As filed with the Securities and Exchange Commission on February 24, 1998
Registration No. 333-38673 333-38673-01
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
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>
<CAPTION>
<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)
</TABLE>
----------------------------
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)
<TABLE>
<CAPTION>
<S> <C> <C>
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)
</TABLE>
----------------------------
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)
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.
661546.10
<PAGE>
RIVER BANK AMERICA
645 Fifth Avenue, 8th Floor
New York, New York 10022
February __, 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 March __, 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.
661546.10
<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
661546.10
<PAGE>
RIVER BANK AMERICA
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held on March __, 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 [__]day, March __, 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,
661546.10
<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 , 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.
February __, 1998
661546.10
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated February 24, 1998
PROXY STATEMENT/PROSPECTUS
--------------------
RIVER BANK AMERICA
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH __, 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 March , 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 February , 1998.
661546.10
<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.
661546.10
-ii-
<PAGE>
THE RIVER BANK BOARD, AFTER CAREFUL CONSIDERATION, HAS UNANIMOUSLY APPROVED
THE REORGANIZATION AND DISSOLUTION AND RECOMMENDS THAT YOU VOTE FOR 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.
661546.10
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<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 ORSOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR
661546.10
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ANY DISTRIBUTION OF THE SECURITIES MADE UNDER THIS PROXY
STATEMENT/PROSPECTUS 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.
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TABLE OF CONTENTS
Page
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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
Absence of Prior Trading Market......................................................................12
No Appraisal Rights..................................................................................12
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION OF RB ASSET.....................................................................13
HISTORICAL MARKET PRICE AND DIVIDENDS................................................................20
Market Prices ...................................................................................20
Dividend Policy ...................................................................................20
RIVER BANK RECENT DEVELOPMENTS.......................................................................22
BUSINESS OF RB ASSET FOLLOWING THE REORGANIZATION....................................................26
Overview ...................................................................................26
Retained Assets ...................................................................................26
Asset Management Strategy............................................................................31
THE SPECIAL MEETING..................................................................................33
Introduction ...................................................................................33
Matters to be Considered at the Special Meeting......................................................33
Voting Rights and Vote Required......................................................................33
Voting of Proxies; Solicitation......................................................................34
</TABLE>
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PROPOSAL 1 -- APPROVAL OF THE BANK CLOSING RESOLUTION............................................35
Overview .............................................................................. 35
Background of and Reasons for the Bank Closing Resolution; Recommendation of River Bank Board
............................................................................. 35
The Bank Closing Resolution..................................................................... 36
Accounting Treatment............................................................................ 40
PROPOSAL 2 -- APPROVAL OF THE CERTIFICATE OF DESIGNATIONS AMENDMENT..............................41
MANAGEMENT...................................................................................... 42
Board of Directors and Nominees for Director ................................................... 42
Board of Directors Committees................................................................... 43
Compensation of Directors....................................................................... 43
Executive Officers.............................................................................. 44
Executive Compensation.......................................................................... 44
Employment Arrangement.......................................................................... 44
Certain Relationships and Related Transactions.................................................. 45
Compliance with Section 16(a)................................................................... 47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................. 48
DESCRIPTION OF RB ASSET CAPITAL STOCK........................................................... 50
General .............................................................................. 50
RB Asset Common Stock........................................................................... 50
RB Asset Series A Preferred Stock............................................................... 51
Note Exchange .............................................................................. 56
Restrictions on Dividends and Redemptions....................................................... 58
DESCRIPTION OF NOTES............................................................................ 59
General .............................................................................. 59
Redemption .............................................................................. 59
Subordination .............................................................................. 60
Limitations on Dividends........................................................................ 61
Certain Covenants .............................................................................. 61
Mergers, Consolidations, Etc.................................................................... 62
Modification of the Indenture; Waiver of Covenants.............................................. 62
Events of Default .............................................................................. 62
COMPARISON OF RIGHTS OF HOLDERS OF RIVER BANK CAPITAL STOCK
AND RB ASSET CAPITAL STOCK............................................................. 64
FEDERAL INCOME TAX CONSIDERATIONS............................................................... 71
Tax Consequences of the Reorganization.......................................................... 71
Tax Consequences of Holding RB Asset Common Stock and RB Asset Preferred Stock.................. 72
Certain Tax Attributes.......................................................................... 73
EXPERTS ....................................................................................... 76
LEGAL MATTERS................................................................................... 76
</TABLE>
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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
Annex B
ANNEX B Page No.
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.
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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>
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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.
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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."
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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 March __, 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 , 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 February , 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.
661546.10
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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
661546.10
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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."
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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 discussion
herein to the effect that the Reorganization may reasonably be characterized as
a tax-free reorganization for federal income tax purposes is correct. See
"FEDERAL INCOME TAX CONSIDERATIONS."
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."
661546.10
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Reorganization Transaction Steps
The following diagrams depict the transaction steps to implement the
Reorganization.
[GRAPHIC OMITTED]
(footnotes appear on page 8)
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[GRAPHIC OMITTED]
(footnotes appear on page 8)
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[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.
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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
661546.10
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<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
661546.10
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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 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
661546.10
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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.
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.
661546.10
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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 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.
661546.10
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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
Allowance for possible credit losses (26,659) -- (26,659)
------- ---------
Total loans receivable, net 65,296 84,953
-------- ---------
--
$ 19,657 (1)
--
19,657
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
======== ======== ========
See accompanying footnotes to the unaudited pro forma consolidated Statement of Condition.
</TABLE>
661546.10
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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> <C> <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)
========== ========== =========
See accompanying footnotes to the unaudited pro forma consolidated Statement of Operations.
</TABLE>
661546.10
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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> <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) -- (5)
----------- ---------- --------
Net loss applicable to common shares $ (1,634) ($1,287) (101)
========== ======== -----
$ (2,921)
Basic and diluted loss per common share $ (0.24) $ (0.17) (6)
=========== =========
$ (0.41)
See accompanying footnotes to the unaudited pro forma consolidated Statement of Operations.
</TABLE>
661546.10
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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, that reflects the
reorganization including the Bank's anticipated surrender of its Bank charter.
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.
661546.10
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<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):
<TABLE>
<S> <C> <C>
12/31/97 6/30/97
------------------- ----------------
Rental income $ 762 $ 4,181
Less: Rental expenses 952 3,948
------------------- ----------------
Net (loss)/Income $ (190) $ 233
=================== ================
</TABLE>
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.
661546.10
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<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
Bank's anticipated corporate form following the surrender of its Bank charter.
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.
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 Bank's anticipated
corporate form following the surrender of its Bank charter.
5. See "FEDERAL INCOME TAX CONSIDERATIONS" for a discussion of taxes related
to Rver 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.
661546.10
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HISTORICAL MARKET PRICE AND DIVIDENDS
Market Prices
As of February , 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.
661546.10
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<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.
661546.10
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<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 $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 (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.
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
661546.10
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<PAGE>
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 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.
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 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).
661546.10
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<PAGE>
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.
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
661546.10
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<PAGE>
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.
661546.10
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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> <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.
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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.
661546.10
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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>
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
==== =====
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
</TABLE>
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.
661546.10
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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>
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
661546.10
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<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%
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30
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.
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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.
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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 March
__, 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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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.
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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 February __, 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
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1979 to 1981 and as chairman of the New York State Urban Development Corporation
from 1977 to 1981. Mr. 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 $2,500 annual retainer
for their service as chairmen. After the Reorganization, RB Asset will pay the
same compensation to directors and board committee members and chairmen.
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Executive Officers
Inasmuch as River Bank has disposed of its depository banking operations
pursuant to the Branch Sale, the Bank no longer employs any significant staff of
officers or employees to manage the business and affairs of the Bank. Rather,
the day-to-day management of River Bank's business is vested with RB Management
pursuant to the terms of a management agreement. See "--Certain Relationships
and Related Transactions".
River Bank's only officers are, and the initial officers of RB Asset will
be, Jerome R. McDougal, who serves as the chairman of the board, president and
chief executive officer of the Bank, and Robin Chandler Duke, who serves without
compensation as the vice president and secretary of the Bank.
Executive Compensation
The following table sets forth information for the years indicated
concerning the compensation awarded to, earned by or paid to the chief executive
officer of River Bank for services rendered in all capacities to River Bank and
its subsidiaries during such period. There were no other executive officers who
received any compensation from River Bank (other than director fees).
<TABLE>
<CAPTION>
Summary Compensation Table
Special Compensation
All Other
Name and Principal Other Compensation
Position Year Salary($) 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
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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
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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
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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.
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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 February __, 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)
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(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.
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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.
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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
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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
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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")
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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.
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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.
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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
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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
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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."
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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 of
If redeemed during the $1,000
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
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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. This
summary does not purport to be a complete statement of such similarities and
differences. The identification of specific similarities and differences is not
meant to indicate that other equally or more significant similarities and
differences do not exist. Such similarities and differences can be examined in
full 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.
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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
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
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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 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
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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 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.
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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 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.
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Stockholder Approval of Certain Business Combinations. Section 203 of
the DGCL prohibits a corporation from engaging in a "business combination" with
0an "interested stockholder" for three years following the date that such 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
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. directors or board of
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
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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% 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, to the effect that the discussion set forth under the caption "Tax
Consequences of the Reorganization" below as to the characterization by River
Bank and its stockholders of the transaction as a "reorganization" under section
368 of the Code and the treatment of the holders of River Bank Common Stock and
River Bank Series A Preferred in connection therewith is correct. As with all
such complex matters, there is a risk that the IRS could disagree with the
conclusions stated herein and in the opinion of counsel.
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
The Reorganization has been structured and will be implemented in a
manner intended to constitute a tax-free "reorganization" for Federal income tax
purposes, within the meaning of section 368 of the Code. Assuming that the
Reorganization does constitute such a "reorganization," the following
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
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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. No gain or loss will be recognized to a holder of River Bank Common
Stock who is deemed to exchange such stock for RB Asset Common Stock.
No gain or loss will be recognized to a holder of River Bank Series A
Preferred Stock who is deemed to exchange such stock for RB Asset
Series A Preferred Stock. The basis of any RB Asset Common Stock or RB
Asset Series A Preferred Stock shall 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 shall be the
same as it would be 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).
The Reorganization may reasonably be characterized as a tax-free
"reorganization." However, 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 and for which
the Bank has not requested a ruling from the IRS. 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 above 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, and their holding period would begin on the date of
the exchange. 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.
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 its tax
attributes were not used to offset any gain, RB Asset would not succeed to them.
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
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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 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.
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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 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
661546.10
74
<PAGE>
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.
661546.10
75
<PAGE>
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.
661546.10
76
<PAGE>
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
627654.1
<PAGE>
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.
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 __________, 1997.
--------------------------------
Jerome R. McDougal, Jr.
President
--------------------------------
Robin Chandler Duke
Secretary
627654.1
-2-
<PAGE>
ANNEX B
As filed with the FDIC on February __, 1998
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C.
PROPOSED 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
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)
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.
624833.9
<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.
624833.9
-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.
624833.9
-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.
624833.9
-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.
624833.9
-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.
624833.9
-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.
624833.9
-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
general
- --------------
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.
624833.9
-8-
<PAGE>
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.
624833.9
-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.
624833.9
-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."
624833.9
-11-
<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.
624833.9
-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 $471,000 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,
624833.9
-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.
<TABLE>
<S> <C>
(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)
=======
</TABLE>
(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.
624833.9
-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.
624833.9
-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.
624833.9
-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.
624833.9
-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.
624833.9
-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
624833.9
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<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
624833.9
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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.
624833.9
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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.
624833.9
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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.
624833.9
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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
624833.9
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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 substa1ntially 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
624833.9
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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.
624833.9
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<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
624833.9
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<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.
624833.9
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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.
624833.9
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<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.
624833.9
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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
624833.9
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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
624833.9
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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.
624833.9
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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.
624833.9
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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
624833.9
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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.
624833.9
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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.
624833.9
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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.
624833.9
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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.
624833.9
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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.
<TABLE>
<CAPTION>
Quarterly Stock Prices
-------------------------------------------------
High Low Quarter End
----- ------ -----------
<S> <C> <C> <C>
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
</TABLE>
Please reference the information contained in Note 18 of the Notes to
Consolidated Financial Statements.
624833.9
-40-
<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,
------------------------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Balance Sheet Data (1):
Total assets $211,659 $285,478 $1,463,637 $1,541,368
Cash and due from banks and
money market instruments 14,036 17,129 108,540 173,631
Investment securities, net and
investment securities available
for sale (2) 6,275 5,685 31,372 49,185
Mortgage-backed and related
securities and mortgage-
backed and related securities
available for sale (2) -- 187 72,643 82,074
Loans receivable:
Single-family residential 3,924 4,557 234,386 209,295
Multi-family residential 26,092 31,336 249,252 245,245
Commercial real estate 50,077 51,090 463,760 488,830
Construction -- -- 5,301 6,157
Commercial business 12,806 12,894 36,695 40,224
Consumer 2,871 3,038 21,274 15,421
Less:
Deferred fees and unearned
discount -- -- (2,220) (3,880)
Allowance for credit losses (31,570) (34,142) (33,985) (41,076)
-------- -------- -------- --------
Total loans receivable, net 64,200 68,863 974,463 960,216
Investments in real estate, net (3) 97,349 146,440 231,302 233,286
Loans sold with recourse 24,451 29,914 -- --
Deposits -- 3,022 1,171,530 1,254,199
Borrowed funds 84,272 115,786 179,061 141,592
Stockholders' equity (13) 108,510 138,520 90,134 117,847
Shares of Common Stock outstanding
Book value per common 7,100 7,100 7,100 7,100
share (5)
$10.35 $14.58 $7.77 $11.67
</TABLE>
December 31
------------
1993 1992
---- ----
Balance Sheet Data (1):
Total assets $1,496,222 $1,996,715
Cash and due from banks and
money market instruments 60,209 62,831
Investment securities, net and
investment securities available
for sale (2) 45,989 142,357
Mortgage-backed and related
securities and mortgage-
backed and related securities
available for sale (2) 104,827 150,832
Loans receivable:
Single-family residential 202,408 397,920
Multi-family residential 226,824 250,994
Commercial real estate 501,190 554,277
Construction 39,791 83,371
Commercial business 44,206 74,047
Consumer 15,904 17,438
Less:
Deferred fees and unearned
discount (4,487) (7,244)
Allowance for credit losses (55,258) (92,589)
-------- --------
Total loans receivable, net 970,578 1,278,214
Investments in real estate, net (3) 272,841 310,831
Loans sold with recourse -- --
Deposits 1,293,635 1,789,967
Borrowed funds 141,592 141,592
Stockholders' equity (13) 46,010 47,929
Shares of Common Stock outstanding
Book value per common 1,000 1,000
share (5)
$13.01 $14.93
(Footnotes on second following page)
624833.9
-41-
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
1997 1996 1995 1994
---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Operations Data(1):
Interest and dividend income $5,469 $94,409 $88,878 $93,478
Interest expense 7,360 61,794 52,255 51,635
----- ------- ------- ------
Net interest income (1,891) 32,615 36,623 41,843
Provision for credit losses 1,000 5,250 5,041 5,360
----- ------ ------- -------
Net interest income (loss) after
provision for credit losses (2,891) 27,365 33,623 36,483
------- ------ ------ ------
Other income:
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)
Other 159 3,996 3,548 5,996
-------- ------- ------ -------
Total (4,636) 80,591 3,989 23,819
Real estate operations, net (18,368) (4,800) (14,357) (11,077)
Other expense:
Deposit insurance expense -- 2,533 3,704 4,683
Foreclosure costs -- 225 1,105 2,780
Other 7,528 33,996 38,666 39,616
------ ------- ------ ------
Total 7,528 36,754 43,475 47,079
------ ------- ------ ------
Income (loss) before income tax
expense (benefit) (33,423) 55,762 (22,261) 2,146
Income tax expense (benefit) (3,300) 11,749 2,113 2,608
-------- ------- ------- -------
Net income (loss) (30,123) 55,013 (24,374) (462)
Dividends declared on Preferred Stock -- 5,250 5,250 --
----- ------- ------- ------
Net income (loss) applicable to
Common Shares (30,123) 49,763 (29,624) (462)
Net income (loss) per share (5) (4.24) 7.01 (4.17) (0.45)
Other Data (1):
Average equity to average assets 50.97% 5.51% 7.18% 2.69%
Equity to assets at period end 51.35 48.52 6.16 7.65
Weighted average yield on
interest-earning assets (8) 4.90 7.42 7.11 7.13
Weighted average rate paid on
interest-bearing deposits (8) 6.97 4.43 3.88 3.39
Interest rate spread (8) (2.07) 2.99 3.23 3.74
Net interest margin (1.70) 2.57 2.93 3.19
Return on average assets (1.27) 3.64 (1.65) (0.03)
Return on stockholders' equity (9)(12) (24.84) 66.12 (27.04) (0.39)
Expense ratio (9) 6.75 2.89 3.58 3.76
Efficiency ratio (10) 50.86 95.30 108.22 98.41
Tier 1 leverage capital ratio (11) 48.44 9.33 6.04 7.97
Tier 1 capital as a percent of
risk-weighted assets (11) 60.59 49.77 7.94 9.78
Total capital as a percent of
risk-weighted assets (11) n/m 55.02 9.12 11.06
Full-service banking offices
at end of period (11) -- -- 11 11
</TABLE>
Fiscal Year Ended
December 31,
1993 1992
---- ----
Operations Data(1):
Interest and dividend income $108,312 $130,823
Interest expense 62,415 94,741
------ ------
Net interest income 45,897 36,082
Provision for credit losses 12,828 20,302
------- ------
Net interest income (loss) after
provision for credit losses 33,069 15,780
------ ------
Other income:
Gains on sales of offices (6)(14) 20,410 --
Provision for Branch Sale
contingencies(4) -- --
Net gains (losses) on sales of
loans and securities (2,137) 4,064
Other 9,451 9,347
------- -------
Total 27,724 13,411
Real estate operations, net (12,675) (8,742)
Other expense:
Deposit insurance expense 5,217 4,477
Foreclosure costs 4,560 4,480
Other 40,107 43,881
------ ------
Total 49,884 52,838
------ ------
Income (loss) before income tax
expense (benefit) (1,766) (32,389)
Income tax expense (benefit) 2,662 996
------- ---------
Net income (loss) (4,388) (33,385)
Dividends declared on Preferred Stock -- --
----- ------
Net income (loss) applicable to
Common Shares (4,388) (33,385)
Net income (loss) per share (5) (4.39) (33.38)
Other Data (1):
Average equity to average assets 2.28% 2.71%
Equity to assets at period end 3.08 2.40
Weighted average yield on
interest-earning assets (8) 6.80 6.71
Weighted average rate paid on
interest-bearing deposits (8) 3.57 4.24
Interest rate spread (8) 3.23 2.45
Net interest margin 2.88 1.85
Return on average assets (0.23) (1.37)
Return on stockholders' equity (9)(12) (9.54) (69.65)
Expense ratio (9) 3.50 2.71
Efficiency ratio (10) 92.44 116.31
Tier 1 leverage capital ratio (11) 2.77 2.31
Tier 1 capital as a percent of
risk-weighted assets (11) 3.53 3.10
Total capital as a percent of
risk-weighted assets (11) 4.79 4.20
Full-service banking offices
at end of period (11) 11 16
624833.9
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<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.
624833.9
-43-
<PAGE>
<TABLE>
<CAPTION>
June 30,
---------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <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 2,671 165
---------- ---------- ----------
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>
624833.9
-44-
<PAGE>
<TABLE>
<S> <C> <C> <C>
June 30, December 31, December 31
1994 1993 1992
(Dollars in thousands)
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>
624833.9
-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.
624833.9
-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.
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
624833.9
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<PAGE>
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.
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
624833.9
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<PAGE>
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.
624833.9
-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.
624833.9
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<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.
624833.9
-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)
624833.9
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<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>
<S> <C> <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.
624833.9
-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.
624833.9
-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.
624833.9
-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."
624833.9
-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
624833.9
-57-
<PAGE>
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 $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
624833.9
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<PAGE>
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 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.
624833.9
-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)
624833.9
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<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>
<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.
624833.9
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<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.
624833.9
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<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.
624833.9
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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.
Fiscal Year
Ended June 30,
--------------------
1996 1995
---- ----
(In Thousands)
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
======= =======
(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.
624833.9
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<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
624833.9
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<PAGE>
taxes and limitations on the recognition of tax benefits of net operating
losses. See Note 20 to the Consolidated Financial Statements for more
information.
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
624833.9
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<PAGE>
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 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.
624833.9
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<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>
624833.9
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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
624833.9
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<PAGE>
to return to (stabilized) conditions." Generally the Bank's cash flows will
extend 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.
624833.9
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<PAGE>
(2) Primarily consists of completed single-family residential developments
and lots for the development of single-family residences.
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.
624833.9
-71-
<PAGE>
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 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.
624833.9
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<PAGE>
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>
<S> <C> <C> <C>
Net Carrying Value
(Dollars in Thousands) Location Status of Development
Type of Property ---------------------- -------- ---------------------
Currently in Development:
Apartment complex $ 55,989 Philadelphia, PA Construction substantially
completed; occupancy
approximately 88% of
completed units
</TABLE>
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
624833.9
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<PAGE>
$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.
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.
624833.9
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<PAGE>
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.
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
624833.9
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<PAGE>
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, 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.
624833.9
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<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)
========= =========== ============ ============
Recoveries:
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)
=========== =========
Recoveries:
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>
624833.9
-77-
<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.
624833.9
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<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, 1995
------------- ------------- -------------
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
------ -------- ------ -------- ------ --------
<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>
624833.9
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<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.
624833.9
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<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.
624833.9
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<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>
<S> <C> <C> <C>
June 30, 1997 June 30, 1996 June 30, 1995
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.
624833.9
-82-
<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.
624833.9
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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
624833.9
-84-
<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, SFKS No. 121, "Accounting for
the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed
Of."
Ernst & Young LLP
New York, New York
July 18, 1997
The foregoing report is in the form that will be signed upon the Securities and
Exchange Commission and the Federal Deposit Insurance Corporation clearance of
their financial statement comments reflected in their respective comment
letters.
/s/ Ernst & Young LLP
New York, New York
February 17, 1998
624833.9
-85-
<PAGE>
River Bank America
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
June 30, June 30,
1997 1996
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
============ ==========
Liabilities and Stockholders' Equity
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
============ ==========
</TABLE>
See Notes to Consolidated Financial Statements
624833.9
-86-
<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)
========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
624833.9
-87-
<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
624833.9
-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)
----------- -------------- ------------
</TABLE>
See Notes to Consolidated Financial Statements
624833.9
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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
624833.9
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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, 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.
624833.9
-91-
<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.
624833.9
-92-
<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
624833.9
-93-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
includes the Bank's other real estate owned 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
624833.9
-94-
<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 an aggregate amount not to exceed $99,060. At June 30, 1997, the Bank had
$66,066 outstanding under the Initial Facilities.
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.
624833.9
-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)
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
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:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Equity securities $ 7,380 $ - $ (1,105) $ 6,275
=========== ========== ========== =======
</TABLE>
624833.9
-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)
The amortized cost of investment securities available for sale and their
estimated fair values at June 30, 1996 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Equity securities $ 6,903 $ - $ (1,218) $ 5,685
=========== =========== ========== ========
</TABLE>
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.
624833.9
-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)
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.
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.
624833.9
-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)
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:
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:
<TABLE>
<CAPTION>
June 30, 1997 June 30,1996
------------- ------------
Number of Number of
Properties Amount Properties Amount
<S> <C> <C> <C> <C>
One-to-four family including
single-family developments 3 $24,451 3 $29,914
=== ======= === =======
</TABLE>
624833.9
-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)
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.
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.
624833.9
-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)
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.
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.
624833.9
-101-
<PAGE>
River Bank America
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 1997, 1996, and 1995
(Dollars in thousands, except per share data)
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 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:
<TABLE>
<CAPTION>
Period of
depreciation
or amortization June 30, June 30,
(years) 1997 1996
---------------------- -------- ---------
<S> <C> <C> <C> <C>
Land $ - $ -
Bank premises 20-50 - -
Leasehold improvements Term of leases - 158
Furniture and fixtures 4-10 - 38
Computer equipment 7 1/2 - 41
------------ -----------
- 237
Less accumulated depreciation and amortization - 91
----------- -----------
$ - $ 146
=========== ===========
</TABLE>
624833.9
-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)
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
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
================ ========== =============== ==========
</TABLE>
Activity in the valuation allowance for other real estate owned for the years
ended June 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
<S> <C> <C>
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
=========== ===========
</TABLE>
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.
624833.9
-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)
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
Commercial real estate:
Office buildings 2 19,502 2 30,647
Shopping centers - - - -
Other - - - -
---------------- ------------- -------------- ------------
4 $ 90,222 5 $ 116,054
================ ============ ============== ============
</TABLE>
Activity in the valuation allowance for real estate held for the years ended
June 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
<S> <C> <C>
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
=========== ===========
</TABLE>
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,
624833.9
-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)
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:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
-------- -------
<S> <C> <C>
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
Investment in savings bank organizations (B) - 790
Prepaid pension expenses and other assets 1,443 1,981
--------- ---------
$ 5,348 $ 17,114
========= =========
</TABLE>
(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.
624833.9
-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)
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 - - - -
---------- ---------- ---------- ----------
- $ - - $ 3,022
========== ========== ========== ==========
</TABLE>
Interest expense on deposits for the years ended June 30, 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
<S> <C> <C>
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%
============= ===========
</TABLE>
624833.9
-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)
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>
624833.9
-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)
FHLBNY Advances: The fixed rate advances from the FHLBNY outstanding at June 30,
1997 and 1996 mature as follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C> <C> <C>
Weighted Weighted
Year of Maturity average average
Fiscal Year year-end year-end
Ending June 30, Amount rate Amount rate
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
624833.9
-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)
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 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.
624833.9
-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)
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.
624833.9
-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)
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 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.
624833.9
-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)
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.
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
624833.9
-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)
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.
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
624833.9
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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)
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 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
624833.9
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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 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.
The components of the provision for income taxes for the fiscal years ended June
30, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $ - $ 1,000 $ -
State and Local (benefit) (3,300) 10,749 2,113
Deferred - - -
------------ ----------- -----------
$ (3,300) $ 11,749 $ 2,113
============ ========== ===========
</TABLE>
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
624833.9
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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)
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.
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.
624833.9
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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)
24. Retirement and other employee benefits
The Bank maintains a noncontributory defined benefit retirement plan (the
"Plan") in which substantially all employees participated.
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>
624833.9
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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
624833.9
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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)
employees with 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.
624833.9
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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.
624833.9
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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)
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 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".
624833.9
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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
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Carrying Estimated Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value Amount Fair Value
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
624833.9
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<PAGE>
-performing loans, secured by real estate, 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>
624833.9
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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)
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.
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.
624833.9
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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)
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.
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.
624833.9
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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.
Director
<TABLE>
<S> <C> <C> <C> <C>
Name Age(1) Position Class Since
- ---- ------ -------- ---- -----
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.
624833.9
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<PAGE>
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 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.
624833.9
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<PAGE>
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 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.
624833.9
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<PAGE>
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:
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
624833.9
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<PAGE>
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.
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.
624833.9
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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).
Annual Compensation
<TABLE>
<CAPTION>
Other All Other
Executive Officer Base Salary Bonus Compensation Compensation
- ----------------- ----------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
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.
624833.9
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<PAGE>
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:
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.
624833.9
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<PAGE>
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."
624833.9
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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.
624833.9
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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.
624833.9
-135-
<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: February ____, 1998 By:
------------------------------- ---------------------------
Jerome R. McDougal
President, Chief Executive
Officer, Director and
Chairman of the Board of
Directors (principal
executive and principal
financial officer)
624833.9
-136-
<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% Noncumulative Perpetual Preferred Stock, Series A as of February __, 1998,
was 1,400,000.
684721.1
<PAGE>
RIVER BANK AMERICA
Form F-4 for the quarter ended December 31, 1997
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
---------------------------------------------------
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 28
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 28
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
684721.1
<PAGE>
River Bank America
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION December 31, 1997 and June 30, 1997
(Dollars in Thousands)
Assets
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
(Unaudited)
<S> <C> <C>
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
684721.1
<PAGE>
River Bank America
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Six
months ended December 31, 1997 and 1996
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
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)
======= ====== ====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
684721.1
<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>
Series A
Non- Retained
cumulative Earnings
Perpetual Additional (Deficit)- Securities Total
Preferred Common Paid-in Substantially Valuation Stockholders'
Stock Stock Capital Restricted Account Equity
<S> <C> <C> <C> <C> <C> <C>
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
684721.1
<PAGE>
River Bank America
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS Six months ended
December 31, 1997 and 1996
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
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
684721.1
<PAGE>
River Bank America
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS Six months ended December 31, 1997
and 1996
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
(Continued from previous page)
<S> <C> <C>
Financing Activities/
Cash Flows Provided by (Used in) Financing Activities:
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 $ (12,878) $ (27,744)
----------------- -----------------
Net decrease in cash and money market investments (2,349) (2,717)
Beginning cash and money market investments 14,036 $ 17,129
----------------- -----------------
Ending cash and money market investments $ 11,687 $ 14,412
================= =================
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
684721.1
<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.
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
684721.1
<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.
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.
684721.1
<PAGE>
River Bank America
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Dollars in Thousands, except per share data)
(unaudited)
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 unpaid deposit insurance
assessments, plus accrued interest 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.
All earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to the SFAS No. 128 requirements.
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
684721.1
<PAGE>
River Bank America
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Dollars in Thousands, except per share data)
(unaudited)
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.
684721.1
<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
684721.1
<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.
684721.1
<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.
684721.1
<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
684721.1
<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.
684721.1
<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.
684721.1
<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>
December 31, 1997 June 30, 1997
----------------------- ----------------------
<S> <C> <C>
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
684721.1
<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.
684721.1
<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>
Three months ending December 31,
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 $ - $ - - % $ 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>
684721.1
<PAGE>
<TABLE>
<CAPTION>
Six months ending December 31,
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 $ - $ - -% $ 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)
</TABLE>
(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.
684721.1
<PAGE>
The following table sets forth, in summary form, the Bank's repricing analysis
at December 31, 1997.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
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.
684721.1
<PAGE>
The following table sets forth the activity in the Bank's Allowance for Possible
Credit Losses for the periods indicated:
<TABLE>
<CAPTION>
Six months ending
December 31,
----------------------------
1997 1996
---- ----
(Dollars in Thousands)
<S> <C> <C>
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>
Six months ending
---------------------------
1997 1996
---- ----
(Dollars in Thousands)
<S> <C> <C>
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.
684721.1
<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.
684721.1
<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>
December June
31, 30,
1997 1997
(Dollars in Thousands)
<S> <C> <C>
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 $ 135,206 $ 145,298
loans = ======== = =======
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>
684721.1
<PAGE>
<TABLE>
<CAPTION>
December June
31, 30,
1997 1997
(Dollars in Thousands)
<S> <C> <C>
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.
684721.1
<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>
Six months Six months
ending ending
December 31, December 31,
1997 1996
(Dollars in Thousands)
<S> <C> <C>
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. The Bank has assessed the potential impact of the Year 2000
computer systems issue on its operations and has developed an action plan to
address the issue. The Bank believes that its action plan will be implemented
and completed in a timely fashion, and that neither the impact of the Year 2000
issue, or the implementation of the action plan addressing the issue, will
materially affect the Bank's future operating results or future financial
condition.
684721.1
<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.
684721.1
<PAGE>
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
There were 251,000 Common Shares not voting on Proposal 3.
684721.1
<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
684721.1
<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.
661546.10
II-1
<PAGE>
*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 (to be 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.
*** To be filed by amendment.
661546.10
II-2
<PAGE>
(b) Financial Statement Schedules
All schedules are omitted as inapplicable.
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.0
(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.
661546.10
II-3
<PAGE>
(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 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.
661546.10
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 February 20, 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 February 20, 1998
- -------------------------------- Director
Robin Chandler Duke
* Director February 20, 1998
- --------------------------------
Robert N. Flint
* Director February 20, 1998
- --------------------------------
William D. Hassett
/s/Jerome R. McDougal President, Chief Executive February 20, 1998
- --------------------------------
Jerome R. McDougal Officer, Director and Chairman of
the Board of Directors
(principal executive and principal
financial officer)
Director February 20, 1998
*
- --------------------------------
Edward V. Regan
</TABLE>
*By: /s/Jerome R. McDougal
----------------------------
Jerome R. McDougal
Attorney-in-fact
RIVER ASSET SUB, INC.
By: /s/Jerome R. McDougal
-------------------------------
Name: Jerome R. McDougal
Title: President
661546.10
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 February 20, 1998
- --------------------------------
Robin Chandler Duke Director
* Director February 20, 1998
- --------------------------------
Robert N. Flint
* Director February 20, 1998
- --------------------------------
William D. Hassett
/s/Jerome R. McDougal President, Chief Executive February 20, 1998
- --------------------------------
Jerome R. McDougal Officer, Director and Chairman of
the Board of Directors
(principal executive and principal
financial officer)
Director February 20, 1998
*
- --------------------------------
Edward V. Regan
</TABLE>
*By: /s/Jerome R. McDougal
----------------------------
Jerome R. McDougal
Attorney-in-fact
661546.10
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 (to be 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.
*** To be filed by amendment.
661546.10
II-7
EXHIBIT 2.2.b
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- ---------------------------------------x
Index No. 97/118830
In the Matter of the Voluntary
Liquidation and Dissolution of NOTICE OF SETTLEMENT
OF CLOSING ORDER
RIVER BANK AMERICA,
Petitioner
- ---------------------------------------x
PLEASE TAKE NOTICE that an order of which the within is a true
copy with be presented for settlement to the Hon. Karla Moscowitz, one of the
judges of the within named Court, at 60 Centre Street, New York, New York 10007
on the 18th day of December, 1997 at 9:30 a.m.
Dated: New York, New York
December 8, 1997
BATTLE FOWLER LLP
Attorneys for Petitioner
75 East 55th Street
New York, New York 10022
(212) 856-7000
TO: Superintendent of Banks
New York State Banking Department
Two Rector Street
New York, New York 10006
Attention: Kathleen A. Scott, Esq.
Federal Deposit Insurance Corporation
Registration and Disclosure Section
1776 F Street, NW, Room F-36
Washington, D.C. 20006
Office of the Attorney General
120 Broadway
New York, New York 10271
662561.1
<PAGE>
At IAS PART 26 of the Supreme
Court of the State of New
York, held in and for the
County of New York on the ___
day of December, 1997.
Present: Hon. KARLA MOSCOWITZ, J.S.C.
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- ---------------------------------------x
Index No. 97/118830
In the Matter of the Voluntary
Liquidation and Dissolution of
RIVER BANK AMERICA, CLOSING ORDER
Petitioner
- ---------------------------------------x
A proceeding having been commenced by Petitioner, River Bank America
(the "Bank"), on October 15, 1997, by service of a notice of petition, and
verified petition together with exhibits, for a closing order pursuant to
Section 605 of the New York State Banking Law, and a request for judicial
intervention having been filed on October 15, 1997, and the proceeding having
been assigned to the Honorable Karla Moscowitz, a Justice of this Court, and the
Superintendent of Banks, New York State Banking Department (the
"Superintendent"), having been served, and proof of said service having been
duly filed with the Court and the application having duly come on to be heard
before the Court on the 25th day of
629058.5
<PAGE>
November, 1997, and Battle Fowler LLP, attorneys for the petitioner having
appeared in support of the application and the Superintendent having interposed
no objection to the petition and the Court having issued an order granting the
petition on default on November 26, 1997 and directing the settlement of an
order thereon;
NOW, upon reading and filing the notice of petition dated October 15,
1997, and the verified petition for a closing order, duly verified by Jerome R.
McDougal, Jr., President of the Bank, dated October 14, 1997, together with its
annexed exhibits with proof of service, and the supplemental affirmation of
Raymond J. Soffientini dated November 21, 1997 in support of petition for a
closing order, together with its annexed exhibits with proof of service, it is
hereby:
ORDERED, that the petition of the Bank is granted, and the
business of the Bank is hereby closed; and it is further
ORDERED, that within 30 days of the date of entry of this Order, the
Bank shall serve upon all known creditors of the Bank a copy of this Order,
together with a notice permitting the presentation of claims to the Bank, at its
offices at 645 Fifth Avenue, 8th Floor, New York, New York 10022, on or before
_________, 1998 (a date not less than 30 days nor more than 60 days from the
date of entry of this Order) in the form annexed hereto ("Notice to Creditors");
and it is further
ORDERED, that the Bank shall cause a copy of the Notice to Creditors to
be published in the New York Law Journal once a week
629058.5
2
<PAGE>
for two (2) consecutive weeks within 30 days from the date of entry of this
Order; and it is further
ORDERED, that the Bank or any creditor, upon notice, may apply to the
Court for a determination as to any disputed claim or for any other relief
necessary to effectuate the liquidation of the Bank; and it is further
ORDERED, that the Bank shall file a certified copy of this Closing
Order with the office of the Superintendent within five (5) days of the date of
entry hereof; and it is further
ORDERED, that within a reasonable time following the expiration of time
during which creditors may present their claims and following the Bank's
compliance with provisions of this Order with regard to the giving of notice to
creditors, the Bank shall file a verified statement with the Superintendent,
listing all the names of creditors, depositors and others who have not received
debt, deposits, dividends or other amounts due to them, together with all
identifying information, and shall thereupon pay over such unclaimed amounts to
the Superintendent as trustee for the persons entitled to receive them; and it
is further
ORDERED, that upon filing said verified statement the Bank may further
apply to this Court, pursuant to Section 605(6) requiring notice be given to the
Superintendent and the New York State Office of the Comptroller and such other
and further notice as this Court may prescribe, and for an order affirming the
disposition of any
629058.5
3
<PAGE>
unclaimed amounts and declaring the Bank dissolved and its corporate existence
terminated, and directing the Bank to file a certified copy of said order with
the Superintendent.
Enter:
-----------------------
J.S.C.
629058.5
4
<PAGE>
NOTICE OF PRESENTMENT OF CLAIMS AGAINST
RIVER BANK AMERICA
Please take notice that River Bank America, a New York state chartered
stock savings bank (the "Bank"), has been granted approval to close its
operations by the Supreme Court of New York by order dated November __, 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 Moscowitz).
The Bank intends to close its operations through the implementation of
a plan whereby the Bank will, through a series of steps, change its legal form
of organization by which it conducts 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 to be known as "RB
Asset, Inc." Upon completion of the reorganization steps, RB Asset, Inc. will
own substantially all of the assets formerly owned by the Bank, will have
assumed all of the Bank's liabilities, will have the same stockholders and
capital structure as the Bank and will continue the Bank's non-banking business.
Upon completion of the reorganization, the Bank will dissolve, and its
non-banking business will be continued by RB Asset, Inc. The reorganization
remains subject to approval by the Bank's stockholders.
Creditors of the Bank are not required to present their claims in order
for such claims and for their rights as creditors to be preserved against and
assumed by RB Asset, Inc. Creditors of the Bank may present their claim(s) to
the Bank at its office at 645 Fifth Avenue, 8th Floor, New York, New York 10022,
to the attention of Jerome R. McDougal, President, on or before
___________________, 1997. Such presentment, if any, must be made in writing,
stating the name and address of the claimant and basis for the claim.
629058.5
<PAGE>
SUPREME COURT OF THE STATE OF NEW YORK -- NEW YORK COUNTY
PRESENT: Hon. Karla Moskowitz PART 26
-------------------------------------------- ---
Justice
- ------------------------------
(IN RE) RIVER BANK INDEX NO. 118830/97
MOTION DATE 11/25/97
MOTION SEQ. NO. 001
MOTION CAL. NO. _________
- ------------------------------
The following papers, numbered 1 to _______ were read on this motion to/for
- -----------------------------
<TABLE>
<CAPTION>
PAPERS NUMBERED
<S> <C>
Notice of Motion/Order to Show Cause -- Affidavits -- Exhibits ... _________________________
Answering Affidavits -- Exhibits__________________________________ _________________________
Replying Affidavits_______________________________________________ _________________________
</TABLE>
Cross-Motion: / / Yes / / No
Upon the foregoing papers, it is ordered that this petition is granted on
default.
Settle Order
Dated: 11/26/97 /s/ Karla Moskowitz
------------------------
J.S.C.
Check one: /X/ FINAL DISPOSITION / / NON-FINAL DISPOSITION
MOTION/CASE IS RESPECTFULLY REFERRED TO
JUSTICE____________________________________________
J.S.C.
DATED: ____________________________________________
670649.1
<PAGE>
AFFIDAVIT OF SERVICE
STATE OF NEW YORK )
.ss:
COUNTY OF NEW YORK )
I, Frances Zimmerman, being duly sworn, depose and say, that
deponent is not a party to the action, is over 18 years of age and resides in
Teaneck, New Jersey. On the 8th day of December 1997, deponent served the within
Notice of Settlement of Closing Order on Superintendent of Banks, New York State
Banking Department, Two Rector Street, New York, New York 10006, Attention:
Kathleen A. Scott, Esq., Federal Deposit Insurance Corporation, Registration and
Disclosure Section, 1776 F Street, NW, Room F-36, Washington, D.C. 20006 and
Office of the Attorney General, 120 Broadway, New York, New York 10271, by
depositing a true copy of same enclosed in a First Class, postpaid, properly
addressed wrapper, within the State of New York.
/s/ Frances Zimmerman
----------------------------
Frances Zimmerman
Sworn to before me this
8th day of December, 1997.
/s/ Marlene S. Meudt
- ---------------------------
Notary Public
MARLENE S. MEUDT
Notary Public, State of New York
No. 31-4775310
Qualified in New York County
Commission Expires May 31, 1998
657881.1
EXHIBIT 2.2.c
At IAS PART 26 of the
Supreme Court of the State
of New York, held in and for
the County of New York on
the 9th day of January, 1998.
Present: Hon. KARLA MOSKOWITZ, J.S.C.
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- ---------------------------------------x
Index No. 97/118830
In the Matter of the Voluntary
Liquidation and Dissolution of
RIVER BANK AMERICA, CLOSING ORDER
Petitioner
- ---------------------------------------x
A proceeding having been commenced by Petitioner, River Bank America (the
"Bank"), on October 15, 1997, by service of a notice of petition, and verified
petition together with exhibits, for a closing order pursuant to Section 605 of
the New York State Banking Law, and a request for judicial intervention having
been filed on October 15, 1997, and the proceeding having been assigned to the
Honorable Karla Moskowitz, a Justice of this Court, and the Superintendent of
Banks, New York State Banking Department (the "Superintendent"), having been
served, and proof of said service having been duly filed with the Court and the
application having
629058.6
1
<PAGE>
duly come on to be heard before the Court on the 25th day of November, 1997, and
Battle Fowler LLP, attorneys for the petitioner having appeared in support of
the application and the Superintendent having interposed no objection to the
petition and the Court having issued an order granting the petition on default
on November 26, 1997 and directing the settlement of an order thereon;
NOW, upon reading and filing the notice of petition dated October 15, 1997,
and the verified petition for a closing order, duly verified by Jerome R.
McDougal, Jr., President of the Bank, dated October 14, 1997, together with its
annexed exhibits with proof of service, and the supplemental affirmation of
Raymond J. Soffientini dated November 21, 1997 in support of petition for a
closing order, together with its annexed exhibits with proof of service, it is
hereby:
ORDERED, that the petition of the Bank is granted, and the business of the
Bank is hereby closed; and it is further
ORDERED, that within 30 days of the date of entry of this Order, the Bank
shall serve upon all known creditors of the Bank a copy of this Order, together
with a notice permitting the presentation of claims to the Bank, at its offices
at 645 Fifth Avenue, 8th Floor, New York, New York 10022, on or before March 2,
1998 (a date not less than 30 days nor more than 60 days from the date of entry
of this Order) in the form annexed hereto ("Notice to Creditors"); and it is
further
629058.6
2
<PAGE>
ORDERED, that the Bank shall cause a copy of the Notice to Creditors to be
published in the New York Law Journal once a week for two (2) consecutive weeks
within 30 days from the date of entry of this Order; and it is further
ORDERED, that the Bank or any creditor, upon notice, may apply to the Court
for a determination as to any disputed claim or for any other relief necessary
to effectuate the liquidation of the Bank; and it is further
ORDERED, that the Bank shall file a certified copy of this Closing Order
with the office of the Superintendent within five (5) days of the date of entry
hereof; and it is further
ORDERED, that within a reasonable time following the expiration of time
during which creditors may present their claims and following the Bank's
compliance with provisions of this Order with regard to the giving of notice to
creditors, the Bank shall file a verified statement with the Superintendent,
listing all the names of creditors, depositors and others who have not received
debt, deposits, dividends or other amounts due to them, together with all
identifying information, and shall thereupon pay over such unclaimed amounts to
the Superintendent as trustee for the persons entitled to receive them; and it
is further
ORDERED, that upon filing said verified statement the Bank may further
apply to this Court, pursuant to Section 605(6) requiring notice be given to the
Superintendent and the New York State Office
629058.6
3
<PAGE>
of the Comptroller and such other and further notice as this Court may
prescribe, and for an order affirming the disposition of any unclaimed amounts
and declaring the Bank dissolved and its corporate existence terminated, and
directing the Bank to file a certified copy of said order with the
Superintendent.
Enter: 1/9/98
/s/ Karla Moskowitz
J.S.C.
Filed January 14, 1998
County Clerk's Office, New York
629058.6
4
EXHIBIT 8.1
[Roberts & Holland LLP Letterhead]
February 24, 1998
River Bank America
645 Fifth Avenue, 8th Floor
New York, NY 10022
Re: Federal Income Tax Characterization
of the Proposed River Bank Restructuring
----------------------------------------
Gentleman:
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 issued to the stockholders of River
Bank in connection with a special meeting whereby the stockholders considered
and voted on the transactions described herein and the Form S-4 Registration
Statement (collectively with such Proxy Statement/Prospectus, the "Proxy
Statement") prepared in connection with the issue 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. We have assumed that the Proxy Statement and the other
documents are authentic, that 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) and
such other documents and other information furnished to us are
681947.1
<PAGE>
-2-
River Bank America February 24, 1998
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 made 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 apprize 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 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
canceled; (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 River Bank Capital Stock
will thereby be extinguished; and that this result will occur substantially
contemporaneously with the Distribution.
You have asked for our opinion on the specific issue of
whether the discussion in the Proxy Statement regarding whether these
transactions may reasonably be characterized by River Bank and its stockholders
as a "reorganization" under section 368 of the Code, and regarding the treatment
of the holders of River Bank Common Stock and River Bank Series A Preferred in
connection therewith, is correct. We have reviewed the
681947.1
<PAGE>
-3-
River Bank America February 24, 1998
discussion of this issue in the Proxy Statement and are of the opinion that such
discussion is correct.
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. Our opinion, however, is not binding on the Service or the courts
and it is possible that they may reach a different conclusion. There can be no
assurance that the Service or the courts will agree with the conclusions
expressed herein. Subject to all 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 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
681947.1
EXHIBIT 10.1.b
[River Bank America Letterhead]
October 27, 1997
Marine Midland Bank
One Marine Midland Bank Center
Buffalo, New York 14203
RE: Consent to River Bank America's Reorganization
Gentlemen:
Reference is hereby made to that certain Credit Agreement, dated as of
June 28, 1996 (the "Credit Agreement") and that certain Master Cash Collateral
Agreement, dated as of June 28, 1996 (the "Collateral Agreement", and,
collectively with the Credit Agreement and the documents executed in connection
therewith, the "Loan Documents"), between Marine Midland Bank ("Lender") and
River Bank America ("Borrower").
Borrower proposes to engage in a series of transactions (collectively,
the "Reorganization") whereby Borrower will change its legal form of
organization by which it conducts 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 to be known as "RB
Asset, Inc." Upon completion of the Reorganization, RB Asset, Inc. will own
substantially all of the assets formerly owned by Borrower, will have assumed
all of Borrower's liabilities (including under the Loan Documents), will have
the same stockholders and capital structure as Borrower and will continue
Borrower's non-banking business. Shortly thereafter, Borrower will be dissolved.
Borrower hereby requests your consent to the Reorganization and to
Borrower's taking whatever actions are necessary to orderly and effectively
consummate the Reorganization. In connection with the Reorganization, RB Asset,
Inc. will expressly assume all of Borrower's rights and obligations under the
Loan Documents. Borrower hereby expressly acknowledges and agrees that, except
as necessary to effectuate the Reorganization, all Lender's rights and
Borrower's covenants and obligations under the Loan Documents shall remain in
full force and effect.
<PAGE>
Please indicate your consent to the Reorganization by signing the
enclosed copy of this letter and returning it to the undersigned.
Very truly yours,
RIVER BANK AMERICA
By: /s/ Jerome R. McDougal
-----------------------
Jerome R. McDougal
Chairman, President
and Chief Executive
Officer
Consented to this 30th day of
October, 1997
MARINE MIDLAND BANK
By: /s/ Robert B. Engel
--------------------------
Name: Robert B. Engel
Title: EVP
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.
Ernst & Young LLP
New York, New York
The foregoing consent is in the form that will be signed upon the Securities and
Exchange Commission and the Federal Deposit Insurance Corporation clearance of
their financial statement comments reflected in their respective comment
letters.
/s/Ernst & Young LLP
-----------------------------
Ernst & Young LLP
New York, New York
February 17, 1998
668870.1
EXHIBIT 99.1
Common Stock Proxy
Preliminary Proxy Materials - February __, 1998
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 MARCH ___, 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 March ___, 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)
645777.2
<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.
645777.2
<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 MARCH ___, 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 March ___, 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)
645777.2
<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.
645777.2
