As filed with the Securities and Exchange Commission
on March 26, 1998 Registration No. 333-38673
333-38673-01
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
To
FORM S-4
Registration Statement
Under
The Securities Act of 1933
RIVER ASSET SUB, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 6513, 6514 13-3973550
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
--------------------------------------
645 Fifth Avenue, 8th Floor, New York, NY 10022 (212) 848-0201
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
RIVER DISTRIBUTION SUB, INC.
(Exact name of registrant as specified in its charter)
Delaware 6513, 6514 13-3974278
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
--------------------------------------
645 Fifth Avenue, 8th Floor, New York, NY 10022 (212) 848-0201
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
</TABLE>
As to both Registrants:
Jerome R. McDougal
Chairman, President and Chief Executive Officer
River Bank America
645 Fifth Avenue, 8th Floor
New York, New York 10022
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Please send
copies of all correspondence to:
Thomas E. Kruger, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Approximate date of commencement of proposed sale of securities to
the public: As soon as practicable after the effective date of this Registration
Statement and all conditions to the Reorganization described herein have been
waived or satisfied.
If the Securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box./ /
If the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box./ /
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
693046.4
<PAGE>
RIVER BANK AMERICA
645 Fifth Avenue, 8th Floor
New York, New York 10022
March 27, 1998
Dear Stockholder:
You are cordially invited to attend a special meeting of
stockholders of River Bank America, a New York chartered stock savings bank (the
"Bank"), to be held at the Grand Hyatt of New York Hotel, Park Avenue at Grand
Central Station, New York, New York 10017, on April 20, 1998 at 10:00 a.m.,
local time (the "Special Meeting").
At the Special Meeting, you will be asked again to approve a
proposal to direct that the Bank be closed and its affairs wound up. As you may
recall, at the 1997 annual meeting of stockholders held on October 7, 1997, you
voted upon a similar proposal so that after the approval thereof by
stockholders, the Bank could file a petition for a closing order in the Supreme
Court of the State of New York by October 15, 1997. Under New York Banking Law,
stockholder approval of the earlier proposal to close the Bank was required
before a petition for a closing order could be filed in New York Supreme Court.
The petition for the closing order (the "Closing Order Petition") was filed on
October 15, 1997. The petition was granted on November 26, 1997 and a closing
order was signed on January 9, 1998 and entered on January 14, 1998, allowing
the Bank to proceed with the required notice to creditors. The notice to
creditors was served on all known creditors of the Bank prior to the deadline
set in the closing order.
By filing the petition for the closing order in the New York Supreme
Court prior to October 15, 1997, the Bank is able to comply with certain
conditions imposed by the New York State Banking Department (the "Banking
Department") in its approval of the Bank's previously announced plan to change,
through a series of steps, in a manner intended to constitute a tax-free
reorganization, the legal form of organization of the Bank from a New York
chartered bank to a business corporation incorporated in the State of Delaware.
The Bank's board of directors proposed this plan as an alternative to a
liquidation of the Bank in accordance with conditions imposed by the Banking
Department in connection with the Banking Department's approval of the Bank's
June 1996 Branch Sale referred to below.
As you may recall, following stockholder and Banking Department
approval, on June 28, 1996, the Bank sold all of its branches and transferred
substantially all of its deposits to Marine Midland Bank (the "Branch Sale").
Although the Bank has ceased operation as a depository institution, it remains a
banking organization legally chartered and subject to regulation, examination
and supervision by the New York State Banking Department. As conditions to its
approval of the Branch Sale, the Banking Department required the Bank to agree
(i) to submit a plan of dissolution for Banking Department approval within one
year of the Branch Sale closing date (the "Dissolution Plan Condition") and (ii)
to file a petition in New York State Supreme Court for a closing order within 13
months of the closing of the Branch Sale and for a final order of dissolution of
the Bank within five months following the filing of a petition for a closing
order (the "Closing Condition"). In April 1997, River Bank announced that the
Board of Directors was evaluating a proposal to reorganize the Bank into a
business corporation, consistent with the Bank's goal of managing its assets to
maximize stockholder value. To that end, in June 1997, the Bank proposed to the
Banking Department an alternative under which the Dissolution Plan Condition
would be satisfied through the implementation of a plan whereby the Bank would,
through a series of steps, on what is intended to be a tax-free basis, change
its legal form of organization by which it conducts its business, holds its
assets and is obligated for its liabilities from a New York chartered stock
savings bank into a business corporation incorporated in the State of Delaware
(the "Reorganization"). Thereafter, the Bank would voluntarily dissolve (the
"Dissolution" and together with the Reorganization, the "Alternate Proposal").
In a letter dated June 24, 1997, the Banking Department, indicating its
conditional approval, stated that it did not object to the Alternate Proposal
and advised, among other things, that it required that the petition for the
closing order required by the Closing Condition be filed by October 15, 1997.
In accordance with the Bank's undertaking made in connection with
the annual meeting, the Bank advised the New York Supreme Court in the Closing
Order Petition that no substantive legal steps will be taken to implement the
Reorganization and Dissolution until stockholders again approve the closing of
the Bank which approval will not be obtained until a proxy statement/prospectus
detailing the Bank's plans to implement the Reorganization and Dissolution have
been provided to all stockholders. The accompanying proxy statement/prospectus
describes the Bank's plans to implement the Reorganization and the Dissolution
which we urge you to read carefully.
Reorganizing the Bank into a Delaware corporation will remove the
Bank's business and assets from the jurisdiction of the Banking Department. This
will permit the successor to the Bank's assets to manage its approximately $195
million in assets without banking regulatory restraints in an effort to maximize
returns to stockholders.
693046.4
<PAGE>
Upon completion of the Reorganization transactions:
o The Bank's successor will be incorporated in
the State of Delaware as a business
corporation with the name RB Asset, Inc.
("RB Asset").
o RB Asset's capital structure will be
substantially identical to that of the Bank.
o Holders of the Bank's common stock and
series A preferred stock will receive shares
of common stock and preferred stock of RB
Asset on a share-for-share basis. The stock
to be received by the Bank's stockholders
will be substantially identical in all
material respects to the outstanding stock
of the Bank.
o RB Asset will succeed to and continue with
the business, assets, liabilities and
property/asset management operations of the
Bank.
o RB Asset will be managed by independent
contractors in a manner similar to the
management of the affairs and business of
River Bank.
The Reorganization is structured in a manner intended to qualify as
a tax-free reorganization in which neither River Bank, RB Asset, nor their
stockholders will recognize taxable gain. The Reorganization is also intended to
preserve for use by RB Asset the availability of River Bank's approximately
$108.9 million of net operating loss carryforwards and other tax assets.
Following the Reorganization and Dissolution, RB Asset stockholders will
confront investment risks that are substantially identical to those associated
with their former investment in River Bank (which shall have dissolved in the
Dissolution). While the removal of banking regulatory restraints will permit RB
Asset to conduct its business and operations with a long-term investment
horizon, RB Asset stockholders will bear the risk that the future value of their
investment in RB Asset will not equal or exceed the value that they would have
received in a supervised liquidation of River Bank's assets under the terms of a
plan of dissolution filed with and subject to the jurisdiction of the New York
State Supreme Court.
At the Special Meeting, holders of River Bank common stock and
series A preferred stock will be asked to approve a proposal to direct that the
Bank be closed and its business wound up by means of the Reorganization and the
Dissolution. Holders of River Bank common stock will also be asked to approve
certain amendments (necessary to implement the Reorganization) to the
certificate of designations for River Bank's outstanding series A preferred
stock. The Board of Directors has determined that implementation of the
Reorganization and Dissolution is in the best interests of the Bank, and its
stockholders and therefore unanimously recommends that stockholders approve the
proposal necessary to implement the Reorganization and Dissolution.
Following the Reorganization, the board of directors of RB Asset
intends to call a special meeting of the series A preferred stockholders of RB
Asset to be convened no later than June 30, 1998 to elect two representatives of
such stockholders in accordance with the special voting rights provisions of the
certificate of designations for RB Asset's series A preferred stock.
Sincerely,
Jerome R. McDougal
Chairman of the Board
693046.4
<PAGE>
RIVER BANK AMERICA
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held on April 20, 1998
To the Stockholders of River Bank America:
NOTICE IS HEREBY GIVEN pursuant to the New York Banking Law that a
special meeting of stockholders (the "Special Meeting") of River Bank America, a
New York chartered stock savings bank ("River Bank" or the "Bank"), will be held
at the Grand Hyatt of New York Hotel, Park Avenue at Grand Central Station, New
York, New York 10017, on Monday, April 20, 1998, at 10:00 a.m., local time, for
the following purposes, all of which are more completely set forth in the
accompanying proxy statement/prospectus:
1. To consider and vote upon a proposal to direct that
the Bank be closed and its business wound up by means of the
Reorganization (as defined below) and the Dissolution (as defined
below) as set forth in the accompanying proxy statement/prospectus
(the "Bank Closing Resolution");
2. To consider and vote upon a proposal to approve an
amendment, necessary to implement the Reorganization, to the
certificate of designations for the 15% non-cumulative perpetual
preferred stock, series A, $1.00 par value, of River Bank in the
form attached to the accompanying proxy statement/prospectus as
annex A (the "Certificate of Designations Amendment"); and
3. The transaction of such other business as may
properly come before the Special Meeting or at any adjournment or
postponement thereof.
The Bank Closing Resolution will be implemented through a series of
steps under which the Bank will, in a manner intended to qualify as a tax-free
reorganization, change the legal form of organization by which it conducts its
business, holds its assets and is obligated for its liabilities from a New York
state chartered stock savings bank into a business corporation incorporated in
the State of Delaware (the "Reorganization"). Thereafter, the Bank will
voluntarily dissolve (the "Dissolution"). In connection with and as part of the
Reorganization, (i) the existing business and all of the assets and liabilities
of River Bank will be transferred to or assumed by River Asset Sub, Inc., a
Delaware corporation and wholly-owned subsidiary of River Bank ("River Asset
Sub") (the "Business Disposition"), (ii) all of the issued and outstanding
shares of common stock, $0.001 par value ("River Distribution Common Stock"),
and all of the issued and outstanding shares of 15% non-cumulative perpetual
preferred stock, series A, $0.001 par value ("River Distribution Series A
Preferred Stock" and, together with River Distribution Common Stock, "River
Distribution Capital Stock"), of River Distribution Sub, Inc., a Delaware
corporation and wholly-owned subsidiary of River Bank ("River Distribution
Sub"), will be distributed to the stockholders of River Bank (the
"Distribution") such that each holder of common stock, $1.00 par value, of River
Bank ("River Bank Common Stock") will receive one share of River Distribution
Common Stock for each share of River Bank Common Stock and each holder of 15%
non-cumulative perpetual preferred stock, series A, $1.00 par value, of River
Bank ("River Bank Series A Preferred Stock") will receive one share of River
Distribution Series A Preferred Stock for each share of River Bank Series A
Preferred Stock and (iii) following the Business Disposition and the
Distribution, River Distribution Sub will merge with and into River Asset Sub
(which shall have succeeded to the business, assets and liabilities of River
Bank, except that it will not be chartered as a banking institution) with River
Asset Sub as the surviving corporation, whereupon (a) each share of River Asset
Sub common stock, $1.00 par value (held entirely by River Bank), shall be
canceled, (b) the outstanding shares of River Distribution Sub Capital Stock
will be converted into and shall represent the shares of identical capital stock
of the surviving corporation (except that the par value of the capital stock
will be changed to $1.00) and (c) River Asset Sub, the surviving corporation in
the merger, will be renamed RB Asset, Inc. (the "Merger").
The Reorganization is being undertaken by River Bank in
contemplation of the Dissolution following the consummation thereof and will not
occur unless the Bank Closing Resolution and the Certificate of Designations
Amendment are approved by River Bank's stockholders and until all of the
conditions to the Reorganization and Dissolution have been satisfied, including
the receipt by River Bank of a closing order from the Supreme Court of the State
of New York declaring the business of River Bank closed and the approval of the
Banking Department. On October 15, 1997, the Bank filed a petition for a closing
order in New York State Supreme Court. The petition was granted on November 26,
1997 and a closing order was signed on January 9, 1998 and entered on January
14, 1998,
693046.4
<PAGE>
allowing the Bank to proceed with the required notice to creditors. The notice
to creditors was served on all known creditors of the Bank prior to the deadline
set in the closing order.
The Board of Directors has fixed the close of business on March 19,
1998 as the record date (the "Record Date") for the determination of
stockholders entitled to receive notice of, and to vote at, the Special Meeting
and any adjournment or adjournments thereof. Holders of River Bank Common Stock
and Series A Preferred Stock at the close of business on the Record Date are
entitled to notice of, and to vote at, the Special Meeting and any adjournment
or adjournments thereof.
By order of the Board of Directors,
Jerome R. McDougal
Chairman of the Board
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN.
WHETHER OR NOT YOU INTEND TO BE PRESENT, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY CARD IN THE STAMPED AND ADDRESSED ENVELOPE ENCLOSED FOR YOUR
CONVENIENCE. STOCKHOLDERS CAN HELP THE BANK AVOID UNNECESSARY EXPENSE AND DELAY
BY PROMPTLY RETURNING THE ENCLOSED PROXY CARD.
March 27, 1998
693046.4
<PAGE>
Dated March 27, 1998
PROXY STATEMENT/PROSPECTUS
--------------------
RIVER BANK AMERICA
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 20, 1998
---------------------
RIVER ASSET SUB, INC.
RIVER DISTRIBUTION SUB, INC.
PROSPECTUS
7,100,000 SHARES
COMMON STOCK $0.001, PAR VALUE
1,400,000 SHARES
15% NON-CUMULATIVE PERPETUAL PREFERRED STOCK, SERIES A, $0.001 PAR VALUE
---------------------
INTRODUCTION
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is
being furnished to stockholders of River Bank America, a New York chartered
stock savings bank ("River Bank" or the "Bank"), in connection with the
solicitation of proxies by the board of directors of River Bank (the "River Bank
Board") for use at a special meeting of stockholders (including any adjournment
or postponement thereof) to be held on April 20, 1998 (the "Special Meeting").
This Proxy Statement/Prospectus is also being furnished to the stockholders of
River Bank in connection with (a) the proposed distribution to River Bank's
stockholders of all the outstanding shares of capital stock of River
Distribution Sub, Inc., a Delaware corporation and wholly-owned subsidiary of
River Bank ("River Distribution Sub") and (b) the merger of River Distribution
Sub with and into River Asset Sub, Inc., a Delaware corporation and wholly-owned
subsidiary of River Bank (which shall have succeeded to the business, assets and
liabilities of River Bank, except that it will not be chartered as a banking
institution) ("River Asset Sub"), in connection with and as part of the
reorganization of River Bank into a business corporation incorporated in the
State of Delaware.
River Bank is proposing to close the corporation and wind up its
affairs. To implement the foregoing, River Bank would through a series of steps,
in a manner intended to constitute a tax-free reorganization, change its legal
form of organization by which it conducts its business, holds its assets and is
obligated for its liabilities from a New York state chartered stock savings bank
into a business corporation incorporated in the State of Delaware (the
"Reorganization") and thereafter voluntarily dissolve (the "Dissolution"). The
Reorganization will implement a proposal that was presented to the New York
State Banking Department (the "Banking Department") as an alternative means of
complying with certain conditions imposed by the Banking Department in
connection with its approval of the Branch Sale discussed on page 22 hereof. On
June 28, 1996, River Bank sold all of its branches and transferred substantially
all of its deposits to Marine Midland Bank (the "Branch Sale"). As a condition
to its approval of the Branch Sale, the Banking Department required River Bank
to agree, among other things, (i) to submit a plan of dissolution for Banking
Department approval within one year of the Branch Sale closing date and (ii) to
file a petition in the Supreme Court of the State of New York for a closing
order within 13 months of the closing of the Branch Sale and for a final order
of dissolution of River Bank within five months following the filing of a
petition for a closing order. The Reorganization will remove River Bank's
business and assets from the jurisdiction of the Banking Department. This will
allow the successor to the Bank's assets to manage its approximately $195
million in assets without banking regulatory restraints and, where appropriate,
to actively develop and operate its properties, enter into joint ventures with
others and otherwise further encumber or restructure the debt on its properties
and other assets in an effort to maximize returns to stockholders.
(continued on the next page)
THE SECURITIES ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL INVESTED. SEE "RISK FACTORS" ON PAGE 9 HEREOF FOR
A DISCUSSION OF CERTAIN FACTORS THAT RIVER BANK STOCKHOLDERS SHOULD CONSIDER
WITH RESPECT TO THE REORGANIZATION AND THE SECURITIES BEING DISTRIBUTED HEREBY.
THE SECURITIES ISSUABLE IN THE DISTRIBUTION AND THE MERGER HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES BEING DISTRIBUTED HEREBY ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), AND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, RIVER BANK.
This Proxy Statement/Prospectus and the accompanying form of
proxy are first being mailed to stockholders on or about March 30, 1998.
693046.4
<PAGE>
At the Special Meeting, all stockholders of River Bank will
consider and vote upon a proposal to direct that the Bank be closed and its
business wound up by means of the Reorganization and Dissolution (the "Bank
Closing Resolution") ("Proposal 1"). Holders of River Bank Common Stock will
also consider and vote upon a proposal to approve an amendment, necessary to
implement the Reorganization, to the certificate of designations (the
"Certificate of Designations") for the River Bank Series A Preferred Stock (the
"Certificate of Designations Amendment") ("Proposal 2" and, together with
Proposal 1, the "Proposals"), and will transact such other business as may
properly come before the Special Meeting or at any adjournment or postponement
thereof.
In connection with and as part of the Reorganization (i) the
existing business and all of the assets and liabilities of River Bank will be
transferred to or assumed by River Asset Sub (the "Business Disposition"), (ii)
all of the issued and outstanding shares of common stock, $0.001 par value
("River Distribution Common Stock"), and all of the issued and outstanding
shares of 15% non-cumulative perpetual preferred stock, series A, $0.001 par
value ("River Distribution Series A Preferred Stock" and, together with River
Distribution Common Stock, "River Distribution Capital Stock"), of River
Distribution Sub will be distributed to the stockholders of River Bank (the
"Distribution") such that each holder of common stock, $1.00 par value, of River
Bank ("River Bank Common Stock") will receive one share of River Distribution
Common Stock for each share of River Bank Common Stock and each holder of 15%
non-cumulative perpetual preferred stock, series A, $1.00 par value, of River
Bank ("River Bank Series A Preferred Stock" and together with River Bank Common
Stock, "River Bank Capital Stock") will receive one share of River Distribution
Series A Preferred Stock for each share of River Bank Series A Preferred Stock
and (iii) following the Business Disposition and the Distribution, River
Distribution Sub will merge with and into River Asset Sub (which shall have
succeeded to the business, assets and liabilities of River Bank, except that it
will not be chartered as a banking institution) with River Asset Sub as the
surviving corporation, whereupon (a) each share of River Asset Sub common stock,
$1.00 par value (held entirely by River Bank), shall be canceled, (b) the
outstanding shares of River Distribution Capital Stock will be converted into
and will represent shares of identical capital stock of the surviving
corporation (except that the par value of the capital stock will be changed to
$1.00) and (c) River Asset Sub, the surviving corporation in the merger, will be
renamed RB Asset, Inc. ("RB Asset") (the "Merger").
If the Bank Closing Resolution and the Certificate of Designations
Amendment are approved, one share of River Distribution Common Stock and one
share of River Distribution Series A Preferred Stock will be distributed for
each share of River Bank Common Stock and River Bank Series A Preferred Stock,
respectively, issued and outstanding on the record date set by the River Bank
Board for the Distribution (the "Distribution Record Date"). The Distribution
will be made by means of stock transfer ledger entry on the Distribution Record
Date so that no ex-dividend transfers of River Distribution Capital Stock
separate from the River Bank Capital Stock on which it is paid can occur prior
to the Merger. No consideration will be paid by River Bank's stockholders for
the shares of River Distribution Common Stock and River Distribution Series A
Preferred Stock to be received by them, as the case may be, in the Distribution.
The Merger will be consummated as soon as practicable after the Distribution.
Upon consummation of the Merger, RB Asset will mail to each recordholder of
River Distribution Capital Stock, indicated on the stock transfer ledger of
River Bank, a stock certificate representing the number of shares of capital
stock of RB Asset issuable to them in the Merger. The capital stock of RB Asset,
the renamed surviving corporation in the Merger, shall hereinafter be referred
to as "RB Asset Common Stock" and "RB Asset Series A Preferred Stock," as the
case may be.
YOUR VOTE IS IMPORTANT TO THE BANK. WHETHER OR NOT YOU PLAN TO
ATTEND THE ANNUAL MEETING IN PERSON AND REGARDLESS OF THE NUMBER OF SHARES YOU
OWN, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN
THE ENCLOSED PRE-ADDRESSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES. YOU MAY, OF COURSE, ATTEND THE SPECIAL MEETING, REVOKE YOUR PROXY
AND VOTE IN PERSON EVEN IF YOU HAVE ALREADY RETURNED YOUR PROXY CARD.
The River Bank Board unanimously recommends a vote in favor of
approval of each of the Proposals for which you are entitled to vote at the
Special Meeting.
THE RIVER BANK BOARD, AFTER CAREFUL CONSIDERATION, HAS UNANIMOUSLY
APPROVED THE REORGANIZATION AND DISSOLUTION AND RECOMMENDS THAT YOU VOTE FOR
693046.4
-ii-
<PAGE>
APPROVAL OF THE BANK CLOSING RESOLUTION AND THE CERTIFICATE OF DESIGNATIONS
AMENDMENT NECESSARY FOR IMPLEMENTATION OF THE REORGANIZATION AND DISSOLUTION.
The affirmative vote of holders of 662/3% of the outstanding shares
of River Bank Common Stock and River Bank Series A Preferred Stock, together as
a single class, is required to approve the Bank Closing Resolution. The
affirmative vote of holders of a majority of the outstanding shares of River
Bank Common Stock is required to approve the Certificate of Designations
Amendment. Certain stockholders, owning an aggregate of 50.8% of the outstanding
shares of River Bank Common Stock (representing approximately 42.4% of the
outstanding shares of River Bank Common Stock and River Bank Series A Preferred
Stock together as a single class) have advised River Bank that they intend to
vote in favor of the Proposals.
All shares represented by properly executed proxies will be voted
in accordance with the specifications on the enclosed proxy. The enclosed proxy
is solicited on behalf of the River Bank Board. You may revoke or change your
proxy at any time prior to its use at the Special Meeting by giving River Bank
written direction to revoke your proxy, giving River Bank a new proxy or by
attending the Special Meeting and voting in person.
The principal executive offices of River Bank, River Asset Sub and
River Distribution Sub is 645 Fifth Avenue, 8th Floor, New York, New York 10022
and the telephone number at that address is (212) 848-0201.
693046.4
-iii-
<PAGE>
FURTHER INFORMATION INCLUDED HEREIN
Further information regarding River Bank, including the audited and
unaudited historical financial statements of River Bank and its subsidiaries,
supplementary financial information and management's discussion and analysis of
the Bank's financial condition and results of operations, is contained in River
Bank's Annual Report on Form F-2, as amended, for the fiscal year ended June 30,
1997 and Quarterly Report on Form F-4, as amended, for the fiscal six months
ended December 31, 1997, which reports are attached hereto as Annex B and Annex
C, respectively.
AVAILABLE INFORMATION
River Bank is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports, proxy statements and other
information with the FDIC. Such reports, proxy statements (including this Proxy
Statement/Prospectus) and other information may be inspected at and copies may
be obtained at prescribed rates upon request in writing or by telephone
facsimile from the FDIC Disclosure and Securities Operations Unit, 1776 F
Street, N.W., Rm. F-6043, Washington, D.C. 20006, Tel. No. (202) 898-8913, Fax
No. (202) 898-3909.
River Distribution Sub and River Asset Sub have filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form S-4 (the "Registration Statement") under the Securities Act of 1933 (the
"Securities Act") with respect to the River Distribution Capital Stock and the
River Asset Sub Capital Stock offered hereby. This Proxy Statement/Prospectus
constitutes the prospectus of River Distribution Sub in connection with the
Distribution and the prospectus of River Asset Sub in connection with Merger and
is filed as part of the Registration Statement. This Proxy Statement/Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. Reference is made to the Registration Statement and to the
exhibits relating thereto for further information with respect to River
Distribution Sub and River Asset Sub and the River Distribution Capital Stock
and the River Asset Sub Capital Stock offered hereby. Statements contained in
this Proxy Statement/Prospectus as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document,
each such statement being qualified in all respects by such reference.
Following consummation of the Reorganization, RB Asset, as the
ultimate successor to the business, assets and liabilities of River Bank by
virtue of its legal status as the surviving corporation in the Merger, will
succeed to River Bank's obligations to file periodic reports, proxy statements
and other information under the Exchange Act.
Such reports and other information will be filed with the Commission and may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and may be available at the following Regional Offices of the
Commission: Midwest Regional Office, Citicorp Atrium Center, 14th Floor, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661; and Northeast Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Commission maintains a site on the
World Wide Web portion of the Internet that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY RIVER BANK, RIVER ASSET SUB, RIVER DISTRIBUTION SUB OR ANY
OTHER PERSON. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF THE SECURITIES MADE UNDER THIS PROXY STATEMENT/PROSPECTUS
693046.4
-iv-
<PAGE>
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF RIVER BANK, RIVER ASSET SUB OR RIVER DISTRIBUTION SUB
SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
693046.4
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
FURTHER INFORMATION INCLUDED HEREIN............................................................................................-iv-
AVAILABLE INFORMATION..........................................................................................................-iv-
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS..............................................................................-ix-
SUMMARY .....................................................................................................................1
The Companies .........................................................................................................1
The Special Meeting .........................................................................................................2
The Proposals .........................................................................................................2
Interests of the Principal Stockholder............................................................................................4
Recommendation of the River Bank Board............................................................................................5
Certain Tax Considerations........................................................................................................5
Accounting Treatment .........................................................................................................5
No Appraisal Rights .........................................................................................................5
Reorganization Transaction Steps..................................................................................................6
RISK FACTORS .....................................................................................................................9
Recent Operating Losses .........................................................................................................9
No Assurance of Future Value of Investment........................................................................................9
Voting Power and Interest of Principal Stockholder................................................................................9
Risks Associated with Lack of Direct Management; Reliance on Management Company..................................................10
Uncertainty as to Dividend Payments to Holders of RB Asset Series A Preferred Stock and RB Asset
Common Stock............................................................................................10
No Assurance of Successful Management of Retained Assets.........................................................................10
No Assurance of Continued Liquidity..............................................................................................11
Effect of Changes in Economic Conditions.........................................................................................11
No Assurance of Use of Loss Carryforward.........................................................................................11
No Assurance of Tax-Free Reorganization..........................................................................................12
Absence of Prior Trading Market..................................................................................................12
No Appraisal Rights ........................................................................................................12
SELECTED CONSOLIDATED FINANCIAL DATA
...................................................................................................................13
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION OF RB ASSET.............................................................................................19
HISTORICAL MARKET PRICE AND DIVIDENDS............................................................................................26
Market Prices ........................................................................................................26
Dividend Policy ........................................................................................................26
RIVER BANK RECENT DEVELOPMENTS...................................................................................................28
BUSINESS OF RB ASSET FOLLOWING THE REORGANIZATION................................................................................32
Overview ........................................................................................................32
Retained Assets ........................................................................................................32
Asset Management Strategy........................................................................................................37
THE SPECIAL MEETING..............................................................................................................40
Introduction ........................................................................................................40
</TABLE>
693046.4
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<PAGE>
<TABLE>
<S> <C>
Matters to be Considered at the Special Meeting..................................................................................40
Voting Rights and Vote Required..................................................................................................40
Voting of Proxies; Solicitation..................................................................................................41
PROPOSAL 1 -- APPROVAL OF THE BANK CLOSING RESOLUTION............................................................................42
Overview ........................................................................................................42
Background of and Reasons for the Bank Closing Resolution; Recommendation of River Bank Board
.......................................................................................................42
The Bank Closing Resolution......................................................................................................43
Accounting Treatment ........................................................................................................47
PROPOSAL 2 -- APPROVAL OF THE CERTIFICATE OF DESIGNATIONS AMENDMENT..............................................................48
MANAGEMENT ....................................................................................................................49
Board of Directors and Nominees for Director ....................................................................................49
Board of Directors Committees....................................................................................................50
Compensation of Directors........................................................................................................50
Executive Officers ........................................................................................................50
Executive Compensation ........................................................................................................51
Employment Arrangement ........................................................................................................51
Certain Relationships and Related Transactions...................................................................................52
Compliance with Section 16(a)....................................................................................................54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................................55
DESCRIPTION OF RB ASSET CAPITAL STOCK............................................................................................58
General ........................................................................................................58
RB Asset Common Stock ........................................................................................................58
RB Asset Series A Preferred Stock................................................................................................59
Note Exchange ........................................................................................................64
Restrictions on Dividends and Redemptions........................................................................................66
DESCRIPTION OF NOTES.............................................................................................................67
General ........................................................................................................67
Redemption ........................................................................................................67
Subordination ........................................................................................................68
Limitations on Dividends ........................................................................................................69
Certain Covenants ........................................................................................................69
Mergers, Consolidations, Etc.....................................................................................................70
Modification of the Indenture; Waiver of Covenants...............................................................................70
Events of Default ........................................................................................................70
COMPARISON OF RIGHTS OF HOLDERS OF RIVER BANK CAPITAL STOCK
AND RB ASSET CAPITAL STOCK..........................................................................................72
FEDERAL INCOME TAX CONSIDERATIONS................................................................................................79
Tax Consequences of the Reorganization...........................................................................................79
Certain Additional Consequences of the Reorganization............................................................................80
Tax Consequences of Holding RB Asset Common Stock and RB Asset Preferred Stock...................................................81
Certain Tax Attributes ........................................................................................................81
EXPERTS ....................................................................................................................84
LEGAL MATTERS....................................................................................................................84
</TABLE>
693046.4
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<PAGE>
ANNEXES
Annex A --Certificate of Designations Amendment
Annex B --River Bank Annual Report on Form F-2
Annex C --River Bank Quarterly Report on Form F-4
INDEX TO FINANCIAL STATEMENTS CONTAINED IN ANNEXES B AND C
<TABLE>
<CAPTION>
Annex B
ANNEX B Page No.
<S> <C>
Report of Independent Auditors................................................................................ 85
Consolidated Statements of Financial Condition
as of June 30, 1997 and 1996...................................................................... 86
Consolidated Statements of Operations
for the years ended June 30, 1997, 1996 and 1995.................................................. 87
Consolidated Statements of Changes in Stockholders' Equity
for the years ended June 30, 1997, 1996 and 1995.................................................. 88
Consolidated Statements of Cash Flows
for the years ended June 30, 1997, 1996 and 1995.................................................. 89
Notes to Consolidated Financial Statements.................................................................... 91
Annex C
ANNEX C Page No.
Condensed Consolidated Statements of Financial Condition
as of December 31, 1997 and June 30, 1997 (Unaudited).............................................. 3
Condensed Consolidated Statements of Operations
for the three and six months ended December 31, 1997 and 1996 (Unaudited).......................... 4
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the six months ended December 31, 1997 and 1996 (Unaudited).................................... 5
Condensed Consolidated Statements of Cash Flows
for the six months ended December 31, 1997 and 1996 (Unaudited).................................... 6
Notes to Condensed Consolidated Financial Statements (Unaudited)............................................... 8
</TABLE>
693046.4
-viii-
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in this Proxy Statement/Prospectus contains
"forward-looking statements" relating to, without limitation, future economic
performance, plans and objectives of management for future operations and
projections of revenue and other financial items, which can be identified by the
use of forward-looking terminology such as "may," "will," "should," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The cautionary statements set
forth under the caption "Risk Factors" and elsewhere in this Proxy
Statement/Prospectus identify important factors with respect to such
forward-looking statements, including certain risks and uncertainties that could
cause actual results to differ materially from those in such forward-looking
statements. Such factors include, among other things, the following factors: the
successful implementation of the asset management plans for RB Asset's assets,
changes in the real estate market, prevailing interest rates and general
economic conditions referred to in this Proxy Statement/Prospectus.
693046.4
-ix-
<PAGE>
SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement/Prospectus and the annexes hereto. This
summary is qualified in its entirety by reference to the more detailed
information and financial statements contained or incorporated by reference in
this Proxy Statement/Prospectus. Stockholders are urged to read this Proxy
Statement/Prospectus and the annexes hereto in their entirety.
The Companies
River Bank. River Bank is a New York chartered savings bank which
was founded in 1848. On June 28, 1996, River Bank consummated the Branch Sale,
thereby disposing of all of its branches and substantially all of its deposits.
Following the Branch Sale closing, River Bank ceased accepting deposits and
otherwise disposed of its remaining deposits. Since that time, River Bank has
been proceeding with a business plan to manage the assets remaining with River
Bank after the Branch Sale (the "Retained Assets") in accordance with the
individual business plans developed for each asset prior to the consummation of
the Branch Sale. The Retained Assets consist primarily of real estate assets
(including investments in joint ventures), non-performing loans, performing
loans (including subordinated participations, junior subordinated participations
and loans classified by River Bank), investment securities and cash. The
majority of the performing loans include subordinated loans, including second
mortgages and participation interests (which generally involve more risk than
senior loans), loans to facilitate the disposition of real estate owned and
loans which had been classified by River Bank.
As a condition to the Banking Department's approval of the Branch
Sale, River Bank agreed, among other things, (i) to file an application with the
Banking Department, within one year of the closing of the Branch Sale, for
approval of a plan of dissolution (the "Dissolution Plan Condition") and (ii) to
file with the Supreme Court of the State of New York a petition for a closing
order within 13 months of the closing of the Branch Sale and for a final order
of dissolution within five months following the filing of an application for a
closing order (the "Closing Condition"). In April 1997, River Bank announced
that the River Bank Board was evaluating a proposal to reorganize the Bank into
a business corporation, consistent with the Bank's goal of managing the Bank's
assets to maximize stockholder value. To that end, in June 1997, River Bank
proposed to the Banking Department an alternative under which the Dissolution
Plan Condition would be satisfied. Under such proposal, the Bank would, through
a series of steps, in a manner intended to constitute a tax-free reorganization,
change its legal form of organization by which it conducts its business, holds
its assets and is obligated for its liabilities from a New York state chartered
stock savings bank into a business corporation incorporated in the State of
Delaware (the "Reorganization"). Thereafter, the Bank would voluntarily dissolve
(the "Dissolution" and together with the Reorganization, the "Alternate
Proposal"). In a letter dated June 24, 1997, the Banking Department, indicating
its conditional approval, stated that it did not object to the Alternate
Proposal and further advised, among other things, that it required that the
petition for the closing order be filed by October 15, 1997. The petition for
the closing order was filed in New York State Supreme Court on October 15, 1997
following stockholder approval of an earlier proposal to close the Bank at the
1997 annual meeting of stockholders held on October 7, 1997. The petition was
granted on November 26, 1997 and a closing order was signed on January 9, 1998
and entered on January 14, 1998, allowing the Bank to proceed with the required
notice to creditors. The notice to creditors was served on all known creditors
of the Bank prior to the deadline set in the closing order. The Reorganization
and Dissolution cannot be implemented until after stockholder approval of the
Bank Closing Resolution and the Certificate of Designations Amendment. See
"RIVER BANK RECENT DEVELOPMENTS."
In connection with and as a condition to the Branch Sale, River
Bank borrowed from Marine Midland Bank ("Marine Midland") approximately $89.8
million pursuant to a senior secured loan facility not to exceed $99.06 million
(the "Marine Senior Loan"). As of December 31, 1997, approximately $60.6 million
remains outstanding under the Marine Senior Loan. In accordance with restrictive
covenants contained in the credit agreement governing the Marine Senior Loan,
Marine Midland has consented to the implementation of the Reorganization and
Dissolution. See "RIVER BANK RECENT DEVELOPMENTS."
693046.4
<PAGE>
River Asset Sub; River Distribution Sub. River Asset Sub and River
Distribution Sub are newly organized, wholly-owned subsidiaries of River Bank
incorporated under the laws of the State of Delaware. In order to effect the
Reorganization, the existing business and all of the assets (other than $100,000
to be used to fund administrative expenses) and liabilities of River Bank will
be transferred to or assumed by River Asset Sub. In connection with the
Reorganization, River Bank will distribute one share of River Distribution
Common Stock and one share of River Distribution Series A Preferred Stock for
each share of River Bank Common Stock and River Bank Series A Preferred Stock,
respectively, outstanding on the Distribution Record Date. Promptly thereafter,
River Distribution Sub will merge with and into River Asset Sub, whereupon River
Asset Sub (renamed RB Asset), as the surviving corporation in the Merger, will
succeed to the business, assets and liabilities of River Bank, including the
Marine Senior Loan, except that it will not be chartered as a banking
institution, and the stockholders of River Distribution Sub (the stockholders of
River Bank) will become stockholders of RB Asset.
The mailing address of the principal executive offices of River
Bank, River Asset Sub and River Distribution Sub is 645 Fifth Avenue, 8th Floor,
New York, New York 10022, and the telephone number at that address is (212)
848-0201. Following the Reorganization, RB Asset's principal executive offices
and phone number will be the same as indicated above.
The Special Meeting
Meeting Date and Record Date. The Special Meeting will be held at
10:00 a.m., local time, on April 20, 1998 at the Grand Hyatt of New York Hotel,
Park Avenue at Grand Central Station, New York, New York 10017. The close of
business on March 19, 1998 has been fixed by the River Bank Board as the record
date for determining stockholders entitled to notice of, and to vote at, the
Special Meeting (the "Record Date"). Holders of River Bank Common Stock and
River Bank Series A Preferred Stock as of the Record Date are entitled to vote
at the Special Meeting and any adjournment or postponement thereof.
Matters to be Considered. At the Special Meeting, River Bank
stockholders will consider and vote upon the Bank Closing Resolution, the
Certificate of Designations Amendment, and will transact such other business as
may properly come before the Special Meeting or any adjournment or postponement
thereof. See "THE SPECIAL MEETING -- Matters to be Considered at the Special
Meeting."
Vote Required. As of March 1, 1998, River Bank has a total of
7,100,000 shares of River Bank Common Stock and 1,400,000 shares of River Bank
Series A Preferred Stock outstanding, all of which are entitled to be voted on
at least one of the Proposals at the Special Meeting. Approval of the Bank
Closing Resolution requires the affirmative vote of holders of 662/3% of the
outstanding shares River Bank Common Stock and River Bank Series A Preferred
Stock, together as a single class. Approval of the Certificate of Designations
Amendment requires the affirmative vote of holders of a majority of the shares
of River Bank Common Stock outstanding. See "THE SPECIAL MEETING -- Voting
Rights and Vote Required."
Certain stockholders, owning an aggregate of 50.8% of the
outstanding shares of River Bank Common Stock (representing approximately 42.4%
of the outstanding shares of River Bank Common Stock and River Bank Series A
Preferred together as a single class) have advised River Bank that they intend
to vote in favor of the Proposals.
See "THE SPECIAL MEETING -- Voting Rights and Vote Required."
The Proposals
Proposal 1 -- Approval of the Bank Closing Resolution
At the Special Meeting, the holders of River Bank Common Stock and
River Bank Series A Preferred Stock, together as a single class, will be asked
to approve the Bank Closing Resolution which will be implemented by means of the
Reorganization and the Dissolution. The Reorganization and the Dissolution
represent an alternative to submitting for Banking Department approval a plan of
dissolution requiring the Bank to proceed with a liquidation of the Retained
Assets.
693046.4
2
<PAGE>
The Reorganization and the Dissolution will not occur unless the
Bank Closing Resolution and the Certificate of Designations Amendment are
approved by River Bank's stockholders and until all of the conditions to the
Reorganization and the Dissolution have been satisfied, including the receipt by
River Bank of a closing order from the Supreme Court of the State of New York
declaring the business of River Bank closed with the approval of the Banking
Department. Pursuant to the Banking Department's June 24, 1997 letter
authorizing the Bank to proceed with the Reorganization and Dissolution, the
Bank was required to apply for a closing order before October 15, 1997. River
Bank filed a petition for a closing order in New York Supreme Court on October
15, 1997. The petition was granted on November 26, 1997 and a closing order was
signed on January 9, 1998 and entered on January 14, 1998, allowing the Bank to
proceed with the required notice to creditors. The notice to creditors was
served on all known creditors of the Bank prior to the deadline set in the
closing order.
Pursuant to the Reorganization, the form of organization by which
the Bank conducts its business, holds its assets and is obligated for its
liabilities will be changed, through a series of steps, in a manner intended to
constitute a tax-free reorganization, from a New York state chartered stock
savings bank into a business corporation incorporated in the State of Delaware.
The Reorganization will result in the removal of River Bank's business and
assets from the jurisdiction of the Banking Department. RB Asset, as successor
to the assets and the business enterprise operated by the Bank, will thereafter
be able to manage its approximately $195 million in Retained Assets as of
December 31, 1997 without banking regulatory restraints, and where appropriate,
to actively develop and operate its properties, enter into joint ventures with
others and otherwise further encumber or restructure the debt on its properties
and other assets in an effort to maximize returns to its stockholders (the
former stockholders of River Bank). Upon consummation of the Reorganization, RB
Asset's capital structure will be substantially identical to that of River Bank
and RB Asset will succeed to and continue with the business, assets and
operations of River Bank (except that it will not be chartered as a banking
institution). The Reorganization is intended to be generally tax-free to River
Bank's stockholders for federal income tax purposes. See "FEDERAL INCOME TAX
CONSIDERATIONS."
The Reorganization and the Dissolution will be implemented through
a series of steps. In the first step, River Bank will complete the Business
Disposition whereby the existing business and all of the assets (other than
$100,000) to be used to fund administrative expenses) and liabilities of River
Bank will be transferred to or assumed by River Asset Sub. In the second step,
after the expiration of the notice period to creditors ordered by the court,
River Bank will effect the Distribution, pursuant to which all of the issued and
outstanding shares of River Distribution Common Stock and River Distribution
Series A Preferred Stock will be distributed to River Bank's stockholders on the
basis of one share of River Distribution Common Stock for each share of River
Bank Common Stock and one share of River Distribution Series A Preferred Stock
for each share of River Bank Series A Preferred Stock held by a stockholder as
of the Distribution Record Date. In the third step, the Merger will be
consummated whereby River Distribution Sub will merge with and into River Asset
Sub (which shall have succeeded to the business, assets and liabilities of River
Bank) with River Asset Sub as the surviving corporation. At the effective time
of the Merger, (a) each issued and outstanding share of River Asset Sub common
stock (held entirely by River Bank) will be canceled, (b) the outstanding shares
of River Distribution Capital Stock will be converted into and will represent
the shares of identical capital stock of the surviving corporation (except that
the par value of the capital stock will be changed to $1.00) and (c) River Asset
Sub, the surviving corporation in the Merger, will be renamed RB Asset, Inc. As
a consequence of the Merger, River Bank's consolidated liabilities will be
reduced to zero and its sole assets will be $100,000 in cash which will be used
to fund administrative expenses incurred in connection with completing the
Dissolution. RB Asset will be obligated to fund all administrative expenses not
satisfied by River Bank and any funds remaining in River Bank upon completion of
the Dissolution will be paid to RB Asset.
River Bank initiated the legal steps necessary to complete the
Dissolution with the filing of its petition with the Supreme Court of the State
of New York for a closing order declaring the business of River Bank closed.
This action followed stockholder approval of an earlier proposal to close the
Bank and wind up its affairs. The petition provides that, upon entry of the
order declaring the Bank closed (which occurred on January 14, 1998), River Bank
will cease to do business and will proceed with a voluntary liquidation under
which River Bank will satisfy or make provision for all of its creditors and
wind up its business. In connection with the undertaking made in connection with
the 1997 annual meeting of stockholders, the closing order petition provides
that no substantive legal steps will be taken to implement the Reorganization
and Dissolution until stockholders again approve the closing of the Bank which
approval will not be obtained until a proxy statement/prospectus detailing the
Bank's plans to implement the Reorganization and Dissolution have been provided
to all stockholders. Upon the approval of the Bank Closing
693046.4
3
<PAGE>
Resolution and the Certificate of Designations Amendment, River Bank will report
to the court that the necessary stockholder approval has been obtained following
distribution of this Proxy Statement/Prospectus to all stockholders which
describes in detail the Bank's plans to implement the Reorganization and the
Dissolution, including the unconditional assumption by River Asset Sub of all of
River Bank's liabilities (including contingent liabilities) and the provision
for River Bank's creditors principally by means of such assumption of River Bank
liabilities by River Asset Sub.
After approval of the Bank Closing Resolution and the Certificate
of Designations Amendment, and after the expiration of the creditors' notice
period on March 2, 1998 that follows the entry of the closing order, River Bank
will complete the Reorganization and the Dissolution. To that end, River Bank
will file a petition in the Supreme Court of the State of New York for an order
declaring River Bank dissolved and its corporate existence terminated. Prior to
the entry of the final order of dissolution, River Bank will effect the
Distribution and the Merger. Upon the entry and the filing of a certified copy
of the final order of dissolution with the Banking Department, River Bank will
cease to exist as a banking institution under applicable New York Banking Law.
River Bank expects to file the petition for the final order of dissolution as
soon as practicable after expiration of the creditors' notice period.
Following the Reorganization and Dissolution, RB Asset stockholders
will confront investment risks that are substantially identical to those
associated with their former investment in River Bank (which shall have
dissolved in the Dissolution). While the removal of banking regulatory
restraints will permit RB Asset to conduct its business and operations with a
long-term investment horizon, RB Asset stockholders will bear the risk that the
future value of their investment in RB Asset will not equal or exceed the value
that they would have received in a supervised liquidation of River Bank's assets
under the terms of a plan of dissolution filed with and subject to the
jurisdiction of the New York State Supreme Court. See "RISK FACTORS--No
Assurance of Future Value of Investment."
If River Bank stockholders do not approve the Bank Closing
Resolution, River Bank will be unable to complete the Reorganization and
Dissolution and therefore will be unable to satisfy the Banking Department's
condition that it file a petition in New York Supreme Court for a final order of
dissolution. If River Bank fails to satisfy such condition, the Banking
Department would have grounds to institute proceedings for an involuntary
liquidation of the Bank which River Bank believes would have a material adverse
effect on the realizable value of the Bank's assets as they are disposed of in
the liquidation. In an involuntary liquidation, the value that would inure to
River Bank stockholders would be subject to the methods of sale or disposition
of assets and the time-frame for such activity designated by the Banking
Department in its complete discretion. While the precise effect of unknown
methods of and timeframes for sale or disposition of assets is inherently
unpredictable, River Bank notes that the principal constituency of an
involuntary liquidation proceeding would be the Bank's creditors and not its
stockholders.
The Reorganization and the Dissolution are described more
specifically herein under "PROPOSAL 1 -- APPROVAL OF THE BANK CLOSING
RESOLUTION."
Proposal 2 -- Approval of the Certificate of Designations
Amendment. At the Special Meeting, the holders of River Bank Common Stock will
be asked to approve the Certificate of Designations Amendment. The Certificate
of Designations Amendment will modify the Certificate of Designations to permit
River Bank to effect the Distribution. The Distribution is a necessary step for
implementation of the Reorganization. The Certificate of Designations Amendment
is described more specifically herein under "PROPOSAL 2 -- APPROVAL OF THE
CERTIFICATE OF DESIGNATIONS AMENDMENT."
Interests of the Principal Stockholder
Stockholders should be aware that River Bank's largest stockholder,
Alvin Dworman, has certain interests in the Reorganization that are in addition
to the interests of River Bank and its stockholders generally. RB Management
Company LLC ("RB Management"), a company 100% owned by Mr. Dworman, currently
provides day-to-day general management services and individual asset management
services to River Bank. RB Management will continue to provide such services to
RB Asset following the Reorganization. See "MANAGEMENT -- Certain Relationships
and Related Transactions."
693046.4
4
<PAGE>
Recommendation of the River Bank Board
The River Bank Board has unanimously determined to recommend a vote
in favor of approval of each of the Proposals which must be approved before
River Bank can proceed with the Reorganization and the Dissolution. For a
discussion of the factors considered by the River Bank Board in making its
recommendation, see "PROPOSAL 1 -- APPROVAL OF THE BANK CLOSING
RESOLUTION--Background of and Reasons for the Reorganization; Board of
Directors' Recommendation."
Certain Tax Considerations
Special tax counsel to River Bank has issued an opinion that the
Reorganization should constitute a tax-free reorganization for federal income
tax purposes and that no gain or loss should accordingly be recognized in
connection with therewith to the holders of River Bank Capital Stock. See
"FEDERAL INCOME TAX CONSIDERATIONS." The opinion notes, however, that the
Internal Revenue Service or the courts may reach a different conclusion. If it
was determined that the Reorganization was not a tax-free reorganization, the
tax consequences to River Bank and its stockholders would be different. See
"RISK FACTORS--No Assurance of Tax- Free Reorganization."
Accounting Treatment
The Reorganization is intended to be accounted for as a
reorganization of entities under common control for financial reporting purposes
in accordance with generally accepted accounting principles. See "PROPOSAL 1 --
APPROVAL OF THE BANK CLOSING RESOLUTION--Accounting Treatment."
No Appraisal Rights
Under the New York Banking Law, the holders of River Bank Capital
Stock are not entitled to any dissenters' appraisal rights in connection with
the Reorganization and the Dissolution. See "RISK FACTORS--No Appraisal Rights."
693046.4
5
<PAGE>
Reorganization Transaction Steps
The following diagrams depict the transaction steps to implement
the Reorganization.
[GRAPHIC OMITTED]
(footnotes appear on page 8)
693046.4
6
<PAGE>
[GRAPHIC OMITTED]
(footnotes appear on page 8)
693046.4
7
<PAGE>
[GRAPHIC OMITTED]
(1) River Bank has formed two subsidiaries, River Asset Sub and River
Distribution Sub. River Asset Sub has issued a single class of
common stock held entirely by River Bank. River Distribution Sub
has issued two classes of capital stock, River Distribution Common
Stock and River Distribution Series A Preferred Stock, held
entirely by River Bank. River Bank holds 7,100,000 shares of River
Distribution Common Stock and 1,400,000 shares of River
Distribution Series A Preferred Stock which equal, respectively,
the number of shares of outstanding River Bank Common Stock and
River Bank Series A Preferred Stock . The terms of the River
Distribution Capital Stock are substantially identical to the terms
of the River Bank Capital Stock, except that certain bank-specific
provisions that will not be applicable to River Bank's successor in
the Reorganization have been eliminated. See "PROPOSAL 2--APPROVAL
OF THE CERTIFICATE OF DESIGNATIONS AMENDMENT" on page 41.
(2) River Distribution Sub and River Asset Sub have entered into an
agreement and plan of merger with respect to the Merger which will
be consummated promptly following the Distribution. River Bank, as
sole stockholder of both subsidiaries, has approved the agreement
and plan of merger.
(3) Following stockholder approval of the Bank Closing Resolution and
the Certificate of Designations Amendment, River Bank will enter
into an assignment and assumption agreement with River Asset Sub
governing the Business Disposition whereby the existing business
and all of the assets and liabilities of River Bank will be
transferred to or assumed by River Asset Sub.
(4) During the pendency of the petition for an order of dissolution in
New York Supreme Court necessary to complete the Dissolution, River
Bank will effect the Distribution and thereby distribute all of the
shares of River Distribution Common Stock and all of the shares of
River Distribution Series A Preferred Stock on a share-for-share
basis to the holders of River Bank Common Stock and River Bank
Series A Preferred Stock, respectively. Immediately after the
Distribution, River Bank and River Distribution Sub will each be
publicly held by the same stockholders.
(5) Promptly after the Distribution, River Asset Sub and River
Distribution Sub will consummate the Merger. Pursuant to the
Merger, River Distribution Sub will merge with and into River Asset
Sub (which shall have succeeded to the business, assets and
liabilities of River Bank, except that it will not be chartered as
a banking institution) with River Asset Sub as the surviving
corporation, whereupon (a) each share of River Asset Sub common
stock, $1.00 par value (held entirely by River Bank), shall be
canceled, (b) the outstanding shares of River Distribution Capital
Stock will be converted into and will represent shares of identical
capital stock of the surviving corporation (except that the par
value of the capital stock will be changed to $1.00) and (c) River
Asset Sub, the surviving corporation in the merger, will be renamed
RB Asset, Inc.
(6) Upon entry of the order of dissolution by the New York Supreme
Court, River Bank will voluntarily dissolve and upon the filing of
a certified copy of the final order of dissolution with the Banking
Department, River Bank will cease to exist and River Bank Capital
Stock will thereby be extinguished.
693046.4
8
<PAGE>
RISK FACTORS
While the River Bank Board recommends approval of the Bank Closing
Resolution and the Certificate of Designations Amendment which must be approved
before River Bank can proceed with the Reorganization and the Dissolution, River
Bank stockholders should carefully consider the following factors in determining
whether to approve the Bank Closing Resolution and the Certificate of
Designations Amendment.
Recent Operating Losses
RB Asset will succeed to the business of River Bank which has
experienced significant losses in recent years. River Bank had net losses for
fiscal years 1993, 1994 and 1995 of approximately $4.4 million, $462,000 and $30
million, respectively, a profit of $49.8 million in fiscal year 1996 (resulting
from the one time gain of $77.6 million on the Branch Sale), a net loss of
approximately $30.1 million in fiscal year 1997 and a net loss of approximately
$1.6 million for the six months ended December 31, 1997. The foregoing losses
were caused by significant increases in the bank's non-performing assets which
resulted in significant increases in provisions for losses and valuation
write-downs of its assets. The increases in non-performing assets resulted
largely from the deterioration of the bank's commercial real estate loan
portfolio, which was impacted by the collapse of the real estate markets in the
late 1980s and the last general economic recession that followed thereafter.
River Bank's losses and the resultant impact on its capital position subjected
it to increased regulatory scrutiny and oversight which ultimately lead River
Bank to sell its depositary banking operations in June 1996. There can be no
assurance that RB Asset will not continue to incur losses in the future as it
continues with the business and operations of River Bank, including the
management of the Retained Assets.
No Assurance of Future Value of Investment
Following consummation of the Reorganization, RB Asset stockholders
will continue to hold an investment in an enterprise that will succeed to and
continue with the business, assets, liabilities and property and other asset
management operations of River Bank and therefore will confront investment risks
that are substantially identical to those associated with their former
investment River Bank (which shall have dissolved in the Dissolution). The value
of an investment in RB Asset at any time in the future is inherently uncertain
as it will be subject to risk factors related general economic and competitive
conditions, the assessment of credit risks associated with RB Asset and its
properties by third party financing sources and the attractiveness RB Asset's
properties to potential purchasers and joint venture partners. While the removal
of banking regulatory restraints will permit RB Asset to conduct its business
and operations with a long-term investment horizon, RB Asset stockholders will
bear the risk that the future value of their investment in RB Asset will not
equal or exceed the value that they would have received in a supervised
liquidation of River Bank's assets under the terms of a plan of dissolution
filed with and subject to the jurisdiction of the New York State Supreme Court.
Voting Power and Interest of Principal Stockholder
Following consummation of the Reorganization, Mr. Dworman will
beneficially own 39.0% of the outstanding shares of RB Asset Common Stock. As a
result, as has been the case with River Bank prior to the Reorganization and the
Dissolution, Mr. Dworman will be the largest stockholder of RB Asset and will be
able to significantly influence elections of directors of RB Asset and the vote
on other matters requiring RB Asset stockholder approval.
Following the Reorganization, RB Asset will continue to engage RB
Management, a company 100% owned by Mr. Dworman, to provide to RB Asset the
general management services and asset management services previously provided to
River Bank pursuant to the terms of the existing management agreement with the
Bank. Under the terms of the agreement, RB Management is paid an annual base fee
for general management services in an amount not to exceed $1.25 million subject
to annual review and adjustment based upon actual costs incurred. RB Management
also receives an annual fee for certain asset management services equal to 0.75%
of the average month-end book value of the Bank's assets and an asset
disposition success fee equal to 0.75% of the proceeds from the sale or
collection of any
693046.4
9
<PAGE>
asset sold or collected by the Bank. River Bank paid RB Management an aggregate
of approximately $1.7 million and $3.0 million in fees for services provided in
fiscal year 1997 and the six months ended December 31, 1997, respectively.
As contemplated in the management agreement discussed above, during
fiscal year 1997, RB Management engaged Fintek Inc., a firm 50% owned by Mr.
Dworman, as a third party service subcontractor. Fintek has previously provided
certain advisory services to the Bank. All fees paid to Fintek, Inc. for such
advisory services are the obligation of RB Management and were paid out of the
fees received by RB Management from River Bank.
See "MANAGEMENT -- Certain Relationships and Related Transactions."
Risks Associated with Lack of Direct Management; Reliance on Management Company
As is the case currently with River Bank, following the
Reorganization, RB Asset will not maintain any significant staff of employees to
manage its affairs. Rather, the day-to-day management responsibilities of RB
Asset will be vested with RB Management. It is anticipated that a significant
amount of the services necessary to manage the Retained Assets will be provided
by RB Management or by third party subcontractors who will not have any
continuing fiduciary obligations to RB Asset and its stockholders. The selection
of third party subcontractors to provide various services to RB Asset will be
made by RB Management, subject to ratification by committees of the board of
directors of RB Asset (the "RB Asset Board") but without stockholder approval.
RB Asset's success in maximizing returns from the management of the Retained
Assets will depend on the efforts of RB Management and third-party contractors
retained to provide services to RB Asset.
Uncertainty as to Dividend Payments to Holders of RB Asset Series A Preferred
Stock and RB Asset Common Stock
No dividends have been declared with respect to River Bank Common
Stock since its original issuance in 1994 and River Bank has no policy providing
for the payment of dividends on the River Bank Common Stock. River Bank declared
and paid quarterly dividends on the River Bank Series A Preferred Stock for
every quarter since the issuance thereof through March 30, 1996. River Bank
declared, subject to the receipt of required approvals from its regulators and
Marine Midland, but did not pay, a dividend on the River Bank Series A Preferred
Stock for the quarter ended June 30, 1996, and thereafter has taken no action to
declare or pay dividends on the River Bank Series A Preferred Stock primarily
due to the fact that the necessary approvals from the Banking Department and
Marine Midland were not provided. The declaration and payment of dividends by
River Bank is subject to Banking Department approval, and the credit agreement
and related documents with respect to the Marine Senior Loan prohibit the
declaration and payment of dividends without the consent of Marine Midland.
Any dividend policy of RB Asset with respect to RB Asset Capital
Stock will be determined in the discretion of the RB Asset Board and it is
expected that RB Asset will have no policy providing for the payment of
dividends on the RB Asset Common Stock. As successor to River Bank, RB Asset
will assume the Marine Senior Loan. While RB Asset will not be subject to
Banking Department jurisdiction, payment of any future dividends on the RB Asset
Series A Preferred Stock will be subject to the consent of Marine Midland as
long as the Marine Senior Loan remains outstanding. There can be no assurance
that RB Asset will declare or pay dividends on the RB Asset Series A Preferred
Stock in the event the Marine Senior Loan is repaid, or that consent to the
declaration or payment of such dividends will otherwise be provided by Marine
Midland. The declaration or payment of any dividend on the RB Asset Series A
Preferred Stock in the future will be based upon conditions then existing,
including RB Asset's financial condition and capital requirements and other
factors that RB Asset may deem relevant at that time.
No Assurance of Successful Management of Retained Assets
The Retained Assets to which RB Asset will succeed following the
Reorganization will consist primarily of real estate assets and, to a lesser
extent, performing and non-performing loans. RB Asset presently intends to
continue substantially the same management strategy for such assets subsequent
to the Reorganization as is currently employed
693046.4
10
<PAGE>
by River Bank. While River Bank's strategies have allowed it to manage its
assets in an orderly manner, there can be no assurance that by continuing such
strategies RB Asset will be able to realize positive returns for RB Asset. The
ability of RB Asset to maximize returns from the Retained Assets will be subject
to a number of factors beyond the control of RB Asset. Among other things, an
increase in interest rates, a decline in real estate market values or the
inability of prospective purchasers of the Retained Assets to obtain third party
financing, the effect of which cannot be predicted, could negatively affect RB
Asset's planned management of Retained Assets. There can be no assurance that
particular assets will realize value greater than their book value and that RB
Asset will not incur losses from subsequent operations or disposition
transactions.
No Assurance of Continued Liquidity
RB Asset's operations subsequent to the Reorganization will
continue to be dependent, among other things, upon the availability of adequate
amounts of cash to fund the management and disposition of the Retained Assets.
While RB Asset believes that expected operating cash flow and cash from the
on-going disposition of Retained Assets will provide sufficient working capital
for the continuation of its asset management strategy, if RB Asset's sources of
cash prove insufficient to accomplish the foregoing, RB Asset may find it
necessary to obtain additional financing or dispose of assets at less than their
fair value. Any additional financing would be subject to the approval of Marine
Midland as long as the Marine Senior Loan remains outstanding. There can be no
assurance that Marine Midland would approve any additional financing. RB Asset's
need to secure additional operating cash flow will depend, in part, on the cash
flow and net profits or losses from its operations. No assurance can be given
that the operating cash flow from operations and from any asset dispositions,
will be sufficient to support its operations in the near term or that additional
borrowings, which may not be either available, available on economic terms or
approved by Marine Midland, will not be required.
In the event funds are not available from existing cash sources or
future financings, RB Asset may not be able to advance funds to purchasers of
Retained Assets to facilitate the sale thereof or fund related construction
costs or operating expenses. Accordingly, the disposition of real estate assets
included in the Retained Assets may be dependent on the ability of purchasers to
obtain third-party financing. The need for such third-party financing may impede
RB Asset's ability, when appropriate, to dispose of the real estate assets
included in the Retained Assets. In addition, loans to facilitate the sale of
real estate assets or to fund construction costs or operating expenses will
involve certain credit risks. While RB Asset intends to employ appropriate
underwriting standards, no assurance can be given as to any borrower's ability
to repay any loan.
Effect of Changes in Economic Conditions
In addition to changes in interest rates, RB Asset's operations
subsequent to the Reorganization will continue to be subject to fluctuations in
general national and local economic and political conditions, as well as
consumer confidence. These fluctuations are neither predictable nor
controllable, and may have material adverse consequences upon RB Asset's ability
to continue to pursue or change existing asset management strategies for the
Retained Assets. The majority of the loans and real estate assets comprising the
Retained Assets are or are secured by properties located in New York and
Pennsylvania. Excess construction of housing, office space and retail space,
coupled with regional economic declines, had a materially adverse effect on the
real estate markets in these areas in recent years. Future declines in real
estate values in the New York metropolitan area and in Pennsylvania, or a
worsening or a continuation for longer than expected of current economic
conditions in these areas, could negatively affect the values of the Retained
Assets.
No Assurance of Use of Loss Carryforward
There can be no assurance that River Bank's initial public offering
of River Bank Common Stock and River Bank Series A Preferred Stock in 1994 will
not be determined to have constituted an "ownership change" within the meaning
of Section 382 of the Internal Revenue Code of 1986. If it were determined that
an ownership change occurred, the amount of net operating loss carryforward
("NOLs") (and certain other built in losses) available to offset
693046.4
11
<PAGE>
taxable income would be subject to an annual limitation. If it is determined
that an ownership change occurred in 1994, the amounts of NOLs that may be used
to offset taxable income of the Bank (and RB Asset as successor) would be
limited to approximately $865,000 annually. However, River Bank believes that no
ownership change occurred. An inability to use the NOLs to offset income
(including the income recognized on the Branch Sale) would result in increased
tax expenses and a reduction in stockholders' equity for RB Asset which will
succeed to River Bank's liabilities upon consummation of the Reorganization.
No Assurance of Tax-Free Reorganization
River Bank has received an opinion from special tax counsel that
the Reorganization should constitute a tax-free "reorganization" for federal
income tax purposes, within the meaning of section 368 of the Code. The ability
of the Reorganization to qualify as a tax-free reorganization turns, however, on
certain unresolved and complex issues of tax law as to which there are no
clearly established legal precedents (including the requisite "continuity of
business enterprise") and for which the Bank has not requested a ruling from the
IRS. The foregoing uncertainty as to the treatment of the Reorganization results
from unique banking regulatory constraints, which, counsel to the Bank advised
Roberts & Holland LLP precluded the timely implementation of a transaction
structure that could have been tax-free to the holders of River Bank Capital
Stock without regard to whether all of the requirements of a "reorganization"
under section 368 of the Code were met. As a result, the IRS or a court could
determine that the proposed transactions do not constitute a tax-free
reorganization. If a determination that the Reorganization was not a tax-free
reorganization was sustained, River Bank and its stockholders would experience
different tax consequences than those attendant to a tax-free reorganization. In
particular, the Bank's stockholders would be required to recognize gain upon the
deemed exchanges of River Bank Capital Stock for RB Asset Common Stock and RB
Asset Series A Preferred Stock to the extent that the fair market value of any
RB Asset Capital Stock received exceeded the basis of the River Bank Capital
Stock deemed exchanged therefor. Recognition of loss on such deemed exchanges
might not be allowed until the stockholders dispose of some or all of their RB
Asset Capital Stock. The Bank would be required to recognize gain on its
disposition and distribution of property in connection with the Reorganization
and any loss on such disposition and distribution may be required to deferred
until RB Asset were to sell the assets to an unrelated third party; and, to the
extent the Bank's tax attributes were not used to offset any gain, RB Asset
would not succeed to them.
Absence of Prior Trading Market
There is no existing market for the RB Asset Capital Stock into
which the River Distribution Capital Stock to be received by River Bank's
stockholders in the Distribution shall be converted upon consummation of the
Reorganization. RB Asset has no current plans to list the RB Asset Capital Stock
on any stock exchange or organized trading system. RB Asset Capital Stock will
only be available for trading in the inter-dealer over-the-counter market and,
consequently, there can be no assurance that an active public trading market in
the securities will develop or be sustained or as to whether and at what prices
holders will be able to resell share of RB Asset Capital Stock.
No Appraisal Rights
Holders of River Bank Capital Stock do not have any statutory
appraisal rights under New York Banking Law to elect to have the fair value of
their shares of River Bank Capital Stock judicially appraised and paid to them
in cash in connection with or as a result of the Reorganization and the
Dissolution.
693046.4
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Data)
The following table sets forth selected consolidated financial and
other data of the Bank at the dates and for the periods indicated. The data at
June 30, 1997, 1996, 1995, 1994 and at December 31, 1993 and 1992 and for the
years ended June 30, 1997, 1996, 1995, 1994 and December 31, 1993 and 1992 have
been derived from audited consolidated financial statements of the Bank,
including the audited Consolidated Financial Statements and related Notes in the
Bank's Annual Report on Form F-2 which is attached to this Proxy
Statement/Prospectus as Annex B. The data at December 31, 1997 and the six
months ended December 31, 1997 have been derived from the unaudited Condensed
Consolidated Financial Statements and related Notes included in the Bank's
Quarterly Report on Form F-4 which is attached to this Proxy
Statement/Prospectus as Annex C. At a meeting on September 21, 1994, the Board
of Directors of the Bank authorized management to change the Bank's fiscal year
end from December 31 to June 30. The selected consolidated financial and other
data set forth below should be read in conjunction with, and is qualified in its
entirety by, the more detailed information included in the Consolidated
Financial Statements and related Notes and the Condensed Consolidated Financial
Statements and related Notes.
<TABLE>
<CAPTION>
December 31 June 30 December 31
---------- --------- -------------
1997 1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(unaudited) (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (1):
Total assets $194,540 $211,659 $285,478 $1,463,637 $1,541,368 $1,496,222 $1,996,715
Cash and due from banks and money
market instruments 11,687 14,036 17,129 108,540 173,631 60,209 62,831
Investment securities, net and investment
securities available for sale (2) 1,373 6,275 5,685 31,372 49,185 45,989 142,357
Mortgage-backed and related securities
and mortgage-backed and related
securities available for
sale (2) -- -- 187 72,643 82,074 104,827 150,832
Loans receivable:
Single-family residential 3,653 3,924 4,557 234,386 209,295 202,408 397,920
Multi-family residential 24,977 26,092 31,336 249,252 245,245 226,824 250,994
Commercial real estate 49,824 50,077 51,090 463,760 488,830 501,190 554,277
Construction -- -- -- 5,301 6,157 39,791 83,371
Commercial business 8,862 12,806 12,894 36,695 40,224 44,206 74,047
Consumer 4,639 2,871 3,038 21,274 15,421 15,904 17,438
Less:
Deferred fees and unearned discount -- -- -- (2,220) (3,880) (4,487) (7,244)
Allowance for credit losses (26,659) (31,570) (34,142) (33,985) (41,076) (55,258) (92,589)
-------- -------- -------- -------- -------- --------
Total loans receivable, net 65,296 64,200 68,863 974,463 960,216 970,578 1,278,214
Investments in real estate, net (3) 91,291 97,349 146,440 231,302 233,286 272,841 310,831
Loans sold with recourse 19,657 24,451 29,914 -- -- -- --
Deposits -- -- 3,022 1,171,530 1,254,199 1,293,635 1,789,967
Borrowed funds 71,394 84,272 115,786 179,061 141,592 141,592 141,592
Stockholders' equity (13) 107,055 108,510 138,520 90,134 117,847 46,010 47,929
Shares of Common Stock outstanding 7,100 7,100 7,100 7,100 7,100 1,000 1,000
Book value per common share (5) $10.15 `$10.35 $14.58 $7.77 $11.67 $13.01 $14.93
</TABLE>
(Footnotes on second following page)
693046.4
13
<PAGE>
<TABLE>
<CAPTION>
December 31 Fiscal Year Ended June 30, Fiscal Year Ended
----------- ----------------------------
December 31,
------------
1997 1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(unaudited) (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operations Data(1):
Interest and dividend income $3,114 $5,469 $94,409 $88,878 $93,478 $108,312 $130,823
Interest expense 3,224 7,360 61,794 52,255 51,635 62,415 94,741
----- ----- ------- ------- ------ ------ ------
Net interest income (110) (1,891) 32,615 36,623 41,843 45,897 36,082
Provision for credit losses -- 1,000 5,250 5,041 5,360 12,828 20,302
----- ----- ------ ------- ------- ------- ------
Net interest income (loss) after provision for
credit losses (110) (2,891) 27,365 33,623 36,483 33,069 15,780
------- ------ ------ ------ ------ ------
Other income: 20,410 --
Gains on sales of offices (6)(14) -- -- 77,560 -- 18,045
Provision for Branch Sale contingencies(4) -- (3,300) -- -- -- -- --
Net gains (losses) on sales of loans and
securities 1,697 (1,495) (605) 441 (222) (2,137) 4,064
Other -- 159 3,996 3,548 5,996 9,451 9,347
----- -------- ------- ------ ------- ------- ------
Total 1,697 (4,636) 80,591 3,989 23,819 27,724 13,411
Real estate operations, net 177 (18,368) (4,800) (14,357) (11,077) (12,675) (8,742)
Other expense:
Deposit insurance expense -- -- 2,533 3,704 4,683 5,217 4,477
Foreclosure costs -- -- 225 1,105 2,780 4,560 4,480
Other 3,297 7,528 33,996 38,666 39,616 40,107 43,881
----- ------ ------- ------ ------ ------ ------
Total 3,297 7,528 36,754 43,475 47,079 49,884 52,838
----- ------ ------- ------ ------ ------ ------
Income (loss) before income tax expense
(benefit) (1,533) (33,423) 55,762 (22,261) 2,146 (1,766) (32,389)
Income tax expense (benefit) 101 (3,300) 11,749 2,113 2,608 2,662 996
--- -------- ------- ------- ------- ------- ------
Net income (loss) (1,634) (30,123) 55,013 (24,374) (462) (4,388) (33,385)
Dividends declared on Preferred Stock -- -- 5,250 5,250 -- -- --
----- ----- ------- ------- ------ ------- -------
Net income (loss) applicable to Common --
Shares (1,634) (30,123) 49,763 (29,624) (462) (4,388) (33,385)
Primary and diluted net income (loss) per
share (5) (0.24) (4.24) 7.01 (4.17) (0.45) (4.39) (33.38)
Other Data (1):
Average equity to average assets 53.30% 50.97% 5.51% 7.18% 2.69% 2.28% 2.71%
Equity to assets at period end 55.03 51.35 48.52 6.16 7.65 3.08 2.40
Weighted average yield on interest-earning
assets (8) 6.05 4.90 7.42 7.11 7.13 6.80 6.71
Weighted average rate paid on interest-
bearing deposits (8) 8.18 6.97 4.43 3.88 3.39 3.57 4.24
Interest rate spread (8) (2.13) (2.07) 2.99 3.23 3.74 3.23 2.45
Net interest margin (0.43) (1.70) 2.57 2.93 3.19 2.88 1.85
Return on average assets (0.02) (1.27) 3.64 (1.65) (0.03) (0.23) (1.37)
Return on stockholders' equity (9)(12) (0.03) (24.84) 66.12 (27.04) (0.39) (9.54) (69.65)
Expense ratio (9) 6.41 6.75 2.89 3.58 3.76 3.50 2.71
Efficiency ratio (10) n/m n/m 95.30 108.22 98.41 92.44 116.31
Tier 1 leverage capital ratio (11) 50.31 46.44 9.33 6.04 7.97 2.77 2.31
Tier 1 capital as a percent of risk-weighted
assets (11) 63.55 60.59 49.77 7.94 9.78 3.53 3.10
Total capital as a percent of risk-weighted
assets (11) n/m n/m 55.02 9.12 11.06 4.79 4.20
Full-service banking offices at end of
period (11) -- -- -- 11 11 11 16
</TABLE>
693046.4
14
<PAGE>
(1) Reflects the sale, effective June 28, 1996, of the Bank's remaining
eleven branch offices. As a result of such transaction, the Bank's
total assets, loans receivable, net, and deposits decreased by
$1,066.6 million, $1,034.9 million and $1,159.6 million,
respectively, and the Bank recorded a pre-tax net gain of $77.6
million.
(2) At December 31, 1997 and June 30, 1997, 1996, and 1995, all of the
Bank's investment and mortgage backed securities, were classified
as available for sale because of the possibility that they may be
sold in response to changes in interest rates, prepayment risk,
liquidity needs or similar factors in connection with its asset and
liability management strategy.
(3) Investments in real estate consist of other real estate owned and
real estate held for investment, net of related reserves.
(4) During the year ended June 30, 1997, the Bank and Marine undertook
an overall review of the closing of the Branch Sale. As a result of
such review, the Bank has established a reserve of $3.3 million for
potential closing settlement adjustments and claims which it
believes may be asserted by Marine related to certain assets
acquired by Marine in the Branch Sale. The establishment of this
reserve is reflected on the Statement of Operations as provision
for Marine Branch Sale contingencies. The Bank believes that the
reserve for closing settlement adjustments adequately provides for
claims which may be asserted by Marine.
(5) Per share information is based on the weighted average number of
outstanding shares of Common Stock during the period. The Bank had
no securities outstanding that were convertible to Common Stock.
The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards
No. 128, Earnings Per Share. For further discussion of earnings per
share and the impact of Statement No. 128, see notes to the
consolidated financial statements.
(6) Consists of a $77.6 million net pre-tax gain from the sale, in June
1996, of the Bank's eleven branch offices, the 96th Street branch
office realty and related deposits.
(7) With the exception of end of period ratios, all ratios are based on
average daily balances during the indicated periods. (8) Interest
rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities (which do not include
non-interest-bearing demand accounts), and net interest margin
represents net interest income as a percent of average
interest-earning assets.
(9) The expense ratio is the ratio of other expense to average
interest-earning assets.
(10) The efficiency ratio is the ratio of other expense to net interest
income plus other income after adjustment to exclude gains from
sale of offices and net gains (losses) on sales of loans and
securities.
(11) Data is as of the end of the indicated periods.
(12) Net income includes a $67.6 million after-tax net gain from the
Branch Sale in June 1996. Excluding this gain, return on average
assets and return on stockholders' equity for 1996 would have been
(0.83%) and (15.09%), respectively.
(13) In October 1992, the $20.0 million of outstanding subordinated
capital notes were converted to 3% senior non- cumulative preferred
stock.
(14) Consists of $18.1 million gain from the sale, in October 1993, of
the Bank's four branch offices in Westchester County, New York and
related deposits and a $2.3 million gain from the sale of a
building, in March 1993, which formerly contained a branch office
of the Bank in Manhattan, New York, the operations of which were
consolidated into another branch office of the Bank.
693046.4
15
<PAGE>
<TABLE>
<CAPTION>
December 31 June 30,
------------------- -----------------------------------------
1997 1997 1996 1995
(unaudited) (Dollars in Thousands)
<S> <C> <C> <C> <C>
Non-performing Assets Data (1):
Non-performing loans (2):
Single-family residential 3,653 $3,924 $4,557 $7,496
Multi-family residential 15,675 16,790 19,658 --
Commercial real estate 11,086 11,557 3,113 38,685
Construction -- -- -- 4,941
Commercial business 8,858 12,806 6,817 6,263
Consumer 4,643 2,871 2,761 165
------ ------- ------- ---------
43,915 47,948 36,816 57,550
------- ------- ------- --------
Investments in real estate:
Other real estate owned and real estate
held for investment, net:
Single-family residential (3) -- 597 1,690 3,741
Multi-family residential 1,031 4,566 9,640 20,963
Commercial real estate 21,368 19,570 44,801 102,841
Construction 68,892 72,617 90,309 103,757
------- ------ ------ --------
91,291 97,350 146,440 231,302
------ -------- ------- -------
Total non-performing assets $135,206 $145,298 $183,256 $288,852
======== ======== ======== ========
Other Asset Quality Data:
Delinquent loans(4) $2,520 $ -- $ -- $9,206
======== ========= ========= =========
Restructured Loans(5) $23,339 $24,454 $29,842 $166,291
======= ======= ======= ========
Loans to facilitate(6) $ -- $ -- $ -- $215,191
========= ========= ========= ========
Allowance for credit losses $26,659 $31,570 $34,142 $33,985
======= ======= ======= ========
Asset Quality Ratios:
Non-performing assets as a percentage
of total assets(1) 69.50% 68.52% 64.19% 19.74%
Non-performing assets to total loans
and investments in real estate(1) 73.78 75.24 73.47 23.26
Non-performing loans as a percentage
of total loans(1) 47.76 32.96 35.74 5.69
Allowance for credit losses as a percentage
of total loans 28.99 50.06 33.15 3.36
Allowance for credit losses as a percentage
of non-performing loans(1) 60.71 65.84 92.74 59.05
Net charge-offs as a percentage of average
loans during the period ended 0.32 3.59 1.03 0.09
Investments in real estate as a percentage of
total non-performing assets 67.52 67.00 79.91 80.08
</TABLE>
693046.4
16
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
------------- ---------------------
1994 1993 1992
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Non-performing Assets Data(1):
Non-performing loans(2):
Single-family residential $7,587 $8,047 $13,024
Multi-family residential 2,900 2,900 70,647
Commercial real estate 89,569 117,578 140,170
Construction 5,641 25,461 37,831
Commercial business 3,938 6,283 25,078
Consumer 702 1,088 972
-------- -------- -------
110,337 161,357 287,722
-------- -------- -------
Investments in real estate:
Other real estate owned and real
estate held for investment, net:
Single-family residential(3) 18,786 16,951 14,605
Multi-family residential 50,851 68,260 78,536
Commercial real estate 114,237 106,716 146,699
Construction 49,412 80,914 70,991
-------- -------- -------
233,286 272,841 310,831
-------- -------- -------
Investments in securities in default -- -- 4,293
Total non-performing assets $343,623 $434,198 $602,846
======== ======== ========
Other Asset Quality Data:
Delinquent loans(4) $1,595 $13,421 $2,856
======== ======== ========
Restructured loans(5) $132,944 $103,556 $134,199
======== ======== ========
Loans to facilitate(6) $149,555 $120,939 $ --
======== ======== ========
Allowance for credit losses $41,076 $55,258 $92,589
======== ======== ========
Asset Quality Ratios:
Non-performing assets as a
percentage of total assets(1) 22.29% 29.02% 30.19%
Non-performing assets to total loans
and investments in real estate(1) 27.75 33.32 35.70
Non-performing loans as a
percentage of total loans(1) 10.98 15.66 20.88
Allowance for credit losses as a
percentage of total loans 4.09 5.36 6.72
Allowance for credit losses as a
percentage of non-performing
loans(1) 37.23 34.25 32.18
Net charge-offs as a percentage of
average loans during the period
ended 3.00 2.72 2.94
Investments in real estate as a
percentage of total non-performing
assets 67.89 62.84 51.56
</TABLE>
693046.4
17
<PAGE>
(1) Non-performing assets consist of (i) non-performing loans, which consist
of non-accrual loans and accruing loans 90 days or more overdue, (ii)
investments in real estate, which consist of other real estate owned and
real estate held for investment, net of related reserves and (iii)
investment securities in default. Non-performing assets do not include
restructured loans which are performing in accordance with their terms and
which have been removed from non-performing status, which amounted to
$23.3 million at December 31, 1997 and $24.5 million at June 30, 1997.
(2) The Bank's total non-performing assets decreased by $38.0 million or 20.7%
to $145.3 million at June 30, 1997 compared to $183.3 million at June 30,
1996. During the fiscal year ended June 30, 1997, other real estate owned
and real estate held for investment decreased by $49.1 million, while
non-performing loans increased by $11.1 million. Such net decreases were
due primarily to the sales/satisfactions of an aggregate of $47.2 million
of investments in real estate and loans, and write-downs of $19.7 million
in the carrying value of investments in real estate and non-performing
loans, offset by $27.9 million of additions.
The Bank's total non-performing assets decreased by $10.1 million or 7.0%
to $135.2 million at December 31, 1997 compared to $145.3 million at June
30, 1997. During the six months ended December 31, 1997, other real estate
owned and real estate held for investment decreased by $6.0 million, while
non-performing loans decreased by $4.1 million. Such net decreases were
due primarily to the sales/satisfactions of an aggregate of $11.0 million
of investments in real estate and loans, and write-downs of $6.9 million
in the carrying value of investments in real estate and non-performing
loans, offset by $7.8 million of additions.
(3) Primarily consists of completed single-family residential developments and
lots for the development of single-family residences.
(4) Delinquent loans consist of loans which are 31 to 89 days overdue.
(5) Restructured loans consist of loans which have been restructured primarily
as a result of the financial condition of the property which secures the
loan and which are performing in accordance with their restructured terms.
(6) Loans to facilitate consist of loans to finance the sale of investments
in real estate.
693046.4
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION OF RB ASSET
The following unaudited pro forma consolidated financial statements
assume completion of the Reorganization and related transactions by RB Asset.
The pro forma consolidated financial statements are based on and should be read
in conjunction with the historical consolidated financial statements of River
Bank, which are included in River Bank's Annual Report on Form F-2 and Quarterly
Report on Form F-4 which are attached to this Proxy Statement/Prospectus as
Annex B and C, respectively.
Notwithstanding the legal structure of the proposed transactions,
for accounting/financial reporting purposes, the Reorganization will be treated
as a reorganization of River Bank into RB Asset. RB Asset will be treated as the
continuation of River Bank and RB Asset will continue to reflect the historical
cost basis and liabilities of River Bank. The following pro forma consolidated
statement of financial condition as of December 31, 1997 assumes the
Reorganization and related transactions occurred on December 31, 1997. The
following pro forma consolidated statement of operations for the year ended June
30, 1997 and the six months ended December 31, 1997 assumes the Reorganization
and related transactions occurred on July 1, 1996. The following pro forma
consolidated financial statements are presented for illustrative purposes only
and are not necessarily indicative of the combined operating results or combined
financial position that would have occurred if the Reorganization had been
consummated on the dates indicated, nor is it indicative of RB Asset's future
consolidated operating results or consolidated financial position.
THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION UTILIZES
CERTAIN ASSUMPTIONS DEEMED TO BE REASONABLE BY THE BANK'S MANAGEMENT AND
OUTLINED IN THE ACCOMPANYING FOOTNOTES, WHICH ARE AN INTEGRAL COMPONENT OF THE
PRO FORMA FINANCIAL STATEMENTS AND SHOULD BE READ IN CONJUNCTION THEREWITH. THE
PRO FORMA FINANCIAL STATEMENTS DO NOT PURPORT TO REPRESENT WHAT RIVER BANK'S
FINANCIAL POSITION OR RESULTS OF OPERATIONS WOULD HAVE BEEN ASSUMING THE
COMPLETION OF THE REORGANIZATION.
693046.4
19
<PAGE>
RB ASSET
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF CONDITION
December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
River Bank RB Asset
Historical Pro Forma
December 31, Pro Forma December 31,
1997 Adjustments Notes 1997
---- ----------- ----- ----
(Unaudited)
<S> <C> <C> <C> <C>
Cash, due from banks and cash equivalents $6,475 -- $6,475
Cash, due from banks - restricted cash 5,212 -- 5,212
Investment securities available for sale 1,373 -- 1,373
Loans receivable, net;
Secured by real estate 78,443 -- 78,443
Commercial and consumer 13,512 -- 13,512
Loans sold with recourse -- $19,657 (1) 19,657
Allowance for possible credit losses (26,659) -- (26,659)
-------- -------- ---------
Total loans receivable, net 65,296 19,657 84,953
-------- -------- ---------
Loans sold with recourse, net 19,657 (19,657) (1) --
Other real estate owned, net 3,001 (3,001) (2) --
Real estate held for investment, net 88,290 (11,990) (2) 82,509
3,208 (2)
3,001 (2)
Real estate held for disposal, net;
Real estate held for disposal -- 11,990 (2) 11,990
Allowance for fair market value reserve
under FASB 121 -- (3,208) (2) (3,208)
-------- --------- ---------
Total real estate held for disposal, net -- 8,782
-------- --------- ---------
Other assets 5,236 -- 5,236
-------- --------- ---------
$194,540 $ -- $194,540
======== ========= ========
Borrowed funds $71,394 $ -- $71,394
Other liabilities 16,091 -- 16,091
-------- --------- ---------
$87,485 -- $87,485
-------- --------- ---------
Stockholders' equity:
15% non-cumulative perpetual preferred stock, Series A par value
$1, liquidation value $25 (1,400,000 shares authorized, issued and
outstanding at December 31, 1997) 1,400 -- 1,400
Common Stock par value $1 (30,000,000 shares authorized,
7,100,000 shares issued and outstanding at December 31, 1997) 7,100 -- 7,100
Additional paid in capital 111,170 -- 111,170
Accumulated (deficit)/retained earnings (11,689) -- (11,689)
Securities valuation account (926) -- (926)
-------- --------- --------
Total Stockholders' Equity 107,055 -- 107,055
-------- --------- --------
$194,540 $-- $194,540
======== ========= ========
</TABLE>
See accompanying footnotes to the unaudited pro forma
consolidated Statement of Condition.
693046.4
20
<PAGE>
RB ASSET
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year ended June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
River Bank RB Asset
Historical Pro Forma
June 30, Pro Forma June 30,
1997 Adjustments Notes 1997
---- ----------- ----- ----
<S> <C> <C>
Interest, fees on loans and dividend income:
Loans receivable $4,504 -- $4,504
Mortgage backed securities 2 -- 2
Investment securities 574 -- 574
Money market investments 155 -- 155
Other 234 -- 234
-------- ------- --------
5,469 -- 5,469
-------- ------- --------
Interest expense
Borrowed funds 7,132 -- 7,132
Other 228 -- 228
-------- ------- --------
7,360 -- 7,360
-------- ------- --------
Net interest income (1,891) -- (1,891)
Provision for possible credit losses 1,000 -- 1,000
-------- ------- --------
Net interest income after provision for possible
credit loss (2,891) -- (2,891)
-------- ------- --------
Real estate operations:
Writedown of other real estate owned and real
estate held for investment (19,745) -- (19,745)
Net loss on sale of real estate (1,754) -- (1,754)
Income from real estate owned 3,131 $(3,131) (4) --
Rental income -- 16,157 (4) 16,157
Less:
Rental expenses -- (12,826) (4) (12,826)
Depreciation -- (2,770) (4)(3) (2,770)
-------- ------- --------
(18,368) (2,570) (20,938)
-------- ------- --------
Other income
Net (losses) gains on sale of investment
securities and other assets (1,495) -- (1,495)
Provision for Marine Sale (3,300) -- (3,300)
Other 159 -- 159
-------- ------- --------
(4,636) -- (4,636)
-------- ------- --------
Other expenses
Salaries 927 -- 927
Employee benefits 243 -- 243
Legal and professional fees 1,892 -- 1,892
Other operating 4,466 -- 4,466
-------- ------- --------
7,528 -- 7,528
-------- ------- --------
(Loss) before provision for income taxes (33,423) (2,570) (33,993)
Benefit from income taxes 3,300 -- 3,300 (5)
-------- ------- --------
Net loss applicable to common shares $(30,123) ($2,570) $(32,693)
======== ======= ========
Basic and diluted loss per common share $(4.24) $(.36) $(4.60) (6)
======== ======= ========
</TABLE>
See accompanying footnotes to the unaudited pro forma
consolidated Statement of Operations.
693046.4
21
<PAGE>
RB ASSET
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months ended December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
River Bank RB Asset
Historical Pro Forma
December 31, Pro Forma December 31,
1997 Adjustments Notes 1997
---- ----------- ----- ----
<S> <C> <C>
Interest, fees on loans and dividend income:
Loans receivable $2,905 -- $2,905
Mortgage backed securities -- -- --
Investment securities 55 -- 55
Money market investments -- -- --
Other 154 -- 154
----------- ---------- --------
3,114 -- 3,114
----------- ---------- --------
Interest expense
Borrowed funds 3,172 -- 3,172
Other 52 -- 52
----------- ---------- --------
3,224 -- 3,224
----------- ---------- --------
Net interest income (110) -- (110)
Provision for possible credit losses -- -- --
Net interest income after provision for possible
credit loss (110) -- (110)
----------- ---------- --------
Real estate operations:
Writedown of other real estate owned and real
estate held for investment (350) -- (350)
Net loss on sale of real estate (1,003) -- (1,003)
Income from real estate owned 1,530 $(1,530) (4) --
Rental income 6,609 (4) 6,609
Less:
Rental expenses -- (4,975) (4) (4,975)
Depreciation -- (1,391) (4)(3) (1,391)
----------- ----------- --------
$177 $(1,287) $(1,110)
----------- ----------- --------
Other income
Net (losses) gains on sale of investment securities and
other assets 1,697 -- 1,697
1,697 -- 1,697
---------- ---------- --------
Other expenses
Salaries 303 -- 303
Employee benefits 127 -- 127
Legal and professional fees 1,341 -- 1,341
Other operating 1,526 -- 1,526
---------- ---------- --------
3,297 -- 3,297
---------- ---------- --------
(Loss) before provision for income taxes (1,533) (1,287) (2,820)
Benefit from/(provision for) income taxes (101) -- (101) (5)
---------- ---------- --------
Net loss applicable to common shares $(1,634) ($1,287) $(2,921)
========== ========== ========
Basic and diluted loss per common share $(0.24) $(0.17) $ (0.41) (6)
========== ========== ========
</TABLE>
See accompanying footnotes to the unaudited pro forma
consolidated Statement of Operations.
693046.4
22
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AT
DECEMBER 31, 1997 AND FOR THE YEAR ENDED JUNE 30, 1997 AND THE SIX MONTHS ENDED
DECEMBER 31, 1997
Notes to the Unaudited Pro Forma Consolidated Statement of Condition as of
December 31, 1997 (in 000's)
The Pro Forma Consolidated Statement of Condition reflects the historical assets
and liabilities of the Bank at December 31, 1997, including the Reorganization.
In addition, this unaudited condensed financial information gives affect to
certain adjustments that would have been appropriate had the Bank operated as a
non-banking corporate entity for the year ended June 30, 1997 and the six months
ended December 31, 1997. River Asset Sub (renamed RB Asset), as the surviving
corporation in the merger, will succeed to the business, assets and liabilities
of River Bank.
The principal differences relate to bank regulatory and operational requirements
requiring foreclosed and other real estate assets to be held for sale and
carried at an amount equal to their estimated fair market value. As an
unregulated real estate company management has the ability to manage and dispose
of its real estate assets over a longer period of time, and where appropriate,
to actively develop, hold, manage and operate its properties, and enter into
joint ventures with others and further encumber or restructure the debt on its
properties and assets in an effort to maximize returns to stockholders.
Since it will no longer be constrained by bank regulatory requirements, RB Asset
will continue to evaluate alternatives available after the proposed transaction
to maximize returns to stockholders. These alternative plans include the
potential for River Asset to invest in other Real Estate with Marine Midland
approval.
1. All loans sold with recourse, net have been reclassified at December 31,
1997 within the Pro Forma Consolidated Statement of Financial Condition
into the Loans Receivable, net category.
2. All banking categories relating to real estate (other real estate owned,
net and real estate held for investment, net) were reclassified in
accordance with SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," as follows:
Real estate held for disposal - SFAS 121 requires that all real estate
assets that the Bank plans to sell within one year be accounted for as a
real estate asset held for disposal. SFAS 121 states the following
reporting and disclosure requirements related to real estate assets held
for disposal:
o Real estate assets held for disposal are to be valued at the
lower of carrying amount or fair value less cost to sell.
o The results of operations for assets to be disposed of to the
extent that those results are included in an entity's results
of operations for the period and can be identified, should be
separately disclosed in the footnotes to the statements.
693046.4
23
<PAGE>
Real estate held for disposal consists of two properties that are
classified as commercial properties, one that is co-op apartment units and
one that is an empty lot adjacent to an office complex. The Bank believes
that the real estate assets will be sold during the next fiscal year. The
related rental income and expenses for these properties and other assets
sold during the related period is as follows (dollars in thousands):
12/31/97 6/30/97
--------------- ----------
Rental income $ 762 $ 4,181
Less: Rental expenses 952 3,948
--------------- ----------
Net (loss)/Income $ (190) $ 233
=============== ==========
o Real estate held for investment - SFAS 121 requires that all assets
that the Bank plans to hold onto and to continue as an operating
property be classified as real estate held for investment until such
time as the Bank decides to dispose of the real estate asset.
At December 31, 1997 real estate held for investment consisted of six
properties. These properties consist of the following: one commercial -
retail space; two office complexes, one that is co-op apartment units and
two that are apartment complexes.
Footnote 2 represents the reclassification of certain real estate to the
held for disposal category based upon the Bank's intention as an operating
company to dispose of the assets in one year.
693046.4
24
<PAGE>
Notes to the Unaudited Pro Forma Consolidated Statement of Operations for the
year ended June 30, 1997 and the six months ended December 31, 1997 (in 000's)
The Pro Forma Consolidated Statement of Operations reflects historical income
and expenses attributable to the Bank's assets and liabilities for the year
ended June 30, 1997 and the six months ended December 31, 1997, in a format that
is representative of the financial statement presentation appropriate for the
anticipated corporate form of the Bank's successor following the Reorganization.
In addition, this unaudited financial information gives affect to certain
adjustments that would have been appropriate had the Bank operated as a
non-banking corporate entity during the year ended June 30, 1997 and the six
months ended December 31, 1997.
3. Under Generally Accepted Accounting Principles ("GAAP"), assets held for
investment are required to be systematically depreciated over their
estimated useful lives. Because RB Asset's status as an owner and operator
of real estate not subject to banking regulation will enable it to manage
and dispose of its assets over a longer period of time and, where
appropriate, to actively develop, hold, manage and operate its properties,
a substantial portion of the real estate is reclassified as real estate
held for investment and is being depreciated.
4. Income from real estate owned in the amount of $3,131 and $1,530 for the
year ended June 30, 1997 and the six months ended December 31, 1997,
respectively have been presented in the Unaudited Pro Forma Consolidated
Statement of Operations in a more detailed form, which is representative
of the financial statement presentation appropriate for the anticipated
corporate form of the Bank's successor following the Reorganization.
5. See "FEDERAL INCOME TAX CONSIDERATIONS" for a discussion of taxes related
to River Bank.
6. Pro Forma net loss per common share is based on the pro forma net loss
over the weighted average number of common shares outstanding during the
period. There were 7,100,000 weighted average common shares outstanding
for the twelve months ending June 30, 1997 and the six months ended
December 31, 1997. The Bank had no securities outstanding that are
convertible to common stock at June 30, 1997 and December 31, 1997.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS
No. 128 replaced previously promulgated Generally Accepted Accounting
Principals (GAAP) regarding the calculation of, and reporting requirements
for, earnings per share information. Specifically, SFAS No. 128 replaced
primary and fully diluted earnings per share, as previously defined under
GAAP, with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. Under SFAS No. 128, diluted
earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods
have been presented, and where necessary, restated to conform to SFAS No.
128 requirements.
693046.4
25
<PAGE>
HISTORICAL MARKET PRICE AND DIVIDENDS
Market Prices
As of March 1, 1998, there are eight holders of record of River Bank
Common Stock which include broker dealers and other financial institutions who
hold securities in "street name" on behalf of beneficial holders. River Bank
Common Stock is traded in the inter-dealer over-the-counter market and
historical actual trading price information and current market-maker bid and ask
quotations are available from the National Association of Securities Dealers,
Inc.'s ("NASD") OTC Bulletin Board. Bid and ask quotations reflect inter-dealer
prices, without retail mark-up or mark-down or commissions, and may not
represent actual trading transactions. River Bank Common Stock is thinly and
sporadically traded and the availability of bid and ask quotations can provide
no assurance as to whether and at what prices holders may be able to resell
their shares of Common Stock. River Bank understands that Bear, Stearns & Co.,
Inc. and Friedman Billings Ramsey & Co. are currently market-makers for the
Common Stock. Neither market-maker is obligated to make a market in the Common
Stock and their market activities may be interrupted or discontinued at any time
without notice. Accordingly, there can be no assurances as to the development or
the liquidity of any market for the Common Stock.
The table below shows the high and low closing prices of River Bank
Common Stock during the quarterly periods indicated as reported on the NASD's
OTC Bulletin Board.
High Low
1996
First Quarter ended 9/30/95......................... $ 7.25 $ 7.25
Second Quarter ended 12/31/95....................... 8.63 5.50
Third Quarter ended 3/31/96......................... 9.13 8.50
Fourth Quarter ended 6/30/96........................ 9.75 7.75
1997
First Quarter ended 9/30/96......................... 9.13 8.25
Second Quarter ended 12/31/96....................... 9.25 9.00
Third Quarter ended 3/31/97......................... 9.25 6.50
Fourth Quarter ended 6/30/97........................ 6.50 5.75
1998
First Quarter ended 9/30/97......................... 6.38 5.50
Second Quarter ended 12/31/97....................... 6.13 5.88
Dividend Policy
River Bank has not declared any dividends on River Bank Common Stock
since the River Bank Common Stock was issued in 1994. River Bank declared and
paid quarterly dividends on the River Bank Series A Preferred Stock for every
quarter since the issuance thereof through March 30, 1996. River Bank declared,
subject to the receipt of required approvals from its regulators and Marine
Midland, but did not pay, a dividend on the River Bank Series A Preferred Stock
for the quarter ended June 30, 1996, and thereafter has taken no action to
declare or pay dividends on the River Bank Series A Preferred Stock primarily
due to the fact that the necessary approvals from the Banking Department and
Marine Midland were not provided. The declaration and payment of dividends by
River Bank is subject to Banking Department approval, and the credit agreement
and related documents with respect to the Marine Senior Loan prohibit the
declaration and payment of dividends without the consent of Marine Midland.
693046.4
26
<PAGE>
Any dividend policy of RB Asset with respect to RB Asset Capital
Stock will be determined in the discretion of the RB Asset Board and it is
expected that RB Asset will have no policy providing for the payment of
dividends on the RB Asset Common Stock. As successor to the business, assets and
liabilities of River Bank, RB Asset will assume the Marine Senior Loan. While RB
Asset will not be subject to Banking Department jurisdiction, payment of any
future dividends on the RB Asset Series A Preferred Stock will be subject to the
consent of Marine Midland as long as the Marine Senior Loan remains outstanding.
There can be no assurance that RB Asset will declare or pay any dividends on the
RB Asset Series A Preferred Stock in the event the Marine Senior Loan is repaid,
or that the consent to the declaration or payment of such dividends will
otherwise be provided by Marine Midland. The declaration or payment of any
dividend on the RB Asset Series A Preferred Stock in the future will be based
upon conditions then existing, including RB Asset's financial condition and
capital requirements and other factors that RB Asset may deem relevant at that
time.
693046.4
27
<PAGE>
RIVER BANK RECENT DEVELOPMENTS
River Bank is a New York chartered stock savings bank which was
founded in 1848. River Bank operated as a depository banking institution until
it disposed of its principal depository banking operations pursuant to the
Branch Sale on June 28, 1996.
Pursuant to the Branch Sale, River Bank sold all of its branches and
transferred substantially all of its deposits to Marine Midland. Following the
Branch Sale, River Bank ceased accepting deposits and otherwise disposed of its
remaining deposits. Since that time, River Bank has been proceeding with a
business plan to dispose of the Retained Assets in accordance with the
individual business plans developed for each asset prior to the consummation of
the Branch Sale. The Retained Assets consist primarily of real estate assets
(including investments in joint ventures), non-performing loans, performing
loans (including subordinated participations, junior subordinated participations
and loans classified by River Bank), investment securities and cash. The
majority of the performing loans include subordinated loans, including second
mortgages and participation interests (which generally involve more risk than
senior loans), loans to facilitate the disposition of real estate owned and
loans which had been classified by River Bank.
Following the Branch Sale, River Bank continued to be regulated by
the FDIC and the Banking Department. On October 31, 1996, River Bank requested
that the FDIC terminate its status as an insured depository institution.
Termination of FDIC insurance was required in order for the waiver of the
deposit insurance requirements under New York Banking Law granted by the New
York Banking Board to become effective. Such waiver was granted in connection
with the Banking Department's approval of the Branch Sale. On April 14, 1997,
River Bank received an order of termination of insurance from the FDIC
terminating River Bank's status as an insured depository institution effective
as of December 31, 1997. As a result of the effectiveness of the order of
termination of insurance, River Bank is no longer subject to FDIC jurisdiction
and regulation and the New York Banking Board's waiver of the New York Banking
Law deposit insurance requirements is effective.
River Bank transferred substantially all its deposits (the
"Transferred Deposits") to Marine Midland in connection with the Branch Sale on
June 28, 1996, and has not paid any FDIC deposit insurance assessments for any
assessment period following the Branch Sale. The FDIC has asserted that the Bank
is liable for approximately $710,000 in unpaid deposit insurance assessments,
plus accrued interest in the amount of approximately $64,000 as of the end of
February 1998, attributable to the Transferred Deposits and certain other
retained deposit liabilities for the semi-annual assessment period that began on
July 30, 1996 and ended on December 31, 1996 (the "Assessment Period"). During
the Assessment Period, River Bank maintained only a minimal amount of deposits.
Therefore, River Bank is pursuing administrative discussions with the FDIC to
have the FDIC withdraw its assertion that River Bank is liable for the deposit
insurance assessment on the Transferred Deposits for the Assessment Period on
the grounds that the Transferred Deposits were not on the books of River Bank at
any time during the Assessment Period. While River Bank believes the foregoing
grounds support its position that it is not liable for any assessment on the
Transferred Deposits, there can be no assurances that River Bank will be
successful in persuading the FDIC to change its position on this matter. If
River Bank is unsuccessful in changing the FDIC's position with respect to this
matter, it could be required to pay the contested assessment, together with
applicable interest. While payment of the contested assessment, if required,
could materially decrease (increase) reported income (loss) in any fiscal period
in which any such payment is made, River Bank does not believe that any such
payment would have a material adverse effect on the operations or financial
condition of the Bank's successor.
As a condition to the Banking Department's approval of the Branch
Sale, River Bank agreed, among other things, (i) to file an application with the
Banking Department, within one year of the closing of the Branch Sale, for
approval of a plan of dissolution (previously defined herein as the Dissolution
Plan Condition); (ii) to file with the Supreme Court of the State of New York a
petition for a closing order within 13 months of the closing of the Branch Sale
and for a final order of dissolution within five months following the filing of
an application for a closing order (previously defined herein as the Closing
Condition); (iii) to maintain specified levels of minimum capital ($106 million
as of May 1997); (iv) to make no distributions on the River Bank Common Stock
and River Bank Series APreferred Stock without the approval of the Banking
Department until such time as a final order of dissolution has
693046.4
28
<PAGE>
been signed;(v) to obtain prior Banking Department approval for any additional
financing; and (vi) to submit specified periodic reports with respect to, among
other things, assets, dispositions, expenditures for improvements and cash
receipts and disbursements. In April 1997, River Bank announced that the River
Bank Board was evaluating a proposal to reorganize the Bank into a business
corporation, consistent with its goal of managing the Bank's assets to maximize
stockholder value. To that end, in June 1997, River Bank submitted to the
Banking Department an alternative under which the Dissolution Plan Condition
would be satisfied through the Reorganization. In the Reorganization, the Bank
would, through a series of steps, in a manner intended to constitute a tax-free
reorganization, change its legal form of organization by which it conducts its
business, holds its assets and is obligated for its liabilities from a New York
state chartered stock savings bank into a business corporation incorporated in
the State of Delaware. Thereafter, the Bank would voluntarily dissolve in the
Dissolution. The Reorganization and the Dissolution, which constitute the
proposal to the Banking Department (previously defined herein as the Alternate
Proposal) are intended to satisfy the conditions set forth in clauses (i) and
(ii) above (the "Branch Sale Conditions") by alternative means.
In a letter dated June 24, 1997, the Banking Department, indicating
its conditional approval, stated that it did not object to the Alternate
Proposal and further advised, among other things, that: (a) the Branch Sale
Condition set forth in clause (i) above would be deemed satisfied upon
stockholder approval of the plan to implement the Reorganization and the
Dissolution; (b) the petition for the closing order required by the Branch Sale
Condition set forth in clause (ii) above was required to be filed by October 15,
1997; (c) the current $106 million minimum capital requirement would remain
until final dissolution; and (d) any material sale or transfer of the Bank's
assets or any proposed development or renovation expenditures would require
prior Banking Department approval. The Banking Department also advised that all
other conditions to its approval of the Branch Sale would remain in full force
and effect. The petition of the closing order was filed in New York State
Supreme Court on October 15, 1997 in a proceeding entitled, In the Matter of the
Voluntary Liquidation and Dissolution of River Bank America, petitioner, Index
No. 97/118830 (Sup. Ct. New York Co.) (Justice Karla Moskowitz) following
stockholder approval of an earlier proposal to close the Bank at the 1997 annual
meeting of stockholders held on October 7, 1997. The petition was granted on
November 26, 1997 and a closing order was signed on January 9, 1998 and entered
on January 14, 1998, allowing the Bank to proceed with the required notice to
creditors. The notice to creditors, which was a requirement of the NYBL,
notified creditors that they were able to present their claims to the Bank in
connection with the dissolution proceedings, but were not required to do so in
order for their claims and their rights as creditors to be preserved against and
assumed by River Bank's successor in the Reorganization. The notice to creditors
was served on all known creditors of the Bank prior to the deadline set in the
closing order.
In connection with and as a condition to the Branch Sale, River Bank
borrowed from Marine Midland approximately $89.8 million under the Marine Senior
Loan pursuant to a credit agreement, dated as of June 28, 1996 (the "Credit
Agreement") among River Bank and certain of its subsidiaries (collectively,
"Borrowers") and Marine Midland. The following summary of the material terms of
the Credit Agreement does not purport to be complete and is subject to the
detailed provisions of the Credit Agreement. See "AVAILABLE INFORMATION."
The Marine Senior Loan consists of eleven independent mortgage loans
with additional collateral. Borrowings under the Marine Senior Loan may be used
to refinance Federal Home Loan Bank debt which was owed by River Bank's
predecessor at the time of the Branch Sale and to develop and complete two
individual real estate assets as part of River Bank's operations subsequent to
the Branch Sale. Each Borrower's obligations under the Credit Agreement are
cross-guaranteed by each of the other Borrowers.
The Marine Senior Loan was secured by first priority mortgage liens
on eleven of River Bank's real estate assets and collateral assignments of first
priority mortgages held by River Bank (the "Primary Collateral"). Each of the
loans are cross-defaulted with each other and cross-collateralized by all
collateral for the Marine Senior Loan. As additional collateral for the Marine
Senior Loan, each loan is also secured by first priority mortgages (or, where
applicable, a collateral assignment of first priority mortgages held by River
Bank), stock pledges and assignment of partnership interests and assignment of
miscellaneous interests in additional Bank assets (the "Additional Collateral").
The Bank collaterally assigned to Marine Midland all of the cash flow from the
Primary Collateral and the Additional Collateral. All of the net cash flow from
the Primary Collateral and Additional Collateral is required to be applied
693046.4
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<PAGE>
to the prepayment of the Marine Senior Loan. In addition, all net proceeds from
the sale of any Primary Collateral, and the proceeds from the sale of any
Additional Collateral, are required to be applied to the prepayment of the
Marine Senior Loan subject to River Bank's right to establish reserves for its
operating needs. River Bank is permitted to prepay the Marine Senior Loan in
whole or in part at any time without prepayment penalty or premium (subject to
customary London interbank market interest rate breakage provisions).
The Marine Senior Loan matures on June 30, 1999, subject to two
extensions, each for a one year period, provided that (i) with respect to the
first extension, the aggregate outstanding principal balance of the Marine
Senior Loan shall have been reduced to no more than $60 million by June 30,
1999, (ii) with respect to the second extension, the aggregate outstanding
principal balance of the Marine Senior Loan shall have been reduced to no more
than $30 million by June 30, 2000, (iii) no event of default or default is
continuing at the time the request for extension is made and on the then
maturity date, and (iv) Marine Midland shall have received a certificate signed
by a senior executive of the Bank confirming that no event of default or default
is continuing.
The Credit Agreement permits Borrowers to elect from time to time an
interest rate on the Marine Senior Loan based upon (i) the interest rates
prevailing on the date of determination in the London interbank market ("LIBOR")
for the interest period selected by the Bank or (ii) the prime rate of Marine
Midland (the "Prime Rate"), plus, in each case, a margin (the "Interest Margin")
over LIBOR or the Prime Rate. The Interest Margin will vary based on the
interest period, but range (i) for LIBOR based loans from 1.75% from June 28,
1996 through December 31, 1996 to 2.75% after June 30, 1998 and (ii) for Prime
Rate based loans from -0.50% from June 28, 1996 through December 31, 1996 to
0.50% after June 30, 1998. The Interest Margin for LIBOR based loans during the
first extension period (from July 1, 1999 through June 30, 2000) is 3.00% and
during the second extension period (from July 1, 2000 to June 30, 2001) is
3.25%. The Interest Margin for Prime Rate based loans during the first extension
period (from July 1, 1999 through June 30, 2000) is 0.75% and during the second
extension period (from July 1, 2000 to June 30, 2001) is 1.00%.
The Credit Agreement contains covenants restricting the ability of
the Borrowers to, among other things, (i) incur any liens on any of their
properties or assets, (ii) incur any indebtedness, (iii) dispose of assets, (iv)
merge or consolidate, (v) make investments outside of the ordinary course of
business, (vi) sell receivables or promissory notes, (vii) change their
accounting or financial reporting practices, (viii) prepay any indebtedness
other than the Marine Senior Loan or make any distributions, dividends or
redemptions of capital stock, (ix) modify their charter documents in any
material respect, any documents evidencing any indebtedness or River Bank's plan
of dissolution and (x) terminating or modifying the management agreement between
River Bank and RB Management. The Bank has also made certain customary
affirmative covenants, including among other things with respect to (i)
maintaining its legal existence, (ii) preserving its business and properties,
(iii) maintaining adequate insurance with respect to its business and
properties, (iv) the payment of taxes and (v) financial reporting.
Events of default under the Credit Agreement include (i) the
Borrowers' failure to pay principal or interest when due, (ii) the Borrowers'
breach of any representation or warranty in the loan documents in any material
respect which results in a material adverse effect on the ability of Borrowers,
in the aggregate, to perform or pay the Marine Senior Loan or on Marine
Midland's liens on a material portion of the collateral or the priority of such
liens, (iii) the breach by Borrowers of any covenant contained in the loan
documents, which breach shall continue without cure, (iv) events of bankruptcy,
insolvency or dissolution of any Borrower, (v) the levy of certain judgments
against any Borrower, (vi) certain adverse events under ERISA plans of the
Borrowers, (vii) the actual or asserted invalidity of security documents or
guarantees of the Borrowers, and (viii) any event after which Alvin Dworman
ceases to either own at least 39% of the River Bank Common Stock or be actively
involved in the oversight and general management of the Borrowers' affairs and
assets.
As of December 31, 1997, approximately $60.6 million remains
outstanding under the Marine Senior Loan. In accordance with restrictive
covenants contained in the Credit Agreement, Marine Midland has consented to
implementation of the Reorganization and Dissolution.
693046.4
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<PAGE>
FURTHER INFORMATION REGARDING RIVER BANK, INCLUDING THE AUDITED AND
UNAUDITED HISTORICAL FINANCIAL STATEMENTS OF THE BANK AND ITS SUBSIDIARIES,
SUPPLEMENTARY FINANCIAL INFORMATION AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE BANK'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS, IS CONTAINED IN RIVER
BANK'S ANNUAL REPORT ON FORM F-2, AS AMENDED, FOR THE FISCAL YEAR ENDED JUNE 30,
1997 AND QUARTERLY REPORT ON FORM F-4, AS AMENDED, FOR THE SIX MONTHS ENDED
DECEMBER 31, 1997, WHICH REPORTS ARE ATTACHED HERETO AS ANNEX B AND ANNEX C,
RESPECTIVELY.
693046.4
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<PAGE>
BUSINESS OF RB ASSET FOLLOWING THE REORGANIZATION
Overview
RB Asset will succeed to the business, assets and liabilities of
River Bank. RB Asset expects thereafter to continue to manage the Retained
Assets.
As of December 31, 1997, the Retained Assets consist primarily of
real estate assets (including investments in joint ventures) (approximately
47.9%), non-performing loans (approximately 22.9%), performing loans (including
subordinated participations, junior subordinated participations and whole loans
classified by River Bank) (approximately 23.6%), investment securities and cash
(approximately 7.8%). The majority of the performing loans include subordinated
loans, including second mortgages and participation interests (which generally
involve more risk than senior loans), loans to facilitate the disposition of
real estate owned and other loans which had been classified by River Bank.
Following consummation of the Reorganization, RB Asset expects to
proceed with the individual business plans developed for each asset prior to
consummation of the Branch Sale. Since it will no longer be constrained by the
Bank's banking regulatory requirements, RB Asset will be able to continue to
evaluate alternatives available after the Reorganization to maximize returns to
its stockholders. Where appropriate, RB Asset expects to actively develop and
operate its properties, enter into joint ventures with others and otherwise
further encumber or restructure the debt on its properties and other assets. To
the extent determined necessary or advisable, RB Asset will have the discretion
to dispose of its assets according to timetables and disposition methods
selected by RB Asset. Any development and joint venture activity pursued by RB
Asset would require additional capital expenditures by RB Asset or any joint
venture partner. Any such capital expenditures made by RB Asset would need to be
financed with additional borrowings or funded with the proceeds from asset
dispositions since it is not expected that excess operating cash flow generated
from the Retained Assets would cover such expenditures. Any such additional
borrowings by RB Asset would be subject to the approval of Marine Midland until
the Marine Senior Loan is retired. No assurance can be given that RB Asset would
be able to borrow additional funds on favorable economic terms or at all or that
Marine Midland would approve any such borrowing.
Retained Assets
Real Estate Assets. Set forth in the table below are the largest
real estate assets included in the Retained Assets. At December 31, 1997, such
assets approximated $91.3 million or approximately 100.0% of all of the real
estate assets included in the Retained Assets.
<TABLE>
<CAPTION>
Approximate Percent
Description Carrying Value of Total Category Location
(Dollars in
Millions)
<S> <C> <C> <C>
Multi-family apartments $ 56.1 61.4% Held for Investment (1) Philadelphia, PA
Office buildings 14.1 15.5 Held for Disposal and Atlanta, GA
Investment (1)(2)
Co-operative apartment shares 12.8 14.0 Held for Disposal and New York, NY
Investment (1)(2)
Office building 5.3 5.8 Held for Investment (1) Valley Stream, NY
Commercial Retail 2.0 2.2 Held for Investment (1) New York, NY
Single family development 1.0 1.1 Held for Investment (2) New York, NY
------ -------
Total $ 91.3 100.0%
======
</TABLE>
(1) These assets are categorized for RB Asset pro forma financial
reporting purposes as real estate held for investment as of December
31,1997.
(2) These assets are categorized for RB Asset pro forma financial
reporting purposes as real estate held for disposal as of December
31, 1997.
693046.4
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<PAGE>
The real estate assets included in the Retained Assets consist of a
total of approximately nine properties, including multi-family residential
properties (primarily unsold shares and units in co-operative and condominium
properties, respectively), office properties, industrial properties, land and
properties under development which were acquired upon foreclosure or by
deed-in-lieu thereof, as well as equity interests in joint ventures formed for
the acquisition, development and construction of real estate. The real estate
assets included in the Retained Assets have been previously categorized by River
Bank in accordance with banking regulations, as (i) other real estate owned, net
and (ii) real estate held for investment, net. Following the Reorganization and
the consequent elimination of Banking Department and FDIC regulatory
requirements to dispose of all assets held in such categories, the foregoing
assets will be accounted for by RB Asset under the provisions of SFAS No. 121.
SFAS No. 121 requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. Set forth below are the categories
of assets under SFAS 121 to be utilized by RB Asset for pro forma financial
reporting purposes and a description of the assets to be included in such
categories:
Real estate held for investment - SFAS 121 requires that all assets
that RB Asset plans to hold and to continue as an operating property
be classified as "real estate held for investment" until such time
as RB Asset decides to dispose of the real estate asset. On a pro
forma basis, as of December 31, 1997, real estate held for
investment consisted of six properties. These properties consist of
the following: one commercial- retail property, two office
complexes, one that is co-operative apartment units and two that are
apartment complexes.
Real estate held for disposal - SFAS 121 requires that all real
estate assets that RB Asset plans to sell within one year be
accounted for as a "real estate asset held for disposal." Real
estate assets held for disposal are to be valued at the lower of
carrying amount or fair value less cost to sell. On a pro forma
basis, as of December 31, 1997, real estate held for disposal
consists of two properties that are classified as commercial
properties, one that is co-operative apartment units and one that is
an empty lot adjacent to an office complex. RB Asset believes that
the real estate assets will be sold during the next fiscal year.
The above categories reflect RB Asset's asset management strategy with respect
to each individual real estate asset. See "--Asset Management Strategy."
RB Asset expects that any proceeds from the disposition of "real
estate held for disposal" will be applied to prepay the Marine Senior Loan to
the extent they are pledged for such payment and will otherwise be used as a
source of cash for ongoing operations and working capital.
Joint Ventures. Included in the real estate assets also are two
properties representing approximately $2.4 million of joint venture equity
investments. During the mid-to-late 1980s, River Bank sought to supplement the
income derived from its mortgage activities by engaging in real estate
development activities, most commonly through participations in joint ventures.
These activities generally were conducted through subsidiaries of the bank and,
unlike loans, were intended to provide a return which was based on the overall
profitability of each project. The structure of each of River Bank's joint
venture investments, which were not concentrated with any single co-venturer,
generally involved the formation of a partnership between the Bank's co-venturer
and a subsidiary of the Bank. The joint venture partners were not affiliated
with River Bank's principal stockholder nor any officer or director of River
Bank and the terms of the joint ventures were determined through arms-length
negotiation. River Bank's subsidiary generally had up to a 50% interest in the
partnership, which was responsible for the acquisition, development and sale of
a project. River Bank's subsidiary generally functioned as both a non-managing
general partner and in many cases a limited partner in the partnership. Upon
completion and sale of a project, and after all partnership obligations were
satisfied, the bank's equity investment is expected to be paid in full and any
profits would then be distributed to the partners in accordance with the terms
of the partnership agreement. The joint venture projects to which RB Asset will
succeed include a shopping center and industrial buildings.
693046.4
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<PAGE>
The following table sets forth certain information relating to the
pro forma joint venture investments RB Asset owned as of December 31, 1997.
<TABLE>
<CAPTION>
Percentage Approximate Approximate
Ownership by Equity Senior
Joint Venture Name The Bank Balance Indebtedness Location Description
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Escondido Retail Assoc. 35% $1.6 $10.5 Escondido, CA Shopping center
Raley Assoc. 50% .8 2.1 Sacramento, CA Four industrial buildings
----- ------
and 27 acres of land
$2.4 $12.6
==== =====
</TABLE>
The following table sets forth certain information relating to the
joint ventures as of December 31, 1997:
December 31, 1997
------------------------------
No. Amount
--- ------
(Dollars in
thousands)
Loans to joint ventures, net 1 $ 406
Investments in joint ventures, net 2 $2,408
At December 31, 1997, RB Asset did not have any material amounts
left to be funded pursuant to legally binding commitments relating to its pro
forma joint ventures, except certain ongoing operating expenses and capital
investments. Notwithstanding the foregoing, certain of the joint venture
properties are operating at a loss or do not have current cash flow from which
to fund ongoing operating expenses (including debt service). The failure by RB
Asset or its joint venture partner to fund operating expenses under these
circumstances could result in the loss of the asset.
Loan Portfolio. The Retained Assets include multi-family
residential, commercial real estate, construction and commercial business loans
and, to a lesser extent, single-family residential loans and education loans
originated by River Bank prior to the Branch Sale.
693046.4
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<PAGE>
Set forth in the table below are the ten largest loans included in
the Retained Assets. As of December 31, 1997 such loans approximated $72.3
million or approximately 78.6% of all such loans.
<TABLE>
<CAPTION>
Approximate
Carrying Security
Asset Description Value Interest Status Location
(Dollars in millions)
<S> <C> <C> <C> <C>
Office/ industrial property $22.1 First mortgage Performing Brooklyn, NY
Co-operative apartments 14.9 First lien Non-Performing Queens, NY
(unsold shares)
Hotel 10.1 Second mortgage Performing(1) Orlando, FL
Co-operative apartments 6.8 First lien Performing(1) Queens, NY
(underlying first mortgage)
Student Loans 4.6 Unsecured Non-Performing Various
Commercial business 3.6 Unsecured Performing New York, NY
Office building 3.1 First mortgage Non-Performing Ulster, NY
Office building 3.0 First mortgage Performing(3) New York, NY
Commercial business 2.2 Unsecured Non-Performing New York, NY
Office Building 1.9 First Mortgage Performing(1) New York, NY
----
Total $72.3
=====
</TABLE>
- -----------------------
(1) Represents a subordinated participation interest in loans which were
transferred to Marine Midland in the Branch Sale.
(2) Represents a junior subordinated participation interest in loans
which were transferred to Marine Midland in the Branch Sale
providing for a junior subordinated participation in future proceeds
collected with respect to amounts previously charged-off by River
Bank.
The loans included within the Retained Assets consist of performing
and non-performing loans categorized as multi-family residential, commercial
real estate or commercial business loans. Commercial real estate and
multi-family residential loans are generally considered to involve more risk
than single-family residential loans due to, among other things, the higher
principal amount of such loans and the effects of general economic conditions,
which may result in excessive vacancy rates, inadequate rental income levels and
volatility in real estate values.
RB Asset's multi-family residential loans consist primarily of loans
secured by rental apartment buildings, unsold condominium units, cooperative
apartment buildings and unsold shares secured by cooperative apartments. RB
Asset's commercial real estate loans consist primarily of loans secured by
office buildings, shopping centers, industrial warehouse buildings, hotels and
other income-producing properties. The terms of RB Asset's multi-family
residential and commercial real estate loans are most commonly five to ten
years. Certain of these loans have options to extend the term of the loan at
interest rates which may be fixed or adjusted upward for one, or in certain
instances
693046.4
35
<PAGE>
two, additional five-year periods. These loans include amortizing loans which
require the monthly payment of interest and principal. The amortization periods
for the payment of principal on such loans generally is 20 to 30 years, with
balloon payments of the remaining principal amount due upon the maturity of the
loan. Certain of the commercial real estate loans were made on an interest-only
basis, with the payment of the entire principal amount due at maturity. The
multi-family residential and commercial loans included in the Retained Assets
are nearly all fixed interest rate loans.
The Retained Assets include approximately $8.9 million of secured
and unsecured commercial business loans. The commercial business loans
previously consisted primarily of loans which involved the buyout, acquisition
or recapitalization of an existing business (including management buyouts and
corporate mergers and acquisitions). Such loans involved a high degree of risk
in their origination since such transactions frequently resulted in a
substantial increase in both the borrower's liabilities and its
liabilities-to-assets leverage ratio, thus increasing the prospects for default.
Each of the commercial business loans included in the Retained Assets has a
principal amount which is less than $3.7 million.
The Retained Assets include both performing and non-performing
loans. The performing loans included in the Retained Assets at December 31, 1997
consist of commercial real estate and commercial business loans which are
wholly-owned by RB Asset, as well as participation interests in multi-family
residential and commercial real estate loans pursuant to certain participation
agreements entered into by River Bank with Marine Midland in connection with the
Branch Sale. Approximately $48.0 million or approximately 24.7% of the total
Retained Assets comprise loans categorized as performing as of December 31,
1997. Of the approximately $48.0 million of performing loans included in the
Retained Assets, approximately $24.5 million or approximately 50.9% of such
loans are subordinated loans. Subordinated loans, including second mortgages and
participation interests, generally involve more risk than senior loans. Set
forth below is a general description of the performing loans included in the
Retained Assets.
Whole Loans. At December 31, 1997, the Retained Assets include seven
performing loans (exclusive of participating loans) of approximately
$25.7 million, all of which are commercial real estate loans. All of
such loans have been modified since origination and are currently
performing in accordance with their terms. Approximately $24.5
million or approximately 50.9% of RB Asset's performing loans (other
than the participating loans) which are included in the Retained
Assets are currently interest-only loans, with the payment of the
entire principal amount due at maturity.
Subordinated Participation Interests. The Retained Assets include
subordinated participation interests in 11 performing loans and one
non-performing loan with an aggregate principal amount of
approximately $24.5 million and $1.8 million, respectively. All of
the performing loans have been modified since origination and are
currently performing in accordance with their modified terms.
Junior Subordinated Participation Interests. The Retained Assets
include a junior subordinated participation interest in five
performing loans with an aggregate principal amount of approximately
$6.2 million, which are fully reserved (100%) for by RB Asset. All
of such loans have been modified since origination and are currently
performing in accordance with their terms.
The non-performing loans included in the Retained Assets consist of
multi-family residential, commercial real estate, commercial business loans and
student loans. Non-performing loans are those loans which have been placed on
non-accrual status and loans which are on accrual status but delinquent 90 days
or more. The non-performing loans in the Retained Assets are on non-accrual
status. Loans which are delinquent 90 days or more were placed on non-accrual
status by River Bank unless such loan was well secured and, in the opinion of
management, collection appeared likely. In addition, River Bank placed a loan on
non-accrual status even when it was not yet delinquent 90 days or more if the
bank determined that such loan was not collectible. When loans are placed on
non-accrual status, any accrued but unpaid interest on the loan is reversed and
future interest income is recognized only if actually received and collection of
principal is not in doubt. Approximately $43.9 million or approximately 22.6%
693046.4
36
<PAGE>
of the Retained Assets are comprised of loans categorized as non-performing as
of December 31, 1997 and are all currently on non-accrual status.
Asset Management Strategy
RB Asset intends to continue to follow an asset management strategy
with respect to the Retained Assets similar to the strategy pursued by River
Bank with respect to its assets since 1991. River Bank previously managed its
assets pursuant to an individualized work-out and disposition strategy for each
of its assets rather than implementing significant bulk sales. River Bank's
strategy, which RB Asset will continue, emphasized individual business plans for
each particular asset involving the application of management and development
expertise aimed as maximizing net recoveries and minimizing losses. The
performance or the value realized from any disposition of the Retained Assets
will depend on several factors, many of which are outside the control of the RB
Asset's management and third party contractors, including but not limited to,
conditions in the relevant real estate markets, prevailing interest rates and
local and national economic trends. Since it will no longer be constrained by
bank regulatory requirements, RB Asset will continue to evaluate alternatives
available after the Reorganization to maximize returns to stockholders. It may
alter its current plans to market some or all of the properties held for
disposal and reclassify them as real estate held for investment as such
alternatives are considered and implemented.
RB Asset will continue to engage RB Management to manage the
day-to-day business and affairs of RB Asset including developing and
recommending strategies to the RB Asset Board regarding the management of
assets.
In the past, River Bank monitored its assets and developed
individual business plans, including cash flow analysis, for each asset after
inspections, analysis of economic factors and meetings with the borrower and
counsel. These plans were then documented for approval by the River Bank Board.
RB Asset anticipates that RB Management will generally continue to implement the
individual business plans for each of the Retained Assets in connection with an
asset management strategy as described below.
Non-Performing Loans. Loans made by River Bank which became
delinquent were analyzed by River Bank to determine the nature and extent of the
problem and whether a restructuring of the loan or some other method of
resolution was appropriate under the circumstances. River Bank worked with
borrowers who were cooperative with the bank to effect a restructuring that was
economically feasible for both parties. When River Bank concluded that a
restructuring was not economically feasible, however, or where the borrower did
not demonstrate a willingness to cooperate, the bank pursued available legal
remedies. In most cases, River Bank's strategy in recent years has been to
aggressively pursue the foreclosure process when a restructuring or other
resolution of a non-performing loan did not appear to be feasible or otherwise
in the best interests of the bank. RB Asset expects to continue this strategy so
that it can acquire control of the security property as soon as possible, and
thereby implement a strategy designed by RB Management for ultimate resolution.
Loans that go through the foreclosure process, particularly in New
York, are subject to extensive delays before the secured party can gain title to
the property. Non-judicial foreclosure generally is unavailable in New York, and
the procedures mandated by New York law can result in time-consuming litigation
in order to foreclose a mortgage loan. Moreover, the federal and state courts in
New York are overburdened with litigation and, as a result, decisions are often
delayed. Further complications occur when bankruptcy proceedings are involved.
For all these reasons, it can take an extended period of time, often two to
three years, for a lender to obtain title to property that secures a loan which
is in default. Although the foreclosure process can be long and complicated, RB
Asset expects to aggressively pursue foreclosures and negotiations with
borrowers to acquire properties which secure problem loans by deed-in-lieu of
foreclosure.
Real Estate Assets. River Bank's general approach once it acquired
an investment in real estate has been to seek to minimize further losses to the
Bank through active management of the properties while they are held by the bank
and by developing asset management strategies tailored to the individual
properties and whose ultimate objective
693046.4
38
<PAGE>
is to sell each property at, or above, its net carrying value. River Bank
generally pursued a specific disposition strategy for each investment in real
estate because it believed that the depressed levels of the real estate markets
in which the Bank had engaged in lending activities would improve as national
and regional economies recover and that it has the requisite real estate
expertise to individually address and resolve each problem asset. RB Asset
expects to continue to manage real estate assets pursuant to individual asset
management plans.
Although River Bank previously evaluated bulk-sales of
non-performing assets from time to time, it elected not to pursue such a
strategy because it believed that the discounts sought by potential purchasers
were excessive and that individual disposition strategies had the most potential
for maximum recovery and return to the Bank. RB Asset does not expect to engage
in bulk sales of assets. There can be no assurance, however, that RB Asset will
be successful in implementing the asset management strategies.
Where appropriate, RB Asset expects to actively manage properties
until such time as the assets are ready for sale and otherwise engage in
development activities of properties requiring further development. Each
Retained Asset's work-out strategy is expected to continue to be reviewed and
approved by the RB Asset Board. RB Asset expects to consider providing financing
in connection with the sale of real estate assets under appropriate
circumstances. All loans to finance the sale of real estate assets will be
approved in advance by the RB Asset Board and may involve a relatively low
percentage of borrower equity and other terms pursuant to which the transaction
may constitute a sale of the property under generally accepted accounting
principles.
Where the property is to be sold as soon as practicable, RB Asset
generally expects to work closely with a real estate brokerage firm, and may
specifically target known investors which may be interested in a particular
property owned by the Bank. RB Asset will use the public auction process to
offer for sale certain investments in real estate where appropriate. Such
auctions can provide broader exposure to potential purchasers than may be able
to be obtained through listings by a real estate brokerage firm in the area in
which a property is located. Public auctions involve the payment of fees to the
auctioneer, which can vary based on, among other things, whether the property is
sold and on what terms.
River Bank previously undertook to stabilize the cash flows from
each property by investing in necessary improvements and seeking to increase the
occupancy of property. This approach, which RB Asset will continue, potentially
increases the amount of time that the property must be held, but may enhance the
value of the property and be the best means of realizing the greatest return on
investment. Although RB Asset may take such cash flow stabilizing actions, real
estate markets in the area in which the property is located may not stabilize or
other factors may be present which prevent RB Asset from selling property at a
price which reflects its estimated value.
RB Asset will consider developing the properties in connection with
the management thereof. Although this approach may represent the best prospects
for maximizing the return to RB Asset, it may also involve more risk and, as a
result, RB Asset will only pursue this alternative when other alternatives are
clearly not preferable under the circumstances. In most cases in which this
alternative may be pursued, RB Asset expects that development would have
previously been initiated by the defaulted borrower prior to River Bank's
acquisition of the property upon foreclosure or by deed-in-lieu thereof. RB
Asset may commence development of an investment in real estate as a management
strategy.
Performing Loans. RB Asset intends to continue to closely monitor
its performing loans and, should problems arise, will manage a problem loan as
described above.
Other Matters
Impact of Year 2000. Some of the River Bank's older computer
programs were written using two digits rather than four to define the applicable
year. As a result, those computer programs have time-sensitive software that
recognizes a date using "00" as the year 1900 rather than the year 2000. This
could cause a system failure or miscalculation causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
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River Bank has completed an assessment to modify or replace portions
of its software so that its computer systems will function properly with respect
to dates in the year 2000 and thereafter. Since the Bank's accounting software
is maintained and supported by a third party, the total year 2000 project cost
is estimated to be minimal.
The Bank believes that with modifications to existing software and
conversions to new software, the year 2000 issue will not pose significant
operational problems for its or its successor's computer systems. However, if
such modifications and conversions are not made, or are not completed in a
timely manner, the year 2000 issue could have a material impact on the
operations of the Bank or its successor.
The costs of the project and the date on which River Bank believes
it will complete the year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and costs of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
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THE SPECIAL MEETING
Introduction
This Proxy Statement/Prospectus is being furnished to the
stockholders as of the Record Date in connection with the Special Meeting to be
held on April 20, 1998 at 10:00 a.m., local time, at the Grand Hyatt of New York
Hotel, Park Avenue at Grand Central Station, New York, New York 10017, and any
adjournment or postponement thereof.
Matters to be Considered at the Special Meeting
At the Special Meeting, stockholders will be asked to consider and
vote upon the following Proposals:
o Proposal 1: To consider and vote upon a proposal to
approve the Bank Closing Resolution.
o Proposal 2: To consider and vote upon a proposal to
approve the Certificate of Designations
Amendment.
River Bank's stockholders also will consider and vote upon such
other matters as may properly come before the Special Meeting.
Voting Rights and Vote Required
Only holders of record of River Bank Common Stock and River Bank
Series A Preferred Stock issued and outstanding as of the close of business on
the Record Date will be entitled to vote at the Special Meeting or any
adjournment or postponement thereof. As of the Record Date, there were 7,100,000
shares of River Bank Common Stock and 1,400,000 shares of River Bank Series A
Preferred Stock issued and outstanding held by approximately eight holders of
record, respectively.
Holders of record of River Bank Common Stock at the close of
business on the Record Date are entitled to one vote per share upon each matter
submitted to a vote of the stockholders of River Bank at the Special Meeting or
any adjournment or postponement thereof. Holders of record of River Bank Capital
Stock at the close of business on the Record Date are entitled to one vote per
share upon the proposal to approve the Bank Closing Resolution. The presence, in
person or by proxy, of the holders of a majority of the outstanding shares of
River Bank Common Stock entitled to vote on the Certificate of Designations
Amendment is necessary to constitute a quorum for the transaction of business on
the Certificate of Designations Amendment at the Special Meeting. The presence,
in person or by proxy, of the holders of a majority of the outstanding shares of
River Bank Capital Stock entitled to vote on the Bank Closing Resolution is
necessary to constitute a quorum for the transaction of business on the Bank
Closing Resolution at the Special Meeting. Stockholders voting or abstaining
from voting on any matter will be counted as present for purposes of
constituting a quorum. If a quorum with respect to each proposal is not present
at the Special Meeting, the holders of a majority of the shares of River Bank
Common Stock or River Bank Capital Stock, as the case may be, present in person
or by proxy and entitled to vote at the Special Meeting may, by majority vote,
adjourn the Special Meeting from time to time.
Pursuant to the New York Banking Law, the affirmative vote of the
holders of 662/3% of the outstanding shares of River Bank Common Stock and River
Bank Series A Preferred Stock, together as a single class, is required to
approve the Bank Closing Resolution. The affirmative vote of the holders of a
majority of the outstanding shares of River Bank Common Stock is necessary to
approve the Certificate of Designations Amendment.
Under the rules of the principal stock exchanges, brokers who hold
shares of River Bank Common Stock and River Bank Series A Preferred Stock in
street name for customers will not have authority to vote such shares on the
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Proposals unless they have received written instructions from beneficial owners.
Abstentions and broker "non-votes" will be considered in determining the
presence of a quorum at the Special Meeting, but will not be counted as votes
cast on any matter presented for a vote at the meeting. Because the Bank Closing
Resolution requires the approval of a specified affirmative vote of the holders
of shares of River Bank Common Stock and River Bank Series A Preferred Stock,
together as a single class, outstanding on the Record Date, and the Certificate
of Designations Amendment requires the approval of a specified affirmative vote
of the holders of shares of River Bank Common Stock outstanding on the Record
Date, abstentions and broker "non-votes", as the case may be, will have the same
effect as votes against such matters.
Alvin Dworman, East River Partnership B and Odyssey Partners, L.P.,
stockholders who own an aggregate of 3,600,000 or 50.8% of the outstanding
shares of River Bank Common Stock (representing approximately 42.4% of the
outstanding shares of River Bank Common Stock and River Bank Series A Preferred
Stock, together as a single class) have advised River Bank that they intend to
vote in favor of the Proposals.
Voting of Proxies; Solicitation
All shares of River Bank Common Stock and River Bank Series A
Preferred Stock which are entitled to vote and are represented at the Special
Meeting by properly executed proxies received prior to or at the Special Meeting
and not revoked will be voted at the Special Meeting in accordance with the
instructions indicated on such proxies.
IF NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED IN FAVOR OF THE
PROPOSALS DESCRIBED HEREIN. The River Bank Board knows of no matters to be
presented at the Special Meeting other than those described in this Proxy
Statement/Prospectus. If any other matters are properly presented at the Special
Meeting for consideration, including, among other things, consideration of a
motion to adjourn the Special Meeting to another time and/or place, the persons
named in the enclosed form of proxies and acting thereunder will have discretion
to vote on such matters in accordance with their best judgment. River Bank's
by-laws provide that the Special Meeting may be adjourned by a majority vote of
the stockholders present represented by proxy and entitled to vote thereat from
time to time without notice other than announcement at the meeting.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
giving the President or the Secretary of River Bank, at the address of the Bank
set forth in the notice of meeting, written notice of such revocation; (ii)
executing a later-dated proxy; or (iii) attending the meeting and giving notice
of such revocation in person. Mere attendance at the Special Meeting will not,
in and of itself, constitute revocation of a proxy. Any written notice of
revocation or subsequent proxy should be sent to River Bank at 645 Fifth Avenue,
8th Floor, New York, New York 10022, Attention: President, so as to be delivered
at or before the taking of the vote at the Special Meeting.
All expenses of this solicitation, including the cost of preparing
and mailing this Proxy Statement/ Prospectus, will be borne by River Bank. In
addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of River Bank in person or by telephone,
telegram or other means of communication. Such directors, officers and employees
will not be additionally compensated, but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. Arrangements will
also be made with brokerage firms and other custodians, nominees and fiduciaries
for the forwarding of proxy solicitation material to certain beneficial owners
of the shares of River Bank Common Stock and River Bank Series A Preferred
Stock, and River Bank will reimburse such brokerage firms, custodians, nominees
and fiduciaries for reasonable out-of-pocket expenses incurred by them in
connection therewith.
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PROPOSAL 1 -- APPROVAL OF THE BANK CLOSING RESOLUTION
Overview
At the Special Meeting, the holders of River Bank Common Stock and
River Bank Series A Preferred Stock, together as a single class, will be asked
to approve the Bank Closing Resolution which will be implemented by means of the
Reorganization and the Dissolution. The Reorganization and the Dissolution
represent an alternative to submitting for Banking Department approval a plan of
dissolution requiring River Bank to proceed with a supervised liquidation of the
Retained Assets. Pursuant to the Reorganization, the Bank's legal form of
organization by which it conducts its business, holds its assets and is
obligated for its liabilities will be changed, through a series of steps, in a
manner intended to qualify as a tax-free reorganization, from a New York state
chartered stock savings bank into a business corporation incorporated in the
State of Delaware. Pursuant to the Dissolution, River Bank will voluntarily
dissolve and thereafter River Bank will cease to exist and all outstanding
shares of River Bank Capital Stock will be extinguished.
Background of and Reasons for the Bank Closing Resolution; Recommendation of
River Bank Board
On June 28, 1996, River Bank consummated the Branch Sale, thereby
disposing of all of its branches and transferring all of its deposits to Marine
Midland. While following the Branch Sale closing River Bank ceased accepting
deposits and otherwise disposed of its remaining deposits, it remains a banking
organization legally chartered and subject to regulation, examination and
supervision by the Banking Department. Since the Branch Sale, River Bank has
been proceeding with a business plan to manage the Retained Assets remaining
with the Bank after the Branch Sale in accordance with the individual business
plans developed for each asset prior to the consummation of the Branch Sale.
As a condition to the Banking Department's approval of the Branch
Sale, River Bank agreed, among other things, (i) to file an application with the
Banking Department, within one year of the closing of the Branch Sale, for
approval of a plan of dissolution (previously defined herein as the Dissolution
Plan Condition); (ii) to file with the Supreme Court of the State of New York a
petition for a closing order within 13 months of the closing of the Branch Sale
and for a final order of dissolution within five months following the filing of
an application for a closing order (previously defined herein as the Closing
Condition); (iii) to maintain specified levels of minimum capital ($106 million
as of May 1997); (iv) to make no distributions on the River Bank Common Stock
and River Bank Series A Preferred Stock without the approval of the Banking
Department until such time as a final order of dissolution has been signed; (v)
to obtain prior Banking Department approval for any additional financing; and
(vi) to submit specified periodic reports with respect to, among other things,
assets, dispositions, expenditures for improvements and cash receipts and
disbursements. River Bank believes that disposing of the Retained Assets
pursuant to a supervisory liquidation under the terms of a plan of dissolution
filed with and subject to the jurisdiction of the New York Supreme Court would
be administratively cumbersome. River Bank is concerned that the short
time-frame for the disposition of its assets and the final satisfaction of its
creditors and the wind up of its affairs to satisfy the condition set forth in
clause (ii) above would not be consistent with River Bank's ongoing efforts to
manage the Retained Assets pursuant to the previously developed individual
business plans intended to maximize stockholder value.
The Reorganization and the Dissolution are an alternative to the
adoption and implementation of a plan of dissolution pursuant to which River
Bank would be required to implement a supervised liquidation of the Retained
Assets. Upon consummation of the Reorganization, River Bank's business and
assets would no longer be subject to the jurisdiction of the Banking Department.
This will allow River Bank's successor, RB Asset, to manage the Retained Assets
without banking regulatory restraints, and where appropriate, to actively
develop and operate it properties, enter into joint ventures with others and
otherwise further encumber or restructure the debt on its properties and other
assets. The removal of banking regulatory restraints will permit RB Asset to
conduct its business and operations with a long-term investment horizon. RB
Asset will not be subject to a regulatory order to dissolve
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and RB Asset expects that it will continue the management of the Retained Assets
under existing business plans, but may consider the foregoing activities as
appropriate to maximize returns to stockholders. See "BUSINESS OF RB ASSET
FOLLOWING THE REORGANIZATION."
The Reorganization has been structured to constitute a tax-free
reorganization and is intended to preserve for use by RB Asset the availability
of River Bank's approximately $108.9 million of net operating loss carryforwards
and other tax assets. RB Asset will not be required to refinance the senior debt
owed to Marine Midland under the Marine Senior Loan since Marine Midland has
consented to the implementation of the Reorganization and Dissolution. Following
the Reorganization, RB Asset will therefore be able to treat the Marine Senior
Loan as long-term debt and amortize principal periodically as required pursuant
to the terms of such loan.
In a letter dated June 24, 1997, the Banking Department, indicating
its conditional approval, stated that it did not object to the Reorganization
and Dissolution advised, among other things, that: (a) the Branch Sale Condition
set forth in clause (i) above would be deemed satisfied upon stockholder
approval of the plan to implement the Reorganization and the Dissolution; (b)
the petition for the closing order required by the Branch Sale Condition set
forth in clause (ii) above was required to be filed by October 15, 1997; (c) the
current $106 million minimum capital requirement would remain until final
dissolution; and (d) any material sale or transfer of the Bank's assets or any
proposed development or renovation expenditures would require prior Banking
Department approval. The Banking Department also advised that all other
conditions to its approval of the Branch Sale would remain in full force and
effect. On October 15, 1997, River Bank filed a petition for a closing order in
New York State Supreme Court. The petition was granted on November 26, 1997 and
a closing order was signed on January 9, 1998 and entered on January 14, 1998,
allowing the Bank to proceed with the required notice to creditors. The notice
to creditors was served on all known creditors of the Bank prior to the deadline
set in the closing order.
The River Bank Board has considered all of the foregoing and
unanimously recommends that River Bank's stockholders vote in favor of approval
of the Bank Closing Resolution which must be approved before the Reorganization
and the Dissolution can be implemented.
The Bank Closing Resolution
General
Consummation of the Reorganization and completion of the Dissolution
involve a series of steps to be undertaken by River Bank following approval of
the Bank Closing Resolution and the Certificate of Designations Amendment. As
discussed below, the Bank initiated the legal steps necessary to complete the
Reorganization and the Dissolution with the filing of its petition for a closing
order declaring the business of River Bank closed. This action followed
stockholder approval of an earlier proposal to close the Bank and wind up its
affairs as required by New York Banking Law in order for the Bank to file the
petition for the closing order in New York State Supreme Court.
In the first step, after the stockholders approval of the Bank
Closing Resolution and the Certificate of Designations Amendment, River Bank
will complete the Business Disposition whereby the existing business and all of
the assets (other than $100,000 to be used to fund administrative expenses) and
liabilities of River Bank will be transferred to or assumed by River Asset Sub.
In the second step, after the expiration of the notice period to creditors
ordered by the court and upon filing of the Order of Dissolution (as defined
below), River Bank will effect the Distribution, pursuant to which all of the
issued and outstanding shares of River Distribution Common Stock and River
Distribution Series A Preferred Stock will be distributed to River Bank's
stockholders on the basis of one share of River Distribution Common Stock for
each share of River Bank Common Stock and one share of River Distribution Series
A Preferred Stock for each share of River Bank Series A Preferred Stock held by
a stockholder as of the Distribution Record Date. In the third step which will
be effected as soon as practicable following the Distribution, the Merger will
be consummated whereby River Distribution Sub will merge with and into River
Asset Sub (which shall have succeeded to the business, assets and liabilities of
River Bank) with River Asset Sub as the surviving
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corporation. At the effective time of the Merger, (a) each issued and
outstanding share of River Asset Sub common stock (held entirely by River Bank)
will be canceled, (b) the outstanding shares of River Distribution Capital Stock
will be converted into and will represent the shares of identical capital stock
of the surviving corporation (except that the par value of the capital stock
will be changed to $1.00) and (c) River Asset Sub, the surviving corporation in
the Merger, will be renamed RB Asset, Inc. As a consequence of the Merger, River
Bank's consolidated liabilities will be reduced to zero and its sole assets will
be $100,000 in cash which will be used to fund administrative expenses incurred
in connection with completing the Dissolution. RB Asset will be obligated to
fund all administrative expenses not satisfied by River Bank and any funds
remaining in River Bank upon completion of the Dissolution will be paid to RB
Asset pursuant to the assignment and assumption agreement. Following the
Reorganization, RB Asset will own all of the assets formerly owned by River
Bank, will have assumed all of River Bank's liabilities and will continue River
Bank's business. Upon the entry by the New York State Supreme Court of the order
of dissolution, River Bank will voluntarily dissolve and, upon filing with the
Banking Department of a certified copy of the order of dissolution obtained from
New York State Supreme Court, River Bank will cease to exist. Each of the
foregoing steps are discussed in further detail below.
The Petition for a Closing Order
The Bank initiated the legal steps necessary to complete the
Reorganization and the Dissolution with the filing of its petition for a closing
order declaring the business of River Bank closed on October 15, 1997 with the
New York State Supreme Court. This action followed stockholder approval of an
earlier proposal to close the Bank and wind up its affairs as required by New
York Banking Law in order for the Bank to file the petition for the closing
order in New York State Supreme Court. The petition provides that, upon entry of
the order declaring the Bank closed, River Bank will (i) cease to do business
and will proceed with a voluntary liquidation under which River Bank will
satisfy or make provision for all of its creditors and wind up its business and
(ii) give notice to its creditors to present their claims to the Bank for
payment in the manner provided in the court order. The petition describes the
Reorganization and the Dissolution, including that River Asset Sub will
unconditionally assume all of River Bank's liabilities (including contingent
liabilities), that by virtue of the Merger, all liabilities of River Bank shall
attach to and be enforceable against RB Asset as if such liabilities had been
incurred or contracted by it, and that provision for River Bank's creditors will
principally be made by means of the assumption of its liabilities by RB Asset.
In connection with the undertaking made in connection with the 1997 annual
meeting of stockholders held on October 7, 1997, the Bank advised the New York
Supreme Court in the closing order petition that no substantive legal steps will
be taken to implement the Reorganization and Dissolution until stockholders
again approve the closing of the Bank which stockholder approval will not be
obtained until a proxy statement/prospectus detailing the Bank's plans to
implement the Reorganization and Dissolution have been provided to all
stockholders. The closing order petition was granted on November 26, 1997 and a
closing order was signed on January 9, 1998 and entered on January 14, 1998,
allowing River Bank to proceed with the required notice to creditors. The notice
to creditors was served on all known creditors of the Bank prior to the deadline
set in the closing order. Pursuant to the closing order, the notice period
during which creditors may present claims expires on March 2, 1998.
The Business Disposition
Following the stockholder approval of the Bank Closing Resolution
and the Certificate of Designations Amendment, River Bank will effectuate the
Business Disposition. To complete this step in the Reorganization, River Bank
will enter into an assignment and assumption agreement with River Asset Sub
whereby River Bank will assign to River Asset Sub, and River Asset Sub will
accept from River Bank, all of River Bank's right, title and interest in and to
all of River Bank's assets, other than $100,000 in cash, sufficient for River
Bank to pay the continuing costs of regulation and liquidation, to resolve any
claims made against River Bank during the notice period to creditors and to
abide by the statutory requirement that River Bank remain solvent until its
final dissolution (the "Transferred Assets"). In consideration of the assignment
to River Asset Sub of the Transferred Assets, River Asset Sub will assume and
agree to pay, perform and discharge when due all liabilities and obligations of
River Bank of any kind
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or nature, known or unknown, whether absolute, contingent, accrued or otherwise,
and whether arising before or after the date of the assignment of the
Transferred Assets, without limitation.
In addition, the assignment and assumption agreement will provide
that (i) no representation or warranty whatsoever is being made by River Bank
with respect to the Transferred Assets, including, without limitation, as to
title, value or legal sufficiency and (ii) the Transferred Assets are "as is,
where is" and that River Asset Sub bears the economic and legal risk that any
conveyance of such assets may be insufficient or that River Asset Sub's title to
any such assets may be other than good and marketable and free from
encumbrances. In connection with the assignment of the Transferred Assets, River
Asset Sub will agree to indemnify, defend and hold harmless River Bank, its
affiliates, subsidiaries, directors, officers and employees from and against any
and all losses, liabilities, claims, suits, proceedings, demands, judgments,
damages, expenses and costs, including reasonable attorneys' fees and costs of
defense, which River Bank or its affiliates, subsidiaries, directors, officers
or employees may suffer or incur by reason of the liabilities of River Bank
expressly assumed and any liabilities relating to the Transferred Assets or the
business of River Bank or River Asset Sub.
The Petition for Dissolution
After the expiration of the notice period to creditors prescribed in
the closing order on March 2, 1998, River Bank is required under the New York
Banking Law to prepare and file with the Banking Department a verified
transcript or statement identifying all depositors, creditors, stockholders,
owners of personal property in the custody or possession of River Bank as
bailee, depository for hire or otherwise, who have not claimed or received the
property or amounts due them together with a certified copy of the inventory
retained by River Bank with respect to such property or amounts. River Bank does
not have any safe deposit boxes and does not have custody or possession of any
personal property as bailee, depository for hire or otherwise and therefore the
provisions in the New York Banking Law relating to the treatment of unclaimed
property are not applicable to River Bank's liquidation and dissolution.
In accordance with the New York Banking Law, after the expiration of
the notice period to creditors prescribed in the closing order on March 2, 1998,
River Bank will file a petition in the New York State Supreme Court for the
issuance of an order declaring River Bank dissolved and its corporate existence
terminated (the "Order of Dissolution"). In connection with the foregoing, River
Bank must show that (i) all debts and obligations of River Bank have been
discharged or satisfied except those for which no legal claimant has been found,
(ii) that proper notice has been given to creditors and that the period for
presentation of the claims as required under the closing order has expired,
(iii) that the New York Banking Law provisions concerning unclaimed bailments
and personal property have been complied with and (iv) that all amounts from any
sale or other disposition have been turned over to the Banking Department.
The Distribution
Upon filing of the petition for the Order of Dissolution, River Bank
will implement the Distribution pursuant to which River Bank will distribute to
its stockholders River Distribution Capital Stock and River Distribution Sub and
River Asset Sub will consummate the Merger.
In order to implement the Distribution, River Bank will distribute
all of the issued and outstanding shares of River Distribution Common Stock and
River Distribution Series A Preferred Stock held by it to the stockholders of
River Bank such that each holder of River Bank Common Stock as of the
Distribution Record Date will receive one share of River Distribution Common
Stock for each share of River Bank Common Stock and each holder of River Bank
Series A Preferred Stock as of the Record Date will receive one share of River
Distribution Series A Preferred Stock for each share of River Bank Series A
Preferred Stock. The Distribution shall be made by means of a stock transfer
ledger entry on the Distribution Record Date so that no ex-dividend transfers of
River Distribution Capital Stock separate from the River Bank Capital Stock on
which it is paid can occur prior to the Merger. No consideration
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will be paid by River Bank's stockholders for the shares of River Distribution
Common Stock and River Distribution Series A Preferred Stock to be received by
them, as the case may be, in the Distribution.
The Merger
Upon filing of the Order of Dissolution as soon as practicable
following the Distribution, River Asset Sub and River Distribution Sub will
consummate the Merger pursuant to the terms of an agreement and plan of merger,
dated as of October 9, 1997, by and between River Asset Sub and River
Distribution Sub (the "Merger Agreement"). The Merger Agreement, which was
approved on October 9, 1997 by River Bank in accordance with section 251 of the
Delaware General Corporation Law ("DGCL") as the sole stockholder of River Asset
Sub and River Distribution Sub, provides that as soon as practicable following
the filing of the petition for the Order of Dissolution and distribution of the
River Distribution Common Stock and River Distribution Series A Preferred Stock,
both parties will execute and acknowledge a certificate of merger and file the
same with the Secretary of State of the State of Delaware. At the effective time
of the Merger, (i) River Distribution Sub will be merged with and into River
Asset Sub, the separate corporate existence of River Distribution Sub will
cease, and River Asset Sub will continue as the surviving corporation under
Delaware corporate law and (ii) the Merger will have the effects set forth in
section 259 of the DGCL, including, without limitation, the effect that all
liabilities of River Asset Sub (which shall have succeeded to the business,
asset and liabilities of River Bank) and River Distribution Sub will thereafter
attach to and be enforceable against the surviving corporation. The Merger
Agreement provides that: (i) each issued and outstanding share of River
Distribution Common Stock will be converted into and will become one fully paid
and non-assessable share of common stock, $1.00 par value, of the surviving
corporation; (ii) each issued and outstanding share of River Distribution Series
A Preferred Stock will be converted into and will become one fully paid and
non-assessable share of 15% non-cumulative perpetual preferred stock, series A,
$1.00 par value, of the surviving corporation; and (iii) all shares of River
Asset Sub Common Stock (held entirely by River Bank) will be canceled and
retired and cease to exist and no cash or other consideration will be delivered
in exchange therefor. At the effective time of the Merger, the stock transfer
ledger of River Distribution Sub will be closed and each share of River
Distribution Capital Stock outstanding as indicated on the stock transfer ledger
of River Bank will be deemed for all corporate purposes to represent the share
of the capital stock of RB Asset into which it was converted. As soon as
practicable after the effective time of the Merger, RB Asset will cause its
transfer agent to mail to each recordholder of River Distribution Capital Stock
indicated on the stock transfer ledger of River Bank immediately prior to the
effective time a stock certificate registered in such holder's name representing
the number of shares of capital stock of RB Asset issued in the Merger.
The Merger Agreement provides for the following other effects of the
Merger: (i) the name of the surviving corporation shall be "RB Asset, Inc.";
(ii) the certificate of incorporation of River Distribution Sub, as in effect
immediately prior to the Merger, shall be amended to change the name of the
surviving corporation from "River Distribution Sub, Inc." to "RB Asset, Inc."
and to change the par value of the surviving corporation capital stock from
$.001 per share to $1.00 per share, and as so amended, shall be the certificate
of incorporation of RB Asset until thereafter changed or amended; (iii) the
directors of River Distribution Sub immediately prior to the Merger will be the
directors of RB Asset, and the officers of River Distribution Sub immediately
prior to the Merger will be the officers of RB Asset, each to hold office until
their respective successors are duly elected or appointed and qualified; and
(iv) the by-laws of River Distribution Sub, as in effect immediately prior to
the Merger, will be the by-laws of RB Asset until thereafter changed or amended.
The Order of Dissolution
Upon the entry by the New York State Supreme Court of the Order of
Dissolution, River Bank will voluntarily dissolve and, on filing with the
Banking Department of a certified copy of the Order of Dissolution, River Bank
will cease to exist and all outstanding shares of River Bank Capital Stock will
thereby be extinguished. Upon the effectiveness of the Dissolution, River Bank's
transfer agent will be instructed to immediately close the stock transfer ledger
of River Bank and record thereon the cancellation of all of the outstanding
shares of River Bank Capital
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Stock and notify River Bank stockholders of the filing of the Order of
Dissolution and the cancellation of their River Bank Capital Stock. The CUSIP
Service Bureau will also be notified that River Bank has ceased to exist and
that all outstanding shares of River Bank Capital Stock have been extinguished.
Accounting Treatment
The Reorganization is intended to be accounted for as a
reorganization of entities under common control for financial reporting purposes
in accordance with generally accepted accounting principles. Therefore, the
assets and liabilities transferred to RB Asset pursuant to the Reorganization
will be accounted for at historical cost in a manner similar to a pooling of
interests.
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<PAGE>
PROPOSAL 2 -- APPROVAL OF THE CERTIFICATE OF DESIGNATIONS AMENDMENT
MATERIAL ASPECTS OF THIS PROPOSAL ARE SUMMARIZED BELOW. THIS SUMMARY
DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE COMPLETE TEXT OF THE CERTIFICATE OF DESIGNATIONS AMENDMENT, ATTACHED TO THIS
PROXY STATEMENT/PROSPECTUS AS ANNEX A. STOCKHOLDERS ARE URGED TO READ THE
ANNEXES TO THIS PROXY STATEMENT/PROSPECTUS IN THEIR ENTIRETY.
In connection with the Reorganization, the River Bank Board is
recommending that the Certificate of Designations Amendment be adopted by the
stockholders. The Certificate of Designations Amendment, when adopted by the
stockholders, will amend the Bank's Certificate of Designations with respect to
the River Bank Series A Preferred Stock to permit the Distribution.
Section 7(C)(ii)(d) of the Certificate of Designations provides for
a reorganization of the Bank as contemplated by the Reorganization and for the
distribution to the existing stockholders of the Bank of shares of a successor
corporation in such a reorganization. However, the distribution provisions of
Section 3 of the Certificate of Designations may conflict with the provisions of
Section 7(C)(ii)(d) of the Certificate of Designations. Section 7(C)(ii)(d) of
the Certificate of Designations appears to contemplate reorganization
transactions such as the Reorganization, including the Distribution, which is a
necessary step thereof, whereas Section 3 appears to prohibit transactions such
as the Distribution which as a necessary step in the transaction would prevent
consummation of the Reorganization. The Certificate of Designations Amendment
clarifies this ambiguity by providing that a reorganization contemplated by
Section 7(C)(ii)(d) of the Certificate of Designations (i.e. the Reorganization)
may be consummated notwithstanding anything to the contrary in Section 3.
The Certificate of Designations Amendment will be filed with the
Banking Department when adopted by the stockholders.
693046.4
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<PAGE>
MANAGEMENT
Board of Directors and Nominees for Director
The River Bank Board is, and following the Reorganization, the RB
Asset Board will be, fixed at seven directors and divided into three classes of
directors, serving staggered three-year terms. The River Bank Board was fixed at
seven directors following the Branch Sale to comply with the minimum board size
requirements specified by the New York Banking Law. In view of the requirement
that River Bank file a plan of dissolution and dissolve, River Bank has found it
impracticable to recruit new directors to fill the vacancies existing on the
board.
Following the Reorganization, all of River Bank's directors will
serve as directors of RB Asset for the same term of office they have been
elected to serve as a directors of River Bank and the two vacancies on the River
Bank Board will on the RB Asset Board until they are filled through appointment
or election.
The name, age as of March 27, 1998, position with River Bank, if
any, term of office following the Special Meeting, period of service as a
director, of each of River Bank's directors are as follows:
<TABLE>
<CAPTION>
Name Age Position Class Term Director
Expires Since
<S> <C> <C> <C> <C>
Robin Chandler Duke............................... 73 Director, Vice President 1999 1977
and Secretary (1)
Robert N. Flint................................... 76 Director (1)(2) 1999 1976
William D. Hassett................................ 61 Director (2) 2000 1976
Jerome R. McDougal................................ 69 Director, Chairman of the 2000 1991
Board, Chief Executive
Officer and President (2)
Edward V. Regan................................... 67 Director (1)(2) 1998 1995
</TABLE>
- --------------------------
(1) Member of the audit committee.
(2) Member of the asset management committee.
The principal occupation for the last five years and selected
biographical information of each of the directors and executive officers is set
forth below.
Robin Chandler Duke. Ms. Duke has served in an unpaid capacity as
vice president and secretary of River Bank since June 1996. Ms. Duke is the
national chairman of Population Action International, a non-profit organization.
She serves as a director of International Flavors and Fragrances, a diversified
manufacturer of flavors and fragrances, and American Home Products Corporation,
a research-based manufacturer of pharmaceutical and healthcare products.
Robert N. Flint. Mr. Flint has been retired since 1984. Prior to his
retirement, he served as senior vice- president and comptroller of American
Telephone and Telegraph Company.
William D. Hassett. Mr. Hassett has been a real estate investor for
more than the past 30 years and a partner of Hassett-Belfer Senior Housing and
Services L.L.C. since 1995. He previously served as the chairman of the board of
the New York State Dormitory Authority from 1985 to 1994, as chairman of the
Battery Park City Authority from 1979 to 1981 and as chairman of the New York
State Urban Development Corporation from 1977 to 1981. Mr.
693046.4
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<PAGE>
Hassett was the New York State Commerce Commissioner from 1979 to 1981. He is a
member of the New York State Comptroller's Real Estate Advisory Committee to the
Common Retirement Fund and served as a director of Olympia & York Holdings
(USA), a real estate development and management firm.
Jerome R. McDougal. Mr. McDougal has been chairman of the board and
chief executive officer of River Bank since April 1995 and president of River
Bank since July 1997. He served as president and chief executive officer of
River Bank from March 1991 through April 1995. Mr. McDougal served as chairman
of the board and chief executive officer of the Apple Bank for Savings from 1986
to 1990 and as president and chief operating officer of the Apple Bank for
Savings from 1981 to 1986.
Edward V. Regan. Mr. Regan has served as the chairman of the
Municipal Assistance Corporation for the City of New York since 1995 and as a
policy advisor for the Jerome Levy Economics Institute, a private economic
research organization since 1993. He has served as a trustee to the Financial
Foundation which oversees the FASB and the GASB since 1997. Mr. Regan served as
the New York State Comptroller from 1979 to 1993. He is a trustee of Oppenheimer
Management Corp., a mutual fund investment advisor and a director of GranCare,
Inc., a nursing, home healthcare and assisted living service business.
Board of Directors Committees
The River Bank Board has two standing committees, an asset
management committee and an audit committee. The audit committee is comprised of
Messrs. Flint (Chairman) and Regan and Ms. Duke and the asset management
committee is comprised of Messrs. Hassett (Chairman), McDougal, Flint and Regan.
The asset management committee oversees the management of the
day-to-day business and affairs of River Bank and the implementation of the
management of River Bank's assets, subject to certain restrictions set forth in
River Bank's Amended and Restated By-Laws and under the New York Banking Law.
The audit committee reviews and provides recommendations to the River Bank Board
with respect to the engagement of River Bank's independent auditors, financial
reporting practices and internal accounting and financial controls and
procedures of River Bank and monitors River Bank's compliance with its policies
and procedures. In addition, the audit committee also administers and reviews
all compensation policies and will provide recommendations to the River Bank
Board with respect thereto. After the Reorganization, the RB Asset Board will
create and constitute an asset management committee and an audit committee. Such
RB Asset committees will have the same members, chairman and functions as the
asset management committee and the audit committee of the River Bank Board.
During fiscal year 1997, the River Bank Board held 15 meetings,
including telephonic meetings. The audit committee held five meetings during the
fiscal year. The asset management committee held twelve meetings. During 1996,
each director attended 100% of the total number of meetings of the River Bank
Board and 100% percent of the total number of meetings of committees on which he
or she served.
Compensation of Directors
Directors of River Bank receive an annual retainer of $20,000, plus
$1,000 for each board meeting attended and $750 for each committee meeting
attended. Chairmen of the committees are also paid an additional $2,500 annual
retainer for their service as chairmen. After the Reorganization, RB Asset will
pay the same compensation to directors and board committee members and chairmen.
693046.4
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<PAGE>
Executive Officers
Inasmuch as River Bank has disposed of its depository banking
operations pursuant to the Branch Sale, the Bank no longer employs any
significant staff of officers or employees to manage the business and affairs of
the Bank. Rather, the day-to-day management of River Bank's business is vested
with RB Management pursuant to the terms of a management agreement. See
"--Certain Relationships and Related Transactions".
River Bank's only officers are, and the initial officers of RB Asset
will be, Jerome R. McDougal, who serves as the chairman of the board, president
and chief executive officer of the Bank, and Robin Chandler Duke, who serves
without compensation as the vice president and secretary of the Bank.
Executive Compensation
The following table sets forth information for the years indicated
concerning the compensation awarded to, earned by or paid to the chief executive
officer of River Bank for services rendered in all capacities to River Bank and
its subsidiaries during such period. There were no other executive officers who
received any compensation from River Bank (other than director fees).
Summary Compensation Table
<TABLE>
<CAPTION>
Special Compensation
All Other
Name and Principal Other Compensation
Position Year Salary($) Bonus($) Compensation($) ($)
- -------- ---- --------- -------- --------------- ----
<S> <C> <C> <C> <C> <C>
Jerome R. McDougal 1997 $300,000 -- $ 66,900 (1) $117,296(2)
Chairman of the 1996 300,000 -- 84,988 (1) 112,431(2)
Board, Chief 1995 305,116 -- 76,663 (1) 108,832(2)
Executive Officer and
President
</TABLE>
- ----------------------
(1) Consists of a housing allowance, club dues, automobile and driver
expenses (aggregating $25,324, $42,760 and $35,424 for the 1997, 1996 and
1995 periods presented, respectively), certain tax expense reimbursements
and health insurance premiums.
(2) Consists of contributions of $9,500, $9,370 and $9,000 made by River Bank
to its 401(k) Tax Deferred Savings Plan, accruals of and earnings on
deferred compensation in the amounts of $103,739, $100,551 and $97,673
and payments of $4,057, approximately $2,400 and $2,159 for life and
personal liability insurance premiums for the 1997, 1996 and 1995 periods
presented, respectively.
Employment Arrangement
Jerome R. McDougal, River Bank's chairman of the board and chief
executive officer, was elected to the office of president and chief executive
officer by the River Bank Board effective March 1, 1991. He served as president
until April 1995, at which time he became chairman of the board. Mr. McDougal
was elected to the offices of president in July 1997. The terms of Mr.
McDougal's employment are memorialized in the minutes of the January 22, 1991
River Bank Board meeting, which provide for an annual salary of $375,000 and
customary employee benefits commensurate with Mr. McDougal's position at the
Bank. $75,000 of Mr. McDougal's annual salary is in the form of deferred
compensation. Mr. McDougal's annual deferred compensation accrues quarterly in
equal amounts and
693046.4
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<PAGE>
earns a variable rate of interest on the cumulative balance. Prior to the Branch
Sale interest was compounded quarterly at the highest rate offered on the Bank's
customer deposits each quarter and is currently compounded at the prime rate.
Mr. McDougal receives additional compensation in the form of a housing
allowance, an automobile and payment of club membership dues. River Bank also
reimburses Mr. McDougal for the amount of personal income taxes incurred as a
result of the additional benefits. After the Reorganization, Mr. McDougal will
receive the same compensation from RB Asset.
Certain Relationships and Related Transactions
Arrangements with RB Management. River Bank is a party to a
management agreement, dated as of June 28, 1996 (the "Management Agreement"), RB
Management, a firm 100% owned by Alvin Dworman, the Bank's largest stockholder
who owns 39% of the outstanding shares of River Bank Common Stock. Pursuant to
the Management Agreement, RB Management is engaged exclusively as an independent
contractor to provide the Bank with prescribed general management services and
asset management services. The general management services provided by RB
Management include the management of the general business affairs and corporate
activities of the Bank and the oversight of third party service subcontractors
providing services not provided directly by RB Management to the Bank. Such
services include, but are not limited to: (i) developing and implementing
policies and procedures for the ordinary day-to-day management of the Bank and
the disposition of its assets as approved by the River Bank Board; (ii) managing
corporate activities, including (a) preparing and maintaining business plans,
(b) providing treasury and tax services, (c) providing financial and accounting
services, (d) monitoring the Bank's progress (with e.g., internal controls,
internal audits and operational audits) and (e) monitoring portfolio progress
(e.g., reviewing asset business plans, loan status and restructuring plans); and
(iii) providing, obtaining and overseeing third party services when required,
such as loan servicing, general ledger, legal, accounting and audit services
(collectively, the "General Management Services").
The asset management services provided by RB Management pursuant to
the Management Agreement include the management of the Bank's assets, properties
and loans and the oversight of third party service subcontractors providing
services with respect thereto. Such services include, but are not limited to:
(i) managing assets, properties and loans, including (a) troubleshooting the
loan portfolio (with respect to e.g., delinquencies and loan status), (b)
reviewing loans to determine, develop and recommend loan plans, restructures or
litigation strategies, (c) restructuring loans (including planning, implementing
and monitoring), (d) foreclosing assets (including hiring attorneys, obtaining
title and commencing management), (e) preparing asset business plans (including
enhancement strategies), (f) managing and monitoring real estate owned
(including site visits, liaison with brokers and property managers, reviewing
property reports and leasing), disposing of real estate owned (including
solicitation, review and recommendation of offers and negotiation and closing of
sale), and (h) providing financial and operating reports (including monthly
reports, quarterly analysis, financial statements and reports to the River Bank
Board); and (ii) providing, obtaining and overseeing third party services when
required, such as property management, loan marketing, brokerage, leasing,
legal, accounting and audit (collectively, the "Asset Management Services").
Pursuant to the Management Agreement, for the General Management
Services, RB Management is paid an annual base fee, payable monthly, not to
exceed $1,250,000 (the "Base Fee"). The Base Fee is determined on the basis of
the costs expected to be incurred by RB Management in providing the General
Management Services. The agreement requires that the Base Fee be reviewed no
less frequently than annually by the audit committee of the River Bank Board and
adjusted based on costs expected to be incurred as aforesaid. The agreement
requires that the Base Fee be adjusted (i.e., downward) in the event a third
party service subcontractor is engaged (i.e., as a substitute) to provide a
function (i.e., a service within the scope of General Management Services and
Asset Management Services) required of RB Management under the agreement.
Pursuant to the Management Agreement, for the Asset Management
Services, RB Management is paid (i) an annual fee, payable monthly, equal to
.75% of the average month-end book value of the Bank's assets (the "Asset
Service Fee") and (ii) an asset disposition success fee equal to .75% of the
proceeds from the sale or collection or
693046.4
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<PAGE>
refinancing of any Bank asset (the "Asset Disposition Fees"). Any fees payable
under the Management Agreement not paid within 30 days of the date billed bear
interest at the prime rate published by Citibank NA.
During the year ended June 30, 1997 and for the six months ended
December 31, 1997, River Bank accrued $1,250,000 and $625,000, respectively in
expenses for the Base Fee payable to RB Management, $1,692,000 and $705,000 for
the Asset Service Fee and $778,000 and $141,000 for the Asset Disposition Fees
for the year ended June 30, 1997 and the six months ended December 31, 1997,
respectively. River Bank paid $1,721,000 of the foregoing fees during the 1997
fiscal year. The $2,121,000 outstanding payable for such fees (including
interest) at June 30, 1997 was paid in July 1997. The Base Fee for fiscal year
1998 is $1,250,000.
Pursuant to the Management Agreement, RB Management may retain,
subject to the approval of the audit and asset management committees of the
River Bank Board, third party service subcontractors to provide services not
provided directly by RB Management. The agreement provides that RB Management is
to be reimbursed for all bills arising out of approved third party service
agreements governing services not required to be provided by RB Management
(i.e., outside the scope of General Management Services and Asset Management
Services). RB Management is also reimbursed for reasonable out-of-pocket
expenses incurred in connection with rendering the General Management Services.
As contemplated in the Management Agreement, during fiscal year 1997, RB
Management retained Fintek Inc. ("Fintek"), a firm which is 50% beneficially
owned by Mr. Dworman and for which an adult child of Mr. Dworman serves as a
director. Fintek was retained to continue to provide the advisory services that
it had previously provided to River Bank pursuant to direct arrangements with
the Bank. In accordance with the Management Agreement, all payments to Fintek
are the obligation of RB Management and were paid out of fees received by RB
Management from the Bank pursuant to the Management Agreement.
The Management Agreement has a term of three years that shall
automatically be extended for an additional one year term if the Marine Senior
Loan remains outstanding upon the termination of the initial term and thereafter
for an additional one year, if at the termination of the initial extension term,
the Marine Senior Loan remains outstanding. Subject to the consent of Marine
Midland, the agreement may be terminated by either party for any reason upon 180
days written notice to the other party, by RB Management in the event of a
payment default by River Bank, by River Bank for cause as prescribed in the
agreement and by mutual written consent. The agreement may also be terminated by
RB Management upon 60 days written notice that all of the assets of the Bank
have been sold. The Management Agreement provides for proration of the fees
payable to RB Management in the event of termination and for reimbursement of
any reasonable costs incurred by RB Management as a result of the termination,
including termination or severance payments made to third party service
subcontractors or employees terminated by RB Management as a result of such
termination. In addition, in the event of termination, RB Management is entitled
to Asset Disposition Fees on any proposed asset dispositions in process if such
assets are disposed of within six months from such termination.
As a result of the Reorganization, River Bank's obligations under
the Management Agreement will be assumed by RB Asset. It is anticipated that RB
Management will continue to manage the Retained Assets on behalf of RB Asset.
Arrangements with Fintek, Inc. During the period October 1, 1991
through June 28, 1996, Fintek provided certain financial consulting, strategic
planning and advisory services to River Bank (the "Services Arrangement"),
including providing advice and consulting services with regard to the Bank's
treasury functions. Fintek earned hourly rate-based fees under the Services
Arrangement. During the year ended June 30, 1995 and the six month period ended
December 31, 1995, River Bank paid $116,000 and $65,000, respectively, to Fintek
for services provided under the Services Arrangement.
In September 1995, River Bank engaged Fintek to provide certain
advisory services in connection with the Branch Sale and related transactions
(the "Transaction Engagement"). Under the terms of the engagement, Fintek earned
hourly rate-based fees and was reimbursed for its reasonable out-of-pocket
expenses incurred in performing
693046.4
53
<PAGE>
its services. Fintek was also entitled to receive a success fee, upon
consummation of the Branch Sale, equal to the sum of (a) 0.6% of the excess of
assumed liabilities over transferred assets under the Branch Sale agreement (the
"Success Fee") and (b) 0.6% of any principal payments received by the Bank with
respect to the junior subordinated participation interests (as defined) (the
"Participation-based Fee"). The Success Fee was payable 20% on the closing date
of the Branch Sale and 20% on each of the next four anniversary dates of the
closing, with quarterly interest payments on any deferred amounts accrued at an
annual rate equal to the prime rate of Chemical Bank in effect from time to
time. The Participation-based Fee is to be paid when and to the extent such
principal payments are collected. Pursuant to the Transaction Engagement, Fintek
earned a Success Fee equal to $558,000.
At June 30, 1996, River Bank had payables due to Fintek in the
aggregate amount of approximately $1,516,000, which represented the $558,000
Success Fee and $696,000 in hourly fees and expense reimbursements under the
Transaction Engagement and $262,000 in hourly fees under the Services
Arrangement. During fiscal year 1997, River Bank made payments in the amount of
approximately $762,000 to reduce the foregoing payables. At June 30, 1997, River
Bank had outstanding payables of $754,000 with respect to the foregoing. As of
December 31, 1997, River Bank paid Fintek approximately $419,000 to further
reduce the outstanding payables to $335,000. As a result of the Reorganization,
River Bank's obligations to Fintek will be assumed by RB Asset.
River Bank believes that the terms reached with respect to each of
the foregoing related party service agreements and arrangements represent terms
that are at least as favorable to the Bank as could be obtained from
unaffiliated parties providing comparable services.
Compliance with Section 16(a)
Section 16(a) of the Exchange Act requires River Bank's officers and
directors, and persons who own more than ten percent of a registered class of
the Bank's equity securities, to file reports of ownership and changes in
ownership with the FDIC. Officers, directors and greater than ten percent
shareholders are required by regulation of the FDIC to furnish the Bank with
copies of all Section 16(a) forms they file.
River Bank believes that no director, officer or beneficial owner of
more than 10% of its registered equity securities failed to file on a timely
basis reports required pursuant to Section 16(a) of the Exchange Act with
respect to 1997. In making these disclosures, River Bank has relied solely on
written representations of its directors and executive officers and copies of
the reports that they have filed with the FDIC.
693046.4
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of River Bank Common Stock by (i) each person known by
River Bank to own beneficially or of record more than 5% of River Bank Common
Stock, (ii) each director, nominee for director and executive officer of the
Bank, and (iii) all directors, nominees for director and executive officers as a
group. This information has been obtained from reports provided by the
beneficial owners or filed with the FDIC pursuant to Sections 13(d) and 13(g) of
the Exchange Act and regulations promulgated by the FDIC. Unless otherwise
indicated, each stockholder listed in the table has sole voting and investment
powers as of March 1, 1998 with respect to the shares owned beneficially or of
record by such person.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership(1) of Class
- ------------------- ----------------------- --------
Mr. Alvin Dworman 2,768,400 39.0%
645 Fifth Avenue
New York, New York 10022
Wellington Management Company(2) 702,900 9.9%
75 State Street
Boston, Massachusetts 02109
First Financial Fund, Inc.(3) 470,000 6.6%
One Seaport Plaza - 25th Floor
New York, New York 10292
East River Partnership B(4) 415,800 5.9%
Madison Plaza
200 West Madison Street
Suite 3800
Chicago, Illinois 60606
Odyssey Partners, L.P.(5) 415,800 5.9%
31 West 52nd Street
New York, New York 10019
John Hancock Advisors, Inc.(6) 315,000 4.4%
101 Huntington Avenue
Boston, Massachusetts 02199
Ms. Robin Chandler Duke -- --
Mr. Robert N. Flint 4,000 *
Mr. William D. Hassett 2,150 *
Mr. Jerome R. McDougal 4,000 *
Mr. Edward V. Regan -- --
All directors and executive officers 10,150 *
as a group (5 persons)
- ----------------
* Less than 0.1%
(footnotes on next page)
693046.4
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<PAGE>
(1) Based upon information provided by the respective beneficial owners
and filings with the FDIC made pursuant to the Exchange Act.
Beneficial ownership is direct except as otherwise indicated by
footnote. In accordance with Section 335.403 of the Rules and
Regulations of the FDIC, a person is deemed to be the beneficial
owner of a security if he or she has or shares voting power or
investment power with respect to such security or has the right to
acquire such ownership within 60 days.
(2) Wellington Management Company ("WMC") holds all owned shares in
accounts in its capacity as an investment advisor for various
clients. WMC shares dispositive power over the shares with its
investment advisory clients. First Financial Fund, Inc. ("FFF") is
an investment advisory client of WMC.
(3) FFF holds all owned shares in its capacity as an investment company.
FFF has sole voting power and shares dispositive power over the
owned shares with WMC of which it is an investment advisory client.
(4) East River Partnership B is an Illinois general partnership, the
general partners of which are: (1) JAP Grandchildren Trust # 1, the
co-trustees of which are Marshall E. Eisenberg and Jay A. Pritzker;
(2) Don Trust #25, the co-trustees of which are Marshall E.
Eisenberg and Thomas J. Pritzker; and (3) R.A. Trust #25, the
co-trustees of which are Marshall E. Eisenberg and Thomas J.
Pritzker.
(5) Odyssey Partners, L.P. is a Delaware limited partnership having six
general partners: Stephen Berger, Leon Levy, Jack Nash, Joshua Nash,
Brian Wruble and Nash Family Partnership, L.P. The general partners
of Odyssey Partners, excluding Nash Family Partnership, L.P., share
voting and dispositive power over all owned shares.
(6) John Hancock Advisors, Inc. ("JHA") is a wholly-owned subsidiary of
The Berkeley Financial Group, which is a wholly-owned subsidiary of
John Hancock Asset Management, which is a wholly-owned subsidiary of
John Hancock Subsidiaries, Inc., which is a wholly-owned subsidiary
of John Hancock Mutual Life Insurance Company. JHA has sole voting
and dispositive power over the 315,000 shares of common stock over
which it has direct beneficial ownership.
693046.4
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<PAGE>
DESCRIPTION OF RB ASSET CAPITAL STOCK
General
The amended and restated certificate of incorporation and
certificate of designation of River Distribution Sub, as in effect immediately
prior to the Merger will be the certificate of incorporation and the certificate
of designation for RB Asset upon consummation of the Merger. The following
description of the capital stock of RB Asset assumes consummation of the Merger.
RB Asset's amended and restated certificate of incorporation (the
"RB Asset Certificate"), as amended by the certificate of merger filed in
connection with the Merger, authorizes the issuance of up to 30,000,000 shares
of common stock, $1.00 par value (the "RB Asset Common Stock"), and 10,000,000
shares of RB Asset preferred stock, $1.00 par value, (the "RB Asset Preferred
Stock"). Of the 30,000,000 shares of authorized RB Asset Common Stock, 7,100,000
have been issued and are outstanding. Of the 10,000,000 shares of authorized RB
Asset Preferred Stock, 1,400,000 shares of 15% non-cumulative perpetual
preferred stock, series A have been designated and issued pursuant to a
certificate of designation (the " RB Asset Certificate of Designation") and are
outstanding (the "RB Asset Series A Preferred Stock"). As of the date hereof, RB
Asset has a total of 7,100,000 shares of RB Asset Common Stock and 1,400,000
shares of RB Asset Series A Preferred Stock outstanding, all of which are held
by the Bank.
The RB Asset Certificate and the RB Asset Certificate of Designation
are substantially the same as the restated organization certificate of River
Bank (the "River Bank Organization Certificate") and the certificate of
designations with respect to the River Bank Series A Preferred Stock, with one
exception. In order to preserve certain rights of the holders of the River Bank
Series A Preferred Stock existing prior to the Reorganization, the RB Asset
Certificate of Designation for the RB Asset Series A Preferred Stock provides
that holders of the RB Asset Series A Preferred Stock will have the right to
elect two directors if RB Asset or the Bank shall have failed to make the
payment of full dividends on the RB Asset Series A Preferred Stock (or the
declaration of such full dividends and the setting apart of a sum sufficient for
payment thereof) with respect to each of any six (6) dividend periods, whether
consecutive or not. River Bank has not paid a quarterly dividend on the River
Bank Series A Preferred Stock since March 30, 1996.
As is the case with the Bank, the of RB Asset Board has the power
from time to time to issue additional shares of RB Asset Common Stock or RB
Asset Preferred Stock authorized by the RB Asset Certificate without obtaining
approval of RB Asset's stockholders. The rights, qualifications, limitations and
restrictions on each series of RB Asset Preferred Stock issued will be
determined by the RB Asset Board and approved as required by the DGCL or
otherwise, at the time of issuance and may include, among other things, rights
in liquidation, rights to participating dividends, voting rights and the right
to convert into RB Asset Common Stock.
RB Asset Common Stock
The following summary of the terms of the RB Asset Common Stock does
not purport to be complete and is subject to, and is qualified in its entirety
by, the provisions of the RB Asset Certificate and the by-laws of RB Asset (the
"RB Asset By-Laws"). See "AVAILABLE INFORMATION."
Dividends. RB Asset may pay dividends as declared from time to time
by the RB Asset Board out of funds legally available therefor. See "RISK FACTORS
- -- Uncertainty as to Dividend Payments to Holders of RB Asset Preferred Stock
and RB Asset Common Stock" for certain restrictions on the payment of dividends.
Voting Rights. Except as provided with respect to any series of RB
Asset Preferred Stock, the holders of RB Asset Common Stock possess exclusive
voting rights in RB Asset. Each holder of RB Asset Common Stock is entitled to
one vote for each share held on all matters voted upon by stockholders.
Stockholders are not permitted to cumulate votes in elections of directors.
693046.4
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<PAGE>
Liquidation. Subject to the prior rights of the holders of any
shares of RB Asset Preferred Stock that may be outstanding, in the event of any
liquidation, dissolution or winding up of RB Asset, the holders of the RB Asset
Common Stock would be entitled to receive, after payment of all debts and
liabilities of RB Asset, all assets of RB Asset available for distribution.
Preemptive Rights. Holders of the RB Asset Common Stock do not have
any preemptive rights with respect to any shares which may be issued by RB Asset
in the future; RB Asset, therefore, may sell shares of capital stock without
first offering them to the then stockholders of RB Asset.
Special Stockholders' Meetings. Special meetings of the stockholders
of RB Asset may be called at any time by the RB Asset Board, the President or
the Chairman of the Board and shall be called by the President or the Secretary
upon the written request of the holders of a majority of the outstanding shares
of capital stock of RB Asset entitled to vote at the meeting.
RB Asset Series A Preferred Stock
The following summary of the terms of the RB Asset Series A
Preferred Stock does not purport to be complete and is subject to, and is
qualified in its entirety by, the provisions of the RB Asset Certificate and RB
Asset By-laws and the RB Asset Certificate of Designation. SEE"AVAILABLE
INFORMATION."
General. The RB Asset Certificate authorizes RB Asset to issue
10,000,000 shares of RB Asset Preferred Stock in series. The RB Asset Board has
the power to fix various terms with respect to such shares, including voting
powers, designations, preferences, price, dividend rate, conversion and exchange
provisions, redemption provisions and the amounts that holders are entitled to
receive upon any dissolution, liquidation or winding up of RB Asset.
The RB Asset Certificate of Designation authorizes the issuance of
up to 1,400,000 shares of RB Asset Series A Preferred Stock. The RB Asset Series
A Preferred Stock is perpetual and is not subject to any sinking fund or other
obligation of RB Asset to redeem or retire the RB Asset Series A Preferred
Stock.
Ranking. The RB Asset Series A Preferred Stock ranks prior to the RB
Asset Common Stock with respect to dividend rights and rights upon the voluntary
or involuntary dissolution, liquidation or winding up of RB Asset, and to all
other classes and series of equity securities of RB Asset hereafter issued,
other than any class or series of equity securities of RB Asset expressly
designated as being on a parity with or senior to the RB Asset Series A
Preferred Stock with respect to dividend rights or rights upon any such
dissolution, liquidation or winding up. The RB Asset Common Stock and any other
classes or series of equity securities of RB Asset not expressly designated as
being on a parity with or senior to the RB Asset Series A Preferred Stock are
referred to hereafter as "Junior Stock". The rights of holders of shares of RB
Asset Series A Preferred Stock are subordinate to the rights of RB Asset's
creditors. RB Asset has the power to create and issue additional RB Asset
Preferred Stock to other classes of stock ranking on a parity with the RB Asset
Series A Preferred Stock, or that constitute Junior Stock, without any approval
or consent of the holders of RB Asset Series A Preferred Stock. However, while
any shares of RB Asset Series A Preferred Stock are outstanding, RB Asset may
not issue any capital stock that ranks senior to the RB Asset Series A Preferred
Stock without the approval of holders of at least 662/3% of the outstanding
shares of RB Asset Series A Preferred Stock, voting as a class. See "-- Voting
Rights" below. The RB Asset Common Stock is the only other class of capital
stock of RB Asset which will be outstanding immediately following consummation
of the Reorganization.
Dividend Rights. Holders of RB Asset Series A Preferred Stock will
be entitled to receive, when, as and if declared by the RB Asset Board, out of
funds legally available therefor, non-cumulative cash dividends at the rate of
15% per annum ($3.75 per share per annum). Dividends on the RB Asset Series A
Preferred Stock will be payable, if declared, quarterly in as nearly as possible
equal proportions in arrears as provided in the RB Asset Certificate of
Designation on the 15th day of January, April, July and October in each year (or
if such day is not a business day, on the next business day) (each such date, a
"Dividend Payment Date"), commencing on the first Dividend Payment Date
693046.4
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after the effective time of the Merger. The amount of dividends payable for any
period of less than a full three months will be computed on the basis of a
360-day year composed of 12 months of 30 days and the actual number of days
elapsed. Dividends declared, if any, will be payable to holders of record as
they appear on the stock books of RB Asset (or of any transfer agent for the RB
Asset Series A Preferred Stock) at the close of business on such record dates
(each, a "Dividend Record Date") not more than 50 calendar days nor fewer than
ten calendar days preceding the Dividend Payment Date thereof, as determined by
the Board.
The right of holders of RB Asset Series A Preferred Stock to receive
dividends is non-cumulative. Accordingly, if the RB Asset Board does not declare
a dividend payable in respect of any quarterly dividend period (a "Dividend
Period"), then holders of RB Asset Series A Preferred Stock will have no right
to receive, and RB Asset will have no obligation to pay, a dividend in respect
of such Dividend Period, whether or not dividends are declared payable in
respect of any future Dividend Period. Dividends on the RB Asset Series A
Preferred Stock will not be declared and paid if payment of such dividends is
then restricted by applicable law.
No full dividends may be declared or paid or set aside for payment
as dividends on any class or series of equity securities ranking, as to
dividends, on a parity with the RB Asset Series A Preferred Stock for any
Dividend Period unless full dividends on the RB Asset Series A Preferred Stock
for such Dividend Period shall have been paid or declared and set aside for
payment. If, with respect to any Dividend Period, dividends are not so declared
and paid in full upon the RB Asset Series A Preferred Stock, dividends on the RB
Asset Series A Preferred Stock and any such class or series of equity securities
ranking on a parity with the RB Asset Series A Preferred Stock shall only be
declared pro rata based upon the respective amounts that would have been paid on
the RB Asset Series A Preferred Stock and such other equity securities had
dividends been paid in full.
RB Asset may not (i) declare or (ii) pay or set apart funds for any
dividends or other distributions (other than in RB Asset Common Stock or other
Junior Stock) with respect to any RB Asset Common Stock or other Junior Stock or
(iii) (except by conversion into or exchange for Junior Stock) repurchase,
redeem, or otherwise acquire, or set apart funds for the repurchase, redemption
or other acquisition of, any RB Asset Common Stock or other Junior Stock through
a sinking fund or otherwise, unless RB Asset has, in the case of clause (i)
declared, or in the case of clauses (ii) or (iii), paid (or set aside an amount
for payment of) full dividends on the RB Asset Series A Preferred Stock with
respect to the same calendar quarter for which (a) the dividend or other
distribution is being declared or paid, as the case may be, on the RB Asset
Common Stock or other Junior Stock or (b) the RB Asset Common Stock or other
Junior Stock is being purchased, redeemed or otherwise acquired.
No dividend may be paid or set aside for holders of the RB Asset
Series A Preferred Stock for any Dividend Period unless full dividends have been
paid or set aside for the holders of each class of series of equity securities
of RB Asset ranking prior to the RB Asset Series A Preferred Stock as to
dividends. Therefore, RB Asset's ability to pay dividends on the RB Asset Series
A Preferred Stock may be subject to the prior and superior rights of holders of
any senior class or series of equity securities of RB Asset.
RB Asset's ability to pay dividends on the RB Asset Series A
Preferred Stock is subject to certain restrictions. See "-- Restrictions on
Dividends and Redemptions."
Liquidation. Holders of shares of RB Asset Series A Preferred Stock
shall be entitled to receive a liquidation distribution in the amount of $25.00
per share, plus unpaid dividends for the then-current Dividend Period up to, but
excluding, the date fixed for liquidation (the "Liquidation Date") in the event
of any voluntary or involuntary dissolution, liquidation or winding up of RB
Asset, out of the net assets of RB Asset legally available for distribution to
stockholders under applicable law, or the proceeds thereof, before any payment
or distribution of assets is made with respect to any RB Asset Common Stock or
any other Junior Stock (subject to the rights of the holders of any class or
series of equity securities having preference over the RB Asset Series A
Preferred Stock with respect to distributions upon liquidation and the rights of
RB Asset's creditors). After payment of the full amount of the liquidating
distribution
693046.4
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to which they are entitled, holders of shares of RB Asset Series A Preferred
Stock will not be entitled to any further participation in any liquidating
distribution of assets by RB Asset.
If the amounts available for distribution in respect of shares of RB
Asset Series A Preferred Stock and any other outstanding equity securities
ranking on a parity with the RB Asset Series A Preferred Stock are not
sufficient to satisfy the full liquidation rights of all the outstanding shares
of the RB Asset Series A Preferred Stock and such other equity securities, then
the holders of such outstanding shares will share ratably in any such
distribution of assets in proportion to the full respective preferential amount
to which they are entitled. All distributions made in respect of the RB Asset
Series A Preferred Stock in connection with such a liquidation, dissolution or
winding up of RB Asset will be made pro rata to the holders of the RB Asset
Series A Preferred Stock entitled thereto. Neither the consolidation or merger
of RB Asset with or into any other entity, nor the consolidation or merger of
any other entity with or into RB Asset, nor a sale, transfer or lease of all or
any part of the assets of RB Asset will be considered a dissolution, liquidation
or winding up of RB Asset.
The liquidation preference of the RB Asset Series A Preferred Stock
is not necessarily indicative of the price at which the shares may actually
trade at or after the date of issuance.
Voting Rights. Holders of shares of RB Asset Series A Preferred
Stock are not entitled to any voting rights, except as required by applicable
law and in the limited circumstances described below.
So long as any shares of RB Asset Series A Preferred Stock are
outstanding, RB Asset will not, without the consent of the holders of at least
662/3% of the outstanding shares of RB Asset Series A Preferred Stock voting
together as a single class, (i) amend, alter or repeal or otherwise change any
provision of the RB Asset Certificate or the RB Asset Certificate of Designation
if such amendment, alteration, repeal or change would materially and adversely
affect the rights, preferences, powers or privileges of the RB Asset Series A
Preferred Stock or (ii) create, authorize, issue or increase the authorized or
issued amount of any class or series of any equity securities of RB Asset, or
any warrants, options or other rights convertible or exchangeable into any class
or series of any equity securities of RB Asset, ranking prior to the RB Asset
Series A Preferred Stock either as to dividend rights or rights upon the
voluntary or involuntary dissolution, liquidation or winding up of RB Asset. No
vote of the holders of the RB Asset Series A Preferred Stock will be required in
the case of any of the following, which are not deemed to be a material adverse
change to the rights, preferences, powers or privileges of the RB Asset Series A
Preferred Stock:
(a) an amendment of the RB Asset Certificate which
increases the number of shares of preferred stock which RB Asset is
authorized to issue;
(b) the creation or issuance of Parity Stock (as defined
in the RB Asset Certificate of Designation) or Junior Stock;
(c) the distribution of assets upon a voluntary or
involuntary liquidation, dissolution or winding up of RB Asset, or
(d) in connection with a merger, consolidation,
reorganization or other business combination involving RB Asset (any
such transaction being hereinafter referred to as a "RB Asset
Reorganization") if:
(1) the resulting, surviving or acquiring
corporation, or, if the direct owner of all the equity
securities of such resulting, surviving or acquiring
corporation is a corporation and such corporation will
be the issuer of the shares of stock issued as set forth
in clause (d) (2) below, such corporation (the "parent
corporation"), will have after such RB Asset
Reorganization no stock outstanding ranking prior to the
RB Asset Series A Preferred Stock or the stock of the
resulting, surviving or acquiring corporation or the
parent corporation, as the case may be, issued in
exchange therefor (except such stock of the resulting,
surviving, acquiring or parent corporation (the "Mirror
Stock")
693046.4
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which is issued in exchange for other series of
preferred stock of RB Asset which are outstanding
immediately preceding such RB Asset Reorganization and
which were not issued in violation of the terms of the
Certificate of Designations (the "Exchanged Stock"),
which Mirror Stock contains the same relative powers,
preferences, privileges or rights, including, without
limitation, substantially equivalent voting and
conversion rights, as the Exchanged Stock); and
(2) either (A) each holder of shares of RB Asset
Series A Preferred Stock immediately preceding such RB
Asset Reorganization will receive in exchange therefor
the same number of shares of stock, with substantially
the same powers, preferences, privileges and rights,
including, without limitation, substantially equivalent
voting and conversion rights, of the resulting,
surviving or acquiring corporation, or such
corporation's parent corporation, or (B) RB Asset is the
surviving corporation and the RB Asset Series A
Preferred Stock remains outstanding without any change
to its powers, preferences, privileges or rights,
including, without limitation, voting and conversion
rights.
RB Asset may distribute to the holders of (a) the RB Asset Series A Preferred
Stock in exchange therefor the same number of shares of the resulting, surviving
or acquiring corporation or the parent corporation, as the case may be, with
substantially the same powers, preferences, privileges and rights, including,
without limitation, substantially equivalent voting and conversion rights, of
the resulting, surviving, or acquiring corporation, or such corporation's parent
corporation, and (b) the RB Asset Common Stock in exchange therefor the same
number of common shares of the resulting, surviving or acquiring corporation or
the parent corporation, as the case may be, with substantially the same powers,
preferences, privileges and rights, including, without limitation, substantially
equivalent voting and conversion rights, of the resulting, surviving, or
acquiring corporation, or such corporation's parent corporation as contemplated
by a RB Asset Reorganization notwithstanding any limitations otherwise described
under "--Dividend Rights."
Holders of the RB Asset Series A Preferred Stock will not be
entitled to vote upon the election of members of the RB Asset Board or other
matters in general. Holders of the RB Asset Series A Preferred Stock, however,
will be entitled to elect two members of RB Asset's Board to fill two
newly-created directorships upon the occurrence of a "Voting Event." A Voting
Event occurs if RB Asset or the Bank fails to pay full dividends on the RB Asset
Series A Preferred Stock or the River Bank Series A Preferred Stock (or to
declare such full dividends and set apart a sum sufficient for payment thereof)
with respect to each of any six Dividend Periods, whether consecutive or not.
River Bank has not declared or paid a quarterly dividend on the River Bank
Series A Preferred Stock since March 30, 1996 except the dividend declared but
not paid for the dividend period ended June 30, 1996 for which no funds
sufficient for the payment thereof were set apart. Therefore, a Voting Event has
occurred and the right of RB Asset Series A Preferred Stockholders to elect two
directors has matured.
Upon the occurrence of a Voting Event, the holders of shares of RB
Asset Series A Preferred Stock voting together as a single class with the
holders of any other Parity Stock as to which the payment of dividends is in
arrears and unpaid in an aggregate amount equal to or exceeding the amount of
dividends payable for six quarterly dividend periods (or if dividends are
payable other than on a quarterly basis, a number of dividend periods, whether
or not consecutive, containing in the aggregate not less than 540 calendar days)
and upon which by its terms the same right to elect two directors has been
conferred and is exercisable ("Voting Parity Stock")), will have the exclusive
right to elect two directors of RB Asset to fill two newly-created directorships
at RB Asset's next annual meeting of stockholders and at each subsequent annual
meeting of stockholders at which the terms of such directors expire until such
election right terminates. At any time when the right to elect directors has
been vested, RB Asset may, and upon the written request of the holders of record
of not less than 20% of the total number of shares of the RB Asset Series A
Preferred Stock and the Voting Parity Stock then outstanding will, call a
special meeting of the holders of such shares to fill such newly-created
directorships. Following the Reorganization, the RB Asset Board intends to call
a special meeting of the RB Asset Series A Preferred Stockholders to be convened
no later than June 30, 1998 to elect two representatives of such stockholders in
accordance with the foregoing voting right provisions.
693046.4
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The right of holders of RB Asset Series A Preferred Stock to elect
directors will continue until dividends on the RB Asset Series A Preferred Stock
have been paid for four consecutive Dividend Periods, at which time such voting
rights of the holders of the RB Asset Series A Preferred Stock will, without
further action, terminate, subject to revesting in the event of the occurrence
of a subsequent Voting Event. The term of office of all directors elected by the
holders of the RB Asset Series A Preferred Stock and the Voting Parity Stock in
office at any time when the aforesaid voting right is vested in such holders
will terminate upon the election of their successors at any meeting of
stockholders for the purpose of electing directors; provided, however, that,
without further action and unless otherwise required by law, any directors who
shall have been elected by the holders of the RB Asset Series A Preferred Stock
and the Voting Parity Stock as described above may be removed at any time,
either with or without cause by the affirmative vote of the holders of record of
a majority of the outstanding shares of the RB Asset Series A Preferred Stock
and the Voting Parity Stock, voting together as one class, at a duly held
stockholders' meeting. Upon termination of the voting rights of the RB Asset
Series A Preferred Stock in accordance with the foregoing provisions, the term
of office of all directors elected by the holders of the RB Asset Series A
Preferred Stock pursuant thereto then in office will, without further action,
terminate unless otherwise required by law (or at such later time as the voting
right of the Voting Parity Stock terminates by its terms). Upon such termination
the number of directors constituting the Board will, without further action, be
reduced by two, subject always to the increase of the number of directors
pursuant to the foregoing provisions in the case of the future right of such
holders of the RB Asset Series A Preferred Stock and the Voting Parity Stock to
elect directors as described above.
Unless otherwise required by law, in the case of any vacancy
occurring among the directors so elected, the remaining director who shall have
been so elected may appoint a successor to hold office for the unexpired term of
the director whose place shall be vacant, and if both directors so elected by
the holders of the RB Asset Series A Preferred Stock and the Voting Parity Stock
cease to serve as directors before their terms expire, the holders of the RB
Asset Series A Preferred Stock and the Voting Parity Stock then outstanding may,
at a meeting of such holders duly held, elect successors to hold office for the
unexpired terms of the directors whose places shall be vacant.
The RB Asset Certificate of Designation provides that if for any
reason the holders of the RB Asset Series A Preferred Stock and the Voting
Parity Stock would not be able to elect the specified number of directors at the
next annual meeting of stockholders in the manner described above, RB Asset will
use its best efforts to take all actions necessary to permit the full exercise
of such voting rights which will include, if necessary, taking action to
increase the authorized number of directors standing for election at such next
annual meeting of stockholders or seeking to amend, alter or change the RB Asset
Certificate or the RB Asset By-laws.
In connection with any matter on which holders of the RB Asset
Series A Preferred Stock are entitled to vote as one class or otherwise pursuant
to law or the provisions of the Certificate of Incorporation, including, without
limitation, the election of directors as set forth above, each holder of the RB
Asset Series A Preferred Stock will be entitled to one vote for each share of
the RB Asset Series A Preferred Stock held by such holder.
No Other Rights. The shares of RB Asset Series A Preferred Stock
have no other preferences, voting powers or relative, participating, optional or
other special rights except as described in the RB Asset Certificate of
Designation or in the RB Asset Certificate or as otherwise required by law.
693046.4
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Redemption. The RB Asset Series A Preferred Stock is perpetual and
is not redeemable prior to July 1, 2004. The RB Asset Series A Preferred Stock
is redeemable by RB Asset at its option at any time on or after July 1, 2004, in
whole or in part, at the per share redemption prices set forth below in cash,
plus in each case an amount in cash equal to accrued but unpaid dividends for
the then current Dividend Period up to, but excluding, the date fixed for
redemption (the "Redemption Date") without the accumulation of unpaid dividends
for prior Dividend Periods:
If redeemed during the
12-month period
beginning July 1, Price
- --------------------------------- ---------
2004....................... $ 27.50
2005....................... 27.25
2006....................... 27.00
2007....................... 26.75
2008....................... 26.50
2009....................... 26.25
2010....................... 26.00
2011....................... 25.75
2012....................... 25.50
2013....................... 25.25
2014 and thereafter........ 25.00
The aggregate redemption price payable to each holder of record of
RB Asset Series A Preferred Stock to be redeemed will be rounded to the nearest
cent ($0.01).
If fewer than all the outstanding shares of RB Asset Series A
Preferred Stock are to be redeemed, the shares to be redeemed shall be selected
pro rata or by lot or by such other method as the RB Asset Board, in its sole
discretion, determines to be equitable.
Redemption of the RB Asset Series A Preferred Stock will be subject
to compliance with legal and other restrictions described below.
Note Exchange
Subject to the terms and conditions set forth below, in the event of
a Change of Control (as defined below), the Note Issuer (as defined below) may,
at its option, exchange (the "Note Exchange") all or part of the outstanding RB
Asset Series A Preferred Stock for subordinated notes (the "Notes") of the Note
Issuer. Pursuant to a Note Exchange, each $1,000 in liquidation value of the
shares of RB Asset Series A Preferred Stock covered thereby will be exchangeable
for $1,000 principal amount of Notes. Such Notes shall have the terms, covenants
and conditions substantially as set forth in the indenture (the "Indenture")
described under "Description of Notes" below. The rate of interest on the Notes
shall be 15%, the maximum principal amount of the Notes shall be 100% of the
aggregate liquidation preference of the RB Asset Series A Preferred Stock to be
exchanged and the principal of such Notes shall not be payable prior to July 1,
2004 and shall be payable thereafter only in accordance with the redemption
provisions set forth in the Indenture.
"Change of Control" means the occurrence of any of the following
events:
(i) Any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of more than 50% of the stock
of any class or classes, however designated, of capital
693046.4
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stock of RB Asset having ordinary voting power for the election of a
majority of the RB Asset Board, other than any stock having such
power only by reason of the occurrence of a contingency, on a fully
diluted basis (the "Voting Stock"); or
(ii) RB Asset (x) shall consolidate with or merge into
any person, other than a wholly-owned subsidiary of RB Asset, and
shall not be the continuing or surviving corporation of such
consolidation or merger or (y) shall permit any person, other than a
wholly-owned subsidiary of RB Asset, to consolidate with or merge
into RB Asset and RB Asset shall be the continuing or surviving
corporation, but, in connection with such merger, the shares of
Voting Stock outstanding immediately prior to the consolidation or
merger shall be changed into or exchanged for stock or other
securities of any other person or cash or any other property or
shall represent less than 50% of the shares of Voting Stock
immediately after giving effect to the consolidation or merger;
provided that in the case of each of clause (i) and (ii) above a Change of
Control shall not be deemed to occur in the event (i) that Alvin Dworman, two
partnerships, the partners of which are trusts for the benefit of certain
descendants of Nicholas J. Pritzker, deceased or Odyssey Partners, L.P., a
Delaware limited partnership, or their respective affiliates, acquire,
individually or in the aggregate, more than 50% of the Voting Stock of RB Asset
or (ii) RB Asset reorganizes into the holding company form of organization in a
transaction which does not result in a material change in the holders of the
Voting Stock, other than by means of dissenting shares.
"Note Issuer" means, in the case of clause (i) of the definition of
"Change in Control," RB Asset, and in the case of clause (ii) of the definition
of "Change in Control," (a) the continuing or surviving corporation of a
consolidation merger with RB Asset (if other than RB Asset) and (b) the
corporation consolidating or merging into RB Asset in a consolidation or merger
in which RB Asset is the continuing or surviving person and in connection with
which the shares of Voting Stock outstanding immediately prior to the
consolidation or merger are changed into or exchanged for stock or other
securities of any other person or cash or any other property or shall represent
less than 50% of the shares of Voting Stock immediately after giving effect to
the consolidation or merger.
The Note Issuer may elect to consummate the Note Exchange at any
time following a Change of Control and prior to July 1, 2014. The Note Issuer
shall elect to consummate the Note Exchange by mailing to each holder of record
of the RB Asset Series A Preferred Stock (a "Holder") a notice of exchange (the
"Note Exchange Notice") at such Holder's address as it appears on the books of
RB Asset. The Note Exchange Notice shall specify (i) a date not less than 30
days nor more than 60 days following the date of the Note Exchange Notice on
which the Note Exchange is to be consummated (the "Note Exchange Date"), (ii)
the procedures for exchanging certificates representing the RB Asset Series A
Preferred Stock for certificates representing the Notes and (iii) the number of
shares of RB Asset Series A Preferred Stock to be exchanged and, if applicable,
each Holder's pro rata portion of shares to be exchanged.
In the event that the Note Exchange shall be for less than all of
the outstanding shares of RB Asset Series A Preferred Stock, the Note Exchange
shall be effected pro rata among all Holders, unless the Holders otherwise
agree, and, in addition to certificates evidencing the Notes, all Holders shall
receive a certificate evidencing the shares of RB Asset Series A Preferred Stock
not so exchanged.
As of 5:00 p.m., New York City time, on the Note Exchange Date, the
shares of RB Asset Series A Preferred Stock to be exchanged pursuant to the Note
Exchange Notice shall no longer be deemed to be outstanding and shall be retired
and all rights with respect to such shares, including, without limitation, the
rights, if any, to receive dividends and to receive notices and to vote or
consent (except for the right of the Holders to receive the Notes to which such
Holder is entitled pursuant to the Note Exchange) shall forthwith cease.
Upon any exchange of shares of RB Asset Series A Preferred Stock
into Notes, the Note Issuer will pay any documentary, stamp or similar issue or
transfer taxes which may be due with respect to the transfer and exchange of
such exchanged shares, if any; provided, however, that if the Notes into which
the shares of RB Asset Series A
693046.4
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Preferred Stock are exchangeable are to be issued in the name of any person
other than the Holder of the shares of RB Asset Series A Preferred Stock to be
so exchanged, the amount of any transfer taxes (whether imposed on the Note
Issuer, the holder or such other person) payable on account of the transfer to
such person will be payable by the Holder.
A Note Exchange shall comply with all applicable federal and state
securities and blue sky laws and the provisions of the RB Asset Certificate of
Designation dealing therewith may be modified by the Note Issuer without the
approval of the holders of the RB Asset Series A Preferred Stock in order to
effect such compliance.
It will be a condition to the Note Exchange that: (i) the Notes have
been registered under the 1933 Act, unless an exemption from registration is
available, (ii) the Indenture pursuant to which the Notes are to be issued has
been executed and delivered by the Note Issuer, (iii) the trustee appointed
pursuant to the Indenture shall have received an opinion (in the form specified
in the Indenture) to the effect that the Notes will, when issued in accordance
with the terms of the Indenture, be legal, valid, binding and enforceable
obligations of the Note Issuer and (iv) immediately after the Note Exchange, no
default or event of default will exist under the Indenture.
Restrictions on Dividends and Redemptions.
RB Asset's ability to declare and pay dividends on the RB Asset
Series A Preferred Stock and to redeem the RB Asset Series A Preferred Stock is
subject to a number of restrictions. There can be no assurance that any dividend
on the RB Asset Series A Preferred Stock will be declared or, if so, in what
amount. Further, there can be no assurance that dividends, once declared, will
continue for any future Dividend Periods. The declaration and payment of future
dividends on, and any redemption of, the RB Asset Series A Preferred Stock will
be subject to business conditions, the earnings and financial condition of RB
Asset and the judgment of the Board. Dividends and redemptions are also affected
by dividend restrictions and limitations imposed by the Marine Senior Loan and
the General Corporation Law of the State of Delaware. See "RISK FACTORS --
Uncertainty as to Dividend Payments to Holders of RB Asset Preferred Stock and
RB Asset Common Stock."
693046.4
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DESCRIPTION OF NOTES
The Notes are to be issued under the Indenture between the Note
Issuer and a trustee to be appointed by it pursuant to the terms thereof (the
"Trustee"). The Indenture cannot be executed prior to consummation of a Change
of Control. The following summary of certain provisions of the form of Indenture
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the full text of the form of Indenture, including the
definition of certain terms in the Indenture. See "Available Information."
Wherever particular provisions and definitions of the Indenture are referred to,
such provisions and definitions are incorporated by reference as part of the
statements made, and the statements are qualified in their entirety by those
references. Section references are to applicable sections of the Indenture.
The form of Indenture is subject to necessary and appropriate
changes prior to the Note Exchange, provided that such changes do not materially
and adversely affect the rights and interests of holders of RB Asset Series A
Preferred Stock. Such changes may include, among other things, changes necessary
to qualify the Indenture pursuant to the Trust Indenture Act, and other changes
as may be necessary based on the identity of the Note Issuer and the
circumstances of the issuance of the Notes. In the event that any of the
foregoing or other changes would result in a material and adverse effect on the
rights and interests of holders of the RB Asset Series A Preferred Stock, the
approval of the holders of at least 662/3% of the outstanding shares of RB Asset
Series A Preferred Stock will be required in order to make such change. The
inability to obtain such approval could result in the Note Issuer failing to
issue the Notes.
General
The Notes will be limited in aggregate principal amount to the
aggregate liquidation preference of the then outstanding shares of RB Asset
Series A Preferred Stock (maximum of approximately $35,000,000). The Notes will
mature on July 1, 2014. The Notes will be unsecured subordinated obligations of
the Note Issuer and will be issued in fully registered form only in
denominations of $1,000 and integral multiples thereof.
The Notes will bear interest from the date of their initial
issuance, at the rate of 15% per annum, payable quarterly in arrears on the 15th
day of January, April, July and October of each year following the Note
Exchange, or if such day is not a Business Day ("Interest Payment Date"), on the
next Business Day, to the holders of record, with certain exceptions, at the
close of business on the last day (whether or not a Business Day) of the month
in which an Interest Payment Date occurs (each, a "Regular Record Date").
Interest will be computed on the basis of a 360- day year of 12 30-day months.
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Redemption
The Notes may not be redeemed by the Note Issuer prior to July 1,
2004. The Notes will be redeemable at the option of the Note Issuer, in whole or
in part, at any time or from time to time on or after July 1, 2004 at the
redemption prices (expressed in percentages of $1,000 of principal amount) of
Notes set forth below, plus in each case an amount equal to accrued interest, if
any, to (and including) the redemption date.
Redemption
Price Per
If redeemed during the $1,000 of
twelve-month period Principal
beginning July 1, Amount
----------------- ------
2004......................................................... $ 1,100
2005......................................................... 1,090
2006......................................................... 1,080
2007......................................................... 1,070
2008......................................................... 1,060
2009......................................................... 1,050
2010......................................................... 1,040
2011......................................................... 1,030
2012......................................................... 1,020
2013......................................................... 1,010
2014 and thereafter.......................................... 1,000
If at any time less than all of the outstanding Notes are to be
redeemed, selection of Notes for redemption will be made by the Trustee by lot.
Notes may be redeemed in part in integral multiples of $1,000 provided that the
remaining principal amount of any Note redeemed in part shall not be less than
$1,000. Notice of redemption will be mailed to each holder of a Note to be
redeemed at his address as set forth in the Note register at least 30 days but
not more than 60 days before the redemption date. On and after the date of
redemption interest will cease to accrue on Notes or portions thereof called for
redemption. (Sections 10.02 and 10.03)
Subordination
The Indenture will provide that the Notes will be subordinate in
right of payment to Senior Debt (as hereinafter defined). No amounts may be paid
to the holders of the Notes (until all Senior Debt has been paid in full) if
there occurs an acceleration of maturity of the Notes or an insolvency,
bankruptcy, reorganization or similar proceeding or a liquidation or other
winding up of the Notes. No payment on account of principal or interest in
respect of the Notes may be made if at the time of such payment there shall have
occurred and be continuing beyond any applicable grace period, a default in any
payment with respect to any Senior Debt, or there shall have occurred an event
of default with respect to any Senior Debt permitting the holders thereof to
accelerate the maturity thereof, unless and until the earlier of the date (a) on
which such default in payment or event of default has been cured or waived or
shall have ceased to exist and (b) which is 180 days after the occurrence of
such default, unless extended in the event of an uncured event of default on
Senior Debt.
By reason of such subordination, in the event of an insolvency,
bankruptcy, reorganization or similar proceeding or a liquidation or other
winding up of the Note Issuer, holders of the Notes may recover less, ratably,
than other creditors of the Note Issuer, including holders of Senior Debt.
(Article 9)
Senior Debt will be defined as the principal of and premium, if any,
and interest on all claims against the Note Issuer, including, without
limitation, commercial paper, repurchase agreements, secured debt and RB Asset's
other
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obligations to its general and secured creditors, whether outstanding on the
date of the Indenture or thereafter created, incurred, assumed or guaranteed by
the Note Issuer, and all renewals, extensions or refunding thereof. Senior Debt
will not include the Notes, any indebtedness ranking on a parity with or junior
to the Notes or indebtedness for money borrowed by the Note Issuer from a
subsidiary or affiliate.
The Indenture will contain no restrictions upon the creation of
Senior Debt but will prohibit the creation of liabilities that are junior in
right of payment to Senior Debt and senior in right of payment to the Notes.
The Indenture will permit, without limitation, the creation of
liabilities ranking on a parity with, or junior in right of payment to, the
Notes. (Section 3.12)
Limitations on Dividends
The Note Issuer will agree in the Indenture that so long as any of
the Notes are outstanding, it will not declare or pay or set apart any funds for
the payment of dividends on, or make any other distribution in respect of, or
make or permit any subsidiary or affiliate to make any payment on account of the
purchase, redemption or other acquisition or retirement of, any shares of the
Note Issuer's capital stock (other than dividends or distributions payable
solely in shares of its capital stock) if (at the time of such action and after
giving effect, as if paid, to the proposed dividend, distribution or payment) a
Default or an Event of Default shall have occurred and be continuing. (Section
3.02)
Certain Covenants
In addition to the limitations on dividends described above, the
Indenture will contain certain other covenants of the Note Issuer. Among other
things, the Note Issuer will covenant (i) to punctually pay the principal of and
interest on the Notes on the dates and in the manner provided in the Notes; (ii)
that neither the Note Issuer nor any Subsidiary will engage in transactions with
any Affiliate, except that the Note Issuer or Subsidiary may (x) make such
payments and investments and enter into such transactions on terms and
conditions at least as favorable to the Note Issuer or such Subsidiary, as the
case may be, as those that could be obtained in a comparable arm's length
transaction with a person who is not an Affiliate (as determined in good faith
by the Board of Directors of the Note Issuer, whose determination shall be
conclusive) and (y) make payments or provide compensation (including the
extension of credit in accordance with the requirements of applicable laws
and-regulations) for services rendered by any Affiliate who is an officer,
director or employee of the Note Issuer or any Subsidiary; (iii) to (x) file
with the Trustee within five days after it files them with the Commission,
copies of all annual, quarterly and other reports filed by the Note Issuer with
the Commission pursuant to Section 13 of the Exchange Act or, if the Note Issuer
is not subject to the requirements of such section, certain other information
based on certain of such requirements and (y) as long as any Notes are
outstanding, mail to each Note holder copies of the annual and quarterly reports
that it is required to file with the Trustee (or summaries thereof) within 30
days after such filing is required to be made; (iv) to keep, and to cause each
Subsidiary to keep, all Property useful in its business in good working order
and condition and to maintain and to cause each Subsidiary to maintain, with
financially sound and reputable insurance companies, insurance on all its
Property in at least such amounts as are usually insured against in the same
general area by companies of established repute engaged in a similar business;
(v) to keep, and to cause each Subsidiary to keep, proper books of record and
account and to cause its books of record and account and those of each of its
Subsidiaries to be examined on a consolidated basis by a nationally recognized
firm of independent public accountants not less frequently than annually for
purposes of preparing audited consolidated financial statements; (vi) that it
and its Subsidiaries will comply with applicable laws, rules and regulations and
renew any license, permit and other authorizations necessary to the ownership or
operation of their Properties or to the conduct of their businesses, if the
failure to so comply, obtain, preserve and renew adversely affects in any
material respect the Note Issuer's consolidated business, prospects, earnings,
Properties or condition; (vii) to pay and to cause each Subsidiary to pay prior
to delinquency (x) all taxes, assessments and governmental charges or levies
imposed upon it or its Property and (y) all claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other persons which, if unpaid,
might result in the creation of a lien upon its Property, provided that, among
other things, the Note Issuer or a Subsidiary is not contesting any such items
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in good faith by appropriate proceedings; (viii) to take certain actions in the
event that it elects to act as paying agent for the Notes; and (ix) to deliver
to the Trustee on an annual basis an Officer's Certificate dealing with
compliance with its obligations under the Indenture, including the covenants set
forth therein. (Article 3)
Mergers, Consolidations, Etc.
The Indenture will provide that the Note Issuer shall not
consolidate or merge with or transfer all or substantially all of its Property
to any person unless (i) the corporation formed by or surviving any such
consolidation or merger, or the person to which such transfer, sale, lease or
conveyance shall have been made, unconditionally assumes by supplemental
indenture all the obligations of the Note Issuer under the Notes and the
Indenture, including but not limited to the due and punctual payment of the
principal of and interest on all the Securities; (ii) immediately after the
transaction, the Consolidated Tangible Capital of the corporation formed by or
surviving such consolidation or merger, or the person to which such transfer,
sale, lease or conveyance has been made, shall not be a negative amount; and
(iii) immediately after the transaction no Default or Event of Default exists.
(Article 4)
Modification of the Indenture; Waiver of Covenants
With the consent of holders of not less than a majority in aggregate
principal amount of the then outstanding Notes, the Note Issuer and the Trustee
may execute one or more supplemental indentures adding to, revising or
eliminating any provision of the Indenture, except that without the consent of
the holder of each Note so affected, no such supplemental indenture shall (i)
reduce the amount of Notes whose holders must consent to an amendment; (ii)
reduce the rate of or change the time for or in any way affect the terms of
payment of interest, including default interest, on any Note; (iii) reduce the
principal or change the fixed maturity of any Note, or change the date on which
any Note may be subject to redemption, or reduce the redemption price therefor,
(iv) make any Note payable in money other than U.S. dollars; (v) make any change
in the provisions of the Indenture relating to waiver of default, rights of
holders to receive payments or the circumstances under which the consent of all
of the holders of the Notes must be received in order to amend the Indenture; or
(vi) make any change in the provisions of the Indenture relating to
subordination in a manner adversely affecting the rights of any holder of the
Notes. Certain modifications to the Indenture may be made without notice to, or
consent of, the holders of the Notes. (Sections 8.01 and 8.02)
Events of Default
An Event of Default will be defined in the Indenture to include: (i)
failure by the Note Issuer to pay interest on any Note when due and payable, if
such failure continues for a period of 30 days; (ii) failure by the Note Issuer
to pay the principal of any Note when due and payable at maturity or upon
redemption, acceleration or otherwise; (iii) failure by the Note Issuer to
comply with any other agreement or covenant contained in the Indenture if such
failure continues for a period of 30 days after notice to the Note Issuer by the
Trustee or to the Note Issuer and the Trustee by the holders of at least 25% in
principal amount of the Notes then outstanding; (iv) if a default (other than a
default on certain nonrecourse indebtedness) occurs under any instrument or any
other obligation representing indebtedness of the Note Issuer or any of its
subsidiaries if as a result of such default the indebtedness may be accelerated
and the aggregate principal amount of such defaulted indebtedness exceeds $10
million; (v) occurrence of certain events of bankruptcy, insolvency or
reorganization of the Note Issuer and (vi) existence of judgments against the
Note Issuer or a subsidiary in excess of $10 million which remain undischarged
60 days after all rights to review such judgment have been exhausted or have
expired.
The Note Issuer will covenant in the Indenture to file annually with
the Trustee a statement regarding compliance by the Note Issuer with the terms
of the Indenture and specifying any defaults of which the signers may have
knowledge. (Section 3.10)
If an Event of Default occurs and is continuing, the Trustee or the
holders of not less than 25% in principal amount of the Notes then outstanding
may declare all the Notes to be immediately due and payable by notice to the
Note Issuer (and to the Trustee if given by the holders). Under certain
circumstances, the holders of a majority in principal amount of the Notes then
outstanding may rescind such a declaration. (Section 5.02)
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COMPARISON OF RIGHTS OF HOLDERS OF RIVER BANK CAPITAL STOCK
AND RB ASSET CAPITAL STOCK
Upon the consummation of the transactions contemplated in the
Reorganization, the stockholders of River Bank will become stockholders of River
Asset Sub (to be renamed RB Asset, Inc.). Currently, the rights of River Bank
stockholders are governed by the River Bank Organization Certificate, its
amended and restated by-laws (the "River Bank By-laws"), the New York Banking
Law and the General Regulations of the Banking Board of the State of New York
(the "New York Banking Board Regulations"). The rights of RB Asset stockholders
will be governed by the RB Asset Certificate, the RB Asset By-laws and the DGCL.
The following is a summary of certain similarities and material
differences between the rights of River Bank stockholders and RB Asset
stockholders under the foregoing governing documents and applicable law. The
identification of specific similarities and differences is not meant to indicate
that other equally or more significant similarities and differences do not
exist. The descriptions of such similarities and differences are qualified by
reference to the New York Banking Law, the DGCL and the respective corporate
documents of River Bank and RB Asset.
Special Meetings of Stockholders. Under the DGCL and the New York
Banking Law, a special meeting of stockholders may be called by the board of
directors or by any other person authorized to do so in the certificate of
incorporation (or organization certificate) or the by-laws. Both the River Bank
By-laws and the RB Asset By-laws permit a special meeting to be called for any
purpose or purposes by (i) the chairman of the board, (ii) the president, (iii)
the board of directors, or (iv) by the president or the secretary at the written
request of the holders of record of not less than a majority of the outstanding
shares of capital stock entitled to vote in an election of directors.
Amendment of By-laws. Under the DGCL and the New York Banking Law,
by-laws may be amended by stockholders entitled to vote; provided, however, a
corporation may confer the power to amend by-laws upon the directors. The fact
that such power has been so conferred upon the directors does not divest the
stockholders of their power to amend the by-laws. The RB Asset Certificate and
the RB Asset By-laws state that they may be amended or repealed, or new By-laws
may be adopted, by the affirmative vote of a majority of the outstanding stock
entitled to vote in an election of directors or by a majority of the RB Asset
Board. This stockholder right to amend or repeal the RB Asset By-laws includes
by-laws made by the RB Asset Board, and to adopt by-laws which, if so expressed,
may be amended or repealed only by stockholders entitled to vote in an election
of directors. The River Bank Certificate and River Bank By-laws contain similar
provisions.
Amendment of RB Asset and River Bank Certificates. Under the DGCL, a
company's certificate of incorporation may be amended only if such amendment is
approved by the board of directors and by a majority of the outstanding stock
entitled to vote thereon. Under the New York Banking Law, the amendment of a
company's organization certificate may occur upon a majority vote of the
stockholders. In addition, under the DGCL and the New York Banking Law, if a
corporation has more than one class or series of stock outstanding, certain
amendments that would affect the rights of any such class or series require the
vote of a majority of the shares of such class or series.
Actions by Written Consent of Stockholders. Under the DGCL, unless
otherwise provided in the certificate of incorporation, any action which may be
taken at a meeting of stockholders may be taken without a meeting and without
prior notice if written consents setting forth the action so taken are signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all stock entitled to vote thereon were present and voted. The RB Asset
Certificate does not provide otherwise.
The New York Banking Law also provides for written consent except
that such written consent must be signed by the holders of all outstanding
shares entitled to vote on such action; provided, however, that the organization
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certificate of a bank may allow for such written consent by less than all of the
holders entitled to vote. The River Bank Certificate does not contain such a
provision.
Voting Rights. Both the DGCL and the New York Banking Law provide
that stockholders are entitled to one vote for each share of capital stock held
by such stockholders. Both the RB Asset By-laws and the River Bank Bylaws
provide for one vote per share of record for the election of directors and all
other purposes. Under the DGCL and the New York Banking Law, cumulative voting
in the election of directors is not available unless specifically provided for
in the certificate of incorporation or in the organization certificate. There is
no provision for cumulative voting in the RB Asset Certificate or in the River
Bank Organization Certificate; thus the election of directors is determined by
plurality vote.
Size of the Board of Directors. The DGCL provides that the board of
directors of a Delaware corporation shall consist of one or more members. The
number of directors may be fixed by, or in the manner provided in, the
corporation's by-laws unless the certificate of incorporation fixes the number
of directors. The New York Banking Law provides that the number of directors
constituting the entire board of directors of stock-form savings banks with
capital stock, surplus fund and undivided profits of five million dollars or
more may not have less than seven directors or more than thirty directors. The
RB Asset Certificate and the RB Asset By-laws require that the number of
directors shall be not less than seven nor more than twenty, subject to the
rights, if any, of holders of any RB Asset Preferred Stock to elect additional
directors. The River Bank By-laws set the number of directors for River Bank
between a minimum of seven and a maximum of twenty.
Classification of Board of Directors. The DGCL permits, but does not
require, a classified board of directors, divided into as many as three classes
with staggered terms under which one-half or one-third of the directors are
elected for terms of two or three years, respectively. The New York Banking Law
also permits, but does not require, a classified board of directors divided into
three classes with staggered terms under which one-third of the directors are
elected for terms of three years. The RB Asset Certificate, the RB Asset
By-laws, as well as the River Bank By-laws require that their respective boards
be divided into three classes. Both the RB Asset By-laws and the River Bank
By-laws require that each class consists, as nearly as possible, of one-third of
the total number of directors constituting the entire board of directors and
that the terms of directors be staggered, with directors elected for a term of
three years.
Removal of Directors. Under the DGCL, a director of a corporation
with a classified board of directors may be removed only for cause, unless the
certificate of incorporation otherwise provides. A director of a corporation
that does not have a classified board of directors or cumulative voting may be
removed with the approval of a majority of the outstanding shares entitled to
vote with or without cause. The RB Asset By-laws provide that the RB Asset Board
or any individual director may be removed from office at any time with cause by
the affirmative vote of the holders of the majority of the voting power of all
outstanding stock entitled to vote thereon.
Under the New York Banking Law, if the organization certificate or
the by-laws so provide, directors may be removed with or without cause by a
majority vote of the stockholders. The River Bank By-laws provide that any
director may be removed from the River Bank Board with or without cause, by the
holders of a majority of the shares of outstanding stock. In addition, under the
DGCL and the New York Banking Law, if holders of the shares of any class or
series, voting as a class, are entitled to elect one or more directors, any
director so elected may be removed only by the applicable vote of the holders of
the shares of that class or series, voting as a class.
Filling Vacancies in the Board of Directors. Under the DGCL,
vacancies may be filled by a majority of the directors then in office (even
though less than a quorum) unless otherwise provided in the certificate of
incorporation or by-laws. In addition, the DGCL provides that if, at the time of
filling any vacancy, the directors then in office constitute less than a
majority of the board (as constituted immediately prior to any such increase),
the Delaware Court of Chancery may, upon application of any holder or holders of
at least ten percent of the total number of the outstanding stock having the
right to vote for directors, summarily order a special election be held to fill
any such
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vacancy or to replace directors chosen by the board to fill such vacancies. The
RB Asset By-laws provide, subject to the rights of the holders of any series of
RB Asset Preferred Stock outstanding, that any vacancies occurring on the RB
Asset Board, including newly created directorships, may be filled by the
affirmative vote of the majority of the directors then in office.
Under the New York Banking Law all vacancies in the office of
director, including newly created directorships resulting from an increase in
the number of directors will be filled by election by the stockholders; however,
vacancies not exceeding one-third of the entire board may be filled by the
affirmative vote of a majority of the directors then in office, and the
directors so elected will hold office for the balance of the unexpired term. If
the number of directors required is nine or more, two vacancies may, with the
consent of the Superintendent, be left unfilled until the next annual election,
and when the number of directors required is more than five and less than nine,
one vacancy may, with the Superintendent's consent, be left unfilled until the
next annual election. The River Bank By-laws do not provide otherwise.
Payment of Dividends. The DGCL permits a corporation to declare and
pay dividends out of statutory surplus or, if there is no surplus, out of net
profits for the fiscal years in which the dividend is declared and/or for the
preceding fiscal year as long as the amount of capital of the corporation
following the declaration and payment of the dividend is not less than the
aggregate amount of capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of assets. In addition,
the DGCL generally provides that a corporation may redeem or repurchase its
shares only if such redemption or repurchase would not impair the capital of the
corporation. The RB Asset By-laws provide for the declaration of dividends in
accordance with the DGCL, subject to the provisions of the RB Asset Certificate
relating to RB Asset Series A Preferred Stock. The RB Asset By-laws also provide
that the RB Asset board may set aside as a reserve any funds the RB Asset board
believes necessary prior to the payment of dividends.
The New York Banking Law generally provides that a corporation may
declare and pay dividends or make other distributions in cash or property,
including the shares or bonds of other corporations, on its outstanding shares,
out of net profits or surplus, except when there is an impairment of capital
stock, or when the declaration, payment or distribution would be contrary to any
restrictions contained in the organization certificate. The River Bank
Certificate provides that no dividends, whether in cash, stock or other property
(except a dividend payable in River Bank Common Stock to River Bank), will be
paid or declared, nor any distribution made on the River Bank Common Stock, nor
shall any shares of River Bank Common Stock be purchased, retired or otherwise
acquired by River Bank, if after such action, the capital of River Bank would be
less than the minimum regulatory capital requirement set by the applicable
regulatory agencies. River Bank is currently subject to regulation by the FDIC
under the Federal Deposit Insurance Act (the "FDIA") and other federal banking
laws. Under the FDIA, River Bank is prohibited from declaring or paying
dividends or making any other capital distribution if, after such distribution,
the Bank would fail to meet its regulatory capital requirements. The FDIC also
has the authority to prohibit River Bank from paying dividends if the FDIC
determines that such payment constitutes an unsafe or unsound banking practice.
Appraisal Rights. Under the DGCL, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal (or dissenters') rights pursuant to
which such stockholder may receive cash in the amount of the fair market value
of his or her shares in lieu of the consideration he or she would otherwise
receive in the transaction. Under the DGCL, such rights are not available (a)
with respect to the sale, lease or exchange of all or substantially all of the
assets of a corporation, (b) with respect to a merger or consolidation by a
corporation, the shares of which are either listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the NASD, or are held of record by more than 2,000 holders
if such stockholders receive only shares of the surviving corporation or shares
of any other corporation which are either listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or held
of record by more than 2,000 holders, plus cash in lieu of fractional shares, or
(c) to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger
because the merger agreement
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does not amend the existing certificate of incorporation, each share of the
surviving corporation outstanding prior to the merger is an identical
outstanding or treasury share after the merger, and the number of shares to be
issued in the merger does not exceed 20% of the shares of the surviving
corporation outstanding immediately prior to the merger and if certain other
conditions are met.
Under the New York Banking Law, the following stockholders have the
right to exercise dissenters' rights to obtain payment for the "fair value" of
their shares (excluding any appreciation or depreciation directly or indirectly
induced by such corporate action or its proposal): (a) in the case of a merger
pursuant to a plan submitted to stockholders, any stockholder of a merging
corporation entitled to vote on such merger and does not assent thereto; (b) in
the case of a plan of acquisition of assets submitted to stockholders, any
stockholder of the selling corporation entitled to vote on such acquisition of
assets and does not assent thereto; and (c) in the case of a sale, lease,
exchange or other disposition not made in the regular course of business and
involving all or substantially all of the corporation's property, rights,
privileges and franchises, or an integral part thereof essential to the conduct
of the business of the corporation, any stockholder, entitled to vote thereon,
of the corporation making such sale, lease, exchange or other disposition who
does not assent thereto, except in the case of a transaction wholly for cash
where the stockholders' authorization thereof is conditioned upon the
distribution of all the net proceeds of such transaction to the stockholders in
accordance with their respective interests within one year after the date of
such transaction and upon the dissolution of the company. In order to exercise
such rights, a stockholder must comply with all of the procedural requirements
of Section 6022 of the New York Banking Law including filing a written
objection. The "fair value" of dissenters' shares would be determined in
judicial proceedings. Failure to take any of the steps required under Section
6022 may result in a loss of such dissenters' rights.
Inspection of Books and Records. Under the DGCL, any stockholder may
inspect, for any proper purpose, a company's stock ledger, a list of its
stockholders and any other books and records and to make copies or extracts
therefrom. Under the New York Banking Law, any person who has been a stockholder
of record of a corporation for at least six months immediately preceding his
demand, or any person holding at least five percent of any class of the
outstanding shares, upon at least five days' written demand has the right to
examine the minutes of the proceedings of the corporation's stockholders and
record of stockholders and to make extracts therefrom.
Limitation of Liability of Directors. The DGCL permits corporations
to adopt a provision in their certificate of incorporation eliminating, with
certain exceptions, the personal liability of a director to the corporation or
its stockholders for monetary damages for breach of the director's fiduciary
duty as a director. Under the DGCL, RB Asset may not eliminate or limit director
monetary liability for (a) breaches of the director's duty of loyalty to the
corporation or its stockholders; (b) acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law; (c) unlawful
dividends, stock repurchases or redemptions; or (d) transactions from which the
director received an improper personal benefit. Such limitation of liability
provision also may not limit a director's liability for violation of, or
otherwise relieve directors from the necessity of complying with, federal or
state securities laws, or affect the availability of nonmonetary remedies such
as injunctive relief or rescission. The RB Asset Certificate eliminates the
liability of the RB Asset board to the fullest extent permissible under the
DGCL. There is no similar provision under the New York Banking Law.
Loans to Directors, Officers and Employees. Under the DGCL, RB Asset
may make loans to, guarantee the obligations of, or otherwise assist its
officers or other employees (including any officer or employee who is a director
of the corporation) when such action, in the judgment of the directors, may
reasonably be expected to benefit RB Asset. RB Asset's board of directors has
adopted a policy prohibiting such loans or guarantees to or for the benefit of
employees, officers and directors of RB Asset. The DGCL also provides that such
assistance may be with or without interest and may be unsecured, or secured in
such a manner as the RB Asset board shall approve.
Under the New York Banking Board Regulations a stock-form savings
bank may not make a loan to an officer or director unless the loan (i) is made
on terms, including interest rate and collateral, that are not more favorable to
the officer or director than those customarily offered by the institution to
persons who are not officers or directors and
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who are not employed by the institution, and (ii) does not involve more than the
normal risk of repayment or present other unfavorable features. Generally the
amount of a loan, when aggregated with the unpaid principal of all other loans
to an officer or director, may not exceed $25,000 or five percent of the
institution's capital stock, surplus fund and undivided profits unless (a) the
loan has been approved in advance by a majority of the entire board of directors
of the institution; and (b) the interested party has abstained from
participating directly or indirectly in the voting. Federal statutes and
regulations also impose restrictions on extensions of credit by an insured
depository institution to that institution's directors and executive officers
and their related interests.
Interested Director and Officer Transactions. The DGCL provides that
contracts or transactions between a corporation and one or more of its directors
or officers or between a corporation and any other entity in which one or more
of its directors or officers are directors or officers or have a financial
interest, are not void or voidable because of such interest or because such
director or officer is present at a meeting of the board which authorizes or
approves the contract or transaction, provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. Under the DGCL, either (a) the stockholders or the
board of directors must approve any such contract or transaction in good faith
after full disclosure of the material facts, or (b) the contract or transaction
must have been "fair" as to the corporation at the time it was approved. Under
the DGCL, if board approval is sought, the contract or transaction must be
approved by a majority of the disinterested directors (even though the
disinterested directors are less than a quorum).
The New York Banking Board Regulations generally provide that a
business transaction (as defined below) by, between or on behalf of a stock-form
savings bank and, (i) any director, trustee or officer or (ii) a person related
to any director, trustee or officer or (iii) any other person where a
transaction made in contemplation of such person becoming a director, trustee or
officer of the institution, is an insider transaction (an "Insider
Transaction"). Generally, any Insider Transaction which, either alone or when
aggregated involves assets or services having a fair market value or payments in
excess of certain monetary amounts must be specifically reviewed and approved by
the bank's board of directors or board of trustees. The term "business
transaction" can include, but is not limited to (i) loans or other extensions of
credit; (ii) purchase of assets or services or agreements to purchase assets
from the bank; (iii) sales of assets or services or agreements to sell assets to
the bank; (iv) use of the bank's facilities, its real or personal property, or
its personnel; (v) leases of real or personal property to or from the bank; (vi)
payment of commissions and fees by the bank, including brokerage commissions and
management, consultant, architectural, legal and appraisal fees; and (vii)
payments on time deposits or other obligations of the bank by the bank if the
payments would result in a yield which is more favorable than for a comparable
transaction made in the ordinary course of business to persons not deemed
insiders of the bank. The River Bank By-laws provide, more generally, that River
Bank will not enter into any contract or other transaction between River Bank
and one or more of its directors or officers, or between itself and any other
entity in which one or more of its directors or officers are directors, officers
or are financially interested, if such contract or transaction (i) violates
applicable federal and/or state laws, rules or regulations or (ii) contravenes
any policy or procedure established by River Bank.
Indemnification. The DGCL and the New York Banking Law contain
similar provisions with regard to indemnification. Both the DGCL and the New
York Banking Law generally permit indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal
counsel or by the stockholders, that the person seeking indemnification acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to a criminal proceeding,
which such person had no reasonable cause to believe his or her conduct was
unlawful. The DGCL states further that no indemnification may be made, without
court approval, in respect of any derivative action in which such person is
adjudged liable to the corporation. The DGCL and New York Banking Law also
require indemnification of expenses when the individual being indemnified has
successfully defended the action on the merits or otherwise.
Stockholder Approval of Certain Business Combinations. Section 203
of the DGCL prohibits a corporation from engaging in a "business combination"
with an "interested stockholder" for three years following the date that such
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person becomes an interested stockholder. With certain exceptions, an interested
stockholder is a person or entity who or which owns 15% or more of the
corporation's outstanding voting stock (including any rights to acquire stock
pursuant to an option, warrant, agreement, arrangement or understanding, or upon
the exercise of conversion or exchange rights, and stock with respect to which
the person has voting rights only), or is an affiliate or associate of the
corporation and was the owner of 15% or more of such voting stock at any time
within the previous three years.
For purposes of Section 203, the term "business combination" is
defined broadly to include mergers of the corporation or a subsidiary with or
caused by the interested stockholder; sales or other dispositions of the
interested stockholder (except proportionately with the corporation's other
stockholders) of assets of the corporation or a subsidiary equal to ten percent
or more of the aggregate market value of the corporation's consolidated assets
or its outstanding stock; the issuance or transfer by the corporation or a
subsidiary of stock of the corporation or such subsidiary to the interested
stockholder (except for certain transfers in a conversion or exchange or a pro
rata distribution or certain other transactions, none of which increases the
interested stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock); or receipt by the interested
stockholder (except proportionately as a stockholder), directly or indirectly,
of any loans, advances, guarantees, pledges or other financial benefits provided
by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by
Section 203 does not apply if: (i) prior to the date at which such stockholder
becomes an interested stockholder the board of directors approves either the
business combination or the transaction which resulted in the person becoming an
interested stockholder; (ii) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
or her an interested stockholder (excluding from the number of shares
outstanding those shares owned by directors who are also officers of the target
corporation and shares held by employee stock plans which do not permit
employees to decide confidentially whether to accept a tender or exchange
offer); or (iii) on or after the date such person becomes an interested
stockholder, the board approves the business combination and it is also approved
at a stockholder meeting by 662/3% of the voting stock not owned by the
interested stockholder. Section 203 does not apply if the business combination
is proposed prior to the consummation or abandonment of and subsequent to the
earlier of the public announcement or a 20-day notice required under Section 203
of the proposed transaction which (i) constitutes certain (a) mergers or
consolidations, (b) sales or other transfers of assets having an aggregate
market value equal to 50% or more of the aggregate market value of all of the
assets of the corporation determined on a consolidated basis or the aggregate
market value of all the outstanding stock of the corporation, or (c) proposed
tender or exchange offer for 50% or more of the corporation's outstanding voting
stock; (ii) is with or by a person who was either not an interested stockholder
during the last three years or who became an interested stockholder with the
approval of the corporation's board of directors; and (iii) is approved or not
opposed by a majority of the board members elected prior to any person becoming
an interested stockholder during the previous three years (or their chosen
successors).
The New York Banking Board Regulations provide that a business
transaction (as defined above) by, between or on behalf of a stock-form savings
bank and, (i) a person who has direct or indirect control over the voting rights
of 10 percent of the shares of any class of voting stock of a stock form savings
bank or otherwise controls the management or policies of such an institution (an
"Interested Party") or (ii) a person related to an Interested Party or (iii) any
other person where a transaction made in contemplation of such person becoming
an Interested Party must, generally, either alone or when aggregated (when
involving assets or services having a fair market value or payments in excess of
certain amounts), be specifically reviewed and approved by the bank's board of
directors or board of trustees. The term "business transaction" is broadly
defined in the New York Banking Board Regulations and would include a business
combination as defined in the DGCL.
Stockholder Voting on Mergers and Similar Transactions. The DGCL
generally requires that a majority of the stockholders of both the acquiring and
target corporations approve statutory mergers. The DGCL does not require a
stockholder vote of the surviving corporation in a merger (unless the
corporation provides otherwise in its certificate of incorporation) if (a) the
merger agreement does not amend the existing certificate of incorporation, (b)
each share of stock of the surviving corporation outstanding before the merger
is an identical outstanding or treasury share after the merger, and (c) the
number of shares to be issued by the surviving corporation in the merger does
not exceed 20%
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of the shares outstanding immediately prior to the merger. The DGCL also
generally requires that a sale of all or substantially all of the assets of a
corporation be approved by a majority of the voting shares of the corporation
transferring such assets.
The New York Banking Law generally requires that at least two-thirds
(662/3%) of the stockholders of both the acquiring and target corporations
approve statutory mergers. The New York Banking Law does not require a
stockholder vote of the surviving corporation in a merger if, (a) the total
assets of the target corporation or corporations do not exceed ten percent of
the total assets of the acquiring corporation and, (b) the plan of merger does
not change the name or the authorized shares of capital stock of the acquiring
corporation or make or require any other change or amendment for which the
approval or consent of stockholders of the acquiring corporation would be
required.
Stockholder Derivative Suit. Under the DGCL and the New York Banking
Law, a person may only bring a derivative action on behalf of the corporation if
the person was a stockholder of the corporation at the time of the transaction
in question or his or her stock thereafter devolved upon him or her by operation
of law.
Dissolution. Under the DGCL, if a dissolution is initiated by the
board of directors it may be approved by the holders of a majority of the
corporation's shares. If the board of directors does not approve the proposal to
dissolve, it must be consented to in writing by all stockholders entitled to
vote thereon. In the event of a board- initiated dissolution, the DGCL allows a
Delaware corporation to include in its certificate of incorporation a super
majority voting requirement in connection with dissolutions. RB Asset's
Certificate contains no such super majority voting requirement with regard to
dissolution; thus a majority of the outstanding shares entitled to vote, voting
at a meeting at which a quorum is present, would be sufficient to approve a
dissolution of RB Asset that had previously been approved by the RB Asset Board.
Under the New York Banking Law a voluntary dissolution of a banking
organization must be approved by the vote of the holders of at last two-thirds
(662/3%) of the entire capital stock of such corporation. A copy of the minutes
of the stockholders meeting must be filed with the Superintendent of Banks (the
"Superintendent") within five days after the date of the meeting and, within
three months after such stockholder meeting, an application may be made to the
New York State Supreme Court, after due notice to the Superintendent, for an
order declaring the business of such corporation closed.
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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the principal material federal
income tax considerations of the Reorganization that are generally applicable to
holders of River Bank Common Stock and River Bank Series A Preferred Stock,
River Bank, RB Asset and River Distribution Sub. It does not describe the actual
tax effect any of such matters will have on a particular taxpayer in light of
such taxpayer's tax status and other income, deductions, and credits. This
section is addressed to the holders of River Bank Capital Stock entitled to vote
on the Reorganization. This section does not discuss all the tax consequences
that may be relevant to a holder of River Bank Capital Stock in light of such
holder's particular circumstances or to holders subject to special rules, such
as foreign persons, financial institutions, tax-exempt organizations, persons
subject to the alternative minimum tax, insurance companies, dealers in
securities, or persons who have hedged their investment in River Bank Capital
Stock. This section also does not discuss all the tax consequences that may be
relevant to a holder of River Bank Capital Stock who has at any time owned (or
has at any time been considered to own by reason of applicable rules of
constructive ownership) more than 5% in value of the outstanding stock of the
Bank or who has at any time owned stock which was considered by reason of
applicable rules of constructive ownership to be owned by another shareholder
who then owned (or was considered by reason of such rules to own) more than 5%
in value of the outstanding stock of the Bank.
Except as otherwise indicated, conclusions of tax treatment, tax
effect, or tax consequences set forth in this section are based on the Internal
Revenue Code (the "Code"), Regulations of the United States Treasury Department
thereunder, Internal Revenue Service ("IRS" or the "Service") Rulings, and
judicial and administrative decisions in effect as of the date of this Proxy
Statement/Prospectus, all of which are subject to change at any time, possibly
with retroactive effect. Such conclusions have no binding effect on the IRS or
the courts. Roberts & Holland LLP, special tax counsel to River Bank, has
provided an opinion, in the form attached as an exhibit to the Registration
Statement, that the series of transactions described herein should constitute a
"reorganization" under section 368 of the Code, that no gain or loss should be
recognized to the holders of River Bank Capital Stock in connection therewith,
and that the discussion below, under the heading "Tax Consequences of the
Reorganization," is a fair and accurate description of their opinion.
This discussion assumes that each holder's River Bank Capital Stock,
RB Asset Common Stock, and RB Asset Series A Preferred Stock is a "capital
asset" (generally, property held for investment) within the meaning of Section
1221 of the Code. The following conclusions assume that the holders of the River
Bank Capital Stock will approve the Reorganization.
This section is not intended as a substitute for careful tax
planning. HOLDERS OF RIVER BANK CAPITAL STOCK SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH REGARD TO THE APPLICATION OF THE FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF
ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION, BEFORE VOTING ON THE
REORGANIZATION OR DECIDING WHETHER AND WHEN TO DISPOSE OF THEIR RIVER BANK
CAPITAL STOCK, RB ASSET COMMON STOCK OR RB ASSET SERIES A PREFERRED STOCK.
Tax Consequences of the Reorganization
Roberts & Holland LLP has provided an opinion that the
Reorganization should constitute a tax-free "reorganization" for Federal income
tax purposes, within the meaning of section 368 of the Code, and that no gain or
loss should accordingly be recognized in connection therewith to the holders of
River Bank Capital Stock. The preceding sentence does not address taxation to
holders of the River Bank Series A Preferred Stock of the dividend declared, but
not paid, for the quarter ended June 30, 1996; those holders should consult
their own tax advisers concerning the tax treatment of such dividends.
The ability of the Reorganization to qualify as a tax-free
reorganization turns on certain unresolved and complex issues of tax law as to
which there are no clearly established legal precedents (including the requisite
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"continuity of business enterprise") and for which the Bank has not requested a
ruling from the IRS. The foregoing uncertainty as to the treatment of the
Reorganization results from unique banking regulatory constraints, which,
counsel to the Bank advised Roberts & Holland LLP precluded the timely
implementation of a transaction structure that could have been tax-free to the
holders of River Bank Capital Stock without regard to whether all of the
requirements of a "reorganization" under section 368 of the Code were met. As a
result, the IRS or a court could determine that the proposed transactions do not
constitute a tax-free reorganization. If such a determination were made and
sustained, certain of the tax consequences described herein would not apply. In
particular, the Bank's stockholders would be required to recognize gain upon the
deemed exchanges of River Bank Capital Stock for RB Asset Common Stock and RB
Asset Series A Preferred Stock to the extent that the fair market value of any
RB Asset Capital Stock received exceeded the basis of the River Bank Capital
Stock deemed exchanged therefor. Recognition of loss on such deemed exchanges
might not be allowed until the stockholders dispose of some or all of their RB
Asset Capital Stock.
Certain Additional Consequences of the Reorganization
Assuming that the Reorganization does constitute such a
"reorganization," the following additional consequences should pertain:
1. The transaction would be treated for Federal income
tax purposes as though River Bank had transferred
substantially all of its assets to RB Asset in exchange
for RB Asset Capital Stock followed by a distribution of
the RB Asset Capital Stock by River Bank to its
stockholders in exchange for their River Bank Capital
Stock in constructive liquidation of River Bank.
2. The basis of any RB Asset Common Stock or RB Asset
Series A Preferred Stock will be the same as that of the
River Bank Common Stock or River Bank Series A Preferred
Stock, respectively, deemed exchanged therefor. In
determining the period for which a holder of RB Asset
Common Stock or RB Series A Preferred Stock has held
such stock received in the Reorganization, there will be
included the period for which such holder held the River
Bank Common Stock or River Bank Series A Preferred Stock
deemed exchanged therefor, provided that such holder
held the stock deemed exchanged as a capital asset. The
foregoing conclusions do not address taxation to holders
of the River Bank Series A Preferred Stock of the
dividend declared, but not paid, for the quarter ended
June 30, 1996; those holders should consult their own
tax advisers concerning the tax treatment of such
dividends.
3. No gain or loss will be recognized to River Bank on
its disposition or distribution of property in
connection with the Reorganization. The basis of the
property of River Bank acquired by RB Asset will be the
same as it was in the hands of River Bank. RB Asset will
succeed to and take into account various tax attributes
of River Bank (including net operating loss carryovers,
to the extent not used to offset income or gain of River
Bank, and accumulated earnings and profits).
If the IRS or a court were to determine that the proposed
transactions do not constitute a tax-free reorganization, certain of the tax
consequences described above would not apply. The holding period of the Bank's
stockholders with respect to RB Asset Common Stock and RB Asset Series A
Preferred Stock would begin on the date of the deemed exchanges, for such stock,
of River Bank Capital Stock. Moreover, the Bank would be required to recognize
gain on its disposition and distribution of property in connection with the
Reorganization and any loss on such disposition and distribution may be required
to be deferred until RB Asset were to sell the assets to an unrelated third
party; and, to the extent the Bank's tax attributes were not used to offset any
gain, RB Asset would not succeed to them.
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Tax Consequences of Holding RB Asset Common Stock and RB Asset Preferred Stock
Dividend Payments. Dividend distributions paid on the RB Asset
Common Stock or the RB Asset Series A Preferred Stock should be includible as
ordinary income to a holder to the extent of RB Asset's current or accumulated
earnings and profits as determined for Federal income tax purposes. To the
extent a dividend distribution exceeds RB Asset's current and accumulated
earnings and profits, such distribution will be treated first as a return of
capital, reducing the holders' tax basis in the RB Asset Common Stock or the RB
Asset Series A Preferred Stock, and then as a capital gain. The availability and
amount of any such earnings and profits will depend in part upon the future
operations and profitability of RB Asset.
Under section 243 of the Code, dividends received by a corporate
holder on the RB Asset Common Stock or the RB Asset Series A Preferred Stock may
be eligible for the 70% dividends-received deduction to the extent they are paid
out of current or accumulated earnings and profits. The applicability of the
dividends-received deduction is subject to certain limitations, however, such as
those set forth in sections 246 and 246A of the Code. Section 246(c) of the Code
disallows the dividends-received deduction in its entirety if the stock with
respect to which the dividend is paid does not satisfy the requisite holding
period. Generally, the shareholder must hold common stock for more than 45 days
during the 90-day period beginning on the date that is 45 days before the date
on which the stock becomes ex-dividend with respect to the dividend. Longer
holding periods may apply to certain dividends on preferred stock. Under section
246(c)(4), a taxpayer's holding period for these purposes is suspended during
any period in which the taxpayer has an option to sell, is under a contractual
obligation to sell, has made (but not closed) a short sale of or is the grantor
of an option to buy substantially identical stock or securities, or has
diminished its risk of loss by holding one or more positions with respect to
substantially similar or related property. The U.S. Treasury Department has
issued regulations that provide when a taxpayer must reduce its holding period
of stock for purposes of the dividends-received deduction because the taxpayer
has diminished its risk of loss by holding one or more positions with respect to
substantially similar or related property. Section 246A of the Code reduces the
dividends-received deduction to the extent the RB Asset Common Stock or the RB
Asset Series A Preferred Stock is "debt-financed" within the meaning of section
246A. Corporate holders of RB Asset Common Stock or the RB Asset Series A
Preferred Stock also should consider the application of section 1059 of the Code
as well as the possible reduction or elimination of the benefit of the
dividends-received deduction due to the corporate alternative minimum tax
provisions of the Code. Section 1059 provides that the basis of stock held by a
corporation must be reduced by the non-taxed portion of any "extraordinary
dividend" received by the corporation unless the corporation has held the stock
for more than two years before the date on which the dividend is declared,
agreed to, or announced -- whichever is earliest. If the non-taxed portion
exceeds such basis, gain may be recognized at the time of distribution to the
extent of such excess. Generally, a dividend is deemed "extraordinary" for
purposes of section 1059 when it exceeds 10% (5%, in the case of preferred
stock) of a corporate taxpayer's adjusted basis in a share of stock. For these
purposes, dividends with an ex-dividend date within the same 85-day period will
be aggregated and certain transactions may trigger the application of section
1059 without regard to the size of the dividend or the holding period for the
shares.
Sale or Exchange of the RB Asset Common Stock or the RB Asset Series
A Preferred Stock. Upon the sale or exchange of shares of RB Asset Common Stock
or RB Asset Series A Preferred Stock, a holder generally will recognize gain or
loss equal to the difference between the amount realized and the holder's tax
basis in the RB Asset Common Stock or the RB Asset Series A Preferred Stock, as
the case may be. Such gain or loss will generally be capital gain or loss. If
the deemed exchange for RB Asset Series A Preferred Stock has substantially the
same effect as the receipt of a stock dividend, then to that extent, the RB
Asset Series A Preferred Stock may constitute "section 306 stock" under the
Code. Sales of part of a holder's position in section 306 stock may be treated
partially as ordinary income, and losses are deferred until any remaining stock
of the company is disposed of.
Certain Tax Attributes
As of December 31, 1997, the Bank had recorded a gross deferred tax
liability of approximately $20.0 million in its consolidated financial
statements. Also, as of December 31, 1997, the Bank had recorded a gross
deferred tax asset of approximately $66.4 million, primarily attributable to
NOLs of approximately $38.1 million, reserves for loan
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losses and real estate valuation allowances of approximately $10.1 million and
general business tax credits of approximately $7.4 million. RB Asset's ability
to realize the excess of the gross deferred tax asset over the gross deferred
tax liability is dependent upon its ability to earn taxable income in the
future. As a result of recent losses, this realization is uncertain and a
valuation allowance has been established to reduce the deferred tax asset to the
amount that management of the Bank believes will more likely than not be
realized. Accordingly, neither a net overall liability nor a net overall asset
was reflected in the Bank's consolidated financial statements. The tax
attributes associated with the deferred tax assets have not been reviewed or
approved by the IRS. As described further below, the Equity Offering and related
transactions may have adversely affected the ability of the Bank to realize its
deferred tax assets, with the effect that the Bank might have an overall net
deferred tax liability and concomitant reduction to its stockholders' equity. As
a result of the Equity Offering, the Bank could be subject to substantial
increased out-of-pocket tax expenditures.
Section 382 of the Code generally provides that if a corporation
undergoes an "ownership change," the amount of taxable income that the
corporation may offset after the date of the ownership change (the "Change
Date") by NOLs (and certain built-in losses, as described below) existing on the
Change Date will be subject to an annual limitation. In general, the annual
limitation is equal to the product obtained by multiplying (i) the fair market
value of the corporation's equity immediately prior to the Change Date (with
certain adjustments, including an exclusion of capital contributions made during
the two years preceding the Change Date), by (ii) the long-term tax-exempt bond
rate determined for the month in which the Change Date occurs, as published by
the IRS. For "ownership changes" occurring during June 1994, that rate is 6.01%.
If an "ownership change" of the Bank took place during June 1994, the Bank might
be permitted to use no more than approximately $865,000 of its NOLs annually to
offset taxable income realized after the Change Date, including income which
will be realized in connection with the Branch Sale. Accordingly, the Bank's
ability to use its deferred tax assets may be reduced materially, resulting in
the recognition of additional tax expense and a reduction to its stockholders'
equity and the Bank's liquidity.
Built-in losses, measured by the excess, if any, of the tax basis of
each asset of the corporation over its fair market value, also may be limited
under Section 382, if, as is believed to be the case with respect to the Bank,
the corporation had a net unrealized built-in loss in excess of the lesser of
$10.0 million or 15% of the fair market value of its assets, and if the built-in
losses are recognized within five years after the Change Date. Certain
deductions that have accrued economically on the Change Date and would otherwise
have been taken after the Change Date (possibly including suspended passive
activity losses) may also be treated as built-in losses.
In general, an "ownership change" occurs with respect to a
corporation if any of its stockholders who own, directly or indirectly, five
percent or more of the stock of the corporation ("5-percent stockholders")
increase their aggregate percentage ownership of such stock by more than 50
percentage points over the lowest percentage of stock owned by those
stockholders at any time during a three-year testing period. In applying Section
382, newly-issued stock generally is considered to have been acquired by one or
more 5-percent stockholders, even if none of the persons acquiring that stock in
fact owns (or owned) at least five percent of the issuer's stock.
Based on current ownership information available to the Bank, the
Bank is of the view that no ownership change of the Bank occurred within the
three years preceding and three years succeeding the Equity Offering. The Bank
expects that the Equity Offering, when combined with prior changes in ownership
of stock of the Bank and other contemplated transactions affecting ownership of
the capital stock of the Bank occurring in connection with the Equity Offering,
did not result in an ownership change of the Bank. However, the application of
Section 382 is in many respects uncertain. In assessing the effects of prior
transactions and of the Equity Offering under Section 382, the Bank has made
certain legal judgments and certain factual assumptions. The Bank has not
requested or received any rulings from the IRS with respect to the application
of Section 382 to the Equity Offering and the IRS could challenge the Bank's
determinations.
Although it may not have caused an ownership change, the Equity
Offering caused a significant increase in the percentage ownership of stock of
the Bank by one or more new 5-percent stockholders. Specifically, the Bank
believes that the Equity Offering resulted in 5-percent stockholders increasing
their ownership for purposes of Section
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382 of the Code by approximately 49 percentage points. Therefore, the Equity
Offering significantly increased the likelihood that relatively small future
issuances of, or transactions in or affecting the direct or indirect ownership
of, shares of Common Stock might result in an ownership change.
As part of its efforts to avoid any limitation under Section 382 of
the Code on the use of its NOLs and other tax attributes, each of Mr. Dworman,
Odyssey Partners, L.P. and East River Partnership B agreed to certain
restrictions on the transfer of the Common Stock and any other security of the
Bank which is deemed to be "stock" for purposes of Section 382 of the Code and
regulations promulgated thereunder for a five-year period following consummation
of the Equity Offering. These restrictions on transfer are intended to reduce,
but do not eliminate, the possibility that there may be a future ownership
change affecting the ability of the Bank to use its then-existing losses, loss
carryovers and built-in losses. Mr. Dworman, as the largest stockholder of the
Bank following the Equity Offering, may continue to exert substantial influence
over decisions made by the River Bank Board, including its decisions whether to
approve a transfer of stock of the Bank that could result in an ownership
change, with the above-described consequences.
Section 269(a)(1) of the Code generally provides that, if one or
more persons acquire control of a corporation and the principal purpose of the
acquisition is to evade or avoid federal income tax by securing the benefit of a
deduction, credit or other allowance which those persons or the corporation
would not otherwise enjoy, then the IRS may disallow the corporation's
deductions, credits or other allowances. For this purpose, "control" means
ownership of stock possessing either at least 50% of the voting power or at
least 50% of the total value of all classes of stock of the corporation.
Although the Bank's Equity Offering resulted in one or more persons acquiring
control of the Bank, the Bank understands that the principal purpose of the
investors for participating in the Equity Offering was not to avail themselves
of any tax benefits of the Bank. It is possible, however, that the IRS may
challenge this view. If any such challenge were successful, the Bank could lose
its future ability to use its losses, loss carryovers and built-in losses to
offset its future income.
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EXPERTS
The consolidated statements of financial condition of River Bank as
of June 30, 1997 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1997, included in this Proxy Statement as part of Annex B, which
is referred to and made a part of this Prospectus and Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report appearing in Annex B and is included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares River Distribution capital stock to be
distributed in connection with the Distribution and the shares of River Asset
Sub capital stock to be issued in connection with the Merger will be passed upon
for River Distribution Sub and River Asset Sub by Battle Fowler LLP.
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ANNEX A
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF DESIGNATIONS
OF
15% NONCUMULATIVE PERPETUAL
PREFERRED STOCK, SERIES A
of
RIVER BANK AMERICA
Under Section 8005 of the
Banking Law of the State of New York
We, Jerome R. McDougal, Jr. and Robin Chandler Duke, being the
President and Secretary, respectively, of River Bank America, a New York
chartered stock savings bank (the "Corporation"), in accordance with the
provisions of Section 8005 of the Banking Law of the State of New York, do
hereby certify as follows:
1. The name of the Corporation is River Bank America. The Corporation
was originally formed under the name "East River Savings Institution" and
previously was known as "East River Savings Bank."
2. The Corporation was created by Special Act of the Legislature of the
State of New York, passed April 11, 1848, known as Chapter 256 of the Laws of
1848. Under Banking Law Section 1001(5), such Act was the Organization
Certificate of the Corporation. Such Organization Certificate was restated as of
June 28, 1994 pursuant to Section 8007 of the Banking Law of the State of New
York (as amended, the "Restated Organization Certificate"). Under Banking Law
Section 8007(5), such Restated Organization Certificate is the Organization
Certificate of the Corporation.
3. On October 6, 1997, pursuant to Section 5002(4) of the Banking Law
and the authority conferred upon the Board of Directors of the Corporation by
the Restated Organization Certificate, the Board of Directors of the Corporation
authorized the 15% Noncumulative Perpetual Preferred Stock, Series A, of the
Corporation by resolution set forth in the Certificate of Designations of 15%
Noncumulative Perpetual Preferred Stock, Series A (the "Certificate of
Designations").
4. The amendments of the Certificate of Designations effected by this
certificate of amendment are as follows: to provide that a reorganization
contemplated by Section 7(C)(ii)(d) of the Certificate of Designations may be
consummated notwithstanding anything to the contrary in Section 3 of the
Certificate of Designations.
627654.1
<PAGE>
5. To accomplish the foregoing amendments, Section 7(C)(ii)(d) of the
Certificate of Designations is amended by adding the following to the end of
such Section:
The Corporation may distribute to the holders of (a) the Series A
Preferred Stock in exchange therefor the same number of shares of the
resulting, surviving or acquiring corporation or the parent
corporation, as the case may be, with substantially the same powers,
preferences, privileges and rights, including, without limitation,
substantially equivalent voting and conversion rights, of the
resulting, surviving, or acquiring corporation, or such corporation's
parent corporation, and (b) the Common Stock in exchange therefor the
same number of common shares of the resulting, surviving or acquiring
corporation or the parent corporation, as the case may be, with
substantially the same powers, preferences, privileges and rights,
including, without limitation, substantially equivalent voting and
conversion rights, of the resulting, surviving, or acquiring
corporation, or such corporation's parent corporation as contemplated
by this Section 7(C)(ii)(d) notwithstanding anything to the contrary in
Section 3 hereof.
6. This Certificate of Amendment of the Certificate of Designations of
15% Noncumulative Perpetual Preferred Stock, Series A of the Corporation was
authorized by the affirmative vote of more than a majority of the board of
directors and the affirmative vote of more than a majority of the holders of all
outstanding shares of Common Stock of the Corporation.
IN WITNESS WHEREOF, we have made, signed and acknowledged this
certificate in duplicate this ___ day of __________, 1998.
Jerome R. McDougal, Jr.
President
Robin Chandler Duke
Secretary
-2-
627654.1
<PAGE>
ANNEX B
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C.
AMENDMENT NO. 2 TO
FORM F-2
Annual Report Pursuant to Section 13 of the Securities Exchange Act of 1934
For the fiscal year ended June 30, 1997
FDIC Insurance Certificate Number 15645
RIVER BANK AMERICA
(Exact name of bank as
specified in its charter)
STATE OF NEW YORK 13-5041680
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
645 Fifth Avenue Eighth Floor, New York, New York 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Bank's telephone number, including area code: (212) 848-0201
<TABLE>
<S> <C>
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $1.00 per share
15% Noncumulative Perpetual Preferred Stock, Series A
-----------------------------------------------------
(Title of Classes)
</TABLE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 10 is
not contained herein, and will not be contained, to the best of the Bank's
knowledge, in a definitive proxy or information statements incorporated by
reference in Part III of this Form F-2 or any amendment of this Form F-2. [ ]
Indicate by check mark whether the bank (1) has filed all reports required to be
filed by section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No
As of July 31, 1997, the aggregate market value of the 7,100,000 shares of
Common Stock of the Registrant issued and outstanding, excluding the 10,150
shares held by all directors and principal officers as a group, was $45,197,794,
and, excluding the aggregate of 2,778,550 shares held by all directors and
principal officers and by Mr. Alvin Dworman, the largest single holder of the
Bank's Common Stock, was $27,549,244. This figure is based on the last sales
price of $6.375 per share of the Bank's Common Stock on or prior to July 29,
1997.
The number of shares outstanding of the Registrant's Common Stock as of July 31,
1997 was 7,100,000.
624833.12
-1-
<PAGE>
PART I
ITEM 1
BUSINESS
General
River Bank America (the "Bank") is a New York State-chartered stock savings bank
which was founded in 1848. In 1925, the Bank adopted the name "East River
Savings Bank" which it continued to use in its retail business through June 28,
1996. In 1988, the Bank adopted the name "River Bank America." This report is
for the fiscal year ended June 30, 1997.
On June 28, 1996, the Bank consummated the transactions (the "Branch Sale")
contemplated by the Purchase of Assets and Liability Assumption Agreement (the
"Branch Agreement") by and between the Bank and Marine Midland Bank ("Marine").
Pursuant to the terms of the Branch Agreement, Marine assumed $1,159,616,300 of
deposit liabilities (the "Assumed Deposits") and acquired assets with an
aggregate carrying value of $1,066,616,300 (the "Transferred Assets"). The
Transferred Assets consisted primarily of loans secured by real estate,
mortgage-backed and investment securities, and 11 Bank branch offices. Included
in the Transferred Assets was approximately $32.4 million amount of loans in
which the Bank was granted subordinated participation interests. Also included
in the Transferred Assets were the proceeds of dispositions from five individual
asset sale transactions with third parties, aggregating $60.4 million composed
of real estate assets, loans and other receivables (the "Asset Sale
Transactions"). The Asset Sale Transactions were structured to include ongoing
recourse to, and participation by, the Bank with respect to the assets sold,
based upon the net proceeds realized on disposition of assets by the purchasers.
See "Asset Sale Transactions" and Notes 11 and 17 to the Consolidated Financial
Statements. The Assumed Deposits exceeded the Transferred Assets by
approximately $93.0 million, which amount represents the premium received by the
Bank in the Branch Sale. Marine also purchased the Bank's branch office realty
at 96th Street in Manhattan for $1.3 million.
At June 30, 1996, the Bank retained $285.5 million in assets, including
primarily real estate assets and non-performing loans; the balance of the
retained assets consisted of performing loans (including loans sold with
recourse, subordinated participations, junior subordinated participations, loans
to facilitate the sale of real estate owned and mortgage and other loans) and a
modest amount of cash and investment securities (collectively, the "Retained
Assets"). The Bank intends to continue substantially the same management and
disposition strategy for Retained Assets subsequent to the Branch Sale as was
previously employed by the Bank.
The closing of the Branch Sale was conditioned upon the Bank's obtaining
financing with terms and in an amount reasonably acceptable to the Bank and
determined to be reasonably adequate to permit consummation of the Branch Sale.
The Bank obtained from Marine a facility (the "Facility") consisting of eleven
independent mortgage loans with additional collateral, in an aggregate amount
not to exceed $99.1 million. As of June 30, 1996, Marine had extended $89.8
million under the Facility to the Bank, which has been reduced by repayment
activity to $66.1 million at June 30, 1997.
The Bank has received notice that approval necessary to declare or pay dividends
on the Bank's outstanding shares of 15% Noncumulative Perpetual Preferred Stock,
Series A (the "Series A Preferred") will not be provided at this time. In June
1996, the Bank's Board of Directors declared a Series A Preferred dividend for
the quarter ending June 30, 1996, payment of which was subject to the receipt of
required approvals from regulators and Marine (the Bank's principal lender). The
Bank intends to continue to seek approval for the payment of the declared Series
A Preferred dividend. Primarily as a result of the above, the Bank's Board of
Directors has taken no action as regards a quarterly dividend on the Bank's
Series A Preferred for the quarters ending June 30, 1997, March 31, 1997,
December 31, 1996 and September 30, 1996. Declaration or payment of future
dividends on the Bank's Series A Preferred Stock will also be subject to the
approval of the Banking Department and the FDIC, until the Bank is no longer
regulated by the Banking Department and the FDIC, and will be subject to the
approval of Marine for so long as the Facility remains outstanding.
-2-
<PAGE>
The Bank held certain non-retail deposits at June 30, 1996. Marine assumed
substantially all of the Bank's retail deposits in connection with the Branch
Sale described above. In addition, the Bank ceased accepting retail deposits on
the date of the Branch Sale. During 1997, the Bank arranged for the assumption
by other insured depository institutions of its remaining non-retail deposits.
At June 30, 1997, the Bank continued to be regulated by the Federal Deposit
Insurance Corporation (the "FDIC") and New York State Banking Department (the
"Banking Department" or the "NYSBD"). On October 31, 1996 the Bank requested
that the FDIC terminate its insurance of accounts in accordance with the
requirements of the NYSBD's approval of the Branch Sale. On April 14, 1997, the
Bank received notice that the FDIC, as requested by the Bank, intends to
terminate the Bank's status as an insured state nonmember Bank on December 31,
1997. Upon the issuance of such order by the FDIC, the Bank will no longer be
subject to banking regulation by the FDIC. In connection therewith, the Bank has
received from the Banking Department a waiver of any applicable New York State
deposit insurance requirements. At this time, the Bank remains subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and continues to file periodic reports and other information
with the FDIC and the Banking Department.
Conditions imposed in connection with the Banking Department's approval of the
Branch Sale included: (i) the Bank's agreement to file an application with the
Banking Department, within one year of the closing of the Branch Sale, for
approval of a plan of dissolution; (ii) the Bank's agreement to file with the
Supreme Court of the State of New York an application for a closing order within
13 months of the closing of the Branch Sale and an application for a final order
of dissolution within five months following the filing of an application for a
closing order; (iii) increased levels of minimum regulatory capital
requirements; (iv) the Bank's agreement to continue to submit its proposed
capital transactions to the Banking Department for prior approval; (v) the
continuation of the Bank's current periodic reporting obligations with respect
to its retained assets, as well as in connection with its ongoing activities
subsequent to the Branch Sale; and (vi) such other conditions and obligations as
the Banking Department may deem appropriate.
In June 1997, the Bank submitted an alternate proposal (the "Alternate
Proposal") to the Banking Department pursuant to which the Bank would implement
Conditions No. 1 and No. 2 of the approval of the Branch Sale described above.
The Bank proposed to adopt a plan under which it would transfer all of its
assets and liabilities, including all contingent liabilities, to a successor
corporation ("Successor") incorporated under Delaware General Corporate Law.
Successor would acquire all of the assets of the Bank and continue all of the
business of the Bank under the same business plan as adopted by the Bank.
Following the transfer of its assets and liabilities to Successor, the Bank
would surrender its banking charter and dissolve. The implementation of the
proposed plan would result in a mere change of form from a banking corporation
to a corporation incorporated under the Delaware General Corporate Law, which
would not be subject to the jurisdiction of the Banking Department. The proposed
transfer is expected to qualify as a tax-free reorganization under the Internal
Revenue Code and, as such, the Bank expects that certain of its tax attributes
will be preserved. Successor will not be subject to regulation by the Banking
Department or the FDIC following implementation of the Alternate Proposal and
the surrender of the Bank's banking charter.
In connection with the Alternate Proposal, common and preferred shareholders of
River Bank America will receive shares of Successor on a share-for-share basis
so that Successor will be owned by the same stockholders, in the same
proportions, as currently own the Bank. Following the surrender of its banking
charter, the Bank, reorganized as a regular corporation, expects to be able to
continue to pursue the orderly management and disposition of its assets under
plans intended to maximize shareholder value.
Prior to June 30, 1997, the Bank received the Banking Department's letter
indicating their conditional approval of the Alternate Proposal as meeting the
Conditions of the Banking Department's approval of the Branch Sale, if
implemented by the Bank on a timely basis. The Banking Department's conditional
approval of the Alternate Proposal and related modification of Condition No. 1
of the Approval of the Branch Sale provided that the approval of shareholders of
the Alternate Proposal not later than September 30, 1997 would be deemed to
satisfy Condition No. 1. Condition No. 2 of the Banking Department's approval of
the Branch Sale would be deemed to be satisfied if the petition required by
Condition No. 2 is filed by the Bank by October 15, 1997. In the event that the
Bank is unable to meet the dates for completion established by the Banking
Department the Bank intends to request such extensions as may be necessary to
complete implementation of the Alternate Proposal. No assurances can be given
that the Banking Department will provide such extensions.
-3-
<PAGE>
A copy of the Alternate Proposal and the Banking Department's letter indicating
their conditional approval of the Alternate Proposal have been included as
Exhibits 14 and 15 to Form F-2.
The Banking Department also advised the Bank that the Bank's minimum capital
requirement, set at $115 million in the Banking Department's approval of the
Branch Sale and subsequently amended to $106 million in May 1997, shall remain
at $106 million until the Bank's final dissolution, unless the Banking
Department shall provide prior approval of the Bank's written request to amend
the Bank's minimum capital requirement.
Further, the Banking Department's conditional approval of the Alternate Proposal
requires the Bank to seek prior approval for any material sale or transfer of
assets, or expenditures for development or renovation of any properties held by
the Bank prior to the completion of the dissolution of the Bank.
The Bank intends to proceed with the implementation of the Alternate Proposal
during the quarter ending September 30, 1997 and fully comply with the
conditions imposed by the Banking Department. Subsequent to the surrender of the
Bank's charter, Successor will continue to be subject to the requirements of the
Exchange Act and will be required to file periodic reports and other information
with the Securities Exchange Commission (the "SEC").
The Bank's principal business continues to be the management and orderly
disposition of real estate assets, mortgage loans and investment securities,
under a business plan intended to maximize shareholder value. Primarily as a
result of deterioration in the real estate markets and a general economic
recession in the New York metropolitan area and, later in other areas in which
the Bank was engaged in lending activities, particularly California, the Bank's
non-performing assets began increasing in 1989 and continued to increase in the
aggregate through 1992. The resolution of non-performing assets, which
substantially resulted from the Bank's lending strategy of the 1980s, required
significant time and attention by the Bank's management. Over the past five
years, the Bank's primary loan origination focus was single-family (one-to-four
units) and, to a lesser extent, multi-family (five or more units) residential
loans secured by properties in the New York City metropolitan area. Subsequent
to June 28, 1996, the Bank has not originated a material amount of loans.
In recent years, the earnings of the Bank have been negatively affected
primarily by the level of non-performing assets which consist of non-accrual
loans, loans which are on accrual status but delinquent 90 days or more, other
real estate owned, including in-substance foreclosures, and real estate held for
investment. These assets were largely commercial real estate related. The Bank
reduced the level of its non-performing assets by $457.5 million or 75.9% from a
high of $602.8 million at December 31, 1992 to $145.3 million at June 30, 1997
and continues to direct its efforts toward further reducing the level of
non-performing assets. While the Bank was able to reduce its level of
non-performing assets significantly during the 54 months ended June 30, 1997,
further reductions will be dependent on many factors, some of which are outside
the control of the Bank's management, including but not limited to, conditions
in the relevant real estate markets, prevailing interest rates and national
economic trends.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of." The statement requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The SFAS No. 121 definition of long-lived assets includes the Bank's other
real estate owned and real estate held assets. There was no material effect on
the reported operations of the Bank resulting from the implementation of SFAS
No. 121, which was adopted by the Bank during the fiscal year ended June 30,
1997.
During the fiscal year ended June 30, 1997, the Bank reported a net loss
applicable to common shares of $30.1 million. Significant factors contributing
to the Bank's fiscal 1997 results include $19.7 million of write-downs of other
real estate owned and real estate held for investment, a $3.3 million provision
for contingent expenses arising from the Branch Sale and $1.0 million in
provisions for possible credit losses, partially offset by a $3.3 million
benefit from a reduction of state and local income taxes recorded following the
Bank's analysis of the tax liability arising from the Branch Sale.
-4-
<PAGE>
The Bank has engaged RB Management Company, LLC (the "Management Company") to
manage its operations after the Branch Sale on a day-to-day basis, including
developing and recommending strategies to the Bank's Board of Directors
regarding the disposition of assets. The Management Company is a newly formed,
wholly-owned entity controlled by Alvin Dworman, who owns 39.0% of the
outstanding Common Stock of the Bank. See "Management."
Real Estate Assets
Concentrations of Real Estate Assets. The largest real estate assets included in
the Retained Assets at June 30, 1997 approximated $95.4 million or approximately
97.9% of all real estate assets included in the Retained Assets, as described in
the following table.
<TABLE>
<CAPTION>
APPROXIMATE
DESCRIPTION CARRYING VALUE CATEGORY LOCATION
(Dollars in Millions)
<S> <C> <C> <C>
Multi-family apartments $ 55.9 Development (1) Philadelphia, PA
Office buildings 14.1 Held and Used (1) Atlanta, GA
Co-operative apartment shares 14.8 Inventory (1) New York, NY
Office building 5.4 Held and Used (1) Valley Stream, NY
Residential condominium units 3.3 Inventory (2) Staten Island, NY
Single family development 1.9 Development (2) Murietta, CA
------
Total $ 95.4
======
</TABLE>
(1) These assets are categorized for financial reporting purposes as Real Estate
Held for investment as of June 30, 1997.
(2) These assets are categorized for financial reporting purposes as Real Estate
Owned as of June 30, 1997.
The real estate assets included in the Retained Assets consist of a total of
approximately 12 properties, including multi-family residential properties
(primarily unsold shares and units in co-operative and condominium properties,
respectively), office properties, industrial properties, land and properties
under development which were acquired upon foreclosure or by deed-in-lieu
thereof, as well as equity interests in joint ventures formed for the
acquisition, development and construction of real estate. Real estate assets
included in the Retained Assets can be categorized in accordance with banking
regulations, as (i) assets held for disposal within one year and (ii) all other
assets held for disposal, which, subsequent to the removal of the regulatory
requirements of the NYSBD and the FDIC to dispose of all assets held in this
category, will be accounted for under the provisions of SFAS-121, as discussed,
above. Such categories and the holding periods described for the Retained Assets
cannot be assured since the Bank must obtain the prior approval of the Banking
Department with regard to the disposition strategy for the Retained Assets
subsequent to the Branch Sale.
Assets Held for Disposal Within One Year. This category is represented by assets
for which marketing activities are underway with a goal of consummating a sale
within one year.
All Other Assets Held for Disposal Subsequent to the Branch Sale.
Assets Held for Inventory. This category is represented by assets
determined to be inventory, consisting primarily of co-operative shares
and condominium units. The Bank intends to sell such assets on a
unit-by-unit basis in as expedient a manner as possible. Marketing and
sales activities are underway for this category of assets.
624833.12
-5-
<PAGE>
Assets to Be Held and Used. This category is represented by assets
which the Bank intends to hold until such time as the Bank determines
that such asset is ready for sale. No aggressive marketing activities
would be commenced with respect to these assets until such time. When
the asset is marketed, it is expected that the asset would be
recategorized as "Assets Held for Disposal Within One Year."
Assets to Be Developed. This category is represented by assets for
which, if the Bank obtains regulatory approval, development activities
are incidental to the Bank's operations subsequent to the Branch Sale.
Certain costs (such as interest and overhead) will be capitalized until
the project is substantially complete. At the completion of the
development phase, the asset would be expected to be recategorized as
"Assets to Be Held and Used" or "Assets Held for Inventory."
These categories identify the Bank's disposition strategy with respect to each
individual real estate asset. See "Disposition Strategy." See also "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Asset Quality."
Joint Ventures. Included in the real estate assets also are three properties
representing approximately $3.2 million of joint venture equity investments.
During the mid- to late-1980s, the Bank sought to supplement the income derived
from its mortgage activities by engaging in real estate development activities,
most commonly through participations in joint ventures. These activities
generally were conducted through subsidiaries of the Bank and, unlike loans,
were intended to provide a return which was based on the overall profitability
of each project.
The structure of each of the Bank's joint venture investments generally
involved the formation of a partnership between the Bank's co-venturer and
a subsidiary of the Bank. The Bank's subsidiary generally had up to a 50%
interest in the partnership, which was responsible for the acquisition,
development and sale of a project. The Bank's subsidiary generally
functioned as both a non-managing general partner and in many cases a
limited partner in the partnership. Upon completion and sale of a project,
and after all partnership obligations were satisfied, the bank's equity
investment is expected to be paid in full and any profits would then be
distributed to the partners in accordance with the terms of the
partnership agreement. The Bank's joint venture projects include a
shopping center, industrial buildings and warehouses.
The following table sets forth certain information relating to the joint venture
investments the Bank owned as of June 30, 1997.
<TABLE>
<CAPTION>
PERCENTAGE APPROXIMATE
OWNERSHIP BY APPROXIMATE SENIOR
JOINT VENTURE NAME THE BANK EQUITY BALANCE INDEBTEDNESS LOCATION DESCRIPTION
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
Escondido Retail Assoc. 35 $1.6 $10.2 Escondido, CA Shopping center
Raley Assoc. 50 1.2 6.7 Sacramento, CA Four industrial
buildings and 27
acres of land
Cicero Industrial Assoc. 50 0.4 0.8 Cook City, IL Warehouse
---- -----
$3.2 $17.7
==== =====
</TABLE>
During the year ended June 30, 1997, the Bank sold its investment to one joint
venture realizing a loss of $1,377.
-6-
<PAGE>
The following table sets forth certain information relating to the Bank's joint
ventures at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
------------- ------------- -------------
No. Amount No. Amount No. Amount
<S> <C> <C> <C> <C> <C> <C>
Loans to joint ventures,
net 1 $ 471 0 $ - 7 $42,456(1)(2)
= ======= = ========== = ========
Investments in joint
ventures, net(2) 3 $ 3,113 4 $ 4,424 7 $ 4,711
= ======= = ========== = ========
</TABLE>
(1) As a result of the Bank's equity investments in joint ventures, the Bank's
proportional amount of the loans made by the Bank to joint ventures amounted
to $471,000, $0, and $18.4 million at June 30, 1997, 1996 and 1995,
respectively.
(2) Does not include investments in joint ventures which have been charged off.
At June 30, 1997, the Bank did not have any material amounts left to be funded
pursuant to legally binding commitments relating to its joint ventures, except
certain ongoing operating expenses and capital investments. Notwithstanding the
foregoing, certain of the joint venture properties are operating at a loss or do
not have current cash flow from which to fund ongoing operating expenses
(including debt service). Failure by the Bank or its joint venture partner to
fund operating expenses under these circumstances could result in the loss of
the asset. Any such funding by the Bank will require the approval of the Banking
Department. There can be no assurance that the Bank will obtain such approval.
Subsequent to the removal of the regulatory requirements of the NYSBD and the
FDIC to dispose of all assets held in this category, these assets will be
accounted for under the SFAS-121, as discussed, above.
Lending Activities and the Loan Portfolio
From 1985 until 1990, the Bank's lending activities emphasized multi-family
residential, commercial real estate, construction and commercial business loans
and, to a lesser extent, single-family residential loans and education loans. In
addition and pursuant to a business plan adopted by the Bank, the Bank during
this time restructured its assets and liabilities to reduce the vulnerability of
the Bank's operations to changes in interest rates. The Bank effected this
strategy by emphasizing multi-family residential, commercial real estate and
construction loans, including loans to joint ventures in which the Bank or a
subsidiary had an interest in the real estate development activities and loans
secured by properties primarily outside of the New York metropolitan area, as
well as commercial business lending activities.
As a result of deteriorating economic conditions in 1989 and the resultant
increases in non-performing assets during 1989, the Bank began to substantially
decrease its lending activities during 1990, particularly investments in
higher-risk multi-family residential, commercial real estate, construction and
commercial business loans, as well as its joint venture activities. These
practices were formalized by the Board of Directors of the Bank in April 1991
following the Bank's entering into a Memorandum of Understanding in December
1990. As a result of the Board's actions, the Bank changed its lending policy to
specifically exclude acquisition, development and construction loans, all
lending characterized as highly-leveraged transactions and joint venture
activities, as well as substantially curtailed multi-family residential and
commercial real estate lending. The foregoing loans were permitted, however, to
the extent that the Bank was obligated under legally binding commitments, as
well as in connection with the restructuring/refinancing of existing loans or in
connection with the sale of investments in real estate.
During this period, the Bank continued to originate relatively low volumes of
single-family residential loans and, to a lesser extent, certain consumer loans.
In addition, since 1990 and 1991 other than single-family residential loans, the
Bank has primarily originated loans secured by multi-family residential elevator
properties with approximately 75 units, generally in its market area and under
much stricter underwriting guidelines than had previously been in effect for
multi-family residential and commercial real estate loans.
-7-
<PAGE>
Following consummation of the Branch Sale, the Bank no longer engages in lending
activities.
Concentrations of Loans. The aggregate principal amount outstanding on the ten
largest loans included in the Retained Assets the Bank owned as of June 30, 1997
are approximately $73.4 million or approximately 75.9% of all such loans, as
described in the table below.
<TABLE>
<CAPTION>
APPROXIMATE SECURITY CATEGORY LOCATION
CARRYING INTEREST
ASSET DESCRIPTION VALUE
(Dollars in millions)
<S> <C> <C> <C> <C>
Office/ industrial property $22.1 First mortgage Performing Brooklyn, NY
Co-operative apartments 16.0 First lien Non-Performing Queens, NY
(unsold shares)
Hotel 10.2 Second mortgage Performing1 Orlando, FL
Co-operative apartments 6.8 First lien Performing2 Queens, NY
(underlying first mortgage)
Commercial business 3.9 Unsecured Non-Performing Providence, RI
Commercial business 3.6 Unsecured Performing New York, NY
Office building 3.1 First mortgage Non-Performing Ulster, NY
Office building 3.0 First mortgage Performing3 New York, NY
Student loans 2.5 Unsecured Non-Performing Various
Commercial business 2.2 Unsecured Non-Performing New York, NY
-----
Total $73.4
=====
</TABLE>
Multi-Family Residential Loans, Commercial Real Estate Loans and Commercial
Business Loans. The loans included within the Retained Assets consist of
performing and non-performing loans categorized as multi-family residential,
commercial real estate or commercial business loans.
Commercial real estate and multi-family residential loans are generally
considered to involve more risk than single-family residential loans due to,
among other things, the higher principal amount of such loans and the effects of
- ----------
1
Represents a subordinated participation interest in loans which were
Transferred Assets included in the Branch Sale and for which the Branch Sale
reacquired a subordinated participation interest.
2
Represents a subordinated participation interest in loans which were
Transferred Assets included in the Branch Sale and for which the Branch Sale
reacquired a subordinated participation interest.
3
Represents a junior subordinated participation interest in loans which were
Transferred Assets included in the Branch Sale and for which the Bank retained
a junior subordinated participation interest in future proceeds collected with
respect to amounts previously charged-off by the Bank.
-8-
<PAGE>
general economic conditions, which may result in excessive vacancy rates,
inadequate rental income levels and volatility in real estate values.
The Bank's multi-family residential loans consist primarily of loans secured by
rental apartment buildings, unsold condominium units, cooperative apartment
buildings and unsold shares secured by cooperative apartments. The Bank's
commercial real estate loans consist primarily of loans secured by office
buildings, shopping centers, industrial warehouse buildings, hotels and other
income-producing properties.
The terms of the Bank's multi-family residential and commercial real estate
loans are most commonly five to ten years. Certain of these loans have options
to extend the term of the loan at interest rates which may be fixed or adjusted
upward for one, or in certain instances two, additional five-year periods. These
loans include amortizing loans which require the monthly payment of interest and
principal. The amortization period for the payment of principal on such loans
generally is 20 to 30 years, with balloon payments of the remaining principal
amount due upon the maturity of the loan. The Bank's commercial real estate
loans also were frequently made on an interest-only basis, with the payment of
the entire principal amount due at maturity. The multi-family residential and
commercial loans included in the Retained Assets are nearly all fixed interest
rate loans.
The Retained Assets include approximately $12.8 million of secured and unsecured
commercial business loans. The Bank's commercial business loans previously
consisted primarily of loans which involved the buyout, acquisition or
recapitalization of an existing business (including management buyouts and
corporate mergers and acquisitions). Such loans involved a high degree of risk
in their origination since such transactions frequently resulted in a
substantial increase in both the borrower's liabilities and its
liabilities-to-assets leverage ratio, thus increasing the prospects for default.
Each of the commercial business loans included in the Retained Assets has a
principal amount which is less than $4 million.
Performing Loans. Performing loans which are remaining Retained Assets at June
30, 1997 consist of commercial real estate and commercial business loans which
are wholly-owned by the Bank, as well as participation interests in multi-family
residential and commercial real estate loans pursuant to the Participation
Agreements with Marine. Approximately $47.8 million or approximately 22.6% of
the total Retained Assets comprise loans categorized as performing as of June
30, 1997. Of the approximately $47.8 million of performing loans included in the
Retained Assets, approximately $24.5 million or approximately 51.3% of such
loans are subordinated loans. Subordinated loans, including second mortgages and
participation interests, generally involve more risk than senior loans.
Whole Loans. At June 30, 1997, the Retained Assets include 7 performing loans
(exclusive of participating loans) of approximately $27.0 million, all of which
are commercial real estate loans. All of such loans have been modified since
origination and are currently performing in accordance with their terms.
Approximately $22.1 million or approximately 81.8% of the Bank's performing
loans (other than the participating loans) which are included in the Retained
Assets are currently interest-only loans, with the payment of the entire
principal amount due at maturity.
Subordinated Participation Interests. The Retained Assets include a subordinated
participation interest in 10 performing loans and one non-performing loan in
which the Bank retained an interest in approximately $24.5 million and $1.8
million principal amount, respectively. All of the performing loans have been
modified since origination and are currently performing in accordance with their
modified terms.
Junior Subordinated Participation Interests. The Retained Assets include a
junior subordinated participation interest in five performing loans in which the
Bank retains an interest of approximately $6.2 million in principal amount,
which are fully reserved (100%) for by the Bank. All of such loans have been
modified since origination and are currently performing in accordance with their
terms.
-9-
<PAGE>
Non-Performing Loans. Non-performing loans consist of multi-family residential,
commercial real estate, commercial business loans and student loans.
Non-performing loans are those loans which have been placed on non-accrual
status and loans which are on accrual status but delinquent 90 days or more. The
non-performing loans in the Retained Assets are on non-accrual status. The Bank
generally places a loan which is delinquent 90 days or more on non-accrual
status unless it is well secured and, in the opinion of management, collection
appears likely. In addition, the Bank may place a loan on non-accrual status
even when it is not yet delinquent 90 days or more if the Bank makes a
determination that such loan is not collectible. When loans are placed on
non-accrual status, any accrued but unpaid interest on the loan is reversed and
future interest income is recognized only if actually received by the Bank and
collection of principal is not in doubt. Approximately $47.9 million or
approximately 22.6% of the Retained Assets are comprised of loans categorized as
non-performing as of June 30, 1997 and are all currently on non-accrual status.
-10-
<PAGE>
Loan Portfolio Composition. The following table sets forth information
concerning the Bank's loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
June 30, 1997(1) June 30, 1996 June 30, 1995
% of % of % of
Type of Loan Amount Loans Amount Loans Amount Loans
- ------------------------------- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Single-family residential loans
Conventional $ 3,924 4.1% $ 4,557 4.4% $ 239,386 23.4%
Co-op single units - - - - - -
Condominium single units - - - - - -
Multi-family residential loans 26,092 27.2 31,336 30.4 249,252 24.9
Commercial real estate loans:
Office 33,497 35.0 33,498 32.5 123,763 12.3
Shopping center 1,644 1.7 1,644 1.6 86,179 8.6
Industrial/warehouse 2,619 2.7 2,148 2.1 80,769 8.1
Hotel 11,470 12.0 11,427 11.1 49,412 4.9
Other(2) 847 0.9 2,373 2.3 120,537 12.0
-------- --- ----- ------ ---------- -------
Total 50,077 52.3 51,090 49.6 460,660 45.9
Construction loans:
One-to-four family - - - - - -
Multi-family - - - - 360 0.1
Commercial - - - - - -
-------- ------ -------- ------ ---------- -------
Total - - - - 360 0.1
Commercial business loans:
Secured 2,520 2.6 2,520 4.6 27,659 2.7
Unsecured 10,286 10.7 10,464 8.0 9,036 0.9
-------- ------ -------- ------ ---------- -------
Total 12,806 13.4 12,984 12.6 36,695 3.6
Consumer loans:
Student education loans 2,504 2.6 2,671 2.6 19,891 1.9
Passbook loans - - - - - -
Other 367 0.4 367 .4 574 0.1
-------- ------ -------- ------ ---------- -------
Total 2,871 3.0 3,038 3.0 21,274 2.1
Total loans receivable $ 95,770 100.0% $103,005 100.0% $1,002,627 100.0%
======== ====== ======== ====== ========== =======
Less:
Unearned discount and
deferred fees, net - - 2,220
Allowance for credit losses (3) 31,570 34,142 31,244
------ ------ ------
Net loans receivable $64,200 $68,863 $969,163
======= ======= ========
</TABLE>
(1) See the discussion above for a description of the Bank's loan portfolios.
(2) Other real estate loans include loans secured by generally mixed-use
properties (retail/commercial) and shares of cooperative units from
apartment building conversions (these loans are primarily non-performing).
(3) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Asset Quality - Allowance for Credit Losses."
<PAGE>
The following table summarizes the Bank's portfolio secured by real estate, of
gross loans secured by real estate, by state, and type of mortgage loan at June
30, 1997.
<TABLE>
<CAPTION>
Type of Loan New York California Florida New Jersey S. Carolina Other Total
-------- ---------- ------- ---------- ----------- ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Single-family residential $ 3,857 $ - $ - $ 67 $ - $ - $ 3,924
Multi-family residential 26,092 - - - - - 26,092
Commercial real estate:
Office 32,491 1,006 - - - - 33,497
Shopping center 620 1,024 - - - - 1,644
Industrial/warehouse - 360 - - - 2,259 2,619
Hotel - - 10,161 - 1,309 - 11,470
Other 847 - - - - - 847
----------- --------- --------- --------- --------- --------- --------
Total 33,959 2,390 10,161 - 1,309 2,259 50,077
----------- ---------- ----------- --------- --------- ---------- --------
Gross loans receivable
secured by real estate $ 63,907 $ 2,390 $ 10,161 $ 67 $ 1,309 $ 2,259 $ 80,093
=========== ========== =========== ========= ========= ========== ========
</TABLE>
Origination, Purchase and Sale of Loans. The Bank's origination of loans in
recent periods reflects its decision to both revise its lending strategy and to
limit its lending activities as a means of reducing assets and maintaining
capital.
As of the close of business on June 28, 1996, the Bank's lending activities have
been substantially curtailed. During 1997, the Bank advanced funds only to fund
continuing construction involving a limited number of loans and investments in
real estate and one loan in the amount of $471,000 to a joint venture
partnership related to one of the Bank's joint venture investments held prior to
June 28, 1996. With the exception of the $471,000 loan to the joint venture
partnership mentioned above and $3.7 million of new multi-family residential
real estate loans originated during the year ended June 30, 1996, which were
loans secured by smaller multi-family residential properties located in the
Bank's market area, the multi-family residential and commercial real estate
loans originated by the Bank in recent periods have been primarily in connection
with the restructuring/refinancing of existing loans and loans to facilitate the
sale of investments in real estate.
-12-
<PAGE>
The following table sets forth the activity in the Bank's loan portfolio during
the periods indicated.
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
June 30, 1997 June 30, 1996 June 30, 1995
------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C>
Originations:
Single-family residential loans - $ 105,850 $ 42,902
Multi-family residential loans - 3,701 864
Commercial real estate loans - 11,838 2,610
Construction loans - - -
Commercial business loans - - -
Consumer loans (1) - 3,237 16,712
---------- -------------- -----------
Total loans originated - 124,626 63,088
Loans to facilitate sale of
investments in real estate (2) - 83,992 69,960
Loan swap - - -
Repurchased from Marine Midland 471 - -
Total loan increases - 208,518 133,048
Sales (2) - (1,034,928) (276)
Loans transferred (to)/from
investments in real estate - (7,852) (4,116)
Principal repayments, net (7,706) (65,360) (66,849)
---------- ------------ ------------
Net increase(decrease) in total loans $ (7,235) $ (899,622) $ 61,807
========== ============ ===========
</TABLE>
During the year ended June 30, 1997, the Bank repurchased a loan from Marine
Midland Bank in the amount of $471 in accordance with the terms of the Branch
Sale agreement.
(1) Includes $5.6 million of student loans received in settlement of
litigation with the RTC.
(2) Primarily loans sold to Marine in connection with the Branch Sale and
included within Transferred Assets. Also includes the sale of $48.0
million of loans to facilitate sales to third parties. Such loans to
facilitate were delivered to Marine as part of the Transferred Assets
in the Branch Sale. See Asset Sale Transactions and Note 11 to the
Consolidated Financial Statements.
Concentrations of Loans by Loan and by Borrower. At June 30, 1997, the Bank's
loan portfolio included 3 loans aggregating $48.3 million with principal amounts
greater than $10.0 million, 1 loan with a principal balance of $6.8 million and
11 loans aggregating $26.5 million with principal amounts of $1.0 million to
$5.0 million. At the same date, the Bank's five largest borrowers (including
their related entities) had $22.1 million, $16.0 million, $10.2 million, $6.8
million and $3.9 million, respectively, of loans outstanding, and the aggregate
amount of loans to the Bank's five,
-13-
<PAGE>
10 and 20 largest borrowers (including related entities) amounted to $59.0
million, $72.8 million and $83.1 million, respectively. At June 30, 1997, $40.5
million of the loans to the Bank's 20 largest borrowers were non-performing
loans and $6.8 million had been restructured and were performing according to
their restructured terms.
The following table sets forth as of June 30, 1997 the size of the Bank's
multi-family residential, commercial real estate, construction and commercial
business loans.
<TABLE>
<CAPTION>
Loan Type/Size No. of Loans Amount
(Dollars in Thousands)
<S> <C> <C>
Multi-family residential loans:
More than $10.0 million 1 $15,979
More than $5.0 million to $10.0 million 1 6,804
$1.0 million to $5.0 million 1 1,501
Under $1.0 million 2 1,807
Commercial real estate loans:
More than $10.0 million 2 32,283
More than $5.0 million to $10.0 million - -
$1.0 million to $5.0 million 5 11,458
Under $1.0 million 15 6,337
Commercial business loans:
More than $10.0 million - -
More than $5.0 million to $10.0 million - -
$1.0 million to $5.0 million 4 11,071
Under $1.0 million 5 1,735
-- -------
36 $88,975
== =======
</TABLE>
The following table sets forth as of June 30, 1997 information relating to the
Bank's 20 largest borrowers.
(In Thousands)
Largest borrowers:
Five largest borrowers $59,004
Six-10 largest borrowers 13,829
11-20 largest borrowers 10,989
-------
20 largest borrowers $83,822 (1)
=======
(1) Includes 3 loans with a principal amount of more than $10.0 million, which
amounted to $48.3 million in the aggregate.
Multi-Family Residential, Commercial Real Estate and Construction Loans. At June
30, 1997, the Bank's multi-family residential and commercial real estate loans
aggregated $80.1 million.
The Bank's multi-family residential loans consist primarily of loans secured by
rental and cooperative apartment buildings. The Bank's commercial real estate
loans consist of loans secured by office buildings, shopping centers, industrial
warehouse buildings and other income-producing properties. The vast majority of
the Bank's multi-family residential and commercial real estate are secured by
first mortgages on the related properties.
-14-
<PAGE>
The terms of the Bank's multi-family residential and commercial real estate
loans were most commonly five to ten years. These loans included amortizing
loans, which required the monthly payment of interest and principal. The
amortization periods for the payment of principal on such loans generally were
20 to 30 years, with balloon payments of the remaining principal amount due upon
the maturity of the loan. The Bank's commercial real estate loans also were
frequently made on an interest-only basis, with the payment of the entire
principal amount due at maturity. The multi-family residential and commercial
real estate loans originated by the Bank generally had either fixed or
adjustable interest rates.
Commercial Business Loans. The Bank has been winding down the portfolio of
commercial business loans, which consisted of $12.8 million of commercial
business loans at June 30, 1997. Of the $12.8 million commercial business loans
in the Bank's portfolio at June 30, 1997, $6.6 million or 51.5% was classified
as non-performing and maintained on non-accrual status. An additional $6.2
million was classified as non-performing at June 30, 1997 although interest in
an aggregate amount of $483,000 was accrued in 1997 and is considered by
Management to be collectible.
The following schedule details the maturities of the Bank's Commercial Business
Loans (dollars in thousands):
Less than one year $ 4,315
One year to five years 8,491
---------
$ 12,806
As of the year ended June 30, 1997 all of the commercial business loans have
fixed interest rates.
Asset Sale Transactions
In connection with, and to facilitate the closing of, the Branch Sale, the Bank
consummated $60.4 million of Asset Sale Transactions. The Asset Sale
Transactions, which were arranged by RB Management Company LLC, were structured
to include ongoing recourse to, and participation by, the Bank with respect to
the assets sold, based upon the proceeds realized by the purchasers. The assets
included within each pool of assets sold and the nature of related recourse
provisions are described below.
The Asset Sale Transactions were entered into with five entities, each of which
was independent of the Bank and Alvin Dworman, who owns 39% of the common stock
of the Bank. In connection with the Asset Sale Transactions, entities controlled
by Mr. Dworman loaned $12.8 million to the five entities on a non-recourse
basis.
Assets included within each pool sold were, with the exception of Pool C,
believed by the Bank and the purchasers to be in the final process of
disposition by the Bank. In essence the Asset Sale Transactions resulted in
disposition proceeds which the Bank expected to realize on the included assets
within the fiscal year following the Bank's 1997 fiscal year.
In each of the Asset Sale Transactions, the Bank sold a pool of assets and
received a 20% cash down payment and non-recourse purchase money notes (the
"Purchase Money Notes") which approximated 80% of the sale price. In all cases,
except for Pool C, the Purchase Money Notes had maturity dates, including any
extension options, of less than one year from June 30, 1996. The maturity date
on the Pool C Purchase Money Note was three years. The Bank also received
additional contingent proceeds notes for each of the five pools which provided
the Bank with rights to receive proceeds from subsequent asset sales by
purchasers in excess of the initial sales price after the purchaser had received
a return of 8%, a transaction fee of 25 basis points and reimbursement of
certain transaction expenses. In the event that proceeds of subsequent assets
sales exceed specified amounts for each pool, such amounts are to be retained by
the purchaser.
-15-
<PAGE>
The Bank received aggregate cash down payments of $12.8 million in connection
with the Asset Sale Transactions. The Purchase Money Notes, aggregating $47.6
million, were included in the assets delivered to Marine Midland in connection
with the Branch Sale.
The Bank made representations and warranties ( the "Recourse Provisions") with
respect to the assets sold which included, among other things, the present
condition of each asset, the nature of disposition arrangements which had been
entered into by the Bank prior to June 28, 1996 and that each of the assets was
free of any liens or encumbrances. The Recourse Provisions also included
representations with respect to certain of the assets that the Bank had taken
all actions to effect specific proposed dispositions or had made arrangements
with third parties to complete actions required to effect such dispositions.
For accounting purposes the Bank accounted for the Asset Sale Transactions
included in Pools B and C as financings, primarily due to their longer term
nature and the more substantial risks related to ongoing construction for the
assets included in each of the Pools. Pool B and C Asset Sale Transactions have
been included in the Bank's consolidated financial statements as Loans sold with
recourse. Related financing for such assets has been included in the Bank's
consolidated financial statements as Borrowed Funds, secured by assets sold with
recourse. The Bank believes that it has made adequate provision at June 30, 1997
for all recourse amounts expected to result from the sale of the assets included
in Pools B and C.
For accounting purposes the Bank accounted for the Asset Sale Transactions
included in Pools A, D, and E as sale transactions since each of the financial
receivables, asset sale contracts or other proceeds included in these pools
represented reasonably estimable amounts, including related recourse claims, in
transaction with limited duration. Substantial proceeds from dispositions
conducted within Pools A, D and E were realized by the purchasers during the
fiscal year ended June 30, 1997. The Bank believes that it has made adequate
provision at June 30, 1997 for all recourse amounts expected to result from the
sale of the assets included in Pools A, D and E.
Assets included in Asset Sale Transactions, and a description of the assets
sold, were as follows:
Pool A
Pool A originally included $13.8 million in assets, composed of $12.0 million of
receivables related to the collection of certain federally guaranteed, defaulted
student loans and other student loan related claims from the Student Loan
Marketing Agency ("SLMA") (collectively, the "Student Loan Receivables") and
$1.8 million related primarily to delinquent single family residential loans
(collectively the "Single Family Receivables").
The Bank's aggregate investment in the Student Loan Receivables and the Single
Family Receivables prior to the Asset Sale Transactions approximated $12.4
million and $7.1 million, respectively.
At June 30, 1997, the remaining Student Loan Receivables balance, net of
applicable reserves, was $1.3 million. This balance represented claims which had
been filed with state processing agencies for reimbursement for which the Bank
expected to receive reimbursement. At June 30, 1997, the remaining Single Family
Receivables balance, net of applicable reserves, of $5.7 million were in the
process of being disposed of through bulk sales or sales of individual loans or,
to a lesser degree, sales of real estate owned to bulk buyers or individuals.
Pool B
At June 30, 1996, Pool B was composed of a mortgage loan in the amount of $13.0
million secured by land and construction in process related to a single family
condominium project in Wayne, New Jersey (the "Wayne Project"). The Bank's
aggregate investment in the Wayne Project prior to the Asset Sale Transactions
approximated $13.01 million.
624833.12
-16-
<PAGE>
The Bank believed at June 30, 1997 that the Wayne Project would be fully
completed and all individual units sold prior to June 30, 1998. The Wayne
Project is in the final phase of a three phase development project which was
nearing completion at June 30, 1997. The Bank's remaining investment in the
Wayne Project, net of applicable reserves, was $7.7 million at June 30, 1997.
Pool C
Pool C included contracts of sale, in the amount of $11.0 million for two
adjacent parcels of land located in the Bronx, New York (the "Bronx Projects").
The Bank's investment in the Bronx Projects prior to the Asset Sale Transactions
aggregated $17.7 million, including $12.1 million for one site ("Site One") and
$5.6 million for a second site ("Site Two"). The sale contract for the Bronx
Projects represented the sale of ownership and development rights for each of
the parcels of land and, for Site One, the Bank's investment at June 28, 1996 in
construction in process. Site Two was vacant on June 30, 1997 with no
development yet commenced. At June 30, 1997, the Bank expected that the two
parcels would be sold within the subsequent twelve months or that the Bank would
arrange for the sale and development of subparcels of the first site and sale of
the second site prior to the commencement of construction. The Bank's investment
in the Bronx Projects, net of applicable reserves, was $16.8 million at June 30,
1997.
Pool D
Pool D, with an aggregate sales price of $14.3 million, included six individual
owned real estate properties, located in New York State, New Jersey and
California (collectively, the "Real Estate Properties"). The Bank's aggregate
investment in the Real Estate Properties prior to the Asset Sale Transactions
aggregated $16.1 million. Each of the properties included in Pool D were either
under contract of sale or contracts of sale for the remaining assets were being
actively negotiated. All properties were disposed of during 1997 with the
exception of one property, which the Bank estimated at June 30, 1997 would be
disposed of by June 30, 1998. This property had a remaining asset balance of
approximately $2.0 million at June 30, 1997.
Pool E
Pool E, with an aggregate sales price of $8.3 million, included the rights to
proceeds from sale of two joint venture projects, the sale of which was
scheduled to close within 90 days, rights to proceeds of sale of 35 condominium
projects located in New York City, a mortgage secured by cooperative apartment
units in New York City and a mortgage secured by a multi-family apartment
complex in New York State (collectively, the "Venture Proceeds and Residential
Mortgages Pool"). The Bank's aggregate investment in the Venture Proceeds and
Residential Mortgages Pool prior to the Asset Sale Transactions aggregated $11.6
million. Each of the assets included in Pool E was disposed of during fiscal
1997.
-17-
<PAGE>
Mortgage-Backed and Related Securities Available for Sale
The following table sets forth information relating to the Bank's
mortgage-backed and related securities at the dates indicated.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Mortgage-backed securities:
FHLMC $ - $ 187 $ 26,397
FNMA - - 3,993
Privately issued - - 13,756
-------------- --------------- ----------
Total 187 44,146
Mortgage-related securities:
CMO regular interests - - 28,497
CMO residual interests, net - - -
-------------- --------------- ----------
Total - - 28,497
-------------- --------------- ----------
Total mortgage-backed
and related
securities $ - $ 187 $ 72,643 (1)
============== =============== ============
</TABLE>
(1) At June 30, 1996 and 1995, all of the Bank's mortgage-backed and
related securities were classified as available for sale and carried at
fair value.
For additional information relating to the Bank's mortgage-backed and related
securities, see Note 6 to the Consolidated Financial Statements.
-18-
<PAGE>
The following table sets forth the Bank's investment securities portfolio at
carrying value at the dates indicated.
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Bonds:
U.S. Government and federal
agencies $ - $ - $ 23,023
Corporate - - -
Other (1) - - 565
-------- ----------- -----------
Total - - 23,588
-------- ----------- -----------
Equity Securities:
Marketable Equity Securities:
Common 2,298 2,298 1,665
Preferred - - -
Valuation allowance (1,105) (1,218) -
--------- ------------ ----------
Total 1,193 1,080 1,665
Non-marketable Equity Securities, net 5,082 4,605 6,119
-------- ----------- -----------
Total equity securities, net 6,275 5,685 7,784
-------- ----------- -----------
Total investment securities, net (2) $ 6,275 $ 5,685 $ 31,372
======== =========== ===========
</TABLE>
(1) At June 30, 1995, consists primarily of bonds issued by Community
Preservation Corp. for affordable housing programs and bonds of foreign
governments.
(2) At June 30, 1997, 1996 and 1995, all of the Bank's investment securities
were classified as available for sale and carried at market value in
accordance with SFAS No. 115. See Note 1 to the Consolidated Financial
Statements.
At June 30, 1997, the Bank's investments in common stocks and non-marketable
securities were comprised of investments in the stocks of one and two corporate
issuers, respectively. The Bank is required to divest these equity interests in
accordance with the requirements of federal laws and regulations.
The Bank's investments in equity securities prior to June 30, 1997 include a
historically required investment in the FHLB of New York, redeemed during the
Bank's 1997 fiscal year, which amounted to $9.0 million at June 30, 1996. The
Bank's investments in equity securities prior to June 30, 1997 also include
investments, liquidated in 1997, in two organizations, which amounted to
$790,000 at June 30, 1996. These organizations previously provided data
processing and related services to their shareholders on a cooperative basis.
The Bank had no debt securities as of June 30, 1997 and 1996. For additional
information relating to the Bank's investment securities, see Note 6 to the
Consolidated Financial Statements.
Sources of Financing
Subsequent to the Branch Sale, the primary source of the Bank's financing has
been secured financing provided by Marine.
The closing of the Branch Sale was conditioned upon the Bank's obtaining
financing with terms and in an amount reasonably acceptable to the Bank and
determined to be reasonably adequate to permit consummation of the Branch Sale.
The Bank obtained from Marine the Facility, consisting of eleven independent
mortgage loans with additional
-19-
<PAGE>
collateral, in an aggregate amount not to exceed $99.06 million. Proceeds of the
Facility were utilized by the Bank to (i) refinance all or part of the certain
indebtedness secured by assets to be transferred to Marine, including all or a
substantial part of the outstanding advances from the Federal Home Loan Bank
("FHLB") and (ii) provide additional funds for the development and completion of
two individual real estate assets as part of the Bank's operations subsequent to
the Branch Sale.
As a member of the FHLB, River Bank had been eligible to obtain borrowed funds
from the FHLB, subject to the availability of collateral, which was sufficient,
in the judgment of the FHLB, to fully secure advances and compliance with other
applicable requirements. At June 30, 1997, the Bank had no outstanding advances
from the FHLB of New York. The outstanding FHLB financing prior to June 28,
1996, was previously fully secured by individual assets of the Bank, a
substantial amount of which were being sold to Marine as part of the Branch
Sale. As a result, the Bank was required to repay or refinance substantially all
of its FHLB indebtedness at or prior to the closing of the Branch Sale.
Each of the individual loans included in the Facility were structured as
three-year term loans with options to extend the initial term for two additional
one-year periods subject to the Bank's achieving pre-agreed minimum repayment
amounts which are equal to 60% and 30% of the original aggregate amount of the
Facility and remaining fully current on all obligations and in compliance with
all covenants.
The Facility is priced at 175 basis points over LIBOR for the initial six months
following June 28, 1996, automatically increasing by 25 basis points at the
beginning of each of the subsequent three six month periods and will be priced
at 275 basis points over LIBOR for the third year of the Facility. In the event
that the Bank elects to exercise its option to extend the initial term of the
Facility, the Facility will be priced at 300 basis points over LIBOR during the
initial one year extension and 325 basis points over LIBOR during the second one
year extension. Following maturity or an event of default, the Senior Debt
Financing will accrue interest at a specified default rate.
The Facility is secured by first priority mortgage liens on eleven of River
Bank's real estate assets approved by Marine and collateral assignments of first
priority mortgages held by River Bank (the "Primary Collateral"). Each of the
loans are cross defaulted with each other and cross collateralized by all
collateral for the Facility. As additional collateral for the Facility, each
loan is also secured by first priority mortgages (or, where applicable, a
collateral assignment of first priority mortgages held by the Bank), stock
pledges and assignment of partnership interests and assignment of miscellaneous
interests on additional Bank assets (the "Additional Collateral"). The Bank
collaterally assigned to Marine all of the cash flow from the Primary Collateral
and the Additional Collateral. All of the net cash flow from the Primary
Collateral and Additional Collateral will be applied to the prepayment of the
Facility. In addition, all net proceeds from the sale of any Primary Collateral,
and the proceeds from the sale of any Additional Collateral, shall be applied to
the prepayment of the Facility subject to the Bank's right to establish reserves
for its operating needs. The Bank will be permitted to prepay the Facility in
whole or in part at any time without prepayment penalty or premium (subject to
customary LIBOR breakage provisions).
The commitment letter for the Facility provided that the Bank may continue to
pursue additional debt financing of up to $25 million of additional debt
financing from other lenders or, in the alternative or in combination,
accelerate the Bank's disposition of assets so as to reduce or eliminate its
need for Supplemental Financing. If the Bank pursues additional debt financing,
the proceeds of such financing will be required to be utilized in a manner
approved by Marine (which may include the application of a percentage of such
proceeds to the prepayment of the Senior Debt Financing), such financing may not
be secured by any assets which are Primary Collateral and the lender must enter
into an intercreditor agreement with Marine satisfactory to Marine. If the Bank
elects to accelerate its disposition of assets, such dispositions must be of
assets which are not Primary Collateral and the proceeds of such asset
dispositions will be required to be utilized in a manner approved by Marine
(which may include the application of a percentage of such proceeds to the
prepayment of the Senior Debt Financing).
Additionally, Marine has indicated that it is willing to consider a request by
the Bank for an increase in the Facility by an amount not to exceed an
additional $25 million in mortgage loans (such increase in the Facility,
together with the initial Facility, the "Senior Debt Financing"). Any increase
in the Facility is subject to Marine's approval and will be
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<PAGE>
secured by additional mortgaged properties of the Bank or collateral assignments
of mortgage loans of the Bank acceptable to Marine, in its sole discretion. In
addition, any increase in the Facility will be subject, among other things, to
the acceptability to Marine of the terms of all regulatory approvals or
restrictions associated with the Bank's continuing operations. The increase in
the Facility, if any, will be utilized by the Bank only to facilitate the
retirement of the Series A Preferred Stock. Whether an increase in the Facility
is necessary to facilitate the retirement of the Series A Preferred Stock
pursuant to a plan of dissolution will ultimately depend on future events and
conditions, including the pace at which the Bank is able to dispose of its
assets, fund its operations and repay its Senior Debt Financing.
The Loan Agreement requires that while any amounts remain outstanding under the
senior debt financing, the Bank must receive Marine Midland's prior written
consent to, among other things, materially alter its charter or by-laws, incur
additional corporate indebtedness and liens, make any distributions to
stockholders or repurchases or redemptions of capital stock, acquire additional
assets, exchange existing assets with a third party or assume additional
liabilities as a result of any proposed merger transaction.
Deposits. The Bank no longer accepts any retail deposits and deposits are no
longer a source of funds available to the Bank. Prior to the Branch Sale,
deposits obtained through retail banking offices of the Bank had traditionally
been the primary source of the Bank's funds for use in lending and for other
general business purposes. The Bank has not offered and does not intend to offer
any retail deposit products subsequent to the Branch Sale.
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<PAGE>
The following table shows the distribution of the Bank's deposits by type of
deposit at the dates indicated.
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------------------------------------
1997 1996 1995
----------------------- ------------------------- --------------------
% of % of % of
Amount Deposits Amount Deposits Amount Deposits
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-brokered deposits:
Regular savings $ - - % $ - - % $ 381,995 33%
Past due certificates (1) - - - - 41,493 4
Demand accounts:
Checking accounts(2) - - % 2,876 95 2,817 -
Bank checks outstanding (3) - - 146 5 12,089 1
------ ------ ------- ----- -------- -----
- - 3,022 100 14,906 1
NOW accounts - - - - 66,613 6
Money market deposit
accounts - - - - 89,925 7
------ ------ ------- ----- -------- -----
Total savings and
demand accounts - - - - 594,932 51
Certificates:
3 - 5 months - - - - 13,085 1
6 - 8 months - - - - 41,248 4
9 - 11 months - - - - 14,017 1
12 - 23 months - - - - 223,819 19
24 - 35 months - - - - 60,841 5
36 - 47 months - - - - 30,752 3
48 - 59 months - - - - 3,655 -
60 - 120 months - - - - 38,363 3
Negotiated-rate jumbo
certificates - - - - - -
------ ------ ------- ----- -------- -----
Total certificates - - - - 425,780 36
Retirement
accounts - - - - 150,818 13
Total non-brokered
deposits - - - - 1,171,530 100
Brokered deposits - - - - - -
------ ------ ------- ------- ---------- -----
Total deposits at end
of period $ - - % $ 3,022 100% $1,171,530 100%
====== ====== ======= ======= ========== =====
</TABLE>
(1) Past due certificates consist of certificates which have matured but have
not been reinvested by the holder. Such certificates earn interest at the
Bank's day of deposit/day of withdrawal rate until the amount is reinvested
by the customer and as such are classified as regular savings.
(2) At June 30, 1996, this amount principally related to outstanding checks
which had not yet been collected, and which were subsequently cleared in
July 1996.
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<PAGE>
(3) Consists of checks drawn by customers on certain deposit accounts which
were outstanding and not yet collected at fiscal year-end. All amounts
subsequently cleared in July 1996.
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<PAGE>
The following table sets forth the activity in the Bank's deposits during the
periods indicated.
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
June 30, 1997 June 30, 1996 June 30, 1995
------------ ------------ -------------
(In Thousands)
<S> <C> <C> <C>
Beginning balance $ 3,022 $ 1,171,530 $ 1,254,199
Net decrease before interest credited (3,022) (56,611) (124,072)
Interest credited - 47,719 41,403
Transferred in connection with the
Branch Sale - (1,159,616) -
--------------- ------------- -------------
Net decrease in deposits (3,022) (1,168,508) (82,669)
-------------- ------------- -------------
Ending balance $ - $ 3,022 $ 1,171,530
=============== ============= =============
</TABLE>
For additional information relating to the Bank's deposits, see Note 14 to the
Consolidated Financial Statements.
Borrowed Funds
The following table sets forth certain information concerning the Bank's
borrowed funds at the dates indicated.
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------
1997 1996 1995
-------------- -------------- -----------------
(In Thousands)
<S> <C> <C> <C>
FHLB advances $ - $ 2,026 $ 164,526
Marine Initial Facilities 66,065 89,760 -
Secured by loans sold
with recourse 18,206 24,000 -
Securities sold under
agreement to repurchase - - 14,535
----------- -------------- -------------
Total $ 84,271 $ 115,786 $ 179,061
=========== ============== =============
</TABLE>
For additional information relating to the Bank's borrowed funds, see Asset Sale
Transactions and Note 17 to the Consolidated Financial Statements.
Subsidiaries
Under the Banking Law, the Bank previously invested in subsidiaries which
engaged in various activities authorized for savings banks, as well as
additional activities authorized by the Banking Department. These activities
were subject to the requirements of federal laws and regulations.
A substantial amount of the Bank's activities in subsidiaries consists of
holding investments in real estate not held directly by the Bank. The Bank has
established a number of subsidiaries for the sole purpose of holding and/or
disposing of a single real estate asset. Real estate assets located in New York
City are generally held by subsidiaries of Rivercity Realty Corp. ("RRC"), and
those located in the eastern United States including New York State are held by
subsidiaries of Riverbank Properties, Inc. ("RPI") and certain other
subsidiaries of the Bank. RRC and RPI are New
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<PAGE>
York corporations. The Bank's investments in real estate located in the western
United States are generally held by subsidiaries of Riverbank Financial Group
("RFG"), a California corporation which has an office in San Francisco. RPI, RRC
and RFG were originally formed to engage in real estate development and lending
activities.
During the mid-1980s, the Bank engaged in commercial business lending through a
subsidiary. The Bank is winding down the operations of that subsidiary and no
new activity has been conducted since 1991.
A wholly-owned subsidiary of the Bank, East River Financial Group, Inc.,
previously sold on an agency basis certain tax-deferred and variable annuities
issued by specified insurance companies. This subsidiary ceased origination and
sale activity as of the date of the Branch Sale.
Employees
Following the consummation of the Branch Sale, at June 30, 1996, the Bank had 37
full-time and 13 part-time employees. At June 30, 1997 the Bank maintained a
full time staff compliment of four personnel, the President and Chief Executive
Officer, one employee who performs administrative functions and two employees
directly involved in day-to-day management of certain real estate properties.
See Note 26 to the Consolidated Financial Statements. See "Directors and
Principal Officers of the Registrant."
Taxation
Federal Taxation. For federal income tax purposes, the Bank reports its income
and expenses using the accrual method of accounting. The Bank and certain of its
subsidiaries file consolidated federal income tax returns on a calendar year
basis and are subject to federal income tax under the rules of the Internal
Revenue Code ("Code") in the same manner as other corporations. Pursuant to the
Omnibus Budget Reconciliation Act of 1993, signed into law by President Clinton
on August 10, 1993, the maximum federal corporate income tax rate increased to
35%, effective January 1, 1993. In addition to regular income taxes,
corporations such as the Bank are subject to an alternative minimum tax which is
generally equal to the excess of 20% of alternative minimum taxable income
(taxable income, increased by tax preference items and adjusted for certain
other tax items) over regular income taxes. A portion of alternative minimum
taxes paid can be credited against regular taxes due in later years, subject to
certain limitations.
In prior years, the Bank maintained "qualifying assets," as defined in
regulations of the U.S. Treasury, in excess of 60% of its assets on an
unconsolidated basis, and as a result was considered to be a "domestic building
and loan association" which was able to use the percentage of taxable income
method for computing a deductible addition to its bad debt reserve for federal,
state and local income tax purposes. Beginning in 1992, the Bank failed to
maintain qualifying assets in excess of 60% of total assets and, as a result, is
no longer a "domestic building and loan association," but is considered to be a
"bank" for federal income tax purposes. As a result, as of December 31, 1992,
the Bank had recaptured the entire balance of the bad debt reserve which it had
previously maintained for federal tax purposes while it was a "domestic building
and loan association" into income. Due to operating losses incurred in 1991 and
1992, however, no tax was required to be paid on the recaptured amount.
As of June 30, 1997, the Bank had four existing tax attributes which could be
used to reduce federal tax liabilities in the current and future years. These
are its passive activity loss carryforwards and credits, net operating loss
(NOL) carryforwards, and alternative minimum tax credits, each of which is
discussed below and in Note 20 to the Consolidated Financial Statements.
At June 30, 1997, the Bank had suspended passive activity losses for federal
income tax purposes of approximately $674,000 and suspended passive activity
credits (consisting of rehabilitation tax credits) which it has not been able to
utilize in prior periods and are subject to substantially similar limitations,
of approximately $5.4 million. In addition, tax credits of $784,000, $555,000,
and $676,000 were generated in 1997, 1996, and 1995, respectively, and are
considered non passive. This credit is primarily attributable to the Bank's
investment in the rehabilitation of an historic
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<PAGE>
multi-family residential project located in Philadelphia, Pennsylvania. See Note
20 to the Consolidated Financial Statements for additional information. The
primary source of the Bank's "passive" losses has been from losses incurred by
subsidiaries of the Bank in real estate joint ventures, and certain losses
incurred by the Bank in connection with real estate acquired through
foreclosure. "Passive" losses from these sources may be deducted against the
Bank's "active income" other than its "portfolio income." For tax years in which
the Bank is considered to be "closely held" within the meaning of the Code,
passive activity losses and credits in excess of the amounts currently allowed
are suspended and may be carried forward indefinitely to offset taxable income
and liabilities from passive activities or from an active trade or business in
future years, or will generally be fully deductible (but not creditable) upon a
complete disposition of the underlying passive activity. These tax credits are
only utilizable against tax liability which would otherwise be incurred, and,
accordingly, can not be used until after the available deductible loss
carryforwards have been utilized.
The passive activity loss limitations applied to the Bank in prior years because
the Bank was considered to be "closely held" within the meaning of the passive
activity loss limitation rules set forth in the Code. The Bank was previously
considered to be "closely held" for this purpose because more than 50% of the
value of its outstanding stock was owned, directly or indirectly, by or for not
more than five individuals. The determination of stock ownership for the
purposes of the passive activity loss limitation rules differs from the
requirements of Section 382 of the Code with regard to the ownership of certain
preferred stock (see Note 18 to the Consolidated Financial Statements). As a
result of the Offering, the Bank believes that it is not "closely held" for
purposes of the passive activity loss rules following consummation of the
Offering notwithstanding the absence of the occurrence of an "ownership change"
for purposes of Section 382 of the Code. The passive activity loss limitation
rules will continue to apply to losses and credits from any preceding period
during which the Bank was "closely held," but current losses and credits are not
subject to treatment as passive activity losses.
At June 30, 1997, the Bank had NOL carryforwards for federal income tax purposes
of approximately $100.2 million. The Bank's NOL's may be carried forward 15
years and will expire in 2006 through 2012.
The Bank is subject to Federal income tax on its operations conducted after the
Branch Sale and will recognize gain or loss at the time of the disposition of
those of its assets not sold therein. Commencing with the taxable year of the
making of any liquidating distribution with regard to the Series A Preferred
Stock, the Bank will become subject to the passive activity loss limitation
rules and the "at-risk" rules of the Code and, if at least 60% of the Bank's
"adjusted ordinary gross income" for any year is "personal holding company
income" (each as defined), the Bank may be subject to a personal holding company
tax on its undistributed personal holding company income for such year. The
passive activity loss limitation and "at-risk" rules have not applied to the
Bank during the period that the Series A Preferred Stock was outstanding
(although the Bank has passive activity loss carryovers and credits arising
before that period) and the personal holding company rules have not applied to
the Bank during the time that it has been a "bank" or a "domestic building and
loan association," each as defined in the relevant provisions of the Code.
Section 382 of the Code generally provides that if a corporation undergoes an
"ownership change," the amount of taxable income that the corporation may offset
after the date of the ownership change (the "Change Date") by NOLs (and certain
built-in losses, as described below) existing on the Change Date will be subject
to an annual limitation. In general, the annual limitation is equal to the
product obtained by multiplying (i) the fair market value of the corporation's
equity immediately prior to the Change Date (with certain adjustments, including
an exclusion of capital contributions made during the two years preceding the
Change Date), by (ii) the long-term tax-exempt bond rate determined for the
month in which the Change Date occurs, as published by the IRS. For "ownership
changes" occurring during June 1994, that rate was 6.01%. If an "ownership
change" of the Bank took place during June 1994, the Bank might be permitted to
use no more than approximately $865,000 of its NOLs carried over from prior to
the Change Date, annually to offset taxable income realized after the Change
Date, including income realized in connection with the Branch Sale. Accordingly,
the Bank's ability to use its deferred tax assets may be reduced materially,
resulting in the recognition of additional tax expense and a reduction to its
stockholders' equity and the Bank's liquidity. To the extent that it is
determined, after the Bank has made liquidating distributions to its
stockholders, that the Bank had incurred such additional tax expense, such
stockholders may be liable for any such additional tax expense up to the amount
of distributions received by such stockholders in the dissolution plus interest
thereon from the date of distribution, and future distributions to the
stockholders may be reduced.
-26-
<PAGE>
In general, an "ownership change" occurs with respect to a corporation if any of
its stockholders who own, directly or indirectly, five percent or more of the
stock of the corporation ("5-percent stockholders") increase their aggregate
percentage ownership of such stock by more than 50 percentage points over the
lowest percentage of stock owned by those stockholders at any time during a
three-year testing period. In applying Section 382, newly-issued stock generally
is considered to have been acquired by one or more 5-percent stockholders, even
if none of the persons acquiring that stock in fact owns (or owned) at least
five percent of the issuer's stock.
Based on current ownership information available to the Bank, the Bank is of the
view that no ownership change of the Bank occurred within the three years
preceding the Equity Offering. The Bank expects that the Equity Offering, when
combined with prior changes in ownership of stock of the Bank and other
contemplated transactions affecting ownership of the capital stock of the Bank
occurring in connection with the Equity Offering, did not result in an ownership
change of the Bank. However, the application of Section 382 is in many respects
uncertain. In assessing the effects of prior transactions and of the Equity
Offering under Section 382, the Bank has made certain legal judgments and
certain factual assumptions. The Bank has not requested or received any rulings
from the IRS with respect to the application of Section 382 to the Equity
Offering and the IRS could challenge the Bank's determinations.
At June 30, 1997, the Bank had an alternative minimum tax credit carryforward of
approximately $2.5 million for federal income tax and financial reporting
purposes attributable to alternative minimum taxes paid in prior periods. This
tax credit is only utilizable against regular tax liabilities which would
otherwise be incurred, and, accordingly, can not be used until after the
available deductible loss carryforwards have been utilized.
The Bank's federal income tax returns have been audited or closed without audit
by the IRS through its 1991 taxable year.
The IRS has reviewed the Bank's federal income tax returns for calendar years
1991 and 1990 in connection with the Bank's claims for refunds of taxes paid in
1987 through 1989 as a result of the carryback of NOLs from 1991 and 1990. The
agent's adjustments have been issued to the Bank. The adjustments, which are not
material, have been approved by the Joint Committee review and a final
assessment was issued.
For additional information regarding Federal tax matters, see Note 20 to the
Consolidated Financial Statements.
State and Local Taxation. The Bank is subject to the New York State Franchise
Tax on Banking Corporations and to the New York City Banking Corporation Tax.
New York State and New York City each imposes these annual taxes on banking
corporations based on net income allocable to New York State or New York City at
a rate of 9%. An alternative minimum tax will be imposed, however, if the
application of an alternative minimum tax (based on taxable assets allocable to
New York, "alternative" net income, or a flat minimum fee) results in a greater
tax.
In addition to the foregoing, the New York State Tax Law also imposes a
Metropolitan Transportation Business Tax surcharge equal to 17% of the portion
of the net New York State franchise tax (after deduction of any allowable
credits against tax) otherwise payable which is attributable to the Bank's gross
income within New York City and in several other New York counties in the New
York Metropolitan Area. Also, New York State imposed through 1993 a surcharge on
banking corporations at a rate of 15% of the net franchise tax due (after
deduction of any allowable credits against tax). This rate was effectively
reduced to 2.5% for the Bank's tax year ending December 31, 1996.
The Bank files a combined New York State franchise tax return with several of
its currently active subsidiaries that do business in New York. The Bank's New
York State tax returns have either been audited or closed without audit by the
New York State Department of Taxation and Finance through its 1984 taxable year.
In October 1995, the Bank paid New York State $2.0 million to settle all amounts
claimed including penalties and interest for the tax years 1985 and 1986. In
addition, New York State agreed that no additional taxes will be assessed for
the years 1987, 1988 and 1989 as a result of any potential adjustment to the bad
debt reserve deduction reported for
-27-
<PAGE>
any of those years. Please see the Bank's Report F-3 filed for the month of
October 1995 which is incorporated herein by reference. In November 1995, the
Bank paid New York State $761,000 to settle all amounts, including penalties and
interest for the calendar years 1987, 1988 and 1989.
The Bank has filed claims for refunds of New York State and local franchise
taxes of approximately $1.2 million related to calendar year 1982. The basis of
such claims relates to the applicability of the exemption from such taxes when
net worth certificates ("Certificates") are outstanding. Certificates were those
issued to the FDIC by the Bank under the 1982 Assistance Agreement. The Bank's
initial refund claims were denied on the basis that the exemption was applicable
only during the period Certificates were outstanding and not for the entire
year. On October 13, 1994, a decision was rendered in a court case involving a
similar claim for refund on behalf of another savings institution which
confirmed the position taken by New York State in denying the Bank's initial
refund claim. The Bank continues to review the impact of this decision on its
position.
The Bank's New York City tax returns have either been audited or closed without
audit by the New York City Department of Finance through its 1989 taxable year.
The New York City Department of Finance conducted an audit of the Bank's New
York City tax returns for calendar years 1985 to 1987. Various issues were
raised which resulted in an assessment of $1.1 million of additional taxes and
$900,000 of interest. The Bank paid the additional $2.0 million on June 30, 1994
from previously established reserves with no charges to income during the period
ended June 30, 1994.
REGULATION
The references to laws and regulations which are applicable to the Bank set
forth below and elsewhere herein do not purport to be complete and are qualified
in their entirety by reference to such laws and regulations.
General - The Bank is a stock-form savings bank chartered under the laws of the
State of New York, and its remaining non-retail deposit accounts and escrow
accounts are insured up to applicable limits by the BIF administered by the
FDIC. The Bank is therefore subject to extensive regulation, examination and
supervision by the Banking Department and by the FDIC.
Marine assumed all the Bank's remaining retail deposits in connection with the
Branch Sale, and has so notified the FDIC. The Bank ceased accepting deposits on
the date of the Branch Sale. At June 30, 1997, the Bank continued to be
regulated by the FDIC and the NYSBD. On October 31, 1996 the Bank requested that
the FDIC terminate its insurance of accounts in accordance with the requirements
of the NYSBD's approval of the Branch Sale. On April 14, 1997, the Bank received
notice that the FDIC, as requested by the Bank, intends to terminate the Bank's
status as an insured state non-member Bank on December 31, 1997. Upon the
issuance of such order by the FDIC, the Bank will no longer be subject to
banking regulation by the FDIC but will remain a banking organization chartered
and regulated by the Banking Department. In connection therewith, the Bank has
received from the Banking Department a waiver of any applicable New York State
deposit insurance requirements and intends, prior to September 30, 1997, to seek
approval from the Banking Department to surrender its banking charter.
While certain provisions of the New York State Banking Law ("NYBL") are
inapplicable, such as the Community Reinvestment Act, the Bank will continue to
be subject to regulations regarding, among other things, loans-to-one borrower,
transactions with affiliates and periodic reporting requirements. In addition,
unless the NYSBD terminates the 1995 MOU (see "1995 Memorandum of
Understanding"), the Bank will continue to be subject to the provisions thereof
including, among other things, regulatory capital maintenance, limitations on
dividend payments, valuation of real estate owned and periodic reporting. The
Bank has requested that the NYSBD and the FDIC terminate the 1995 MOU. If the
1995 MOU is terminated and no other such conditions are imposed by the NYSBD,
the Bank will no longer be subject to any currently existing regulatory capital
requirements, but will remain subject to the terms of the NYSBD approval of the
Branch Sale (see "Conditions of Branch Sale"), regulation, examination and
supervision by the NYSBD.
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<PAGE>
The Bank is required to file reports with the Banking Department and, to the
extent its status as an insured depository institution has not terminated, the
FDIC, concerning its activities and financial condition, in addition to
obtaining regulatory approvals prior to entering into certain transactions, such
as any merger or acquisition with another institution. The regulatory system to
which the Bank is subject generally is intended for the protection of the
deposit insurance fund and depositors, not stockholders. The regulatory
structure also provides the Banking Department and, to the extent its status as
an insured depository institution has not terminated, the FDIC, with substantial
discretion in connection with their supervisory and enforcement functions,
including matters regarding the appropriate classification of assets and the
establishment of adequate loan loss reserves. Periodically, the Banking
Department and the FDIC conduct examinations of the Bank in order to assess its
compliance with federal and state regulatory requirements.
Certain aspects of the Bank's business have historically been subject to
numerous regulatory requirements and restrictions with respect to such matters
as, for example, the nature and amounts of loans and investments that may be
made, the issuance of securities, the establishment of branches, mergers,
non-banking activities and other operations. Numerous laws and regulations also
set forth special restrictions and procedural requirements with respect to the
extension of credit, credit practices, the disclosure of credit terms and
discrimination in credit transactions.
At this time, the Bank remains subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and continues
to file periodic reports and other information with the FDIC, and the Bank will
continue to submit such reports and information to the Banking Department until
it surrenders its banking charter and dissolves.
Conditions of the Branch Sale
The Banking Department imposed certain conditions in connection with approving
the Branch Sale. These conditions are, including but not necessarily limited to:
(i) the Bank's agreement to file an application with the Banking Department,
within one year of closing of the Branch Sale, for approval of a plan of
dissolution; (ii) the Bank's agreement to file with the Supreme Court of the
State of New York an application for a closing order within thirteen months
after the date of the Branch Sale and an order of final dissolution within five
months following the filing of the application for a closing order; (iii)
increased levels of minimum capital requirements; (iv) the Bank's agreement to
continue to submit its proposed capital transactions to the Banking Department
for approval; (v) the continuation of the Bank's current periodic reporting
obligations with respect to its Retained Assets, as well as in connection with
its ongoing activities; and (vi) such other conditions and obligations as the
Banking Department may deem appropriate.
In June 1997, the Bank submitted an alternate proposal (the "Alternate
Proposal") to the Banking Department pursuant to which the Bank would implement
Conditions No. 1 and No. 2 of the approval of the Branch Sale described above.
The Bank proposed to adopt a plan under which it would transfer all of its
assets and liabilities to a successor corporation ("Successor") incorporated
under Delaware General Corporate Law. Successor would acquire all of the assets
of the Bank and continue all of the business of the Bank under the same business
plan as adopted by the Bank. Successor would also assume all of the liabilities
of the Bank, including contingent liabilities. Following the transfer of its
assets and liabilities to Successor, the Bank would surrender its banking
charter and dissolve. The implementation of the proposed plan would result in a
mere change of form from a banking corporation to a corporation incorporated
under the Delaware General Corporate Law, which would not be subject to the
jurisdiction of the Banking Department. The proposed transfer is expected to
qualify as a tax-free reorganization under the Internal Revenue Code and, as
such, the Bank expects that certain of its tax attributes will be preserved.
Successor will not be subject to regulation by the Banking Department or the
FDIC following implementation of the Alternate Proposal and the surrender of the
Bank's banking charter.
In connection with the Alternate Proposal, common and preferred shareholders of
River Bank America will receive shares of Successor on a share-for-share basis
so that immediately following the reorganization and dissolution of the Bank,
Successor will be owned by the same stockholders, in the same proportions as
currently own the Bank. Following the surrender of its banking charter, the
Bank, reorganized as a regular corporation, expects to be able to continue to
pursue the orderly disposition of its assets under plans intended to maximize
shareholder value.
-29-
<PAGE>
Prior to June 30, 1997, the Bank received the Banking Department's conditional
approval of the Alternate Proposal as meeting the Conditions of the Banking
Department's approval of the Branch Sale, if implemented by the Bank on a timely
basis. The Banking Department's conditional approval of the Alternate Proposal
and related modification of Condition No. 1 of the Approval of the Branch Sale
provided that the approval of shareholders of the Alternate Proposal not later
than September 30, 1997, would be deemed to satisfy Condition No. 1. Condition
No. 2 of the Banking Department's approval of the Branch Sale would be deemed to
be satisfied if the petition required by Condition No. 2 is filed by the Bank by
October 15, 1997. In the event that the Bank is unable to meet the dates for
completion established by the Banking Department, the Bank intends to request
such extensions as may be necessary to complete implementation of the Alternate
Proposal. No assurances can be given that the Banking Department will provide
such extensions.
There can be no assurance that the NYSBD will not impose additional requirements
on the Bank in the future, so long as the NYSBD maintains its role as the Bank's
primary regulator.
1995 Memorandum of Understanding - On September 20, 1995, the Bank executed the
1995 MOU. The Bank has requested that the Banking Department and the FDIC
terminate the 1995 MOU. If the 1995 MOU is terminated, the Bank will no longer
be subject to any regulatory capital requirements. No assurance can be given
that the Banking Department and the FDIC will approve the Bank's request that
the 1995 MOU be terminated, or that, in connection with the termination of the
1995 MOU, the Banking Department and the FDIC will not impose other regulatory
capital requirements and conditions. The 1995 MOU, among other things, requires
the Bank to: (i) maintain its adjusted Tier 1 capital ratio at an amount equal
to or greater than 5.5%; (ii) develop and maintain a written plan consisting of
goals and strategies for improving the earnings of the Bank; (iii) eliminate, by
collection or charge-off, all assets classified as "loss" and 50% of all assets
classified as "doubtful" pursuant to any examination by the FDIC or the Banking
Department; (iv) not, with certain exceptions, lend new or additional amounts to
any borrower who has a loan which has been charged-off or who has a loan which
has been adversely classified by the FDIC or the Banking Department; (v) develop
a written plan, acceptable to the FDIC and the Superintendent, to reduce the
Bank's remaining assets classified "doubtful" or "substandard" as a result of
the most recent examinations by the FDIC and the Banking Department; (vi) adopt
and implement a written program to address regulatory criticisms with respect to
all "problem assets," as defined, with carrying values in excess of $3.0 million
which were identified in the most recent regulatory exams by the FDIC and the
Banking Department; (vii) revise its policies to ensure that valuations of other
real estate collateral reflect a "fair market value" which is consistent with
the instructions for preparation of the FDIC's Consolidated Reports of Condition
and Income ("Call Reports") and other accounting guidance; (viii) revise and
implement the Bank's internal loan review and grading system; (ix) not declare
or pay any dividends (A) on its Common Stock unless the Bank's ratio of Tier 1
capital to total assets will be not less than 5.5% and such dividend payment is
approved in advance by the FDIC's Regional Director and the Superintendent or
(B) on its outstanding Perpetual Preferred Stock, Series A unless the Bank's
ratio of Tier 1 capital to total assets remains in excess of 5.0%, provided
that, if the Bank's Tier 1 capital to total assets falls below 5.5%, it has
submitted an acceptable revised capital plan to the Regional Director of the
FDIC and the Superintendent which demonstrates that the Bank will be able to
restore its Tier 1 capital ratio to 5.5% in a reasonably prompt time frame; (x)
appoint a committee of the Bank's Board of Directors to monitor compliance with
the 1995 MOU; (xi) receive from such Compliance Committee of the Board certain
reports; and (xii) provide the FDIC and the Superintendent with periodic reports
as to the Bank's compliance with the 1995 MOU.
Regulatory Capital Requirements - Federally-insured state-chartered banks are
required to maintain such minimum levels of regulatory capital as may be
established from time to time by regulatory authorities. These standards
generally must be as stringent as the comparable capital requirements imposed on
national banks. The FDIC also is authorized to impose capital requirements in
excess of these standards on individual banks on a case-by-case basis, so long
as the Bank is FDIC insured.
The Banking Department has advised the Bank that the Bank's minimum capital
requirement, set at $115 million in the Banking Department's approval of the
Branch Sale and subsequently amended to $106 million in May 1997, shall remain
at $106 million until the Bank's final dissolution, unless the Banking
Department shall provide prior approval of the Bank's written request to amend
the Bank's minimum capital requirement.
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<PAGE>
Loans-to-One Borrower - With certain limited exceptions, a New York
state-chartered savings bank may not make loans or extend credit for commercial
(non-mortgage), corporate or business purposes (including lease financing) to a
single borrower, the aggregate amount of which would be in excess of 15% of the
bank's net worth if the loan is unsecured, or 25% of net worth if the loan is
secured. At June 30, 1997, the Bank had no credit concentrations that it
believes exceed the permitted amount.
Regulatory Approval for Certain Transactions - Until its status as an insured
depository institution is terminated, the deposits of the Bank are insured up to
$100,000 per insured account (as defined by law and regulation) by the BIF
administered by the FDIC.
Under the Banking Law, the prior approval of the Banking Board is required
before any "company," as defined in the New York State Banking Law, can acquire
all of the capital stock of a banking institution, which includes a stock-form
savings bank. The term "company" is defined generally as any individual, group,
corporation, partnership, trust, association or similar organization either
incorporated or doing business in the State of New York, but does not include
certain governmental, non-profit or investment banking organizations or
operations. In addition, prior approval of the Banking Board is required before
any individual or company, as defined, can acquire "control," as defined, of a
banking institution. Control is presumed to exist upon the direct or indirect
ownership, control or holding of 10% or more of the voting power of any banking
institution. Accordingly, no individual or company may acquire control of 10% or
more of the voting capital stock of a banking institution without the prior
approval of the Banking Board. Prior approval is also required before: (1) any
action is taken that causes any company to become a bank holding company; (2)
any action is taken that causes any banking institution to become or to be
merged or consolidated with a subsidiary of a bank holding company; (3) any bank
holding company acquires direct or indirect ownership or control of more than 5%
of the voting stock of a banking institution, or any bank holding company or
subsidiary thereof acquires all or substantially all of the assets of a banking
institution. The term "bank holding company" is defined generally to include any
company or trust which directly or indirectly either controls the election of a
majority of the directors or owns, controls or holds the power to vote 10% of
the voting stock of a bank holding company, each of two or more banking
institutions or a banking institution held by another banking institution. The
statute requires the New York Banking Board to approve or deny an application
within 120 days of submission.
Restrictions on Dividends - In addition to the conditions imposed in connection
with approval by the NYSBD and Marine in connection with the Branch Sale,
dividends payable by the Bank are also subject to restrictions under the Banking
Law. According to the Banking Law, dividends may be declared and paid only out
of net profits of the Bank. The approval of the Superintendent is required if
the total of all dividends declared in any calendar year will exceed net profits
for that year plus the retained net profits of the preceding two years less any
required transfer to surplus or a fund for the retirement of any preferred
stock. There can be no assurance that the Board of Directors of the Bank will
deem it appropriate to pay dividends on the Series A Preferred Stock even if
permitted by the Bank's primary lender (Marine) and regulatory authorities.
The Bank has received notice that approval necessary to declare or pay dividends
on the Bank's outstanding shares of 15% Noncumulative Perpetual Preferred Stock,
Series A (the "Series A Preferred") will not be provided at this time. In June
1996, the Bank's Board of Directors declared a Series A Preferred dividend for
the quarter ending June 30, 1996, payment of which was subject to the receipt of
required approvals from regulators and Marine (the Bank's principal lender). The
Bank intends to continue to seek approval for the payment of the declared Series
A Preferred dividend. Primarily as a result of the above, the Bank's Board of
Directors has taken no action as regards a quarterly dividend on the Bank's
Series A Preferred for the quarters ending June 30, 1997, March 31, 1997,
December 31, 1996 and September 30, 1996. Declaration or payment of future
dividends on the Bank's Series A Preferred Stock will also be subject to the
approval of the Banking Department and the FDIC, until the Bank is no longer
regulated by the Banking Department and the FDIC, and will be subject to the
approval of Marine for so long as the Facility remains outstanding.
Under the terms of the 1995 MOU, the Bank may not pay dividends on its Common
Stock unless (i) after the payment of such dividends, its ratio of adjusted Tier
1 capital to total assets will be not less than 5.5% and (ii) such dividend
payment is approved in advance by the Regional Director of the FDIC and the
Superintendent. In addition, pursuant
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<PAGE>
to the provisions of the 1995 MOU, the Bank, prior to June 30, 1996, was
permitted to pay dividends on its outstanding Perpetual Preferred Stock, Series
A even though the Bank's ratio of Tier 1 capital to total assets had fallen
below 5.5%, but remained in excess of 5.0%, provided that the Bank had submitted
an acceptable revised capital plan to the Regional Director of the FDIC and the
Superintendent which demonstrated that the Bank would be in a position to
restore its Tier 1 capital ratio to 5.5% in a reasonably prompt time frame.
Restrictions on Transactions with Affiliates and Insiders - A savings bank and
other financial institutions are subject to several types of restrictions on
transactions with affiliates and certain insiders. One set of restrictions is
found in Section 23A of the Federal Reserve Act ("FRA"), which, among other
things, imposes limits on the amount of loans to, and investments in, affiliates
of the bank and requires certain levels of collateral for such loans. Affiliates
of a bank include, among other entities, companies that control, are controlled
by or are under common control with the bank. A bank may not extend credit to
any one affiliate in an amount that exceeds 10% of its capital (20% of capital
to all affiliates in the aggregate). The Bank also is subject to the provisions
of Section 23B of the FRA, which, among other things, requires that certain
transactions between the Bank and its affiliates and certain other transactions
with or benefitting an affiliate must be on terms substantially the same, or at
least as favorable to the Bank, as those prevailing at the time for comparable
transactions with or involving other non-affiliated companies. In the absence of
such comparable transactions, any transaction between the Bank and its
affiliates must be on terms and under circumstances, including credit standards,
that in good faith would be offered to or would apply to non-affiliated
companies. The Bank also is subject to certain prohibitions against advertising
which suggests that the Bank is responsible for the obligations of its
affiliates. In addition, the restrictions on loans to insiders contained in the
FRA and Regulation O apply to all insured institutions. The aggregate amount of
an institution's loans to insiders is limited to the amount of its unimpaired
capital and surplus, unless the FDIC determines that a lesser amount is
appropriate.
Federal Home Loan Bank System - The Bank had historically been a member of the
FHLB of New York, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. The FHLB is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System and makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB. At
June 30, 1997, the Bank's FHLB advances amounted to $2.0 million. On June 28,
1996, the Bank requested that it be permitted to withdraw from the FHLB and
during 1997 the Bank's request was granted.
As a member, the Bank was required to hold shares of the capital stock of the
FHLB of New York in an amount at least equal to 1.0% of its aggregate unpaid
principal amount of its outstanding residential property loans at the beginning
of each year or one-twentieth of any borrowed funds from the FHLB of New York,
whichever amount is greater. At June 30, 1997, the Bank had $9.0 million in FHLB
stock, which was in compliance with this requirement. The Bank's investment in
FHLB stock was fully redeemed during the Bank's 1997 fiscal year.
Regulatory Enforcement Authority
General. The enforcement powers available to federal banking regulators are
substantial and include, among other things, the ability to assess civil
monetary penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties, as defined. In general, these enforcement actions must be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions or inactions, including misleading or untimely reports filed with
regulatory authorities, may provide the basis for enforcement action. Applicable
law also requires public disclosure of final enforcement actions by the federal
banking agencies. In addition, so long as the Bank is FDIC insured, the FDIC
must be given 30 days' notice of any changes in directors or senior executive
officers of the Bank and the FDIC may object to such changes.
Legislative and Regulatory Proposals. In addition, proposals to change the laws
and regulations governing the operations and taxation of, and federal insurance
premiums paid by, savings banks and other financial institutions and companies
that control such institutions are frequently raised in Congress, state
legislatures and before the FDIC and other bank regulatory authorities. The
likelihood of any major changes in the future and the impact such changes might
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<PAGE>
have on the Bank are impossible to determine. Similarly, proposals to change the
accounting treatment applicable to savings associations and other depository
institutions are frequently raised by the Commission, the FDIC and other
appropriate authorities, including, among others, proposals relating to fair
market value accounting for certain classes of assets and liabilities. Certain
pending accounting rule changes are discussed elsewhere herein. The likelihood
and impact of any additional future accounting rule changes and the impact such
changes might have on the Bank are impossible to determine.
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<PAGE>
ITEM 2
EXECUTIVE OFFICES AND OTHER PROPERTIES
During the year ended June 30, 1996 the Bank terminated all remaining lease
obligations involving properties and executive offices. The Bank is no longer
obligated under any material amounts of non-cancelable operating leases.
During 1997, the Bank paid rent in an aggregate amount that was not material to
its financial statements.
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<PAGE>
ITEM 3
LEGAL PROCEEDINGS
Litigation. The Bank is involved in various legal proceedings occurring in the
ordinary course of business. Management of the Bank, based on discussions with
litigation counsel, believes that such proceedings will not have a material
adverse effect on the financial condition or operations of the Bank. There can
be no assurance that any of the outstanding legal proceedings to which the Bank
is a party will not be decided adversely to the Bank's interests and have a
material adverse effect on the financial condition and operations of the Bank.
In recent periods, the Bank has been involved in several legal proceedings
relating to certain commercial business loans and joint venture investments made
by Quest in the mid- to late-1980s. Upon the defaults of certain of these loans
and the bankruptcy of one of the joint venture participants, the Bank and Quest
participated in a global settlement in September 1990 with an arbitrator and
accepted a $1.4 million payment in settlement of certain claims which the Bank
and Quest believed were available. As reported in the Bank's Current Report on
Form F-3 for the month of December 1994, all of such legal proceedings, except
for the Adversary Proceeding in the FBN Bankruptcy case discussed below, have
been settled. See also the Bank's Report on Form F-3 for the month of December
1994, which is incorporated by reference herein.
Regarding the Adversary Proceeding entitled In Re FBN Food Services, Inc.,
Debtor, et al. v. River Bank America and Quest Equities Corp., United States
Bankruptcy Court, Northern District of Illinois, Eastern Division (Chapter 7 No.
91 B 08983, Adversary No. 92 A 00961), as reported in the Bank's Current Report
on Form F-3 for the month of December 1994, on December 6, 1994, the Bankruptcy
Court issued a decision which dismissed Quest Equities and Quest Realty as
defendants and entered judgment against the Bank for $1,400,000, together with
prejudgment interest of approximately $150,000. The decision of the Bankruptcy
Court was affirmed by the United States District Court for the Northern District
of Illinois. On appeal, the United States Court of Appeals for the 7th Circuit
affirmed certain portions of the lower court decision and reversed other
portions, remanding those issues to the Bankruptcy Court. The Bankruptcy Court
ordered the institution to which the collateral was pledged to turn over the
proceeds to the Trustee in the amount of $1,683,790. Proceedings continue with
regard to the disbursement of those funds by the Trustee; the Bank has a claim
for a refund. Since the Bank has satisfied the judgment, it has no further
exposure to the Bankruptcy Court Trustee.
Environmental Matters. Under various federal, state and local laws, ordinances
and regulations, an owner, operator or manager of real property, including under
certain circumstances the directors and officers of such entities, may become
liable for the costs of removal or remediation of certain hazardous substances
and materials released on or in its property or as a result of the disposal of
such substances or materials on the owner's or another person's property. Such
loans can impose liability without regard to whether the owner or operator knew
of, or was responsible for, the release of such hazardous substances. The
presence of such substances, or the failure to properly remediate such
substances when released, may adversely affect the owner's ability to sell such
real estate or to borrow using such real estate as collateral. Under certain
circumstances secured lenders may become exposed to environmental liabilities
if, among other things, they take on an active management role with respect to
the real estate property that is the subject of their security interest. While
the Comprehensive Environmental Response, Compensation and Liability Act
provides certain exemptions from liability for secured lenders, the scope of
such exemptions are limited and may not be applicable to all the assets
currently or previously owned by the Bank and its subsidiaries.
The Bank has not been notified by any governmental authority of any material
noncompliance, liability or other claim in connection with any of the real
estate properties currently owned or classified as in-substance foreclosures by
the Bank or its subsidiaries, but it is aware of the presence of certain
hazardous substances and materials on certain of its properties (foreclosed and
in-substance foreclosed), which it has taken into account in connection with the
appraisals of such properties. The Bank believes that the expected costs of
remediation of such conditions are not significant and would not materially
impair the Bank's ability to sell such properties. It is the Bank's general
practice to take title to a property only if a Phase I environmental audit
(which involves only limited procedures) does not reveal a risk of a material
environmental condition and to establish a separate subsidiary to hold each
newly-foreclosed property. There can be no assurance, however, that such audits
reveal all potential environmental liabilities that might exist with respect
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<PAGE>
to a foreclosed property, that no prior owner created any material unknown
environmental condition, that future uses or conditions (including, without
limitation, changes in applicable environmental laws and regulations) will not
result in imposition of environmental liability on the Bank or its subsidiaries,
or that the establishment of separate subsidiaries for foreclosed properties
will insulate the Bank against potential environmental liability relating to
such properties.
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<PAGE>
ITEM 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the only stockholders known by the Bank to own
beneficially or of record more than 5% of the common stock and the nature of
their holdings. This information has been obtained from reports provided by the
beneficial owners or filed with the FDIC pursuant to Sections 13 (d) and 13 (g)
of the Securities Exchange Act of 1934 (the "Exchange Act") and regulations
promulgated by the FDIC. Unless otherwise indicated, each stockholder listed in
the table has sole voting and investment powers as of July 31, 1997 with respect
to the shares owned beneficially or of record by such person.
<TABLE>
<CAPTION>
Title of Name and Address Amount and Nature of Percent
Class of Beneficial Owner Beneficial Ownership (1) of Class
----- ------------------- ------------------------ --------
<S> <C> <C> <C>
Common Mr. Alvin Dworman 2,768,400 39.0%
645 Fifth Avenue
New York, New York 10022
Common Wellington Management Company (2) 702,900 9.9%
75 State Street
Boston, Massachusetts 02109
Common First Financial Fund, Inc. (3) 470,000 6.6%
One Seaport Plaza-25th Floor
New York, New York 10292
Common East River Partnership B (4) 415,800 5.9%
Madison Plaza
200 West Madison Street
Suite 3800
Chicago, Illinois 60606
Common Odyssey Partners (5) 415,800 5.9%
31 West 52nd Street
New York, New York 10019
Common John Hancock Advisors, Inc. (6) 315,000 4.4%
101 Huntington Avenue
Boston, Massachusetts 02199
</TABLE>
(1) Based upon information provided by the respective beneficial owners and
filings with the FDIC made pursuant to Exchange Act. Beneficial
ownership is direct except as otherwise indicated by footnote. In
accordance with Section 335.403 of the Rules and Regulations of the
FDIC, a person is deemed to be the beneficial owner of a security if he
or she has or shares voting power or investment power with respect to
such security or has the right to acquire such ownership within 60
days.
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<PAGE>
(2) Wellington Management Company ("WMC") holds all owned shares in
accounts in its capacity as an investment advisor for various clients.
WMC shares dispositive power over the shares with its investment
advisory clients.
(3) First Financial Fund, Inc. ("FFF") holds all owned shares in its
capacity as an investment company. FFF has sole voting power and shares
dispositive power over the owned shares with WMC of which it is an
investment advisory client.
(4) East River Partnership B is an Illinois general partnership, the
general partners of which are: (1) JAP Grandchildren #1, the
co-trustees of which are Marshall E. Eisenberg and Jay A. Pritzker; (2)
Don Trust #25, the co-trustees of which are Marshall E. Eisenberg and
Thomas J. Pritzker; and (3) R.A. Trust #25, the co-trustees of which
are Marshall E. Eisenberg and Thomas J. Pritzker.
(5) Odyssey Partners is a Delaware limited partnership having five general
partners: Stephen Berger, Leon Levy, Jack Nash, Joshua Nash and Nash
Family Partnership, L.P. The general partners of Odyssey Partners,
excluding Nash Family Partnership, L.P., share voting and dispositive
power over all owned shares.
(6) John Hancock Advisors, Inc. ("JHA") is a wholly owned subsidiary of the
Berkeley Financial Group, which is a wholly-owned subsidiary of the
John Hancock Asset Management, which is a wholly-owned subsidiary of
the John Hancock Asset Subsidiaries, Inc., which is a wholly-owned
subsidiary of the John Hancock Mutual Life Insurance Company. JHA has
sole voting and dispositive power of the 315,000 shares of common stock
over which it has direct beneficial ownership.
The following table sets forth certain information with respect to beneficial
ownership of common stock by the directors of the Bank and by the current
principal officers of the Bank. This information has been obtained from reports
filed by the directors and principal officers with the Bank and the FDIC. Unless
otherwise indicated, ownership figures are as of September 30, 1997, and each
indicated director or principal officer listed in the table has sole voting and
investment powers with respect to the shares owned beneficially by such person.
<TABLE>
<CAPTION>
Title of Name of Beneficial Owner Amount and Nature of Percent
Class and Position held in Bank Beneficial Ownership of Class
------ ------------------------- -------------------- --------
<S> <C> <C> <C>
Common Ms. Robin Duke Chandler -- *
Director, Vice President and Secretary
Common Mr. Robert N. Flint 4,000 *
Director
Common Mr. William D. Hassett 2,150 *
Director
Common Mr. Jerome R. McDougal 4,000 *
Director, Chairman of the Board
and Chief Executive Officer **
Common Mr. Edward V. Regan -- *
</TABLE>
* Amount represents less than .5% of the common shares outstanding as of June
30, 1997.
** Effective July 2, 1997 Mr. McDougal took on the additional title of
President with duties as described in the Bank's amended By-Laws.
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<PAGE>
The following table sets forth certain information with respect to beneficial
ownership of 15% Noncumulative Perpetual Preferred Stock by the directors of the
Bank and by the current principal officers of the Bank. This information has
been obtained from reports filed by the directors and principal officers with
the Bank and the FDIC. Unless otherwise indicated, ownership figures are as of
September 30, 1997, and each indicated director or principal officer listed in
the table has sole voting and investment powers with respect to the shares owned
beneficially by such person.
<TABLE>
<CAPTION>
Title of Name of Beneficial Owner Amount and Nature of Percent
Class and Position held in Bank Beneficial Ownership of Class
------------------- ------------------------- -------------------- ---------
<S> <C> <C> <C>
15% Noncumulative Ms. Robin Duke Chandler __ *
Perpetual Preferred Stock Director, Vice President and Secretary
15% Noncumulative Mr. Robert N. Flint 2,950 *
Perpetual Preferred Stock Director
15% Noncumulative Mr. William D. Hassett __ *
Perpetual Preferred Stock Director
15% Noncumulative Mr. Jerome R. McDougal 2,950 *
Perpetual Preferred Stock Director, Chairman of the Board and
Chief Executive Officer
15% Noncumulative Mr. Edward V. Regan __ *
Perpetual Preferred Stock
</TABLE>
* Amount represents less than 1% of the 15% Noncumulative Perpetual Preferred
shares outstanding as of July 1, 1997.
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<PAGE>
PART II
ITEM 5
MARKET FOR THE BANK'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Common Stock - The common stock of the Bank is traded in the over-the-counter
market. As of July 1, 1997, the Bank had approximately 12 holders of record of
its common stock. Trading in the Common Stock of the Bank commenced subsequent
to June 30, 1994. The Bank has not declared any dividends on the Common Stock
since trading commenced. See "Regulation - Restrictions on Dividends" in Item 1
hereof for certain information regarding the payment of dividends.
Stock Price
The table below shows the reported last trade prices of the common stock during
the fiscal year ended June 30, 1997.
Quarterly Stock Prices
-------------------------------
High Low Quarter End
-------- -------- -----------
First Quarter ended September 30, 1996 $ 9.125 $ 8.250 $ 9.000
Second Quarter ended December 31, 1996 9.250 9.000 9.250
Third Quarter ended March 31, 1997 9.250 6.500 6.500
Fourth Quarter ended June 30, 1997 6.500 5.750 5.750
Please reference the information contained in Note 18 of the Notes to
Consolidated Financial Statements.
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<PAGE>
ITEM 6
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Data)
The following table sets forth selected consolidated financial and other data of
the Bank at the dates and for the periods indicated. The data at June 30, 1997,
1996, 1995, 1994 and at December 31, 1993 and 1992 and for the years ended June
30, 1997, 1996, 1995, 1994 and December 31, 1993 and 1992 have been derived from
audited consolidated financial statements of the Bank, including the audited
Consolidated Financial Statements and related Notes included elsewhere herein
and other schedules prepared for item 6 of this document. At a meeting on
September 21, 1994, the Board of Directors of the Bank authorized management to
change the Bank's fiscal year end from December 31 to June 30. The selected
consolidated financial and other data set forth below should be read in
conjunction with, and is qualified in its entirety by, the more detailed
information included in the Consolidated Financial Statements and related Notes,
included elsewhere herein.
<TABLE>
<CAPTION>
June 30 December 31
---------------------------------------------- -----------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (1):
Total assets $211,659 $285,478 $1,463,637 $1,541,368 $1,496,222 $1,996,715
Cash and due from banks and money
market instruments 14,036 17,129 108,540 173,631 60,209 62,831
Investment securities, net and investment
securities available for sale (2) 6,275 5,685 31,372 49,185 45,989 142,357
Mortgage-backed and related securities
and mortgage-backed and related
securities available for sale (2) -- 187 72,643 82,074 104,827 150,832
Loans receivable:
Single-family residential 3,924 4,557 234,386 209,295 202,408 397,920
Multi-family residential 26,092 31,336 249,252 245,245 226,824 250,994
Commercial real estate 50,077 51,090 463,760 488,830 501,190 554,277
Construction -- -- 5,301 6,157 39,791 83,371
Commercial business 12,806 12,894 36,695 40,224 44,206 74,047
Consumer 2,871 3,038 21,274 15,421 15,904 17,438
Less:
Deferred fees and unearned discount -- -- (2,220) (3,880) (4,487) (7,244)
Allowance for credit losses (31,570) (34,142) (33,985) (41,076) (55,258) (92,589)
-------- -------- -------- -------- -------- --------
Total loans receivable, net 64,200 68,863 974,463 960,216 970,578 1,278,214
Investments in real estate, net (3) 97,349 146,440 231,302 233,286 272,841 310,831
Loans sold with recourse 24,451 29,914 -- -- -- --
Deposits -- 3,022 1,171,530 1,254,199 1,293,635 1,789,967
Borrowed funds 84,272 115,786 179,061 141,592 141,592 141,592
Stockholders' equity (13) 108,510 138,520 90,134 117,847 46,010 47,929
Shares of Common Stock outstanding 7,100 7,100 7,100 7,100 1,000 1,000
Book value per common share (5) $10.35 $14.58 $7.77 $11.67 $13.01 $14.93
</TABLE>
(Footnotes on second following page)
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<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, Fiscal Year Ended
--------------------------------------------------- December 31,
--------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operations Data(1):
Interest and dividend income $5,469 $94,409 $88,878 $93,478 $108,312 $130,823
Interest expense 7,360 61,794 52,255 51,635 62,415 94,741
----- ------ ------ ------ ------ ------
Net interest income (1,891) 32,615 36,623 41,843 45,897 36,082
Provision for credit losses 1,000 5,250 5,041 5,360 12,828 20,302
----- ------ ------ ------ ------ ------
Net interest income (loss) after provision for
credit losses (2,891) 27,365 33,623 36,483 33,069 15,780
------- ------ ------ ------ ------ ------
Other income: 20,410 --
Gains on sales of offices (6)(14) -- 77,560 -- 18,045
Provision for Branch Sale contingencies(4) (3,300) -- -- -- -- --
Net gains (losses) on sales of loans and
securities (1,495) (605) 441 (222) (2,137) 4,064
Other 159 3,996 3,548 5,996 9,451 9,347
------- ------ ------ ------ ------ ------
Total (4,636) 80,591 3,989 23,819 27,724 13,411
Real estate operations, net (18,368) (4,800) (14,357) (11,077) (12,675) (8,742)
Other expense:
Deposit insurance expense -- 2,533 3,704 4,683 5,217 4,477
Foreclosure costs -- 225 1,105 2,780 4,560 4,480
Other 7,528 33,996 38,666 39,616 40,107 43,881
----- ------ ------ ------ ------ ------
Total 7,528 36,754 43,475 47,079 49,884 52,838
----- ------ ------ ------ ------ ------
Income (loss) before income tax expense
(benefit) (33,423) 55,762 (22,261) 2,146 (1,766) (32,389)
Income tax expense (benefit) (3,300) 11,749 2,113 2,608 2,662 996
------- ------ ------- ------ ------- --------
Net income (loss) (30,123) 55,013 (24,374) (462) (4,388) (33,385)
Dividends declared on Preferred Stock -- 5,250 5,250 -- -- --
----- ------ ------- ------ ------ ------
Net income (loss) applicable to Common
Shares (30,123) 49,763 (29,624) (462) (4,388) (33,385)
Primary and diluted net income (loss) per
share (5) (4.24) 7.01 (4.17) (0.45) (4.39) (33.38)
Other Data (1):
Average equity to average assets 50.97% 5.51% 7.18% 2.69% 2.28% 2.71%
Equity to assets at period end 51.35 48.52 6.16 7.65 3.08 2.40
Weighted average yield on interest-earning
assets (8) 4.90 7.42 7.11 7.13 6.80 6.71
Weighted average rate paid on interest-
bearing deposits (8) 6.97 4.43 3.88 3.39 3.57 4.24
Interest rate spread (8) (2.07) 2.99 3.23 3.74 3.23 2.45
Net interest margin (1.70) 2.57 2.93 3.19 2.88 1.85
Return on average assets (1.27) 3.64 (1.65) (0.03) (0.23) (1.37)
Return on stockholders' equity (9)(12) (24.84) 66.12 (27.04) (0.39) (9.54) (69.65)
Expense ratio (9) 6.75 2.89 3.58 3.76 3.50 2.71
Efficiency ratio (10) n/m 95.30 108.22 98.41 92.44 116.31
Tier 1 leverage capital ratio (11) 46.44 9.33 6.04 7.97 2.77 2.31
Tier 1 capital as a percent of risk-weighted
assets (11) 60.59 49.77 7.94 9.78 3.53 3.10
Total capital as a percent of risk-weighted
assets (11) n/m 55.02 9.12 11.06 4.79 4.20
Full-service banking offices at end of
period (11) -- -- 11 11 11 16
</TABLE>
-42-
<PAGE>
(1) Reflects the sale, effective June 28, 1996, of the Bank's remaining
eleven branch offices. As a result of such transaction, the Bank's
total assets, loans receivable, net, and deposits decreased by $1,066.6
million, $1,034.9 million and $1,159.6 million, respectively, and the
Bank recorded a pre-tax net gain of $77.6 million.
(2) At June 30, 1997, 1996, and 1995, all of the Bank's investment and
mortgage backed securities, were classified as available for sale
because of the possibility that they may be sold in response to changes
in interest rates, prepayment risk, liquidity needs or similar factors
in connection with its asset and liability management strategy.
(3) Investments in real estate consist of in-substance foreclosures, other
real estate owned and real estate held for investment, net of related
reserves.
(4) During the year ended June 30, 1997, the Bank and Marine undertook an
overall review of the closing of the Branch Sale. As a result of such
review, the Bank has established a reserve of $3.3 million for
potential closing settlement adjustments and claims which it believes
may be asserted by Marine related to certain assets acquired by Marine
in the Branch Sale. The establishment of this reserve is reflected on
the Statement of Operations as provision for Marine Branch Sale
contingencies. The Bank believes that the reserve for closing
settlement adjustments adequately provides for claims which may be
asserted by Marine.
(5) Per share information is based on the weighted average number of
outstanding shares of Common Stock during the period.
(6) Consists of a $77.6 million net pre-tax gain from the sale, in June
1996, of the Bank's eleven branch offices, the 96th Street branch
office realty and related deposits.
(7) With the exception of end of period ratios, all ratios are based on
average daily balances during the indicated periods.
(8) Interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost
of interest-bearing liabilities (which do not include
non-interest-bearing demand accounts), and net interest margin
represents net interest income as a percent of average interest-earning
assets.
(9) The expense ratio is the ratio of other expense to average
interest-earning assets.
(10) The efficiency ratio is the ratio of other expense to net interest
income plus other income after adjustment to exclude gains from sale of
offices and net gains (losses) on sales of loans and securities.
(11) Data is as of the end of the indicated periods.
(12) Net income includes a $67.6 million after-tax net gain from the Branch
Sale in June 1996. Excluding this gain, return on average assets and
return on stockholders' equity for 1996 would have been (0.83%) and
(15.09%), respectively.
(13) In October 1992, the $20.0 million of outstanding subordinated capital
notes were converted to 3% senior non- cumulative preferred stock.
(14) Consists of $18.1 million gain from the sale, in October 1993, of the
Bank's four branch offices in Westchester County, New York and related
deposits and a $2.3 million gain from the sale of a building, in March
1993, which formerly contained a branch office of the Bank in
Manhattan, New York, the operations of which were consolidated into
another branch office of the Bank.
-43-
<PAGE>
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------------------
1997 1996 1995
(Dollars in Thousands)
<S> <C>
Non-performing Assets Data (1):
Non-performing loans (2):
Single-family residential $ 3,924 $ 4,557 $ 7,496
Multi-family residential 16,790 19,658 -
Commercial real estate 11,557 3,113 38,685
Construction - - 4,941
Commercial business 12,806 6,817 6,263
Consumer 2,871 2,761 165
------- -------- -----------
47,948 36,816 57,550
------- -------- -----------
Investments in real estate:
Other real estate owned and real estate
held for investment, net:
Single-family residential (3) 597 1,690 3,741
Multi-family residential 4,566 9,640 20,963
Commercial real estate 19,570 44,801 102,841
Construction 72,617 90,309 103,757
-------- -------- -----------
97,350 146,440 231,302
-------- -------- -----------
Total non-performing assets $145,298 $183,256 $ 288,852
Other Asset Quality Data: ======== ======== ===========
Delinquent loans(4) $ - $ - $ 9,206
Restructured Loans(5) $ 24,454 $ 29,842 $ 166,291
===========
Loans to facilitate(6) $ - $ - $ 215,191
======== ======== ===========
Allowance for credit losses $ 31,570 $ 34,142 $ 33,985
Asset Quality Ratios: ======== ======== ===========
Non-performing assets as a percentage
of total assets(1) 68.52% 64.19% 19.74%
Non-performing assets to total loans
and investments in real estate(1) 75.24 73.47 23.26
Non-performing loans as a percentage
of total loans(1) 32.96 35.74 5.69
Allowance for credit losses as a percentage
of total loans 50.06 33.15 3.36
Allowance for credit losses as a percentage
of non-performing loans(1) 65.84 92.74 59.05
Net charge-offs as a percentage of average
loans during the period ended 3.59 1.03 0.09
Investments in real estate as a percentage of
total non-performing assets 67.00 79.91 80.08
</TABLE>
-44-
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31, December 31
1994 1993 1992
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Non-performing Assets Data(1):
Non-performing loans(2):
Single-family residential $ 7,587 $ 8,047 $ 13,024
Multi-family residential 2,900 2,900 70,647
Commercial real estate 89,569 117,578 140,170
Construction 5,641 25,461 37,831
Commercial business 3,938 6,283 25,078
Consumer 702 1,088 972
--------- ----------- --------
110,337 161,357 287,722
Investments in real estate: --------- ----------- --------
Other real estate owned and real
estate held for investment, net:
Single-family residential(3) 18,786 16,951 14,605
Multi-family residential 50,851 68,260 78,536
Commercial real estate 114,237 106,716 146,699
Construction 49,412 80,914 70,991
--------- ----------- --------
233,286 272,841 310,831
Investments in securities in default -- -- 4,293
Total non-performing assets $ 343,623 $ 434,198 $602,846
========= ========== ========
Other Asset Quality Data:
Delinquent loans(4) $ 1,595 $ 13,421 $ 2,856
========= ========== ========
Restructured loans(5) $ 132,944 $ 103,556 $134,199
========= ========== ========
Loans to facilitate(6) $ 149,555 $ 120,939 $ --
========= ========== ========
Allowance for credit losses $ 41,076 $ 55,258 $ 92,589
========= ========== ========
Asset Quality Ratios:
Non-performing assets as a
percentage of total assets(1) 22.29% 29.02% 30.19%
Non-performing assets to total loans
and investments in real estate(1) 27.75 33.32 35.70
Non-performing loans as a
percentage of total loans(1) 10.98 15.66 20.88
Allowance for credit losses as a
percentage of total loans 4.09 5.36 6.72
Allowance for credit losses as a
percentage of non-performing
loans(1) 37.23 34.25 32.18
Net charge-offs as a percentage of
average loans during the period
ended 3.00 2.72 2.94
Investments in real estate as a
percentage of total non-performing
assets 67.89 62.84 51.56
</TABLE>
-45-
<PAGE>
(1) Non-performing assets consist of (i) non-performing loans, which consist of
non-accrual loans and accruing loans 90 days or more overdue, (ii)
investments in real estate, which consist of other real estate owned and
real estate held for investment, net of related reserves and (iii)
investment securities in default. Non-performing assets do not include
restructured loans which are performing in accordance with their terms and
which have been removed from non-performing status, which amounted to $24.5
million at June 30, 1997.
(2) The Bank's total non-performing assets decreased by $38.0 million or 20.7%
to $145.3 million at June 30, 1997 compared to $183.3 million at June 30,
1996. During the fiscal year ended June 30, 1997, other real estate owned
and real estate held for investment decreased by $49.1 million, while
non-performing loans increased by $11.1 million. Such net decreases were
due primarily to the sales/satisfactions of an aggregate of $47.2 million
of investments in real estate and loans, and write-downs of $19.7 million
in the carrying value of investments in real estate and non-performing
loans, offset by $27.9 million of additions.
(3) Primarily consists of completed single-family residential developments and
lots for the development of single-family residences.
(4) Delinquent loans consist of loans which are 31 to 89 days overdue.
(5) Restructured loans consist of loans which have been restructured primarily
as a result of the financial condition of the property which secures the
loan and which are performing in accordance with their restructured terms.
(6) Loans to facilitate consist of loans to finance the sale of investments in
real estate.
-46-
<PAGE>
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition
General. The Bank's assets and liabilities have substantially decreased during
the last five years due the effects of the Branch Sale at June 28, 1996 which
resulted in sale of all of the Bank's branches and a substantial portion of the
Bank's assets consistent with the Bank's ongoing efforts to improve its
regulatory capital ratios by, among other things, reducing the total assets of
the Bank. Total assets decreased from $285.5 million at June 28, 1996 to $211.7
million at June 30, 1997, and total liabilities decreased from $147 million to
$103.1 million at the same dates, respectively. Total assets decreased by $73.8
million or 25.9% during the year ended June 30,1997, following a decrease of
$1.2 billion or 80.1% during the year ended June 30, 1996. Total liabilities
decreased by $43.8 million, or 29.8% during the year ended June 30, 1997
following a decrease of $1.2 billion or 89.5% during the year ended June 30,
1996. Decreases in assets and liabilities in recent periods have been generally
comprised of decreases in most of the principal categories of assets and
liabilities.
The following table sets forth the principal categories of the Bank's assets and
liabilities at the dates indicated.
<TABLE>
<CAPTION>
June 30,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Assets:
Cash and due from banks and money
market instruments $14,036 $17,129 $108,540
Investment securities available for sale 6,275 5,685 31,372
Mortgage-backed and related
securities and mortgage-backed and
related securities available for
sale (1) - 187 72,643
Loans receivable, net 64,200 68,863 974,463
Investments in real estate, net 97,349 146,440 231,302
Loans sold with recourse 24,451 29,914 -
Total assets 211,659 285,478 1,463,637
Liabilities:
Deposits - 3,022 1,171,530
Borrowed funds 84,272 115,786 179,061
Total liabilities 103,149 146,958 1,373,503
Stockholders' equity 108,510 138,520 90,134
</TABLE>
(1) At June 30, 1996, and 1995, all of the Bank's mortgage-backed and
related securities were classified as available for sale because of the
possibility that they may be sold in response to changes in interest
rates, prepayment risk, liquidity needs or similar factors in
connection with its asset and liability management strategy.
624833.12
-47-
<PAGE>
Cash and Due from Banks and Money Market Instruments. Cash and due from banks
and money market instruments decreased by $3.1 million or 18.1% during the year
ended June 30, 1997, following a decrease of $91.4 million or 84.2% during the
year ended June 30, 1996. The decrease in cash for the year ended June 30, 1997
was primarily due to the repayment of other liabilities related to the Branch
Sale and the settlement of the Bank's remaining non-retail deposit liabilities.
The decrease in cash and due from banks and money market instruments during the
year ended December 31, 1996 was reflective of the decrease in the Bank's total
assets and liabilities during the periods. For additional information, see Note
5 to the Consolidated Financial Statements.
At June 30, 1997, Marine Midland had restricted a total of approximately $5.1
million in funds, held on deposit at Marine, in accordance with the terms of the
Branch Sale and the Marine Facility agreements. Restricted funds held by Marine
are not available to the Bank for settlements of any of the Bank's current
obligations. Of the $5.1 million cash balance restricted by Marine at June 30,
1997, $5.0 million relates to reserve amounts specified under the Branch Sale
Agreement which are restricted to a maximum level of $5.0 million. The remaining
restricted cash reserves held by Marine are primarily to meet the currently
anticipated and other potential cash requirements of the properties serving as
collateral for the senior loan financed by Marine.
Investment Securities Available for Sale. Investment securities available for
sale increased by $589,000 or 10.4% during the year ended June 30, 1997,
following a decrease of $25.7 million or 81.9% during the year ended June 30,
1996. At June 30, 1997, investment securities available for sale were entirely
comprised of marketable and non-marketable equity securities. The increase in
investment securities available for sale during the fiscal year ended June 30,
1997 reflects the accrual of $476,000 in paid-in-kind preferred stock dividends,
which are expected to be paid in June 1998 and a $113,000 increase in the value
of the marketable equity security held in the portfolio and accounted for under
Statement of Financial Accounting Standards No. 115 (SFAS-115) "Accounting for
Marketable Equity Securities." The decrease in investment securities available
for sale in 1996 reflects the maturity of certain investment securities, the
sale of certain securities prior to the Branch Sale and the transfer of certain
securities to Marine to facilitate the Branch Sale. At June 30, 1997 and 1996
all of the Bank's investment securities were classified as available for sale
and, as a result, these securities are carried at estimated fair value. See
Notes 5 and 6 to the Consolidated Financial Statements.
Mortgage-Backed and Related Securities Available for Sale. The Bank held no
Mortgage-backed and related securities at June 30, 1997. Mortgage-backed and
related securities available for sale decreased by $187,000 or 100.0% during the
year ended June 30, 1997, and decreased by $72.5 million or 99.9% during the
year ended June 30, 1996. Decreases in mortgage-backed and related securities
available for sale during fiscal 1997 related to the sales of the remaining
mortgage-backed assets to provide funds for the reduction of other liabilities
related to the Branch Sale. Decreases in mortgage-backed and related securities
available for sale in fiscal 1996 reflect the transfer of certain securities to
Marine to facilitate the Branch Sale. Mortgage-backed and related securities
available for sale consisted primarily of mortgage-backed securities which are
guaranteed by U.S. Government agencies and sponsored enterprises and, to a
lesser extent, mortgage-related securities, which consist of collateralized
mortgage obligations. See Note 6 and 7 to the Consolidated Financial Statements.
Loans Receivable, Net. Loans receivable, net, decreased by $4.7 million or 6.8 %
and $905.6 million or 92.9% during the years ended June 30, 1997 and 1996,
respectively. The decrease during the fiscal year ended June 30, 1997 was due
primarily to the disposition of $5.2 million in loans as part of the Bank's
continuing efforts to liquidate its remaining assets and the effects of normal
loan amortization and borrower prepayments activity, partially offset by the
addition of $471,000. The decrease during the fiscal year ended June 30, 1996
was due primarily to the transfer of $974.5 million to Marine as a result of the
Branch Sale, partially offset by new originations of $148.1 million, including
$23.4 million in loans to facilitate. Since 1990, the Bank's new loan
originations have consisted of relatively low volumes of single-family
residential loans, certain consumer loans and, in 1993, loans secured by
multi-family residential elevator properties with approximately 75 units. In
addition, the Bank has historically made other loans to the extent that it was
obligated under legally binding commitments which were in effect prior to the
time that it changed its lending strategies, which have not been material in
recent years, as well as in connection with the restructuring/refinancing of
existing loans or in connection with the sale of investments in real estate. See
Notes 8, 9, 10 and 11 to the Consolidated Financial Statements.
-48-
<PAGE>
Loans Sold with Recourse, Net. At June 30, 1997, the Bank held $24.5 million in
loans sold with recourse. At June 30, 1996, and in connection with, and to
facilitate the closing of, the Branch Sale, the Bank sold $29.9 million in loans
with recourse accounted for as financings. There were no such loans as of June
30, 1995. See Asset Sale Transactions and Notes 11 and 17 to the Consolidated
Financial Statements.
Investments in Real Estate, Net. Investments in real estate, which are comprised
of other real estate owned and real estate held for investment, net of related
reserves, decreased by $49.1 million or 33.5% during the year ended June 30,
1997, and decreased by $84.9 million or 36.7% during the year ended June 30,
1996. Investments in real estate decreased during the fiscal year ended June 30,
1997 as the result of the sale/satisfaction of $32.8 million (net of fundings of
$11.9 million) of investments in real estate and the write-down of $16.3 million
in investments in real estate. Investments in real estate decreased during the
fiscal year ended June 30, 1996 as the result of the sale/satisfaction of $82.5
million of investments in real estate, the write-down of $1.9 million in
investments in real estate and the restructuring or granting of loans to
facilitate sales in the amount of $23.4 million which were partially offset by
the transfer of $7.9 million of non-performing loans to investments in real
estate and $30.4 million of additions to investments in real estate. The
write-downs in investments in real estate of $16.3 million, recorded during the
year ended June 30, 1997, included a write-down of $11.3 million for an office
building complex in Atlanta, GA, categorized as real estate held for investment.
This charge followed a change in operating plans for the property and a
resultant reevaluation of projected operating cash flows related to this
property. The Bank is actively seeking a purchaser for the property. For
detailed information concerning the Bank's investments in real estate, see "Real
Estate Assets" Notes 11, 13 and 14 to the Consolidated Financial Statements.
Deposits. Deposits decreased by $3.0 million or 100% and by $1.2 billion or
99.8% during the years ended June 30, 1997 and 1996, respectively. The decrease
in deposits during the year ended June 30, 1997 was due to the settlement of
outstanding non-retail deposit obligations (primarily check deposits that had
not cleared following the Branch Sale) in July, 1996. The decrease in deposits
during 1996 was primarily the result of the transfer of $1.2 billion in deposits
to Marine in connection with the Branch Sale. For additional information, see
Note 16 to the Consolidated Financial Statements.
Borrowed Funds. The Bank's borrowed funds decreased by $31.5 million or 27.2%
and $63.3 million or 35.3% during the years ended June 30, 1997 and 1996,
respectively. Borrowed funds decreased during fiscal 1997 primarily as the
result of repayment transactions utilizing funds received from the liquidation
of certain assets under the Bank's plan of asset dispositions. Borrowed funds
decreased in 1996 primarily as the result of paying off $162.5 million in FHLB
borrowed funds partially offset by the Initial Facility granted by Marine,
amounting to $89.8 million, and borrowed funds secured by loans sold, with
recourse, amounting to $24.0 million in connection with the Branch Sale. See
Asset Sale Transactions and Notes 11 and 17 to the Consolidated Financial
Statements.
Stockholders' Equity. Total stockholders' equity decreased by $30.0 million or
21.7% during the year ended June 30, 1997, primarily as a result of the Bank's
reported operating loss of $30.1 million. Total stockholder's equity increased
by $48.4 million or 53.7% during the year ended June 30, 1996. The increase
during the year ended June 30, 1996 was primarily attributable to the net
after-tax gain of $67.6 million on the Branch Sale consummated in June 1996. At
June 30, 1997 and 1996, an aggregate of $1.1 million and $1.2 million,
respectively, were deducted from the Bank's stockholders' equity under Statement
of Financial Accounting Standards No. 115 (SFAS-115) "Accounting for Marketable
Equity Securities," reflecting net unrealized losses on investment securities
classified as available for sale. See the consolidated statements of changes to
stockholders' equity in the Consolidated Financial Statements and Note 19 to the
Consolidated Financial Statements.
-49-
<PAGE>
The following table summarizes the calculation of the Bank's book value per
share at June 30, 1997, June 30, 1996 and June 30, 1995.
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
------------- ------------- -------------
(Amounts in Thousands)
<S> <C> <C> <C>
Total stockholders' equity $108,510 $138,520 $90,134
Less: liquidation value of preferred stock 35,000 35,000 35,000
-------- -------- -------
Net stockholders' equity $ 73,510 $103,520 $55,134
======== ======== =======
Total shares of Common Stock
issued and outstanding 7,100 7,100 7,100
Book value per common share $ 10.35 $ 14.58 (1) $7.77
======== ======== =======
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset Quality - Allowance for Credit Losses."
(1) As reduced by the preferred stock dividend for the quarter ending June
30, 1996 which was declared and not yet paid as of June 30, 1997.
-50-
<PAGE>
Results of Operations - Fiscal year ended June 30, 1997 compared to fiscal year
ended June 30, 1996
General. The Bank reported a net loss attributable to common shares of $30.1
million or ($4.24) per share for the years ended June 30, 1997, as compared with
net income applicable to Common Shares of $49.8 million or $7.01 per share for
the fiscal year ended June 30, 1996. The primary reason for the decrease in the
Bank's net income in the fiscal year ended June 30, 1997 as compared to the
previous year was the net pre-tax gain of $77.6 million on the Branch Sale
recorded in 1996, a decrease in net interest income in fiscal 1997 as compared
to fiscal 1996 of $30.3 million as a result of the substantial decline in net
earning assets as a result of the Branch Sale and an increase in the loss from
other real estate owned from $4.8 million in fiscal 1996 to $18.4 million in
fiscal 1997, partially offset by reduction in operating expenses in 1997 as
compared to the previous year of $29.2 million and the payment of $5.3 million
of dividends on the Preferred Stock in fiscal 1996.
The operations of the Bank were substantially dependent on its net interest
income, which is the difference between the interest income received from its
interest-earning assets, including investment securities, mortgage-backed and
related securities and loans, and the interest expense incurred on its
interest-bearing liabilities, including deposits, FHLB advances and other
borrowed funds. Net interest income is determined by an institution's interest
rate spread (i.e., the difference between the yield earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities)
and the relative amount of interest-earning assets and interest-bearing
liabilities. Net interest income can be positively or negatively impacted by
changes in interest rates.
Net interest income is affected by a number of variables. One such variable is
the interest rate spread, that is, the difference between the yields on average
interest-earning assets and the cost of average interest-bearing liabilities.
Another variable is the relative amounts of interest-earning assets and
interest-bearing liabilities. In part through the resolution of a substantial
amount of non-performing assets, the Bank reduced the excess of average
interest-earning liabilities over average interest-bearing assets for the fiscal
year ended June 30, 1997. The level of the Bank's non-performing assets
continues, however, to have a negative effect on net interest income.
In addition, the Bank's results of operations continue to be significantly
affected by the levels of its non-performing assets. During fiscal 1997, the
Bank's results were affected by $1.0 million and $5.3 million in provisions for
possible credit losses in 1997 and 1996, respectively. The Bank's operations
also have been affected by certain regulatory restrictions including the
Conditions of the Branch Sale and the 1995 MOU. See "Regulation - 1995
Memorandum of Understanding" and "Conditions of Branch Sale."
Net Interest Income. The combined effects of the changes in interest income and
interest expense resulted in a $34.5 million or (105.8%) decrease in net
interest income during the fiscal year ended June 30, 1997 compared to the
fiscal year ended June 30, 1996. The Bank's average interest rate spread
decreased from 2.99% during fiscal 1996 to (2.07%) during fiscal 1997. This
decrease was due primarily to the substantial reduction in net earning assets
resulting from the Branch Sale. The Bank's net interest margin, which measures
the ratio of the Bank's net interest income to its average interest-earning
assets, decreased from 2.57% to (1.70%) when comparing the fiscal year ended
June 30, 1997 to the results for the fiscal year ended June 30, 1996. This
decrease was due primarily to the factors described above related to the Branch
Sale.
-51-
<PAGE>
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income from interest-earning assets and
the resultant average yields, (ii) the total dollar amount of interest expense
on interest-bearing liabilities and the resultant average cost, (iii) net
interest income, (iv) net interest margin and (v) interest rate spread.
Information is based on daily balances during the indicated periods.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
------------------------------------------------------------------
1997 1996
-------------------------------- -----------------------------
Average Average Average Average
Balance Interest Rate(1) Balance Interest Rate(1)
------- -------- ------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average Assets:
Money market investments $ 2,500 $ 155 6.20% $ 44,344 $ 2,489 5.61%
Investment securities 5,871 725 12.35 131,857 9,347 7.09
Mortgage-backed and
related securities - - - 67,926 5,342 7.86
Loans receivable, net(2) 99,403 4,363 4.39 1,018,427 76,614 7.52
Other interest-earning assets 3,800 225 5.92 8,976 617 6.87
----------- ------ ---- ------------ --------
Total interest-earning assets,
interest income 111,574 5,468 4.90 1,271,530 94,409 7.42
------ --------
Non-interest-earning cash 11,770 11,266
Allowance for credit losses (32,289) (33,366)
Other assets 146,896 261,730
---------- ------------
Total assets $ 237,951 $ 1,511,160
=========== ============
Average Liabilities and
Stockholders' Equity:
Retail certificates of deposit $ - $ - - $ 587,971 $ 33,288 5.66%
Other retail interest-bearing
deposits(3) - - - 568,915 14,431 2.54
Brokered certificates of
deposit - - - - - -
Total interest-bearing deposits - - - 1,156,886 47,719 4.12
Borrowed funds 93,247 6,373 6.83 233,429 14,025 6.01
Other 12,300 987 8.02 5,727 49 0.86
====== === ==== ===== == ====
Total interest-bearing
liabilities, interest
expense 105,547 7,360 6.97 1,396,042 61,794 4.43
----- ------
Non-interest-bearing
deposits 480 11,473
Other liabilities 10,648 20,443
------ ------
Total liabilities 116,675 1,427,958
Stockholders' equity 121,276 83,202
Total liabilities and
stockholders' equity $ 237,951 $ 1,511,160
=========== ===========
Net interest income $ (1,892) $ 32,615
======== =========
Average interest rate spread (2.07%) 2.99%
===== ====
Net interest margin (1.70%) 2.57%
===== ====
Ratio of interest-earning
assets to interest-bearing
liabilities 94.6% 91.1%
==== ====
</TABLE>
(Footnotes on the following page)
-52-
<PAGE>
(1) At June 30, 1997, the Bank's interest rate spread amounted to (2.07%)
and the yields earned and rates paid were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Money market instruments 6.20% Borrowed funds 6.83%
Investment securities 12.35 Other 8.02
Loans receivable, net 4.39 Total interest-bearing liabilities 6.97
Other interest-earning assets 5.92
Total interest-earning assets 4.90
</TABLE>
(2) The average balance of interest-earning assets includes accruing loans
90 days or more overdue and non-accrual loans, interest on the latter
of which is recognized on a cash basis.
(3) Includes passbook, demand on withdrawal ("DOW"), negotiable order of
withdrawal ("NOW"), club and money market deposit accounts.
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Bank's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior rate), (ii) changes in rate (change
in rate multiplied by prior volume) and (iii) total change in rate and volume.
Changes attributable to both volume and rate have been allocated proportionately
to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
1997 vs. 1996
-----------------------------------
Increase (Decrease) Due to
-----------------------------------
Rate Volume Total
(Dollars in Thousands)
<S> <C> <C> <C>
Interest-Earning Assets:
Money market investments $ 15 $(2,349) $ (2,334)
Investment securities 9 (8,631) (8,622)
Mortgage-backed and related securities - (5,342) (5,342)
Loans receivable, net (3,449) (68,802) (72,251)
Other interest-earning assets (36) (356) (392)
------ ------- -------
Total interest-earning assets (3,461) (85,480) (88,941)
------ ------- -------
Interest-Bearing Liabilities:
Retail certificates of deposit - (33,288) (33,288)
Other interest-bearing deposits(1) - (14,431) (14,431)
Total interest-bearing deposits - (47,719) (47,719)
Borrowed funds 765 (8,417) (7,652)
Escrow deposits 880 58 938
--- -- ---
Total interest-bearing liabilities 1,645 (56,078) (54,433)
---------- -------- ----------
Increase (decrease) in net interest income $ (5,106) $(29,402) $ (34,508)
========== ======== ==========
</TABLE>
(1) Includes passbook, DOW, NOW, club and money market deposit accounts.
-53-
<PAGE>
Interest Income. The Bank's interest and dividend income decreased by $88.9
million or 94.2% during the fiscal year ended June 30, 1997 compared to the same
period in 1996. Such decrease was attributable to the average balances of
interest-earning assets. The average balance of the Bank's interest-earning
assets decreased by $1.2 billion or 91.2% to $111.6 million for the fiscal year
ended June 30, 1997. Such increase primarily reflects the planned leverage in
the Bank's assets through the use of investment securities.
The weighted average yield on the Bank's interest-earning assets decreased from
7.42% during the fiscal year ended June 30, 1996 to 4.90% during the fiscal year
ended June 30, 1997. Such decrease was due primarily to a decrease in the
weighted average yield of the Bank's loans receivable from 7.52% to 4.39% during
the same periods. The decrease in the weighted average yield of the Bank's loan
portfolio reflects the general decreases in market rates of interest.
The Bank's interest income in recent periods has been adversely affected by the
high levels of non-performing assets. Gross interest income that would have been
recognized for the fiscal years ended June 30, 1997 and 1996 if all
non-performing loans classified as loans at such dates had been performing in
accordance with their original terms amounted to $3.4 million and $5.0 million,
respectively, and the actual amount of interest on these loans that was
collected during these periods and included in interest income was $164,000 and
$420,000, respectively.
Interest Expense. The Bank's interest expense decreased by $54.4 million or
88.1% during the fiscal year ended June 30, 1997 compared to fiscal 1996. Such
decrease was attributable to an increase in the average rate paid on the Bank's
deposits and a decrease in the average balances of interest-bearing liabilities.
The average balance of the Bank's interest-bearing liabilities decreased by $1.3
billion or 92.4% from $1.40 billion during the fiscal year ended June 30, 1996
to $105.5 million during the fiscal year ended June 30, 1997.
The weighted average rate on the Bank's interest-bearing liabilities increased
from 4.43% during the fiscal year ended June 30, 1996 to 6.97% during the fiscal
year ended June 30, 1997. This increase was attributable to a reliance on
borrowed funds from the Facility provided by Marine Midland during the year.
Provision for Credit Losses. The provision for credit losses amounted to $1.0
million and $5.3 million during the fiscal year ended June 30, 1997 and 1996,
respectively. These provisions resulted from management's ongoing evaluation of
the adequacy of the allowance for credit losses in light of, among other things,
the amount of non-performing loans, the risks inherent in the Bank's loan
portfolio and depressed markets for real estate and economic conditions in the
New York metropolitan area and other areas in which the Bank had engaged in
lending activities. The provision for credit losses in the fiscal 1997 period
reflects management's internal analysis of its non-performing assets. See Note
10 to the Consolidated Financial Statements.
-54-
<PAGE>
Other Income. The following table sets forth the composition of the Bank's other
income (loss) during the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30,
---------------------------------
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Gains on sales of offices and branches (1) $ - $77,560
Banking fees and service charges - 2,463
Net gains (losses) on sales of loans and investment securities (1,495) (605)
Other (3,141) 1,533
-------------- -------
Total $ (4,636) $80,951
============== =======
</TABLE>
(1) The net gain on the sale of offices and branches included a deposit
premium of $93.0 million, partially offset by net losses on the sale of
assets to facilitate the closing of the Branch Sale of $1.1 million,
transaction costs of $5.8 million, professional fees of $3.2 million,
employee benefits and severance payments of $4.6 million and other net
Branch Sale costs of $700,000.
Gain on sale of offices during the fiscal year ended June 30, 1996 consisted
primarily of a $77.6 million net pre-tax gain from the sale of the Bank's
remaining eleven branch offices and 96 Street branch office realty to Marine
Midland along with the related deposits, and Transferred Assets, which amounted
to $1,159.6 million of deposits and $1,066.6 million in Transferred Assets on
June 28, 1996, the effective date of the transaction.
Other income amounted to $ (3.1) million during the fiscal year ended June 30,
1997 compared to $1.5 million during the fiscal year ended June 30, 1996. The
primary reason for the $4.6 million decrease in other income was the curtailment
of the Bank's principal activities as a result of the Branch Sale.
Real Estate Operations, Net. The Bank's real estate operations, net, are
comprised of (i) writedowns of investments in real estate to the lower of cost
or fair value minus estimated costs to sell and (ii) other real estate
operations, net, which consists of net operating income or losses from
investments in real estate and net gains or losses on sales of investments in
real estate. Real estate operations, net, does not include foreclosure costs
related to the Bank's non-performing assets, which are included in other
expenses.
-55-
<PAGE>
The following table sets forth the components of the Bank's real estate
operations during the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30,
-----------------------------------
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Other real estate operations:
Operating income from investments in real estate $ 16,158 $ 18,530
Operating expenses from investments in real estate 13,027 17,942
---------- -------------
Net income from investments in real estate 3,131 588
Net gains (losses) from sale of investments in real estate (1,754) (3,499)
----------- --------------
Other real estate operations, net 1,377 (2,911)
---------- --------------
Write-down of investments in real estate (19,745) (1,889)
----------- --------------
Total real estate operations, net $ (18,368) $ (4,800)
=========== ==============
</TABLE>
Real estate operations, net, for the fiscal year ended June 30, 1997 resulted in
a loss of $18.4 million as compared to a loss of $4.8 million for the same
period in 1996 primarily as a result of an increase in writedowns. The decrease
in rental income was due to the reduction in rental revenues resulting from the
sale of investments in real estate during 1996 and 1997. See "Real Estate
Assets" and Notes 11, 13 and 14 of the Consolidated Financial Statements.
Although the Bank's other real estate operations, net, are subject to a variety
of factors which are subject to change, it generally can be expected that such
operations are unlikely to improve, and may decline, in the near term in the
event that the Bank continues to reduce its investments in real estate. This is
because investments in real estate which have positive cash flows are likely to
be more attractive to potential purchasers, and thus sold earlier and achieve
higher sales proceeds than investments in real estate which do not have such
characteristics.
Other Expenses. Other expenses consist of the Bank's general and administrative
expense. With the exception of foreclosure costs related to the Bank's
non-performing assets, other expenses do not include direct real estate
operations expenses, which are included in "other real estate operations, net."
-56-
<PAGE>
The following table sets forth the components of the Bank's other expenses
during the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30,
---------------------------------
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Salaries $ 927 $ 9,814
Employee benefits 243 4,349
Premises and occupancy costs - 8,108
Electronic data processing - 3,700
Legal and professional fees 1,892 4,521
Management fees 2,942 -
Other operating expenses 2,024 3,504
----------- -----------
(1) 7,528 33,996
Deposit insurance expense - 2,533
Foreclosure costs - 225
----------- -----------
(2) $ 7,528 $ 36,754
== =========== ===========
</TABLE>
(1) Represents a 77.97% decrease in the fiscal year ended June 30, 1997
compared to fiscal 1996.
(2) Represents a 79.56% decrease in the fiscal year ended June 30, 1997
compared to fiscal 1996.
Other expenses decreased by $ 29.3 million or 79.5% from $36.8 million during
the fiscal year ended June 30, 1996 to $7.5 million during the fiscal year ended
June 30, 1997. Such reductions were primarily the result of a decrease in costs
incurred in connection with the foreclosure of properties securing real estate
loans and legal expenses.
Income Tax Expense. On January 1, 1993, the Bank adopted SFAS No. 109,
"Accounting for Income Taxes." Among other things, SFAS No. 109 requires the
Bank to recognize a deferred tax asset relating to the unrecognized benefit for
all temporary differences that will result in future tax deductions and for all
unused NOL and tax credit carryforwards, subject to, in certain circumstances,
reduction of the asset by a valuation allowance. A valuation allowance is
recorded if it is more likely than not that some portion or all of the deferred
tax asset will not be realized based on a review of available evidence.
Realization of tax benefits for deductible temporary differences and unused NOL
and tax credit carryforwards may be based upon the future reversals of existing
taxable temporary differences, future taxable income exclusive of reversing
temporary differences and carryforwards, taxable income in prior carryback years
and, if appropriate, from tax planning strategies.
The high levels of loan charge-offs and other losses, which were largely
responsible for losses during the periods, effectively eliminated federal income
tax liability for fiscal 1997, fiscal 1996, and fiscal 1995. The Bank's income
tax provision includes state and local taxes on the greater of combined entire
net income, combined alternative entire net income or combined taxable assets.
Certain subsidiaries provide for state and local taxes on a separate company
basis on income, capital, assets or an alternative minimum tax. For additional
information, see Note 20 to the Consolidated Financial Statements.
Under SFAS No. 109, at June 30, 1997, the Bank recorded a net deferred tax asset
of approximately $19.6 million and deferred tax liabilities of $19.6 million.
The net deferred tax asset reflects gross deferred tax assets of $56.4 million
and a valuation allowance of $36.9 million. The net deferred tax asset
represents primarily the anticipated federal and state and local tax benefits
that could be realized in future years upon the utilization of existing tax
attributes. The deferred tax asset primarily relates to provisions for
anticipated credit losses recognized for financial statement purposes that have
not yet been realized for tax purposes, suspended passive activity losses and
credits, deferred income on venture investments and available NOL carryforwards.
Generally, the amount of an institution's net deferred tax asset may serve to
increase its net worth under generally accepted accounting principles. In
addition, FDIC regulations permit deferred tax assets that are dependent on
future taxable income to be included in Tier 1 capital in an amount equal to the
lesser of the deferred tax asset that can be realized based on
-57-
<PAGE>
projected taxable income for the immediately subsequent one-year period or 10%
of Tier 1 capital before any disallowed items. However, because of the net
losses incurred by the Bank in recent years, the Bank established a $36.9
million valuation allowance, resulting in a net deferred tax asset of $19.6
million. The valuation allowance increased by approximately $2.9 million during
the fiscal year ended June 30, 1997. Realization of the net deferred tax asset
is expected to occur upon reversal of existing taxable temporary differences for
which deferred tax liabilities of $19.6 million have been recorded. As a result,
the net deferred tax asset is not dependent on future taxable income for
purposes of the FDIC's regulations.
The provision for income taxes differs from the amount computed by applying the
statutory Federal income tax rate of 35% to the income (loss) before provision
for income taxes primarily due to state and local income and franchise taxes and
limitations on the recognition of tax benefits of net operating losses. During
the year ended June 30, 1997, the Bank completed a review of its potential
current and deferred federal and state tax liability for the fiscal year in
light of the Branch Sale and its related effect. As a result of the review of
its potential current and deferred tax liabilities and the results of operations
for the twelve months ended June 30, 1997, the Bank reduced its provision
(recorded a benefit from) for state and local income taxes by $3.3 million.
Additionally, the Bank reduced its estimated current state and local income tax
liability at June 30, 1997 to reflect the effect of the Branch Sale and
disposition transactions completed during the twelve months ended June 30, 1997.
Results of Operations - Fiscal year ended June 30, 1996 compared to fiscal year
ended June 30, 1995
General. The Bank reported net income applicable to Common Shares of $49.8
million or $7.01 per share for the fiscal year ended June 30, 1996, compared to
a net loss of $29.6 million or ($4.17) per share for the fiscal year ended June
30, 1995. The primary reason for the increase in the Bank's net income in the
fiscal year ended June 30, 1996 compared to fiscal 1995 was a reduction in the
loss from other real estate owned from $14.4 million in fiscal 1995 to $4.8
million in fiscal 1996 and the net after tax gain on the Branch Sale in 1996 of
$67.6 million. The decrease in net interest income after provision for credit
losses was equally offset by the reduction in other operating expenses.
The operations of the Bank were substantially dependent on its net interest
income, which is the difference between the interest income received from its
interest-earning assets, including investment securities, mortgage-backed and
related securities and loans, and the interest expense incurred on its
interest-bearing liabilities, including deposits, FHLB advances and other
borrowed funds. Net interest income is determined by an institution's interest
rate spread (i.e., the difference between the yield earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities)
and the relative amount of interest-earning assets and interest-bearing
liabilities. Net interest income can be positively or negatively impacted by
changes in interest rates.
Net interest income is affected by a number of variables. One such variable is
the interest rate spread, that is, the difference between the yields on average
interest-earning assets and the cost of average interest-bearing liabilities.
Another variable is the relative amounts of interest-earning assets and
interest-bearing liabilities. In part through the resolution of a substantial
amount of non-performing assets, the Bank reduced the excess of average
interest-earning liabilities over average interest-bearing assets for the fiscal
year ended June 30, 1996. The level of the Bank's non-performing assets
continues, however, to have a negative effect on net interest income.
In addition, the Bank's results of operations continue to be significantly
affected by the levels of its non-performing assets. During fiscal 1997, the
Bank's results were affected by $5.3 million in provisions for possible credit
losses. The Bank's operations also have been affected by certain regulatory
restrictions including the Conditions of the Branch Sale and the 1995 MOU. See
"Regulation - 1995 Memorandum of Understanding" and "Conditions of Branch Sale."
Net Interest Income. The combined effects of the changes in interest income and
interest expense resulted in a $6.2 million or 18.5% decrease in net interest
income during the fiscal year ended June 30, 1996 compared to the fiscal year
ended June 30, 1995. The Bank's average interest rate spread decreased from
3.23% during fiscal 1995 to 2.99% during fiscal 1996. This decrease was due
primarily to a reduction in the interest rate earned on loans, in part due to a
large interest payment received on a non-accrual loan in fiscal 1995, and an
increase in the rates offered on certificates of deposit which were trending up
at a faster rate than loans offset, in part, by a decrease in non-performing
assets which were returned to an interest-earning status or sold and the
proceeds invested as interest-earning assets. The Bank's net interest margin,
which measures the ratio of the
-58-
<PAGE>
Bank's net interest income to its average interest-earning assets, decreased
from 2.93% to 2.57% when comparing the fiscal year ended June 30, 1995 to the
results for the fiscal year ended June 30, 1996. This decrease was due primarily
to the items described above and by the decrease in the ratio of
interest-earning assets to interest-bearing liabilities from 92.7% for the
fiscal year ended June 30, 1995 to 91.1% for the fiscal year ended June 30,
1996.
-59-
<PAGE>
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income from interest-earning assets and
the resultant average yields, (ii) the total dollar amount of interest expense
on interest-bearing liabilities and the resultant average cost, (iii) net
interest income, (iv) net interest margin and (v) interest rate spread.
Information is based on daily balances during the indicated periods.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
--------------------------
1996 1995
--------------------------------- ---------------------------
Average Average Average Average
Balance Interest Rate(1) Balance Interest Rate(1)
------- -------- ------- ------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average Assets:
Money market investments $ 44,344 $ 2,489 5.61% $ 65,850 $ 3,428 5.21%
Investment securities 131,857 9,347 7.09 35,516 1,859 5.23
Mortgage-backed and
related securities 67,926 5,342 7.86 133,268 9,337 7.01
Loans receivable, net(2) 1,018,427 76,614 7.52 1,007,333 73,681 7.31
Other interest-earning assets 8,976 617 6.87 7,707 573 7.43
----------- ------- ----------- -------
Total interest-earning assets,
interest income 1,271,530 94,409 7.42 1,249,674 88,878 7.11
------- -------
Non-interest-earning cash 11,266 13,666
Allowance for credit losses (33,366) (35,922)
Other assets 261,730 254,100
----------- -----------
Total assets $ 1,511,160 $ 1,481,518
=========== ===========
Average Liabilities and
Stockholders' Equity:
Retail certificates of deposit $ 587,971 $33,288 5.66% $ 504,926 $24,284 4.81%
Other retail interest-bearing
deposits(3) 568,915 14,431 2.54 668,495 17,125 2.56
Brokered certificates of
deposit - - - 14,883 1,373 9.23
----------- ------- ----------- -------
Total interest-bearing
deposits 1,156,886 47,719 4.12 1,188,304 42,782 3.60
Borrowed funds 233,429 14,025 6.01 153,044 9,411 6.15
Escrow deposits 5,727 49 0.86 6,601 62 0.94
----------- ------- ----------- -------
Total interest-bearing
liabilities, interest
expense 1,396,042 61,794 4.43 1,347,949 52,255 3.88
------- -------
Non-interest-bearing deposits 11,473 5,202
Other liabilities 20,443 22,041
----------- -----------
Total liabilities 1,427,958 1,375,192
Stockholders' equity 83,202 106,326
----------- -----------
Total liabilities and
stockholders' equity $ 1,511,160 $ 1,481,518
Net interest income $32,615 $36,623
Average interest rate spread 2.99%
3.23%
Net interest margin 2.57%
2.93%
Ratio of interest-earning
assets to interest-bearing
liabilities 91.1% 92.7%
----- -----
</TABLE>
(Footnotes on the following page)
-60-
<PAGE>
(1) At June 30, 1996, the Bank's interest rate spread amounted to 3.61% and the
yields earned and rates paid were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Money market instruments 5.34% Retail certificates of deposit 5.73%
Investment securities 6.70 Other retail interest-bearing deposits 2.59
Mortgage-backed and related securities 7.39 Total interest-bearing deposits 4.23
Loans receivable, net 7.38 Borrowed funds 5.64
Other interest-earning assets 5.65 Total interest-bearing liabilities 4.43
Total interest-earning assets 7.27
</TABLE>
(2) The average balance of interest-earning assets includes accruing loans
90 days or more overdue and non-accrual loans, interest on the latter
of which is recognized on a cash basis.
(3)
Includes passbook, demand on withdrawal ("DOW"), negotiable order of
withdrawal ("NOW"), club and money market deposit accounts.
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Bank's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior rate), (ii) changes in rate (change
in rate multiplied by prior volume) and (iii) total change in rate and volume.
Changes attributable to both volume and rate have been allocated proportionately
to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
1996 vs. 1995
-----------------------------------
Increase (Decrease) Due to
-----------------------------------
Rate Volume Total
(Dollars in Thousands)
<S> <C> <C> <C>
Interest-Earning Assets:
Money market investments $ 177 $ (1,116) $ (939)
Investment securities 2,453 5,035 7,488
Mortgage-backed and related securities 577 (4,572) (3,995)
Loans receivable, net (2,139) 794 2,933
Other interest-earning assets (50) 94 44
-------- --------- ---------
Total interest-earning assets 5,296 235 5,531
-------- --------- --------
Interest-Bearing Liabilities:
Retail certificates of deposit 4,998 4,006 9,004
Other interest-bearing deposits(1) (114) (2,580) (2,694)
Brokered certificates of deposit - (1,373) (1,373)
-------- ---------- ---------
Total interest-bearing deposits 4,884 53 4,937
Borrowed funds (327) 4,942 4,615
Escrow deposits (5) (8) (13)
-------- ---------- ---------
Total interest-bearing liabilities 4,552 4,987 9,539
Increase (decrease) in net interest income $ 744 $ (4,752) $ (4,008)
======== ========== =============
</TABLE>
(1) Includes passbook, DOW, NOW, club and money market deposit accounts.
-61-
<PAGE>
Interest Income. The Bank's interest and dividend income increased by $5.5
million or 6.2% during the fiscal year ended June 30, 1996 compared to the same
period in 1995. Such increase was attributable to increases in both the average
balances of interest-earning assets and the weighted average yield earned on
interest-earning assets. The average balance of the Bank's interest-earning
assets increased by $21.9 million or 1.7% to $1.3 billion for the fiscal year
ended June 30, 1996. Such increase primarily reflects the planned leverage in
the Bank's assets through the use of investment securities.
The weighted average yield on the Bank's interest-earning assets increased from
7.11% during the fiscal year ended June 30, 1995 to 7.42% during the fiscal year
ended June 30, 1996. Such increase was due primarily to an increase in the
weighted average yield of the Bank's loans receivable from 7.31% to 7.52% during
the same periods. The increase in the weighted average yield of the Bank's loan
portfolio reflects the general increases in market rates of interest, the
effects of loans being refinanced at lower interest rates throughout fiscal 1995
and a reduction in the level of non-performing loans.
The Bank's interest income in recent periods has been adversely affected by the
high levels of non-performing assets. Gross interest income that would have been
recognized for the fiscal years ended June 30, 1995 and 1994 if all
non-performing loans classified as loans at such dates had been performing in
accordance with their original terms amounted to $5.0 million and $10.4 million,
respectively, and the actual amount of interest on these loans that was
collected during these periods and included in interest income was $420,000 and
$4.3 million, respectively. In addition, the Bank's gross interest income
excludes income from the Bank's investments in real estate which totaled $156.1
million and $231.3 million as of June 30, 1996 and 1995, respectively.
The changes in the level of the Bank's borrowed funds also resulted in a
decrease in the ratio of the Bank's average interest-earning assets (which do
not include investments in real estate with positive cash flows) to average
interest-bearing liabilities, which amounted to 91.1% and 92.7% during the
fiscal year ended June 30, 1996 and 1995, respectively. Because the Bank's
interest-bearing liabilities exceed its interest-earning assets, the Bank's
interest rate spread is not fully indicative of the Bank's net interest income.
Under such circumstances, net interest expense may be incurred even if the
interest rate spread is positive. Moreover, the more that interest-bearing
liabilities exceed interest-earning assets, the greater the interest rate spread
must be in order for interest income to exceed interest expense.
Interest Expense. The Bank's interest expense increased by $9.5 million or 18.3%
during the fiscal year ended June 30, 1996 compared to fiscal 1995. Such
increase was attributable to an increase in the average rate paid on the Bank's
deposits and an increase in the average balances of interest-bearing
liabilities.
The average balance of the Bank's interest-bearing liabilities increased by
$48.1 million or 3.6% from $1.35 billion during the fiscal year ended June 30,
1995 to $1.40 billion during the fiscal year ended June 30, 1996.
The weighted average rate on the Bank's interest-bearing liabilities increased
from 3.88% during the fiscal year ended June 30, 1995 to 4.43% during the fiscal
year ended June 30, 1996. This increase was attributable to increases in the
weighted average rate paid on the Bank's certificates of deposit and borrowed
funds in an interest rate environment which was increasing during all of 1996.
Rising market rates of interest generally can be expected to have a negative
effect on the Bank's interest rate spread.
Provision for Credit Losses. The provision for credit losses amounted to $5.3
million and $5.0 million during the fiscal years ended June 30, 1996 and 1995,
respectively. These provisions resulted from management's ongoing evaluation of
the adequacy of the allowance for credit losses in light of, among other things,
the amount of non-performing loans, the risks inherent in the Bank's loan
portfolio and depressed markets for real estate and economic conditions in the
New York metropolitan area and other areas in which the Bank had engaged in
lending activities. The increase in the provision for credit losses in the
fiscal 1996 period reflects management's internal analysis of its non-performing
assets. See Note 10 to the Consolidated Financial Statements.
-62-
<PAGE>
Other Income. The following table sets forth the composition of the Bank's other
income during the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30,
---------------------------
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Gains on sales of offices and branches (1) $ 77,560 $ -
Banking fees and service charges 2,463 2,320
Net gains (losses) on sales of loans and investment securities (605) 441
Other 1,533 1,228
---------- -----------
Total $ 80,951 $ 3,989
========== ===========
</TABLE>
(1) The net gain on the sale of offices and branches included a deposit premium
of $93.0 million, partially offset by net losses on the sale of assets to
facilitate the closing of the Branch Sale of $1.1 million, transaction
costs of $5.8 million, professional fees of $3.2 million, employee benefits
and severance payments of $4.6 million and other net Branch Sale costs of
$700,000.
Banking fees and service charges, which primarily consist of various fees and
charges related to the Bank's loan and deposit products, as well as commissions
from the sale of annuities, increased by $143,000 or 6.2% during the fiscal year
ended June 30, 1996 compared to the same period in 1995. The primary reason for
the increase in banking fees and service charges during the 1996 period was the
increase in the fee structure of deposit products and services.
Gain on sale of offices during the fiscal year ended June 30, 1996 consisted
primarily of a $77.6 million net pre-tax gain from the sale of the Bank's
remaining eleven branch offices and 96 Street branch office realty to Marine
Midland along with the related deposits, and Transferred Assets, which amounted
to $1,159.6 million of deposits and $1,066.6 million in Transferred Assets on
June 28, 1996, the effective date of the transaction.
Other income consists of a sundry of items, including rental income, prepayment
penalties and safe deposit rentals. Other income amounted to $1.5 million during
the fiscal year ended June 30, 1996 compared to $1.2 million during the fiscal
year ended June 30, 1995. The primary reason for the $305,000 or 24.8% increase
in other income was due to an increase in prepayment penalties collected from
holders of certificates of deposit.
Real Estate Operations, Net. The Bank's real estate operations, net, are
comprised of (i) writedowns of investments in real estate to the lower of cost
or fair value minus estimated costs to sell and (ii) other real estate
operations, net, which consists of net operating income or losses from
investments in real estate and net gains or losses on sales of investments in
real estate. Real estate operations, net, does not include foreclosure costs
related to the Bank's non-performing assets, which are included in other
expenses.
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<PAGE>
The following table sets forth the components of the Bank's real estate
operations during the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30,
-------------------------------
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Other real estate operations:
Operating income from investments in real estate $ 18,530 $ 20,229
Operating expenses from investments in real estate 17,942 18,823
----------- ----------
Net income from investments in real estate 588 (1,303)
Net gains (losses) from sale of investments in real estate (3,499) (1,303)
----------- ----------
Other real estate operations, net (2,911) 103
----------- ----------
Write-down of investments in real estate (1,889) (14,460)
----------- ----------
Total real estate operations, net $ (4,800) $(14,357)
=========== ==========
</TABLE>
Real estate operations, net, for the fiscal year ended June 30, 1996 resulted in
a loss of $4.8 million as compared to a loss of $14.4 million for the same
period in 1995 primarily as a result of a decrease in writedowns and increased
losses on the sale of investments in real estate. The decrease in rental income
was due to the reduction in rental revenues resulting from the sale of
investments in real estate in 1996 and earlier. See "Real Estate Assets" and
Notes 11, 13 and 14 of the Consolidated Financial Statements.
Although the Bank's other real estate operations, net, is subject to a variety
of factors which are subject to change, it generally can be expected that such
operations are unlikely to improve, and may decline, in the near term in the
event that the Bank continues to reduce its investments in real estate. This is
because investments in real estate which have positive cash flows are likely to
be more attractive to potential purchasers, and thus sold earlier and achieve
higher sales proceeds than investments in real estate which do not have such
characteristics.
Other Expenses. Other expenses consist of the Bank's general and administrative
expense. With the exception of foreclosure costs related to the Bank's
non-performing assets, other expenses do not include direct real estate
operations expenses, which are included in "other real estate operations, net."
The following table sets forth the components of the Bank's other expenses
during the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30,
--------------
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Salaries $ 9,814 $ 11,329
Employee benefits 4,349 3,597
Premises and occupancy costs 8,108 7,203
Electronic data processing 3,700 3,326
Legal and professional fees 4,521 4,581
Other operating expenses (1) 3,504 8,630
----------- ----------
33,996 38,666
Deposit insurance expense 2,533 3,704
Foreclosure costs (2) 225 1,105
----------- ----------
$ 36,754 $ 43,475
=========== ==========
</TABLE>
(1) Represents a 12.07% decrease in the fiscal year ended June 30, 1996
compared to fiscal 1995.
(2) Represents a 15.46% decrease in the fiscal year ended June 30, 1996
compared to fiscal 1995.
-64-
<PAGE>
Other expenses decreased by $6.7 million or 15.5% from $43.4 million during the
fiscal year ended June 30, 1995 to $36.8 million during the fiscal year ended
June 30, 1996. Such reductions were primarily the result of a decrease in costs
incurred in connection with the foreclosure of properties securing real estate
loans and legal expenses and to a lesser extent, the reduction of staff and
operating costs as a result of the cost reduction efforts, including a reduction
in work force, in early fiscal 1996. The Bank reduced its work force by 146 full
and part-time employees or approximately 35% of the Bank's work force.
Deposit insurance expense is a function of the amount of deposits and the rate
of federal insurance premiums paid thereon. This expense decreased by $1.2
million or 31.6% during the fiscal year ended June 30, 1996 compared to the same
period in 1995. The decrease in deposit insurance expense during the fiscal year
ended June 30, 1996 reflects the substantial reduction in the Bank's annual
assessment rate which was decreased from 0.29% of insured deposits to 0.23%
beginning September 1995 by the FDIC.
Foreclosure costs, which consist of legal fees, taxes, insurance costs,
appraisal costs and various other expenses related to the foreclosure process,
are reflective of the costs associated with the Bank's high level of
non-performing assets.
Other operating expenses consist of a sundry of expenses, including affiliate
reimbursements, telephone and communications, printing and stationery,
advertising, bank service fees and mortgage servicing fees, as well as various
other expenses. The decrease in other operating expenses was due to the lack of
three items of litigation at a cost to the bank of $1.6 million and the
charge-off of the Bank's investment in National of $1.1 million in fiscal 1995.
In fiscal 1996, the Bank embarked on an aggressive cost reduction program which
had a substantial impact on other operating expenses.
Income Tax Expense. Under SFAS No. 109, at June 30, 1996, the Bank recorded a
net deferred tax asset of approximately $16.1 million and deferred tax
liabilities of $16.1 million. The net deferred tax asset reflects gross deferred
tax assets of $50.1 million and a valuation allowance of $34.0 million. The net
deferred tax asset represents primarily the anticipated federal and state and
local tax benefits that could be realized in future years upon the utilization
of existing tax attributes. The deferred tax asset primarily relates to
provisions for anticipated credit losses recognized for financial statement
purposes that have not yet been realized for tax purposes, suspended passive
activity losses and credits, deferred income on venture investments and
available NOL carryforwards. Generally, the amount of an institution's net
deferred tax asset may serve to increase its net worth under generally accepted
accounting principles. In addition, FDIC regulations permit deferred tax assets
that are dependent on future taxable income to be included in Tier 1 capital in
an amount equal to the lesser of the deferred tax asset that can be realized
based on projected taxable income for the immediately subsequent one-year period
or 10% of Tier 1 capital before any disallowed items.
However, because of the net losses incurred by the Bank in recent years, the
Bank established a $34.0 million valuation allowance, resulting in a net
deferred tax asset of $16.1 million. The valuation allowance decreased by
approximately $22.9 million during the fiscal year ended June 30, 1997.
Realization of the net deferred tax asset is expected to occur upon reversal of
existing taxable temporary differences for which deferred tax liabilities of
$16.1 million have been recorded. As a result, the net deferred tax asset is not
dependent on future taxable income for purposes of the FDIC's regulations. For
additional information, see Note 20 to the Consolidated Financial Statements.
During the year ended June 30, 1996, the Bank recorded a provision for income
and franchise taxes in the amount of $11.7 million. This provision represented
an increase of $9.6 million in comparison to the provision of $2.1 million
recorded in the year ended June 30, 1995. The increase in provision for income
taxes in 1996 as compared to the previous year was due primarily to a $10.0
million state and local income tax provision recorded in 1996 to reflect the
estimated income tax liability at June 30, 1996 arising from the $77.6 million
gain resulting from the Branch Sale. The provision for income taxes differs from
the amount computed by applying the statutory Federal income tax rate of 35% to
the income (loss) before provision for income taxes primarily due to state and
local income and franchise taxes and limitations on the recognition of tax
benefits of net operating losses. See Note 20 to the Consolidated Financial
Statements for more information.
-65-
<PAGE>
Asset Quality
Loan Portfolio Composition. The high levels of the Bank's non-performing assets
in recent years have been primarily attributable to the Bank's emphasis during
the mid- to late-1980s on loans to joint ventures for the acquisition,
development and construction of real estate in which the Bank or a subsidiary
had an equity interest, commercial business loans, commercial real estate loans
and multi-family residential loans. These loans generally are considered to
involve a significantly higher degree of risk than single-family residential
loans, and the Bank did not originate any such loans to new borrowers during the
years ended June 30, 1997 and 1996.
Commercial real estate, construction and multi-family residential loans are
generally considered to involve more risk than single-family residential loans
due to, among other things, the higher principal amount of such loans and the
effects of a downturn in general economic conditions, which may result in
excessive vacancy rates, inadequate rental income levels and volatility in real
estate values. At June 30, 1997, the Bank's total loan portfolio of $95.8
million included $26.1 million or 27.2% of multi-family residential loans and
$50.1 million or 52.3% of commercial real estate loans. The Bank substantially
curtailed originations of new multi-family residential and commercial real
estate loans during the early 1990s and, as a result, the balances in these
portfolios have been declining. The Bank continues to originate such loans in
connection with the sale of investments in real estate and other resolutions of
non-performing assets, however, and in 1993 commenced a program to originate
loans secured by multi-family elevator residences with approximately 75 units or
less under revised policies and procedures from those utilized by the Bank in
the mid- to late-1980s.
The Bank discontinued construction lending and loans to joint ventures in 1991.
At June 30, 1997, the Bank's construction loans and loans to joint ventures were
$0 and $471,000, respectively, compared to $0 and $0 at June 30, 1996,
respectively. Construction lending is considered to involve even more credit
risk than multi-family residential and commercial real estate lending.
Construction loans generally require only interest payments prior to the
ultimate sale or lease of the completed project, which are funded by the lender
and added to the outstanding principal of the loan. To evaluate a construction
loan prior to completion, leasing and/or sale of the underlying property, the
Bank must rely on estimates of anticipated completed cost and subjective
assessments of future demand for the completed project. Accurate assessments of
these factors have been (and continue to be) difficult to perform because of the
weakness of the local economies and the real estate markets in which the Bank
has engaged in lending activities. Loans to joint ventures are subject to the
same risks as construction loans and may even be more susceptible to risks of
uncertain costs and changing economic conditions due to the broader scope and
longer term of some ventures and the Bank's status in some ventures as an equity
participant.
The Bank's multi-family residential, commercial real estate and construction
lending activities included activities conducted outside of its primary market
area, primarily in states on the eastern and western coasts of the United
States. Although the Bank's largest concentration remains in New York, in which
the Bank had $63.9 million of multi-family residential, commercial real estate
and construction loans at June 30, 1997, primarily located in the New York
metropolitan area, at such date the Bank also had $2.4 million, $10.2 million
and $3.6 million of such loans in California, Florida and other states,
respectively. Like the New York metropolitan area, certain of these states,
particularly California, have experienced adverse economic conditions, including
declining business and real estate activity and declining real estate values,
resulting in increases in loan delinquencies, defaults and foreclosures.
Loans secured by properties located outside of the Bank's primary market area
may involve a higher degree of risk because the Bank may not be as familiar with
economic conditions and other relevant factors as it would be in the case of
loans secured by properties in its primary market area. In order to mitigate
these risks in California and other western states, a subsidiary of the Bank
established loan offices in Los Angeles and San Francisco, California in the
mid- to late-1980s, the former of which has since been closed as a result of the
Bank's changed lending strategies and continued reduction of its loans in
California. In addition to introducing lending opportunities to the Bank, the
California offices allowed the Bank to more effectively monitor loans secured by
properties in California and other western states. At June 30, 1997, the San
Francisco office had two full-time equivalent employees, who have historically
monitored the Bank's loans in California.
The commercial business lending activities emphasized by the Bank during the
mid- to late-1980s also involved a high degree of risk. These activities were
conducted primarily through Quest, a wholly-owned subsidiary of the Bank which
was formed in 1986 to implement a program of secured and unsecured commercial
business lending. The loans, and in certain cases equity investments, made by
Quest generally involved the buyout, acquisition or recapitalization of an
existing business and
-66-
<PAGE>
included management buyouts and corporate mergers and acquisitions. Such
transactions frequently resulted in a substantial increase in both the
borrower's liabilities and its liabilities-to-assets leverage ratio, thus
increasing the prospects for default. The Bank discontinued its new commercial
business lending activities in 1991 and, as a result, the Bank's gross
commercial business loans decreased to $12.8 million or 16.0% of total loans at
June 30, 1997, as compared to $13.0 million or 12.6% of total loans at June 30,
1996. At June 30, 1997, investments made through Quest consisted of two loans
which aggregated $3.4 million, net, as well as $6.3 million of equity
securities, net.
Non-Performing Assets - Composition. Primarily as a result of deterioration in
the real estate markets and a general economic recession in the New York
metropolitan area and in other areas in which the Bank was engaged in lending
activities at the time, particularly California, the Bank has had substantial
asset quality problems in recent years.
The Bank's non-performing assets began increasing during 1989 and increased to a
high of $602.8 million or 30.2% of total assets at December 31, 1992. From
December 31, 1992 to June 30, 1997, non-performing assets decreased by $457.5
million or 75.9% to $145.3 million, but, because of the substantial decrease in
the Bank's total assets during this period, amounted to 68.5% of the Bank's
total assets at such date. Non-performing assets consist of non-performing
loans, investments in real estate and investment securities in default.
Non-performing loans are those loans placed on non-accrual status and loans
which are on accrual status but delinquent 90 days or more. The Bank generally
places a loan which is delinquent 90 days or more on non-accrual status unless
it is well secured and, in the opinion of management, collection appears likely.
In addition, the Bank may place a loan on non-accrual status even when it is not
yet delinquent 90 days or more if the Bank makes a determination that such loan
is not collectible. When loans are placed on non-accrual status, any accrued but
unpaid interest on the loan is reversed and future interest income is recognized
only if actually received by the Bank and collection of principal is not in
doubt.
Investments in real estate consist of (i) real estate acquired upon foreclosure
or by deed-in-lieu thereof, which is classified as other real estate owned, and
(ii) real estate acquired as a result of the Bank's involvement in joint
ventures for the acquisition, development and construction of real estate, which
is classified as real estate held for investment.
-67-
<PAGE>
The following table sets forth information regarding the Bank's non-performing
assets at the dates indicated.
<TABLE>
<CAPTION>
June 30,
------------------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Single-family residential loans:
Non-accrual loans $ 3,924 $ 4,557 $ 4,482
Accruing loans 90 days overdue - - 3,014
---------- --------- ------------
Total 3,924 4,557 7,496
Multi-family residential loans:
Non-accrual loans 16,790 19,658 -
---------- --------- ------------
Total 16,790 19,658 -
Commercial real estate loans:
Non-accrual loans 11,557 3,113 42,601
Accruing loans 90 days overdue - - 22
---------- --------- ------------
Total 11,557 3,113 42,623
Construction loans:
Non-accrual loans - - 4,941
---------- --------- ------------
Total - - 4,941
Commercial business loans:
Non-accrual loans 6,639 6,817 2,212
Accruing loans 90 days overdue 6,167 - 113
---------- --------- ------------
Total 12,806 6,817 2,325
Consumer loans:
Non-accrual loans 2,871 - -
---------- --------- ------------
Accruing loans 90 days overdue - 2,671 165
---------- --------- ------------
Total 2,871 2,671 165
Total non-performing loans:
Non-accrual loans 41,781 34,145 54,236
Accruing loans 90 days overdue 6,167 2,671 3,314
---------- --------- -----------
Total 47,948 36,816 57,550
Investments in real estate:
Other real estate owned, net 7,128 30,386 105,458
Real estate held for investment,
net 90,222 116,054 125,844
---------- --------- -----------
Total 97,350 146,440 231,302
---------- --------- -----------
Total non-performing assets $ 145,298 $ 183,256 $ 288,852
========== ========= ===========
Total assets $ 211,695 $ 285,478 $ 1,463,637
========== ========= ===========
Total non-performing loans as a
percentage of total loans 50.06% 35.74% 5.69%
Total non-performing assets as a
percentage of total assets 68.52 64.19 19.74
Total non-performing assets as a
percentage of total loans and investments
in real estate 75.24 73.47 23.26
Percentage increase (decrease) in
the dollar amount of non-performing
assets from prior year-end (20.71) (36.56) (15.94)
</TABLE>
624833.12
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<PAGE>
Non-Performing Assets - Geographic Location. The following table summarizes the
Bank's non-performing loans and investments in real estate by state and type of
loan or property at June 30, 1997.
<TABLE>
<CAPTION>
Type of Loan New York California New Jersey Pennsylvania Other Total
-------- ---------- ---------- ------------ ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-performing loans:
Single-family residential $ 3,857 $ - $ 67 $ - $ - $ 3,924
Multi-family residential 16,790 - - - - 16,790
Commercial real estate 8,500 298 - - 2,759 11,557
Construction - - - - - -
Commercial business 12,806 - - - - 12,806
Consumer 2,871 - - - - 2,871
--------- ---------- ------- ------- -------- -----------
44,824 298 67 - 2,759 47,948
Other real estate owned, net:
Single-family residential 597 - - - - 597
Multi-family residential 4,566 - - - - 4,566
Commercial real estate 68 - - - - 68
Construction - 1,897 - - - 1,897
--------- ---------- ------- ------- -------- -----------
5,231 1,897 - - - 7,128
Real estate held for
investment, net:
Commercial real estate 5,413 - - - 14,089 19,502
Construction 14,839 - - 55,881 - 70,720
--------- ---------- ------- ------- -------- -----------
20,252 - - 55,881 14,089 90,222
--------- ---------- ------- ------- -------- -----------
Total investments in
real estate, net 25,483 1,897 - 55,881 14,089 97,350
--------- ---------- ------- ------- -------- -----------
Total $ 70,307 $ 2,195 $ 67 $ 55,881 $16,848 $ 145,298
========= ========== ======= ======== ======= ===========
</TABLE>
Non-Performing Assets - Carrying Values. At June 30, 1997, $97.4 million or
67.0% of the Bank's non-performing assets was comprised of investments in real
estate and $47.9 million or 33.0% were in-non-performing loans.
Real estate acquired through foreclosure or deed-in-lieu of foreclosure are
recorded on the books of the bank at the lower of the balance of the loan at
the date of transfer or estimated fair value of the property minus estimated
costs to sell. Adjustments made to the value at transfer are charged to the
allowance for credit losses. See notes 1, 10, 13 and 14 to the consolidated
financial statements.
The Bank primarily utilizes two means of valuation in evaluating the carrying
value of its investments in real estate: (1) appraisals and (2) discounted cash
flows. The discounted cash flow ("DCF") is based on assumptions wherein the
forecasted future cash flow attributable to the benefits of ownership are
discounted, at a rate commensurate with the risk involved, to a present value.
The DCF is based on information from various sources, including: actual
operating results, recent appraisals, third party market information and
current investment parameters. The Bank believes that the DCF approach
generally is the most accurate predictor of value of a real estate asset over
time. This approach is an accepted means of valuation under generally accepted
accounting principles and has been addressed by the FDIC in an Interagency
Policy Statement dated November 7, 1991 (the "Policy"). Among other things, the
Policy notes that when markets are dominated by forced or liquidation sales, or
when properties have unusual characteristics, then value estimates should be
based on rent levels and occupancy "that are reasonably estimated to be
achieved over time." The Policy also advises against making adjustments to
appraisal assumptions using "worst case scenarios that are unlikely to occur,"
"direct capitalization of non- stabilized income flows" or "simple projections
of current levels of operating income if markets are depressed but can be
expected over a reasonable period of time to return to (stabilized)
conditions." Generally the Bank's cash flows will extend
624833.12
-69-
<PAGE>
until stabilization as it is the Bank's intent to sell investments in real
estate as quickly as possible, assuming a stabilized sales price can be
achieved. Assumptions in the DCF model are made to most accurately reflect the
subject asset's strategic plan.
The Bank's real estate loan appraisal policy generally requires that all
appraisals conform to the Uniform Standards of Professional Appraisal Practice
adopted by the Appraisal Standards Board of the Appraisal Foundation and
prepared by an appraiser who is either certified or licensed by the state in
which the property is located. Appraisals may be performed by an outside fee
appraiser or by a staff appraiser, provided that, among other things, such
appraiser is independent of the lending, investment and collection functions of
the Bank.
The Bank generally reviews the value of its investments in real estate on at
least a quarterly basis. In the event that such reviews indicate a decline in
the value of such investments, write-downs are recorded as appropriate.
The following table summarizes the gross and net carrying values of the Bank's
non-performing assets at June 30, 1997.
<TABLE>
<CAPTION>
Write-downs/ Net Book Value
Gross Specific Net as a Percentage of
Balance Reserves (1) Value Gross Balance
------- ------------ ------ -------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Non-performing loans:
Single-family residential $ 3,924 $ 911 $ 3,013 76.8%
Multi-family residential 16,790 6,485 10,305 61.4
Commercial real estate 11,558 7,198 4,360 37.7
Commercial business 12,806 3,528 9,278 72.5
Consumer 2,870 2,255 615 214
---------- --------- ---------- ----------
$ 47,948 $ 20,377 $ 27,571 57.5%
========== ========= ========== ==========
Other real estate owned:
Single-family residential (2) 1,145 549 596 52.1%
Multi-family residential 5,866 1,300 4,566 77.8
Commercial real estate 178 110 68 38.2
Construction 1,897 - 1,897 100.0
---------- --------- ----------- ---------
Total 9,086 1,959 7,127 78.4%
---------- --------- ----------- ---------
Real estate held for investment:
Commercial real estate 30,802 11,300 19,502 63.3%
Construction 72,681 1,960 70,721 97.3
---------- --------- ----------- ---------
Total 103,483 13,260 90,223 87.2
---------- --------- ----------- ---------
Total investments in real estate $ 112,569 $ 15,219 $ 97,350 86.5%
========== ========= =========== =========
Total non-performing assets $ 160,517 $ 35,596 $ 124,921 77.8%
========== ========= =========== =========
</TABLE>
(1) Specific reserves relate to non-performing loans. Such reserves are
charged to operations and maintained as a component of the Bank's allowance
for credit losses. Although a specific reserve for a loan does not decrease
the net book value of the loan unless and until the amount of the loan
which is the subject of the reserve is charged-off, the presentation with
respect to non-performing loans illustrates the effects of the Bank's
establishment of specific reserves with respect to such loans. All
write-downs and specific reserves are cumulative since origination of the
loan.
(2) Primarily consists of completed single-family residential developments and
lots for the development of single-family residences.
624833.12
-70-
<PAGE>
Strategy. Following the Branch Sale, RB Management assumed the duties of the
Bank's Work-Out Group which monitors the Bank's problem assets through the
Targeted Asset System and develops individual business plans, including cash
flow analysis, for each problem asset after inspections, analysis of economic
factors and meetings with the borrower and counsel. These plans are then
documented for senior management and approval of the Board of Directors of the
Bank. See "Management."
Loans which become delinquent are analyzed to determine the nature and extent
of the problem and whether a restructuring of the loan or some other method of
resolution is appropriate under the circumstances. Every effort is made by the
Bank to work with borrowers who are cooperative with the Bank to effect a
restructuring that is economically feasible for both parties. When the Bank
concludes that a restructuring is not economically feasible or where the
borrower does not demonstrate a willingness to cooperate, the Bank pursues
available legal remedies. In most cases, the Bank's strategy in recent years
has been to aggressively pursue the foreclosure process when a restructuring or
other resolution of a non-performing loan does not appear to be feasible or
otherwise in the best interests of the Bank. This strategy has been pursued so
that the Bank can acquire control of the security property as soon as possible,
and thereby implement a strategy designed by the Bank for disposition and
ultimate resolution.
Loans that go through the foreclosure process, particularly in New York, are
subject to extensive delays before the Bank can gain title to the property.
Non-judicial foreclosure generally is unavailable in New York, and the
procedures mandated by New York law can result in time-consuming litigation in
order to foreclose a mortgage loan. Moreover, the federal and state courts in
New York are overburdened with litigation and, as a result, decisions are often
delayed. Further complications occur when bankruptcy proceedings are involved.
For all these reasons, it can take an extended period of time, often two to six
years, for a lender to obtain title to property that secures a loan which is in
default.
Although the foreclosure process can be long and complicated, the Bank
aggressively pursues foreclosures or negotiates with borrowers to acquire
properties which secure problem loans by deed-in-lieu of foreclosure. Primarily
as a result of the Bank's efforts in this regard, the composition of the Bank's
non-performing assets in recent years changed from primarily non-performing
loans and in-substance foreclosures to primarily investments in real estate. At
June 30, 1997, investments in real estate amounted to 67.0% ($97.4 million) of
the Bank's non-performing assets, as compared to 51.6% ($310.8 million) of the
Bank's non-performing assets at December 31, 1992.
The Bank's general approach once it has acquired an investment in real estate
has been to seek to minimize further losses to the Bank through active
management of the properties while they are held by the Bank and by developing
disposition strategies tailored to the individual properties and whose ultimate
objective is to sell each property at, or above, its net book value. The Bank
generally pursues a specific disposition strategy for each investment in real
estate because it believes that the depressed levels of the real estate markets
in which the Bank has engaged in lending activities will improve as national
and regional economies recover and that it has the requisite real estate
expertise to individually address and resolve each problem asset. Although the
Bank has evaluated bulk sales of non-performing assets from time to time, it
has not elected to pursue this strategy to date because it believes that the
discounts which are sought by potential purchasers are excessive, that
individual disposition strategies have the most potential for maximum recovery
and return to the Bank and that the Bank did not have sufficient equity capital
prior to and following the Offering to support such a strategy. There can be no
assurance, however, that the Bank will be successful in its disposition
strategies.
The Bank's approach with respect to a particular investment in real estate
generally falls into one of the following categories: (i) attempt to sell the
investment as soon as practicable, (ii) actively manage the property until the
cash flow and other relevant factors have been stabilized or (iii) develop the
property to facilitate sale. Each of these strategies generally involves some
investment by the Bank to improve the property in order to make it more
saleable, which can range from minor fix-up costs to substantial costs to
develop the property. Each work-out strategy is reviewed and approved by the
Bank's Board of Directors.
In most cases, the Bank's strategy consists of an attempt to sell the property
as soon as practicable. The Bank generally works closely with a real estate
brokerage firm in this regard, and frequently will specifically target known
investors which it believes may be interested in a particular property which is
owned by the Bank. In addition, in a few cases during the year
624833.12
-71-
<PAGE>
ended December 31, 1993, the Bank used the public auction process to offer for
sale certain investments in real estate. Such auctions can provide broader
exposure to potential purchasers than may be able to be obtained through
listings by a real estate brokerage firm in the area in which the property is
located. Public auctions involve the payment of fees to the auctioneer, which
can vary based on, among other things, whether the property is sold and on what
terms.
Although the Bank generally seeks to dispose of its investments in real estate
as soon as practicable, in many cases it seeks to stabilize the cash flow from
the property by investing in necessary improvements and seeking to increase the
occupancy of the property. This approach increases the amount of time that the
Bank holds the property, but may enhance the value of the property and be the
best means of disposing of the investment without further loss. In certain
cases, the Bank will have made the investment and taken the actions necessary
to stabilize the cash flow from the property, but the real estate markets in
the area in which the property is located will not have stabilized or other
factors will be present which prevent the Bank from selling the property at a
price which is reflective of its estimated value. In some cases, the cash flow
from the property has been stabilized such that it is providing a yield above
the Bank's cost of funds, thus effectively making it an earning asset. Although
such assets continue to be classified by the Bank as investments in real estate
and, thus, non-performing assets, the yield provided by the properties
increases the Bank's flexibility to maximize their value in connection with a
sale.
In a number of cases, the Bank's strategy to dispose of an investment in real
estate has consisted of development of the property. Although this approach may
involve the best prospects for maximizing the return to the Bank, it also may
involve more risk and, as a result, the Bank generally does not pursue this
alternative unless other alternatives are clearly not preferable under the
circumstances. Each development by the Bank of an investment in real estate to
date has been submitted and approved in advance by the FDIC and the Banking
Department pursuant to the Order. In most cases in which this alternative is
pursued, development previously has been initiated by the defaulted borrower
prior to the Bank's acquisition of the property upon foreclosure or by
deed-in-lieu thereof. On occasion, however, the Bank has commenced development
of an investment in real estate as a disposition strategy.
One of the development projects which has been undertaken in order to dispose
of an investment in real estate consists of a 395-unit condominium development
located in Wayne, New Jersey, which was classified as other real estate owned
and had a carrying value of $7.6 million at June 30, 1997. This project, which
started construction in late 1992, is being developed by a subsidiary of the
Bank in phases. Phase I, consisting of 54 units, and phase IIA, consisting of
96 units, have been successfully completed and sold out (less six units held as
models). All the project amenities, such as the pool, clubhouse, tennis court
and exercise facility, also were completed as part of Phase I. Of the 78 units
available and nearing completion in Phase IIB, 74 have closed title and 4 were
under contracts of sale at June 30, 1997, awaiting closing in the fall of 1997.
Of the 119 units available in Phase IIC which commenced construction in 1995,
70 units were under contracts of sale at June 30, 1997. See Asset Sale
Transactions and Note 11 to the Consolidated Financial Statements.
The following table sets forth information about the investments in real estate
which the Bank is in the process of developing at June 30, 1997.
<TABLE>
<CAPTION>
Net Carrying Value
Type of Property (Dollars in Thousands) Location Status of Development
- ---------------- ---------------------- ---------- ---------------------
Currently in Development:
<S> <C> <C> <C>
Apartment complex $ 55,989 Philadelphia, PA Construction substantially
completed; occupancy
approximately 88% of completed
units
</TABLE>
624833.12
-72-
<PAGE>
Non-Performing Assets - Activity. The following tables set forth the activity
in the Bank's non-performing assets during the periods indicated.
<TABLE>
<CAPTION>
Years Ended June 30,
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Beginning balance:
Non-performing loans
("NPLs") $ 36,816 $ 57,550 $ 110,337
Investments in real estate ("REO") 146,440 231,302 233,286
---------- ---------- ----------
183,256 288,852 343,623
---------- ---------- ----------
NPL additions 16,032 27,662 28,080
Senior debt on REO
purchased - - 39,613
REO direct additions 11,920 30,438 27,485
---------- ---------- ----------
27,952 58,100 95,178
---------- ---------- ----------
NPL transfers to REO (34) (7,852) (48,477)
REO transfers from NPL 34 7,852 48,477
---------- ---------- ----------
- - -
---------- ---------- ----------
NPL write-offs - 7,825 15,401
REO write-offs 18,726 10,511 13,760
---------- ---------- ----------
18,726 18,336 29,161
---------- ---------- ----------
NPL moved to performing - 14,738 5,597
NPL satisfactions/sales 4,867 17,981 11,392
REO moved to performing - - 69,960
REO satisfactions/sales 42,317 112,641 33,839
---------- ---------- ----------
47,184 145,360 120,788
---------- ---------- ----------
NPL ending balance 47,948 36,816 57,550
REO ending balance 97,350 146,440 231,302
---------- ---------- ----------
$ 145,298 $ 183,256 $ 288,852
========== ========== ==========
</TABLE>
A net of $37.9 million of non-performing assets was resolved during the year
ended June 30, 1997, primarily as a result of the sale/satisfaction of $47.2
million of non-performing assets and the write-off of $18.7 million of
non-performing loans and investments in real estate, which was partially offset
by $27.9 million of additions. A net of $105.6 million of non-performing assets
was resolved during the year ended June 30, 1996, primarily as a result of the
sale/satisfaction of $130.6 million of non-performing assets, the write-off of
$18.3 million of non-performing loans and investments in real estate and the
return of $14.7 million of non-performing assets to performing status,
substantially through financing the sales of REO properties, which was
partially offset by $58.1 million of additions.
Non-performing loans increased by $11.1 million or 23.2% during the year ended
June 30, 1997 following a decrease of $20.7 million or 36.0% during the fiscal
year ended June 30, 1996. The increase in non-performing loans in fiscal 1997
reflects continued deterioration in certain loans placed in non-performing
status, net of sales and satisfactions of certain loans in whole or in part.
The decrease in non-performing loans in 1996 was the result of the Bank's
continuing efforts to liquidate its assets as part of the Bank's plan of
disposition.
624833.12
-73-
<PAGE>
Investments in real estate decreased by $49.1 million or 33.5% during the
fiscal year ended June 30, 1997 as the result of the sale/satisfaction of $42.3
million of investments in real estate at a net loss of $1.8 million and the
write-down of $19.7 million in investments in real estate. Investments in real
estate decreased by $84.9 million or 36.7% during the fiscal year ended June
30, 1996 as the result of the sale/satisfaction of $89.2 million of investments
in real estate at a net loss of $8.6 million, the write-down of $1.9 million in
investments in real estate and the restructuring or granting of loans to
facilitate sales in the amount of $23.4 million which were partially offset by
the transfer of $7.9 million of non-performing loans to investments in real
estate and $30.4 million of additions to investments in real estate.
Loans to Finance the Sale of Real Estate. The Bank had previously financed the
sale of investments in real estate under appropriate circumstances. Such
financing was provided by the Bank on what management of the Bank considered to
be market terms, which generally were more flexible than the Bank's standard
underwriting guidelines for multi-family residential and commercial real estate
loans. All loans to finance the sale of investments in real estate were
approved in advance by the Board of Directors of the Bank and involve an amount
of borrower equity and other terms which result in the transaction constituting
a sale of the property under generally accepted accounting principles. At June
30, 1997 and 1996, the Bank did not retain any loans which had been made to
finance the sale of investments in real estate, except those reflected in Loans
sold, with recourse, net. (See Asset Sales and Notes 11 and 17 of the
Consolidated Financial Statements.) At June 30, 1997, all loans made by the
Bank to finance the sale of investments in real estate were performing in
accordance with their terms.
Restructured Loans. The Bank's asset resolution efforts previously included the
restructuring of loans primarily as a result of the financial condition of the
property which secures the loan. The Bank encourages restructure agreements
only when it is in the best interest of the Bank and it is practical for the
borrower.
The Work-Out Group, and after the Branch Sale RB Management, is responsible for
promptly responding to problem loans to determine if a restructuring is viable
or to commence foreclosure proceedings. Many problem loans are such due to
market conditions (particularly vacancies or market-driven rent reductions,
either of which may result in an impairment of the economic viability of the
underlying property). Therefore, non-performing loans may be restructured by an
agreement which recognizes that the borrower's inability to meet contractual
terms may be remedied through a modification which both protects the financial
interests of the Bank and is economically feasible for the borrower.
At June 30, 1997, the Bank had restructured loans which aggregated $24.5
million and were performing in accordance with their restructured terms. At the
same date, the Bank's restructured loans had been outstanding for periods which
range from 17 months to approximately five years. The Bank's restructured loans
generally have performed in accordance with their restructured terms. At June
30, 1997, the Bank had 3 restructured loans with an aggregate balance of $16.9
million which were included in the Bank's non-performing loans. Payments on
these loans are being made in accordance with the restructured terms.
As a result of restructurings which reduced the initial interest rate on
certain loans, the Bank's restructured loans had a weighted average rate of
7.11% at June 30, 1997, as compared to an original weighted average rate of
10.13%. The Bank's restructured loans generally do not call for the payment of
foregone interest at a later date, although many of such loans provide for
increases in the interest rate over the life of the loan.
The Bank's restructured loans may have been renegotiated to lower the interest
rate, to defer the payment of principal and/or interest or to effect other
concessions. Because restructured loans may include concessionary terms related
to interest rates, payment terms, loan-to-value ratios and debt service
coverage, however, such loans have a higher degree of credit risk than the
remainder of the performing loans in the Bank's loan portfolio.
624833.12
-74-
<PAGE>
The following table sets forth information regarding the Bank's restructured
loans at the dates indicated. In each case amounts exclude non-performing
restructured loans.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Multi-family residential $ 23,594 $ 27,167 $ 32,305
Commercial real estate 860 2,675 106,165
Commercial business - - 17,084
---------- -------------- -----------
Total $ 24,454 $ 29,842 $ 155,554
========== ============== ==========
Total restructured loans as a percentage
of total loans 25.53% 34.65% 15.51%
Total restructured loans as a percentage
of total assets 11.55 10.45 10.63
</TABLE>
Classified Assets. In connection with examinations of insured banks, examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets:
"substandard," "doubtful" and "loss." Substandard assets have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset classified loss
is considered uncollectible and of such little value that continuance as an
asset of the institution is not warranted. Another category designated "special
mention" is accorded assets which do not currently expose an insured
institution to a sufficient degree of risk to warrant classification as
substandard, doubtful or loss but do possess credit deficiencies or potential
weaknesses deserving management's close attention. A total of 50% and 100% of
an asset or portion thereof classified as doubtful and loss, respectively, is
deducted by examiners from an institution's stockholders' equity in analyzing
the institution's regulatory capital. See "Allowance for Credit Losses."
Asset classifications are inherently subjective and based on information known
at the time of the classification. There can be no assurance as to what
classifications may be imposed by regulatory examiners in the future or as to
what internal classifications may be made by the Bank as a result of future
internal and regulatory examinations of the Bank's loan portfolio. See
"Allowance for Credit Losses."
Allowance for Credit Losses. Although the process of evaluating the adequacy of
the Bank's reserves involves a high degree of management judgment, such
judgment is based, in part, on systematic procedures deemed helpful in
assessing the adequacy of the Bank's reserves. The Bank's reserve analysis is
prepared quarterly in conjunction with the Bank's internal asset classification
system and is used by management in determining if an additional provision is
required to maintain the allowance for credit losses at an appropriate level or
additional write-downs of equity investments and investments in real estate are
needed to reduce the carrying values of such assets in accordance with the
requirements of generally accepted accounting principles.
The Bank's reserve analysis is a computation of reserve requirements based upon
the risks inherent in the various asset portfolios. The various categories of
loans are grouped separately to recognize the various degrees of risk
associated with them. Loan portfolios are further stratified by internal asset
classification categories to assign higher risk weighted reserve percentages or
include targeted reserve definitions. Aggregated computed reserve balances are
compared to recorded reserves to measure the adequacy of reserve levels.
The Bank's provisions for credit losses and write-downs of investments in real
estate have been significant in recent years. Such provisions and write-downs
aggregated $20.8 million, $10.5 million and $19.5 million during the years
ended June 30,
624833.12
-75-
<PAGE>
1996, 1995 and 1994 and contributed significantly to the Bank's recorded net
losses (excluding the effects of the Branch Sale in 1996) during those years.
At June 30, 1997, the Bank's allowance for credit losses amounted to $31.6
million or 33.0% of total loans and 65.87% of non-performing loans, as compared
to $34.1 million or 33.2% of total loans and 92.7% of non-performing loans at
June 30, 1996. The decrease in the Bank's allowance for credit losses in 1997
reflects the continued decrease in the size of the Bank's loan portfolio and
management's internal analysis of the composition of its non-performing assets.
Of the $31.6 million allowance for credit losses at June 30, 1997, $20.4
million or 64.5% were specific reserves relating to particular loans and $11.2
million or 35.5% were general reserves.
Management of the Bank, based on facts available to it, believes that the
Bank's allowance for credit losses at June 30, 1997 was adequate and that the
net carrying value of the Bank's investments in real estate equaled the lower
of cost or fair value minus estimated costs to sell. It is anticipated,
however, that the adverse effects of the high level of the Bank's
non-performing assets, consisting of provisions for credit losses, net loan
charge-offs, loss of interest income on non-performing loans, write-downs of
investments in real estate and increased operating expenses as a result of the
allocation of resources to the collection and work-out of non-performing
assets, will continue to adversely affect the Bank's operations. Because the
nature and extent of these adverse effects will be dependent on many factors
outside the control of the Bank, including conditions in the relevant real
estate markets and prevailing interest rates, these adverse effects are not
presently determinable by the Bank.
In establishing an appropriate level of loan loss reserves, the Bank does not
attempt to predict whether or how much the real estate market and general
economy of its market area may decline in the future. However, the Bank
continues to closely monitor the status of its loan portfolio in relation to
the economic and market conditions in the relevant area for any further signs
of weakening. If declining conditions in the relevant area continue,
particularly in the New York City metropolitan area, causing existing
non-performing loan situations to worsen and additional loans to be classified
as non-performing, significant additional provisions for credit losses may be
required.
Moreover, the Bank's federal and state regulators, the FDIC and NYSBD, as an
integral part of their examination process, have historically periodically
reviewed the allowance for credit losses and the carrying values of its
investments in real estate and other assets of New York chartered savings
banks, such as the Bank. These regulators, including the FDIC so long as the
Bank's Deposits are insured by the FDIC, may require the Bank to establish
additional provisions for credit losses and write-offs or write-downs of
investments in real estate and other assets based on the regulators' subjective
judgments concerning information available to them during these examinations.
Additional provisions, write-offs and write-downs, if required by the
regulators, result in increases to the Bank's allowance for credit losses and
reductions in the carrying values of the Bank's assets, and thereby reduce or
increase the level of the Bank's net income or losses, respectively, and reduce
the Bank's capital accounts.
624833.12
-76-
<PAGE>
The following table sets forth information concerning the activity in the
Bank's allowance for credit losses during the periods indicated.
<TABLE>
<CAPTION>
Six Months
Fiscal Year Ended June 30, Ended
1997 1996 1995 June 30, 1994
(Dollars In
Thousands)
<S> <C> <C> <C> <C>
Average loans outstanding $99,403 $1,018,427 $1,007,333 $1,080,317
======== ========== ========== ==========
Allowance at the beginning of the period $34,142 $ 33,985 $ 41,076 $ 55,258
Charge-offs:
Single-family residential loans (3,523) (1,089) (1,302) (39)
Multi-family residential loans (1,287) (2,665) (850) (13,336)
Commercial real estate loans -- (6,795) (11,160) (1,518)
Commercial business loans (23) -- (1,380) (1,500)
Consumer loans and other -- (21) (9) (36)
Total loans charged off -- -- -- --
-------- ---------- ---------- ----------
(4,833) (10,570) (14,701) (16,429)
Single-family residential loans 98 40 10 --
Multi-family residential loans 704 -- 1,424 --
Commercial real estate loans 801 -- 1,135 347
Consumer loans and other 22 1 -- --
-------- ------------ ----------- ------------
Total loans recovered 1,261 41 2,569 347
-------- ------------ ----------- ------------
Net charge-offs (3,572) (10,529) (12,132) (16,082)
-------- ------------ ----------- ------------
Additions charged to operating expenses 1,000 5,250 5,041 1,900
Additions charged to non-operating expenses -- 5,436 -- --
-------- ----------- ----------- ------------
Allowance at end of period (1) $ 31,570 $ 34,142 $ 33,985 $ 41,076
======== =========== =========== ============
Ratio of net charge-offs to average
loans outstanding 3.59% 1.03% 1.20% 4.05%(2)
Ratio of allowance to total loans at
end of period (1) 32.96 33.15 3.36 4.06
Ratio of allowance to non-performing
loans at end of period (1) 65.84 92.74 59.05 37.23
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31,
1993 1992
<S> <C> <C>
Average loans outstanding $1,311,904 $1,468,293
========== ==========
Allowance at the beginning of the period $ 92,589 $ 107,700
Charge-offs:
Single-family residential loans (2,046) (8,657)
Multi-family residential loans (11,060) (11,721)
Commercial real estate loans (23,249) (15,304)
Commercial business loans (442) (11,885)
Consumer loans and other (13,917) --
Total loans charged off -- (99)
---------- ----------
(50,714) (47,666)
Single-family residential loans -- --
Multi-family residential loans -- 3,890
Commercial real estate loans 555 8,000
Consumer loans and other -- 363
------------ ------------
Total loans recovered 555 12,253
------------ ------------
Net charge-offs (50,159) (35,413)
------------- ------------
Additions charged to operating expenses 12,828 20,302
Additions charged to non-operating expenses -- --
------------ -----------
Allowance at end of period (1) $ 55,258 $ 92,589
============ ============
Ratio of net charge-offs to average
loans outstanding 3.82% 2.41%
Ratio of allowance to total loans at
end of period (1) 5.36 7.69
Ratio of allowance to non-performing
loans at end of period (1) 34.25 82.41
</TABLE>
624833.12
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<PAGE>
(1) As noted above, the decrease in the Bank's allowance for credit losses
in recent periods reflects the transfer of a substantial amount of
non-performing loans to investments in real estate and the Bank's loan
restructuring activities, the continued decrease in the size of the
Bank's loan portfolio and management's internal analysis of the
composition of its non-performing assets.
(2) Percentages for the six month period is computed on an annualized basis.
624833.12
-78-
<PAGE>
The following table sets forth information concerning the allocation of the
Bank's allowance for credit losses by loan categories at the dates indicated.
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 19
------------- ------------- -----------
Percent Percent Percent
of Total of Total of Total
Loans by Loans by Loans by
Amount Category Amount Category Amount Category
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Single-family residential $ 1,294 4.10% $ 1,410 4.42% $ 986 0.42%
Multi-family residential 8,553 27.09 12,359 39.44 2,969 1.19
Commercial real estate 16,543 52.40 10,822 33.91 21,302 4.59
Construction -- 0.00 -- 0.00 2,746 51.80
Commercial business 4,357 13.80 6,956 14.10 5,982 16.30
Consumer 823 2.61 2,595 8.13 -- 0.00
31,570 34,142 33,985
</TABLE>
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993 December 31, 1992
------------- ----------------- -----------------
Percent Percent Percent
of Total of Total of Total
Loans by Loans by Loans by
Amount Category Amount Category Amount Category
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Single-family residential $ 1,488 0.71% $ 1,066 0.53% $ 2,774 0.70%
Multi-family residential 3,008 1.23 4,846 2.14 15,497 7.91
Commercial real estate 30,248 6.19 37,733 7.53 47,248 9.54
Construction 717 11.65 8,270 20.78 10,886 20.18
Commercial business 5,533 13.76 3,264 7.38 16,095 21.18
Consumer 82 0.53 79 0.50 89 0.51
41,076 55,258 92,589
</TABLE>
624833.12
-79-
<PAGE>
Asset and Liability Management
Asset and liability management is concerned with the timing and magnitude of the
repricing of assets and liabilities. In general, management's goal has been to
match asset and liability balances within maturity categories to limit the
Bank's exposure to earnings variations and variations in the value of assets as
interest rates change over time. The Bank's asset and liability management
strategy was previously formulated by management, and subsequent to the
consummation of the Branch Sale, such function was assumed by RB Management.
The Bank's interest rate risk also is affected by the terms of its
adjustable-rate interest-earning assets, which may not be as responsive to
changes in interest rates as its interest-bearing liabilities due to the
floating rate terms of such debt which adjust their interest rate at specified
intervals. As a result of the foregoing, the weighted average rate paid on the
Bank's interest-bearing liabilities had historically adjusted to changes in
market interest rates more quickly and to a greater degree than changes in the
weighted average yield on the Bank's interest-earning assets.
The following table sets forth the anticipated maturities or repricing of the
Bank's interest-earning assets and interest-bearing liabilities at June 30,
1997. The amounts of assets and liabilities shown which mature or reprice within
a particular period were determined in accordance with the contractual terms of
the assets and liabilities, except (i) adjustable-rate loans, securities, and
Marine debt are included in the period in which they are first scheduled to
adjust and not in the period in which they mature, (ii) fixed-rate loans and
mortgage-backed and related securities reflect estimated prepayments, which vary
depending on the interest rate, contractual maturity and type of the loan and
security, and (iii) NOW and money market checking deposits and passbook savings
deposits, which do not have contractual maturities, reflect estimated levels of
attrition, which are based on recent historical experience of the Bank.
Management believes that these assumptions approximate actual experience and
considers them reasonable; however, the interest rate sensitivity of the Bank's
assets and liabilities in the table could vary substantially if different
assumptions were used or actual experience differs from the historical
experience on which the assumptions are based.
624833.12
-80-
<PAGE>
As a result of the Branch Sale and the fact that the Bank no longer maintains or
accepts retail deposits, the table below is less significant than when the Bank
maintained such retail deposits.
<TABLE>
<CAPTION>
June 30, 1997
Within Seven to More than
six twelve one year to Three years
months months three years and over Total
------ ------ ----------- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning Assets:
Investment securities $ - $ - $ - $ 6, 275 $ 6,275
Loans receivable, net 20,884 3,567 24,451
Loans sold with recourse 6,420 6,420 19,260 32,100 64,200
------ ----- ------ ------ ------
Total interest-earning assets 27,304 6,420 19,260 41,942 94,926
------ ----- ------ ------ ------
Interest-bearing Liabilities:
Borrowed funds
Secured by loans
Sold with recourse 66, 065 - - 66,065
Initial facilities (Marine) 18,206 - - - 18,206
------ ----- ------ ------ ------
Total interest-bearing
liabilities 84,271 - - - 84,271
------ ----- ------ ------ ------
Interest-rate sensitivity gap(1) $ (56,967) $ 6,420 $ 19,260 $ 41,942
========== ========== ========== =========
Cumulative interest-rate sensitivity
gap $ (56,967) $ (50,547) $ (31,287) $ 10,655
========== ========== ========== =========
Cumulative interest-rate sensitivity
gap as a percentage of total
interest-earning assets -26.87% -23.84% -14.76% 5.03%
========== ========== ========== =========
</TABLE>
(1) Interest-rate sensitivity gap is the difference between interest-earning
assets and interest-bearing liabilities within the indicated time frames.
Liquidity
The Bank must maintain sufficient liquidity to meet its funding requirements for
debt repayments related to asset sales, operating expenses, development costs
related to certain real estate projects, and to satisfy the regulatory
requirements described below.
At June 30, 1997, the Bank had $84.3 million in borrowed funds. In connection
with the Branch Sale, the Bank obtained financing with Marine Midland (Initial
Facilities) which amounted to $66.1 million as of June 30, 1997. Borrowed Funds
related to Asset Sale Transactions amounted to $18.2 million at June 30, 1997.
The Bank actively monitors and manages its cash inflows and outflows in an
attempt to maximize payment of its debt obligations to Marine and to invest, to
the extent possible, all cash balances.
The Bank seeks to maintain liquidity within a range of 5% to 10% of total
assets. Liquidity for this purpose is defined as the sum of unpledged cash,
investments due within one year and floating-rate investment grade securities.
At June 30, 1997, the Bank's liquidity ratio, as so defined, amounted to 6.0%
which was within the maintenance range.
624833.12
-81-
<PAGE>
Regulatory Capital
The Banking Department has advised the Bank that the Bank's minimum capital
requirement, set at $115 million in the Banking Department's approval of the
Branch Sale and subsequently amended to $106 million in May 1997, shall remain
at $106 million until the Bank's final dissolution, unless the Banking
Department shall provide prior approval of the Bank's written request to amend
the Bank's minimum capital requirement.
Federally-insured state-chartered banks are required to maintain minimum levels
of regulatory capital. Under current FDIC regulations, insured state-chartered
banks generally must maintain (i) a ratio of Tier 1 leverage capital to total
assets of at least 4.0% to 5.0% (3.0% for the most highly-rated banks) and (ii)
a ratio of Tier 1 capital to risk weighted assets of at least 4.0% and a ratio
of total capital to risk weighted assets of at least 8.0%. Pursuant to the terms
of the 1995 MOU, the Bank was required to achieve a Tier 1 leverage capital
ratio equal to 5.5% as of September 30, 1995 and to maintain such level of
regulatory capital thereafter. Upon completion of the Branch Sale at June 28,
1996, the Bank was in compliance with applicable regulatory capital
requirements. As long as the Bank's deposit accounts are insured by the FDIC, as
a Federally- insured state-chartered bank, the Bank is required to maintain
minimum levels of regulatory capital.
At June 30, 1997, 1996 and 1995 the Bank's capital ratios were as follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
<S> <C> <C> <C> <C>
Tier 1 leverage capital 50.86% 9.33% 6.04%
Tier 1 Capital to risk weighted assets 48.44 49.77 7.94
Total Capital to risk weighted assets 60.59 55.02 9.12
</TABLE>
On October 31, 1996, the Bank requested that the FDIC terminate its insurance of
accounts as a result of having transferred all of its remaining non-retail
deposits and mortgage escrow accounts to other insured institutions or servicing
entities. As a result, the Bank expects that it will no longer be subject to the
capital requirements of the FDIC. On April 14, 1997, the Bank received notice
that the FDIC, as requested by the Bank, intends to terminate the Bank's status
as an insured state nonmember Bank on December 31, 1997.
Recent Accounting Developments
From time to time the Financial Accounting Standards Board ("FASB") adopts
accounting standards which set forth required generally accepted accounting
principles. Set forth below is a description of certain of the accounting
standards recently adopted by the FASB which are relevant to financial
institutions such as the Bank.
SFAS No. 121. In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of." The statement requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of. The SFAS No. 121 definition of long-lived assets includes the
Bank's other real estate owned and real estate held assets. There was no
material effect on the reported operations of the Bank resulting from the
implementation of SFAS No. 121, which was adopted by the Bank during the fiscal
year ended June 30, 1997.
SFAS No. 128. In February 1997, the FASB issued SFAS No. 128, "Earnings per
Share," which is required to be adopted on December 31, 1997. At that time, the
Bank will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options
will be excluded. The implementation of SFAS No. 128 is not expected to have any
effect on the Bank's primary earnings per share for the years ended June 30,
1997, 1996 and 1995.
624833.12
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<PAGE>
Impact of Inflation
The consolidated financial statements and related consolidated data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial positions and operating
results in terms of historical dollars without considering the changes in the
relative purchasing power of dollars over time due to inflation. The primary
impact of inflation on the operations of the Bank is reflected in increased
operating costs and increases in interest rates paid to depositors. Unlike most
commercial enterprises, virtually all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates have a
more significant impact on a financial institution's performance than the
effects of general levels of inflation. Over any given term, interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services.
624833.12
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<PAGE>
ITEM 8
FINANCIAL STATEMENTS
RIVER BANK AMERICA
Index to Consolidated Financial Statements
Page
Report of Independent Auditor 85
Consolidated Statements of Financial Condition
Years ended June 30, 1997 and 1996 86
Consolidated Statements of Operations
Years ended June 30, 1997, 1996, and 1995 87
Consolidated Statements of Changes in Stockholders' Equity
Years ended June 30, 1997, 1996, and 1995 88
Consolidated Statements of Cash Flows
Years ended June 30, 1997, 1996, and 1995 89
Notes to Consolidated Financial Statements 91
624833.12
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<PAGE>
Report of Independent Auditors
Board of Directors
River Bank America
We have audited the consolidated statements of financial condition of River Bank
America (the "Bank") as of June 30, 1997 and 1996 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1997. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion of these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also include
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Bank at June
30, 1997 and 1996 and the consolidated results of its operations and its cash
flows for each of the three years in the period ended June 30, 1997 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Bank has adopted, as of
July 1, 1994, SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," as of July 1, 1995, SFAS No. 114, "Accounting By Creditors
for Impairment of a Loan" and as of July 1, 1996, SFAS No. 121, "Accounting for
the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed
Of."
/s/ Ernst & Young LLP
New York, New York
July 18, 1997
624833.12
-85-
<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1997 and 1996
(Dollars in Thousands)
Assets
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
--------- ---------
<S> <C> <C>
Cash, due from banks and cash equivalents (Note 5) $ 8,940 $ 13,129
Cash, due from banks - restricted (Note 5) 5,096 -
Money market investments (Note 5) - 4,000
Investment securities available for sale, net (Note 6) 6,275 5,685
Mortgage-backed securities available for sale, net (Note 7) - 187
Loans receivable, net:
Secured by real estate (Note 8) 80,093 86,983
Commercial and consumer (Note 9) 15,677 16,022
Allowance for possible credit losses (Note 10) (31,570) (34,142)
------------ ---------
Total loans receivable, net 64,200 68,863
------------ ---------
Loans sold with recourse, net (Note 11) 24,451 29,914
Premises and equipment, net (Note 12) - 146
Other real estate owned, net (Note 13) 7,127 30,386
Real estate held for investment, net (Note 14) 90,222 116,054
Other assets (Note 15) 5,348 17,114
------------ ----------
$ 211,659 $ 285,478
============ ==========
</TABLE>
Liabilities and Stockholders' Equity
<TABLE>
<S> <C> <C>
Due to depositors (Note 16) $ - $ 3,022
Borrowed funds (Note 17) 84,272 115,786
Mortgage escrow deposits - 271
Other liabilities (Note 18) 18,877 27,879
------------ ----------
103,149 146,958
------------ ----------
Stockholders' equity (Note 19):
15% non-cumulative perpetual preferred stock, Series A, par value $1,
liquidation value $25 (1,400,000 shares authorized, issued
and outstanding at June 30, 1997 and 1996) 1,400 1,400
Common stock, par value $1 (30,000,000 shares authorized,
7,100,000 shares issued and outstanding at June 30, 1997 and 1996) 7,100 7,100
Additional paid-in capital 111,170 111,170
Accumulated (deficit)/ retained earnings
(Notes 2 and 18) (10,055) 20,068
Securities valuation account (Notes 5 and 6) (1,105) (1,218)
------------ ----------
Total stockholders' equity 108,510 138,520
------------ ----------
$ 211,659 $ 285,478
============ ==========
See Notes to Consolidated Financial Statements
</TABLE>
624833.12
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<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1997, 1996, and 1995
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
June 30,
---------------------------------------------
1997 1996 1995
--------- ---------- -------
<S> <C> <C> <C>
Interest, fees on loans and dividend income:
Loans receivable $ 4,504 $ 76,614 $ 73,681
Mortgage-backed securities 2 5,342 9,337
Investment securities 574 9,347 1,859
Money market investments 155 2,489 3,428
Other 234 617 573
--------- --------- ----------
5,469 94,409 88,878
--------- --------- ----------
Interest expense:
Deposits (Note 16) - 47,719 42,782
Borrowed funds 7,132 14,026 9,411
Other 228 49 62
--------- --------- ----------
7,360 61,794 52,255
--------- --------- ----------
Net interest income (1,891) 32,615 36,623
Provision for possible credit losses (Note 10) 1,000 5,250 5,041
Net interest income after --------- ---------- ----------
provision for possible credit losses (2,891) 27,365 31,582
--------- ---------- ----------
Real estate operations:
Writedowns of other real estate owned and
real estate held for investment (19,745) (1,889) (14,460)
Net loss on sale of real estate, loans (1,754) - -
Income (loss) from other real estate owned, net 3,131 (2,911) 103
--------- ---------- -----------
(18,368) (4,800) (14,357)
--------- ---------- -----------
Other income:
Gains from sales of equity interests - - -
Gains on sales of offices and branches - 77,560 -
Banking fees and service charges - 2,463 2,320
Net gains (losses) on sales of investment
securities and other assets (1,495) (605) 441
Provision for Marine Sale contingencies (3,300) - -
Other 159 1,533 1,228
--------- ---------- -----------
(4,636) 80,951 3,989
--------- ---------- -----------
Other expenses:
Salaries (Note 22) 927 9,814 11,329
Employee benefits 243 4,349 3,597
Premises and occupancy costs - 8,108 7,203
Deposit insurance - 2,533 3,704
Electronic data processing - 3,700 3,326
Legal and professional fees 1,892 4,521 4,581
Foreclosure costs - 225 1,105
Other operating (Note 23) 4,466 3,504 8,630
--------- ---------- -----------
7,528 36,754 43,475
--------- ---------- -----------
Income (loss) before provision for income taxes (33,423) 66,762 (22,261)
Benefit from (provision for) income taxes 3,300 (11,749) (2,113)
Net income (loss) (30,123) 55,013 (24,374)
Dividends declared on Preferred Stock - 5,250 5,250
--------- ---------- -----------
Net income (loss) applicable to Common Shares $ (30,123) $ 49,763 $ (29,624)
= ========= ========== ===========
Net income (loss) per common share (Note 4) $ (4.24) $ 7.01 $ (4.17)
= ========= ========== ===========
See Notes to Consolidated Financial Statements
</TABLE>
624833.12
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<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended June 30, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Series A
Non-
cumulative Total
Perpetual Additional Retained Stockholders'
Preferred Common Paid-in Earnings Securities Equity
Stock Stock Capital ( Deficit) Valuation Account
-------- ------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1994 $ 1,400 $ 7,100 $ 111,170 $ (71) $ (1,752) $ 117,847
Net loss for the year ended
June 30, 1995 - - - (24,374) - (24,374)
Preferred Stock dividends - - - (5,250) - (5,250)
Change in securities valuation
account - - - - 1,911 1,911
--------- -------- -------- -------- -------- -----------
Balances at June 30, 1995 1,400 7,100 111,170 (29,695) 159 90,134
Net income for the year ended
June 30, 1996 - - - 55,013 - 55,013
Preferred Stock dividends - - - (5,250) - (5,250)
Change in securities valuation
account - - - - (1,377) (1,377)
--------- -------- ------- -------- -------- -----------
Balances at June 30, 1996 1,400 7,100 111,170 20,068 (1,218) 138,520
--------- -------- ------- -------- -------- -----------
Net loss for the year ended
June 30, 1997 - - - (30,123) - (30,123)
Preferred Stock dividends - - - - - -
Change in securities valuation
account - - - - 113 113
--------- -------- --------- ---------- --------- -----------
Balances at June 30, 1997 $ 1,400 $ 7,100 $ 111,170 $ (10,055) $ (1,105) $ 108,510
======== ======== ========== ========= ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
624833.12
-88-
<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF CASH
FLOWS Years ended June 30, 1997,
1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended
June 30,
-------------------------------------------------
1997 1996 1995
------- --------- -------
<S> <C> <C> <C>
Operating Activities
Cash Flows Provided by/(Used in) Operating Activities:
Net income (loss) $ (30,123) $ 55,013 $ (24,374)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Provision for possible credit losses 1,000 5,250 5,041
Depreciation and amortization 215 1,159 1,362
Net (increase)/decrease in accrued interest and
dividends receivable (326) 5,939 (1,072)
Net increase/(decrease) in accrued interest payable 964 (1,341) 286
Net change in accrued income taxes (5,019) 18,018 442
Net increase/(decrease) in accrued expenses
and accounts payable (4,947) 4,944 (3,469)
Net (increase)/decrease in prepaid expenses 1,195 398 (525)
Amortization of deferred fees and premiums - (2,717) (1,294)
Loan fees collected net of expenses deferred - (761) (837)
Net (gains)/losses on sales of loans, investments
and investments in real estate 3,249 605 (441)
Gain on sales of branches - (77,560) -
Loss (recovery) on investment in savings bank organizations (353) - 1,078
Write-downs of other real estate owned and
real estate held for investment and real estate assets 19,745 1,889 14,460
Other - (37) 1,373
------- ------ ------
Net cash provided by/(used in) operating activities (14,400) 10,799 (7,970)
------- ------ ------
Investing Activities
Cash Flows Provided by/(Used in) Investing Activities:
Proceeds from sales and maturities of investment
securities - 285,084 60,129
Purchases of investment securities - (280,591) (42,735)
Purchases of mortgage-backed securities - - (71,913)
Proceeds from sales of mortgage-backed securities - 198 60,033
Transfer of securities in Branch Sale - 78,419 -
Principal collections on mortgage-backed securities 187 6,050 22,953
Transfer of loans in Branch Sale - 1,067,472 -
Net repayment/(origination) of loans secured by real
estate 4,252 (82,942) 6,497
Net decrease/(increase) in loans sold with recourse 3,463 (29,914) -
Net repayment/(origination) of commercial and
consumer loans 345 21,188 (2,239)
Proceeds from sale of premises and equipment - 1,300 -
Purchase of premises and equipment - (234) (441)
Sale of fixed assets - 5,613 -
Proceeds from sales of real estate 43,161 97,827 31,797
Advances on real estate (14,270) (30,438) (27,485)
Purchases of underlying mortgages on other real estate
owned and real estate held for investment - - (39,613)
Redemption of Federal Home Loan Bank of New York
stock 8,976 - -
----------- ------------- -----------
Net cash provided by/(used in) investing activities $ 46,114 $ 1,139,032 $ (3,017)
=========== ============= ===========
See Notes to Consolidated Financial Statements
</TABLE>
624833.12
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<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF CASH
FLOWS Years ended June 30, 1997,
1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended
June 30,
----------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Financing Activities
Cash Flows Provided by/(Used in) Financing Activities:
Increase in restricted cash $ (5,096) $ - $ -
Interest credited to time deposits and savings accounts - 47,719 41,403
Dividends paid on preferred stock - (5,250) (3,938)
Net decrease in deposit accounts (3,022) (56,611) (124,072)
Deposits transferred in Branch Sale - (1,159,616) -
Proceeds from borrowed funds 4,459 89,760 52,469
Repayments of borrowed funds (30,179) (177,035) (15,000)
Increase in borrowed funds secured by loans sold
under recourse (5,794) 24,000 -
Net decrease in escrow deposits (271) (4,209) (4,966)
------------- ------------ ------------
Net cash used in financing activities (39,903) (1,241,242) (54,104)
------------- ------------ ------------
Net increase/(decrease) in cash and money market
investments (8,189) (91,411) (65,091)
Beginning cash and money market investments 17,129 108,540 173,631
------------- ------------ ------------
Ending cash and money market investments $ 8,940 $ 17,129 $ 108,540
============= ============ ============
Supplemental Disclosure of Cash Flow Information
Non-cash investing and financing activities:
Net transfer of mortgage loans to other real estate and real
estate held for investment $ - $ 7,852 $ 4,116
Loans charged-off, net of recoveries $ 3,572 $ 10,529 $ 12,132
Loans to facilitate real estate sales $ - $ 23,436 $ 69,960
Loans to facilitate investment sales $ - $ - $ 700
Changes in securities valuation account $ 113 $ (1,377) $ 1,911
Loans received in settlement of litigation $ - $ - $ 5,600
Cash paid for:
Interest $ 7,682 $ 61,429 $ 51,969
Federal, state and local taxes $ 1,952 $ 3,675 $ 1,671
</TABLE>
See Notes to Consolidated Financial Statements
624833.12
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
1. Organization, summary of significant accounting policies and accounting
change
Effective October 1, 1988, East River Savings Bank formally changed its
corporate name to River Bank America. On June 28, 1996, River Bank America sold
its remaining eleven branches to Marine Midland Bank, inclusive of the name East
River Savings Bank. (See Note 2). All retail banking activities have ceased.
River Bank America (the Bank), a New York State chartered savings bank,
converted to a stock-form savings bank through a plan of conversion in 1985.
Basis of presentation: The consolidated financial statements include the
accounts of River Bank America and its wholly-owned subsidiaries. Intercompany
balances and transactions have been eliminated in consolidation. Due to the
anticipated short-term nature of such investments, investments in unconsolidated
real estate partnerships are generally carried at cost, which results do not
differ materially from generally accepted accounting principles, subject to
periodic assessment of net realizable value. Gains on sales or dispositions of
such investments are recognized dependent upon the terms of the transaction.
Losses on sales or dispositions and any adjustments related to redetermination
of net realizable value are charged to operations of the current period.
For the purpose of the statements of cash flows, cash equivalents are defined as
those amounts included in cash and due from banks and money market investments.
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the current year's presentation.
Money market investments: Money market investments are carried at cost, which
approximates market value.
Investment securities and Mortgage-backed securities: In May 1993, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." As permitted under SFAS No. 115, the Bank elected to adopt
the provisions of the new standard at December 31, 1993. In accordance with the
statement, prior period financial statements were not restated. At June 30,
1997, the balance of stockholders' equity included a $1,105 unrealized loss on
securities classified as available for sale.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Available for sale securities are stated at estimated fair value, with
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. The cost of debt securities classified as available for
sale is adjusted for amortization of premiums and accretion of discounts to
maturity, or in the case of mortgage-backed securities, over the estimated life
of the security using a method approximating the level yield method. Such
amortization is included in interest income from these investments. Interest and
dividends are included in interest income from the respective investments.
Realized gains and losses, and declines in value judged to be
other-than-temporary, are included in net securities gains and losses. The cost
of securities sold is based on the specific identification method.
624833.12
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Loans receivable, interest, and loan origination fees and costs: Loans
receivable are stated at principal balances, net of deferred fees and costs.
Interest on loans is accrued based on principal amounts outstanding. Loans are
placed on non-accrual status when they become 90 days past due or at any time
collection of principal or interest is doubtful unless, in the opinion of
management, collection appears likely. Accrued but unpaid interest on such loans
is reversed and interest income is subsequently recognized only to the extent
that payments are received and when no doubt exists as to the collectibility of
the remaining book balance of the asset. Interest is subsequently accrued when
such loans return to full current status and have had a period of performance in
accordance with a loan's terms.
Loan origination fees and certain loan origination direct costs are deferred,
and the net fee or cost is recognized as an adjustment to interest income over
the approximate lives of the related loans, adjusted for estimated prepayments
as appropriate to provide a level interest yield.
Allowance for possible credit losses: The allowance for possible credit losses
is provided by charges to operations. Credit losses, net of recoveries, are
charged directly to the allowance for possible credit losses. Additions to the
allowance are based on management's periodic review and evaluation of the Bank's
assets, the potential for loss in light of the current composition of the Bank's
assets, and economic conditions.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the consolidated statements of financial
condition and operations for the period. Material estimates that are
particularly susceptible to significant change in the near-term relate to the
determination of the allowance for possible credit losses and the valuation of
other real estate owned and real estate held for investment. A substantial
portion of the Bank's loans are collateralized by real estate and, accordingly,
the performance of such loans may be affected by market conditions for real
estate. As of June 30, 1997, most of the Bank's OREO is located in New York. The
Bank has 42% of its total assets in five real estate properties and loans.
Accordingly, the ultimate collectibility of these assets collateralized by real
estate is particularly susceptible to changes in local market conditions.
Management believes that the allowance for possible credit losses is adequate
and that other real estate owned and real estate held for investment is properly
recorded at fair value minus estimated selling costs. While management uses
available information to recognize losses, future additions to the allowance or
writedowns of other real estate owned or real estate held for investment may be
necessary based on changes in economic conditions, as well as changes in
management strategies. In addition, the Federal Deposit Insurance Corporation
("FDIC") and the New York State Banking Department ("NYSBD"), as an integral
part of their examination processes, periodically review the adequacy of the
allowance for possible credit losses and the carrying amount of other real
estate owned and real estate held for investment. Such agencies may require the
Bank to recognize additions to the allowance or additional writedowns based on
their judgment or information available to them at the time of their
examinations.
Real estate: The Bank accounts for real estate foreclosed at the lower of fair
value, minus estimated costs to sell, or cost. The Bank has set up valuation
allowances that adjust the carrying value of foreclosed assets to the lower of
cost or fair value minus estimated costs to sell. Increases and decreases to the
valuation account are recognized in the statement of operations. Certain
foreclosed assets are accounted for net of nonrecourse senior debt. The results
are not materially different than if Statement of Position No. 92-3, "Accounting
for Foreclosed Assets," had been followed. The adoption of SFAS-121, which was
implemented during fiscal 1997, resulted in no material changes to the reported
operations of the Bank.
624833.12
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Premises and equipment: Premises and equipment are carried at cost, less
accumulated depreciation and amortization. Buildings and capital improvements on
buildings are depreciated and amortized over the estimated useful lives of the
buildings. Leasehold improvements are generally amortized over the terms of the
related leases or the estimated life of the improvement, whichever is shorter.
Furniture, fixtures and equipment are depreciated over their estimated useful
lives. Depreciation and amortization are computed using the straight-line
method. Maintenance, repairs and minor improvements are charged to operations as
incurred while major improvements are capitalized.
Interest on due to depositors' accounts: Interest accruals on NOW, savings and
transaction accounts, and time deposit accounts are recorded monthly and
credited to the respective accounts in accordance with the terms of the account.
During 1995, all remaining brokered certificates of deposit matured and were
repaid. The Bank will not accept any new brokered certificates of deposit.
Retirement plan: The Bank has a contributory 401(k) plan and a non-contributory
pension plan (the "Plan") covering substantially all of its employees. During
1992, the Bank adopted an amendment to the Plan which ceased the accrual of
benefits under the Plan ("Plan suspension") effective April 30, 1992. The Plan
was further amended to exclude employees hired on or after April 30, 1992 from
participating in the Plan.
Income taxes: For federal income tax purposes, the Bank files a consolidated tax
return with its subsidiaries on a calendar year basis. The Bank files combined
New York State and New York City income tax returns with various subsidiaries.
In addition, certain subsidiaries file on a separate basis in New York and the
Bank and certain subsidiaries file income and franchise tax returns in various
other states.
In February 1992, the Financial Accounting Standards Board issued SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, the liability method is used
to account for income taxes. Accordingly, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. To the extent that current available
evidence about the future raises doubt about the realization of deferred tax
assets, a valuation allowance must be established. Deferred tax assets and
liabilities are measured using enacted tax rates which are expected to be
applicable to taxable income in the years in which those temporary differences
are expected to be recovered or settled.
Effective January 1, 1993, the Bank adopted SFAS No. 109. As permitted by SFAS
No. 109, prior financial statements were not restated to reflect the change in
accounting method. The cumulative effect of the change in the method of
accounting for income taxes had no impact on the 1993 consolidated statement of
operations, and therefore, there was no cumulative effect adjustment.
Prior to the adoption of SFAS No. 109, income tax expense was determined using
the deferred method. Deferred tax expense was based on items of income and
expense that were reported in different years in the financial statements and
tax returns and were measured at the tax rate in effect in the year the
differences originated.
Recent Accounting Pronouncements: In March 1995, the FASB issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be Disposed Of." The
statement requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The SFAS No. 121 definition of
long-lived assets includes the Bank's other real estate owned
624833.12
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
and real estate held assets. The Bank's adoption of SFAS No. 121 on July 1, 1996
did not have a material effect on its consolidated financial statements.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
addresses the accounting and reporting standards for sales, securitizations, and
servicing of financial assets and extinguishment of liabilities. The Statement
is effective for transactions occurring after December 31, 1996. The Statement
will change the accounting criteria to determine sale treatment on sales of
assets with recourse. SFAS No. 127, defers the effective date of certain
provisions of SFAS No. 125 for transfers of financial assets occurring after
December 31, 1997. The Statements are for prospective transactions, and do not
have a material effect on the consolidated financial statements as of June 30,
1997.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which is
required to be adopted on December 31, 1997. At that time, the Bank will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded. The
implementation of SFAS No. 128 is not expected to have any effect on the Bank's
primary earnings per share for the years ended June 30, 1997, 1996 and 1995.
2. Purchase of Assets and Liability Assumption Agreement
On June 28, 1996, River Bank consummated the Purchase of Assets and Liability
Assumption Agreement ("Branch Agreement") by and between the Bank and Marine
Midland Bank ("Marine"). Marine purchased all eleven branches of East River
Savings Bank ("Branch Sale"), assumed $1.159 billion in liabilities, $1.067
billion in assets and the Bank recorded a gross deposit premium of $93 million
and proceeds from the sale of one office building of $1.3 million. The bank will
no longer accept retail deposits and will notify the Federal Deposit Insurance
Company ("FDIC") that it seeks to terminate its status as a depository
institution. Subsequent to the Branch Sale, the Bank transferred mortgage escrow
deposits (which are FDIC insured) to another financial institution. Upon the
transfer of such escrow deposits and the issuance of an order by the FDIC
terminating the Bank's status as a depository institution, the Bank will no
longer be subject to the banking regulations of the FDIC but will remain a
banking organization chartered and regulated by the New York State Banking
Department ("NYSBD").
The net pre-tax gain on the sale of offices and branches of $77.6 million
reflected the deposit premium of $93.0 million, partially offset by Branch Sale
transaction costs of $5.8 million, professional fees of $3.2 million, employee
benefits and severance costs of $4.6 million, net losses on the sale of assets
of $1.1 million and other net costs of $700,000. During the year, the
indemnification agreements with Marine were amended and a $3.3 million
contingency reserve was recorded.
The Bank retained $285.5 million in assets, including real estate assets
(including joint ventures), mortgage loans and investment securities ("Retained
Assets"). The Bank intends to continue substantially the same management and
disposition strategy for such assets previously employed by the Bank. While the
Bank's disposition strategy has previously resulted in a reduction of real
estate assets and non-performing loans, there can be no assurance that such
strategies will produce sufficient cash after debt service to make distributions
to stockholders.
The closing of the Branch Sale was conditioned upon River Bank's obtaining
financing with terms and in an amount reasonably acceptable to River Bank and
determined to be reasonably adequate to permit consummation of the Branch Sale.
The Bank obtained from Marine facilities ("Initial Facilities") consisting of
eleven independent mortgage loans in an aggregate amount not to exceed $99,060.
At June 30, 1997, the Bank had $66,066 outstanding under the Initial Facilities.
624833.12
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Proceeds of the Initial Facilities were utilized by River Bank to (i) refinance
all or part of the certain indebtedness secured by assets to be transferred to
Marine, including all or a substantial part of the outstanding advances from the
Federal Home Loan Bank ("FHLB") and (ii) provide additional funds for the
development and completion of two individual real estate assets as part of the
Bank's operations subsequent to the Branch Sale.
Subsequent to the closing of the Branch Sale, although the Bank will have
executive officers under NYBL, the Bank no longer maintains any significant
staff of employees to manage the Bank's affairs. Rather, the day to day
management responsibilities of the Bank will be obtained from RB Management
Company, a newly formed management company affiliated with Mr.
Dworman.
It is anticipated that a significant amount of services necessary to manage and
dispose of the Retained Assets will be provided by RB Management Company or
third party subcontractors who will not have any continuing fiduciary
obligations to the Bank or the stockholders. The selection of third party
subcontractors to provide various services to the Bank will be made by RB
Management Company, subject to the ratification by committees of the Board of
Directors but without stockholder approval. The Bank's success in maximizing
returns from the disposition of the Retained Assets will depend on the efforts
of RB Management Company and third party contractors retained to provide
services to the Bank.
3. Regulatory capital requirements
The Banking Department has advised the Bank that the Bank's minimum capital
requirement, set at $115 million in the Banking Department's approval of the
Branch Sale and subsequently amended to $106 million in May 1997, shall remain
at $106 million until the Bank's final dissolution, unless the Banking
Department shall provide prior approval of the Bank's written request to amend
the Bank's minimum capital requirement. So long as the Bank's deposit accounts
are insured by the FDIC, as a Federally-insured state-chartered bank, the Bank
is required to maintain minimum levels of regulatory capital. Under current FDIC
regulations, insured state-chartered banks generally must maintain (i) a ratio
of Tier 1 leverage capital to total assets of at least 4.0% to 5.0% (3.0% for
the most highly-rated banks) and (ii) a ratio of Tier 1 capital to risk weighted
assets of at least 4.0% and a ratio of total capital to risk weighted assets of
at least 8.0%.
On September 20, 1995, the Bank executed the 1995 Memorandum of Understanding
("1995 MOU") with the FDIC and the NYSBD. The 1995 MOU imposed certain
conditions and operating restrictions on the Bank, affecting ,among other
things, its ability to pay dividends in the future.
On October 31, 1996, the Bank requested that the FDIC terminate its insurance of
accounts as a result of having transferred all of its remaining non-retail
deposits and mortgage escrow accounts to other insured institutions or servicing
entities. As a result, the Bank expects that it will no longer be subject to the
capital requirements of the FDIC. On April 14, 1997, the Bank received notice
that the FDIC, as requested by the Bank, intends to terminate the Bank's status
as an insured state nonmember Bank on December 31, 1997.
4. Earnings per share
Earnings per share were based upon 7,100,000 weighted average shares of Common
Stock outstanding during the years ended June 30, 1997, 1996, and 1995,
respectively.
5. Cash due from banks and cash equivalents and money market investments
624833.12
-95-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Included in Cash, due from banks and cash equivalents at June 30, 1997, are
approximately $4.7 million in Funds maintained on deposit by wholly-owned
subsidiaries and required to meet ongoing cash flow requirements of those
subsidiaries. At June 30, 1997, Marine Midland had restricted a total of
approximately $5.1 million in funds, held on deposit at Marine, in accordance
with the terms of the Branch Sale and the Marine Facility agreements. Restricted
funds held by Marine are not available to the Bank for settlements of any of the
Bank's current obligations. Of the $5.1 million cash balance restricted by
Marine at June 30, 1997, $5.0 million relates to reserve amounts specified under
the Branch Sale Agreement which are restricted to a maximum level of $5.0
million. The remaining restricted cash reserves held by Marine are primarily to
meet the currently anticipated and other potential cash requirements of the
properties serving as collateral for the senior loan financed by Marine.
Money market investments at June 30, 1997 and 1996, at cost, which approximates
market value, consist of the following short-term instruments:
June 30, June 30,
1997 1996
Federal funds sold $ - $ -
Short-term time deposits - 4,000
Reverse repurchase agreements - -
-------- --------
$ - $ 4,000
======== ========
Money market investments at June 30, 1996 had a weighted average maturity of 29
days.
6. Investment securities available for sale, net
The amortized cost of investment securities available for sale and their
estimated fair values at June 30, 1997 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Equity securities $ 7,380 $ - $ (1,105) $6,275
========= ===== ======== ======
The amortized cost of investment securities available for sale and their
estimated fair values at June 30, 1996 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Equity securities $ 6,903 $ - $ (1,218) $5,685
========= ===== ========== ======
624833.12
-96-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
7. Mortgage-backed securities available for sale, net
The Bank had no mortgage-backed securities available for sale at June 30, 1997.
During the year ended June 30, 1997, all remaining mortgage-backed securities,
totaling $187,000, were sold at book value.
8. Loans receivable, secured by real estate
Loans secured by real estate at June 30, 1997 and 1996 consist of the following:
June 30, June 30,
1997 1996
--------- ---------
Residential:
One-to-four family $ 3,924 $ 4,557
Multi-family 26,090 31,336
Commercial 50,078 51,090
Construction:
One-to-four family - -
Multi-family - -
Commercial - -
---------- ----------
Less:
Deferred fees, net - -
----------- -----------
$ 80,092 $ 86,983
=========== ==========
At June 30, 1997 and 1996, the recorded investment in loans that are considered
to be impaired under SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan" ("Statement 114") were $19,903 and $23,204, respectively (of which $19,903
and $23,204 were on a non-accrual basis). Included in this amount are $19,903
and $23,204 of impaired loans for which the related allowance for credit losses
is $9,466 and $8,805. The average recorded investment in impaired loans during
the years ended June 30, 1997 and June 30, 1996, were $20,849 and $25,024,
respectively. For the years ended June 30, 1997 and June 30, 1996, the Bank
recognized interest income on those impaired loans of $161 and $0, respectively,
which included $161 and $0, respectively, of interest income recognized using
the cash basis of income recognition.
Loans on which the accrual of interest has been discontinued amounted to $40,044
at June 30, 1995. If interest on non-performing loans classified as loans
receivable had been accrued, such income would have approximated $4,420.
Interest income collected and recognized on such loans amounted to $384 for the
year ended June 30, 1995.
At June 30, 1997, June 30, 1996 and June 30, 1995 the bank had restructured 5
loans, 6 loans and 21 loans, respectively, secured by real estate which
aggregated $24,454, $28,027 and $144,207, respectively. The gross interest
income that would have been recorded if those loans had been current in
accordance with their original terms and had been outstanding throughout the
years ended June 30, 1997, June 30, 1996 and June 30, 1995 is $2,559, $2,829 and
$14,491, respectively. The amount of interest on these loans that was included
in interest income for the year ended June 30, 1997, June 30, 1996 and June 30,
1995 is $1,783, $2,001 and $10,604.
624833.12
-97-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
9. Loans receivable, commercial and consumer
Commercial and consumer loans at June 30, 1997 and 1996 consist of the
following:
June 30, June 30,
1997 1996
---- ----
Commercial loans:
Secured $ 2,520 $ 4,718
Unsecured 10,286 8,266
----------- ----------
12,806 12,984
Less:
Deferred fees, net - -
----------- ----------
12,806 12,984
Consumer loans:
Student education loans 2,504 2,671
Passbook loans - -
Other 367 367
----------- ----------
$ 15,677 $ 16,022
=========== ===========
In connection with the Branch Sale, the Bank sold, with recourse, $12,000 in
SLMA receivables as further described in Note 11.
At June 30, 1997 and June 30, 1996, the recorded investment in loans that are
considered to be impaired under Statement 114 were $22,953 and $8,900,
respectively (of which $22,953 and $8,900 were on a non-accrual basis). Included
in this amount are $22,953 and $8,900 of impaired loans for which the related
allowance for credit losses are $18,112 and $4,658. The average recorded
investment in impaired loans during the years ended June 30, 1997 and June 30,
1996 were $23,036 and $5,556, respectively. For the years ended June 30, 1997
and June 30, 1996, the Bank did not recognize interest income on these impaired
loans.
Loans on which the accrual of interest had been discontinued amounted to $6,150
at June 30, 1995. If interest on non-performing loans had been accrued, such
income would have approximated $536. Interest income collected and recognized on
such loans amount to $36.
At June 30, 1997 and 1996 the Bank had no restructured commercial loans and at
June 30, 1995 it had one loan which aggregated $7,084. The gross interest income
that would have been recorded if this loan had been current in accordance with
its original terms and had been outstanding throughout the year ended June 30,
1995 is $2,472. The amount of interest on this loan that was included in
interest income is $1,280 for the year ended June 30, 1995.
10. Allowance for possible credit losses
The following is an analysis of the allowance for possible credit losses for the
years ended June 30, 1997 and 1996:
624833.12
-98-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
1997 1996
---- ----
Balance at July 1 $ 34,142 $ 33,985
Provision charged to operations 1,000 5,250
Provision not charged to operations - 5,436
Charge-offs, net of recoveries (3,572) (10,529)
----------- -----------
Balance at June 3 $ 31,570 $ 34,142
= =========== ===========
Charge-offs, net of recoveries, relate to losses incurred and recoveries
realized in the sale or liquidation of assets or to transfers of loans to other
real estate owned. The Bank charges-off loans for regulatory purposes when
specific allocable reserves are identified, which results in a net allowance for
possible credit losses for regulatory purposes of $3,546 and $11,337, at June
30, 1997 and 1996, respectively.
11. Loans sold with recourse, net
Loans sold with recourse, net of $4,901 and $2,901 valuation allowances, at June
30, 1997 and 1996, respectively, consist of the following:
June 30, 1997 June 30,1996
------------ ------------
Number of Number of
Properties Amount Properties Amount
----------- ------- ---------- -------
One-to-four family including
single-family developments 3 $24,451 3 $29,914
=== ======= === =======
Asset Sale Transactions
In connection with, and to facilitate the closing of, the Branch Sale, the Bank
consummated $60.4 million of Asset Sale Transactions. The Asset Sale
Transactions, which were arranged by RB Management Company LLC, were structured
to include ongoing recourse to, and participation by, the Bank with respect to
the assets sold, based upon the proceeds realized by the purchasers. The assets
included within each pool of assets sold and the nature of related recourse
provisions are described below.
The Asset Sale Transactions were entered into with five entities, each of which
was independent of the Bank and Alvin Dworman, who owns 39% of the common stock
of the Bank. In connection with the Asset Sale Transactions, entities controlled
by Mr. Dworman loaned $12.8 million to the five entities on a non-recourse
basis.
Assets included within each pool sold were, with the exception of Pool C,
believed by the Bank and the purchasers to be in the final process of
disposition by the Bank. In essence the Asset Sale Transactions accelerated
receipt by the Bank of asset disposition proceeds which the Bank expected to
realize on the included assets within the fiscal year following the Bank's 1996
fiscal year.
624833.12
-99-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
In each of the Asset Sale Transactions, the Bank sold a pool of assets and
received a 20% cash down payment and non-recourse purchase money notes (the
"Purchase Money Notes") which approximated 80% of the sales price. In all cases,
except for Pool C, the Purchase Money Notes had maturity dates, including any
extension options, of less than one year from June 30, 1996. The maturity date
on the Pool C Purchase Money Note is three years. The Bank also received
additional contingent proceeds notes for each of the five pools which provided
the Bank with rights to receive proceeds from subsequent asset sales by
purchasers in excess of the initial sales price after the purchaser had received
a return of 8%, a transaction fee of 25 basis points and certain transaction
expenses. In the event that proceeds of subsequent assets sales exceed specified
amounts for each pool, such amounts are retained by the purchaser.
The Bank received aggregate cash down payments of $12.8 million in connection
with the Asset Sale Transactions. The Purchase Money Notes, aggregating $47.6
million, were included in the assets delivered to Marine Midland in connection
with the Branch Sale.
The Bank made representations and warranties ( the "Recourse Provisions") with
respect to the assets sold which included the present condition of each asset,
the nature of disposition arrangements which had been entered into by the Bank
prior to June 28, 1996 and that each of the assets were free of any liens or
encumbrances. The Recourse Provisions also included representations with respect
to certain of the assets that the Bank had taken all actions to effect specific
proposed dispositions or had made arrangements with third parties to complete
actions required to effect such dispositions.
For accounting purposes the Bank accounted for the Asset Sale Transactions
included in Pools B and C as financings, primarily due to their longer term
nature and the more substantial risks related to ongoing construction for the
assets included in each of the Pools. Pool B and C Asset Sale Transactions have
been included in the Bank's consolidated financial statements as Loans Sold,
With Recourse. Related financing for such assets has been included in the Bank's
consolidated financial statements as Borrowed Funds, secured by Assets Sold with
Recourse. The Bank believes that it has made adequate provision at June 30, 1997
for all recourse amounts expected to result from the sale of the assets included
in Pools B and C.
For accounting purposes the Bank accounted for the Asset Sale Transactions
included in Pools A, D, and E as sale transactions since each of the financial
receivables, asset sale contracts or other proceeds included in these pools
represented reasonably estimable amounts, including related recourse claims, in
a transaction with limited duration. Substantial proceeds from dispositions
conducted within Pools A, D and E were realized during the fiscal year ended
June 30, 1997. The Bank believes that it has made adequate provision at June 30,
1997 for all recourse amounts expected to result from the sale of the assets
included in Pools A, D and E.
Assets included in these transactions, and a description of the assets sold,
were as follows:
Pool A
Pool A originally included $13.8 million in assets, composed of $12.0 million of
receivables related to the collection of certain federally guaranteed, defaulted
student loans and other student loan related claims from the Student Loan
Marketing Agency ("SLMA") (collectively, the "Student Loan Receivables") and
$1.8 million related primarily to delinquent single family residential loans
(collectively the "Single Family Receivables").
The Bank's aggregate investment in the Student Loan Receivables and the Single
Family Receivables prior to the Asset Sale Transactions approximated $12.4
million and $7.1 million, respectively.
624833.12
-100-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
At June 30, 1997, the remaining Student Loan Receivables balance, net of
applicable reserves, was $1.3 million. This balance represented claims which had
been filed with state processing agencies for reimbursement for which the Bank
expected to receive reimbursement. At June 30, 1997, the remaining Single Family
Receivables balance, net of applicable reserves, of $5.7 million was in the
process of being disposed of through bulk sales or sales of individual loans or,
to a lesser degree, sales of real estate owned to bulk buyers or individuals.
Pool B
At June 30, 1996, Pool B was composed of a mortgage loan in the amount of $13.0
million secured by land and construction in process related to a single family
condominium project in Wayne, New Jersey (the "Wayne Project"). The Bank's
aggregate investment in the Wayne Project prior to the Asset Sale Transactions
approximated $13.01 million.
The Bank believed at June 30, 1996 that the Wayne Project would be fully
completed and all individual units sold prior to June 30, 1997. The Wayne
Project is in the final phase of a three phase development project which was
nearing completion at June 30, 1997. The Bank's investment in the Wayne Project,
net of applicable reserves, has been reduced to $7.7 million at June 30, 1997.
Pool C
Pool C included contracts of sale, in the amount of $11.0 million, for two
adjacent parcels of land located in the Bronx, New York (the "Bronx Projects") .
The Bank's investment in the Bronx Projects prior to the Asset Sale Transactions
aggregated $17.7 million, including $12.1 million for one site ("Site One") and
$5.6 million for a second site ("Site Two"). The sale contract for the Bronx
Projects represented the sale of ownership and development rights for each of
the parcels of land and, for Site One, the Bank's investment at June 28, 1996 in
construction in process. Site Two was vacant on June 30, 1996 and 1997 with no
development yet commenced. At June 30, 1996, the Bank expected that the two
parcels would be sold within the subsequent twelve months or that the Bank would
arrange for the sale and development of subparcels of the first site and sale of
the second site prior to the commencement of construction. The Bank's investment
in the Bronx Projects, net of applicable reserves, was $16.8 million at June 30,
1997.
Pool D
Pool D, with an aggregate sales price of $14.3 million, included six individual
owned real estate properties, located in New York State, New Jersey and
California (collectively, the "Real Estate Properties"). The Bank's aggregate
investment in the Real Estate Properties prior to the Asset Sale Transactions
aggregated $16.1 million. Each of the properties included in Pool D were either
under contract of sale or contracts of sale for the remaining assets were being
actively negotiated. All properties were disposed of during 1997 with the
exception of one property, which the Bank estimated at June 30, 1997 would be
disposed of by June 30, 1998. This property had a remaining asset balance of
approximately $2.0 million at June 30, 1997.
Pool E
Pool E, with an aggregate sales price of $8.3 million, included the rights to
proceeds from sale of two joint venture projects, the sale of which was
scheduled to close within 90 days, rights to proceeds of sale of 35 condominium
projects located in New York City, a mortgage secured by cooperative apartment
units in New York City and a mortgage secured by a multi-family apartment
complex in New York State (collectively, the "Venture Proceeds and Residential
Mortgages Pool"). The Bank's
624833.12
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
aggregate investment in the Venture Proceeds and Residential Mortgages Pool
prior to the Asset Sale Transactions aggregated $11.6 million. Each of the
assets included in Pool E were disposed of during fiscal 1997.
12. Premises and equipment, net
Premises and equipment at June 30, 1997 and June 30, 1996 consist of the
following:
Period of
depreciation
or amortization June 30, June 30,
(years) 1997 1996
------------- -------- ----------
Land $ - $ -
Bank premises 20-50 - -
Leasehold improvements Term of leases - 158
Furniture and fixtures 4-10 - 38
Computer equipment 71/2 - 41
------ --------
- 237
Less accumulated depreciation
and amortization - 91
------ --------
$ - $ 146
====== ========
Depreciation and amortization expenses amounted to $15 and $1,159 for the years
ended June 30, 1997 and 1996, respectively. During the year, the Bank wrote off
the remaining balance of its fixed assets, amounting to $131, following the
assets disposal.
In June 1996, the Bank sold, as part of the Branch Sale, branch property located
in New York, New York for a net gain of $748.
13. Other real estate owned, net
At June 30, 1997 and June 30, 1996, other real estate owned, net of a $1,959 and
$ 4,642 valuation allowance, respectively, consists of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
Number of Number of
Properties Amount Properties Amount
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
One-to-four family including
single-family developments 2 $ 2,493 3 $ 7,885
Multi-family 2 4,566 8 8,347
</TABLE>
624833.12
-102-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Commercial real estate:
Office / warehouse buildings 0 - 3 6,929
Retail 1 68 1 178
Other 0 - 2 7,047
----- -------- --- ----------
5 $ 7,127 17 $ 30,386
===== ======== == ==========
Activity in the valuation allowance for other real estate owned for the years
ended June 30, 1997 and 1996 is as follows:
June 30, June 30,
1997 1996
------- ------------
Beginning balance - July 1 $ 4,642 $ 12,701
Provisions charged to operations 5,023 1,889
Transfers - (1,672)
Charge-offs (7,706) (8,276)
--------- ----------
Ending Balance - June 30 $ 1,959 $ 4,642
== ========= ==========
At June 30, 1997, the Bank's principal real estate owned consists of residential
condominium units in Staten Island, NY and a single-family housing development
in Murietta, CA. The net book values of the two properties are $3.3 million and
$1.9 million, respectively.
Management believes that the allowance for possible losses is adequate and that
other real estate is properly valued. The Bank has used currently available
information to establish reserves and resultant net valuations for other real
estate at June 30, 1997. Future additions to the allowance or writedowns of real
estate held for investment may be necessary based on changes in economic
conditions, the receipt of newly-available information involving specific
properties, or changes in management strategies.
14. Real estate held for investment
Real estate held for investment, net of a $13,261 and $3,429 valuation allowance
at June 30, 1997 and 1996, respectively, consists of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
Number of Number of
Properties Amount Properties Amount
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
One-to-four family including
single-family developments - $ - 1 $ 12,840
Multi-family 2 70,720 2 72,567
</TABLE>
624833.12
-103-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Commercial real estate:
Office buildings 2 19,502 2 30,647
Shopping centers - - - -
Other - - - -
----- ------------ ---- ------------
4 $ 90,222 5 $ 116,054
===== ============ === ============
Activity in the valuation allowance for real estate held for the years ended
June 30, 1997 and 1996 is as follows:
June 30, June 30,
1997 1996
------ ------
Beginning balance - July 1 $ 3,429 $ 5,317
Provisions charged to operations 11,300 -
Charge-offs (1,468) (1,888)
----------- -----------
Ending Balance - June 30 $ 13,261 $ 3,429
== =========== ===========
At June 30, 1997, the Bank's principal real estate held for investment
properties consists of a multi-family apartment complex located in Philadelphia,
PA, an office building complex in Atlanta, GA and co-operative apartment shares
in New York, NY. The net book values of the three properties are $55.9 million,
$14.1 million and $14.8 million, respectively. During the year ended June 30,
1997, the Bank recorded a provision of $11.3 million for the office building
complex in Atlanta, GA. This charge followed a change in operating plans for the
property and a resultant reevaluation of projected operating cash flows related
to this property. The Bank is actively seeking a purchaser for the property.
Management believes that the allowance for possible losses is adequate and that
real estate held for investment is properly valued. The Bank has used currently
available information to establish reserves and resultant net valuations for
real estate held for investment at June 30, 1997. Future additions to the
allowance or writedowns of real estate held for investment may be necessary
based on changes in economic conditions, the receipt of newly-available
information involving specific properties, or changes in management strategies.
15. Other assets
Other assets at June 30, 1997 and 1996 consist of the following:
June 30, June 30,
1997 1996
--------- ---------
Accrued interest receivable $ 792 $ 943
Investments in unconsolidated subsidiaries,
joint ventures and partnerships (A) 3,113 4,424
Federal Home Loan Bank of
New York capital stock - 8,976
624833.12
-104-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Investment in savings bank organizations (B) - 790
Prepaid pension expenses and other assets 1,443 1,981
--------- ---------
$ 5,348 $ 17,114
========= =========
(A) Represents equity investments in 3 and 4 joint ventures engaged in
commercial real estate transactions at June 30, 1997 and 1996, respectively. The
joint ventures had aggregate total assets of approximately $3,113 and $4,424 at
June 30, 1997 and 1996, respectively. During the year ended June 30, 1997, the
Bank sold its investment to one joint venture realizing a loss of $1,377.
(B) The Bank invested in the capital debentures and stock of Nationar and
invests in the stock cooperative data processing entities (the Institutional
Group Information Corporation and Infoserve) and in return receives various
services for which the Bank is charged fees. Nationar was a New York chartered
trust company jointly owned by approximately sixty-five New York savings banks,
including the Bank. Nationar, which provided item processing, deposit,
securities safekeeping, trust, data processing, credit and cash and investment
management services, was placed into receivership by the NYSBD on February 6,
1995. Upon consideration of the receivership, the Bank wrote-off its investment
in the securities of Nationar. The write-off of $1,100 was accounted for as a
charge to income in the year ended June 30, 1995. During the year ended June 30,
1997, the Bank, along with several other investors received a partial recovery
of its initial investment in Nationar. During the year ended June 30, 1997, the
Bank received $353 in settlement recoveries related to this investment, which
were accounted for as asset recoveries.
16. Due to depositors
The amounts due to depositors and weighted average period-end interest rates at
June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
Weighted Weighted
Average Average
Year-end Deposit Year-end Deposit
Rate Liability Rate Liability
<S> <C> <C> <C> <C>
Demand deposits:
Checking accounts - - - $ 2,876
Bank checks issued and
outstanding - - - 146
------- ----------- ------- -----------
- - - 3,022
NOW accounts:
Fixed rate - - - -
Savings and transaction accounts:
Regular - - - -
Money market - - - -
Time deposits - - - -
------- ----------- ------- -----------
624833.12
-105-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
- $ - - $ 3,022
====== ======== ====== ==========
</TABLE>
Interest expense on deposits for the years ended June 30, 1997 and 1996 was as
follows:
June 30, June 30,
1997 1996
---- ----
NOW accounts $ - $ 1,064
Savings and transaction accounts - 13,367
Time deposit accounts - 33,288
--------- -----------
$ - $ 47,719
========== ===========
Average cost of funds
during the period - 4.12%
========== ===========
17. Borrowed funds
Borrowed funds and weighted average year-end interest rates at June 30, 1997 and
1996 consist of the following:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
Weighted Weighted
average average
year-end year-end
Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C> <C> <C>
Advances from the Federal Home
Loan Bank of New York
(FHLBNY):
Fixed $ - 3.81% $ 2,026 3.81%
------- ---- --------- ----
Floating - - - -
- 3.81 2,026 3.81
Initial Facilities (Marine Midland) 66,066 8.25 89,760 8.25
Borrowed funds secured by loans
sold with recourse (note 11) 18,206 8.25 24,000 8.25
Security sold under agreement to
repurchase - - % - -%
---------- ---------
$ 84,272 $ 115,786
=========== =========
Average cost of funds during the
year then ended 6.83% 6.01%
</TABLE>
624833.12
-106-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
<TABLE>
FHLBNY Advances: The fixed rate advances from the FHLBNY outstanding at June 30, 1997 and 1996 mature as follows:
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
Weighted Weighted
Year of Maturity average average
Fiscal Year year-end year-end
Ending June 30, Amount rate Amount rate
--------------- ------ ---- ------ ----
<S> <C> <C> <C>
1997 $ - - % $ - - %
2006 - - 1,100 3.41
2008 - - 492 4.66
2010 - - 434 3.86
------ ------ ---------- -----
$ - - % $ 2,026 3.81%
====== ====== ========= ======
</TABLE>
The advances from the FHLBNY outstanding at June 30, 1996 were collateralized by
all FHLBNY stock owned by the Bank. Additionally, specific eligible assets were
required to be pledged to the FHLBNY. At June 30, 1997, the Bank had no
outstanding obligations to, held no capital stock in, and had no remaining
assets pledged to the FHLBNY.
Borrowed funds secured by loans sold with recourse: In June 1996, the Bank
financed the sale of loans, in the amount of $24,000, in connection with and to
facilitate the closing of the Branch Sale. These loans were sold to third
parties, with recourse and have been accounted for as financings. (See Note 11).
Borrower funds secured by loans sold with recourse bear interest at the prime
rate (or, at the Bank's option, in LIBOR based rate). See Note 11 for more
information concerning the three properties securing this information.
Initial facility (Marine Midland): The closing of the Branch Sale was
conditioned upon the Bank's obtaining financing with terms and in an amount
reasonably acceptable to the Bank and determined to be reasonably adequate to
permit consummation of the Branch Sale. The Bank obtained from Marine the
Facility, consisting of eleven independent mortgage loans with additional
collateral, in an aggregate amount not to exceed $99.06 million. As of June 30,
1997, Marine had extended $66.1 million under the Facility to the Bank.
Proceeds of the Facility were utilized by the Bank to (i) refinance all or part
of the certain indebtedness secured by assets to be transferred to Marine,
including all or a substantial part of the outstanding advances from the Federal
Home Loan Bank ("FHLB") and (ii) provide additional funds for the development
and completion of two individual real estate assets as part of the Bank's
operations subsequent to the Branch Sale.
Each of the individual loans included in the Facility were structured as
three-year term loans with options to extend the initial term for two additional
one-year periods subject to the Bank's achieving pre-agreed minimum repayment
amounts which are equal to 60% and 30% of the original aggregate amount of the
Facility and remaining fully current on all obligations and in compliance with
all covenants.
624833.12
-107-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
The Facility is priced at 175 basis points over LIBOR for the initial six months
following June 28, 1996, automatically increasing by 25 basis points at the
beginning of each of the subsequent three six month periods and will be priced
at 275 basis points over LIBOR for the third year of the Facility. In the event
that the Bank elects to exercise its option to extend the initial term of the
Facility, the Facility will be priced at 300 basis points over LIBOR during the
initial one year extension and 325 basis points over LIBOR during the second one
year extension. Following maturity or an event of default, the Senior Debt
Financing will accrue interest at a specified default rate.
The Facility is secured by first priority mortgage liens on eleven of River
Bank's real estate assets approved by Marine and collateral assignments of first
priority mortgages held by River Bank (the "Primary Collateral"). Each of the
loans is cross defaulted with each other and cross collateralized by all
collateral for the Facility. As additional collateral for the Facility, each
loan is also secured by first priority mortgages (or, where applicable, a
collateral assignment of first priority mortgages held by the Bank), stock
pledges and assignment of partnership interests and assignment of miscellaneous
interests on additional Bank assets (the "Additional Collateral"). The Bank
collaterally assigned to Marine all of the cash flow from the Primary Collateral
and the Additional Collateral. All of the net cash flow from the Primary
Collateral and Additional Collateral will be applied to the prepayment of the
Facility. In addition, all net proceeds from the sale of any Primary Collateral,
and the proceeds from the sale of any Additional Collateral, shall be applied to
the prepayment of the Facility subject to the Bank's right to establish reserves
for its operating needs. The Bank will be permitted to prepay the Facility in
whole or in part at any time without prepayment penalty or premium (subject to
customary LIBOR breakage provisions).
The Loan Agreement requires that while any amounts remain outstanding under the
senior debt financing, the Bank must receive Marine Midland's prior written
consent to, among other things, materially alter its charter or by-laws, incur
additional corporate indebtedness and liens, make any distributions to
stockholders or repurchases or redemptions of capital stock, acquire additional
assets, exchange existing assets with a third party or assume additional
liabilities as a result of any proposed merger transaction.
624833.12
-108-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
18. Other liabilities
Other liabilities at June 30, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
---- ----
<S> <C> <C>
Accrued interest payable $ 964 $ -
Accrued income taxes 5,771 10,790
Accounts payable 2,737 521
Accrued expenses:
Rent - 618
Tax settlement - City of New York - -
Postretirement benefits obligation 4,728 4,000
Preferred Stock dividend declared and unpaid 1,313 1,313
Other 3,364 10,637
----------- ----------
$ 18,877 $ 27,879
=========== ==========
</TABLE>
19. Stockholders' equity
On June 30, 1994, the Bank consummated the placement ("Offering") of 5,500,000
shares of its Common Stock, par value $1 per share, and 1,400,000 shares of 15%
noncumulative perpetual preferred stock, Series A, par value $1 per share
("Preferred Stock") which resulted in net proceeds to the Bank of $78,200. The
issuance price of the offered stock was $9 per share for the Common Stock and
$25 per share for the Preferred Stock. The Bank's Restated Organization
Certificate was amended prior to consummation of the Offering in order to
authorize the issuance of up to 30,000,000 shares of Common Stock and 10,000,000
shares of Preferred Stock. Prior to the offering, the Bank had 1,000,000 shares
of Common Stock issued and outstanding, plus warrants to purchase an additional
690,000 shares of Common Stock. The Bank also had 200,000 shares of 3%
Noncumulative Senior Preferred Stock and 130,000 shares of 4% Noncumulative
Preferred Stock issued and outstanding (each of which series of preferred stock
had a liquidation value of $100 per share). Substantially concurrently with the
Offering these shares were exchanged for 600,000 shares of Common Stock and
outstanding warrants to purchase Common Stock were canceled. The Board of
Directors of the Bank has the power from time to time to issue additional shares
of Common Stock or Preferred Stock authorized by the Restated Organization
Certificate without obtaining approval of the Bank's stockholders. The rights,
qualifications, limitations and restrictions on each series of Preferred Stock
issued will be determined by the Board of Directors of the Bank and approved as
required by the Banking Law or otherwise, at the time of issuance and may
include, among other things, rights in liquidation, rights to participating
dividends, voting and convertibility to Common Stock.
As a result of the Offering, the Bank had 7,100,000 shares of its Common Stock
outstanding at June 30, 1997, 1996, and 1995. After the consummation of the
Offering, the investor continues to be the largest stockholder with 2,768,400
shares or 39% of the common stock outstanding. The Bank may pay dividends on
common stock as declared from time to time by the Board of Directors out of
funds legally available therefor. Except as provided with respect to any series
of Preferred Stock, the holders of Common Stock possess exclusive voting rights
in the Bank. Each holder of Common Stock is entitled to one vote for each share
held on all matters voted upon by stockholders. Stockholders are not permitted
to cumulate votes in
624833.12
-109-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
elections of directors. Subject to the prior rights of the holders of any shares
of Preferred Stock that may be outstanding, in the event of any liquidation,
dissolution or winding up of the Bank, the holders of the Common Stock would be
entitled to receive, after payment of all debts and liabilities of the Bank
(including all deposit accounts and accrued interest thereon) and, after
distribution of the balance, if any, in the liquidation account maintained for
certain depositors of the Bank at the time of the Conversion, all assets of the
Bank available for distribution.
The Bank has 1,400,000 shares of its Preferred Stock, which were issued in
connection with the Offering, outstanding at June 30, 1997, 1996, and 1995. This
stock is perpetual and is not subject to any sinking fund or other obligation of
the Bank to redeem or retire it. The par value of the Preferred Stock is $1.00
per share.
The Preferred Stock ranks prior to the Common Stock with respect to dividend
rights and rights upon the voluntary or involuntary dissolution, liquidation or
winding up of the Bank, and to all other classes and series of equity securities
of the Bank hereafter issued, other than any class or series of equity
securities of the Bank expressly designated as being on a parity with or senior
to the Preferred Stock with respect to dividend rights or rights upon any such
dissolution, liquidation or winding up. The Common Stock and any other classes
or series of equity securities of the Bank not expressly designated as being on
a parity with or senior to the Preferred Stock are referred to hereafter as
"Junior Stock." The rights of holders of shares of Preferred Stock are
subordinate to the rights of the Bank's creditors, including its depositors. The
Bank may not issue any capital stock that ranks senior to the Preferred Stock
without the approval of holders of at least 66% of the outstanding shares of
Preferred Stock, voting as a class.
Holders of Preferred Stock will be entitled to receive, when, as and if declared
by the Board of Directors of the Bank, out of funds legally available therefor,
noncumulative cash dividends at the rate of 15% per annum. The right of holders
of Preferred Stock to receive dividends is noncumulative. Accordingly, if the
Board does not declare a dividend payable in respect of any quarterly dividend
period (a "Dividend Period"), then holders of Preferred Stock will have no right
to receive, and the Bank will have no obligation to pay, a dividend in respect
of such Dividend Period, whether or not dividends are declared payable in
respect of any future Dividend Period. No full dividends may be declared or paid
or set aside for payment as dividends on any class or series of equity
securities ranking, as to dividends, on a parity with the Preferred Stock for
any Dividend Period unless full dividends on the Preferred Stock for such
Dividend Period shall have been paid or declared and set aside for payment.
Dividends on the Preferred Stock will not be declared and paid if payment of
such dividends is then restricted by (i) laws, rules, regulations or regulatory
conditions applicable to the Bank or (ii) orders, judgments, injunctions or
decrees issued by, or agreements with, federal or state authorities with respect
to the Bank. The Bank is not permitted to declare or pay dividends (whether in
cash, stock or otherwise) on its common stock without the prior written consent
of the FDIC, NYSBD and Marine Midland Bank.
New York-chartered banks may only pay dividends or make other distributions on
their outstanding shares out of undivided profits or surplus, and may not pay
dividends when there is any impairment of capital stock, or when the
declaration, payment or distribution would be contrary to the bank's charter.
Without specific approval from the Superintendent, the total of all dividends
declared by a bank in a given calendar year cannot exceed the total of the
bank's net profits for that year, plus the bank's retained net profits from the
preceding two years, less any required transfer to surplus or a fund for the
retirement of any preferred stock.
The Bank has received notice that approval necessary to declare or pay dividends
on the Bank's outstanding shares of 15% Noncumulative Perpetual Preferred Stock,
Series A (the "Series A Preferred") will not be provided at this time. In June
1996, the Bank's Board of Directors declared a Series A Preferred dividend for
the quarter ending June 30, 1996, payment of which
624833.12
-110-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
was subject to the receipt of required approvals from regulators and Marine (the
Bank's principal lender). The Bank intends to continue to seek approval for the
payment of the declared Series A Preferred dividend. Primarily as a result of
the above, the Bank's Board of Directors has taken no action as regards a
quarterly dividend on the Bank's Series A Preferred for the quarters ending June
30, 1997, March 31, 1997, December 31, 1996 and September 30, 1996. Declaration
or payment of future dividends on the Bank's Series A Preferred Stock will also
be subject to the approval of the Banking Department and the FDIC, until the
Bank is no longer regulated by the Banking Department and the FDIC, and will be
subject to the approval of Marine for so long as the Facility remains
outstanding.
Holders of shares of Preferred Stock shall be entitled to receive a liquidation
distribution in the amount of $25.00 per share, plus unpaid dividends for the
then-current Dividend Period up to, but excluding, the date fixed for
liquidation (the "Liquidation Date") in the event of any voluntary or
involuntary dissolution, liquidation or winding up of the Bank, out of the net
assets of the Bank legally available for distribution to stockholders under
applicable law, or the proceeds thereof, before any payment or distribution of
assets is made with respect to any Common Stock or any other Junior Stock
(subject to the rights of the holders of any class or series of equity
securities having preference over the Preferred Stock with respect to
distributions upon liquidation and the rights of the Bank's creditors, including
its depositors). After payment of the full amount of the liquidating
distribution to which they are entitled, holders of shares of Preferred Stock
will not be entitled to any further participation in any liquidating
distribution of assets by the Bank.
Holders of the Preferred Stock will not be entitled to vote upon the election of
members of the Board or other matters in general. Holders of the Preferred
Stock, however, will be entitled to elect two members of the Bank's Board to
fill two newly-created directorships upon the occurrence of a "Voting Event." A
Voting Event occurs if the Bank fails to pay full dividends on the Preferred
Stock (or to declare such full dividends and set apart a sum sufficient for
payment thereof) with respect to each of any six Dividend Periods, whether
consecutive or not.
The Preferred Stock is perpetual and is not redeemable prior to July 1, 2004.
The Preferred Stock is redeemable by the Bank at its option at any time on or
after July 1, 2004, in whole or in part, at the per share redemption prices set
forth below in cash, plus in each case an amount in cash equal to accrued but
unpaid dividends for the then-current Dividend Period up to, but excluding, the
date fixed for redemption (the "Redemption Date") without the accumulation of
unpaid dividends for prior Dividend Periods:
July 1, 2004 to June 30, 2005 $27.50
July 1, 2005 to June 30, 2006 27.25
July 1, 2006 to June 30, 2007 27.00
July 1, 2007 to June 30, 2008 26.75
July 1, 2008 to June 30, 2009 26.50
July 1, 2009 to June 30, 2010 26.25
July 1, 2010 to June 30, 2011 26.00
July 1, 2011 to June 30, 2012 25.75
July 1, 2012 to June 30, 2013 25.50
July 1, 2013 to June 30, 2014 25.25
July 1, 2014 and thereafter 25.00
If fewer than all the outstanding shares of Preferred Stock are to be redeemed,
the shares to be redeemed shall be selected pro rata or by lot or by such other
method as the Board of Directors of the Bank, in its sole discretion, determines
to be equitable.
624833.12
-111-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
In the event of a change of control, the acquirer ("Note Issuer") may, at its
option, exchange (the "Note Exchange") all or part of the outstanding Preferred
Stock for subordinated notes (the "Notes") of the Note Issuer, provided that any
such Note Issuer is an insured depository institution within the meaning of the
FDIC. Pursuant to a Note Exchange, each $1,000 in liquidation value of the
shares of Preferred Stock covered thereby will be exchangeable for $1,000
principal amount of Notes. Such Notes shall have the terms, covenants and
conditions set forth under "Description of Notes" below. The rate of interest on
the Notes shall be 15%, the maximum principal amount of the Notes shall be 100%
of the aggregate liquidation preference of the Preferred Stock to be exchanged
and the principal of such Notes shall not be payable prior to July 1, 2004.
Subject to the FDIC approval of the Notes as Tier 2 capital of the Note Issuer,
the Note Issuer may elect to consummate the Note Exchange at any time following
a change of control and prior to July 1, 2014.
20. Income taxes
Effective January 1, 1993, the Bank changed its method of accounting for income
taxes from the deferred method to the liability method as required by SFAS No.
109, "Accounting for Income Taxes" (See Summary of Significant Accounting
Policies - Note 1). As permitted under the new rules, prior years' financial
statements have not been restated. The cumulative effect of the change in the
method of accounting for income taxes had no impact on the 1993 consolidated
Statement of Operations and, therefore, there was no cumulative effect.
At June 30, 1997, the Bank had a net operating loss ("NOL") carryforward for
federal income tax purposes of approximately $100.2 million attributable to
operating losses incurred in 1991 through 1997. The remaining NOL carryforward
of approximately $100.2 million will expire in years 2006 through 2012.
For income tax purposes, certain deductions of "closely held" corporations from
"passive activities" are generally deductible only against either income from
passive activities or net income from an active trade or business. Passive
activity losses in excess of the amounts currently allowed are suspended and may
be carried forward indefinitely to offset taxable income from passive activities
or from an active trade or business in future years, or will generally be fully
deductible upon a complete disposition of the underlying passive activity. The
passive activity loss limitations applied to the Bank in prior years because the
Bank was considered to be closely held. As a result of the consummation of the
Offering described in Note 19, the Bank believes that it is no longer subject to
the limitations for passive activity losses incurred after December 31, 1993.
The limitation rules continue to apply to suspended passive activity losses from
preceding years. At June 30, 1997, the Bank had suspended passive activity
losses for federal income tax purposes of approximately $674 suspended passive
activity credits, which are subject to similar limitations, of approximately
$5.4 million, and additional non-passive credits of $784, $555, and $675 which
were generated in 1994, 1995 and 1996, respectively, and will expire in the
years 2009 to 2012 if not used. Alternative minimum tax payments of $2.5 million
may be carried forward as a credit to offset regular federal tax liabilities in
future years, subject to certain limitations.
Under current tax law, the Bank's ability to utilize certain tax benefits in the
future may be limited in the event of an "ownership change," as defined by the
Internal Revenue Code Section 382 and the regulations thereunder. In the event
that the Offering discussed in Note 19 is deemed to result in an ownership
change, the subsequent utilization of net operating loss carryforwards,
suspended passive activity losses and credits, alternative minimum tax credit
carryforwards and certain other built-in losses would be subject to an annual
limitation as prescribed by current regulations. The application of this
limitation could have a material effect on the Bank's ability to realize its
deferred tax assets. The Bank is of the view that no ownership change of the
Bank has occurred as a result of the Offering. The Bank believes that the
Offering, when combined with prior changes in ownership of stock of the Bank and
other transactions affecting ownership of the capital stock of the Bank which
occurred in connection with the Offering, also did not result in an ownership
change of the Bank. However, the application of Section 382 is in many respects
uncertain. In assessing the effects of prior transactions and of the Offering
under Section
624833.12
-112-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
382, the Bank made certain legal judgments and certain factual assumptions. The
Bank has not requested nor received any rulings from the IRS with respect to the
application of Section 382 to the Offering and the IRS could challenge the
Bank's determinations.
The significant components of the net tax effects of temporary differences and
carryforwards that give rise to the deferred tax assets and liabilities at June
30, 1997, June 30, 1996 and June 30, 1995 are presented below:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 35,074 $ 10,375 $ 26,875
Allowance for credit losses and valuation allowances 4,718 20,320 16,733
Suspended passive activity losses 277 933 6,736
Suspended passive activity credit carryforward 5,391 5,391 5,391
Non-passive activity credit carryforward 2,015 1,339 784
Deferred income on venture investments - - 5,338
Deferred loan fees and income on
mortgage-backed securities - - 1,326
Interest accrued on non-performing loans 758 6,043 5,249
Alternative minimum tax credit carryforward 2,500 2,500 2,500
Non-deductible reserves and contingencies 5,197 2,387 -
Other 514 880 476
--------- --------- ----------
Total gross deferred tax assets 56,444 50,168 71,408
--------- --------- ----------
Less: Valuation allowance 36,874 34,059 55,631
Net deferred tax assets $ 19,570 $ 16,109 $ 15,777
========= ========= =========
Deferred tax liabilities:
Tax losses on partnership ventures $ 18,184 $ 14,754 $ 14,453
Tax over book depreciation 1,386 1,355 1,324
--------- --------- ----------
Total deferred tax liabilities $ 19, 570 $ 16,109 $ 15,777
========= ========= =========
</TABLE>
The Bank's ability to realize the excess of the gross deferred tax asset over
the gross deferred tax liability is dependent upon its ability to earn taxable
income in the future. As a result of recent losses and other evidence, this
realization is uncertain and a valuation allowance has been established to
reduce the deferred tax asset to the amount that management of the Bank believes
will more likely than not be realized. The valuation allowance increased during
the fiscal year ended June 30, 1997 by $2.8 million. This increase relates to
the increase in the excess of the gross deferred tax assets over the gross
deferred tax liability.
624833.12
-113-
<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
The components of the provision for income taxes for the fiscal years ended June
30, 1997, 1996 and 1995 are as follows:
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
Current:
Federal $ - $ 1,000 $ -
State and Local (benefit) (3,300) 10,749 2,113
Deferred - - -
--------- -------- --------
$ (3,300) $ 11,749 $ 2,113
========= ======== ========
The provision for state income taxes for the year ended June 30, 1997 includes a
current tax benefit in the amount of $3.3 million. The credit is the result of
the Bank's redetermination of its state income tax liability at June 30, 1997.
During the year ended June 30, 1997, the Bank completed a review of its
potential current and deferred federal and state tax liability in light of the
Branch Sale and its related tax effects. As a result of the review of its
potential current and deferred tax liabilities and the results of operations for
the year ended June 30, 1997, the Bank reduced its provision for state and local
income taxes by $3.3 million. Additionally, the Bank reduced its estimated
current state and local income tax liability at June 30, 1997 to reflect the
effect of the Branch Sale and subsequent disposition transactions completed
during the fiscal year.
The table below presents a reconciliation between the expected tax expense
(benefit) and the recorded tax provision for the fiscal years ended June 30,
1997, 1996 and 1995 which have been computed by applying the statutory federal
income tax rate (35%) to loss before provision for income taxes.
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax expense (benefit) at statutory rates $ (32,147) $ 23,364 $ (7,791)
Increases/(reductions) in tax resulting from:
State and local income taxes, (benefit) net of federal
income tax effect (2,145) 7,939 1,373
Effect of net operating loss currently utilized - (19,559) -
Effect of net operating loss not currently
recognized 34,292 - 8,521
Other, net - 5 10
----------- --------- ----------
$ - $ 11,749 $ 2,113
=========== ========= ==========
</TABLE>
In October 1995, the Bank paid New York State $2,000 to settle all amounts
claimed including penalties and interest for the tax years 1985 and 1986. In
addition, New York State agreed that no additional taxes will be assessed for
the years 1987, 1988 and 1989 as a result of any potential adjustment to the bad
debt reserve deduction reported for any of those years. In November 1995, the
Bank paid New York State $761,000 to settle all amounts, including penalties and
interest for the calendar years 1987, 1988 and 1989.
The New York City Department of Finance conducted an audit of the Bank's New
York City tax returns for calendar years 1985 through 1987. Various issues were
raised which resulted in an assessment of $1,100 of additional taxes and $900 of
interest. The Bank paid the additional $2,000 on June 30, 1994 from previously
established reserves with no charges to income in the fiscal year ended June 30,
1994.
624833.12
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
The Bank has filed claims for refunds of New York State and local franchise
taxes of approximately $1,200 related to calendar year 1982. The basis of such
claims relates to the applicability of the exemption from such taxes when net
worth certificates ("Certificates") are outstanding. Certificates were those
issued to the FDIC by the Bank under the 1982 Assistance Agreement. The Bank's
initial refund claims were denied on the basis that the exemption was applicable
only during the period Certificates were outstanding and not for the entire
year. On October 13, 1994, a decision was rendered in a court case involving a
similar claim for refund on behalf of another savings institution which
confirmed the position taken by New York State in denying the Bank's initial
refund claim. The Bank continues to review the impact of this decision on its
position.
21. Leases
The Bank is no longer obligated under any material amounts of non-cancelable
operating leases.
Rental expense, including amounts paid under month-to-month cancelable leases,
was $43 and $4,330 for the years ended June 30, 1997 and 1996, respectively.
These amounts are net of sublease rental income of $0 and $677 for the years
ended June 30, 1997 and 1996, respectively.
22. Salaries
Due to the general cessation of all loan origination activities in anticipation
of and subsequent to the Branch Sale, salaries were not reduced by any
capitalized direct loan origination costs in the years ended June 30, 1996 and
1997.
23. Other operating expenses
Prior to 1995, affiliate reimbursements which were included in other operating
expenses had been reduced by capitalized direct origination costs. There were no
capitalized direct origination costs related to affiliate reimbursements during
the fiscal years ended June 30, 1997 and 1996.
During the year ended June 30, 1997, the Bank accrued expenses for services
provided by RB Management, LLC in the amount of $1,250 for Bank Management
Services, $1,692 for Asset Management Services, and $778 for Asset Disposition
Fees in accordance with a fee schedule agreement between the two entities.
During 1997, the Bank paid RB Management, LLC an aggregate $1,721. At June 30,
1997, the Bank had a remaining payable balance due to RB Management, LLC in the
amount of $2,121, including interest, which is included in accrued liabilities
on the Statement of Condition.
24. Retirement and other employee benefits
The Bank maintains a noncontributory defined benefit retirement plan (the
"Plan") in which substantially all employees participated.
624833.12
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
The net periodic pension benefit of the Bank's Plan for the years ended June 30,
1997, 1996 and 1995 includes the following components:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost $ - $ - $ -
Interest cost 381 375 370
Actual return on plan assets (436) (331) (502)
Net amortization and deferral 33 (61) 106
------ ------ ------
Net periodic pension benefit $ (22) $ (17) $ (26)
====== ====== ======
Assumptions used in accounting were:
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
Weighted average discount rates 7.25% 7.25% 8.00%
Expected weighted average long-term rate of return on assets 7.25% 7.25% 7.25%
</TABLE>
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
The funded status of the Bank's Plan at June 30, 1997, June 30, 1996 and June
30, 1995 is as follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Actuarial value of benefit obligations:
Vested benefit obligation $ (5,481) $ (5,402) $ (5,283)
Non-vested benefit obligation - - (125)
----------- ---------- -----------
Accumulated benefit obligation (5,481) (5,402) (5,408)
Effect of projected future salary increases - - -
----------- ---------- -----------
Projected benefit obligation (5,481) (5,402) (5,408)
Plan assets at fair value (excluding receivables) 5,872 5,749 5,779
----------- ---------- -----------
Funded status 391 347 371
Unrecognized net losses 908 931 890
Unrecognized prior service cost - - -
Unrecognized net obligation - - -
----------- ---------- -----------
Prepaid pension expense $ 1,299 $ 1,278 $ 1,261
=========== ========== ===========
</TABLE>
In connection with contractual termination agreements, certain former officers
of the Bank have been granted additional retirement benefits, net of amounts
provided by the Plan, based in part on additional years of service and early
retirement subsidies. These retirement benefits are accounted for as deferred
compensation arrangements. The liability for these retirement benefits at June
30, 1997, 1996 and 1995 aggregated $554, $791 and $808, respectively. The
related expense for the years ended June 30, 1997, 1996, and 1995 was $58, $58
and $59, respectively.
Retirement benefits are also provided through a 401(K) plan which, through
December 1993, allowed participants to contribute up to 6% of their compensation
to the plan. The Bank matched 100% of employee contributions. In January 1994,
the 401(K) plan was amended to allow "non-highly compensated" participants to
contribute up to 15% of their compensation to the Plan with the Bank matching
100% of the contributions up to 6% of their compensation. In addition, the Bank
provides for the cost of administering the 401(K) plan. The costs of providing
such benefits are not material to the results of operations.
In addition to providing retirement benefits, the Bank provides various health
care and life insurance benefits for active and retired employees. These
benefits are provided through insurance companies and health care organizations
and are primarily funded by contributions from the Bank and its employees.
Subsequent to December 31, 1993, the Bank amended its retiree health care which
became effective April 1, 1994 to require contributions from retirees including
deductibles, co-insurance and reimbursement limitations.
25. Postretirement benefits other than pensions
The Bank sponsors a voluntary, unfunded defined benefit postretirement medical
and a funded postretirement life insurance plan to all full time employees who
retired from the Bank prior to July 1, 1991. In addition, full time active
employees with
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
ten years of service as of July 1, 1991 and who retire early with at least
twenty years of service, or retire on or after age 65 are eligible to
participate.
The Bank adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" as of July 1, 1994.
The funded status of the Bank's Plan at June 30, 1997, 1996, and 1995 is as
follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retired employees $ (3,968) $ (5,203) $ (4,533)
Fully eligible plan participants - (383) (247)
Other active plan participants - (545) (571)
------------ ----------- -----------
Unfunded postretirement benefit obligation (3,968) (6,131) (5,351)
Unrecognized net (gains)/losses (760) 1,047 379
Unrecognized transition obligation - 4,273 4,511
------------ ----------- -----------
Accrued postretirement benefit liability $ (4,728) $ (811) $ (461)
============ =========== ===========
</TABLE>
The net periodic postretirement benefit cost of the Bank's Plan for the years
ended June 30, 1997, 1996, and 1995 include the following components:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost $ - $ 28 $ 27
Interest cost 302 425 373
Amortization of transition obligation (29) 277 237
----------- --------- ----------
Net periodic postretirement benefit cost $ 273 $ 730 $ 637
=========== ========= ==========
</TABLE>
For measurement purposes, an 8.8% and 10.0% annual increase in the per capita
cost of covered health care benefits was assumed for fiscal 1997 and 1996,
respectively; the rate was assumed to decrease gradually down to 5.5% for fiscal
2005 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. To illustrate,
increasing the assumed health care cost trend rate by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
June 30, 1997 by $322 and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for fiscal 1997 by
$23.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% for the years ended June 30, 1997
and 1996. As the plan is unfunded, no assumption was needed as to the long term
rate of return of assets.
624833.12
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
26. Former management incentive plan and bonus plan
In April 1994, the Board of Directors of the Bank approved a phantom stock plan
(the "Phantom Stock Plan") for the Bank. The Phantom Stock Plan provides for the
grant of 200,000 performance units, which will vest at the rate of 33% per year
on each anniversary of the date of grant and become fully vested after three
years, to key employees selected by the Compensation Committee of the Board of
Directors. Vesting of the performance units would be accelerated upon a change
in control of the Bank, as defined in the Phantom Stock Plan, or upon death or
disability. Upon the third anniversary of the date of grant, a recipient of
performance units would be entitled to receive from the Bank an amount equal to
the book value of a share of Common Stock as of the date of grant of such
performance unit, as determined by the independent accountants for the Bank,
plus the accretion to the value, or minus the loss of value of such performance
unit since the date of grant, calculated based upon the Bank's earnings or loss
per share in the second and third years following the date of grant, and
disregarding the Bank's earnings or loss per share in the first year following
the date of grant. In the event of an earlier change in control of the Bank, as
defined, or upon death or disability, the value of the performance units would
be calculated in relation to the Bank's earnings or loss per share since the
date of grant. The amount payable pursuant to each performance unit would never
be less than (i) the book value per share of the Bank's Common Stock at the time
of a payment or (ii) the book value of a share of common stock of the Bank on
the date of grant ($11.67). As of July 1, 1994, 127,000 performance unit awards
were granted under the Phantom Stock Plan. During the fiscal year ended June 30,
1995, two participants terminated employment with the Bank and, as a result,
forfeited 48,500 performance units which were not vested. A new participant was
granted 3,500 performance units during the same period. During the fiscal year
ended June 30, 1996, two participants terminated employment with the Bank and,
as a result, forfeited 13,500 performance units which were not vested. At June
30, 1996, no performance units were granted and outstanding due to the
accelerated vesting and payment of the Phantom Stock Plan due to the closing of
the Branch Sale. The vesting of these performance units resulted in compensation
expense to the Bank over the three-year vesting period. Compensation expense of
$319 and $319 relating to the vesting of performance units was recorded for the
years ended June 30, 1996 and June 30, 1995, respectively.
The Board of Directors of the Bank approved a bonus plan ("Bonus Plan") which
provided for a payment of a total amount of $350,000 during March 1995 or upon a
change of control of the Bank, if earlier, to certain executive and other senior
officers of the Bank as determined by the Compensation Committee of the Board of
Directors. These payments were recorded as compensation expense during the
fiscal year ended June 30, 1995. No amounts were approved under the Bonus Plan
during fiscal year 1997 or 1996.
27. Fair value of financial instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
the Bank to disclose estimated fair values for its financial instruments. SFAS
No. 107 defines fair value of financial instruments as the amount at which the
instrument could be exchanged in a current transaction between willing parties
other than in a forced or liquidation sale. SFAS No. 107 uses the same
definition for a financial instrument as SFAS No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance Sheet Risk and
Financial Instruments with Concentrations of Credit Risk". SFAS No. 105 defines
a financial instrument as cash, evidence of ownership interest in an entity, or
a contract that imposes on an entity a contractual obligation to deliver cash or
another financial instrument to a second entity or to exchange other financial
instruments on potentially favorable terms with the second entity and conveys to
that second entity a contractual right to receive cash or another financial
instrument from the first entity or to exchange other financial instruments on
potentially favorable terms with the first entity.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
time the Bank's entire holdings of a particular financial instrument. Because no
ready market exists for a significant portion of the Bank's financial
instruments, fair value estimates are based on judgments regarding future
expected net cash flows, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include the deferred tax amounts and
office premises and equipment.
In addition, there are intangible assets that SFAS No. 107 does not recognize,
such as the value of "core deposits", the Bank's branch network and other items
generally referred to as "goodwill".
624833.12
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
The following table presents the carrying amounts and estimated fair values of
the Bank's financial instruments at June 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996 June 30, 1995
------------- ------------- -------------
Carrying Estimated Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value Amount Fair Value
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 14,036 $ 14,036 $ 13,129 $ 13,129 $ 12,040 $ 12,040
Money market investments - - 4,000 4,000 96,500 96,500
Investment securities available for sale,
net 6,275 6,275 5,685 5,685 31,372 31,372
Mortgage-backed securities available
for sale, net - - 187 187 72,643 72,643
Accrued interest receivable 2,047 2,047 943 943 8,882 8,882
Gross loans receivable:
Secured by real estate 80,093 80,093 86,983 79,154 944,658 930,962
Consumer 15,677 15,677 16,022 15,566 21,274 21,274
Loans sold with recourse, net 24,451 24,451 29,914 29,914 - -
Demand deposits - - 3,022 3,022 14,906 14,906
NOW Accounts - - - - 66,619 66,619
Savings and transaction accounts - - - - 533,947 533,947
Time Deposits - - - - 556,058 554,037
Borrowed funds 84,272 84,272 115,786 115,786 179,061 179,524
Mortgage escrow deposits - - 271 271 4,480 4,480
Accrued interest payable 964 964 - - 1,341 1,341
</TABLE>
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Short term instruments: For short term financial instruments, defined as
those with remaining maturities of 90 days or less, the carrying amount was
considered to be a reasonable estimate of fair value. The following
instruments were predominately short term: cash and due from banks, money
market investments, U.S. Treasury obligations, demand deposits, certain
time deposits, accrued interest receivable and payable, mortgage escrow
deposits and other financial liabilities.
Debt and equity securities (including mortgage-backed securities):
Estimated fair values for securities are based on quoted market prices, if
available. If quoted market prices are not available, fair values are
estimated using discounted cash flow analyses, using interest rates
currently being offered for investments with similar terms and credit
quality.
Loans receivable: Fair values of performing loans receivable, secured by
real estate, is calculated by discounting the contractual cash flows
adjusted for prepayment estimates using discount rates based on secondary
market sources adjusted to reflect the credit risk inherent in the loans.
Fair values of non-performing loans, secured by real estate,
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
are based on recent appraisals of the underlying real estate or discounted
cash flow analyses. The fair value of consumer loans is based on a third
party offer.
Approximately $12,806, $12,984 and $36,695, of the Bank's $ 95,770,
$132,919 and $1,108,448 total loans receivable relate to commercial loans
at June 30, 1997, 1996 and 1995, respectively. The Bank believes that
dollar amounts relating to commercial loans are relatively small in
comparison to total loans receivable at June 30, 1997, 1996 and 1995, and
that an estimate of fair value of commercial loans cannot be made without
incurring excessive costs. Therefore, the Bank concludes that it is not
practicable to estimate the fair value of its commercial loan portfolio.
The Bank's estimates of impairment due to collectibility concerns related
to these loans are included in the allowance for possible credit losses.
The weighted average of the effective interest rates and the weighted
average maturity dates of commercial loans are 9.32% and 3.09 years, 9.31%
and 3.73 years and 8.69% and 1.93 years at June 30, 1997, 1996 and 1995,
respectively.
Deposit liabilities: Fair values of time deposits maturing in excess of 90
days are calculated using contractual cash flows discounted at rates equal
to current rates offered in the market for similar deposits with the same
remaining maturities. These fair value estimates do not include the
intangible value of the existing customer base.
Borrowed funds: Fair values of borrowed funds are based on the discounted
values of contractual cash flows. The discount rate is estimated using the
rates currently offered for borrowed funds of similar remaining maturities.
28. Commitments and contingencies
Outstanding loan commitments, which generally expire within one year, to
originate or purchase loans at June 30, 1997, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Residential mortgage loans:
One-to-four family $ - $ - $ 13,436
Multi-family - 10,000 3,072
Commercial mortgage loans - - -
Construction loans:
Commercial - - -
Home equity lines of credit $ - - 241
-------- --------- -----------
$ - $ 10,000 $ 16,749
======== ========= ===========
</TABLE>
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customer's
creditworthiness on a case-by-case basis.
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Standby letters of credit and financial guarantees outstanding are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The amount of collateral obtained upon extension of credit varies and is based
on management's credit evaluation of the counterparty.
At June 30, 1997, 1996 and 1995, the Bank and its wholly-owned subsidiaries had
arranged letters of credit aggregating $1,197, $3,225, and $4,269, respectively.
In the normal course of the Bank's business, there are outstanding various
claims, commitments and contingent liabilities. The Bank also is involved in
various other legal proceedings which have occurred in the ordinary course of
business. Management, based on discussions with legal counsel, believes that the
Bank will not be materially affected by the actions of such legal proceedings.
However, there can be no assurance that any outstanding legal proceedings will
not be decided adversely to the Bank and have a material adverse effect on the
financial condition and the results of operations of the Bank.
29. Subsequent events
Conditions imposed in connection with the Banking Department's approval of the
Branch Sale included: (i) the Bank's agreement to file an application with the
Banking Department, within one year of the closing of the Branch Sale, for
approval of a plan of dissolution; (ii) the Bank's agreement to file with the
Supreme Court of the State of New York an application for a closing order within
13 months of the closing of the Branch Sale and an application for a final order
of dissolution within five months following the filing of an application for a
closing order; (iii) increased levels of minimum regulatory capital
requirements; (iv) the Bank's agreement to continue to submit its proposed
capital transactions to the Banking Department for prior approval; (v) the
continuation of the Bank's current periodic reporting obligations with respect
to its retained assets, as well as in connection with its ongoing activities
subsequent to the Branch Sale; and (vi) such other conditions and obligations as
the Banking Department may deem appropriate.
In June 1997, the Bank submitted an alternate proposal (the "Alternate
Proposal") to the Banking Department pursuant to which the Bank would implement
Conditions No. 1 and No. 2 of the approval of the Branch Sale described in the
immediately preceding paragraph. The Bank proposed to adopt a plan under which
it would transfer all of its assets and liabilities, including all contingent
liabilities, to a successor corporation ("Successor") incorporated under
Delaware General Corporate Law. Successor would acquire all of the assets of the
Bank and continue all of the business of the Bank under the same business plan
as adopted by the Bank. Successor would not be subject to the jurisdiction of
the Banking Department. Following the transfer of its assets and liabilities to
Successor, the Bank would surrender its banking charter and dissolve. The
implementation of the proposed plan would result in a mere change of form from a
banking corporation to a corporation incorporated under the Delaware General
Corporate Law, which would not be subject to the jurisdiction of the Banking
Department. The proposed transfer is expected to qualify as a tax-free
reorganization under the Internal Revenue Code and, as such the Bank expects
that certain of its tax attributes will be preserved. Successor will not be
subject to regulation by the Banking Department or the FDIC following
implementation of the Alternate Proposal and the surrender of the Bank's banking
charter.
In connection with the Alternate Proposal, common and preferred shareholders of
River Bank America will receive shares of Successor on a share-for-share basis
so that immediately following the reorganization and dissolution of the Bank,
Successor will be owned by the same stockholders, in the same proportions as
currently own the Bank.
624833.12
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<PAGE>
River Bank America NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS Years
ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
Prior to June 30, 1997, the Bank received the Banking Department's conditional
approval of the Alternate Proposal as meeting the Conditions of the Banking
Department's approval of the Branch Sale, if implemented by the Bank on a timely
basis. The Banking Department's conditional approval of the Alternate Proposal
and related modification of Condition No. 1 of the Approval of the Branch Sale
provided that the approval of shareholders of the Alternate Proposal not later
than September 30, 1997, would be deemed to satisfy Condition No. 1. Condition
No. 2 of the Banking Department's approval of the Branch Sale would be deemed to
be satisfied if the petition required by Condition No. 2 is filed by the Bank by
October 15, 1997. In the event that the Bank is unable to meet the dates for
completion established by the Banking Department the Bank intends to request
such extensions as may be necessary to complete implementation of the Alternate
Proposal. No assurances can be given that the Banking Department will provide
such extensions.
The Banking Department also advised the Bank that the Bank's minimum capital
requirement, set at $115 million in the Banking Department's approval of the
Branch Sale and subsequently amended to $106 million in May 1997, shall remain
at $106 million until the Bank's final dissolution, unless the Banking
Department shall provide prior approval of the Bank's written request to amend
the Bank's minimum capital requirement.
Further, the Banking Department's conditional approval of the Alternate Proposal
requires the Bank to seek prior approval for any material sale or transfer of
assets, or expenditures for development or renovation of any properties held by
the Bank prior to the completion of the dissolution of the Bank.
The Bank intends to proceed with the implementation of the Alternate Proposal
during the quarter ending September 30, 1997 and fully comply with the
conditions imposed by the Banking Department.
624833.12
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<PAGE>
PART III
ITEM 9
DIRECTORS AND PRINCIPAL OFFICERS OF THE REGISTRANT
Subsequent to the closing of the Branch Sale, although the Bank has executive
officers under NYBL, the Bank no longer maintains any significant staff of
employees to manage the Bank's affairs. Rather, the day-to-day management
responsibilities of the Bank are vested with RB Management Company, a newly
formed management company affiliated with Mr. Dworman. A significant amount of
services, necessary to manage and dispose of the Retained Assets, have been and
will be provided by RB Management Company or third party subcontractors who will
not have any continuing fiduciary obligations to the Bank or the stockholders.
The selection of third party subcontractors to provide various services to the
Bank will be made by RB Management Company, subject to the ratification by
committees of the Board of Directors but without stockholder approval. The
Bank's success in maximizing returns from the disposition of the Retained Assets
will depend on the efforts of RB Management Company and third party contractors
retained to provide services to the Bank.
Directors of the Bank
The following table set forth certain information about the directors of the
Bank during the fiscal year ended June 30, 1997.
<TABLE>
<CAPTION>
Director
Name Age(1) Position Class Since
- ---- ------ -------- ----- -----
<S> <C> <C> <C> <C>
Robin Chandler Duke 73 Director 1999 1977
Robert N. Flint 76 Director 1999 1976
William D. Hassett, Jr. 61 Director 1997 1976
Jerome R. McDougal 69 Director, Chairman of the Board 1997 1991
and Chief Executive Officer
Edward V. Regan 67 Director 1998 1995
</TABLE>
The principal occupation for the last five years of each director of the Bank
who served as such during the fiscal year ended June 30, 1997, as well as
certain other information, is set forth below.
Robin Chandler Duke. Ms. Duke is National Chairman of Population Action
International, and she serves as a director of International Flavors and
Fragrances and American Home Products Corporation.
Robert N. Flint. Mr. Flint has been retired since 1984. Previously Mr. Flint was
Senior Vice President and Comptroller of American Telephone and Telegraph
Company.
William D. Hassett, Jr. Mr. Hassett, a real estate investor and managing member
of Hassett-Belfer Senior Housing L.L.C. is also owner of W.D. Hassett, Inc., a
real estate management company. Mr. Hassett, formerly a director of Olympia &
York Holdings (USA), was the Chairman of the New York State Urban Development
Corporation from 1977 to 1981, Chairman of the Battery Park City Authority from
1979 to 1981, Chairman of the Board of the New York State Dormitory Authority
from 1985 to 1994 and is a former New York State Commerce Commissioner. He
presently serves as a member of the Real Estate Advisory Committee to the New
York State Common Retirement Fund.
Jerome R. McDougal. Mr. McDougal presently serves as Chairman, Chief Executive
Officer and President, effective July 2, 1997. Mr. McDougal served as President
and Chief Executive Officer of the Bank from March 1991 to April 1995, at which
time he became Chairman of the Board and Chief Executive Officer. Prior to
joining the Bank, Mr. McDougal was
624833.12
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<PAGE>
Chairman and Chief Executive Officer of the Apple Bank for Savings for four
years. Prior to joining Apple Bank, Mr. McDougal held various positions,
including management positions in a manufacturing concern, operating a
consulting company, and running one of the largest automotive retail chains in
the New York metropolitan area.
Edward V. Regan. Mr. Regan is Chairman of the Municipal Assistance Corporation
and Policy Advisor for the Jerome Levy Economics Institute. Mr. Regan previously
served as the New York State Comptroller from 1979 to 1993.
The Board of Directors and Its Committees
The Board of Directors holds regular monthly meetings every month and special
meetings when called from time to time. The Board of Directors held a total of
17 meetings during the fiscal year ended June 30, 1997. During the fiscal year
ended June 30, 1997, no director attended less than 75% of the aggregate of the
number of meetings held by the Board of Directors and by all committees of the
Board of Directors on which such director served. The Board of Directors of the
Bank had established various committees, including Executive, Mortgage and Real
Estate, Compensation and Benefits, Audit, Compliance, Investment and Nominating
Committees. Subsequent to the consummation of the Branch Sale, the new Board of
Directors of the Bank terminated committees in existence prior to the
consummation of the Branch Sale and established new committees, including Asset
Management and Audit Committees. A brief description of the Asset Management and
Audit Committees is set forth below.
o The Asset Management Committee has the authority to oversee the management
of the day-to-day business and affairs of River Bank and the implementation
of the orderly disposition of its assets, subject to certain restrictions
set forth in River Bank's Amended and Restated By-Laws and under the NYBL.
The Asset Management Committee does not, however, have the authority to
review the engagement of River Bank's auditors nor compensation matters.
The Asset Management Committee assumed the duties previously delegated to
the Special Transactions, Mortgage and Real Estate, Compliance and
Investment Committees of the Board. The members of the Asset Management
Committee initially consist of Messrs. Hassett (Chairman), McDougal, Flint
and Regan.
o The Audit Committee reviews and provides recommendations to the Board of
Directors with respect to the engagement of River Bank's independent
auditors, who have been engaged to monitor and audit the financial
reporting practices and internal controls procedures of River Bank as well
as River Bank's compliance with its policies and procedures. In addition,
the Audit Committee also administers and reviews all compensation policies
and will provide recommendations to the Board of Directors with respect
thereto. The members of the Audit Committee initially consist of Mr. Flint
and Ms. Duke.
The new Board of Directors may from time to time establish certain other
committees of the Board to facilitate the management of River Bank.
Advisory Board: Upon consummation of the Branch Sale, the new Board of Directors
established an Advisory Board. The purpose of the Advisory Board is to provide
such additional support and advice to the Board of Directors as may from time to
time be requested by the Board of Directors. Members of the Advisory Board will
be selected annually. The initial members of the Advisory Board are Messrs.
Austin 'S. Murphy (Chairman), David L. Yunich, Thomas A. Coleman, Alan V.
Tishman and John T. Sargent, each of whom served as a director of the Bank in
the previous year through June 28, 1996.
Directors will be elected in a manner consistent with, and shall serve for a
term, as provided in the Bank's Restated Organization Certificate as Amended and
Bylaws.
The Management Company; The Management Agreement: The Bank has engaged the
Management Company under a management agreement (the "Management Agreement") to
provide Bank Management Services and Asset Management Services (each as defined
below). The responsibilities of the Management Company include, but are not
limited to, development and recommendation to the Bank's Board of Directors of
strategies intended to maximize stockholder value. The Management Company is
responsible for developing, recommending and maintaining business plans and
operating
624833.12
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<PAGE>
budgets, individual asset and liability strategies and decisions relating to
sales and retentions of assets. The Management Company reports to the Bank's
Board of Directors or its Asset Management Committee.
The Management Company is a newly formed company controlled by Alvin Dworman,
who serves as its President and Chief Executive Officer. Mr. Dworman also owns
39.0% of the outstanding Common Stock of the Bank.
The Management Company has access to the expertise, resources and business
relationships accumulated by Mr. Dworman over 35 years in a wide variety of
general business activities. Mr. Dworman currently serves as a member of the
Real Estate Advisory Committee of the New York State Employee Retirement System
and is a member of the Board of Trustees of the New York Law School. As an
individual and as Chairman and Chief Executive Officer of the ADCO Financial
Group, Mr. Dworman maintains investments in a number of financial services,
banking and real estate entities. During his career, Mr. Dworman has founded,
developed, owned and managed a wide variety of entities throughout the United
States. Mr. Dworman, Odyssey Partners, L.P. and East River Partnership B hold in
the aggregate 50.8% of the Common Stock. In connection with the equity
recapitalization offering in June 1994, Mr. Dworman, Odyssey Partners, L.P. and
East River Partnership B agreed not to sell their Common Stock for a period of
three years. In addition, such agreement provided that, for an additional two
years, they would not sell their Common Stock without the approval of the Board
of Directors of the Bank under certain circumstances.
The terms of the Loan Agreement with Marine include a requirement that, while
any amount remains outstanding under the Facility, Mr. Dworman retain his 39%
common stock interest in the Bank and remain actively involved in the day-to-day
management of the affairs of the Bank and its assets.
The Management Company also employs certain individuals previously employed by
River Bank who were directly involved in managing the Bank's real estate
portfolio.
"Bank Management Services" includes the management of the general business
affairs of the Bank, including:
1. Developing and recommending policies and procedures appropriate for
continuing the orderly disposition of the Bank's assets and implementation
of all policies and procedures approved by the Bank's Board of Directors or
the Asset Management Committee of the Board.
2. Providing quarterly and annual financial and operating reports and such
other information to the Bank's Board of Directors and the Asset Management
Committee and Audit Committee as may be necessary and reasonably requested
by the Bank's Board of Directors or such committee.
3. Analyzing the Bank's performance, including progress in continuing the
orderly disposition of the Bank's assets and preparation of financial
forecasts and periodic variance analyses of actual performance relative to
plan.
4. Overseeing provision of all accounting and financial reporting services,
including maintenance and control of a general ledger, controlling accounts
payable and processing services and payroll processing services,
preparation of financial reports and regulatory compliance reports and
preparation and filing of tax returns, and establishing and maintaining
management information systems.
5. Providing treasury services and control functions, including: -
implementing cost and disbursement controls. - cash management and
investment of short-term funds. - debt management, corporate finance and
development and implementation of alternative financing arrangement.
6. Overseeing legal and accounting services required by the Bank.
7. Using best efforts to ensure compliance with any conditions imposed by the
Banking Department on the Bank as a predicate to its approval of the Branch
Sale, including but not limited to, the preparation and submission to the
Banking Department of required reports.
"Asset Management Services" entails management of all of the Bank's assets on a
day-to-day basis and include the following:
624833.12
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<PAGE>
8. Maintaining and implementing individual business plans for each asset of
the Bank, as modified from time to time to reflect changes in conditions
and circumstances.
9. Development, marketing, negotiation and execution of transactions necessary
to continue to effect the Bank's asset disposition plans, subject to the
ongoing approval of the Banking Department.
10. Obtaining and overseeing marketing and brokerage activities relating to
real estate dispositions and property leasing.
11. Managing real estate activities, including retention and oversight of
third-party property managers.
12. Obtaining and overseeing third-party loan servicing, including ordinary
course monthly payment collections and pay-offs.
13. Providing loan administration services, including delinquency monitoring
and response and enforcement of rights under loan agreements.
14. Overseeing loan servicing activities for subordinated participations in
loans acquired by Marine Midland in connection with the Branch Sale.
15. Administration of joint ventures and oversight of the business activities
of the joint ventures.
The Management Company obtains and oversees the provision, on an outsourced
basis, of those services not provided directly by the Management Company. All
outsourcing arrangements is subject to prior review and recommendation as to
compensation terms by the Audit Committee and as to the other terms of the
engagement subject to prior approval by the Asset Management Committee of River
Bank's Board of Directors. The cost of approved outsourced arrangements is borne
by the Bank. The Bank expects that the Banking Department will monitor and
periodically review the Bank's arrangement with the Management Company and the
arrangements with third party service providers.
The Management Company offers similar services to entities not affiliated with
Mr. Dworman, and also renders services to affiliates of Mr. Dworman.
The Management Company is paid an annual base fee for Bank Management Services
in an amount not to exceed $1.25 million. The annual base fee is reviewed no
less frequently than annually by the Audit Committee of the Bank and adjusted
based upon the costs expected to be incurred by the Management Company to
provide the Bank Management Services. In addition, the Management Company also
receives an annual fee for Asset Management Services of 0.75% of the average
month-end book value of the Bank's assets and an Asset Disposition Success Fee
of 0.75% of the proceeds from the sale or collection of any asset sold by the
Bank.
During the year ended June 30, 1997, the Bank accrued expenses for services
provided by RB Management, LLC in the amount of $1,250,000 for Bank Management
Services, $1,692,000 for Asset Management Services, and $778,000 for Asset
Disposition Fees in accordance with the fee schedule outlined above. During
1997, the Bank paid RB Management, LLC an aggregate $1,721,000. At June 30,
1997, the Bank had a remaining payable to RB Management in the amount of
$2,121,000, including interest, which was paid in full in July 1997.
The Kenneth Leventhal Real Estate Group of Ernst & Young LLP, which has been
engaged for this purpose by the Special Transactions Committee of the Bank's
Board of Directors, reviews the form and amount of the fees payable to the
Management Company and advises upon the comparability of the fees and terms to
similar arrangements negotiated on an arm's-length basis.
The Management Agreement has an initial term of three years, which will be
extended for up to two additional one-year terms if the Marine senior debt is so
extended. The Management Agreement is terminable by either party at any time on
180 days' notice with the consent of Marine Midland or other senior lenders, as
applicable. In addition, the Bank's Board of Directors, subject to the consent
of Marine Midland, may terminate the Management Agreement without notice for
"Cause." "Cause" is defined as a material breach of the Management Agreement
and/or willful act or omission by the Management Company that is materially
detrimental to the best interests of the Bank. In addition, the Management
Agreement may be terminated by the Bank's Board of Directors during the last
year of any term 60 days after the sale of the last asset of the Bank.
624833.12
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<PAGE>
Upon any termination of the Management Agreement, the fees payable to the
Management Company will be pro rated for such year to the date of termination.
If the Management Agreement is terminated prior to the expiration of any term,
the Bank also reimburses the Management Company for the reasonable costs
incurred by the Management Company in terminating its services to the Bank
including, but not limited to, reasonable termination or severance payments made
to service providers or employees terminated by the Management Company as a
result of such termination.
Employees; Other Service Providers: In addition to retaining the Management
Company to provide the Bank with the services described above, the Bank, subject
to regulatory approval, terminated most of its employees and retained third
parties (including Fintek, Inc. and other entities controlled by Mr. Dworman) to
provide much of the administrative and non-real estate operating functions of
the Bank's operations.
The Management Company has engaged Fintek, Inc. ("Fintek"), a firm 50%
beneficially owned by Mr. Dworman which has previously provided certain advisory
services to the Bank, to continue to provide such services to the Bank. All fees
paid to Fintek for such advisory services were the obligation of the Management
Company and were paid out of the fees received by the Management Company from
the Bank. On June 28, 1996 Fintek and the Bank mutually agreed to the
termination of the previous contract between Fintek and the Bank.
Persons or entities engaged by the Board of Directors, the Asset Management
Committee or by the Management Company on behalf of the Bank entered into a
service contract with the Bank and are compensated in accordance with market
rates for similar services. The terms of these contracts, including
compensation, were reviewed prior to execution by the Audit Committee of the
Board of Directors, and the Board of Directors engaged the Kenneth Leventhal
Real Estate Group of Ernst & Young LLP to review each service contract and to
advise the Audit Committee on the terms of the contracts and the comparability
to similar arrangements for similar services.
624833.12
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<PAGE>
ITEM 10
MANAGEMENT COMPENSATION AND TRANSACTIONS
Remuneration of Executive Officers - Summary Compensation Table: The following
table discloses compensation received by the Bank's chief executive officer for
the years indicated. The cash compensation amounts below reflect compensation
received from the Bank and its subsidiaries. There were no other executive
officers who received compensation in 1997 from the Bank (other than director
fees).
<TABLE>
<CAPTION>
Annual Compensation
<S> <C> <C> <C> <C> <C>
Other All Other
Executive Officer Base Salary Bonus Compensation Compensation
- ----------------- ----------- ----- ------------ ------------
Jerome R. McDougal Year ended
Chairman of the Board June 30, 1997 $300,000 -- $66,990 (1) $117,296 (2)
and Chief Executive Year ended
Officer June 30, 1996 300,000 -- 84,988 (1) 112,431 (2)
Year ended
June 30, 1995 305,116 -- 76,663 (1) 108,832 (2)
</TABLE>
(1) Consists of a housing allowance, club dues, automobile and driver expenses
(aggregating $25,324, $42,760 and $35,424 for the 1997, 1996 and 1995
periods presented, respectively), certain tax expense reimbursements and
health insurance premiums.
(2) Consists of contributions of $9,500, $9,370 and $9,000 made by the Bank to
its 401(k) Tax Deferred Savings Plan, accruals of and earnings on deferred
compensation in the amounts of $103,739, $100,551 and $97,673 and payments
of $4,057, approximately $2,400 and $2,159 for life and personal liability
insurance premiums for the 1997, 1996 and 1995 periods presented,
respectively.
Board of Directors Compensation: Directors of the Bank receive an annual
retainer of $20,000, plus $1,000 for each Board meeting attended and $750 for
each committee meeting attended. In addition, the Chairmen of the Asset
Management Committee and the Audit Committee will receive an annual stipend of
$2,500.
Compensation Committee Interlocks and Insider Participation: Determinations
regarding compensation of the Bank's employees were previously made by the
Compensation and Benefits Committee of the Board of Directors prior to the
Branch Sale. Mr. McDougal was a member of the Compensation and Benefits
Committee. Subsequent to the Branch Sale such determinations will be made by the
Audit Committee.
Retirement Plan: Effective April 30, 1992, the Bank determined to suspend the
Bank's Retirement Plan. As of the date of suspension, there have been no new
enrollments in the Retirement Plan and no further benefit accruals. As of June
30, 1997, Mr. McDougal was entitled to an accrued benefit of less than $5,000
pursuant to the terms of the Retirement Plan.
Payments to Officers and Employees Pursuant to Phantom Stock Plan: No awards
were granted under the Phantom Stock Plan during fiscal year 1997 or 1996.
In connection with the Branch Sale, the Phantom Stock Plan was terminated and
participants, all of whom were officers and/or employees of the Bank received
cash payments in exchange for surrender of their performance units. The
following table details payments made to certain former officers and employees
subsequent to June 28, 1996:
624833.12
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<PAGE>
Mr. Jerome R. McDougal $ -
Mr. John P. Sullivan -
Mr. Peter L. Dinardi 57,766 (1)(2)
Mr. Joseph Guastavino 85,525 (1)(3)
Mr. Edward Shugrue 175,050 (1)
All other officers and
employees as a group 422,704 (1)
--------
$741,045
========
(1) Amounts distributed on June 28, 1996.
(2) Mr. Dinardi resigned effective November 21, 1995 and received one third of
the value of his performance units granted under the Phantom Stock Plan and
severance payments of $208,000.
(3) Mr. Guastavino has resigned effective October 16, 1997 and was entitled to
receive severance payments of $144,200.
Subsequent to the payments described above, no units remained outstanding under
the Phantom Stock Plan. It is not anticipated at this time that the Board of
Directors will grant additional performance units in the future.
Termination of Bank's Former Severance Plan: The Board of Directors has also
approved a severance plan for designated key senior management personnel which
provides for the payment of one year's salary upon termination for any reason
other than cause, and including a change of control. The Bank also maintained a
general severance plan for all other officers and employees. In connection with
the Branch Sale payments under the severance plans were made on or after June
28, 1996 in an amount aggregating $2.5 million.
Indebtedness of Management: The Bank's current policy is not to make loans to
its directors, executive officers or members of their immediate families,
although it did so from time to time in the past. All loans to directors and
executive officers and all other loans to the Bank's employees were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and do
not involve more than the normal risk of collection or present other unfavorable
features. All such loans were transferred to Marine as Transferred Assets in
connection with the Branch Sale.
Transactions With Affiliates: The Bank previously obtained certain services from
Fintek. Effective October 31, 1991, substantially all of the employees of the
Bank's then-existing capital markets group became employees of Fintek, a
newly-formed corporation. At the same time, Nelson L. Stephenson, a Senior
Executive Vice President of the Bank at the time, resigned as an officer of the
Bank and became the President and Chief Executive Officer of Fintek, as well as
a director of Fintek. Fintek may be deemed to be under common control with the
Bank as a result of interests of Mr. Dworman, and, in addition, an adult child
of Mr. Dworman's is a director of Fintek. Fintek, pursuant to a written
agreement approved by the Bank's Board of Directors, provided certain financial
consulting, strategic planning and advisory services to the Bank, including
providing advice and consulting services with regard to the Bank's treasury
functions. The Bank had the right to terminate the agreement (which was for a
term of one year with automatic annual renewals) by giving Fintek 180 days'
notice of such termination. In addition, the Bank had the right to terminate the
agreement by giving Fintek thirty days' notice prior to any renewal.
At June 30, 1996, the Bank had an accrued aggregate liability to Fintek in the
amount of $1,516,000 for services performed prior to that date. The services
performed by Fintek on behalf of the Bank prior to June 30, 1996 were primarily
in connection with the Branch Sale. During 1997 the Bank made aggregate cash
payments to Fintek in the amount of $762,000. At June 30, 1997, the Bank had a
remaining aggregate liability to Fintek in the amount of $754,000. During July,
1997 the Bank made additional payments to Fintek in the amount of $419,000.
The Fintek Agreement was terminated by mutual consent of the Bank and Fintek on
June 28, 1996. Fintek has been engaged by RB Management Company LLC to provide
similar services to RB Management and the Bank subsequent to the Branch Sale.
See "Management."
624833.12
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<PAGE>
PART IV
ITEM 11
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM F-3
(a)(1) The following financial statements of the Bank are included elsewhere
in Item 8 of this Form F-2 at the pages indicated and are incorporated
by reference: Page
Report of Independent Auditors 85
Consolidated Statements of Financial Condition
June 30, 1997 and 1996 86
Consolidated Statements of Operations
Years ended June 30, 1997, 1996, and 1995 87
Consolidated Statements of Changes in Stockholders' Equity
Year ended June 30, 1997, 1996, and 1995 88
Consolidated Statements of Cash Flows
Years ended June 30, 1997, 1996, and 1995 89
(a)(2) Financial statement schedules are omitted due to inapplicability or
because the required financial information is shown in the Consolidated
Financial Statements or Notes thereto.
(b) Reports on Form F-3 filed during the last quarter of the period covered
by this report:
(i) The Bank filed on April 15, 1997 a Current Report on Form F-2, for
the month of April 1997, reporting under Item 12 a press release
with respect to the status of dividends on the Bank's 15%
noncumulative perpetual preferred stock, series A.
(c) Exhibits:
1.* Form of Restated Organization Certificate of the Bank.
2.** Certificate of Amendment to Restated Organization Certificate of
the Bank.
3.*** Certificate of Amendment to Restated Organization Certificate of
the Bank.
4.* Form of Certificate of Designations of 15% Noncumulative Perpetual
Preferred Stock, Series A.
5.***** Form of Amended and Restated Bylaws of the Bank.
6.* Specimen certificate of Common Stock, par value $1.00 per share, of
the Bank.
624833.12
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<PAGE>
7.* Specimen certificate of 15% Noncumulative Perpetual Preferred
Stock, Series A, par value $1.00 per share, of the Bank. 8.*
Employment Agreement entered into by and between the Bank and Peter
L. Dinardi, and Amendment thereto.
9.* Phantom Stock Plan.
10.**** Bonus Plan.
11.***** Subsidiaries of the Bank.
12.**** Memorandum of Understanding dated September 20, 1995.
13.***** Management Agreement.
14.+ Alternate Proposal submitted to the Banking Department.
15.+ Banking Department Conditional Approval of Alternate Proposal.
* Incorporated by reference to the registration statement on Form
F-1 as filed with the FDIC on June 24, 1994.
** Incorporated by reference to the Form F-3 as filed with the FDIC
on November 3, 1994.
*** Incorporated by reference to the Form F-3 as filed with the FDIC
on October 15, 1996.
**** Incorporated by reference to the Form F-2 as filed with the FDIC
on September 28, 1995.
***** Incorporated by reference to the Form F-2 as filed with the FDIC
on October 15, 1996.
+ Previously filed in the Form F-2 amended hereby as filed with the
FDIC on August 8, 1997.
624833.12
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Bank has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
River Bank America
-------------------------------------
(Registrant)
Date: March 26, 1998 By: /s/ Jerome R. McDougal
----------------------------------
Jerome R. McDougal
President, Chief Executive Officer,
Director and Chairman of the Board
of Directors (principal executive
and principal financial officer)
624833.12
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<PAGE>
ANNEX C
Form F-4
Quarterly Report Under Section 13 of the Securities Exchange Act of 1934 for
Quarter Ended December 31, 1997
FDIC Insurance Certificate Number 15645
RIVER BANK AMERICA
(Exact name of bank as
specified in its charter)
STATE OF NEW YORK 13-5041680
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
645 Fifth Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Bank's telephone number, including area code: (212) 848-0201
Indicate by check mark whether the bank (1) has filed all reports required to be
filed by section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No
The number of shares outstanding of the Registrant's Common Stock as of February
15, 1997, was 7,100,000. The number of shares outstanding of the Registrant's
15% Non-cumulative Perpetual Preferred Stock, Series A as of February __, 1998,
was 1,400,000.
684721.2
-1-
<PAGE>
RIVER BANK AMERICA
Form F-4 for the quarter ended December 31, 1997
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
<TABLE>
<CAPTION>
<S> <C>
Page
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Financial Condition
as of December 31, 1997 and June 30, 1997 3
Condensed Consolidated Statements of Operations
for the three and six months ended
December 31, 1997 and 1996 4
Condensed Consolidated Statements of Changes in
Stockholders' Equity for the six months
ended December 31, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows
for the Six months ended December 31, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II OTHER INFORMATION 29
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities
ITEM 3. Defaults upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Securities Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES 31
</TABLE>
684721.2
-2-
<PAGE>
River Bank America
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION December 31, 1997 and June 30,
1997
(Dollars in Thousands)
Assets
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, June 30,
1997 1997
(Unaudited)
Cash and due from banks $ 6,475 $ 8,940
Cash and due from banks - restricted 5,212 5,096
Investment securities, available for sale 1,373 6,275
Loans receivable, net:
Secured by real estate 78,443 80,093
Commercial and consumer 13,512 15,677
Allowance for possible credit losses (26,659) (31,570)
---------- -----------
Total loans receivable, net 65,296 64,200
---------- ----------
Loans sold with recourse, net 19,657 24,451
Other real estate owned, net 3,001 7,127
Real estate held for investment, net 88,290 90,222
Other assets, net of interest reserve 5,236 5,348
------------- -----------
$ 194,540 $ 211,659
= ======= = =======
Liabilities and Stockholder's Equity
Borrowed funds $ 71,394 $ 84,272
Other liabilities 16,091 18,877
------------ ------------
87,485 103,149
------------ ----------
Stockholders' equity:
Senior non-cumulative preferred stock, par value $1 (no
shares authorized, issued and outstanding) - -
Non-cumulative preferred stock, par value $1 (no shares
authorized, issued and outstanding) - -
15% non-cumulative perpetual preferred stock, Series A, par 1,400 1,400
value $1, liquidation value $25 (1,400,000 shares
authorized, issued and outstanding)
Common stock, par value $1 (30,000,000 shares authorized,
7,100,000 shares issued and outstanding) 7,100 7,100
Additional paid-in capital 111,170 111,170
Accumulated deficit (11,689) (10,055)
Securities valuation account (926) (1,105)
--------------- ------------------
Total stockholders' equity 107,055 108,510
----------- ------------
$ 194,540 $ 211,659
= ======= = =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
684721.2
-3-
<PAGE>
River Bank America
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended December 31, 1997 and 1996
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
Interest, fees on loans and dividend income:
Loans receivable $ 1,369 $ 1,178 $ 2,905 $ 2,522
Mortgage-backed securities - - - 2
Investment securities - 18 55 133
Money market investments - 51 - 111
Other 95 38 154 58
--------- ----------- ----------- -----------
1,464 1,285 3,114 2,826
------- --------- ---------- ---------
Interest expense:
Borrowed funds 1,535 1,787 3,172 3,858
Other 31 - 52 -
--------- ----------- ------------ ---------
1,566 1,787 3,224 3,858
------- --------- ---------- --------
Net interest income (102) (502) (110) (1,032)
Provision for possible credit losses - 1,000 - 1,000
----------- --------- -------------- --------
Net interest income after
provision for possible credit losses (102) (1,502) (110) (2,032)
--------- ---------- ------------ ---------
Real estate operations:
Writedowns of investments in real estate - (14,745) (350) (18,745)
Net loss on sale of real estate, loans (89) (406) (1,003) (1,195)
Income from investments in real estate, net 571 704 1,530 1,686
-------- ---------- ---------- --------
482 (14,447) 177 (18,254)
-------- --------- ----------- --------
Expenses:
Salaries 139 245 303 535
Employee benefits 86 68 127 123
Legal and professional fees 596 642 1,341 762
Management fees 659 748 1,330 1,524
Other 95 187 196 191
--------- ---------- ----------- ----------
1,575 1,890 3,297 3,135
------- --------- ---------- ---------
Loss before other income/(expense) and
before the provision for income taxes (1,195) (17,839) (3,230) (23,421)
Other income/(expense):
Net gain on sales of investment securities - 18 1,697 18
Provision for Marine Branch Sale contingencies - (3,300) - (3,300)
----------- ---------- -------------- ---------
- (3,282) 1,697 (3,282)
----------- ---------- ---------- ---------
Loss after other income/(expense) and
before provision for income taxes (1,195) (21,121) (1,533) (26,703)
Benefit from (provision for) income taxes (50) 3,300 (101) 3,300
---------- --------- ------------ ---------
Net loss (1,245) (17,821) (1,634) (23,403)
Dividends declared on Preferred Stock - - - -
----------- ------------- -------------- ---------
Net loss applicable to common stock $ (1,245) $ (17,821) $ (1,634) $ (23,403)
======= ======== ======= ========
Basic and diluted loss per common share (note 3) $(0.19) $(2.51) $(0.24) $(3.30)
======= ====== ====== ======
See Notes to Condensed Consolidated Financial Statements
</TABLE>
684721.2
-4-
<PAGE>
River Bank America
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY Six months ended
December 31, 1997 and 1996
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Series A
Non- Retained
cumulative Earnings
Perpetual Additional (Deficit)- Securities Total
Preferred Common Paid-in Substantially Valuation Stockholders'
Stock Stock Capital Restricted Account Equity
Balances at June 30, 1996 $ 1,400 $ 7,100 $ 111,170 $ 20,068 $ (1,218) $ 138,520
Net loss for the six months
ended December 31, 1996 - - - (23,403) - (23,403)
Preferred stock dividends
payable - - - - - -
Change in securities valuation
account - - - - - -
------------- ------------- ------------- ------------- -----------------
Balances at December 31, 1996 $ 1,400 $ 7,100 $ 111,170 $ (3,335) $ (1,218) $ 115,117
===== ===== ======= ======= ======= =======
Balances at June 30, 1997 $ 1,400 $ 7,100 $ 111,170 $ (10,055) $ (1,105) $ 108,510
Net loss for the six months
ended December 31, 1997 - - - (1,634) - (1,634)
Preferred stock dividends
payable - - - - - -
Change in securities valuation
account - - - - 179 179
----------------- ----------- -------------- --------------- --------------- ---------------
Balances at December 31, 1997 $ 1,400 $ 7,100 $ 111,170 $ (11,689) $ (926) $ 107,055
===== ===== ======= ======== ===== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
684721.2
-5-
<PAGE>
River Bank America
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS Six months ended
December 31, 1997 and 1996
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
---- ----
Operating Activities
Cash Flows Provided by (Used in) Operating Activities:
Net loss $ (1,634) $ (23,403)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for possible credit losses - 1,000
Writedowns of investments in real estate 350 18,745
Depreciation and amortization 104 10
Net (increase)/decrease in accrued interest receivable (486) 233
Net (decrease)/increase in accrued interest payable (642) 1,192
Net change in income taxes (185) (3,225)
Net decrease in accrued expenses and other liabilities (2,836) (2,452)
Net decrease/(increase) in prepaid expenses and other assets 597 (334)
Other (36) -
---------- -------
Net cash used in operating activities $ (4,768) $ (8,234)
------- -------
Investing Activities
Cash Flows Provided by (Used in) Investing Activities:
Interest payments related to asset sale transactions (124) (318)
Proceeds from sales and maturities of
investment securities, available for sale 6,871 -
Principal collection of mortgage backed securities,
available for sale - 187
Net repayment of loans secured by real estate 1,404 3,105
Net (repurchase)/repayment of commercial and consumer loans (2,002) 1,651
Net decrease in loans sold with recourse 4,794 1,973
Redemption of FHLB Stock - 7,876
Proceeds from sales of real estate 8,458 24,748
Additional fundings on other real estate owned and real estate
held for investment (4,104) (5,961)
-------------- --------------
Net cash provided by investing activities $ 15,297 $ 33,261
------ ------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
684721.2
-6-
<PAGE>
River Bank America
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS Six months ended December 31, 1997
and 1996
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
---- ----
(Continued from previous page)
Financing Activities
Cash Flows Provided by (Used in) Financing Activities:
Net increase in restricted cash $ (116) $ (3,000)
Net decrease in deposit accounts - ($3,022)
Proceeds from borrowed funds, construction advances 551 1,368
Repayment of other borrowed funds (6,936) (22,910)
Decrease in borrowed funds secured by loans
sold with recourse, net of construction advances (6,493) (2,908)
Net decrease in escrow deposits - (272)
-----------------------------------
Net cash used in financing activities $ (12,994) $ (30,744)
----------------- -----------------
Net decrease in cash and money market investments (2,465) (5,717)
Beginning cash and money market investments $ 8,940 $ 17,129
----------------- -----------------
Ending cash and money market investments $ 6,475 $ 11,412
================= =================
Supplemental Disclosure of Cash Flow Information
Non-cash investing and financing activities:
Net transfer of mortgage loans to other
real estate and real estate held for investment $ - $ -
Investments in real estate charged-off $ 2,971 $ 18,745
Loans to facilitate real estate sales $ - $ -
Changes in securities valuation account $ 179 $ -
Cash paid for:
Interest $ 3,990 $ 3,613
Federal, state and local taxes $ 268 $ -
</TABLE>
See Notes to Condensed Consolidated Financial Statements
684721.2
-7-
<PAGE>
River Bank America
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Dollars in Thousands, except per share data)
(unaudited)
1. Presentation of Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements of River
Bank America (the "Bank") include all adjustments which management believes
necessary for a fair presentation of the Bank's financial condition at December
31, 1997, the results of its operations for the three and six months ending
December 31, 1997 and 1996 and the statements of changes in stockholders' equity
and cash flows for the six months ending December 31, 1997 and 1996. These
unaudited condensed consolidated financial statements have been prepared in
conformity with the accounting principles and practices in effect as of June 30,
1997, as set forth in the consolidated financial statements of River Bank
America (the "Bank") at such date. These unaudited condensed consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements of River Bank America as of June 30, 1997.
The condensed consolidated financial statements include the accounts of River
Bank America and its wholly-owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation. Due to the anticipated
short-term nature of such investments, investments in unconsolidated real estate
partnerships are generally carried at the lower of cost or net realizable value,
which results do not differ materially from generally accepted accounting
principles. Losses on sales or dispositions and any adjustments related to
redetermination of net realizable value are charged, as real estate charge-offs
to operations of the current period.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of the Bank's financial
condition as of December 31, 1997, the results of operations for the three and
six months ending December 31, 1997 and 1996, and changes in stockholders'
equity and cash flows for the six months ending December 31, 1997 and 1996.
For comparative purposes, reclassifications have been made to certain amounts
previously reported in prior periods within the consolidated financial
statements to conform to current period presentation.
In preparing the condensed consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the dates of the consolidated statements of
financial condition and operations for the period. Material estimates that are
particularly susceptible to significant change in the near-term relate to the
determination of the allowance for possible credit losses, the valuation of
other real estate owned, which includes real estate acquired in connection with
foreclosures, by deed-in-lieu of foreclosure (collectively, "OREO"), and real
estate held for investment. A substantial portion of the Bank's loan portfolio
is secured by real estate and, accordingly, the performance of such loans may be
affected by market conditions for real estate. In addition, most of the Bank's
OREO is located in New York. The concentration of loans secured by properties
and OREO in New York may, accordingly, have a negative impact on the Bank's
future operating results due to the market conditions in these areas.
Management believes that the allowance for possible credit losses is adequate
and that other real estate owned and real estate held for investment is properly
valued. While management uses available information to establish reserves,
future additions to the allowance or writedowns of other real estate owned or
real estate held for investment may be necessary based on changes in economic
conditions, as well as changes in management strategies. So long as the Bank is
regulated by the New York State Banking Department ("NYSBD"), the NYSBD, as an
integral part of its examination processes, periodically reviews the adequacy of
the allowance for possible credit losses and the carrying amount of OREO and
real estate held for investment. The NYSBD may require the Bank to recognize
additions to the allowance or additional writedowns based on their judgment or
information available to them at the time of their examinations. The Bank has
completed, or has plans to complete, all remaining requirements of its
previously announced plan to change, through a series of steps, in a manner
intended to constitute a tax-free reorganization, the legal form of organization
of the Bank from a New York chartered bank to a business corporation
incorporated in the State of Delaware. Reorganizing the
684721.2
-8-
<PAGE>
River Bank America
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Dollars in Thousands, except per share data)
(unaudited)
Bank into a Delaware business corporation will remove the Bank's business and
assets from the jurisdiction of the NYSBD. (See "Bank Closing Resolution,"
below).
Management determines the appropriate classification of debt and equity
securities (collectively, "marketable" securities) at the time of purchase and
reevaluates such designation as of each balance sheet date. Available- for-sale
securities are stated at estimated fair value, with unrealized gains and losses,
net of tax, reported in a separate component of stockholders' equity. The cost
of marketable securities classified as available-for-sale is adjusted for
amortization of premiums and accretion of discounts to maturity, or in the case
of mortgage-backed securities, over the estimated life of the security using a
method approximating the level yield method. Such amortization is included in
interest income from investments. Realized gains and losses, and declines in
value judged to be other-than-temporary are included in net securities gains and
losses. The cost of securities sold is based on the specific identification
method. At December 31, 1997, the balance of stockholders' equity included a
$926,000 unrealized loss on marketable securities classified as
available-for-sale.
The provision for income taxes differs from the amount computed by applying the
statutory Federal income tax rate of 35% to the income (loss) before provision
for income taxes primarily due to state and local income and franchise taxes and
limitations on the recognition of tax benefits of net operating losses. At
December 31, 1997 the Bank reviewed its potential current and deferred federal
and state tax liabilities in light of the results of operations for the Bank for
the six months ended December 31, 1997. As a result of this analysis, the Bank
recognized income tax expense in the amounts of $50,000 and $101,000 during the
three and six month periods ended December 31, 1997, respectively. At December
31, 1996 the Bank completed a review of it's potential current and deferred
federal and state tax liability for the calendar year ending December 31, 1996
in light of the Branch Sale and its related effect. As a result of the review of
its potential current and deferred tax liabilities and the results of operations
for the six months ending December 31, 1996, the Bank reduced its provision for
state and local income taxes by $3.3 million.
During the quarter ended September 30, 1997, the Bank applied to the Internal
Revenue Service (the "IRS") to change its tax year end to June 30 in order to
correspond to the Bank's accounting year end. Management anticipates that the
IRS will approve such change and that the change will be effective June 30,
1997. The planned change in tax year end will have no material effect upon the
Bank's financial condition or its results of operations.
During the quarter ending December 31, 1996, the Bank and Marine undertook an
overall review of the closing of the Branch Sale. As a result of such review,
the Bank established a reserve of $3.3 million for potential closing settlement
adjustments and claims which it believes may be asserted by Marine related to
certain assets acquired by Marine in the Branch Sale. The establishment of this
reserve is reflected on the Statement of Operations for the three and six month
period ended December 31, 1996, as provision for Marine Branch Sale
contingencies. At December 31, 1997 the Bank had a remaining accrued liability
for potential settlement claims approximating $2.2 million. The Bank believes
that the remaining reserve for closing settlement adjustments adequately
provides for claims which may be asserted by Marine.
The Bank believes that the establishment of the reserve for closing settlement
adjustments and re-evaluation of its current and deferred income tax liabilities
provided a better allocation of the components of the previously recorded net
gain resulting from the Branch Sale as reflected in the June 30, 1996 financial
statements. The adjustments described above, when taken together, had no effect
on the results of operations for the three or six month periods ending December
31, 1996 or on Stockholders Equity at December 31, 1996.
684721.2
-9-
<PAGE>
River Bank America
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Dollars in Thousands, except per share data)
(unaudited)
2. Regulatory Agreement and Capital Compliance
Following the Branch Sale, River Bank continued to be regulated by the FDIC and
the NYSBD. On October 31, 1996, River Bank requested that the FDIC terminate its
status as an insured depository institution. Termination of FDIC insurance was
required in order for the waiver of the deposit insurance requirements under New
York Bank Law granted by the New York Banking Board to become effective. Such
waiver was granted in connection with the Banking Department's approval of the
Branch Sale. On April 14, 1997, River Bank received an order of termination of
insurance from the FDIC terminating River Bank's status as an insured depository
institution effective as of December 31, 1997. As a result of the effectiveness
of the order of termination of insurance, River Bank is no longer subject to
FDIC jurisdiction and regulation and the New York Banking Board's waiver of the
New York Bank Law deposit insurance requirements is effective.
River Bank transferred substantially all its deposits to Marine Midland in
connection with the Branch Sale on June 28, 1996, and has not paid any FDIC
deposit insurance assessments for any assessment period following the Branch
Sale. The FDIC has asserted that the Bank is liable for approximately $710,000
in unpaid deposit insurance assessments, plus accrued interest in the amount of
approximately $50,000 to date, attributable to the Transferred Deposits and
certain other retained deposit liabilities for the semi-annual assessment period
that began on July 30, 1996 and ended on December 31, 1996. During the
Assessment Period, River Bank maintained only a minimal amount of deposits.
Therefore, River Bank is pursuing administrative discussions with the FDIC to
have the FDIC withdraw its assertion that River Bank is liable for the deposit
insurance assessment on the Transferred Deposits; there can be no assurance that
River Bank will be successful in persuading the FDIC to change its position on
this matter. If River Bank is unsuccessful in changing the FDIC's position with
respect to this matter, it would be required to pay the contested assessment,
together with applicable interest.
The NYSBD also advised the Bank that the Bank's minimum capital requirement, set
at $115 million in the NYSBD's approval of the Branch Sale and subsequently
amended to $106 million in May 1997, shall remain at $106 million until the
Bank's final dissolution, unless the NYSBD shall provide prior approval of the
Bank's written request to amend the Bank's minimum capital requirement.
At December 31, 1997, primarily as a result of the net gain resulting from the
Branch sale, the Bank believes that its capital ratios were in excess of the
minimum requirements of the FDIC and also exceeded the minimum capital
requirements of the NYSBD established in connection with the NYSBD approval of
the Branch Sale.
3. Earnings per Share
Earnings per share were based upon 7,100,000 weighted average shares of Common
Stock outstanding during the six months ending December 31, 1997 and 1996. The
Bank had no securities outstanding that were convertible to common stock at
December 31, 1997 and 1996.
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No. 128 replaced
previously promulgated Generally Accepted Accounting Principals (GAAP) regarding
the calculation of, and reporting requirements for, earnings per share
information. Specifically, SFAS No. 128 replaced primary and fully diluted
earnings per share, as previously defined under GAAP, with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants, and convertible securities.
Under SFAS No. 128, diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. The Bank had no securities
outstanding that were convertible to common stock during the years ended June
30, 1997, 1996 and 1995. All earnings per share amounts for all periods have
been presented, and where necessary, restated to conform to the SFAS No. 128
requirements.
684721.2
-10-
<PAGE>
River Bank America
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Dollars in Thousands, except per share data)
(unaudited)
4. Commitments, Contingencies and Other
Standby letters of credit and financial guarantees outstanding are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The amount of collateral obtained upon extension of credit varies and is based
on management's credit evaluation of the counter party. At December 31, 1997,
the Bank and its wholly owned subsidiaries no longer had any outstanding
commitments related to standby letters of credit or financial guarantees.
As of December 31, 1997, the Bank had deferred tax assets that were primarily
attributable to NOLs, an allowance for loan losses and suspended passive
activity losses and credits which were partially offset by a deferred tax
liability in its consolidated financial statements. However, a valuation
allowance was set up equal to the amount of the difference between the tentative
deferred tax asset and the tentative deferred tax liability due to the
uncertainty of the Bank's ability to utilize the deferred tax assets in the
future. Accordingly, neither a net overall asset nor a net overall liability was
reflected in the Bank's consolidated financial statements.
Under current tax law, the Bank's ability to utilize certain tax benefits in the
future may be limited in the event of an "ownership change", as defined by the
Internal Revenue Code Section 382 and the regulations thereunder. In the event
that the Bank Closing Resolution discussed in Item 2 (below) is deemed to be an
ownership change, or if, transactions in the Bank's capital stock subsequent to
the Bank Closing Resolution result in an ownership change, the subsequent
utilization of net operating loss carryforwards, suspended passive activity
losses and credits, alternative minimum tax credit carryforwards and certain
other built-in losses would be subject to an annual limitation as prescribed by
current regulations. The application of this limitation could have a material
effect on the Bank's ability to realize its deferred tax assets.
The Bank is of the view that no ownership change of the Bank has occurred as a
result of the Bank Closing Resolution or otherwise. The Bank believes that the
Bank Closing Resolution, when combined with prior changes in ownership of stock
of the Bank and other transactions affecting ownership of the capital stock of
the Bank which occurred in connection with the Bank Closing Resolution, also did
not result in an ownership change of the Bank. However, the application of
Section 382 is in many respects uncertain. In assessing the effects of prior
transactions and of the Bank Closing Resolution under Section 382, the Bank made
certain legal judgments and certain factual assumptions. The Bank has not
requested or received any rulings from the IRS with respect to the application
of Section 382 to the Bank Closing Resolution and the IRS could challenge the
Bank's determinations.
In the normal course of the Bank's business, there are outstanding various
claims, commitments and contingent liabilities. The Bank also is involved in
various other legal proceedings which have occurred in the ordinary course of
business. Management, based on discussions with legal counsel, believes that the
Bank will not be materially affected by the actions of any outstanding legal
proceedings. However, there can be no assurance that any outstanding legal
proceedings will not be decided adversely to the Bank and have a material
adverse effect on the financial condition and the results of operations of the
Bank.
684721.2
-11-
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
General:
River Bank America (the "Bank") is a New York State-chartered stock savings bank
which was founded in 1848. In 1925, the Bank adopted the name "East River
Savings Bank" which it continued to use in its retail business through June 28,
1996. In 1988, the Bank adopted the name "River Bank America." This report is
for the six months ended December 31, 1997.
On June 28, 1996, the Bank consummated the transactions (the "Branch Sale")
contemplated by the Purchase of Assets and Liability Assumption Agreement (the
"Branch Agreement") by and between the Bank and Marine Midland Bank ("Marine").
Pursuant to the terms of the Branch Agreement, Marine assumed $1,159,616,300 of
deposit liabilities (the "Assumed Deposits") and acquired assets with an
aggregate carrying value of $1,066,616,300 (the "Transferred Assets"). The
Transferred Assets consisted primarily of loans secured by real estate,
mortgage-backed and investment securities, and 11 Bank branch offices. Included
in the Transferred Assets was approximately $32.4 million principal amount of
loans in which the Bank was granted subordinated participation interests. Also
included in the Transferred Assets were the proceeds of dispositions from five
individual asset sale transactions with third parties, aggregating $60.4 million
composed of real estate assets, loans and other receivables (the "Asset Sale
Transactions"). The Asset Sale Transactions were structured to include ongoing
recourse to, and participation by, the Bank with respect to the assets sold,
based upon the net proceeds realized on disposition of assets by the purchasers.
See "Asset Sale Transactions" and Notes 11 and 17 to the Consolidated Financial
Statements. The Assumed Deposits exceeded the Transferred Assets by
approximately $93.0 million, which amount represents the premium received by the
Bank in the Branch Sale. Marine also purchased the Bank's branch office realty
at 96th Street in Manhattan for $1.3 million.
The Bank retained $285.5 million in assets, including primarily real estate
assets and non-performing loans; the balance of the retained assets consisted of
performing loans (including loans sold with recourse, subordinated
participations, junior subordinated participations, loans to facilitate the sale
of real estate owned and mortgage and other loans) and a modest amount of cash
and investment securities (collectively, the "Retained Assets"). The Bank
intends to continue substantially the same disposition strategy for Retained
Assets subsequent to the Branch Sale as was previously employed by the Bank.
The closing of the Branch Sale was conditioned upon the Bank's obtaining
financing with terms and in an amount reasonably acceptable to the Bank and
determined to be reasonably adequate to permit consummation of the Branch Sale.
The Bank obtained from Marine a facility (the "Facility") consisting of eleven
independent mortgage loans with additional collateral, in an aggregate amount
not to exceed $99.1 million. As of December 31, 1997, Marine had approximately
$60.6 million outstanding under the Facility to the Bank.
The Bank has received notice that approval necessary to pay dividends on the
Bank's outstanding shares of 15% Noncumulative Perpetual Preferred Stock, Series
A (the "Series A Preferred") will not be provided at this time. In June, 1996,
the Bank's Board of Directors declared a Series A Preferred dividend for the
quarter ending June 30, 1996 in the amount of $1.3 million, payment of which was
subject to the receipt of required approvals from regulators and Marine (the
Bank's principal lender). At December 31, 1997, the Bank continued to carry this
accrued dividend payable as a component of other liabilities. The Bank intends
to continue to seek approval for the payment of the declared Series A Preferred
dividend. Primarily as a result of the above, the Bank's Board of Directors has
taken no action as regards a quarterly dividend on the Bank's Series A Preferred
for the quarters ending September 30, 1997 and 1996, December 31, 1997 and 1996,
March 31, 1997 and June 30, 1997. Any future dividend payments of the Bank's
Series A Preferred Stock will also be subject to the approval of Marine and the
NYSBD, until such time as the Bank is no longer regulated by the FDIC and the
NYSBD.
Bank Closing Resolution:
At the Annual Meeting held on October 7, 1997, stockholders of the Bank approved
the Bank Closing Resolution whereby the Board of Directors was directed to close
the Bank and wind up its business. Stockholder approval of the Bank Closing
Resolution allowed the Bank to notify the New York State Superintendent of Banks
of the proposed Bank Closing and to file a petition in the Supreme Court of the
State
684721.2
-12-
<PAGE>
of New York by October 15, 1997. Under New York Banking Law, stockholder
approval of the proposal to close the Bank was required before a petition for a
closing order could be filed in New York Supreme Court. The petition for the
closing order (the "Closing Order Petition") was filed on October 15, 1997. The
petition was granted on November 26, 1997 and a closing order was signed on
January 9, 1998 and entered on January 14, 1998, allowing the Bank to proceed
with the required notice to creditors.
By filing the petition for the closing order in the New York Supreme Court prior
to October 15, 1997, the Bank was able to comply with certain conditions imposed
by the New York State Banking Department (the "Banking Department") in its
approval of the Bank's previously announced plan to change, through a series of
steps, in a manner intended to constitute a tax-free reorganization, the legal
form of organization of the Bank from a New York chartered bank to a business
corporation incorporated in the State of Delaware. The Bank's board of directors
proposed this plan as an alternative to a liquidation of the Bank in accordance
with conditions imposed by the Banking Department in connection with the Banking
Department's approval of the Bank's June 1996 Branch Sale referred to below.
Following stockholder and Banking Department approval, on June 28, 1996, the
Bank sold all of its branches and transferred substantially all of its deposits
to Marine Midland Bank (the "Branch Sale"). Although the Bank has ceased
operation as a depository institution, it remains a banking organization legally
chartered and subject to regulation, examination and supervision by the New York
State Banking Department. As conditions to its approval of the Branch Sale, the
Banking Department required the Bank to agree (i) to submit a plan of
dissolution for Banking Department approval within one year of the Branch Sale
closing date (the "Dissolution Plan Condition"); and (ii) to file a petition in
New York State Supreme Court for a closing order within 13 months of the closing
of the Branch Sale and for a final order of dissolution of the Bank within five
months following the filing of a petition for a closing order (the "Closing
Condition"); (iii) to maintain specified levels of minimum capital ($106 million
as of May 1997); (iv) to make no distributions on the River Bank Common Stock
and River Bank Series A Preferred Stock without the approval of the NYSBD until
such time as a final order of dissolution has been signed; (v) to obtain prior
NYSBD approval for any additional financing; and (vi) to submit specified
periodic reports with respect to, among other things, assets, dispositions,
expenditures for improvements and cash receipts and disbursements. In April
1997, River Bank announced that the Board of Directors was evaluating a proposal
to reorganize the Bank into a business corporation, consistent with the Bank's
goal of managing its assets to maximize stockholder value. To that end, in June
1997, the Bank proposed to the Banking Department an alternative under which the
Dissolution Plan Condition would be satisfied through the implementation of a
plan whereby the Bank would, through a series of steps, on what is intended to
be a tax-free basis, change its legal form of organization by which it conducts
its business, holds its assets and is obligated for its liabilities from a New
York chartered stock savings bank into a business corporation incorporated in
the State of Delaware (the "Reorganization"). Thereafter, the Bank would
voluntarily dissolve (the "Dissolution" and together with the Reorganization,
the "Alternate Proposal"). In a letter dated June 24, 1997, the Banking
Department, indicating its conditional approval, stated that it did not object
to the Alternate Proposal and advised, among other things, that it required that
the petition for the closing order required by the Closing Condition be filed by
October 15, 1997.
Following the Branch Sale, River Bank continued to be regulated by the FDIC and
the Banking Department. On October 31, 1996, River Bank requested that the FDIC
terminate its status as an insured depository institution. Termination of FDIC
insurance was required in order for the waiver of the deposit insurance
requirements under New York Banking Law granted by the New York Banking Board to
become effective. Such waiver was granted in connection with the Banking
Department's approval of the Branch Sale. On April 14, 1997, River Bank received
an order of termination of insurance from the FDIC terminating River Bank's
status as an insured depository institution effective as of December 31, 1997.
As a result of the effectiveness of the order of termination of insurance, River
Bank is no longer subject to FDIC jurisdiction and regulation and the New York
Banking Board's waiver of the New York Banking Law deposit insurance
requirements is effective.
In accordance with the Bank's undertaking made in connection with the annual
meeting, the Bank advised the New York Supreme Court in the Closing Order
Petition that no substantive legal steps will be taken to implement the
Reorganization and Dissolution until stockholders again approve the closing of
the Bank at a Special Meeting of stockholders to be conducted at the earliest
practical date, which approval will not be obtained until a proxy
statement/prospectus detailing the Bank's plans to implement the Reorganization
and Dissolution have been provided to all stockholders.
684721.2
-13-
<PAGE>
Reorganizing the Bank into a Delaware business corporation will remove the
Bank's business and assets from the jurisdiction of the NYSBD. This will permit
the successor to the Bank's assets to manage its approximately $195 million in
assets without the bank regulatory restraints in its efforts to maximize returns
to stockholders.
Upon completion of the Reorganization transactions, (i) The Bank's successor
will be incorporated in the State of Delaware as a business corporation with the
name RB Asset, Inc.("RB Asset"); (ii) RB Asset's capital structure will be
substantially identical to that of the Bank; (iii) Holders of the common and
Series A preferred stock will receive shares of common stock and preferred stock
of RB Asset on a share-for-share basis. The stock to be received by the Bank's
stockholders will be substantially identical in all material respects to the
outstanding stock of the Bank; (iv) RB Asset will succeed to and continue with
the business, assets, liabilities and property/asset management operations of
the Bank; and (v) RB Asset will be managed by independent contractors in a
manner similar to the management of the affairs and business of River Bank.
The Reorganization is structured in a manner intended to qualify as a tax-free
reorganization in which neither River Bank, RB Asset, nor their stockholders
will recognize taxable gain. The Reorganization is also intended to preserve for
use by RB Asset the availability of River Bank's approximately $106.0 million of
net operating loss carryforwards and other tax assets. Following the
Reorganization and Dissolution, RB Asset stockholders will confront investment
risks that are substantially identical to those associated with their former
investment in River Bank (which shall have dissolved in the Dissolution). While
the removal of banking regulatory restraints will permit RB Asset to conduct its
business and operations with a long-term investment horizon, RB Asset
stockholders will bear the risk that the future value of their investment in RB
Asset will not equal or exceed the value that they would have received in a
supervised liquidation of River Bank's assets under the terms of a plan of
dissolution filed with and subject to the jurisdiction of the New York State
Supreme Court.
The Bank believes that it is in the best interest of the Bank and its
stockholders to preserve the opportunity to implement the Reorganization and the
Dissolution and therefore requested approval of the Bank Closing Resolution so
that the Bank was able to file a petition for a closing order before the October
15, 1997 deadline. Under New York Banking Law, stockholder approval of the Bank
Closing Resolution was required before a petition for a closing order could be
filed in New York State Supreme Court.
At the Special Meeting, holders of River Bank common stock and series A
preferred stock will be asked to approve a proposal to direct that the Bank be
closed and its business wound up by means of the Reorganization and the
Dissolution. Holders of River Bank common stock will also be asked to approve
certain amendments (necessary to implement the Reorganization) to the
certificate of designations for River Bank's outstanding series A preferred
stock. The Board of Directors has determined that implementation of the
Reorganization and Dissolution is in the best interests of the Bank, and its
stockholders and therefore has unanimously recommended that stockholders approve
the proposal necessary to implement the Reorganization and Dissolution.
Following the Reorganization, the board of directors of RB Asset intends to call
a special meeting of the series A preferred stockholders of RB Asset to be
convened no later than June 30, 1998 to elect two representatives of such
stockholders in accordance with the special voting rights provisions of the
certificate of designations for RB Asset's series A preferred stock.
Bank's Principal Business:
The Bank's principal business continues to be the orderly disposition of real
estate assets, mortgage loans and investment securities, intended to maximize
shareholder value. Primarily as a result of deterioration in the real estate
markets and a general economic recession in the New York metropolitan area and,
later in other areas in which the Bank was engaged in lending activities,
particularly California, the Bank's non-performing assets began increasing in
1989 and continued to increase in the aggregate through 1992. The resolution of
non-performing assets, which substantially resulted from the Bank's lending
strategy of the 1980s, required significant time and attention by the Bank's
management. Over the past five years, the Bank's primary loan origination focus
was single-family (one-to-four units) and, to a lesser extent, multi-family
(five or more units) residential loans secured by properties in the New York
City metropolitan area. Subsequent to June 28, 1996, the Bank does not expect to
originate a material amount of loans of any type.
684721.2
-14-
<PAGE>
In recent years, the earnings of the Bank have been negatively affected
primarily by the level of non-performing assets which consist of non-accrual
loans, loans which are on accrual status but delinquent 90 days or more, other
real estate owned, including in-substance foreclosures, and real estate held for
investment. These assets were largely commercial real estate related. The Bank
reduced the level of its non-performing assets by $467.6 million or 77.6% from a
high of $602.8 million at December 31, 1992 to $135.2 million at December 31,
1997 and continues to direct its efforts toward further reducing the level of
non-performing assets. While the Bank was able to reduce its level of
non-performing assets significantly during the 60 months ending December 31,
1997, further reductions will be dependent on many factors, some of which are
outside the control of the Bank's management, including but not limited to,
conditions in the relevant real estate markets, prevailing interest rates and
national economic trends.
The Bank has engaged RB Management Company, LLC (the "Management Company") to
manage the operations of the Bank after the Branch Sale, including the
management and disposition of Bank assets. The Management Company is a newly
formed, wholly-owned entity controlled by Alvin Dworman, who owns 39.0% of the
outstanding Common Stock of the Bank. During the six months ended December 31,
1997, the Bank accrued Base Management Fees of $141,000. During the same six
month period, the Bank paid approximately $3.0 million for fees accrued during,
and prior to, the six months ended December 31, 1997. At December 31, 1997, the
Bank had an outstanding liability to the Management Company for fees payable of
$624,000. During the six months ending December 31, 1996, the Bank accrued Base
Management Fees of $625,000, Asset Management Fees of $898,000, and Asset
Disposition Fees of $497,000. During the same six month period, the Bank did not
make any payments to the Management Company. At December 31, 1996, the Bank had
an outstanding liability to the Management Company for fees payable of $2.0
million. At December 31, 1997, the Bank also had accrued fees payable to an
affiliate of the Management Company, Fintek, Inc., aggregating $335,000,
relating to services performed on behalf of the Bank prior to June 30, 1996. See
the "Management" section of the Bank's Form F-2 previously filed as of and for
the year ending June 30, 1997 for a more detailed explanation of the engagement
of the Management Company.
Lending Activities and the Loan Portfolio:
From 1985 until 1990, the Bank's lending activities emphasized multi-family
residential, commercial real estate, construction and commercial business loans
and, to a lesser extent, single-family residential loans and education loans. In
addition and pursuant to a business plan adopted by the Bank, the Bank during
this time restructured its assets and liabilities to reduce the vulnerability of
the Bank's operations to changes in interest rates. The Bank effected this
strategy by emphasizing multi-family residential, commercial real estate and
construction loans, including loans to joint ventures in which the Bank or a
subsidiary had an interest in the real estate development activities and loans
secured by properties primarily outside of the New York metropolitan area, as
well as commercial business lending activities.
As a result of deteriorating economic conditions in 1989 and the resultant
increases in non-performing assets during 1989, the Bank began to substantially
decrease its lending activities during 1990, particularly investments in
higher-risk multi-family residential, commercial real estate, construction and
commercial business loans, as well as its joint venture activities. These
practices were formalized by the Board of Directors of the Bank in April 1991
following the Bank's entering into a Memorandum of Understanding in December
1990. As a result of the Board's actions, the Bank changed its lending policy to
specifically exclude acquisition, development and construction loans, all
lending characterized as highly-leveraged transactions and joint venture
activities, as well as substantially curtailed multi-family residential and
commercial real estate lending. The foregoing loans were permitted, however, to
the extent that the Bank was obligated under legally binding commitments, as
well as in connection with the restructuring or refinancing of existing loans or
in connection with the sale of investments in real estate.
During this period, the Bank continued to originate relatively low volumes of
single-family residential loans and, to a lesser extent, certain consumer loans.
In addition, since 1990 and 1991, other than single-family residential loans,
the Bank has primarily originated loans secured by multi-family residential
elevator properties with approximately 75 units, generally in its market area
and under much stricter underwriting guidelines than had previously been in
effect for multi-family residential and commercial real estate loans.
Following consummation of the Branch Sale, the Bank's lending activities have
been and are expected to continue to be substantially curtailed. However, the
Bank may engage in limited lending activities during
684721.2
-15-
<PAGE>
future periods to the extent that the Bank is obligated under legally binding
commitments, as well as in connection with the restructuring or refinancing of
existing loans or in connection with the sale of investments in real estate.
Financial Condition:
At December 31, 1997, the consolidated assets of the Bank totaled $194.5
million, a decrease of $7.3 million, or 3.6%, and $17.1 million, or 8.1% for the
three and six month periods ending December 31, 1997, respectively.
The decrease in total assets during the three and six month periods ended
December 31, 1997, was the result of the orderly management and/or disposition
of assets in accordance with the Bank's business plan.
Cash and due from banks decreased by $2.9 million, or 20.0% and $2.3 million, or
16.7%, during the three and six month periods ending December 31, 1997,
respectively. Allocations to restricted cash, scheduled asset fundings and the
payment of operating expenses exceeded the Bank's total operating revenues and
asset sale proceeds, resulting in the decrease in unrestricted cash during the
respective quarterly periods.
At December 31, 1997, Marine Midland had restricted a total of approximately
$5.2 million in funds, held on deposit at Marine, in accordance with the terms
of the Branch Sale and the Marine Facility. Marine had restricted approximately
$8.0 million and $5.1 million at September 30, 1997 and June 30, 1997,
respectively. Restricted funds held by Marine are not available to the Bank for
settlement of any of the Bank's current obligations. Of the $5.2 million in cash
balances restricted by Marine at December 31, 1997, $5.0 million relates to
reserve amounts specified under the Branch Agreement, which is the maximum
amount allowed under the Agreement. The remaining restricted cash reserves held
by Marine are primarily to meet currently anticipated and other potential cash
requirements of the properties serving as collateral for the senior loan
financed by Marine (see "Liquidity," below).
Investment securities, available for sale, decreased approximately $5.0 million,
or 79.4%, to $1.3 million at December 31, 1997, as compared to $6.3 million at
June 30, 1997. The decrease in investment securities, available for sale, during
the six months ended December 31, 1997 was primarily attributable to the cash
redemption of the Bank's largest preferred stock investment asset and the
writeoff of a portion of another investment security, which has been determined
to be permanently impaired, in the quarter ended September 30, 1997. These
transactions resulted in the recognition of a net gain of approximately $1.7
million during the quarter ended September 30, 1997. During the six months ended
December 31, 1997, the effect of the redemption and writeoff activity on the
total balance of investment securities, available for sale was partially offset
by a reduction in the marketable securities valuation allowance of $179,000.
The Bank's real estate mortgage loan portfolio totaled $78.4 million at December
31, 1997. Real estate mortgage loans decreased by $1.2 million, or 1.5%, and
$1.7 million, or 2.1%, during the three and six month periods ending December
31, 1997. The decreases were primarily attributable to the effects of normal
amortization and prepayments of individual loans.
Commercial and consumer loans totaled $13.5 million at December 31, 1997, a
decrease of $800,000, or 5.8%, and $2.2 million, or 13.8%, for the three and six
month periods ending December 31, 1997, respectively. These decreases resulted
from normal amortization and prepayments of individual loans.
The Bank's allowance for loan losses decreased by $1.0 million, or 3.7%, and
$4.9 million, or 15.6%, during the three and six month periods ending December
31, 1997, respectively. The bank's allowance for loan losses was $26.7 million
at December 31, 1997 as compared to $31.6 million at June 30, 1997. The decrease
resulted from chargeoffs, net of recoveries, for asset disposition and
anticipated asset disposition transactions previously provided for at June 30,
1997. The allowance for loan losses is maintained at a level which management
considers adequate based on its periodic review of the Bank's loan portfolios
and certain individual loans, taking into consideration, among other things, the
likelihood of repayment, the diversity of the borrowers, the type of loan, the
quality of the collateral, current market conditions and the associated risks.
At December 31, 1997, the allowance for loan losses was 60.7% of non-performing
loans and 29.0% of total loans as compared to 65.8% and 33.0%, respectively, at
June 30, 1997.
684721.2
-16-
<PAGE>
A substantial portion of the Bank's loans are secured by commercial real estate
and, accordingly, the performance of such loans may be affected by market
conditions for such real estate. While management uses available information to
anticipate losses on loans, future additions to the allowance or further
reductions in net carrying values may be necessary based on changes in economic
conditions.
Investments in real estate, which are comprised of in-substance foreclosures,
other real estate owned and real estate held for investment, net of related
reserves, decreased by $3.2 million, or 3.3%, and $6.1 million, or 6.2% during
the three and six month periods ending December 31, 1997, respectively. Total
investments in real estate were $91.3 million at December 31, 1997 as compared
with $97.3 million and $94.4 million at June 30, 1997 and September 30, 1997,
respectively. During the quarter ended December 31, 1997, investments in real
estate decreased primarily as a result of the sales/satisfaction of $4.2 million
of investments in real estate, resulting in a net loss of $900,000. This
decrease in investments in real estate assets during the quarter ended December
31, 1997 was partially offset by $1.9 million in additional construction costs
capitalized to investments in real estate. The decrease in investments in real
estate during the three months ended September 30, 1997, was primarily the
result of sales/satisfactions of an aggregate of $4.2 million of investments in
real estate, resulting in the recognition of a net loss of $914,000, allocation
of additional reserves from other asset categories in the amount of $500,000,
and additional real estate asset depreciation and write-offs of $400,000. These
decreases in real estate assets during the quarter ended September 30, 1997,
were partially offset by $3.1 million of additional construction costs
capitalized to investments in real estate.
Other assets totaled $5.2 million at December 31, 1997, a decrease of $200,000
or 3.7% from the June 30, 1997 balance of $5.4 million. The decrease was
primarily the result of a reduction in the Bank's joint venture assets
aggregating $786,000, due to the partial sale of one of the Bank's joint venture
assets and the write down of a second real estate joint venture during the
quarter ended September 30, 1997, for which losses totaling $364,000 were
recognized.
The Bank's borrowed funds totaled $71.3 million at December 31, 1997. The Bank's
borrowed funds balances decreased during the three and six month periods ending
December 31, 1997 by $5.3 million, or 6.9%, and $12.9 million, or 15.3%,
respectively, as the Bank utilized net proceeds from asset sales and
dispositions to repay outstanding borrowed fund balances, primarily to Marine
Midland.
Other liabilities totaled $16.1 million at September 30, 1997, a decrease of
$900,000, or 5.3%, and $2.8 million, or 14.8% during the three and six month
periods ending December 31, 1997. These decreases were principally due to the
Bank's continued repayment activities for outstanding obligations related to
state and local taxes, and accrued liabilities related to operating expenses. In
June, 1996, the Bank's Board of Directors declared a Series A Preferred dividend
for the quarter ending June 30, 1996 in the amount of $1.3 million, payment of
which was subject to the receipt of required approvals from regulators and
Marine Midland Bank (the Bank's principal lender). At December 31, 1997, the
Bank continued to carry this accrued dividend payable as a component of other
liabilities.
Stockholders' equity decreased by $1.1 million, or 1.0%, and $1.5 million or
1.3% during the three and six month periods ending December 31, 1996,
respectively. This decrease was due solely to the net losses incurred by the
Bank during these periods.
684721.2
-17-
<PAGE>
The following table summarizes the calculation of the Bank's book value per
share at December 31, 1997 and June 30, 1997.
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1997 June 30, 1997
----------------------- ----------------------
Total stockholders' equity $ 107,055,000 $ 108,510,000
Less: liquidation value of preferred stock
($25 per share issued and outstanding) 35,000,000 35,000,000
---------- ----------
Net stockholders' equity $ 72,055,000 $ 73,510,000
= ========== = ==========
Total shares of Common Stock issued and
outstanding 7,100,000 7,100,000
Book value per share $ 10.15 $ 10.35
=============== ==============
</TABLE>
Liquidity:
The Bank must maintain sufficient liquidity to meet its funding requirements for
payments of principal and interest on debt, current federal and state income tax
liabilities, operating expenses and costs related to the ongoing development and
management of certain of its real estate assets and loans sold with recourse.
The Bank actively monitors and manages its cash inflows in an attempt to invest,
to the fullest extent possible, all cash balances.
The Bank's primary ongoing cash flow subsequent to the Branch Sale results from
the net proceeds from sale or collection of its performing and non-performing
assets, net rents realized from real estate operations, and interest income
collected from performing assets. These cash flows are reduced by interest
expense on outstanding debt obligations and the application of such net proceeds
to retire borrowings. All remaining available funds are used to fund current
income tax liabilities, current operating costs, to reduce outstanding accounts
payable and to accelerate the retirement of borrowed funds due to Marine
Midland.
At December 31, 1997 the Bank had $71.4 million in borrowed funds. Included in
this amount were approximately $60.6 million of senior, secured borrowings
provided by Marine Midland, and approximately $10.8 million in borrowings
secured by two assets sold with recourse which are accounted for as financings.
The Bank seeks to maintain sufficient liquidity to meet its anticipated cash
flow obligations as they occur. Liquidity is defined as the total of the Bank's
available (unrestricted) cash balances and investment securities, available for
sale. Management believes that the Bank maintains adequate liquidity to meet
anticipated needs. At December 31, 1997, the Bank's total commitments to lend
and invest had been substantially reduced as to significant ongoing commitments
for capital expenditures. The Bank believes that it will have sufficient funds
to meet its existing commitments as they become due through a combination of
ongoing net asset liquidation proceeds and additional borrowings available from
Marine Midland to fund qualified and previously approved commitments.
Minimum Regulatory Capital:
So long as the Bank's deposit accounts were insured by the FDIC, as a
Federally-insured state-chartered bank, the Bank was required to maintain
minimum levels of regulatory capital. Under FDIC regulations, insured
state-chartered banks generally must maintain (i) a ratio of Tier 1 leverage
capital to total assets of at least 4.0% to 5.0% (3.0% for the most highly-rated
banks) and (ii) a ratio of Tier 1 capital to risk weighted assets of at least
4.0% and a ratio of total capital to risk weighted assets of at least 8.0%.
Pursuant to the terms of the Cease and Desist Order issued to the Bank by the
FDIC and the NYSBD in December 1991 ("Order"), the Bank was required to achieve
a Tier 1 leverage capital ratio equal to 6.0% as of December 31, 1992 and to
maintain such level of regulatory capital thereafter. The provisions of the 1995
MOU required the Bank to maintain its ratio of Tier 1 capital to total assets in
an amount equal to or greater than 5.5%. The 1995 MOU also restricted the Bank's
ability to, among other things, pay dividends on its
684721.2
-18-
<PAGE>
capital stock. At December 31, 1995, the Bank was not in compliance with
applicable regulatory capital requirements as set forth in the 1995 MOU but was
otherwise in compliance with the terms of the Order.
On October 31, 1996, the Bank requested that the Bank terminate its insurance of
accounts as a result of having transferred all of its remaining non-retail
deposits and mortgage escrow accounts to other insured institutions or servicing
entities. On April 14, 1997, River Bank received an order of termination of
insurance from the FDIC terminating River Bank's status as an insured depository
institution effective as of December 31, 1997. As a result of the effectiveness
of the order of termination of insurance, River Bank is no longer subject to
FDIC jurisdiction.
As a result of the substantially improved capital position of the Bank following
consummation of the Branch Sale, the Bank believes that it's capital currently
exceeds all minimum regulatory requirements.
Results of Operations:
The Bank incurred a net loss applicable to common shares for the three and six
months ending December 31, 1997 of $1.2 million, or $0.19 per share, and $1.6
million or $0.24 per share, respectively. For the same periods in 1996, the Bank
incurred net losses of $17.8 million, or $2.51 per share, and $23.4 million, or
$3.30 per share, respectively. The primary reasons for the decrease in the
Bank's net loss applicable to common shares in the three and six months ending
December 31, 1997, as compared to the same periods in 1996, related to the
substantial decline in writedowns of investments in real estate which aggregated
$0 and $350,000 for the three and six month periods ended December 31, 1997, as
compared to $14.7 million and $18.7 million for the same three and six month
periods in 1996. In addition, net interest loss after provision for loan losses
was reduced from $1.5 million and $2.0 million for the three and six month
periods ended December 31, 1996 to $102,000 and $110,000 for the same periods in
1997.
The decline in net interest loss was primarily attributable to a $1.0 million
reduction in provision for loan losses which was taken in the quarter ended
December 31, 1996 and to the decline in interest expense in the six months ended
December 31, 1996 from $3.9 million to $3.2 million in the six months ended
December 31, 1997. The primary reason for the decrease in interest expense was
due to the decline in the average balance of borrowed funds liabilities in the
six months ended December 31, 1997 as opposed to the same six month period in
1996. The average balance of borrowed funds liabilities declined $22.6 million
during the six months ended December 31, 1997 as compared with the same period
in 1996. The decline in such liabilities was the result of repayment activity
funded by asset sales in accordance with the Bank's business plan.
Net Interest Income. As a result of the sale of assets and disposition of
deposit liabilities in connection with the Branch Sale on June 28, 1996, the
operations of the Bank are no longer substantially dependent on its net interest
income, which is the difference between the interest income received from its
interest-earning assets, including investment securities, and loans, and the
interest expense incurred on its interest-bearing liabilities, including
advances and other borrowings. Net interest income is determined by an
institution's interest rate spread (i.e., the difference between the yield
earned on its interest-earning assets and the rates paid on its interest-bearing
liabilities) and the relative amount of interest-earning assets and
interest-bearing liabilities. Net interest income can be positively or
negatively impacted by changes in interest rates.
The combined effects of the changes in interest income and interest expense
resulted in a $400,000 or 79.9% increase and a $900,000 or 89.3% increase in net
interest income during the three and six months ending December 31, 1997,
respectively, as compared to the same periods in 1996. The Bank's average
interest rate spread increased from (2.80)% and (2.59)% during the three and six
months ending December 31, 1996, respectively, to (2.39)% and (2.13)% during the
three and six months ending December 31, 1997, primarily as a result of the
effects of the sale of assets and reductions in deposit liabilities as a result
of the Branch Sale on June 28, 1996.
The Bank's net interest margin, which measures the ratio of the Bank's net
interest income to its average interest-earning assets, increased from (1.80)%
and (1.84)% during the three and six months ending December 31, 1996,
respectively, to (0 .40)% and (0.43)% during the three and six months ending
December 31, 1997. This increase was due primarily to an increase in the ratio
of interest-earning assets (with an average yield of 6.85%) to interest-bearing
liabilities (with an average cost of 8.18%) from 110.8% for the six months
ending December 31, 1996 to 130.6% for the six months ending December 31, 1997.
684721.2
-19-
<PAGE>
The following tables set forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income from interest-earning assets and
the resultant average yields, (ii) the total dollar amount of interest expense
on interest-bearing liabilities and the resultant average cost, (iii) net
interest income, (iv) net interest margin and (v) interest rate spread.
Information is based on daily balances during the indicated periods.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three months ending December 31,
----------------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate(1) Balance Interest Rate(1)
(Dollars in Thousands)
Average Assets:
Money market investments $ - $ - - % $ 4,000$ 51 5.10%
Investment securities 1,335 - - 5,685 18 1.27
Loans receivable, net(2) 93,109 1,369 5.88 98,696 1,178 4.77
Other interest-earning assets 7,385 96 5.20 2,878 38 5.28
--------- ---------- --------- ----------
Total interest-earning 75 62
assets, interest income 101,829 1,465 5. 111,259 1,285 4.
-------- --------
Non-interest-earning cash 5,760 8,709
Allowance for loan losses (27,365) (30,659)
Other assets(3) 118,318 152,246
-------- --------
Total assets $ 198,542 $ 241,555
= ======= = =======
Average Liabilities and
Stockholders' Equity:
FHLB advances $ - $ - - % $ 2,026$ 19 3.75%
Marine Midland debt 60,845 1,242 8.17 69,574 1,286 7.39
Secured by loans sold with 05 80
recourse 14,559 293 8. 23,179 452 7.
Other payables 1,550 31 8.00 1,500 30 8.00
--------- ---------- ---------------------
Total interest-bearing 76,954 14 42
liabilities, interest expense 1,566 8. 96,279 1,787 7.
-------- ---------
Other liabilities 13,615 21,381
-------- ---------
Total liabilities 90,569 117,660
Stockholders' equity 107,973 123,895
-------- --------
Total liabilities and 241,555
=======
stockholders' equity $ 198,542 $
= ======= =
Net interest income $(101) $ (502)
====== = =====
Average interest rate spread (2.39)% (2.80)%
======= =======
Net interest margin (0.40)% (1.80)%
======= =======
Ratio of interest-earning assets 132.3% 115.6%
====== ======
to interest-bearing
liabilities(3)
</TABLE>
684721.2
-20-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Six months ending December 31,
----------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate(1) Balance Interest Rate(1)
(Dollars in Thousands)
Average Assets:
Money market investments $ - $ - -% $ 4,000 $ 111 5.55%
Investment securities 2,982 55 3.69 5,685 133 4.68
Mortgage-backed and related 51
securities - - - 47 2 8.
Loans receivable, net(2) 93,996 2,905 6.18 100,579 2,522 5.01
Other interest-earning assets 5,911 154 5.21 1,728 58 6.71
------------------- ---------------------
Total interest-earning asset 3,114 5 112,039 04
---------
interest income s, 102,889 6.0 2,826 5.
- ---------
Non-interest-earning cash 7,531 9,503
Allowance for loan losses (28,766) (32,243)
Other assets(3) 121,260 166,038
------------ ----------
Total assets $ 202,914 $ 255,337
= ======= = =======
Average Liabilities and
Stockholders' Equity:
FHLB advances $ - $ - -% $ 2,026$ 38 3.75%
Marine Midland debt 62,585 2,536 8.10 75,685 2,907 7.68
Secured by loans sold with 5 22,333 80
recourse 14,877 636 8.5 871 7.
Repurchase agreements - - - - - -
Other payables 1,300 52 8.00 1,050 42 8.00
---------------------- ---------------------
Total interest-bearing 78,762 8 101,094 63
liabilities, interest expense 3,224 8.1 3,858 7.
---------- ---------
Non-interest-bearing deposits - 755
Other liabilities 16,000 23,682
------------- -----------
Total liabilities 94,762 125,531
Stockholders' equity 108,152 129,806
------------ ----------
Total liabilities and 255,337
=======
stockholders' equity $ 202,914 $
= ======= =
Net interest income $ (110) $ (1,032)
========== = =======
Average interest rate spread (2.13)% (2.59)%
======= =======
Net interest margin (0.43)% (1.84)%
======= =======
Ratio of interest-earning assets to 130.6% 110.8%
====== ======
interest-bearing liabilities(3)
(1) Calculated on an annualized basis.
(2) The average balance of interest-earning assets includes non-accrual loans.
(3) Interest-earning assets do not include investments in real estate which may
have a weighted average yield which exceeds the Bank's cost of funds. Such
investments in real estate are included in other assets.
</TABLE>
684721.2
-21-
<PAGE>
The following table sets forth, in summary form, the Bank's repricing analysis
at December 31, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
December 31, 1997
---------------------------------------------------------------------
Within Seven to More than
six twelve one year to Three years
months months three years and over Total
(Dollars in Thousands)
Interest-earning Assets:
Money market investments $ - $ - $ - $ - $ -
Investment securities - - - 1,373 1,373
Loans sold with recourse 15,895 - - 3,762 19,657
Loans Receivable, net 6,530 6,530 19,590 32,646 65,296
------------- ------------- -------------------------- -------------
Total interest-earning assets 22,425 6,530 19,590 37,781 86,326
------------ ------------ -------------------------- ------------
Interest-bearing Liabilities:
FHLB advances - - - - -
Secured by assets sold with recourse 10,838 - - - 10,838
Marine Midland Debt 60,556 - - - 60,556
------------------------------------------------------ ------
Total interest-bearing liabilities 71,394 - - - 71,394
------------------------------------------------------ ------
Interest-rate sensitivity gap(1) $ (48,969$ 6,530$ 19,590$ 37,781$ 14,932
= ======== ====== ======= ======= ======
Cumulative interest-rate sensitivity (42,439 14,932
======= ======
gap $ (48,969$ $ (22,849$
= ======== = ========
Cumulative interest-rate sensitivity (25.17)% (21.82)% (11.75)% 7.68%
======== ======== ======== =====
gap as a percentage of total
assets
</TABLE>
(1) Interest-rate sensitivity gap is the difference between interest-earning
assets and interest-bearing liabilities within the indicated time frames.
The Bank's net interest loss for the three and six month periods ending December
31, 1997 was $101,000 and $110,000, respectively, as compared with net interest
loss during the same periods in 1996 of $502,000 and $1.0 million, respectively.
Net interest margin increased to (2.39)% and (2.13)% for the three and six month
periods in 1997 compared to (2.80)% and (2.59)% in the same periods of 1996, due
primarily to the effects of the sale of assets and reductions in deposit
liabilities as a result of the Branch Sale on June 28, 1996.
Total interest and dividend income for the six months ending December 31, 1997
and 1996 was $3.1 million and $2.8 million, respectively. The increase in
interest and dividend income in the six months ending December 31, 1997 compared
to the same period in 1996 was due primarily to better yields on the Bank's net
loan portfolio.
Provision for Credit Losses. No provision was made for the three and six months
ending December 31, 1997, a decrease of $1.0 million as compared to $1.0 million
for the same six month period in 1996. Adjustments to the Bank's loan loss
provisions are the result of management's review of current economic conditions,
the Bank's loan portfolios and, particularly, the levels of the Bank's
non-performing and classified assets.
684721.2
-22-
<PAGE>
The following table sets forth the activity in the Bank's Allowance for Possible
Credit Losses for the periods indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Six months ending
December 31,
----------------------------
1997 1996
---- ----
(Dollars in Thousands)
Beginning Allowance for Possible Credit Losses $ 31,570 $ 34,142
Chargeoffs against Allowance for Possible Credit Losses (5,144) (3,547)
Recoveries of amounts previously charged off 357 679
--------------- ------------
Net chargeoffs against Allowance for Possible Credit Losses (4,787) (2,868)
Provision for possible credit losses - 1,000
Amortization of discounts related to Asset Sale to Pool
Company transactions at June 30, 1996 (124) (946)
--------------- ------------
Ending Allowance for Possible Credit Losses $ 26,659 $ 31,328
= ======= ======
</TABLE>
Chargeoffs against the Allowance for Possible Credit Losses for the six months
ended December 31, 1997 were primarily attributable to the disposition, during
the quarter ended September 30, 1997, of a real estate loan with a carrying
value of approximately $4.0 million which had been substantially reserved for.
The disposition of this loan accounted for $3.8 million of the $5.1 million
removed from the Allowance as a result of chargeoffs during the six months ended
December 31, 1997.
Chargeoffs against the Allowance for Possible Credit Losses for the six months
ended December 31, 1996 were primarily attributable to the disposition, during
the quarter ended December 31, 1996, of two real estate loans with a carrying
value of approximately $3.4 million which had been substantially reserved for.
The disposition of these two loans accounted for $3.4 million of the $3.5
million removed from the Allowance as a result of chargeoffs during the six
months ended December 31, 1996.
Real estate operations. The following table sets forth the components of the
Bank's real estate operations for the periods indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Six months ending
December 31,
---------------------------
1997 1996
---- ----
(Dollars in Thousands)
Other real estate operations:
Operating income from investments in real estate $ 6609 $ 5932
Operating expenses from investments in real estate 5,079 4,246
-------------- ------------
Net income from investments in real estate 1,530 1,686
Net (loss)/gains from sale of investments in real estate (1,003) (1,195)
-------------- -------------
Investment in real estate - operating results, net 527 491
Write-down of investments in real estate (350) (18,745)
--------------- -------------
Total real estate operations, net $ 177$ (18,254)
= ==== ========
</TABLE>
Real estate operations, net, resulted in a gain of $482,000 and $177,000 for the
three and six months ended December 31, 1997, respectively, as compared to
losses of $14.5 million and $18.3 million for the three and six months ending
December 31, 1996. The primary reason for the losses from real estate
operations, net, in the three and six months ended December 31, 1996 was the
recording of writedowns for certain real estate properties, as more fully
described below, which accounted for $14.7 million and $18.7 million of the
losses recorded in the three and six month periods ended December 31, 1996,
respectively. These asset losses offset the operating income realized from
investments in real estate during the three and six month periods ended December
31, 1997.
684721.2
-23-
<PAGE>
As a result of an overall evaluation of the Bank's real estate portfolio and
individual real estate properties as further described below, the Bank
established real estate valuation reserves in the amount of $14.7 million during
the quarter ending December 31, 1996 to reflect determinations to sell five
individual properties.
During the quarter ending December 31, 1996, the Bank determined that it would
not undertake the rehabilitation and leasing of an Atlanta, GA office property
leased by the Federal Government under a lease with a term ending during 1997.
The Atlanta office property was acquired by the Bank in foreclosure and
previously had a net book value of approximately $25.3 million. As an
alternative to undertaking the major rehabilitation project and the risk of
leasing the building to recover the Bank's substantially increased investment
subsequent to rehabilitation, the Bank has elected to list the property for sale
with expected net proceeds of approximately $14.0 million. As a result, the Bank
established a real estate valuation reserve for this property in the amount of
$11.3 million. The Bank also decided during the quarter ending December 31, 1996
to dispose of four other real estate properties and one real estate joint
venture and has established aggregate real estate valuation reserves for these
properties in the amount of $3.4 million.
During the quarter ending September 30, 1996, the Bank also established a $4.0
million real estate valuation reserve providing for the anticipated sale of four
other real estate properties at net sale proceeds which are expected to be less
than the Bank's previously recorded net book value for those assets.
In the case of each of the individual real estate properties for which valuation
reserves were established during the six months ending December 31, 1996, the
Bank determined that a cash sale would result in a higher net realizable value
to the Bank than undertaking development or rehabilitation requiring the Bank to
invest substantially more in each real estate property with potential recovery
of the bank's net book value and additional investment deferred into the future.
Expenses. Total expenses were $1.6 million and $3.3 million for the three and
six month periods ended December 31, 1997, respectively, as compared to $1.9
million and $3.1 million for the three and six months ended December 31, 1996.
Expenses generally declined in all categories during the three and six month
periods ended December 31, 1997, as compared to the corresponding periods in
1996, primarily as a result of the Bank's continued reduction in total assets.
Expense reductions were achieved primarily as a result of the reduction of
salary and other operating expenses during the six months ended December 31,
1997 as compared to the same six month period in 1996. At December 31, 1997 the
Bank maintained a full time staff complement of two personnel, one of whom is
the President, Chief Executive Officer and Chief Financial Officer, and one of
whom performs administrative duties.
Legal and professional fees expense increased from $762,000 during the six
months ended December 31, 1996 to $1.3 million during the same period in 1997,
as a result of expenses incurred in connection with the Bank's continued efforts
to convert its corporate form to a non-bank corporation no longer regulated by
the FDIC and the NYSBD (see above). The Bank initiated corporate form conversion
activities in the quarter ended June 30, 1997. The bank accrued and paid $53,000
and $53,000 in the quarter ended June 30, 1997, $132,000 and $0 in the quarter
ended September 30, 1997 and $552,000 and $460,000 in the quarter ended December
31, 1997 for legal and professional fees associated with this conversion.
Other income and expense. Net other income and expense was $0 and $1.7 million
during the three and six months ended December 31, 1997 as compared to a loss of
$3.3 million and $3.3 million for the corresponding periods in 1996. Net other
income in the six month period ended December 31, 1997 was primarily due to the
recorded gain on sale of the Bank's largest preferred stock holding during the
quarter ended September 31, 1997.
During the quarter ending December 31, 1996, the Bank and Marine undertook an
overall review of the closing of the Branch Sale. As a result of such review,
the Bank has established a reserve of $3.3 million for potential closing
settlement adjustments and claims which it believes may be asserted by Marine
related to certain assets acquired by Marine in the Branch Sale. The
establishment of this reserve is reflected on the Statement of Operations as
provision for Marine Branch Sale contingencies. At December 31, 1997 the Bank
had a remaining accrued liability for potential settlement claims approximating
$2.2 million. The Bank believes that the remaining reserve for closing
settlement adjustments adequately provides for claims which may be asserted by
Marine.
684721.2
-24-
<PAGE>
Non-performing Assets:
Primarily as a result of deterioration in the real estate markets and a general
economic recession in the New York metropolitan area and in other areas in which
the Bank was engaged in lending activities at the time, particularly California,
the Bank has had substantial asset quality problems since 1989.
Non-performing loans are those loans placed on non-accrual status and loans
which are on accrual status but delinquent 90 days or more. The Bank generally
places a loan which is delinquent 90 days or more on non-accrual status unless
it is well secured and, in the opinion of management, collection appears likely.
In addition, the Bank may place a loan on non-accrual status even when it is not
yet delinquent 90 days or more if the Bank makes a determination that the
interest on such loan is not collectible. When loans are placed on non-accrual
status, any accrued but unpaid interest on the loan is reversed and future
interest income is recognized only if actually received by the Bank and
collection of principal is not in doubt.
Investments in real estate consist of (i) loans which are secured by properties
and which are classified as impaired loans (see below), (ii) real estate
acquired upon foreclosure or by deed-in-lieu thereof, which is classified as
other real estate owned, and (iii) real estate acquired as a result of the
Bank's involvement in joint ventures for the acquisition, development and
construction of real estate, which is classified as real estate held for
investment.
A loan is categorized as an impaired loan when such loan has been determined to
have the following characteristics: (i) the borrower has little or no equity in
the underlying collateral based upon the current estimated fair value of the
property and (ii) the borrower has either (a) abandoned control of the property
or (b) retained control but, because of the current financial condition of the
borrower or of the property, it is doubtful that the borrower will be able to
rebuild equity in the property or otherwise repay the loan in the foreseeable
future. In these circumstances, the collateral is considered impaired even
though a legal action to foreclose has not been completed.
The following table presents information regarding the Bank's non-performing
assets and other asset quality data at December 31, 1997 and June 30, 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
December June
31, 30,
1997 1997
(Dollars in Thousands)
Non-performing assets(1) (by property type):
Non-performing loans:
Single-family residential(2) $ 3,653 $ 3,924
Multi-family residential 15,675 16,790
Commercial real estate 11,086 11,557
Commercial business 8,858 12,806
Consumer 4,643 2,871
-------------- --------------
43,915 47,948
Other real estate owned and real estate held for investment, net:
Single-family residential(2) - 597
Multi-family residential 1,031 4,566
Commercial real estate 21,368 19,570
Construction 68,892 72,617
--------------- -------------
91,291 97,350
Total investments in real estate, net and non-performing 145,298
=======
loans $ 135,206 $
= ========
Other Asset Quality Data:
Delinquent loans(3) $ 2,52 $ -
=============== ==========
Restructured loans(4) $ 23,339 $ 24,454
=============== ==========
Loans to facilitate(5) $ - $ -
=============== ==========
Allowance for credit losses $ 26,659 $ 31,570
=============== ==========
</TABLE>
684721.2
-25-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
December June
31, 30,
1997 1997
(Dollars in Thousands)
(Dollars in Thousands)
Asset Quality Ratios:
Non-performing assets as a percentage of total assets (1) 69.50% 68.52%
Non-performing assets to total loans and investments in real estate(1) 73.78% 75.24%
Non-performing loans as a percentage of total loans(1) 47.76% 32.96%
Allowance for credit losses as a percentage of total loans 28.99% 50.06%
Allowance for credit losses as a percentage of non-performing
loans(1) 60.71% 65.84%
Net charge-offs as a percentage of average loans during the period
ended(6) 0.32% 3.59%
Investments in real estate as a percentage of total non-performing 67.52% 67.00%
assets
</TABLE>
(1) Non-performing assets consist of (i) non-performing loans, consisting
of non-accrual loans and accruing loans 90 days or more overdue, (ii)
investments in real estate, which consist of impaired loans, other real
estate owned and real estate held for investment, net of related
reserves and (iii) investment securities in default. Non-performing
assets do not include restructured loans which are performing in
accordance with their terms and have been removed from non-performing
status.
(2) Primarily consists of completed single-family residential developments
and lots for the development of single-family residences.
(3) Delinquent loans consist of loans which are 31 to 89 days overdue.
(4) Restructured loans consist of loans which have been restructured (at
market rates at the time of the restructuring) primarily as a result of
the financial condition of the property which secures the loan and
which are performing in accordance with their restructured terms.
(5) Loans to facilitate consist of loans to finance the sale of investments in
real estate.
(6) Percentages computed on an annualized basis where appropriate.
The Bank's non-performing assets began increasing during 1989 and increased from
$152.5 million or 5.2% of total assets at December 31, 1989 to a high of $602.8
million at December 31, 1992. Non-performing assets decreased from the high at
December 31, 1992 by $467.6 million or 77.6% to $135.2 million at December 31,
1997 but, because of the substantial decrease in the Bank's total assets as a
result of the Branch Sale on June 28, 1996, amounted to 69.5% of the Bank's
total assets at December 31, 1997. Non-performing assets consist of
non-performing loans, investments in real estate and investment securities in
default.
The Bank's total non-performing assets amounted to $135.2 million at December
31, 1997 compared to $141.1 million at September 30, 1997 and $145.3 million at
June 30, 1997. The Bank's total non-performing assets decreased by $5.9 million,
or 4.2%, and $10.1 million, or 7.0% during the three and six months ending
December 31, 1997, respectively. During the three and six months ending December
31, 1997, other real estate owned and real estate held for investment decreased
by $3.5 million and $6.0 million, respectively. During the three and six months
ending December 31, 1997, non-performing loans decreased by $2.4 million and
$4.1 million, respectively. The overall decrease was due primarily to the sale
or collection of non-performing assets, partially offset by the movement of one
commercial real estate loan asset to non-performing status.
Performing loans delinquent more than 30 to 89 days, which is one indicator of
potential non-performing assets, remained at $2.5 million at December 31, 1997.
An analysis of these loans indicates that collection of accrued interest in
arrears is probable.
684721.2
-26-
<PAGE>
The following tables set forth the activity in the Bank's non-performing assets
for the six months ending December 31, 1997 and 1996.
<TABLE>
<CAPTION>
<S> <C> <C>
Six months Six months
ending ending
December 31, December 31,
1997 1996
(Dollars in Thousands)
Beginning balance:
Non-performing loans ("NPLs") $ 47,947 $ 36,816
Investments in Real Estate ("REO") 97,350 146,440
------------ -----------
145,297 183,256
----------- -----------
Additions:
NPL additions 2,842 1,645
REO construction costs 4,979 5,961
------------- -------------
7,821 7,606
------------- -------------
Transfers:
NPL transfers to REO - -
REO transfers from NPL - -
---------------- ------------
- -
---------------- ------------
Write-offs:
NPL write-offs 4,233 -
REO write-offs 2,691 18,526
------------- ------------
6,924 18,526
------------- ------------
Deletions:
NPL moved to performing - -
NPL satisfactions/payments 2,641 2,551
REO satisfactions/sales 8,347 25,953
------------- ------------
10,988 28,504
------------ ------------
Ending balance:
Non-performing loans ("NPLs") 43,915 35,910
Investments in Real Estate ("REO") 91,291 107,922
------------ -----------
$ 135,206 $ 143,832
= ======= = =======
</TABLE>
A net of $10.1 million of non-performing assets were resolved during the six
months ending December 31, 1997, primarily as a result of the sale/satisfaction
of $11.0 million of non-performing loans and investments in real estate and the
write-off of $6.9 million of investments in real estate which were partially
offset by $7.8 million of additions.
Other Matters:
Impact of Year 2000. Some of the Bank's older computer programs were written
using two digits rather than four to define the applicable year. As a result,
those computer programs have time-sensitive software that recognizes a date
using "00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculation causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Bank has completed an assessment to modify or replace portions of its
software so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. Since the Bank's
684721.2
-27-
<PAGE>
accounting software is maintained and supported by a third party, the total year
2000 project cost is estimated to be minimal.
The Bank believes that with modifications to existing software and conversions
to new software, the year 2000 issue will not pose significant operational
problems for its computer systems. However, if such modifications and
conversions are not made, or are not completed in a timely manner, the year 2000
issue could have a material impact on the operations of the Bank.
The costs of the project and the date on which the Bank believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and costs of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
684721.2
-28-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Securities Holders
The Bank held its annual meeting of shareholders on October 7, 1997.
The Bank's stockholders considered proposals to:
1. elect William D. Hassett and Jerome R. McDougal directors to serve
for a term of three years or until such director' s successors are elected and
shall have qualified ("Proposal 1");
2. ratify the appointment of Ernst & Young LLP as the independent
auditors of the Bank for fiscal year 1998 ("Proposal 2"); and
3. approve the proposal that the Bank be closed and its business
wound up substantially in accordance with the terms and conditions set forth in
the Bank's Proxy Statement mailed on September 15, 1997 to all stockholders of
record of the Bank as of September 2, 1997 ("Proposal 3").
According to the records of the Bank and American Stock Transfer
Company, the Bank's transfer agent ("AST"), there were a total of 7,100,000
shares of common stock, $1.00 par value, of the Bank (the "Common Shares") that
could be voted at the Meeting, and 5,883,395 Common Shares were represented at
such meeting by the holders thereof or by proxy, which constitutes a quorum with
respect to Proposal 1 and Proposal 2.
According to the records of the Bank and AST, there were a total of
1,400,000 shares of 15% non-cumulative perpetual preferred stock, series A,
$1.00 par value, of the Bank (the "Series A Preferred Shares") that could be
voted on Proposal 3 only, and that 928,228 Series A Preferred Shares were
represented at such meeting by the holders thereof or by proxy, which shares
together with the 5,883,395 Common Shares constitutes a quorum with respect to
Proposal 3.
The following table sets forth the number of votes in favor, the
number of votes opposed, and the number of abstentions (or votes withheld in the
case of the election of directors) with respect to each of the foregoing
proposals.
684721.2
-29-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Votes Abstentions
Proposal Votes in Favor Opposed (Withheld)
- ----------------------------------------------------------------------------------------------------------
Proposal 1
William D. Hassett 5,883,395 -- --
Jerome R. McDougal 5,883,395 -- --
- ----------------------------------------------------------------------------------------------------------
Proposal 2 5,883,395 -- --
Proposal 3
Common Shares 5,632,395 -- --
Preferred Shares 752,728 -- 175,500
</TABLE>
There were 251,000 Common Shares not voting on Proposal 3.
684721.2
-30-
<PAGE>
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the
Bank has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
River Bank America
(Registrant)
/s/ Jerome R. McDougal
----------------------
Jerome R. McDougal
President, Chief Executive Officer
and Chief Financial Officer
684721.2
-31-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The registrants are Delaware corporations. In accordance with
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL"), the
certificates of incorporation of the registrants contain a provision to limit
the personal liability of directors for violations of their fiduciary duties.
Such provisions eliminate each director's liability to the corporation or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. The effect of such provisions is to eliminate the
personal liability of directors for monetary damages for actions involving a
breach of their fiduciary duty of care, including any such actions involving
gross negligence.
Section 145 of the DGCL provides that a corporation may indemnify
any person, including officers and directors, who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person was an officer, director, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such officer, director, employee or agent acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, for criminal proceedings, had no reasonable
cause to believe that his conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in defense of any action referred to above, the corporation
must indemnify him against the expenses which such officer or director actually
or reasonably incurred. The by-laws of the registrants provide for
indemnification of officers and directors to the fullest extent permitted by the
DGCL. In addition, Section 145 authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise against any liability asserted against him in any such capacity, or
arising out of his status as such, whether or not the corporation would
otherwise have the power to indemnify him under Section 145. The registrants may
maintain officers' and directors' liability insurance to insure against
liabilities that officers and directors of the corporation may incur in such
capacities.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Description
- ------ -----------
*2.1 -- Agreement and Plan of Merger, dated as of October 9,
1997, by and between River Asset Sub, Inc. and River
Distribution Sub, Inc.
*2.2 -- Petition for a Closing Order, made by River Bank America
to the New York State Supreme Court, dated October 15,
1997.
693046.4
II-1
<PAGE>
*2.2.b -- Notice of Settlement of Closing Order, made by River Bank
America to the New York State Supreme Court, dated
December 8, 1997.
*2.2.c -- Closing Order, signed by the New York State Supreme Court
on January 9, 1998 and entered on January 14, 1998.
*2.3 -- Form of Assignment and Assumption Agreement, by and
between River Bank America and River Asset Sub, Inc.
*3.1 -- Amended and Restated Certificate of Incorporation of
River Distribution Sub, Inc.
**3.2 -- Amended and Restated By-Laws of River Distribution Sub,
Inc.
*3.3 -- Certificate of Incorporation of River Asset Sub, Inc. and
Form of Certificate of Merger.
*3.4 -- By-Laws of River Asset Sub, Inc.
*4.1 -- Certificates of Designation of the 15% Non-Cumulative
Perpetual Preferred Stock, Series A, $1.00 par value, of
River Distribution Sub, Inc.
**5.1 -- Opinion of Battle Fowler LLP.
**8.1 -- Opinion of Roberts & Holland LLP.
*10.1 -- Credit Agreement dated as of June 28, 1996 among River
Bank America and other borrowers and Marine Midland Bank
and related loan documents.
*10.1.b -- Consent of Marine Midland Bank to River Bank America's
Reorganization dated October 30, 1997.
*10.2 -- Management Agreement dated as of June 28, 1996, by and
between River Bank America and RB Management Company LLC.
**23.1 -- Consent of Ernst & Young LLP.
**23.2 -- Consent of Battle Fowler LLP (included in and
incorporated by reference to Exhibit 5.1 hereto).
**23.3 -- Consent of Roberts & Holland LLP (included in and
incorporated by reference to Exhibit 8.1 hereto).
*24.1 -- Power of Attorney (included in the signature pages of
this Registration Statement).
**99.1 -- Forms of Proxies for Special Meeting of the Stockholders.
- -------------------
* Previously filed.
** Filed herewith.
(b) Financial Statement Schedules
All schedules are omitted as inapplicable.
693046.4
II-2
<PAGE>
Item 22. Undertakings
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment
to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in the
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of a prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
(b)(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The undersigned registrants undertake that every prospectus (i)
that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Securities Act of
1933 and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrants 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
693046.4
II-3
<PAGE>
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by the registrants 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 registrants 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 of 1933 and will be
governed by the final adjudication of such issue.
(d) The undersigned registrants hereby undertake to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
693046.4
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this Registration Statement on Form S-4 to be
signed on their behalf by the undersigned thereunto duly authorized in the City
of New York, State of New York on March 26, 1998.
RIVER DISTRIBUTION SUB, INC.
By: /s/ Jerome R. McDougal
----------------------------
Name: Jerome R. McDougal
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
* Vice President, Secretary and March 26, 1998
- ---------------------------
Robin Chandler Duke Director
* Director March 26, 1998
- ----------------------------
Robert N. Flint
* Director March 26, 1998
- ---------------------------
William D. Hassett
/s/ Jerome R. McDougal President, Chief Executive March 26, 1998
- ---------------------------
Jerome R. McDougal Officer, Director and Chairman of
the Board of Directors
(principal executive and principal
financial officer)
* Director March 26, 1998
- -----------------------------
Edward V. Regan
* By: /s/ Jerome R. McDougal
----------------------
Jerome R. McDougal
Attorney-in-fact
</TABLE>
RIVER ASSET SUB, INC.
By: /s/ Jerome R. McDougal
---------------------------
Name: Jerome R. McDougal
Title: President
693046.4
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
* Vice President, Secretary and March 26, 1998
- ---------------------------
Robin Chandler Duke Director
* Director March 26, 1998
- -----------------------------
Robert N. Flint
* Director March 26, 1998
- ---------------------------
William D. Hassett
/s/ Jerome R. McDougal President, Chief Executive March 26, 1998
- ----------------------------
Jerome R. McDougal Officer, Director and Chairman of
the Board of Directors
(principal executive and principal
financial officer)
* Director March 26, 1998
- --------------------------
Edward V. Regan
* By: /s/ Jerome R. McDougal
----------------------
Jerome R. McDougal
Attorney-in-fact
</TABLE>
693046.4
II-6
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
*2.1 -- Agreement and Plan of Merger, dated as of October 9,
1997, by and between River Asset Sub, Inc. and River
Distribution Sub, Inc.
*2.2 -- Petition for a Closing Order, made by River Bank America
to the New York State Supreme Court, dated October 15,
1997.
*2.2.b -- Notice of Settlement of Closing Order, made by River Bank
America to the New York State Supreme Court, dated
December 8, 1997.
*2.2.c -- Closing Order, signed by the New York State Supreme Court
on January 9, 1998 and entered on January 14, 1998.
*2.3 -- Form of Assignment and Assumption Agreement, by and
between River Bank America and River Asset Sub, Inc.
*3.1 -- Amended and Restated Certificate of Incorporation of
River Distribution Sub, Inc.
**3.2 -- Amended and Restated By-Laws of River Distribution Sub,
Inc.
*3.3 -- Certificate of Incorporation of River Asset Sub, Inc. and
Form of Certificate of Merger.
*3.4 -- By-Laws of River Asset Sub, Inc.
*4.1 -- Certificates of Designation of the 15% Non-Cumulative
Perpetual Preferred Stock, Series A, $1.00 par value, of
River Distribution Sub, Inc.
**5.1 -- Opinion of Battle Fowler LLP.
**8.1 -- Opinion of Roberts & Holland LLP.
*10.1 -- Credit Agreement dated as of June 28, 1996 among River
Bank America and other borrowers and Marine Midland Bank
and related loan documents.
*10.1.b -- Consent of Marine Midland Bank to River Bank America's
Reorganization dated October 30, 1997.
*10.2 -- Management Agreement dated as of June 28, 1996, by and
between River Bank America and RB Management Company LLC.
**23.1 -- Consent of Ernst & Young LLP.
**23.2 -- Consent of Battle Fowler LLP (included in and
incorporated by reference to Exhibit 5.1 hereto).
**23.3 -- Consent of Roberts & Holland LLP (included in and
incorporated by reference to Exhibit 8.1 hereto).
*24.1 -- Power of Attorney (included in the signature pages of
this Registration Statement).
**99.1 -- Forms of Proxies for Special Meeting of the Stockholders.
- -------------------
* Previously filed.
** Filed herewith.
II-7
EXHIBIT 3.2
AMENDED AND RESTATED
B Y - L A W S
OF
RIVER DISTRIBUTION SUB, INC.
(a Delaware corporation)
--------------------------
ARTICLE I
OFFICES
SECTION 1. Offices. The Corporation shall maintain its
registered office in the State of Delaware at 1013 Centre Road, in the City of
Wilmington, in the County of New Castle, and its resident agent at such address
is The Prentice-Hall Corporation System, Inc. The Corporation may also have
offices in such other places in the United States or elsewhere as the Board of
Directors may, from time to time, appoint or as the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meetings. Unless directors are elected by
written consent in lieu of an annual meeting as permitted by law, an annual
meeting of stockholders for the election of directors and for such other
business as may properly be conducted at such meeting shall be held at such
place, either within or without the State of Delaware, and at such time and date
as the Board of Directors shall determine
685796.1
<PAGE>
by resolution and set forth in the notice of the meeting. Stockholders may act
by written consent to elect directors; provided, however, that if such consent
is less than unanimous, such action by written consent may be in lieu of holding
an annual meeting only if all of the directorships to which directors could have
been elected at an annual meeting held at the effective time of such action are
vacant and are filled by such action. At the annual meeting any business may be
transacted and any corporate action may be taken, whether stated in the notice
of meeting or not, except as otherwise expressly provided by statute or the
Certificate of Incorporation. Notice of each annual meeting shall be given in
accordance with Section 3 of this Article II.
SECTION 2. Special Meetings. Special meetings of the
stockholders of the Corporation for any purpose or purposes may be called by the
Board of Directors, the President or the Chairman of the Board of Directors and
shall be called by the President or the Secretary at the written request of the
holders of record of not less than a majority of the outstanding shares of
capital stock of the Corporation entitled to vote in an election of directors.
Special meetings shall be held at such place or places within or without the
State of Delaware as shall be stated in the notice of such meeting or may
otherwise be designated by the Board of Directors. At a special meeting no
business shall be transacted and no corporate action shall be taken other than
that stated in the notice of the meeting. Notice of each special meeting shall
be given in accordance with Section 3 of this Article II.
SECTION 3. Notice of Meetings. Written notice of the date,
time and place of any stockholders' meeting, whether annual or special, shall be
mailed or delivered to each stockholder of record entitled to vote thereat at
his address as the
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<PAGE>
same appears upon the records of the Corporation not less than ten (10) days nor
more than sixty (60) days before the date of any such meeting. Notice of any
special meeting shall state the purposes for which such meeting is called.
Notice of a meeting need not be given to any stockholder who submits a signed
waiver of notice, in person or by proxy, whether before or after the meeting.
The attendance of any stockholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.
SECTION 4. Quorum. Unless otherwise required by law or the
Certificate of Incorporation, the holders of at least a majority of the capital
stock of the Corporation issued and outstanding and entitled to vote thereat,
who shall be present in person or by proxy at any meeting duly called, shall
constitute a quorum for the transaction of business at all meetings of
stockholders. When a quorum is once present to organize a meeting, the quorum is
not broken by the subsequent withdrawal of any stockholders.
SECTION 5. Adjournment. If less than a quorum be present at
any meeting of the stockholders, the meeting may be adjourned from time to time
by a majority vote of the stockholders present or by proxy and entitled to vote
thereat, without notice, other than by announcement at the meeting so adjourned,
until a quorum shall attend. If the adjournment is for more than thirty (30)
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting. Any meeting at which a quorum is present
may also be adjourned in like manner and for such time or upon such call as may
be determined by a majority vote of
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685796.1
<PAGE>
the stockholders present in person or by proxy and entitled to vote thereat. At
any adjourned meeting at which a quorum shall be present, any business may be
transacted and any corporate action may be taken which might have been
transacted at the meeting as originally called.
SECTION 6. Voting and Action Without a Meeting. Each
stockholder entitled to vote at any meeting, or to express consent or dissent
without a meeting, may vote or express consent or dissent either in person or by
proxy, duly appointed by an instrument in writing subscribed by such stockholder
or his attorney-in-fact and bearing a date not more than eleven months prior to
said meeting or expression of consent or dissent, unless said proxy provides for
a longer period. Each stockholder entitled to vote or express consent or dissent
shall be entitled to one vote for each share of voting stock registered in his
name on the books of the Corporation on the date fixed as a record date for the
determination of its stockholders entitled to vote or express consent or
dissent, as hereinafter provided. Except for the election of directors or as
otherwise provided by law, by the Certificate of Incorporation or by these
By-laws, at all meetings of stockholders all matters shall be determined by a
majority of the votes cast at such meeting by the holders of shares entitled to
vote thereon. Directors shall, except as otherwise required by this article or
by the Certificate of Incorporation, be elected by a plurality of the votes cast
by each class of shares entitled to vote at a meeting of stockholders present in
person or by proxy and entitled to vote in the election. All elections of
directors shall be by written ballot. Any stockholder executing a proxy in
connection with an annual or special meeting of stockholders of the Corporation
may revoke such proxy at any time before it is voted by (i) giving the
-4-
685796.1
<PAGE>
President or the Secretary of the Corporation, at the address of the Corporation
set forth in the notice of meeting, written notice of such revocation; (ii)
executing a later-dated proxy; or (iii) attending the meeting and giving notice
of such revocation in person. Mere attendance at a meeting will not, in and of
itself, constitute revocation of a proxy. No director or officer of the
Corporation may act as proxy at any meeting of the stockholders.
Unless otherwise provided by the Certificate of Incorporation,
any action required by law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at such meetings, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote were present and voted. Every written consent shall
bear the date of signature of each stockholder who signs the consent. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing and who, if the action had been taken at a meeting, would
have been entitled to notice of the meeting if the record date of such meeting
had been the date that written consents signed by a sufficient number of holders
or members to take the action were delivered to the Corporation as provided by
law.
SECTION 7. Lists of Stockholders. The officer who has charge
of the stock ledger of the Corporation or the Corporation's transfer agent shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the
-5-
685796.1
<PAGE>
stockholders entitled to vote at the meeting, arranged in alphabetical order,
showing the address of each stockholder and the number and class of shares held
by each. Such a list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be provided and kept at the meeting and may be
inspected by any stockholder who is present. If the right to vote at any meeting
is challenged, the inspectors of election, or person presiding thereat, shall
require such list of stockholders to be produced as evidence of the right of the
persons challenged to vote at such meeting, and all persons who appear from such
list to be stockholders entitled to vote thereat may vote at such meeting.
SECTION 8. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 7 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of the
stockholders.
-6-
685796.1
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. Powers. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors. The Board
shall exercise all of the powers and duties conferred by law except as provided
by the Certificate of Incorporation or these By-laws.
SECTION 2. Number, Election and Term. The number of directors
of the Corporation shall be no less than seven and no more than twenty. Within
the limits specified above, the number of directors constituting the Board of
Directors of the Corporation shall be fixed from time to time by or pursuant to
a resolution passed by the Board of Directors. The Board of Directors shall be
divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as possible, of one-third of the total number of
directors constituting the entire Board of Directors. The terms of directors
shall be staggered so that the term of the initial Class I directors shall
terminate on the date of the 1998 annual meeting of stockholders; the term of
the initial Class II directors shall terminate on the date of the 1999 annual
meeting of stockholders; and the term of the initial Class III directors shall
terminate on the date of the 2000 annual meeting of stockholders. At each annual
meeting of stockholders beginning in 1998, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term, with each director to hold office until his or her successor shall have
been duly elected and qualified.
The directors of one class shall be elected by stockholders at
each annual meeting of stockholders or as otherwise provided in Article II,
Section 1. The directors
-7-
685796.1
<PAGE>
chosen at any annual meeting shall hold office, except as hereinafter provided,
until the third annual meeting of stockholders following their election and
until the election and qualification of their successors.
SECTION 3. Resignations. Any director may resign at any time.
Such resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time is specified, at the time of its receipt by
the Chairman of the Board of Directors, the President or the Secretary. The
acceptance of a resignation shall not be necessary to make it effective, unless
so specified therein.
SECTION 4. Removal. Any director may be removed from the Board
of Directors either with or without cause at any time by the affirmative vote of
the holders of a majority of the shares then entitled to vote for the election
of directors at any special meeting of stockholders called for that purpose or
by written consent as permitted by law. Vacancies thus created may be filled at
such meeting by the affirmative vote of the holders of a majority of the shares
then entitled to vote for the election of directors, by written consent as
permitted by law, or, if the vacancies are not so filled, by the directors as
provided in Section 5 of this Article III.
SECTION 5. Vacancies and Newly Created Directorships. Except
as otherwise provided in Section 4 of this Article III, vacancies in the office
of director, including newly created directorships resulting from an increase in
the number of directors may be filled by the affirmative vote of a majority of
the directors then holding office at any regular or special meeting of the Board
of Directors called for that purpose. Any director so elected by the Board of
Directors shall serve until the next election of
-8-
685796.1
<PAGE>
the class for which such director shall have been chosen and until his or her
successor shall be elected and qualified.
SECTION 6. Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. The Board of Directors shall hold an annual meeting for the purpose
of the election of officers and the transaction of any business within
twenty-five (25) days after the annual meeting of stockholders.
The Board of Directors shall hold a regular monthly meeting in
addition to the annual meeting at least ten (10) times a year; provided,
however, that during any three consecutive calendar months, the Board of
Directors shall meet at least twice.
Special meetings of the Board of Directors may be called by
the Chairman of the Board of Directors, by the President or by written request
of two directors.
Regular monthly meetings of the Board of Directors may be held
without notice at such time and place as shall be designated by resolution of
the Board of Directors. Notice shall be required, however, for special meetings.
Notice of any special meeting shall be sufficiently given if (a) mailed to each
director at his residence or usual place of business at least five (5) days
before the day on which the meeting is to be held, or (b) delivered personally
or by telephone not later than 72 hours prior to the time at which the meeting
is to be held. No notice of the annual meeting shall be required if held
immediately after the annual meeting of the stockholders and if a quorum is
present. Notice of a meeting need not be given to any director who submits a
signed waiver of notice before or after the meeting, nor to any director who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice.
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<PAGE>
Any business may be transacted and any corporate action may be
taken at any regular or special meeting of the Board of Directors at which a
quorum shall be present, whether such business or proposed action be stated in
the notice of such meeting or not, unless special notice of such business or
proposed action shall be required by law.
SECTION 7. Quorum, Voting and Adjournment. A majority of the
entire Board of Directors shall be necessary to constitute a quorum for the
transaction of business unless otherwise required by law, and the acts of a
majority of the Directors present at a meeting at which a quorum is present
shall be the acts of the Board of Directors, unless otherwise provided by law,
the Certificate of Incorporation or these ByLaws. In the absence of a quorum, a
majority of the directors present may adjourn the meeting to such time and place
as they may determine without notice other than announcement at the meeting so
adjourned until enough directors to constitute a quorum shall attend.
SECTION 8. Action Without a Meeting. Unless otherwise
restricted by the Certificate of Incorporation or these By-laws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
of Directors or any committee thereof consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
of Directors or such committee, as the case may be.
SECTION 9. Compensation. The Board of Directors may establish
by resolution reasonable compensation of all directors for services to the
Corporation as directors, including an annual retainer and a fixed fee, for
attending each meeting.
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<PAGE>
Nothing herein contained shall preclude any director from serving the
Corporation in any other capacity, as an officer, agent or otherwise, and
receiving compensation therefor.
SECTION 10. Participation By Telephone. Any one or more
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board or such committee by means
of conference telephone or similar communications equipment in which all persons
participating in the meeting can hear each other. Participation by such means
shall constitute the presence in person at such meeting.
SECTION 11. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if: (a) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors (even though the
disinterested directors be less than a quorum); (b) the material facts as to his
or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and
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<PAGE>
the contract or transaction is specifically approved in good faith by vote of
the stockholders; or (c) the contract or transaction is fair to the Corporation
as of the time that it is authorized, approved or ratified by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee thereof that authorizes the contract or
transaction.
SECTION 12. Retirement of Directors. The office of a director
shall become vacant on the last day of the calendar year in which his
seventy-eighth birthday occurs.
SECTION 13. Director Emeritus. The Board of Directors may
elect as a director emeritus any director whose term of office shall have
terminated pursuant to Section 12 of this Article III. A director emeritus so
elected shall serve until the regular meeting of the Board of Directors in the
next succeeding month of December and may be re-elected annually thereafter in
each succeeding year at the regular meeting of the Board of Directors in such
month for a maximum of two additional terms. A director emeritus may attend the
regular meetings of the Board of Directors and shall have no vote at such
meetings, shall receive a fee for attendance at each such meeting equal to
one-half of the fee paid to a director who is not a director emeritus and shall
not serve on any committee.
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<PAGE>
ARTICLE IV
COMMITTEES
SECTION 1. Committees of the Board of Directors. The Board of
Directors may, by resolution passed by a majority of the whole Board, designate
one or more committees, including but not limited to an Executive Committee and
an Audit Committee, each such committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee to replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board establishing such committee, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to the following matters: (i) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by law to be submitted to stockholders for approval or (ii) adopting,
amending or repealing any Bylaw of the Corporation. All committees of the Board
shall keep minutes of their
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<PAGE>
meetings and shall report their proceedings to the Board when requested or
required by the Board.
SECTION 2. Resignation. Any member of a Committee may resign
at any time. Such resignation shall be made in writing and shall take effect at
the time specified therein, or, if no time be specified, at the time of its
receipt by the Chairman of the Board, the President or the Secretary. The
acceptance of a resignation shall not be necessary to make it effective unless
so specified therein.
SECTION 3. Quorum. A majority of the members of a Committee
shall constitute a quorum. The act of a majority of the members of a Committee
present at any meeting at which a quorum is present shall be the act of such
Committee. The members of a Committee shall act only as a Committee, and the
individual members thereof shall have no powers as such.
SECTION 4. Record of Proceedings. Each Committee shall keep a
record of its acts and proceedings, and shall report the same to the Board of
Directors when and as required by the Board of Directors.
SECTION 5. Meetings. A Committee may hold its meetings at the
principal office of the Corporation, or at any other place upon which a majority
of the Committee may at any time agree. Each Committee may make such rules as it
may deem expedient for the regulation and carrying on of its meetings and
proceedings.
SECTION 6. Compensation. The members of any Committee shall be
entitled to such compensation as may be allowed them by resolution of the
Board of Directors.
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<PAGE>
ARTICLE V
OFFICERS
SECTION 1. Number. The officers of the Corporation shall be a
President and one or more Vice-Presidents, and other officers as may be
appointed in accordance with the provisions of Section 3 of this Article V.
SECTION 2. Election, Term of Office and Qualifications. The
officers, except as provided in Section 3 of this Article V, shall be chosen
annually by the Board of Directors. Each such officer shall, except as herein
otherwise provided, hold office until the selection and qualification of his
successor. Any two or more offices may be held by the same person, except the
offices of President and Secretary.
SECTION 3. Other Officers. Other officers, including, without
limitation, a Secretary and a Treasurer or Chief Financial Officer, may from
time to time be appointed by the Board of Directors, which other officers shall
have such powers and perform such duties as may be assigned to them by the Board
of Directors.
SECTION 4. Removal of Officers. Any officer of the Corporation
may be removed from office, with or without cause, by a vote of a majority of
the Board of Directors.
SECTION 5. Resignation. Any officer of the Corporation may
resign at any time. Such resignation shall be in writing and shall take effect
at the time specified therein, and if no time be specified, at the time of its
receipt by the Chairman of the Board, the President or the Secretary. The
acceptance of a resignation shall not be necessary in order to make it
effective, unless so specified therein.
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<PAGE>
SECTION 6. Filling of Vacancies. A vacancy in any office shall
be filled by the Board of Directors unless a resolution waiving such requirement
has been approved by the Board of Directors.
SECTION 7. Compensation. The compensation of the officers
shall be fixed by the Board of Directors, or by any Committee upon whom power in
that regard may be conferred by the Board of Directors.
SECTION 8. President. The President, who may be the Chief
Executive Officer, shall see that all orders and resolutions of the Board of
Directors are carried into effect and shall perform such other duties as may be
delegated to him by the Board of Directors. He shall also preside at all
meetings of the Stockholders and, if the Board of Directors has not selected a
Chairman of the Board, he shall perform all of the duties and responsibilities
of the Chairman of the Board.
SECTION 9. Vice Presidents. In the absence or disability of
the President or if the office of President be vacant, the Vice Presidents in
the order determined by the Board of Directors, or if no such determination has
been made in the order of their seniority, shall perform the duties and exercise
the powers of the President, subject to the right of the Board of Directors at
any time to extend or confine such powers and duties. Each Vice President shall
have such other powers and perform such other duties as may be assigned to him
from time to time by the Board of Directors or the President.
SECTION 10. Secretary. The Secretary shall attend all meetings
of the Board of Directors and of the Stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose, and shall,
upon request, perform
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like duties for any Committee appointed by the Board. He shall give or cause to
be given notice of all meetings of Stockholders and special meetings of the
Board of Directors and shall perform such other duties as may be prescribed by
the Board of Directors. He shall keep in safe custody the seal of the
Corporation and affix it to any instrument as deemed appropriate.
SECTION 11. Treasurer or Chief Financial Officer. The
Treasurer or Chief Financial Officer shall oversee the custody of corporate
funds and financial assets, management of receipts and disbursements and
utilization of such depositories as may be designated by the Board of Directors.
Further, he shall oversee the maintenance of accurate financial and accounting
records belonging to the Corporation including the timely reporting of all
financial transactions, periodic assessment of the Corporation's financial
condition and sensitivity to changes in the level of interest rates. He shall
report all transactions and the financial condition of the Corporation to the
Directors at the regular meetings of the Board, or whenever they, the President
or the Chairman of the Board may require it.
SECTION 12. Corporate Funds and Checks. The funds of the
Corporation shall be kept in such depositories as shall from time to time be
prescribed by the Board of Directors. All checks or other orders for the payment
of money shall be signed by the Chairman of the Board of Directors, the
President or the Treasurer or such other person or agent as may from time to
time be authorized and with such countersignature, if any, as may be required by
the Board of Directors.
SECTION 13. Contracts and Other Documents. The Chairman of the
Board of Directors, the Vice Chairman of the Board of Directors, the President,
any
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Vice President, the Treasurer, and such other officers and agents as may from
time to time be authorized by these By-laws, by the Board of Directors, by the
Chairman of the Board of Directors or by the President, shall have the power to
sign and execute on behalf of the Corporation deeds, conveyances and contracts,
and any and all other documents requiring execution by the Corporation.
SECTION 14. Ownership of Securities of Another Corporation or
Entity. Except as otherwise ordered by the Board of Directors, the President
shall have full power and authority on behalf of the Corporation to attend and
to act and to vote at any meeting of the stockholders of any corporation of
which the Corporation is a stockholder and to execute a proxy to any other
person to represent the Corporation at any such meeting, and at any such meeting
the President or the holder of any such proxy, as the case may be, shall possess
and may exercise any and all rights and powers incident to ownership of such
stock and which, as owner thereof, the Corporation might have possessed and
exercised if present. The Board of Directors may from time to time confer like
powers upon any other person or persons.
ARTICLE VI
STOCK
SECTION 1. Certificates of Stock. Certificates of capital
stock shall be in such form as shall be approved by the Board of Directors,
provided that each certificate shall when issued state upon the face thereof (1)
that the Corporation is a corporation organized under the laws of the State of
Delaware; (2) the name of the person or persons to whom the certificate is
issued; (3) the number, class and series, if
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any, which the certificate represents; and (4) the par value of each share
represented by the certificate; and further provided, that each certificate will
indicate any restrictions on transferability and will state that the Corporation
will furnish to any stockholder upon request and without charge a full statement
of the designation, relative rights, preferences and limitations of the shares
of each class or series of stock authorized to be issued, or shall set forth
such statement on the certificate itself. The certificates shall be numbered in
the order of their issue. Every holder of stock in the Corporation shall be
entitled to have such certificate signed by, or in the name of the Corporation
by, the Chairman of the Board of Directors or the President or a Vice President
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary. Any or all of the signatures on the certificate may be a facsimile.
The Board of Directors shall have the power to appoint one or more transfer
agents and/or registrars for the transfer or registration of certificates of
stock of any class, and may require stock certificates to be countersigned or
registered by one or more of such transfer agents and/or registrars. The seal of
the Corporation or a facsimile thereof shall be impressed, affixed or reproduced
thereon. In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been issued by the Corporation, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates had not ceased to be such officer or officers of the
Corporation.
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SECTION 2. Registration and Transfer of Shares. The name of
each person owning a share of the capital stock of the Corporation shall be
entered on the books of the Corporation, together with the number of shares held
by him, the numbers of certificates covering such shares and the dates of issue
of such certificates. Subject to the conditions set forth in Section 3 of
Article VI of these By-laws, shares of stock of the Corporation shall be
transferable upon its books by the holders thereof, in person or by their duly
authorized attorneys or legal representatives, upon surrender to the Corporation
by delivery thereof to the person in charge of the stock and transfer books and
ledgers. Such certificates shall be canceled and new certificates shall
thereupon be issued. A record shall be made of each transfer. Whenever any
transfer of shares shall be made for collateral securities, and not absolutely,
it shall be so expressed in the entry of the transfer if, when the certificates
are presented, both the transferor and transferee request the Corporation to do
so. The Board of Directors shall have power and authority to make such rules and
regulations as it may deem necessary or proper concerning the issue, transfer
and registration of certificates for shares of stock of the Corporation.
SECTION 3. Lost Certificates. A new certificate of stock may
be issued in the place of any certificate previously issued by the Corporation,
alleged to have been lost, stolen, destroyed or mutilated, and the Board of
Directors may, in their discretion, require the owner of such lost, stolen,
destroyed or mutilated certificate, or his legal representative, to give the
Corporation a bond, in such sum as the Board of Directors may direct, not
exceeding double the value of the stock, in order to indemnify the Corporation
against any claims that may be made against it in connection therewith.
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SECTION 4. Stockholders of Record. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder thereof in fact, and shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by law.
SECTION 5. Stockholder Record Date. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which shall not be more than sixty (60) nor less than ten (10) days
before the date of any meeting of stockholders, nor more than sixty (60) days
prior to any other action. If no record date is fixed by the Board of Directors,
(a) the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the next
day preceding the day on which notice is given, or if no notice is given, the
day on which the meeting is held; and (b) the record date for determining
stockholders for any purpose other than that specified in clause (a) above shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting, provided that the Board of Directors may fix a new
record date for the adjourned meeting.
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SECTION 6. Dividends. Subject to the provisions of the
Certificate of Incorporation, the Board of Directors may at any regular or
special meeting, out of funds legally available therefor, declare dividends upon
the stock of the Corporation. Before the declaration of any dividend, the Board
of Directors may set apart, out of any funds of the Corporation available for
dividends, such sum or sums as from time to time in their discretion may be
deemed proper for working capital or as a reserve fund to meet contingencies or
for such other purposes as shall be deemed conducive to the interests of the
Corporation.
ARTICLE VII
AMENDMENT OF BY-LAWS
SECTION 1. Amendments. These By-laws may be amended or
repealed or new By-laws may be adopted by the affirmative vote of a majority of
the entire Board of Directors at any regular or special meeting of the Board of
Directors. If any By-law regulating an impending election of directors is
adopted, amended or repealed, notice of such adoption, amendment or repeal shall
be provided to the stockholders promptly (and in any event within ten days after
the adoption of any such amendment or repeal). Stockholders entitled to vote in
an election of Directors also shall have the power to amend or repeal these
By-laws, including By-laws made by the Board of Directors, and to adopt By-laws
which, if so expressed, may be amended or repealed only by stockholders entitled
to vote in an election of Directors.
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ARTICLE VIII
INDEMNIFICATION
SECTION 1. Power to Indemnify in Actions, Suits or Proceedings
Other Than Those by or in the Right of the Corporation. Subject to Section 3 of
this Article IX, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, including all appeals (other than an action by or in the right of
the Corporation) by reason of the fact that he is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director or officer or partner of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
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SECTION 2. Power to Indemnify in Actions, Suits or Proceedings
by or in the Right of the Corporation. Subject to Section 3 of this Article IX,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director or officer or partner of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
SECTION 3. Authorization of Indemnification. Any
indemnification under this Article IX (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 1 or
Section 2 of this Article IX, as the case
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may be. Such determination shall be made (i) by a majority vote of the directors
who are not parties to such action, suit or proceeding, even though less than a
quorum, or (ii) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (iii) by the stockholders.
To the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
SECTION 4. Good Faith Defined. For purposes of any
determination under Section 3 of this Article IX, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint venture, trust or
other enterprise of which such person is or was serving at the request of the
Corporation as a director, officer,
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employee or agent. The provisions of this Section 4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Section 1 or
2 of this Article IX, as the case may be.
SECTION 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article IX,
and notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
1 and 2 of this Article IX. The basis of such indemnification by a court shall
be a determination by such court that indemnification of the director or officer
is proper in the circumstances because he has met the applicable standards of
conduct set forth in Section 1 or 2 of this Article IX, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article IX nor the absence of any determination thereunder shall be a defense to
such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
SECTION 6. Expenses Payable in Advance. Expenses (including
attorneys' fees) incurred by an officer or director in defending or
investigating any civil,
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criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article IX.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
SECTION 7. Nonexclusivity of Indemnification and Advancement
of Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article IX shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any law, By-law, agreement, vote of stockholders or disinterested
directors, direction (however embodied) of any court of competent jurisdiction
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Sections 1 and 2 of
this Article IX shall be made to the fullest extent permitted by law. The
provisions of this Article IX shall not be deemed to preclude the
indemnification of any person who is not specified in Section 1 or 2 of this
Article IX but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware, or
otherwise.
SECTION 8. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the
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<PAGE>
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, or partner of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liability under the
provisions of this Article IX.
SECTION 9. Certain Definitions. For purposes of this Article
IX, references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, or partner of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this Article IX with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
SECTION 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
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SECTION 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article IX to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
SECTION 12. Indemnification of Employees and Agents. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article IX to directors and officers of the Corporation.
ARTICLE IX
MISCELLANEOUS
SECTION 1. Corporate Seal. The seal of the Corporation shall
be circular in form and shall have the name of the Corporation on the
circumference and the jurisdiction and year of incorporation in the center. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or reproduced or otherwise.
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SECTION 2. Fiscal Year. The fiscal year of the Corporation
shall end June 30 of each year, or such other twelve consecutive months as the
Board of Directors may designate.
SECTION 3. Execution of Documents. Only persons designated by
resolution of the Board of Directors adopted from time to time are authorized to
execute contracts and transfers of property of the Corporation, and to execute
such other documents as the business of the Corporation may require. The
Corporation shall not be bound by any agreement which is not in conformity with
these By-laws.
Date of Adoption: February 17, 1998
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EXHIBIT 5.1
BATTLE FOWLER LLP
A LIMITED LIABILITY PARTNERSHIP
75 East 55th Street
New York, New York 10022
(212) 856-7000
(212) 856-9150
March 26, 1998
Board of Directors
River Asset Sub, Inc.
645 Fifth Avenue, 8th Floor
New York, NY 10022
Board of Directors
River Distribution Sub, Inc.
645 Fifth Avenue
New York, NY 10022
Re: River Asset Sub, Inc. and
River Distribution Sub, Inc.
Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel for River Distribution Sub, Inc., a Delaware
corporation ("River Distribution") and a wholly owned subsidiary of River Bank
America, a New York chartered stock savings bank ("River Bank"), and River Asset
Sub, Inc., a Delaware corporation and a wholly owned subsidiary of River Bank
("River Asset" and together with River Distribution, the "Registrants"), in
connection with their filing as co-registrants of a registration statement on
Form S-4 (Registration Nos. 333-38673 and 333-38673-01), and any amendments
thereto (the "Registration Statement"), with respect to the registration under
the under the Securities Act of 1933, as amended (the "Securities Act") of the
following:
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2
Board of Directors March 26, 1998
River Asset Sub, Inc.
River Distribution Sub, Inc.
(i) 7,100,000 issued and outstanding shares of common stock,
$0.001 par value ("River Distribution Common Stock"), and
1,400,000 issued and outstanding shares of 15% non-cumulative
perpetual preferred stock, series A, $0.001 par value ("River
Distribution Series A Preferred Stock" and together with the
River Distribution Common Stock, the "River Distribution
Shares"), of River Distribution, all of such shares will be
distributed to the stockholders of River Bank America, a New
York chartered stock savings bank ("River Bank"), in
connection with the proposed distribution (the
"Distribution") to River Bank's stockholders of all the
outstanding shares of capital stock of River Distribution, a
wholly-owned subsidiary of River Bank; and
(ii) 7,100,000 shares of common stock, $1.00 par value (the "River
Asset Common Stock") and 1,400,000 shares of 15%
non-cumulative perpetual preferred stock, series A, $1.00 par
value (the "River Asset Series A Preferred Stock" and
together with the River Asset Common Stock, the "River Asset
Shares") of River Asset, all of such shares will be issued in
connection with the proposed merger of River Distribution
with and into River Asset, the surviving corporation in the
merger (to be renamed RB Asset, Inc.) (the "Merger"),
pursuant to the agreement and plan of merger, dated as of
October 9, 1997, by and between River Asset and River
Distribution (the "Merger Agreement").
The Distribution and Merger are part of a series of steps under which
River Bank will change the legal form of organization by which it conducts its
business, holds its assets and is obligated for its liabilities from a New York
state chartered stock savings bank into a business corporation incorporated in
the State of Delaware. Capitalized terms used and not defined in this opinion
have the meanings ascribed to them in the Registration Statement. You have
requested that we furnish our opinion as to matters hereinafter set forth.
In rendering this opinion, we have examined originals or copies of the
Registration Statement, as filed with the Securities and Exchange Commission
(the "Commission") on October 24, 1997; Amendment No.1 to Registration
Statement, as filed with the Commission on February 24, 1998; Amendment No. 2 to
the Registration Statement, as filed with the Commission today; the certificates
of incorporation and bylaws of the Registrants; the Merger Agreement and the
form of certificate of merger, as filed as exhibits to the Registration
Statement; the minute books of the Registrants and records of corporate
proceedings of the Registrants contained therein; and a written certificate of
the secretary of each of the Registrants.
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<PAGE>
3
Board of Directors March 26, 1998
River Asset Sub, Inc.
River Distribution Sub, Inc.
In addition, we have assumed the genuineness of all signatures and the
authenticity of all documents, instruments and certificates submitted to us as
originals, the conformity to original documents, instruments and certificates of
all documents, instruments and certificates submitted to us as certified or
photostatic copies and the legal capacity to sign of all individuals executing
documents. We have assumed the completeness of the corporate records provided to
us by the Registrants. We have relied, without independent verification, upon
representations of the Registrants as to factual matters relevant hereto.
Our opinions are limited to the laws of the State of New York, the
Delaware General Corporation Law and the federal law of the United States. No
opinion is expressed as to the effect that the law of any other jurisdiction may
have upon the subject matter of the opinion expressed herein under conflicts of
law principles, rules and regulations or otherwise.
Based on and subject to the foregoing, we are of the opinion that (i)
all of the River Distribution Shares have been duly authorized and validly
issued and are fully paid and non-assessable and (ii) all of the River Asset
Shares have been duly authorized and, when issued pursuant to the terms of the
Merger Agreement, will be validly issued, fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Proxy Statement/Prospectus included therein. In giving this
consent, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the Securities Act or the rules and
regulations promulgated thereunder by the Commission.
Very truly yours,
/s/ Battle Fowler LLP
EXHIBIT 8.1
[Roberts & Holland LLP Letterhead]
March 26, 1998
River Bank America
645 Fifth Avenue, 8th Floor
New York, NY 10022
Re: Federal Income Tax Characterization
of the Proposed River Bank Restructuring
----------------------------------------
Gentlemen:
You have requested our opinion with respect to the
characterization of the Reorganization of River Bank America for Federal income
tax purposes. Any capitalized terms not defined herein have the same meaning as
when used in the Proxy Statement/Prospectus to be issued to the stockholders of
River Bank in connection with a special meeting whereby the stockholders are to
consider and to vote on the transactions described herein and the Form S-4
Registration Statement (collectively with such Proxy Statement/Prospectus, the
"Proxy Statement") being prepared in connection with the issuance of the
securities of River Distribution Sub and River Asset Sub.
In formulating the opinion expressed herein, we have examined
and relied upon the Proxy Statement and other documents and information
furnished to us, and on the representations stated in your letter to us of even
date. We have assumed that the Proxy Statement and the other documents are
authentic, that
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River Bank America -2- March 26, 1998
copies of documents correspond in their entirety to the originals, and that all
documents are enforceable under local law in accordance with their terms. If any
document is different from the form of document reviewed by us or if there is a
change in any document subsequent hereto, our opinion may differ from that set
forth herein. We have assumed that any information contained in the Proxy
Statement (including, without limitation, any statement as to the intent or
belief of River Bank as to any matter), in your representations letter, and in
such other documents and other information furnished to us are true, correct,
and complete and provide a true, correct, and complete description of all the
facts relevant to the opinion expressed in this letter. We also have made
certain other assumptions as described more fully below. We have made no
independent investigation to determine the accuracy or completeness of any of
the documents, the facts described in the foregoing documents, or any other
information furnished to us. We have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the existence of all appropriate
approvals and authorizations (corporate or otherwise), and the delivery to all
parties of the foregoing documents.
Our opinion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Income Tax Regulations promulgated by the Treasury
Department (the "Treasury Regulations"), and interpretations of the Code and
Treasury Regulations by the courts and the Internal Revenue Service (the
"Service"), all as they exist at the date of this letter. These statutes,
regulations, judicial decisions, and administrative interpretations are subject
to change at any time and, in some circumstances, with retroactive effect. A
material change in any of the foregoing or a change in facts occurring after the
date of this letter could affect our conclusions. We undertake no obligation to
update this opinion or to apprise you of any subsequent developments that may be
relevant to the matters discussed herein.
You have advised us that the Bank plans to change, through a
series of steps and in a manner intended to constitute a "reorganization" within
the meaning of section 368 of the Code, its legal form of organization from a
New York banking corporation to a business corporation incorporated in the State
of Delaware. The Reorganization is structured in a manner intended to qualify as
such a reorganization in which none of the
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<PAGE>
River Bank America -3- March 26, 1998
Bank, RB Asset, or their stockholders will recognize taxable gain. You have
advised us that, in connection with and as part of the Reorganization: (i) the
existing business and all of the assets and liabilities of the Bank will be
transferred to or assumed by River Asset Sub; (ii) all of the River Distribution
Capital Stock will be distributed to stockholders of the Bank; and (iii) River
Distribution Sub will merge with and into River Asset Sub (which shall have
succeeded to the business, assets, and liabilities of the Bank, except that it
will not be chartered as a banking corporation), with River Asset Sub as the
surviving corporation, whereupon: (a) each share of River Asset Sub common stock
(held entirely by the Bank) shall be cancelled; (b) the River Distribution
Capital Stock will be converted into and will represent shares of identical
capital stock of River Asset Sub; and (c) River Asset Sub will be renamed "RB
Asset, Inc."
We have assumed that, upon entry of the order of dissolution
of River Bank by the New York Supreme Court, a certified copy of the final order
of dissolution will be filed promptly with the Banking Department, with the
result that River Bank will cease to exist and that the River Bank Capital Stock
will thereby be extinguished; and that this result will occur substantially
contemporaneously with the Distribution.
In our opinion, the series of transactions described above
should constitute a "reorganization" under section 368 of the Code. Accordingly,
no gain or loss should be recognized to the holders of River Bank Capital Stock
in connection therewith. This opinion does not, however, address taxation to
holders of the River Bank Series A Preferred Stock of the dividend declared, but
not paid, for the quarter ended June 30, 1996. The description in the Proxy
Statement, under the heading "Tax Consequences of the Reorganization," of our
opinion regarding the tax consequences of the series of transactions described
above to holders of River Bank Capital Stock is fair and accurate.
Our opinion reflects our professional judgment as to the tax
treatment of the matters discussed herein. On certain issues there is a paucity
of authority and, in those areas, our conclusions constitute a reasoned
interpretation of the applicable provisions of the Code and Treasury
Regulations. In particular, we have considered the requirement under the
Treasury Regulations that, in order for there to be a reorganization for
purposes of the Code, there must be a "continuity of business
694151.2
<PAGE>
River Bank America -4- March 26, 1998
enterprise" (hereinafter the "COBE requirement"). The COBE requirement is met if
the surviving corporation in a purported reorganization either (i) continues the
historic business of the acquired corporation or (ii) uses a significant portion
of the acquired corporation's historic business assets in a business. If the
acquired corporation has more than one line of business, the COBE requirement is
met if the surviving corporation continues a significant line of business of the
acquired corporation. We are not aware of any case or published ruling of the
Internal Revenue Service that directly addresses this issue in similar
circumstances. In the absence of any such authority, it is our view based on the
Treasury Regulations and on the assumptions and representations referred to
above that the COBE requirement should be satisfied and that the series of
transactions described above should constitute a reorganization under section
368 of the Code. In this regard, we are of the view that, assuming that RB Asset
continues to hold and service (directly or through an independent contractor or
agent) a material amount of loans acquired from the Bank, RB Asset will have
continued a significant line of business, albeit on a smaller scale than that
previously conducted by the Bank, and therefore that the COBE requirement will
have been met. We are also of the view that the Bank's real estate business,
although smaller (in terms of gross assets) than the Bank's historic banking
business, is a significant line of business for this purpose. Therefore,
assuming that the real estate business is continued, this continuation should
satisfy the COBE requirement as well.
Our opinion, however, is not binding on the Service or the
courts and it is possible that they may reach a different conclusion. The
foregoing uncertainty as to the treatment of the change in the legal form of
organization of the Bank through the series of transactions described above
results from unique banking regulatory constraints, which, counsel to the Bank
advised us, precluded the timely implementation of a transaction structure that
could have been tax-free to the holders of River Bank Capital Stock without
regard to whether all the requirements of a reorganization under section 368 of
the Code were met. There can be no assurance that the Service or the courts will
agree with the conclusions expressed herein. Subject to all of the foregoing,
this opinion may be relied upon by you. We consent to the reference to our firm
in the discussion set forth in the Proxy Statement under the caption "Federal
Income Tax
694151.2
<PAGE>
River Bank America -5- March 26, 1998
Considerations" and to the inclusion of this letter as an exhibit to the Proxy
Statement.
* * *
This letter is intended to address only the Federal income tax
matters explicitly discussed herein and does not discuss or express any view
with respect to any tax matter not expressly covered, any legal matter other
than tax consequences, or any economic, operational, or financial matter of or
affecting the Bank or any other entity.
Very truly yours,
/s/ Roberts & Holland LLP
-------------------------
ROBERTS & HOLLAND LLP
694151.2
<PAGE>
EXHIBIT 23.1
Consent of Independent Accountants
We consent to the reference of our firm under the caption "Experts" in the
Registration Statement (Form S-4) of River Asset Sub, Inc. ("RAS") and River
Distribution Sub, Inc. ("RDS") for the registration of (i) 7,100,000 shares of
common stock of RDS, and 1,400,000 shares of 15% non-cumulative perpetual
preferred stock of RDS, (ii) 7,100,000 shares of common stock of RAS and
1,400,000 shares of 15% non-cumulative perpetual preferred stock of RAS and to
the inclusion of our report dated July 18, 1997 (and financial statements) in
Annex B to the proxy statement/prospectus filed as part of the Registration
Statement, with respect to the consolidated statements of financial condition of
River Bank America as of June 30, 1997 and 1996 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1997.
/s/ Ernst & Young LLP
New York, New York
March 24, 1998
668870.2
EXHIBIT 99.1
Common Stock Proxy
RIVER BANK AMERICA
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
RIVER BANK AMERICA FOR THE SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON APRIL 20, 1998.
The undersigned, as a holder of common stock, $1.00 par value (the
"Common Stock"), of River Bank America (the "Bank"), hereby appoints Leora Joy
and Ilyne Mendelson, and each of them, with full power of substitution, to vote
all shares of Common Stock for which the undersigned is entitled to vote through
the execution of a proxy with respect to the Special Meeting of Stockholders of
the Bank to be held at the Grand Hyatt of New York Hotel, Park Avenue at Grand
Central Station, New York, New York, 10017 on April 20, 1998 at 10:00 a.m.,
local time, or any adjournment or adjournments thereof, and authorizes and
instructs said proxies to vote in the manner directed below.
THE BOARD OF DIRECTORS OF THE BANK RECOMMENDS VOTES "FOR" EACH OF THE
FOLLOWING:
1. On the proposal to direct that the Bank be closed and its business
wound up substantially in accordance with the terms and conditions set
forth in the accompanying proxy statement/prospectus.
(check one box) / / For / / Against / / Abstain
2. On the proposal to approve an amendment, necessary to implement the
Reorganization (as defined in the accompanying proxy statement), to the
certificate of designations for the 15% non-cumulative perpetual
preferred stock, series A, $1.00 par value, of River Bank in the form
attached to the accompanying proxy statement/prospectus.
(check one box) / / For / / Against / / Abstain
3. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting, or any adjournment
thereof, or upon matters incident to the conduct of the meeting.
You may revoke this proxy at any time by forwarding to the Bank a subsequently
dated proxy received by the Bank prior to the Special Meeting.
(Continued and to be signed on the reverse side)
645777.3
<PAGE>
Returned proxy cards will be voted (1) as specified on the matters listed above;
(2) in accordance with the Board of Directors' recommendations where no
specification is made; and (3) in accordance with the judgment of the proxies on
any other matters that may properly come before the meeting. Please mark your
choice like this: x
The shares represented by this Proxy will be voted in the manner directed and,
if no instructions to the contrary are indicated, will be voted FOR the approval
of the proposals set forth in the Notice of the Special Meeting of Stockholders.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and the proxy statement furnished therewith.
Print and sign your name below exactly as it appears hereon and date this card.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title, as such. Joint owners should each sign. If a corporation,
please sign as full corporate name by president or authorized officer. If a
partnership, please sign in partnership name by authorized person.
Date: ____________________________, 1998
----------------------------------------------
Signature (title, if any)
----------------------------------------------
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TODAY. YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE TAKING OF A
VOTE ON THE MATTERS HEREIN.
645777.3
<PAGE>
Preferred Stock Proxy
RIVER BANK AMERICA
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
RIVER BANK AMERICA FOR THE SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON APRIL 20, 1998.
The undersigned, as a holder of 15% non-cumulative perpetual preferred stock,
Series A, $1.00 par value (the "Preferred Stock"), of River Bank America, (the
"Bank"), hereby appoints Leora Joy and Ilyne Mendelson, and each of them, with
full power of substitution, to vote all shares of Preferred Stock for which the
undersigned is entitled to vote through the execution of a proxy with respect to
the Special Meeting of Stockholders of the Bank to be held at the Grant Hyatt of
New York Hotel, Park Avenue at Grand Central Station, New York, New York, 10017
on April 20, 1998 at 10:00 a.m., local time, or any adjournment or adjournments
thereof, and authorizes and instructs said proxies to vote in the manner
directed below.
THE BOARD OF DIRECTORS OF THE BANK RECOMMENDS VOTES "FOR" EACH OF THE FOLLOWING
1. On the proposal to direct that the Bank be closed and its business
wound up substantially in accordance with the terms and conditions set
forth in the accompanying proxy statement/prospectus.
(check one box) / / For / / Against / / Abstain
2. In their discretion, the proxies are authorized to vote upon such other
matters which holders of Preferred Stock are entitled to vote as may
properly come before the meeting, or any adjournment thereof, or upon
matters incident to the conduct of the meeting.
You may revoke this proxy at any time by forwarding to the Bank a subsequently
dated proxy received by the Bank prior to the Special Meeting.
(Continued and to be signed on the reverse side)
645777.3
<PAGE>
Returned proxy cards will be voted (1) as specified on the matters listed above;
(2) in accordance with the Board of Directors' recommendations where no
specification is made; and (3) in accordance with the judgment of the proxies on
any other matters that may properly come before the meeting. Please mark your
choice like this: x
The shares represented by this Proxy will be voted in the manner directed and,
if no instructions to the contrary are indicated, will be voted FOR the approval
of the proposals set forth in the Notice of the Special Meeting of Stockholders.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and the proxy statement furnished therewith.
Print and sign your name below exactly as it appears hereon and date this card.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title, as such. Joint owners should each sign. If a corporation,
please sign as full corporate name by president or authorized officer. If a
partnership, please sign in partnership name by authorized person.
Date: ____________________________, 1998
-----------------------------------------------
Signature (title, if any)
-----------------------------------------------
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TODAY. YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE TAKING OF A
VOTE ON THE MATTERS HEREIN.
645777.3
<PAGE>
