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption.
The possible classification or reclassification of any unissued shares
of Common Stock after the Offering, or the possible issuance of shares of
preferred stock, could affect the voting and other rights of stockholders of
Common Stock. Among other things, Common Stock issued by the Company after the
Offering and preferred stock could rank prior to the Common Stock to be issued
in the Offering as to dividend rights, liquidation preferences, or both, could
have full or limited voting rights (including multiple voting rights) and could,
with respect to the preferred stock, be convertible into shares of Common Stock.
Accordingly, the Board of Directors of the Company could authorize the issuance
of additional shares of Common Stock and/or preferred stock with terms and
conditions that could have the effect of discouraging or preventing an
acquisition of control of the Company or a tender offer for all of the Company's
stock which the holders of some, or a majority, of shares of the Common Stock
might believe to be otherwise in their best interests or in which the holders of
some, or a majority, of shares of the Common Stock might receive a premium for
their shares of Common Stock over the then market price of such shares. As
stated above, the Company has no present plans or understandings regarding the
classification or reclassification of any unissued shares of Common Stock after
the Offering or the issuance of any preferred stock.
Classified Board of Directors. The Company's Bylaws provide that the
number of directors of the Company shall be nine, which number may be increased
or decreased by the Board of Directors but shall not be less than three unless
the number of stockholders is less than three, in which case the number of
directors shall not be less than the number of stockholders. Any vacancy will be
filled at any regular meeting or at any special meeting by a majority of the
remaining directors. Pursuant to the terms of the Bylaws, at the first annual
meeting of the stockholders, the directors shall be divided into three classes -
Class A, Class B and Class C - each class to consist of an equal number of
Directors, or as nearly equal a number as possible. Each Director shall serve
for a term ending on the date of the third annual meeting following the annual
meeting at which such Director was elected; provided, however, that the Class A
Directors first chosen shall hold office for one year or until the first annual
meeting following their election, the Class B Directors first chosen shall hold
office for two years or until the second annual meeting following their election
and the Class C Directors first chosen shall hold office for three years or
until the third annual meeting following their election.
Management of the Company believes that it is desirable to insure
continuity and stability of the Company's leadership and policy, thereby
enabling the Company and the Bank to carry out their long range plans for their
benefit and that of their stockholders, and that a classified board may assist
in achieving such continuity and stability. Such a classified Board, along with
the Bylaw provision that provides that directors of the Company may only be
removed for cause, would moderate the pace of any change of control of the
Company since a person or entity acquiring a majority stock interest in the
Company would have to wait for at least two consecutive annual meetings,
covering a period of two years, in order to elect a majority of the Company's
Board of Directors. The inability to change the composition of the Board of
Directors immediately even if such change and composition were determined by the
stockholders of the Company to be beneficial to them may tend to discourage a
tender offer or takeover bid for the Company's stock.
Absence of Cumulative Voting. Cumulative voting entitles each
stockholder to cast a number of votes in the election of directors equal to the
number of such stockholder's shares of Common Stock multiplied by the number of
directors to be elected, and to distribute such votes among one or more of the
nominees to be elected. The Company's Charter does not provide for cumulative
voting by stockholders in the election of the Company's directors. The absence
of cumulative voting effectively means that the holders of a majority of the
shares voted at a meeting of stockholders may, if they so choose, elect all
directors of the Company to be elected at that meeting, thus precluding minority
stockholder representation on the Company's Board of Directors.
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Removal of Directors. The Company's Bylaws provide that directors of the
Company may only be removed for cause. This provision will, under most
circumstances, preclude a person or entity from acquiring control of the
Company's Board of Directors through the removal of existing directors and the
election of his or its nominees to fill the newly created vacancies.
Certain Provisions of Maryland Law. In addition to the provisions of the
Company's Charter and Bylaws, certain provisions of the MGCL may also have an
antitakeover effect, such as the Maryland Business Combination Act and the
Maryland Control Share Act. These acts could have the effect of discouraging
offers to acquire the Company and of increasing the difficulty of consummating
any such offer.
The Maryland Business Combination Act, which is codified in Sections
3-601 to -604 of the MGCL (the "Business Combination Act"), among other things,
prohibits the Company from engaging in certain business combinations (including
a merger or share exchange) with a person who is the beneficial owner of 10% or
more of the Company's outstanding voting stock or any affiliate of such person,
or with a person who is an affiliate or associate of the Company and at any time
within the two year period immediately prior to the date in question was the
beneficial owner of 10% or more of the voting power of the then outstanding
voting stock of the Company (an "Interested Stockholder"), during the five year
period following the date such person became an Interested Stockholder. This
restriction does not apply if, among other things (i) the Board of Directors has
approved or exempted from the Business Combination Act, a business combination
prior to the Interested Stockholder becoming an Interested Stockholder; (ii) a
charter amendment is adopted by a vote of at least 80% of the votes entitled to
be cast by outstanding shares of voting stock of the Company, and two-thirds of
the votes entitled to be cast by persons (if any) who are not Interested
Stockholders of the Company or affiliates or associates of Interested
Stockholders, expressly electing not to be governed by the provisions of the
Business Combination Act; or (iii) the Company has fewer than 100 beneficial
owners of stock. Also, in addition to any vote otherwise required by Maryland
law or the Company's Charter, a business combination that is not prohibited by
the Business Combination Act must be recommended by the Board of Directors and
approved by the affirmative vote of at least 80% of the votes entitled to be
cast by outstanding shares of voting stock of the Company and two-thirds of the
votes entitled to be cast by holders of voting stock other than voting stock
held by the Interested Stockholder, unless certain fair price provisions, as
provided for in the statute, are met.
Under the Maryland Control Share Act, which is codified in Sections
3-701 to -709 of the MGCL (the "Control Share Act"), the voting rights of
"control shares" acquired in a "control share acquisition" are eliminated unless
such acquisition is exempt or is approved by at least two-thirds of all of the
votes (other than shares held by the person making the "control share
acquisition," an officer of the Company and an employee who is also a director
of the Company) entitled to be cast at a meeting called in accordance with
specified procedures. A "control share acquisition" is the direct or indirect
acquisition by any person of ownership or control of "control shares," which are
shares of stock that would, if aggregated with all other voting stock owned by
such person, entitle such person to exercise voting power in electing directors
within one of the following ranges of voting power: (i) one-fifth or more but
less than one-third; (ii) one-third or more but less than a majority; or (iii) a
majority of all voting power. Under the Control Share Act, voting power held by
a person solely through revocable proxies would not constitute a control share
acquisition.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions, including an undertaking to pay
expenses, may compel the Board of Directors of the Company to call a special
meeting of stockholders to be held within 50 days of demand to consider the
voting rights of the shares. If no request for a meeting is made, the Company
may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the Control
Share Act, then, subject to certain conditions and limitations, the Company may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
voting rights, as of the date of the last control share acquisition or of any
meeting of stockholders at which the voting rights of such shares are considered
and not approved. If voting rights for control shares are approved at a
stockholders meeting and the acquiror becomes entitled to vote a majority of the
shares entitled to vote, all other stockholders may exercise appraisal rights.
Among other things, the Control Share Act does not apply to shares
acquired in a merger, consolidation or share exchange if the Company is a party
to the consolidation, merger or share exchange or to acquisitions approved or
exempted by the Company's
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Charter or Bylaws. In addition, the Control Share Act will not apply if the
Company has fewer than 100 beneficial owners of stock.
Restrictions on Transferability
Upon completion of the Offering, the Company will have a minimum of
240,000 and a maximum of 300,000 shares of Common Stock outstanding. The shares
sold in the Offering will be freely tradeable, without restriction or
registration under the Securities Act, except for shares purchased by
"affiliates" of the Company.
An affiliate is defined in Rule 144 of the Securities Act as a person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with the issuer. Rule 405 under the
Securities Act defines the term "control" to mean the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of the person whether through the ownership of voting securities, by
contract or otherwise. Directors and executive officers of the Company and the
Bank will likely be deemed to be affiliates. The shares held by affiliates may
be sold without registration only in accordance with the provisions of Rule 144
or another exemption from registration.
In general, under Rule 144, an affiliate of the Company or a person
holding restricted shares may sell, within any three-month period, a number of
shares no greater than 1% of the then outstanding shares of the Common Stock or
the average weekly trading volume of the Common Stock during the four calendar
weeks preceding the sale, whichever is greater. Rule 144 also requires that the
securities must be sold in "brokers" transactions, as defined in the Securities
Act, and the person selling the securities may not solicit orders or make any
payment in connection with the offer or sale of securities to any person other
than the broker who executes the order to sell the securities. This requirement
may make the sale of the Common Stock by affiliates of the Company pursuant to
Rule 144 difficult if no trading market develops in the Common Stock.
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LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Ober, Kaler, Grimes & Shriver, a Professional
Corporation, 120 East Baltimore Street, Baltimore, Maryland 21202-1643.
EXPERTS
The audited financial statements of the Company included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein upon authority of said firm as experts in giving said report. The audited
financial statements of the Baltimore Branch of Rushmore Trust and Savings, FSB,
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein upon authority of said firm as experts in
giving said report.
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INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Charter and the Company's Bylaws provide, in relevant
part, that the "the Corporation shall indemnify and advance expenses to a
director or officer of the Corporation in connection with a proceeding to the
fullest extent permitted by and in accordance with" the MGCL.
The MGCL permits a corporation to indemnify its directors and officers,
among others, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those or other
capacities, unless it is established that (a) the act or omission of the
director or officer was material to the matter giving rise to such proceeding
and (i) was committed in bad faith or (ii) was the result of active and
deliberate dishonesty; (b) the director or officer actually received an improper
personal benefit in money, property or services; or (c) in the case of any
criminal proceeding, the director or officer had reasonable cause to believe
that the action or omission was unlawful. The Company will maintain directors
and officers liability insurance.
The MGCL permits the charter of a Maryland corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, except to the extent that
(a) the person actually received an improper benefit or profit in money,
property or services; or (b) a judgment or other final adjudication is entered
in a proceeding based on a finding that the person's action, or failure to act,
was the result of active and deliberate dishonesty and was material to the cause
of action adjudicated in the proceeding. The Company's Charter contains a
provision providing for elimination of the liability of its directors or
officers to the Company or its stockholders for money damages for any breach of
any duty owed by such directors or officers to the fullest extent permitted by
Maryland law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised by the Securities and Exchange Commission that such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
75
<PAGE>
AMERICASBANK CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AmericasBank Corp.
Report of Independent Public Accountants...................................................................... F-2
Balance Sheets as of December 31, 1996, and March 31, 1997 (unaudited)........................................ F-3
Statements of Operations for the period from June 4, 1996 (Inception) to
December 31, 1996, and for the three months ended March 31, 1997 (unaudited)......................... F-4
Statements of Cash Flows for the period from June 4, 1996 (Inception) to
December 31, 1996, and for the three months ended March 31, 1997 (unaudited)............................... F-5
Notes to Financial Statements................................................................................. F-6
Baltimore Branch of Rushmore Trust and Savings, FSB
Report of Independent Public Accountants...................................................................... F-9
Statements of Net Assets as of December 31, 1996, and March 31, 1997 (unaudited).............................. F-10
Statements of Certain Revenues and Certain Expenses Charged to the Baltimore
Branch for the years ended December 31, 1995 and 1996, and for the three
months ended March 31, 1996 and 1997 (unaudited).............................................................. F-11
Statements of Cash Flows for the years ended December 31, 1995 and 1996, and
for the three months ended March 31, 1996 and 1997 (unaudited)............................................. F-12
Notes to Financial Statements................................................................................. F-13
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Organizers of
AmericasBank Corp.:
We have audited the accompanying balance sheet of AmericasBank Corp. (a Maryland
corporation), as of December 31, 1996, and the related statements of operations
and cash flows for the period from June 4, 1996 (inception) to December 31,
1996. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of AmericasBank Corp. as of December
31, 1996, and the results of its operations and its cash flows for the period
from June 4, 1996 (inception) to December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
May 15, 1997
F-2
<PAGE>
AMERICASBANK CORP.
BALANCE SHEETS
AS OF DECEMBER 31, 1996, AND MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------ -----------
(Audited) (Unaudited)
<S> <C>
ASSETS
Cash $ 298,000 $ 528,000
Nonrefundable deposit - purchase of deposits and branch
facility 20,000 20,000
Deferred offering costs 57,000 65,000
Organizational costs 135,000 135,000
Other assets 25,000 40,000
-------------- --------------
Total assets $ 535,000 $ 788,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 159,000 $ 182,000
Advances from insiders 374,000 602,000
-------------- --------------
Total liabilities 533,000 784,000
-------------- --------------
CONTINGENCIES (Note 1)
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 per share, 5,000,000 shares
authorized; 0 shares issued and outstanding - -
Common stock, par value $0.01 per share, 5,000,000 shares
authorized; 0 shares issued and outstanding - -
Additional paid-in capital - -
Retained earnings 2,000 4,000
-------------- --------------
Total stockholders' equity 2,000 4,000
-------------- --------------
Total liabilities and stockholders' equity $ 535,000 $ 788,000
============== ==============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
AMERICASBANK CORP.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JUNE 4, 1996 (INCEPTION) TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
Period From
June 4, 1996 Three Months
(Inception) to Ended
December 31, March 31,
1996 1997
---------------- ------------
(Audited) (Unaudited)
Interest income $ 2,000 $ 2,000
Provision for income taxes - -
-------------- --------------
Net income $ 2,000 $ 2,000
============== ==============
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
AMERICASBANK CORP.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JUNE 4, 1996 (INCEPTION) TO DECEMBER 31, 1996
AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Period From June Three Months
4, 1996 Ended
(Inception) to
December 31, March 31,
1996 1997
--------------- --------------
(Audited) (Unaudited)
<S> <C>
OPERATING ACTIVITIES:
Net income $ 2,000 $ 2,000
-------------- --------------
INVESTING ACTIVITIES:
Cash paid for nonrefundable deposit (20,000) -
Cash paid for organization costs and
deferred offering costs (58,000) -
-------------- -------------
Net cash used for investing activities (78,000) -
FINANCING ACTIVITIES:
Advances from insiders 374,000 228,000
-------------- --------------
INCREASE IN CASH 298,000 230,000
CASH, beginning of period - 298,000
-------------- --------------
CASH, end of period $ 298,000 $ 528,000
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
AMERICASBANK CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION:
AmericasBank Corp. (the Company) was incorporated under the laws of the State of
Maryland on June 4, 1996, primarily to hold all the capital stock of a proposed
new federal stock savings bank with the name AmericasBank (the Proposed Bank).
As of March 31, 1997, the Company has not been capitalized and is not required
to be capitalized to be a corporation under Maryland law. The Company will be
capitalized as a result of the contemplated initial public offering discussed in
Note 2. The Proposed Bank will be formed by the Company's purchase of
approximately $2,150,000 worth of the Proposed Bank's capital stock. This money
will be raised through an initial public offering of the Company's
common stock (the "Offering"). Upon satisfaction of the conditions of the
Offering, the Proposed Bank will purchase certain assets from and will
assume certain deposit liabilities related to the Baltimore, Maryland, branch
(the "Baltimore Branch") of Rushmore Trust and Savings, FSB ("Rushmore"). In
addition, the Bank will purchase certain loans that were originated by
Rushmore at its Montgomery County, Maryland, branch. The Proposed Bank will
operate as a community-oriented bank concentrating on housing, consumer loan
products and deposit services from its headquarters in Baltimore, Maryland,
and anticipates that it will open for business in the third quarter of 1997.
Qualifying deposits in the Proposed Bank will be insured by the Federal Deposit
Insurance Corporation.
At the date of these financial statements, the Company's operations have been
limited to obtaining regulatory approval and earning interest on excess funds.
The Company has not had any operating activities or incurred any operating
expenses. The Proposed Bank will begin operations once the Proposed Bank's
transactions with Rushmore are completed.
As the Proposed Bank is a start-up operation, there can be no assurance that the
Proposed Bank can attract sufficient depositors or issue sufficient quality
loans to operate at a profit. There is also no assurance that the Company will
be able to raise sufficient capital to satisfy the conditions of the Offering.
If the Proposed Bank is not successful in completing the transactions with
Rushmore, the Company may liquidate and would not realize its intangible assets.
The Company is subject to other risks and uncertainties, including interest rate
risk. The risk related to interest rates is significant to the Proposed Bank
as its deposits to be acquired have relatively short maturities while the loans
to be acquired have much longer maturities at fixed rates. Once the Proposed
Bank is acquired, management must develop a strategy to reduce this interest
rate risk.
2. SIGNIFICANT ACCOUNTING POLICIES:
Nonrefundable Deposit - Purchase of Deposits and Branch Facility
A nonrefundable deposit of $20,000 has been paid as a good faith deposit for the
transaction with Rushmore. The deposit will be applied as part of the purchase
price of the transaction.
Organizational Costs
Direct costs incurred to incorporate and charter the Company and the Proposed
Bank are recorded as organization costs. When the Proposed Bank commences
operations, organization costs will be amortized over a five-year period using
the straight-line method.
F-6
<PAGE>
Deferred Offering Costs
Offering expenses related to the Offering are recorded as deferred offering
costs. These costs will be charged to stockholders' equity upon completion of
the Offering.
Other Assets
Other assets represent the legal costs incurred in connection with the
transactions with Rushmore (see Note 4). These costs will be amortized over
fifteen years.
Advances from Insiders
Certain insiders of the Company have loaned money to the Company for Offering
costs, organizational costs and cost associated with the transaction with
Rushmore. Such persons will be reimbursed out of the proceeds of the Offering or
from the unexpended portion of such loan proceeds.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The Company has not provided
for a tax provision for the three months ended March 31, 1997, as the Company is
anticipating a loss for the year and anticipates a 100% valuation allowance on
the tax benefit generated from the loss.
Interim Financial Statements
The financial statements for the three months ended March 31, 1997, are
unaudited, but in the opinion of management, such financial statements have been
presented on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the financial position, results of operations and cash
flows for these periods. The results of operations presented in the accompanying
financial statements are not necessarily representative of operations for an
entire year.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities in the financial statements
and the disclosures of contingent assets and liabilities. While actual results
could differ from those estimates, management believes that actual results will
not be materially different from amounts provided in the accompanying financial
statements.
Contemplated Initial Public Offering
The Company intends to issue between 240,000 and 300,000 shares of common stock
at $10 per share. The Organizers and certain persons who it is anticipated will
be added as directors of the Company intend to purchase at least 140,520 shares
of common stock to be sold in the Offering.
F-7
<PAGE>
3. RELATED PARTY TRANSACTIONS:
Jameson & Associates, P.A. will provide tax and accounting services to the
Company. An organizer of the Company and the Proposed Bank is a principal of
Jameson & Associates, P.A.
Pezzulla and Pezzulla, LLC will provide legal services to the Company and the
Proposed Bank. An organizer of the Company and the Proposed Bank is a principal
of Pezzulla and Pezzulla, LLC.
Jameson & Associates, P.A. and Pezzula and Pezzula, LLC each will receive
$12,500 for their accounting and legal services, respectively, and organizers J.
Clarence Jameson III and Kenneth D. Pezzula each will receive $25,000 as a
consulting fee for services performed on behalf of the Company and the Bank in
preparing the necessary bank regulatory applications and in negotiating the
terms of and performing the necessary investigations related to the transactions
with Rushmore. As of December 31, 1996, and March 31, 1997, these amounts had
been accrued for and none of these fees had been paid.
4. TRANSACTIONS WITH RUSHMORE:
The Proposed Bank entered into agreements with Rushmore to acquire certain
assets and to assume certain deposit liabilities primarily related to Rushmore's
Baltimore, Maryland, Branch office (the "Baltimore Branch"). The parties have
agreed that if the transactions have not been consummated by June 30, 1997, the
Proposed Bank, beginning on July 1, 1997, and continuing on the first day of
each month thereafter until the transactions have been consummated, shall pay
Rushmore one or more additional nonrefundable deposits of $20,000 each. Upon the
consummation of the transactions, the additional deposits will be added to the
amount of cash to be received by the Proposed Bank from Rushmore. In the event
the transactions are not consummated for any reason other than the ability of
Rushmore to consummate the transactions, the Proposed Bank shall forfeit all
deposits to Rushmore.
The Company will acquire all of Rushmore's outstanding loans as of the
settlement, originated at the Baltimore Branch and approximately $1,160,000 of
Rushmore's loans originated at Rushmore's Montgomery County, Maryland, branch
office, as well as certain fixtures, furnishings, equipment, furniture and a
building. The purchase price will be approximately $250,000, plus the net book
value of the loans, less the book value of the deposits. The Company also will
pay Rushmore $50,000 for a noncompetition agreement lasting for a period of
three years. The Company will receive net cash of approximately $800,000 from
Rushmore, subject to terms of the purchase and assumption agreements.
The unaudited pro forma summary results of operations for the year ended
December 31, 1996, assuming the transactions with Rushmore had occurred in the
beginning of the fiscal year, is as follows:
Net interest income $ 388,000
Late charges and other fees 29,000
Operating expenses, excluding depreciation and amortization 541,000
Depreciation and amortization 92,000
------------
Net loss $ (216,000)
============
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Organizers of AmericasBank Corp.:
We have audited the accompanying statement of net assets of The Baltimore Branch
(the Branch) of Rushmore Trust and Savings, FSB (a Maryland corporation), as of
December 31, 1996, and the related statements of certain revenues and certain
costs charged to the Branch for the years ended December 31, 1995 and 1996.
These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
These statements have been prepared pursuant to the Branch Purchase and
Assumption Agreement, as amended, and the Loan Purchase and Assumption
Agreement, as amended, described in Notes 1 and 7 of the financial statements
and, thus, are not intended to be a complete presentation of Rushmore Trust and
Savings, FSB or the Branch's financial position, results of operations or cash
flows on a stand-alone basis in accordance with generally accepted accounting
standards.
In our opinion, the statements referred to above present fairly, in all material
respects, the net assets, as defined, of The Baltimore Branch of Rushmore Trust
and Savings, FSB as of December 31, 1996, and certain revenues and certain
expenses charged to the Baltimore Branch activity and cash flows for the years
ended December 31, 1995 and 1996, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
May 15, 1997
F-9
<PAGE>
THE BALTIMORE BRANCH OF
RUSHMORE TRUST AND SAVINGS, FSB
STATEMENTS OF NET ASSETS
AS OF DECEMBER 31, 1996, AND MARCH 31, 1997 (UNAUDITED)
December 31, March 31,
1996 1997
------------ -----------
(Audited) (Unaudited)
ASSETS:
Loans receivable, net $ 5,749,000 $ 5,751,000
Accrued interest receivable 50,000 48,000
Due from Rushmore 2,310,000 2,317,000
Real estate owned, net 66,000 10,000
Property and equipment, net 15,000 13,000
-------------- --------------
TOTAL ASSETS $ 8,190,000 $ 8,139,000
============== ==============
LIABILITIES:
Deposits $ 8,190,000 $ 8,138,000
Accrued interest on deposits - 1,000
-------------- --------------
Total liabilities 8,190,000 8,139,000
-------------- --------------
NET ASSETS $ - $ -
============== ==============
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
THE BALTIMORE BRANCH OF
RUSHMORE TRUST AND SAVINGS, FSB
STATEMENTS OF CERTAIN REVENUES AND CERTAIN EXPENSES
CHARGED TO THE BALTIMORE BRANCH
<TABLE>
<CAPTION>
Twelve Months Ended Three Months Ended
---------------------------------- ----------------------------------
December 31, December 31, March 31, March 31,
1995 1996 1996 1997
---------------- -------------- --------------- --------------
(Audited) (Audited) (Unaudited) (Unaudited)
<S> <C>
INTEREST INCOME ON LOANS $ 745,000 $ 643,000 $ 173,000 $ 146,000
INTEREST EXPENSE ON DEPOSITS 421,000 352,000 86,000 91,000
-------------- -------------- -------------- --------------
Net interest income 324,000 291,000 87,000 55,000
PROVISION FOR LOAN LOSS RESERVE - - - -
-------------- -------------- -------------- -------------
Net interest income after
provision for loan losses 324,000 291,000 87,000 55,000
-------------- -------------- -------------- --------------
LATE CHARGES AND OTHER FEES 43,000 29,000 5,000 5,000
-------------- -------------- -------------- --------------
EXPENSES CHARGED TO THE
BALTIMORE BRANCH
Salaries and benefits 93,000 106,000 27,000 30,000
Collection and foreclosure 13,000 25,000 1,000 10,000
Electric and telephone 6,000 8,000 2,000 2,000
Depreciation 8,000 6,000 2,000 2,000
Deposit insurance premiums 22,000 23,000 6,000 2,000
-------------- -------------- -------------- --------------
Total expenses charged to the
Baltimore Branch 142,000 168,000 38,000 46,000
-------------- -------------- -------------- --------------
EXCESS OF CERTAIN REVENUES OVER
CERTAIN EXPENSES CHARGED TO
THE BALTIMORE BRANCH (excludes
certain charges to the Baltimore
Branch) 225,000 152,000 54,000 14,000
-------------- -------------- -------------- --------------
TRANSFER TO RUSHMORE 225,000 152,000 54,000 14,000
-------------- -------------- -------------- --------------
NET OF CERTAIN REVENUES OVER
CERTAIN EXPENSES $ - $ - $ - $ -
============== ============== ============== =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE>
THE BALTIMORE BRANCH OF
RUSHMORE TRUST AND SAVINGS, FSB
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Twelve Months Ended Three Months Ended
--------------------------------- -------------------------------
December 31, December 31, March 31, March 31,
1995 1996 1996 1997
---------------- ------------ ----------- -------------
(Audited) (Audited) (Unaudited) (Unaudited)
<S> <C>
OPERATING ACTIVITIES:
Net of certain revenues over certain
expenses $ - $ - $ - $ -
Adjustments to reconcile net of certain
revenues over certain expenses-
Depreciation 8,000 6,000 2,000 2,000
(Increase) decrease in accrued
interest receivable (3,000) 26,000 - 2,000
(Increase) decrease in due from
Rushmore (3,266,000) (214,000) 1,062,000 (7,000)
Decrease in deferred loan
origination fees (5,000) (5,000) (5,000) (5,000)
-------------- -------------- -------------- --------------
Net cash (used by) provided by
operating activities (3,266,000) (187,000) 1,059,000 (8,000)
-------------- -------------- -------------- --------------
INVESTING ACTIVITIES:
Increase in loans receivable 311,000 1,329,000 231,000 59,000
Purchase of property and equipment - (1,000) - -
-------------- -------------- -------------- -------------
Net cash provided by investing
activities 311,000 1,328,000 231,000 59,000
-------------- -------------- -------------- --------------
FINANCING ACTIVITIES:
Increase (decrease) in deposits and
accrued interest 2,955,000 (1,141,000) (1,290,000) (51,000)
-------------- -------------- -------------- --------------
INCREASE IN CASH $ - $ - $ - $ -
============== ============== ============== =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-12
<PAGE>
THE BALTIMORE BRANCH OF
RUSHMORE TRUST AND SAVINGS, FSB
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. GENERAL:
The accompanying financial statements includes certain assets, liabilities and
operating activities of The Baltimore Branch of Rushmore Trust and Savings, FSB
(the "Baltimore Branch"). The accompanying financial statements of the Baltimore
Branch have been prepared in accordance with generally accepted accounting
principles. Certain assets, liabilities, revenues and expenses not accounted for
at the Baltimore Branch level have been excluded. The Baltimore Branch is
principally engaged in the business of investing in loans to commercial
enterprises and individuals employing deposits attracted from the general
public.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements.
Actual results could significantly differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Rushmore Trust and Savings, FSB (Rushmore) has historically accounted for the
Baltimore Branch as a department without separately accounting for certain
individual assets, liabilities, revenues or expenses related to the Baltimore
Branch. Therefore, certain costs incurred by Rushmore that benefit the Baltimore
Branch have not been included in the accompanying financial statements. The
accompanying financial statements represent the assets and liabilities that
Rushmore directly attributes to the Baltimore Branch. Certain prepaid assets,
accruals and accounts payable that would be expected to be included in the
statement of net assets are not included as they are netted against the amount
due from Rushmore.
The accompanying financial statements have been prepared assuming that any net
asset balance of the Baltimore Branch is transferred to Rushmore, and any net
asset deficit is funded by Rushmore. Because of this assumption, excess funds of
the Baltimore Branch are considered invested by Rushmore and the Baltimore
Branch is not allocated interest income from the excess funds. The Baltimore
Branch did not maintain separate cash accounts from Rushmore, and Rushmore did
not charge or credit interest on advances to and from the Baltimore Branch. As
all of the cash and investment accounts were maintained by Rushmore, the
intercompany advances consisted of excess cash of the Baltimore Branch being
invested by Rushmore and Rushmore disbursing cash for all capital and operating
costs of the Baltimore Branch. Data are not readily available to separate the
average advances outstanding or the activity each period.
The revenue of the Baltimore Branch includes interest on loans, and fees and
charges to borrowers and depositors. The Baltimore Branch expenses include
salaries and related benefits for those employees employed at the Baltimore
Branch, depreciation of the Baltimore Branch assets, utilities cost of the
Baltimore Branch, deposit insurance premiums, and collection and foreclosure
cost on loans. Expenses do not include other costs incurred by Rushmore that
benefit the Baltimore Branch or indirect costs which benefit the Baltimore
Branch. Rushmore also does not allocate a tax
F-13
<PAGE>
provision to the excess earnings included in the accompanying statements of
certain revenues and certain expenses charged to the Baltimore Branch.
As the accompanying financial statements do not include certain interest income
that was earned on excess Baltimore Branch funds invested by Rushmore because
Rushmore does not allocate the interest income to the Baltimore Branch and do
not include certain expenses that benefit the Baltimore Branch which Rushmore
has not charged to the Baltimore Branch, these financial statements are not
representative of the Baltimore Branch's operation if they had operated on a
stand-alone basis or if Rushmore would have charged these costs to the Baltimore
Branch. If the proposed sale of the Baltimore Branch is completed, the results
shown in the accompanying financial statements may not be representative of
future operations of the Baltimore Branch.
Loans Receivable and Allowance for Loan Losses
Loans receivable are stated at unpaid principal balances, less the allowance for
loan losses and net deferred origination fees. Interest on loans is accrued
based on the outstanding principal amount. An allowance for uncollected interest
is provided on any loan that is contractually delinquent more than 90 days and
on any other loan when the collectibility of the loan is in doubt. Such
allowance is netted against accrued interest receivable. Any such interest
ultimately collected is recorded as interest income in the period of recovery.
Management periodically reviews and evaluates the loan portfolio to determine
the adequacy of the allowance for loan losses. This evaluation is based on the
risk characteristics of the loan portfolio and considers such factors as past
loan loss experience, the financial condition of the borrower, current economic
conditions, net realizable value of the collateral and other relevant factors.
The allowance is increased by provisions for loan losses charged to operations
and is reduced by charge-offs and increased by net recoveries.
Effective January 1, 1995, the Baltimore Branch adopted Statement of Financial
Accounting Standard No. 114, "Accounting by Creditors for Impairment of a Loan"
(SFAS 114). SFAS 114, which was amended by SFAS 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures," requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate. As a practical
expedient, impairment may be measured based on the loan's observable market
price or the fair value of the collateral if the loan is collateral-dependent.
When the measure of the impaired loan is less than the recorded investment in
the loan, the impairment is recorded as a provision for loan loss in the
statement of operations and allowance for loan losses in the statement of
financial condition.
In the ordinary course of business the Baltimore Branch has entered into an
off-balance sheet financial instrument, which consists of commitments to extend
credit. As of December 31, 1996 and March 31, 1997, there were no outstanding
commitments.
Real estate owned is recorded at fair value less estimated costs to sell at the
date of acquisition. Costs related to holding real estate owned are charged to
operations. The carrying value of the real estate owned is periodically
evaluated subsequent to acquisition, and the value of real estate owned is
dependent, to a great extent, on economic, operating and other conditions that
may be beyond the Baltimore Branch's control.
F-14
<PAGE>
Fair Value of Financial Instruments
As of December 31, 1996, and March 31, 1997, financial instruments consisted of
loans receivable and deposits, for which the carrying value of deposits
approximates fair value. As of December 31, 1996, and March 31, 1997, the fair
value of loans receivable were not readily determinable, however, the Baltimore
Branch has entered into an agreement to sell the loans at $50,000 above the
carrying value.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation expense is computed on the straight-line method over
the following estimated useful lives:
Building 15-40 years
Furniture and equipment 5-10 years
Loan Origination Fees
Net loan origination fees are deferred and recognized as an adjustment to yield
using the straight-line method over the lives of the loans. Amortization using
the straight-line method does not differ materially from amounts computed using
the interest method as required by generally accepted accounting principles.
Sale of the Baltimore Branch
Rushmore has entered into agreements to sell and assign all loans, fixed assets,
deposits and certain intangible assets of the Baltimore Branch, subject to
certain approvals. The sale also requires Rushmore to provide to the purchaser
certain non-Baltimore Branch loans (see Note 7).
Interim Financial Statements
The financial statements as of March 31, 1997, and for the three months ended
March 31, 1996 and 1997, are unaudited, but in the opinion of management, such
financial statements have been presented on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the net assets and
certain revenue and certain expenses charged to the Baltimore Branch for these
periods. The operating activity presented in the accompanying financial
statements are not necessarily representative of operations for an entire year
or on a stand-alone basis.
3. LOANS RECEIVABLE:
Commercial real estate loans are collateralized primarily by real estate,
equipment and receivables, and the loan-to-value ratios generally do not exceed
70% at origination. Residential real estate mortgage loans are collateralized by
the related property, and the loan-to-value ratios generally do not exceed
75-80% at origination. The Baltimore Branch also grants loans secured by savings
accounts and unsecured loans to qualified borrowers meeting the underwriting
standards established by the Board of Directors of Rushmore.
F-15
<PAGE>
As of December 31, 1996, and March 31, 1997, loans receivable consisted of:
December 31, March 31,
1996 1997
------------ -----------
(Audited) (Unaudited)
Real estate first mortgage loans:
Residential $ 4,932,000 $ 4,932,000
Commercial 652,000 646,000
Real estate second mortgage loans 12,000 12,000
Loans secured by savings accounts 235,000 229,000
Unsecured consumer loans 18,000 27,000
-------------- --------------
Total 5,849,000 5,846,000
Less: Allowance for loan losses 50,000 50,000
Loan origination fees 50,000 45,000
-------------- --------------
Loans receivable, net $ 5,749,000 $ 5,751,000
============== ==============
The commercial mortgage loans are primarily concentrated in loans secured by
restaurants and taverns located in the central Maryland area. The Baltimore
Branch borrowers' ability to honor their contracts is, to a significant extent,
dependent upon the regional real estate environment, which has been depressed
for several years.
As of December 31, 1996, the Baltimore Branch's total investment in impaired
loans was $16,000, of which a valuation allowance calculated under SFAS No. 114
was $4,000.
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful, at which
time payments received are recorded as reductions of principal. The Baltimore
Branch recognized interest income on impaired loans of approximately $2,000 for
the year ended December 31, 1996.
Changes in the allowance for loan losses, for the year ended December 31, 1996,
and March 31, 1997, were as follows:
December 31, March 31,
1996 1997
------------ -----------
(Audited) (Unaudited)
BALANCE, beginning of year $ 90,000 $ 50,000
Provision for loan losses - -
Charge-offs (40,000) -
-------------- -------------
BALANCE, end of year $ 50,000 $ 50,000
============== ==============
As of December 31, 1996, there were no loans for which the Baltimore Branch had
discontinued accruing interest.
F-16
<PAGE>
4. PROPERTY AND EQUIPMENT:
As of December 31, 1996, and March 31, 1997, property and equipment consists of:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------ -----------
(Audited) (Unaudited)
<S> <C>
Land $ 1,000 $ 1,000
Furniture and equipment 76,000 76,000
Buildings and leasehold improvements 47,000 47,000
-------------- --------------
Total 124,000 124,000
Less: Accumulated depreciation and amortization 109,000 111,000
-------------- --------------
Property and equipment, net $ 15,000 $ 13,000
============== ==============
</TABLE>
5. DEPOSITS:
Deposits as of December 31, 1996, and March 31, 1997, are summarized as follows:
December 31, March 31,
1996 1997
------------ -----------
(Audited) (Unaudited)
Passbook deposits $ 1,699,000 $ 1,653,000
Money market accounts 5,186,000 5,134,000
NOW noninterest-bearing 236,000 253,000
------------- -------------
7,121,000 7,040,000
------------- -------------
Certificates of deposit 572,000 572,000
IRA and KEOGH deposits 497,000 526,000
------------- -------------
1,069,000 1,098,000
------------- -------------
Total $ 8,190,000 $ 8,138,000
============= =============
As of December 31, 1996, the majority of the deposits will reprice within twelve
months from year-end, except for approximately $266,000 of the deposits which
will reprice within one to five years from year-end.
As of December 31, 1996, there were no certificates of deposit greater than
$100,000.
6. RELATED PARTY TRANSACTIONS:
Kenneth Pezzula of Pezzula and Pezzula, LLC is a retired Senior Vice President
of the Baltimore Branch, serves on the Board of Directors of Rushmore Trust and
Savings, FSB and provides certain legal services for the Baltimore Branch. As of
December 31, 1996, he had an outstanding loan balance with the Baltimore Branch
of approximately $2,000. For the period ended December 31, 1996, the Baltimore
Branch had incurred legal fees related to collection and foreclosure processing
performed by Pezzula and Pezzula which approximated $19,000.
F-17
<PAGE>
7. SALE OF THE BALTIMORE BRANCH:
On May 31, 1996, Rushmore entered into a Branch Purchase and Assumption
Agreement, as amended, and a Loan Purchase and Assumption Agreement, as amended
(collectively, the Agreements), with AmericasBank (the Proposed Bank) for the
sale of certain assets and assignment of certain deposit liabilities primarily
related to Rushmore's Baltimore, Maryland, branch. It is contemplated that the
sale will close after the completion of an initial public stock offering by the
Proposed Bank's holding company, AmericasBank Corp. The Agreements also provide
that Rushmore will sell to the Proposed Bank approximately $1,160,000 of loans
originated at Rushmore's Montgomery County, Maryland, branch.
F-18
<PAGE>
EXHIBIT A
---------
SUBSCRIPTION AGREEMENT
This Subscription Agreement is entered into in connection with the offer
and sale (the "Offering") of up to 300,000 shares (the "Shares") of Common
Stock, par value $0.01 per share, of AmericasBank Corp., a corporation
incorporated under the laws of the State of Maryland (the "Company"), for a
purchase price of $10.00 per share.
WITNESSETH:
1. Purchase of Shares. The undersigned agrees to purchase the number of Shares
set forth below and tenders the amount required to purchase such number of
Shares by check, bank draft or money order drawn to the order of "The First
National Bank of Maryland, Escrow Agent."
2. Acknowledgments. The undersigned acknowledges and agrees that:
(a) The Company has established a minimum subscription of 250 shares
($2,500) and a maximum subscription of 20,050 shares ($200,500). However, the
Company reserves the right to waive these limits without notifying any
subscriber.
(b) The undersigned has received a copy of the Company's Prospectus
dated August 8, 1997 (the "Prospectus"). By executing this Subscription
Agreement, the undersigned acknowledges and agrees to all of the terms and
conditions of the Offering as described in the Prospectus. This Subscription
Agreement is not binding until accepted by the Company. The Company reserves the
right to accept or reject, in whole or in part and in its sole discretion, any
Subscription Agreement. The Company shall notify the subscriber by mail of its
acceptance or rejection, in whole or in part, of this Subscription Agreement.
(c) Following acceptance by the Company, subscriptions are binding on
subscribers and may not be revoked by subscribers except with the consent of the
Company.
(d) The Company reserves the right to cancel accepted Subscription
Agreements at any time and for any reason until the satisfaction of the
conditions of the Offering.
(e) The Company may, in its sole discretion, allocate shares among
subscribers in the event of an oversubscription for the Shares.
3. Representations and Warranties. The undersigned represents and warrants that
he:
(a) Is aware that no federal or state agency has made any finding or
determination as to the fairness for public investment in, or any recommendation
or endorsement of, the Shares.
(b) Understands that the Company has no financial or operating history
and that the Shares, as an investment, involve a high degree of risk, as
described in the Prospectus.
(c) Is aware that (i) there is no market for the Shares and that there
can be no assurance that a market will develop and (ii) it may not be possible
to liquidate his investment in the Shares readily.
(d) Has adequate means of providing for his current needs and possible
personal contingencies and has no need for liquidity in this investment.
(e) Has carefully read the entire Prospectus, particularly the "Risk
Factors" section therein, and has had the opportunity to ask questions and
receive answers with regard thereto.
1
<PAGE>
(f) Is a resident of Maryland, Pennsylvania or Virginia.
THE SHARES OF COMMON STOCK BEING OFFERED BY THE PROSPECTUS ARE NOT SAVINGS
ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION INSURANCE FUND, THE BANK
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
The Shares purchased by the undersigned shall be registered as specified
below. If Shares are to be issued in more than one name, please specify whether
ownership is to be as tenants in common, joint tenants with right of
survivorship, community property, etc. If Shares are to be held in joint
ownership, all joint owners should sign this Subscription Agreement. If Shares
are to be issued in the name of one person for the benefit of another, please
indicate whether registration should be as trustee or custodian for such other
person.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on the date set forth below.
<TABLE>
<S> <C>
Date:______________, ______ _______________________________________
Signature of Subscriber
Number of Shares Subscribed for:_____ _______________________________________
(at $10 per Share) Signature of Subscriber
Total Subscription Price: $__________ _______________________________________
Print Name(s) in which Shares are to be
Registered
Address of Subscriber:
_____________________________________ _______________________________________
Street Address Social Security/Taxpayer Identification Number
_____________________________________ _______________________________________
City, State and Zip Code Telephone Number and Area Code
_____________________________________ _______________________________________
Street Address Social Security/Taxpayer Identification Number
_____________________________________ _______________________________________
City, State and Zip Code Telephone Number and Area Code
</TABLE>
2
<PAGE>
ACCEPTANCE
The foregoing subscription is hereby acknowledged and accepted as to
_____________ shares.
Date: __________________, 1997.
AMERICASBANK CORP.
By:___________________________________
J. Clarence Jameson, III, President
3
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or the solicitation of an offer to buy any securities other than the securities
to which it relates or any offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circum stances, create an implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
------------------------------------
TABLE OF CONTENTS
Page
----
Additional Information............................................... 4
Reports to Stockholders.............................................. 4
Prospectus Summary................................................... 5
Risk Factors......................................................... 12
Use of Proceeds...................................................... 19
Terms of the Offering; Plan of
Distribution...................................................... 22
Capitalization....................................................... 25
Dividend Policy...................................................... 26
Organization of the Company and the Bank ............................ 27
The Acquisition...................................................... 28
Unaudited Pro Forma Financial Information............................ 29
Business of the Company.............................................. 37
Business of the Bank................................................. 37
Regulation........................................................... 52
Management........................................................... 60
Description of Capital Stock......................................... 69
Legal Matters........................................................ 74
Experts.............................................................. 74
Indemnification of Officers and
Directors........................................................ 75
Financial Statements................................................. F-1
Subscription Agreement............................................... Exhibit A
------------------------------------
Through and including November 5, 1997, all dealers effecting
transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotment of subscriptions
================================================================================
AMERICASBANK CORP.
Common Stock
($0.01 par value per share)
240,000 Shares (Minimum)
300,000 Shares (Maximum)
[Logo of AmericasBank:
AmericasBANK
your community is our business.]
------------------------------------
PROSPECTUS
------------------------------------
AmericasBank Corp.
515 East Joppa Road
Towson, Maryland 21286
Phone: (410) 825-5580
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 1. Indemnification of Directors and Officers.
Article Seventh of the Company's Charter and Article Eighth of the
Company's Bylaws provide that directors and officers of the Company are to be
indemnified by the Company to the fullest extent permitted under Maryland law.
Section 2-418 of the Maryland General Corporation Law sets forth circumstances
under which directors, officers, employees and agents may be insured or
indemnified against liability which they may incur in their capacities as such.
The text of Section 2-418 is reproduced below:
Section 2-418. Indemnification of directors, officers, employees and
agents.
(a) Definitions. - In this section the following words have the
meanings indicated.
(1) "Director" means any person who is or was a director of a
corporation and any person who, while a director of a corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or foreign predecessor
entity of a corporation in a merger, consolidation, or other transaction in
which the predecessor's existence ceased upon consummation of the transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director, the
office of director in the corporation; and
(ii) When used with respect to a person other than a
director as contemplated in subsection (j), the elective or
appointive office in the corporation held by the officer, or
the employment or agency relationship undertaken by the
employee or agent in behalf of the corporation.
(iii) "Official capacity" does not include service for
any other foreign or domestic corporation or any partnership,
joint venture, trust, other enterprise, or employee benefit
plan.
(5) "Party" includes a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding.
II.1
<PAGE>
(6) "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative.
(b) Permitted indemnification of director. - (1) A corporation may
indemnify any director made a party to any proceeding by reason of service in
that capacity unless it is established that:
(i) The act or omission of the director was
material to the matter giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and
deliberate dishonesty; or
(ii) The director actually received an improper
personal benefit in money, property, or services; or
(iii) In the case of any criminal proceeding, the
director had reasonable cause to believe that the act or
omission was unlawful.
(2) (i) Indemnification may be against judgments,
penalties, fines, settlements, and reasonable expenses
actually incurred by the director in connection with the
proceeding.
(ii) However, if the proceeding was one by or in
the right of the corporation, indemnification may not be made
in respect of any proceeding in which the director shall have
been adjudged to be liable to the corporation.
(3) (i) The termination of any proceeding by
judgment, order, or settlement does not create a presumption
that the director did not meet the requisite standard of
conduct set forth in this subsection.
(ii) The termination of any proceeding by conviction,
or a plea of nolo contendere or its equivalent, or an entry of
an order of probation prior to judgment, creates a rebuttable
presumption that the director did not meet that standard of
conduct.
(c) No indemnification of director liable for improper personal
benefit. - A director may not be indemnified under subsection (b) of this
section in respect of any proceeding charging improper personal benefit to the
director, whether or not involving action in the director's official capacity,
in which the director was adjudged to be liable on the basis that personal
benefit was improperly received.
(d) Required indemnification against expenses incurred in successful
defense. - Unless limited by the charter:
II.2
<PAGE>
(1) A director who has been successful, on the merits or
otherwise, in the defense of any proceeding referred to in subsection (b) of
this section shall be indemnified against reasonable expenses incurred by the
director in connection with the proceeding.
(2) A court of appropriate jurisdiction, upon application of a
director and such notice as the court shall require, may order indemnification
in the following circumstances:
(i) If it determines a director is entitled to
reimbursement under paragraph (1) of this subsection, the
court shall order indemnification, in which case the director
shall be entitled to recover the expenses of securing such
reimbursement; or
(ii) If it determines that the director is fairly and
reasonably entitled to indemnification in view of all the
relevant circumstances, whether or not the director has met
the standards of conduct set forth in subsection (b) of this
section or has been adjudged liable under the circumstances
described in subsection (c) of this section, the court may
order such indemnification as the court shall deem proper.
However, indemnification with respect to any proceeding by or
in the right of the corporation or in which liability shall
have been adjudged in the circumstances described in
subsection (c) shall be limited to expenses.
(3) A court of appropriate jurisdiction may be the same
court in which the proceeding involving the director's
liability took place.
(e) Determination that indemnification is proper. -- (1)
Indemnification under subsection (b) of this section may not be made by the
corporation unless authorized for a specific proceeding after a determination
has been made that indemnification of the director is permissible in the
circumstances because the director has met the standard of conduct set forth in
subsection (b) of this section.
(2) Such determination shall be made:
(i) By the board of directors by a majority vote of a
quorum consisting of directors not, at the time, parties to
the proceeding, or, if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting
solely of two or more directors not, at the time, parties to
such proceeding and who were duly designated to act in the
matter by a majority vote of the full board in which the
designated directors who are parties may participate;
(ii) By special legal counsel selected by the board of
directors or a committee of the board by vote as set forth in
subparagraph (i) of this paragraph, or, if the requisite
quorum of the full board cannot be obtained
II.3
<PAGE>
therefor and the committee cannot be established, by a
majority vote of the full board in which directors who are
parties may participate; or
(iii) By the stockholders.
(3) Authorization of indemnification and determination as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible. However, if the determination that
indemnification is permissible is made by special legal counsel, authorization
of indemnification and determination as to reasonableness of expenses shall be
made in the manner specified in subparagraph (ii) of paragraph (2) of this
subsection for selection of such counsel.
(4) Shares held by directors who are parties to the
proceeding may not be voted on the subject matter under this subsection.
(f) Payment of expenses in advance of final disposition of action. --
(1) Reasonable expenses incurred by a director who is a party to a proceeding
may be paid or reimbursed by the corporation in advance of the final disposition
of the proceeding upon receipt by the corporation of:
(i) A written affirmation by the director of the
director's good faith belief that the standard of conduct
necessary for indemnification by the corporation as authorized
in this section has been met; and
(ii) A written undertaking by or on behalf of the
director to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
(2) The undertaking required by subparagraph (ii) of paragraph
(1) of this subsection shall be an unlimited general obligation of the director
but need not be secured and may be accepted without reference to financial
ability to make the repayment.
(3) Payments under this subsection shall be made as provided
by the charter, bylaws, or contract or as specified in subsection (e) of this
section.
(g) Validity of indemnification provision. -- The indemnification and
advancement of expenses provided or authorized by this section may not be deemed
exclusive of any other rights, by indemnification or otherwise, to which a
director may be entitled under the charter, the bylaws, a resolution of
stockholders or directors, an agreement or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(h) Reimbursement of director's expenses incurred while appearing as
witness. -- This section does not limit the corporation's power to pay or
reimburse expenses incurred by a director in connection with an appearance as a
witness in a proceeding at a time when the director has not been made a named
defendant or respondent in the proceeding.
II.4
<PAGE>
(i) Director's service to employee benefit plan.
-- For purposes of this section:
(1) The corporation shall be deemed to have
requested a director to serve an employee benefit plan where
the performance of the director's duties to the corporation
also imposes duties on, or otherwise involves services by, the
director to the plan or participants or beneficiaries of the
plan;
(2) Excise taxes assessed on a director
with respect to an employee benefit plan pursuant to
applicable law shall be deemed fines; and
(3) Action taken or omitted by the director
with respect to an employee benefit plan in the performance of
the director's duties for a purpose reasonably believed by the
director to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the corporation.
(j) Officer, employee or agent. -- Unless limited by the charter:
(1) An officer of the corporation shall be indemnified as and
to the extent provided in subsection (d) of this section for a director and
shall be entitled, to the same extent as a director, to seek indemnification
pursuant to the provisions of subsection (d);
(2) A corporation may indemnify and advance expenses to an
officer, employee, or agent of the corporation to the same extent that it may
indemnify directors under this section; and
(3) A corporation, in addition, may indemnify and advance
expenses to an officer, employee, or agent who is not a director to such further
extent, consistent with law, as may be provided by its charter, bylaws, general
or specific action of its board of directors, or contract.
(k) Insurance or similar protection. -- (1) A corporation may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the corporation, or who, while a director,
officer, employee, or agent of the corporation, is or was serving at the request
of the corporation as a director, officer, partner, trustee, employee, or agent
of another foreign or domestic corporation, partnership, joint venture, trust,
other enterprise, or employee benefit plan against any liability asserted
against and incurred by such person in any such capacity or arising out of such
person's position, whether or not the corporation would have the power to
indemnify against liability under the provisions of this section.
(2) A corporation may provide similar protection, including a
trust fund, letter of credit, or surety bond, not inconsistent with this
section.
(3) The insurance or similar protection may be provided
by a subsidiary or an affiliate of the corporation.
II.5
<PAGE>
(l) Report of indemnification to stockholders. -- Any indemnification
of, or advance of expenses to, a director in accordance with this section, if
arising out of a proceeding by or in the right of the corporation, shall be
reported in writing to the stockholders with the notice of the next
stockholder's meeting or prior to the meeting.
Item 2. Other Expenses of Issuance and Distribution.
Legal fees $ 85,000
Blue Sky filing fees 2,323
Printing 10,000
SEC filing fee 909
Accounting 40,000
Miscellaneous 17,768
--------
Total $150,000
========
Item 3. Undertakings.
The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933, as amended
(the "Securities Act");
(ii) reflect in the prospectus any facts or
events which, individually or together, represent a
fundamental change in the information set forth in the
Registration Statement;
(iii) include any additional or changed material
information on the plan of distribution.
(2) For purposes of determining any liability under the
Securities Act, treat each post-effective amendment as a new registration
statement of the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(4) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is,
II.6
<PAGE>
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 Securities Act and will be governed by the final
adjudication of such issue.
Item 4. Unregistered Securities Issued or Sold Within One Year.
Not applicable.
Item 5. Index to Exhibits.
See Exhibit Index on page II-10.
Item 6. Description of Exhibits.
See Exhibit Index on page II-10.
II.7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that is has reasonable grounds to believe that
it meets all of the requirements of filing on Form SB-1 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Baltimore, State of Maryland on August 7, 1997.
AMERICASBANK CORP.
By: /s/ J. Clarence Jameson, III
------------------------------------
J. CLARENCE JAMESON, III, President
& Chairman of the Board of Directors
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
Title Date
----- ----
/s/ * August 7, 1997
- ------------------------------
KING V. CHEEK Director
/s/ * August 7, 1997
- ------------------------------
WILLIAM A. FOGLE Director
/s/ J. Clarence Jameson
- ------------------------------ August 7, 1997
J. CLARENCE JAMESON President
(Principal Executive Officer)
& Chairman of the Board of
Directors
/s/ * August 7, 1997
- ------------------------------
KEMP JAYADEVA Director
/s/ * August 7, 1997
- ------------------------------
NORMAN H. KATZ Director
II.8
<PAGE>
/s/ * August 7, 1997
- ------------------------------
LARRY D. OHLER Treasurer
(Principal Financial Officer &
Principal Accounting Officer)
and Director
/s/ * August 7, 1997
- ------------------------------
KENNETH D. PEZZULLA Director
*By: /s/ J. Clarence Jameson, III August 7, 1997
----------------------------
J. CLARENCE JAMESON, III,
Attorney-in-Fact
II.9
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description of Document Page Number
- ----------- ----------------------- -----------
<S> <C>
2A Articles of Incorporation of the Registrant**
2B Amended and Restated Bylaws of the Registrant**
4 Form of Subscription Agreement (included as Exhibit
A to Prospectus)**
6A Form of Founder Loan Agreement by and among the
Registrant, the organizers of the Registrant and
certain other parties regarding organizational loans to
the Registrant**
6B Indemnity Agreement by and among the Registrant,
AmericasBank (in organization) and Rushmore Trust and
Savings, FSB**
8A(i) Branch Purchase and Assumption Agreement by and between
AmericasBank (in organization) and Rushmore Trust and
Savings, FSB**
8A(ii) Modification to Branch Purchase and Assumption
Agreement by and between AmericasBank (in organization)
and Rushmore Trust and Savings, FSB**
8A(iii) Second Modification to Branch Purchase and
Assumption Agreement by and between AmericasBank
(in organization) and Rushmore Trust and Savings,
FSB**
8B(i) Loan Purchase and Assumption Agreement by and
between AmericasBank (in organization) and
Rushmore Trust and Savings, FSB**
8B(ii) Modification to Purchase and Assumption Agreement
by and between AmericasBank (in organization) and
Rushmore Trust and Savings, FSB**
8B(iii) Second Modification to Loan Purchase and
Assumption Agreement by and between AmericasBank
(in organization) and Rushmore Trust and Savings,
FSB**
</TABLE>
II.10
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Document Page Number
- ----------- ----------------------- -----------
<S> <C>
9 Escrow Agreement between the Registrant and The
First National Bank of Maryland**
10A(i) Consent of Ober, Kaler, Grimes & Shriver, a
Professional Corporation (consent is contained in that
firm's opinion filed as Exhibit (11))**
10A(ii) Consent of Arthur Andersen LLP*
10A(iii) Consent of persons to be appointed as Directors**
11 Opinion of Ober, Kaler, Grimes & Shriver, a
Professional Corporation, regarding the legality of the
securities covered by the Registration Statement**
12A Intentionally Omitted
12B Form of Stock Certificate**
</TABLE>
* Filed herewith.
** Previously filed.
II.11
Exhibit 10A(ii)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
August 6, 1997
