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Filed Pursuant To Rule 424B3
Registration No. 333-59399
NOTICE OF SPECIAL MEETING OF
THE SHAREHOLDERS OF SAC RIVER VALLEY BANK
TO BE HELD NOVEMBER 10, 1998
To the Shareholders of Sac River Valley Bank:
This is a notice that a Special Meeting of the Shareholders of Sac River
Valley Bank ("Sac River") will be held in the offices of Sac River located at 14
Public Square, Stockton, Missouri on November 10, 1998, at 9:00 a.m., local
time, for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger between Liberty Bancshares, Inc. ("Bancshares"), Liberty Bank ("Liberty")
and Sac River (the "Merger Agreement"). In the Merger, Sac River will merge with
and into Liberty (the "Merger") and Liberty will be the surviving corporation.
In the Merger, each issued and outstanding share of common stock of Sac River,
par value $30 per share ("Sac River Common Stock"), will be converted into the
right to receive from Bancshares cash in the amount of $485.70 (the "Mandatory
Per Share Cash Amount") plus, at the election of each shareholder, 35.516 shares
of common stock of Bancshares, par value $1 per share (the "Bancshares Common
Stock"), or cash in the amount of $1,050 per share or a combination of cash and
stock, all as more fully described in the accompanying Proxy
Statement-Prospectus.
2. To transact such other business as may properly come before the meeting
and any adjournment or postponement thereof.
Only shareholders of record of Sac River Common Stock at the close of
business on September 25, 1998 are entitled to notice of and to vote at the
Special Meeting and any adjournment or postponement thereof. Approval of the
Merger Agreement requires the affirmative vote of the holders of two-thirds of
the issued and outstanding shares of Sac River Common Stock. Shareholders of Sac
River are entitled to dissent from the Merger and to receive in cash the fair
value of their shares, as more fully explained in the accompanying Proxy
Statement-Prospectus.
You are cordially invited to attend the Special Meeting. Whether or not you
plan to attend, please complete, date, sign and return the enclosed proxy card
to assure that your shares will be represented at the Special Meeting. A prepaid
return envelope is enclosed for your convenience. If you attend the Special
Meeting, you may vote your shares in person whether or not you have previously
submitted a proxy.
By order of the Board of Directors,
Garry L. Robinson
October 9, 1998
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SAC RIVER VALLEY BANK
PROXY STATEMENT
LIBERTY BANCSHARES, INC.
PROSPECTUS
Sac River Valley Bank, a Missouri banking corporation ("Sac River") is
providing this Proxy Statement-Prospectus to its shareholders in connection with
the solicitation of proxies by the Sac River Board of Directors for use at a
special meeting of the shareholders of Sac River (the "Special Meeting"). The
Special Meeting will convene on November 10, 1998, at 9:00 a.m., local time, in
the main office of Sac River located at 14 Public Square, Stockton, Missouri,
including any adjournment or postponement thereof, for the purpose of
considering and voting upon the matters set forth in the preceding Notice of
Special Meeting of the Shareholders of Sac River, as more fully described in
this Proxy Statement-Prospectus.
Liberty Bancshares, Inc. ("Bancshares"), has filed a Registration Statement
on Form S-4 (together with all amendments and exhibits, the "Registration
Statement") with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act of 1933, as amended (the "Securities Act"),
covering up to 355,160 shares of common stock of Bancshares, par value $1 per
share ("Bancshares Common Stock"), to be issued under the Agreement and Plan of
Merger, dated as of June 18, 1998, between Bancshares, Liberty Bank, a Missouri
banking corporation ("Liberty"), and Sac River (the "Merger Agreement"). The
Merger Agreement provides that, subject to the approval of the holders of shares
of common stock of Sac River at the Special Meeting and the satisfaction (or
waiver, to the extent that such waiver is permitted by law) of other conditions
to closing contained in the Merger Agreement, Sac River will merge with and into
Liberty, and Liberty will be the surviving corporation (the "Merger"). In the
Merger each issued and outstanding share of common stock of Sac River ("Sac
River Common Stock") (other than shares held by persons who do not vote in favor
of the Merger and who properly exercise their dissenter's rights by following
the procedures required under Missouri Revised Statutes Section 362.730, as
amended) shall be converted into the right to receive cash in the amount of
$485.70 per share plus, at the election of the shareholder, cash in the amount
of $1,050 per share, or 35.516 shares of the common stock of Bancshares, or a
combination of the two, as provided in the Merger Agreement. Accompanying this
Prospectus/Proxy Statement is the Election Notice on which Sac River
shareholders may elect to receive the Optional Per Share Cash Amount, Bancshares
Common Stock, or a combination of each. Sac River shareholders may submit the
Election Notice to Sac River at any time before the vote on the Merger commences
at the Special Meeting. Sac River shareholders may change their election at any
time before the commencement of the vote or during any adjournment of the
Special Meeting. See "Summary - The Merger" and "THE MERGER - Terms of the
Merger." The aggregate value of the cash and stock consideration in the Merger
is $15,357,000. After the Merger, the Sac River shareholders will own between
260,450 and 355,160 shares of Bancshares Common Stock (or between 33.8% and
41.0% of the issued and outstanding shares of Bancshares Common Stock),
depending upon the number of Sac River shareholders who elect to receive cash
rather than shares of Bancshares Common Stock in exchange for their Sac River
Common Stock and taking into account the limitation on the aggregate amount of
Optional Per Share Cash Amount. Under the Merger Agreement, the total cash
payable by Bancshares with respect to the Optional Per Share Cash Amount cannot
exceed $2,800,000, less cash paid in lieu of fractional shares. If the total
cash payable by Bancshares with respect to the Optional Per Share Cash Amount
exceeds $2,800,000, and Sac River cannot persuade enough shareholders to change
their election to reduce the total cash payable with respect to the Optional Per
Share Cash Amount to $2,800,000, the parties will not be obligated to conclude
the Merger. See "RISK FACTORS - Risks Associated with Limit on Optional Per
Share Cash Amount," and "The Merger - Terms of the Merger" and "The Merger
Conditions to the Merger." This Proxy Statement-Prospectus also constitutes the
prospectus of Bancshares filed as part of the Registration Statement. See
"AVAILABLE INFORMATION." Sac River will begin mailing this Proxy
Statement-Prospectus and accompanying form of proxy to shareholders of Sac River
on or about October 10, 1998. IN ADDITION TO THE OTHER INFORMATION CONTAINED
HEREIN, SAC RIVER SHAREHOLDERS SHOULD CAREFULLY REVIEW THE "RISK FACTORS"
SECTION OF THIS PROXY STATEMENT-PROSPECTUS ON PAGES 8 TO 12.
THE SECURITIES TO WHICH THIS PROXY STATEMENT-PROSPECTUS RELATES
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF BANCSHARES COMMON STOCK OFFERED HEREBY ARE
NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK
OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
------------------
The date of this Proxy Statement-Prospectus is October 9, 1998.
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Per Share Cash Amount," and "The Merger - Terms of the Merger" and "The Merger
Conditions to the Merger." This Proxy Statement-Prospectus also constitutes the
prospectus of Bancshares filed as part of the Registration Statement. See
"AVAILABLE INFORMATION." Sac River will begin mailing this Proxy
Statement-Prospectus and accompanying form of proxy to shareholders of Sac River
on or about October 10, 1998. IN ADDITION TO THE OTHER INFORMATION CONTAINED
HEREIN, SAC RIVER SHAREHOLDERS SHOULD CAREFULLY REVIEW THE "RISK FACTORS"
SECTION OF THIS PROXY STATEMENT-PROSPECTUS ON PAGES 8 TO 12.
THE SECURITIES TO WHICH THIS PROXY STATEMENT-PROSPECTUS RELATES
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF BANCSHARES COMMON STOCK OFFERED HEREBY ARE
NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK
OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
------------------
The date of this Proxy Statement-Prospectus is October 9, 1998.
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No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Proxy Statement-Prospectus in connection with the solicitation of proxies or the
offering of securities made hereby and, if given or made, such information or
representation must not be relied upon as having been authorized by Bancshares
or Sac River. This Proxy Statement-Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, any securities, or the solicitation
of a proxy, in any jurisdiction, to or from any person to whom or from whom it
is unlawful to make any such offer or solicitation in such jurisdiction. Neither
the delivery of this Proxy Statement-Prospectus nor any distribution of
securities made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of Bancshares or Sac River since
the date of this Proxy Statement-Prospectus or that information in this Proxy
Statement-Prospectus or in the documents incorporated by reference herein is
correct as of any time subsequent to the date hereof or the dates thereof.
AVAILABLE INFORMATION
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. For further
information, reference is hereby made to the Registration Statement.
Bancshares has provided the information in this Proxy Statement-Prospectus
about Bancshares and its subsidiary, Liberty, and Sac River has provided the
information about itself. At the present time, neither Bancshares or Sac River
is a reporting company under the Securities Exchange Act of 1934 (the "Exchange
Act"). After the consummation of the Merger, Bancshares will file reports with
the Commission for a period of one year as required by Section 15(d) of the
Exchange Act.
Bancshares has filed the Registration Statement with the Commission. This
Proxy Statement-Prospectus constitutes a part of the Registration Statement, but
does not contain all of the information in the Registration Statement. The
Registration Statement, including all exhibits to the Registration Statement,
and the reports and other information Bancshares will file with the Commission
after the Merger can be inspected and copied at the principal offices of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: 7 World
Trade Center, New York, New York 10048, and the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60601. Copies of all
materials filed by Bancshares may be obtained from the Commission at its
principal office in Washington, D.C., upon payment of the fees prescribed by the
Commission. The Commission maintains a World Wide Web site (http://www.sec.gov)
that contains all reports, proxy and information statements and all other
documents filed electronically with the Commission. Bancshares will file
electronically all documents that it is required to file with the Commission.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SUMMARY......................................................................................................... 1
The Companies............................................................................................... 1
Bancshares.............................................................................................. 1
Liberty................................................................................................. 1
Sac River............................................................................................... 1
The Special Meeting......................................................................................... 2
The Merger.................................................................................................. 2
Risk Factors................................................................................................ 2
Conditions to the Merger.................................................................................... 3
Voting Rights and Votes Required for Approval............................................................... 4
Effective Time, Cash Payments, and Exchange of Certificate.................................................. 4
Dissenters' Rights.......................................................................................... 4
Termination................................................................................................. 4
Recommendation of the Board of Directors of Sac River....................................................... 5
Federal Income Tax Consequences............................................................................. 5
Regulatory Matters.......................................................................................... 5
Management of Sac River and Liberty Following Consummation of Merger........................................ 5
Certain Relationships and Related Stock Ownership........................................................... 6
Comparison of Shareholders' Rights.......................................................................... 6
Accounting Treatment of the Merger.......................................................................... 6
Selected Consolidated Financial Data of Bancshares.......................................................... 6
Selected Financial Data of Sac River........................................................................ 7
Historical and Pro Forma Comparative Per Share Data......................................................... 8
RISK FACTORS.................................................................................................... 9
Lack of Trading Market...................................................................................... 9
Risks Associated with Limit on Optional Per Share Amount.................................................... 9
Risks Associated with Commercial Real Estate, Business and Construction Loans............................... 9
Risks Related to Geographic Concentration of Lending Operations............................................. 10
Effect of Changes in Interest Rates......................................................................... 11
Asset Quality............................................................................................... 10
Risks Associated with Certificates of Deposit............................................................... 12
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Year 2000................................................................................................... 13
Risk Associated with Merger................................................................................. 13
Competition................................................................................................. 14
Laws and Regulations........................................................................................ 14
Dependence Upon Key Personnel............................................................................... 14
THE SPECIAL MEETING............................................................................................. 14
Introduction................................................................................................ 14
Purpose..................................................................................................... 15
Record Date................................................................................................. 15
Votes Required.............................................................................................. 15
Voting and Revocation of Proxies............................................................................ 16
Solicitation of Proxies..................................................................................... 16
THE MERGER...................................................................................................... 17
Background of the Merger.................................................................................... 17
Reasons of the Board of Directors of Sac River for Approving the Merger..................................... 18
Recommendation of the Board of Directors of Sac River....................................................... 20
Reasons of the Boards of Directors of Bancshares and Liberty for Approving the Merger....................... 20
Terms of the Merger......................................................................................... 20
Dissenters' Rights.......................................................................................... 21
Effective Time of the Merger................................................................................ 21
Surrender of Sac River Common Stock Certificates and Payment................................................ 21
Conditions to the Merger.................................................................................... 21
Conduct of Business Pending the Merger...................................................................... 25
Waiver and Amendment........................................................................................ 25
Termination................................................................................................. 25
Expenses.................................................................................................... 26
Effect on Employee Benefit Plans............................................................................ 26
Bank Regulatory Matters..................................................................................... 30
Summary of the Federal Income Tax Consequences of the Merger................................................ 32
Resales of Bancshares Common Stock Issued in the Merger..................................................... 33
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................................. 34
Related Stock Ownership..................................................................................... 34
Loan Participation.......................................................................................... 34
Legal Counsel............................................................................................... 35
Directors of Bancshares..................................................................................... 35
DISSENTERS' RIGHTS OF HOLDERS OF SAC RIVER COMMON STOCK......................................................... 35
DESCRIPTION OF BANCSHARES COMMON STOCK.......................................................................... 36
COMPARISON OF SHAREHOLDER RIGHTS................................................................................ 36
Capital Stock............................................................................................... 37
Preemptive Rights........................................................................................... 37
Voting Rights of Capital Stock.............................................................................. 37
Board of Directors.......................................................................................... 37
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Cumulative Voting........................................................................................... 38
Removal of Directors........................................................................................ 38
Filling of Vacancies on the Board of Directors and Newly Created Directorships.............................. 38
Call of Special Meetings of Shareholders.................................................................... 38
Amendments to Articles of Agreement or Articles of Incorporation............................................ 39
Amendments to By-laws....................................................................................... 39
INDEMNIFICATION OF BANCSHARES' AND LIBERTY'S DIRECTORS AND OFFICERS............................................. 39
BUSINESS OF BANCSHARES.......................................................................................... 39
General..................................................................................................... 39
Employees................................................................................................... 40
Description of Liberty's Property........................................................................... 40
Competition................................................................................................. 40
Regulation and Supervision of Bancshares.................................................................... 40
Regulation and Supervision of Liberty....................................................................... 40
Dividends................................................................................................... 41
DIRECTORS AND EXECUTIVE OFFICERS OF BANCSHARES.................................................................. 42
SECURITY OWNERSHIP OF BANCSHARES' AND LIBERTY'S MANAGEMENT...................................................... 44
PRINCIPAL SHAREHOLDERS OF BANCSHARES............................................................................ 45
COMPENSATION OF BANCSHARES' MANAGEMENT.......................................................................... 45
Executive Compensation...................................................................................... 45
Fiscal Year End Options..................................................................................... 46
Compensation of Directors and Committees of the Board of Directors.......................................... 47
BANCSHARES' LEGAL PROCEEDINGS................................................................................... 47
BANCSHARES' MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................................ 47
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF BANCSHARES....................................................... 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF LIBERTY BANCSHARES............................................................................. 50
RESULTS OF OPERATIONS....................................................................................... 50
General................................................................................................. 50
FINANCIAL CONDITION......................................................................................... 51
Total Assets............................................................................................ 51
Net Loans............................................................................................... 51
Investment Securities................................................................................... 51
Deposits................................................................................................ 51
Short-term Borrowings................................................................................... 51
Stockholders Equity..................................................................................... 52
RESULTS OF OPERATIONS....................................................................................... 52
Net Income.............................................................................................. 52
Interest Income......................................................................................... 52
Interest Expense........................................................................................ 52
Noninterest Income and Expense.......................................................................... 53
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Net Interest Income..................................................................................... 53
Investment Securities Portfolio Analysis................................................................ 56
Loan Portfolio.......................................................................................... 57
Risk Elements of Loan Portfolio......................................................................... 59
Provision for Loan Losses............................................................................... 60
Allowance for Loan Losses............................................................................... 62
Deposits................................................................................................ 62
Return on Equity and Assets............................................................................. 64
Short-Term Borrowings................................................................................... 64
Liquidity and Capital Resources......................................................................... 65
Year 2000............................................................................................... 66
Interest Rate Sensitivity............................................................................... 67
Capital Adequacy........................................................................................ 69
Impact of Recently Issued Accounting Standards.......................................................... 69
Effect of Economic Conditions........................................................................... 70
BUSINESS OF SAC RIVER........................................................................................... 70
General ................................................................................................ 70
Employees............................................................................................... 70
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Description of Sac River's Property......................................................................... 71
Competition................................................................................................. 71
Regulation and Supervision of Sac River..................................................................... 71
Dividends................................................................................................... 71
INDEMNIFICATION OF SAC RIVER'S OFFICERS AND DIRECTORS........................................................... 72
DIRECTORS AND EXECUTIVE OFFICERS OF SAC RIVER................................................................... 72
Certain Business Relationships.............................................................................. 73
SECURITY OWNERSHIP OF SAC RIVER'S MANAGEMENT.................................................................... 74
PRINCIPAL SHAREHOLDERS OF SAC RIVER............................................................................. 75
COMPENSATION OF SAC RIVER'S MANAGEMENT.......................................................................... 76
Executive Compensation...................................................................................... 76
Compensation of Directors................................................................................... 77
SAC RIVER'S LEGAL PROCEEDINGS................................................................................... 77
SAC RIVER'S MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................................ 77
SELECTED FINANCIAL INFORMATION.................................................................................. 77
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF SAC RIVER...................................................................................... 80
General..................................................................................................... 80
FINANCIAL CONDITION......................................................................................... 80
Total Assets............................................................................................ 80
Net Loans............................................................................................... 80
Investment Securities................................................................................... 80
Deposits................................................................................................ 81
Short-term Borrowings................................................................................... 81
Stockholders' Equity.................................................................................... 81
RESULTS OF OPERATIONS....................................................................................... 81
Net Income.............................................................................................. 81
Interest Income......................................................................................... 81
Noninterest Income and Expense.......................................................................... 82
Net Interest Income..................................................................................... 82
Investment Securities Portfolio Analysis................................................................ 84
Loan Portfolio.......................................................................................... 86
Risk Elements of Loan Portfolio......................................................................... 88
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Provision for Loan Losses............................................................................... 89
Allowance for Loan Losses............................................................................... 90
Deposits................................................................................................ 91
Return on Equity and Assets............................................................................. 92
Short-Term Borrowings................................................................................... 92
Liquidity and Capital Resources......................................................................... 93
Year 2000............................................................................................... 94
Interest Rate Sensitivity............................................................................... 96
Capital Adequacy........................................................................................ 97
Impact of Recently Issued Accounting Standards.......................................................... 98
Effect of Economic Conditions........................................................................... 98
ADJOURNMENT OF SPECIAL MEETING.................................................................................. 99
LEGAL OPINIONS.................................................................................................. 99
INDEX TO FINANCIAL STATEMENTS...................................................................................101
GLOSSARY OF TERMS...............................................................................................103
INDEX TO APPENDICES.............................................................................................105
</TABLE>
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SUMMARY
This Summary contains a brief summary of certain information contained
elsewhere in this Proxy Statement-Prospectus. This summary does not contain a
complete statement of that information or of all material aspects of the Merger.
Sac River shareholders should read this Proxy Statement-Prospectus in
conjunction with the detailed information and financial statements in this Proxy
Statement-Prospectus. Consult the Glossary for the definitions of certain
capitalized terms used in this summary and elsewhere in this Proxy
Statement-Prospectus.
All information contained in this Proxy Statement-Prospectus about
Bancshares Common Stock gives effect to a ten-for-one stock split of Bancshares
Common Stock that became effective June 17, 1998.
THE COMPANIES
BANCSHARES. Bancshares is a Missouri corporation organized in 1995.
Bancshares owns all the outstanding capital stock of Liberty. At June 30, 1998,
Bancshares had consolidated total assets of $111.5 million and stockholders'
equity of $6.3 million. Bancshares' maintains its executive offices at 1414 East
Primrose, Springfield, Missouri 65804, and its telephone number is (417)
888-3000. The only subsidiary and principal asset of Bancshares is Liberty.
Bancshares, through its ownership of Liberty, engages in commercial banking and
related businesses and its sole source of earnings is income generated by
Liberty. As a bank holding company, Bancshares is subject to regulation by the
Board of Governors of the Federal Reserve System (the "FRS Board"). Bancshares'
articles of incorporation authorize it to issue up to 5,000,000 shares of Common
Stock, $1 par value per share, of which 511,090 shares were issued and
outstanding as of June 30, 1998. There are 36 holders of the outstanding shares
of Bancshares Common Stock.
LIBERTY. Liberty is a Missouri banking corporation organized in 1995.
Liberty maintains its executive offices at 1414 East Primrose, Springfield,
Missouri 65804 and its telephone number is (417) 888-3000. Liberty engages in
commercial banking and related businesses. Liberty has no subsidiaries. Liberty
derives most of its income from the interest and fees earned in connection with
lending activities and interest and dividends from investment securities and
short-term investments. The Federal Deposit Insurance Corporation ("FDIC")
insures Liberty's deposits to the extent permitted by law. The Missouri Division
of Finance ("Division of Finance") and the FDIC share regulatory oversight of
Liberty.
SAC RIVER. Sac River is a Missouri banking corporation organized in
1912. At June 30, 1998, Sac River had total assets of $90.9 million and
stockholders' equity of $11.2 million. Sac River maintains its executive offices
at 14 Public Square, Stockton, Missouri 65785, and its telephone number is (417)
276-3115. Sac River engages in commercial banking and related businesses. Sac
River has no subsidiaries. Sac River derives most of its income from interest
and fees earned in connection with lending activities and interest and dividends
from investment securities and short-term investments. The FDIC insures Sac
River's deposits to the extent permitted by law. Sac River is a member of the
Federal Reserve System (the "FRS"). The FDIC, FRS and the Division of Finance
share regulatory oversight of Sac River. Sac River's articles of association
authorize the issuance of up to 10,000 shares of Common Stock, $30 par value per
share, of which all 10,000 shares are issued and outstanding. There are
approximately 100 shareholders of Sac River.
<PAGE> 12
THE SPECIAL MEETING
Sac River will hold the Special Meeting at its main office located at
14 Public Square, Stockton, Missouri on November 10, 1998, at 9:00 a.m., local
time, for the purpose of considering and voting upon the Merger Agreement. Only
holders of record of Sac River Common Stock at the close of business on
September 25, 1998 (the "Record Date") will receive notice of, and may vote at,
the Special Meeting. As of the Record Date, 10,000 shares of Sac River Common
Stock were issued and outstanding. See "THE SPECIAL MEETING - Introduction;
Purpose; Record Date; Votes Required."
THE MERGER
The Merger Agreement provides for the merger of Sac River with Liberty.
Liberty will be the surviving corporation. The separate existence of Sac River
will cease after the Merger.
Except as described under "THE MERGER - Terms of the Merger," upon
consummation of the Merger, each outstanding share of Sac River Common Stock
will be converted into the right to receive from Bancshares cash in the amount
of Four Hundred Eighty-Five Dollars and 70/100 ($485.70) per share (the
"Mandatory Per Share Cash Amount") plus, at the election of the shareholder,
cash in the amount of $1,050 per share or Bancshares Common Stock at a
conversion ratio of 35.516 shares of Bancshares Common Stock for each share of
Sac River Common Stock. Sac River shareholders can also elect to receive cash
for some of their shares of Sac River Common Stock and Bancshares Common Stock
for the balance. If a shareholder fails to make an election, all of the Sac
River Common Stock held by the shareholder will be exchanged for Bancshares
Common Stock. Bancshares' payment of the Mandatory Per Share cash amount
requires approval by the FRS Board. See "THE MERGER-Terms of the Merger," and
"THE MERGER - Certain Federal Income Tax Consequences of the Merger."
Sac River shareholders may make their election by completing and
returning to Sac River the "Election Notice" that accompanies this
Prospectus/Proxy Statement, which they may return by mail or delivery to Sac
River at any time before the commencement of the vote on the Merger at the
Special Meeting. Sac River shareholders may change their Election Notice at any
time before the commencement of the Merger vote at the Special Meeting or during
any adjournment of the Special Meeting by delivering a new Election Notice to
Sac River. For additional information about the Election Notice, see "THE
MERGER" - Terms of the Merger."
RISK FACTORS
There are certain risks associated with the proposed Merger as more
fully described in the section of this Proxy Statement-Prospectus entitled "RISK
FACTORS." These risks include the lack of any established trading market for
Bancshares Common Stock and the risks associated with Sac River's and Liberty's
commercial lending activities. There is also no established public trading
market for the shares of Sac River Common Stock. To the knowledge of the
management of Bancshares, the most recent trade involving shares of the
Bancshares Common Stock occurred in February 1997. To the knowledge of the
management of Sac River, the most recent trade involving shares of the Sac River
Common Stock occurred in February 1998. Due to the lack of an active trading
market for the shares of Bancshares, the shareholders of Sac River may be unable
to resell the shares of Bancshares Common Stock to be issued in the Merger.
Affiliates of Sac River and Bancshares will be subject to additional limitations
on resales
2
<PAGE> 13
of Bancshares Common Stock. See "THE MERGER-Resales of Bancshares Common Stock
Issued in the Merger."
CONDITIONS TO THE MERGER
The parties' mutual obligations to consummate the Merger are subject to
the satisfaction (or waiver, to the extent permitted by law) of various
conditions set forth in the Merger Agreement, including:
(i) approval of the transactions contemplated by the Merger
Agreement by the FRS Board, the Division of Finance and FDIC
upon terms and conditions that are reasonably satisfactory to
Sac River and Bancshares,
(ii) the Sac River shareholders' approval of the Merger Agreement at
the Special Meeting,
(iii) the S-4 becoming effective under the Securities Act of 1933,
(iv) receipt of a tax opinion of Husch and Eppenberger, LLC, in a
form satisfactory to Sac River that the Merger will be treated
as a reorganization for federal tax purposes, and
(v) no injunctions or restraints issued by any court preventing
the Merger are in effect.
The obligation of Sac River to consummate the Merger is subject to the
conditions, among others, that:
(i) the representations and warranties made by Bancshares in the
Merger Agreement are true and correct,
(ii) Bancshares has received all necessary consents to the Merger,
(iii) there has been no material adverse change in Bancshares'
business, and
(iv) Sac River reasonably believes that the Merger will qualify as
one or more reorganizations for federal tax purposes.
The obligation of Bancshares to consummate the Merger is subject to the
conditions, among others, that:
(i) the representations and warranties made by Sac River in the
Merger Agreement are true and correct,
(ii) Sac River has received all necessary consents to the Merger,
(iii) there has been no material adverse change in Sac River's
business,
(iv) no material action shall be pending against Bancshares,
Liberty or Sac River, and
3
<PAGE> 14
(v) the total cash paid out by Bancshares to Sac River's
shareholders shall not exceed $7,657,000, with the aggregate
Optional Per Share Cash Amount not to exceed $2,800,000, less
cash paid in lieu of fractional shares.
Sac River and Bancshares cannot provide assurances about when or
whether all of the conditions precedent to the Merger can or will be satisfied
or waived by the party permitted to waive such conditions. See "THE MERGER Terms
of the Merger."
VOTING RIGHTS AND VOTES REQUIRED FOR APPROVAL
The holders of two-thirds of the outstanding shares of Sac River Common
Stock must approve the Merger. Each share of Sac River Common Stock has one vote
on the Merger.
EFFECTIVE TIME, CASH PAYMENTS, AND EXCHANGE OF CERTIFICATES
The Merger will be effective (the "Effective Time") as soon as the
Merger Agreement is filed with the Division of Finance, which will occur after
all of the conditions to the Merger have been met. After the Effective Time,
Bancshares' exchange agent will mail all Sac River shareholders instructions for
exchanging their stock certificates for Bancshares Stock Certificates and/or
cash payment, depending on their election under the Merger Agreement. See "THE
MERGER - Effective Time," and THE MERGER - Surrender of Sac River Common Stock
Certificates and Payment."
DISSENTERs' RIGHTS
If the parties conclude the Merger, holders of Sac River Common Stock
will have dissenters' rights, if they comply with certain statutory procedures.
If a Sac River shareholder fails to take all required steps in a timely manner
for the exercise of dissenters' rights, he or she may lose or waive those
rights. To exercise dissenter's rights, a holder of Sac River Common Stock must
take the following actions: (i) not vote in favor of the Merger Agreement at the
Special Meeting, and (ii) within 60 days of the effective date of the Merger,
petition the Circuit Court in Greene County, Missouri, for the appointment of
appraisers to value the holder's stock. A copy of Missouri Revised Statute
Section 362.730, setting forth the procedures for exercising dissenters' rights
appears as Appendix C. See "THE MERGER - Conditions to the Merger" and
"DISSENTERS' RIGHTS OF HOLDERS OF SAC RIVER COMMON STOCK."
TERMINATION
The Merger may be terminated, among other reasons,
(i) by mutual consent of the Board of Directors of Bancshares and
the Board of Directors of Sac River,
(ii) if Sac River shareholders do not approve the Merger,
(iii) if the FRS Board, Division of Finance or FDIC denies approval
of the Merger,
(iv) if any permanent injunction preventing the Merger becomes
final and nonappealable, or
4
<PAGE> 15
(v) if there is a material breach of the representations and
warranties of Sac River or Bancshares.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF SAC RIVER
The Board of Directors of Sac River has unanimously approved the Merger
Agreement and the Merger. The Board of Directors of Sac River believes that the
Merger is fair and in the best interests of the shareholders of Sac River and
recommends a vote FOR the approval of the Merger. For a discussion of the
factors considered by the Board of Directors of Sac River in reaching its
conclusions, see "THE MERGER - Reasons of the Board of Directors of Sac River
for Approving the Merger; Recommendation of the Board of Directors of Sac
River."
FEDERAL INCOME TAX CONSEQUENCES
The consummation of the Merger is conditioned upon, among other things,
the opinion of Husch & Eppenberger, LLC, counsel to Bancshares and Liberty, that
the Merger will qualify as a reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended, for federal income tax purposes.
Based on that opinion, the principal federal income tax results of the Merger
will be as follows: (1) neither Sac River, Liberty, nor Bancshares will
recognize gain or loss as a result of the Merger; and (2) no Sac River
shareholder will recognize any gain or loss (other than gain with respect to
cash received in the Merger) upon the exchange of their Sac River Common Stock
for Bancshares Common Stock. However, the federal income tax considerations
related to the Merger may be different for particular types of Sac River
shareholders or in light of each Sac River shareholder's particular
circumstances. Consequently, Sac River shareholders are urged to consult their
own tax advisers concerning the federal income tax considerations that may be
relevant to them in connection with the Merger, and in particular the character
of the income recognized upon the receipt of cash in the Merger, as well as the
application to them of any state, local, foreign, or other tax laws. See "THE
MERGER - Certain Federal Income Tax Considerations."
REGULATORY MATTERS
The FRS Board, the Division of Finance and the FDIC must approve the
Merger. Sac River and Bancshares do not have to conclude the Merger if the terms
and conditions of these regulatory approvals are not reasonably satisfactory to
them. See "THE MERGER - Regulatory Approvals."
MANAGEMENT OF SAC RIVER AND LIBERTY FOLLOWING CONSUMMATION OF MERGER
After the consummation of the Merger, all of the existing directors of
Sac River and Bancshares will be directors of Bancshares. The existing officers
of Liberty will continue in their present positions and the officers of Sac
River will become officers of Liberty. In addition, Garry L. Robinson will serve
as the Executive Vice-President of Liberty and the Executive Vice-President of
Bancshares.
CERTAIN RELATIONSHIPS AND RELATED STOCK OWNERSHIP
No directors, officers, or principal shareholders of Sac River own
shares of Bancshares Common Stock. Richard A. Pendleton, a director of Liberty
and Bancshares, is co-trustee of the Anise C. Brasher Revocable Trust U/T/A
dated August 1, 1995, which owns shares of Sac River Common Stock. No other
5
<PAGE> 16
directors, officers or principal shareholders of Bancshares own shares of Sac
River Common Stock. Sac River has made loans to certain directors of Bancshares
in the ordinary course of Sac River's business. Sac River has also purchased
participations in loans originated by Liberty. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS-Directors of Bancshares, Loan Participation."
INTERESTS OF SAC RIVER OFFICES AND DIRECTORS IN THE
MERGER THAT DIFFER FROM THE INTERESTS OF SHAREHOLDERS
Sac River directors and officers who are also Sac River shareholders
have certain interests in the Merger that differ from or are in addition to
those of Sac River shareholders. These include:
-- Sac River directors will become members of Bancshares Board of
Directors and as such will receive $200 per Board and Board Loan
Committee Meeting they attend.
-- Sac River officers will become officers of Liberty and will
receive compensation as such. Garry Robinson, currently president
of Sac River, will continue to receive salary and bonus under his
existing employment agreement. See "BUSINESS OF SAC RIVER --
Compensation of Sac River's Management."
-- Former Sac River officers who become key employees of Liberty will
be entitled to participate in Bancshares' Incentive Stock Option
Plan. See "THE MERGER -- Effect on Employee Benefit Plans."
-- Former Sac River officers will be able to participate in Liberty's
401(k) plan. See "THE MERGER -- Effect on Employee Benefit
Plans."
COMPARISON OF SHAREHOLDERS' RIGHTS
Bancshares is a corporation organized under the laws of the State of
Missouri, and Chapter 351 of the Missouri Revised Statutes, the Articles of
Incorporation of Bancshares, and the by-laws of Bancshares govern the rights of
Bancshares shareholders. Sac River is a state chartered banking corporation
organized under Missouri Revised Statutes Chapter 362, and that statutory
section, the Articles of Association of Sac River, and the by-laws of Sac River
govern the rights of Sac River shareholders. There are relatively few
differences in shareholder rights for shareholders of Bancshares and Sac River
under the governing Missouri statutes. See "COMPARISON OF SHAREHOLDER RIGHTS."
ACCOUNTING TREATMENT OF THE MERGER
Under generally accepted accounting principles, the Merger will be
treated as a purchase by Bancshares. See "THE MERGER - Accounting Treatment."
SELECTED CONSOLIDATED FINANCIAL DATA OF BANCSHARES
The following table sets forth, on an historical basis, certain
selected consolidated financial data for Bancshares. Shareholders should read
this data in conjunction with the audited consolidated financial statements of
Bancshares and the related notes for the years ended December 31, 1997, and
1996, and the initial period from October 27, 1995, to December 31, 1995, and
the unaudited financial statements of Bancshares for the six months ended June
30, 1998, and 1997, all of which appear in this Proxy Statement-Prospectus and
which are the source of this data. See "INDEX TO FINANCIAL STATEMENTS."
6
<PAGE> 17
<TABLE>
<CAPTION>
65 Days
SIX MONTHS Fiscal Year Ended
ENDED JUNE 30 Ended December December
31 31
------------------
---------------------------- ----------------------------
1998 1997 1997 1996 1995
---------------------------- ---------------------------- ------------------
(Dollars in thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
Net Interest Income $1,591 $699 $1,817 $709 $157
Provision for Loan Losses 227 72 447 71 6
Noninterest Income 171 70 201 47 1
Noninterest Expense 1,097 476 1,288 552 137
Provision for Income Taxes 146 83 117 39 4
Net Income 293 138 166 94 11
Earnings Per Common Share .60 .41 .42 .27 .03
Dividends Declared per Common Share -- -- -- -- --
Average Total Assets 93,780 39,654 53,172 20,072 10,501
</TABLE>
SELECTED FINANCIAL DATA OF SAC RIVER
The following table sets forth, on an historical basis, certain
selected consolidated financial data for Sac River. Sac River shareholders
should read this data in conjunction with, the audited financial statements and
related notes thereto of Sac River for the fiscal years ended December 31, 1997,
and 1996, and the unaudited financial statements for the six months ended June
30, 1998, and 1997, all of which appear in this Proxy Statement-Prospectus and
which are the source of data presented below. Data for the fiscal years ended
December 31, 1995, 1994 and 1993 is based upon the unaudited financial
statements of Sac River for those periods. See "INDEX TO FINANCIAL STATEMENTS."
7
<PAGE> 18
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 Year Ended December 31
----------------------------- ------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------------------------- ------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income 1,841 1,827 3,707 3,514 3,202 3,078 3,205
Provision for Loan Losses -- 30 30 70 50 10 130
Noninterest Income 205 150 303 277 248 273 274
Noninterest Expense 750 723 1,606 1,296 1,289 1,375 1,265
Provision for Income Taxes 469 433 791 799 667 444 658
Net Income 827 791 1,584 1,626 1,446 1,522 1,426
Earnings Per Common Share 82.72 79.08 158.37 162.61 144.56 152.25 142.60
Dividends Declared Per
Common Share -- -- 80 80 80 80 80
</TABLE>
8
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Average Total Assets 97,506 92,695 96,384 87,969 77,479 70,747 69,817
</TABLE>
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
The following table sets forth per share data of Bancshares and Sac
River on both a historical basis and on a pro forma basis. Sac River
shareholders should read this table in conjunction with the historical
consolidated financial statements and notes thereto for Bancshares and Sac River
contained in this Proxy Statement-Prospectus. Pro forma combined and equivalent
pro forma per share data reflect the combined results of Bancshares and Sac
River presented as though they were one company for all periods shown.
Equivalent pro forma per share amounts are calculated by multiplying the pro
forma income per share and the pro forma book value per share of Bancshares by
the exchange ratio so that such per share amounts are equated to the respective
values for one share of Sac River. The pro forma amounts do not include
adjustments for estimated operating efficiencies or revenue enhancements, if
any, resulting from the Merger. The following pro forma and equivalent pro forma
information is based on the Exchange Ratio of 35.516 shares of Bancshares Common
Stock for each share of Sac River Common Stock. The equivalent pro forma data
does not include cash of $485.70 per share that will be received for each share
of Sac River Common Stock outstanding.
<TABLE>
<CAPTION>
HISTORICAL EQUIVALENT
PRO FORMA
------------------------------------ ------------------
LIBERTY
BANCSHARES SAC RIVER PRO FORMA SAC RIVER
<S> <C> <C> <C> <C>
Basic Net Income Per Common Equivalent
Share
Twelve Months Ended:
December 31, 1997........................... .42 158.37 1.77 62.86
Six Months Ended:
June 30, 1998............................... .60 82.72 1.08 38.36
Cash Dividends paid per share
Twelve Months Ended:
December 31, 1997........................... -- 80 1.07 38.00
Six Months Ended:
June 30, 1998............................... -- 80 0.95 33.65
</TABLE>
9
<PAGE> 20
<TABLE>
<CAPTION>
EQUIVALENT
PRO
HISTORICAL FORMA
------------------------- ----------
LIBERTY
BANCSHARES SAC RIVER PRO FORMA SAC RIVER
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Book value per common share at:
December 31, 1997........................... 11.24 1,113.99 15.38 546.32
June 30, 1998............................... 12.37 1,115.90 16.61 589.81
</TABLE>
RISK FACTORS
LACK OF TRADING MARKET
There is no established public trading market for the shares of
Bancshares Common Stock or Sac River Common Stock. Before the Effective Time of
the Merger, the sale or exchange of Bancshares Common Stock has been and until
the Merger is effective will be substantially restricted by the terms of a Stock
Purchase Agreement entered into by Bancshares' shareholders on May 1, 1995. To
the knowledge of Bancshares's management, the most recent trade involving shares
of Bancshares Common Stock occurred in February 1997 at a price of $10.78 per
share. To the knowledge of Sac River's management, the most recent trade
involving shares of Sac River Common Stock occurred in February 1998 at a price
of $1,400 per share (in a transaction between a Sac River director and a
Bancshares director with knowledge of the possible Merger). Earlier transactions
in Sac River Common Stock have been at prices under $1,000 per share. Since
there is no active trading market for the shares of Bancshares, the shareholders
of Sac River may be unable to resell the shares of Bancshares Common Stock to be
issued in the Merger. Additional restrictions on resale will apply to affiliates
of Sac River and Bancshares. See "THE MERGER-Resales of Bancshares Common Stock
Issued in the Merger."
RISKS ASSOCIATED WITH LIMIT ON OPTIONAL PER SHARE AMOUNT
There is a possibility that Sac River shareholders will not receive all
of the cash that he or she actually elects or that the Merger will not be
consummated. Under the Merger Agreement, each shareholder of Sac River will
receive $485.70 per share of Sac River Common Stock, plus at the election of the
shareholder, cash in the amount of $1,050 per share (the "Optional Per Share
Cash Amount"), the right to receive 35.516 shares of Bancshares Common Stock, or
a combination of cash and shares. The total cash payable by Bancshares as the
Optional Per Share Amount to all shareholders of Sac River cannot exceed
$2,800,000 less cash distributed in lieu of fractional shares. This limitation
is necessary to permit the tax free treatment of the exchange of shares of Sac
River Common Stock for shares of Bancshares Common Stock. See "The
Merger-Federal Income Tax Consequences of the Merger." If enough Sac River
shareholders elect to receive the Optional Per Share Cash Amount so that the
total cash payable by Bancshares with respect to the Optional Per Share Cash
Amount exceeds $2,800,000, Sac River will attempt to have shareholders change
their election. If enough shareholders do not change their election to reduce
the total cash payable by Bancshares as to the Optional Per Share Cash Amount to
$2,800,000 (less cash paid in lieu of
10
<PAGE> 21
fractional shares), the parties do not have an obligation to consummate the
Merger. See "The Merger - Terms of the Merger" and "The Merger - Conditions to
the Merger."
RISKS ASSOCIATED WITH COMMERCIAL REAL ESTATE, BUSINESS AND CONSTRUCTION LOANS
The operations of Sac River and Liberty include funding commercial real
estate, business, and construction loans. Commercial real estate and commercial
lending involve significant additional risks compared with one-to-four family
residential mortgage lending, and therefore, for many banks account for a
disproportionate share of delinquent loans and real estate owned through
foreclosure. These kinds of loans generally involve a larger loan balance to
single borrowers or groups of related borrowers than does residential lending,
and repayment of the loan depends in part on the underlying business and
financial condition of the borrower and is more susceptible to adverse future
developments. If the cash flow from an income-producing property is reduced (for
example, because leases are not obtained or renewed), the borrower's ability to
repay the loan may be materially impaired. These risks can be significantly
affected by considerations of supply and demand in the market for office,
manufacturing, and retail space and by general economic conditions. As a result,
commercial real estate and business loans are likely to be subject, to a greater
extent than residential property loans, to adverse conditions in the economy
generally.
Construction loans are, in general, subject to the same risks as
commercial real estate loans, but involve additional risks due to uncertainties
inherent in estimating construction costs, delays arising from labor problems,
shortages of material, uncertain marketability of a completed project and other
unpredictable contingencies that make it relatively difficult to determine
accurately the total loan funds required to complete a project or the value of
the completed project. Banks advance construction loan funds on the security of
the project under construction, which is of uncertain value prior to the
completion of construction. When a construction project encounters cost
overruns, marketing or other problems, it may become necessary, in order to
sustain the project and to preserve collateral values, for the lender to advance
additional funds and to extend the maturity of its loan. In a declining market,
there is no assurance that this strategy will successfully enable the lender to
recover outstanding loan amounts and interest due. Moreover, foreclosing on such
properties results in administrative expense and substantial delays in recovery
of outstanding loan amounts and provides no assurance that the lender will
recover all monies due to it, either by developing the property (subject to
regulatory limitations and to the attendant risks of development) or by selling
the property to another developer.
As of June 30, 1998, Sac River's gross loan portfolio totaled $64.9
million, or 71.4% of assets, of which $16.1 million, or 24.8%, consisted of
one-to-four family residential mortgages, $34.8 million, or 53.6%, consisted of
commercial real estate loans, $6.6 million, or 10.2%, consisted of
non-agricultural business loans, $3.3 million, or 5.0%, consisted of
agricultural loans, and $4.1 million, or 6.4%, consisted of consumer loans. As
of June 30, 1998, Liberty's gross loan portfolio totaled $79.9 million, or 71.7
of assets, of which $13.8 million, or 17.3%, consisted of residential real
estate loans, $16.2 million, or 20.2%, consisted of non-agricultural business
loans, $38.6 million, or 48.3%, consisted of commercial real estate loans, $10.8
million, or 13.5%, consisted of consumer loans and $0.5 million, or 0.6%
consisted of agricultural loans. See "Management's Discussion and Analysis of
Consolidated Financial Conditions and Results of Operations
11
<PAGE> 22
of Liberty Bancshares - Loan Portfolio" and "Management's Discussion and
Analysis of Consolidated Financial Conditions and Results of Operations of Sac
River - Loan Portfolio."
RISKS RELATED TO GEOGRAPHIC CONCENTRATION OF LENDING OPERATIONS
Liberty's and Sac River's lending operations are concentrated primarily
in southwestern Missouri. As a result, the post-merger financial condition and
results of Liberty's operations will reflect the effects of changes in the
business cycle and downturns in the economy of the region, as well as the state
and the nation. In an economic downturn, banks tend to experience a run-off in
deposits. If economic conditions worsen after the Merger, Liberty may not be
able to originate the same volume of high quality loans. See "Business of Sac
River - Competition" and "Business of Liberty - Competition."
EFFECT OF CHANGES IN INTEREST RATES
Bancshares' operating results after the Merger will depend to a large
extent on Liberty's net interest income, which is the difference between its
interest income on interest-earning assets and its interest expense on
interest-bearing liabilities. Rapid changes in interest rates may adversely
affect Liberty's net interest income. Interest rates are highly sensitive to
many factors, including governmental monetary policies and domestic and
international economic and political conditions. Conditions such as inflation,
recession, unemployment, money supply, international economic difficulties, and
other factors beyond Bancshares' control may also affect interest rates.
Interest rate risk arises from mismatches (i.e. the interest
sensitivity gap) between repricing or maturity characteristics of assets and
liabilities and may be measured in terms of the ratio of the cumulative interest
sensitivity gap to total assets. More assets repricing or maturing than
liabilities over a given time frame is considered asset-sensitive and is
reflected as a positive gap, and more liabilities repricing or maturing than
assets over a given time frame than is considered liability-sensitive and is
reflected as a negative gap. An asset-sensitive position (i.e., a positive gap)
will generally enhance earnings in a rising interest rate environment and
negatively impact earnings in a falling interest rate environment, while a
liability-sensitive position (i.e., a negative gap) will generally enhance
earnings in a falling interest rate environment and negatively impact earnings
in a rising interest rate environment. Fluctuations in interest rates are not
predictable or controllable. At December 31, 1997, on a pro forma basis giving
effect to the Merger, Bancshares' pro forma interest-earning assets which were
estimated to mature or reprice within one year were less than Bancshares'
interest-bearing liabilities which were estimated to mature or reprice within
one year by $6.7 million for a negative one year gap position of 4.0%.
Bancshares intends to structure its asset and liability management
strategies to mitigate the impact of changes in interest rates and, in
particular, intends to manage its interest rate risk through not holding
long-term fixed rate paper, and matching length of deposits (CD's) to length of
loans. Initially, it is expected that Liberty will continue its asset liability
management strategies. There can be no assurances, however, of Bancshares'
ability to continue to achieve positive net interest income. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations of
Liberty Bancshares."
ASSET QUALITY
12
<PAGE> 23
Industry experience indicates that a portion of a bank's loans will
become delinquent and that a portion of the delinquent loans will require
partial or entire charge-off. Regardless of the underwriting criteria that a
lender uses, it may experience losses as a result of various factors beyond its
control, including, among others, changes in market conditions affecting the
value of security and problems affecting the credit of the borrower. Sac River's
and Liberty's determination of the adequacy of their respective allowances for
possible loan losses is based on various considerations, including an analysis
of the risk characteristics of various classifications of loans, previous loan
loss experience, specific loans which would have loan loss potential,
delinquency trends, estimated fair value of the underlying collateral, current
economic conditions, the view of outside regulators, and geographic and industry
loan concentration. If, however, delinquency levels were to increase as a result
of adverse general economic conditions, particularly in southwestern Missouri
where Sac River's and Liberty's loan operations are concentrated, the loan loss
reserve determined by the two banks may not be adequate. There can be no
assurance that Liberty's allowance after the Merger will be adequate to cover
loan losses or that either bank will not experience losses in its loan
portfolios that may require significant increases to its allowance for possible
loan losses in the future. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations of Liberty Bancshares - Provision
for Loan Losses" and "Management's Discussion and Analysis of Financial
Conditions and Results of Operations of Sac River - Provision for Loan Losses."
RISKS ASSOCIATED WITH CERTIFICATES OF DEPOSIT
As of December 31, 1997, Bancshares' interest-bearing liabilities in
excess of $100,000 which were estimated to mature or reprice within one year
were $26.9 million. If those interest-bearing liabilities (primarily
certificates of deposit) are not replaced as they mature, Bancshares' operations
and liquidity could be negatively affected. Bancshares currently has a high rate
of renewal of its certificates of deposit and expects that rate to continue. If
Bancshares were to suffer a decrease in the renewal of interest-bearing
liabilities, Bancshares would seek to manage its liquidity and operational
problems by raising Liberty's interest rates to attract new certificates of
deposit, having Liberty sell Small Business Administration loans, or having
Liberty borrow money from the Federal Home Loan Bank, of which it is a member.
There is, however, no assurance that these strategies would enable Bancshares to
restore satisfactory liquidity.
YEAR 2000
The computer systems of Sac River and Liberty, both internal and
outsourced processing, could be affected by the "Year 2000" issue. The Year
2000 problem is the result of computer programs being written using two digits
rather than four to define the applicable year. Similar problems may arise with
microprocessors and other embedded technology, such as lighting and cooling
system controls. Computers are a fundamental part of commercial banking in
terms of information storage and retrieval, check clearings, deposit postings,
loan payment processing, interest receivable and payable calculations, customer
notice generation, documentation preparation, and other areas. Embedded
technology is also widely used in mechanical systems and controls on bank
premises. Any embedded technology or programs used by Sac River or Liberty or
any of their vendors that have time-sensitive software may recognize the date
using "00" as the year 1900 rather than the year 2000, resulting in major
system failures or miscalculations. Similar problems could arise from failure
of software used by other banks and governmental financial institutions with
whom Liberty and Sac
13
<PAGE> 24
River maintain electronic ties, including electronic fund transfers. In
addition, if significant customers of either Sac River or Liberty are not Year
2000 compliant, they could suffer significant losses that might adversely affect
their ability to repay loans, borrow additional funds, or otherwise purchase Sac
River or Liberty services. Failures of Sac River, Liberty or third party
computer systems or embedded technology could, therefore, have a material effect
on the ability of Sac River and Liberty to conduct business, and could adversely
affect the results of their operations. Both Liberty and Sac River have
developed and are implementing plans to access their Year 2000 compliance and
the compliance of their vendors and major customers. Both institutions are also
developing contingency plans to deal with Year 2000 issues that may arise if
they or third parties are not fully compliant. The federal and state agencies
that regulate the two banks closely monitor Year 2000 compliance and could
impose penalties and sanctions if the institutions do not meet the compliance
standards established by the regulators. For a more detailed discussion of
Liberty's and Sac River's plans and Year 2000 readiness, see "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations of Liberty Bancshares - Year 2000" and "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations of Sac
River - Year 2000."
RISK ASSOCIATED WITH MERGER
Certain forward-looking statements contained in this Proxy
Statement-Prospectus include the expected benefits from the proposed
transactions (see "Recommendation of the Sac River Board;" "Sac River's Reasons
for the Merger" and "Recommendation of the Liberty Board"; "Liberty's Reasons
for the Merger"), pro forma financial data, and similar information. Such
forward-looking statements use Sac River's and Liberty's internal estimates of
growth and results of operations and generally make no provisions for any
possible negative effects of the Merger. To the extent that events differ from
the assumptions, Bancshares' actual results of operations may vary materially
from the forward-looking statements. These forward-looking statements assume
that the deposit base of both Sac River and Liberty will remain substantially
intact pending the Merger and will grow at historical rates following the
Merger. To the extent that the Merger or other factors result in either a
temporary or long-term loss of deposits for Liberty, Bancshares' actual results
of operations may vary materially from the results anticipated by the
forward-looking statements.
COMPETITION
Sac River and Liberty both face significant competition in their
respective markets. Increasing consolidation within the banking and financial
services industry, as well as increased competition from larger regional and
national out-of-state banking organizations and nonbank providers of various
financial services, may adversely affect the combined Bancshares' and Liberty's
ability to achieve the financial goals. Many of these large competitors have
significantly more financial resources, larger market share, and greater name
recognition in the market area to be served by the combined company.
14
<PAGE> 25
LAWS AND REGULATIONS
The businesses of Bancshares, Sac River and Liberty are subject to
extensive federal and state supervision and regulation. Changes in (i) laws and
regulations, including federal and state banking laws and regulations, with
which Bancshares and its subsidiaries must comply, and the associated costs of
compliance with such laws and regulations, (ii) accounting policies and
practices, as may be adopted by the relevant regulatory agencies as well as by
the Financial Accounting Standards Board, or (iii) Bancshares' and Liberty's
organization, compensation, and benefit plans, could cause actual results to
vary from the forward-looking statements in this Proxy Statement-Prospectus. See
"Business of Bancshares - Regulation and Supervision" and "Business of Sac River
- - Regulation and Supervision."
DEPENDENCE UPON KEY PERSONNEL
Bancshares' and Liberty's future success will depend upon the continued
services of its senior management as well as its ability to attract additional
members to its management team with experience in the financial services
industry. The unexpected loss of the services of any of Bancshares' or Liberty's
key management personnel, or its inability to attract new management personnel
when necessary, could have a material adverse effect upon Bancshares and
Liberty. Bancshares maintains a $3 million key person insurance policy on Gary
Metzger. No other key management personnel are covered by similar insurance
policies. Other than Mr. Garry L. Robinson, Sac River's President, no officer or
director of Sac River, Liberty, or Bancshares is employed under an employment
agreement. Liberty will assume Sac River's obligations under Mr. Robinson's
employment agreement when the Merger is effective. See "Business of Bancshares
Regulation and Supervision" and "Business of Sac River - Regulation and
Supervision."
THE SPECIAL MEETING
INTRODUCTION
Sac River and Bancshares are furnishing this Proxy Statement-Prospectus
to the shareholders of Sac River in connection with the solicitation of proxies
by the Board of Directors of Sac River for use at the Special Meeting. Sac River
will hold the Special Meeting at its main office located at 14 Public Square,
Stockton, Missouri on November 10, 1998, at 9:00 a.m., local time. Sac River
will begin mailing Statement-Prospectus to its shareholders on or about November
10, 1998.
PURPOSE
Sac River has called the Special Meeting for the purpose of considering
and voting upon the Merger Agreement and the transaction of any and all other
business that may properly come before the Special Meeting or any adjournments
or postponements thereof.
THE BOARD OF DIRECTORS OF SAC RIVER HAS APPROVED THE MERGER AND THE
MERGER AGREEMENT AND RECOMMENDS A VOTE FOR THE ADOPTION OF THE MERGER
AGREEMENT.
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RECORD DATE
Only holders of record of Sac River Common Stock at the close of
business on September 25, 1998 (the "Record Date"), are entitled to notice of,
and to vote at, the Special Meeting, or any adjournments or postponements of the
Special Meeting.
VOTES REQUIRED
As of the Record Date, there were 10,000 issued and outstanding shares
of Sac River Common Stock entitled to vote at the Special Meeting, held by
approximately 100 shareholders. Each holder of record of shares of Sac River
Common Stock at the close of business on the Record Date is entitled to cast,
for each share registered in his or her name, one vote on the Merger Agreement
and on each other matter presented to a vote of the shareholders at the Special
Meeting.
The affirmative vote of the holders of two-thirds of the issued and
outstanding Sac River Common Stock, whether or not present or represented at the
Special Meeting, is required to approve the Merger Agreement. As of the Record
Date, directors and executive officers of Sac River owned 12.75% of the
outstanding shares of Sac River Common Stock. Members of the families of the
directors and executive officers of Sac River owned an additional 12.02% of the
outstanding shares of Sac River Common Stock. Sac River expects that all of its
officers and directors and their families will vote their shares in favor of
this Merger Agreement.
Abstentions and "broker non-votes" will not be counted as votes for
approval of the Merger Agreement and, therefore, will have the effect of votes
against approval. A "broker non-vote" is a proxy from a broker or other nominee
of a Sac River shareholders indicating that such person has not received
instructions from the beneficial owner or other person entitled to vote the
shares that are represented by the proxy on a matter for which the broker or
other nominee does not have discretionary voting power.
Bancshares, as the sole shareholder of Liberty, has voted in favor of
the Merger. Approval of the Merger Agreement by the stockholders of Bancshares
is not required under Missouri or other applicable law.
VOTING AND REVOCATION OF PROXIES
The appointed proxy for Sac River will vote all shares of Sac River
Common Stock represented by a proxy properly signed and received at or prior to
the Special Meeting, unless subsequently revoked, in accordance with the
instructions on the proxy. If a proxy is signed and returned without any voting
instructions, shares of Sac River Common Stock represented by the proxy will be
voted FOR the proposal to approve the Merger. A shareholder may revoke any proxy
given pursuant to this solicitation by delivering to the Secretary of Sac River,
before or at the Special Meeting, a written notice revoking the proxy or a duly
executed proxy relating to the same shares bearing a later date or by voting in
person at the Special Meeting. Address all written notices involving a proxy to:
Sac River Valley Bank, P. O. Box B, Stockton, Missouri 65785, Attention: Garry
L. Robinson. Attendance at the Special Meeting will not, in and of itself,
revoke a proxy.
The Board of Directors of Sac River is not aware of any business to be
acted upon at the Special Meeting other than as described herein. If, however,
other matters are properly brought before the
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Special Meeting, or any adjournments or postponements thereof, the persons
appointed as proxies will have discretion to vote or act on such matters
according to their best judgment.
Sac River's management may determine at the time of the Special Meeting
that it is in the best interest of Sac River and its shareholders to adjourn the
Special Meeting for up to 90 days if, among other reasons, at the time of the
special meeting, the holders of a sufficient number of shares of Sac River
Common Stock have indicated on their Election Notice that they intend to elect
under the Merger Agreement to receive cash rather the right to receive shares of
Bancshares Common Stock and, as a result, the total cash payable by Bancshares
to all shareholders of Sac River would exceed $7,657,000 (including a maximum of
$2,800,000 for the aggregate Optional Per Share Cash Amount and cash paid in
lieu of fractional shares). It is a condition to the closing of the Merger that
no more than $7,657,000 of the Merger consideration is cash. During the
adjournment representatives of Sac River would determine whether a sufficient
number of Sac River shareholders would reduce their cash election so that the
$7,657,000 condition could be satisfied. See "THE MERGER - Terms of the Merger"
for additional information about the Election Notice.
Sac River's Management may also determine that it is in the best
interest of Sac River and its shareholders to adjourn the Special Meeting for
other reasons. The person or persons appointed as proxies will have discretion
to act or vote on such proposed adjournment according to their best judgment.
SOLICITATION OF PROXIES
Sac River will bear all expenses of solicitation of Sac River
shareholders in connection with the Special Meeting. In addition to solicitation
by use of the mails, directors, officers and employees of Sac River may solicit
proxies in person or by telephone, telecopy or by other means of communication.
Sac River will not pay these directors, officers and employees any compensation
for the solicitation, other than the compensation which they otherwise receive
in their capacity as directors, officers and employees, but Sac River may
reimburse them for out-of-pocket expenses in connection with the solicitation.
THE MERGER
This section describes all material provisions of the Merger Agreement,
as well as certain other aspects of the Merger. It is qualified by reference to
the Merger Agreement, included as Appendix A to this Proxy Statement-Prospectus,
which is incorporated herein by reference. Sac River shareholders should read
the Merger Agreement in its entirety.
BACKGROUND Of THE MERGER
Beginning in late 1996, Gary E. Metzger, President of Bancshares, and
Garry L. Robinson, President of Sac River, began occasional discussions of a
possible merger of Sac River and Liberty. Sac River and Liberty have had
depository, loan participation and other relationships since Liberty opened in
1995, and Mr. Robinson and Mr. Metzger had worked together at other banks in the
1980's. During the period of the discussions between Mr. Robinson and Mr.
Metzger, the directors of both Sac River and Bancshares were considering a
variety of alternatives to expand their market bases, including internal
expansion and merger possibilities.
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Sac River's Board of Directors believed that opportunities for
significant growth in the Stockton market areas were limited and therefore
evaluated other markets. The directors believed that the Springfield area
offered the greatest possibilities for growth, whether through new branches,
acquisitions, or a merger.
In the fall of 1997, Bancshares' Board of Directors adopted a strategic
plan to expand Bancshares through the addition of new locations. At that time,
Bancshares began looking for potential merger candidates, and its Board
authorized Mr. Metzger to begin discussions with potential candidates.
Bancshares was interested in merging with a bank that had a similar
business philosophy, diverse ownership, was small to medium sized, had available
capital and was in a market complimentary to, but not significantly overlapping
with, Bancshares existing market. Mr. Metzger identified a number of potential
candidates, but determined that Sac River was the best candidate for merger
based on these factors and on the existing relationship between Sac River and
Liberty. Following the adoption of Bancshares' strategic plan, Mr. Metzger again
approached Mr. Robinson about a potential merger.
On December 11, 1997, the Sac River Board unanimously agreed to explore
the possibility of a merger with Bancshares. In deciding to pursue a merger, the
Sac River Board of Directors considered a number of factors, including the
opportunities for expansion presented by a merger, particularly given Liberty's
existing locations, the need for Sac River to obtain updated technology, which
Liberty had, the creation of a greater market for the shareholders of Sac River
should they wish to sell their Sac River shares, provision for succession of
management, the ability for most Sac River shareholders to realize capital gains
treatment upon the disposition of their Sac River shares, and the retention of
Sac River management and board members by the surviving entity.
On January 11, 1998, Gary Metzger met with the members of the Sac River
Board of Directors and management, including Garry Robinson, Stephen Wrenn,
Neale Johnson and Mike Neale to further discuss the Merger. Based upon those
discussions, Bancshares presented an oral merger proposal to the Sac River Board
on March 5, 1998. The proposal outlined the reasons for merger as previously
considered by the Sac River Board and outlined the basic pricing structure of
the merger, with the stock of Sac River being valued at 1.5 times book value and
Bancshares Common Stock being valued at 2 times book value of Liberty less
Bancshares' debt. Bancshares made its valuation based on the valuation of
similar transactions in the area and its knowledge of the financial position and
growth potential of both Sac River and Liberty, including Liberty's rapid growth
in the Springfield market and the absence of further significant growth
opportunities in Sac River's market area.
The Sac River Board reviewed the merger proposal on March 5, 1998, and
agreed to pursue the merger, with modifications to the price structure initially
proposed by Bancshares. Sac River recommended that Sac River stock be valued at
1.5 times book value and Bancshares stock be valued at 1.8 times book value of
Liberty less Bancshares' debt.
On March 17, 1998, the Bancshares and Liberty Boards of Directors
approved the terms of the Merger with a valuation of Bancshares stock at 1.85
times book value of Liberty less Bancshares' debt. On April 9, 1998, the Board
of Sac River approved the execution of a letter of intent, outlining the terms
of the Merger Agreement and the Boards of Bancshares and Liberty approved
execution of the letter of intent on April 21, 1998. On June 11, 1998, the Sac
River Board voted unanimously to approve the
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Merger Agreement and to recommend that the shareholders of Sac River approve the
Merger. On June 16, 1998, the Boards of Bancshares and Liberty approved the
Merger Agreement.
REASONS OF THE BOARD OF DIRECTORS OF SAC RIVER FOR APPROVING THE MERGER
In its deliberations concerning the Merger, the Board of Directors of
Sac River considered among other factors:
- similarities of the companies' management and operational
styles and philosophies,
- the reputations of the banks in their communities,
- the proposed members of the boards of directors, which would
include all Sac River directors,
- the identity and experience of post-Merger management,
- possible uses of the combined banks' capital,
- the technology needs and resources of both banks,
- the relative size and competitive position of each bank, and
the location of Liberty's branches,
- the price to be received by the Sac River shareholders and the
relative valuations of the Sac River Common Stock and
Bancshares' Common Stock,
- the $986 per share appraised value for a minority holding by
the ESOP, at December 31, 1997,
- the outlook for each bank in its current market environment,
- consolidation trends in the banking industry,
- the competitive position of the combined banks and the
possibilities for internal growth and growth through
acquisitions,
- the social and economic effects of the Merger on the banks'
customers, employees and communities,
- the amount and source of earnings of each bank,
- the expected pro-forma earnings of the combined banks,
- the financial condition and risk profile of each bank,
- each bank's relative contribution to the combined entity's
assets, liabilities and income,
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- the tax free nature of the exchange of Sac River Common Stock
for Bancshares Common Stock,
- the capital gains treatment of the cash consideration in the
Merger for most Sac River shareholders,
- cost savings and economics of scale that the Board of
Directors believes may be realized by the Merger, although
such savings have not been quantified,
- the capitalization of the resulting entity and compliance with
regulatory capital requirements,
- terms of comparable transactions,
- the likelihood that the Merger will be approved by the
regulatory authorities without undue conditions or delay,
- the terms and conditions of the Merger Agreement,
- the financial statements and quarterly call reports of both
banks, and
- the potential impact of legislative and regulatory changes on
banks.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF SAC RIVER
The Board of Directors of Sac River has determined that the Merger is
in the best interests of Sac River and its shareholders. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF SAC RIVER VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
REASONS OF THE BOARDS OF DIRECTORS OF BANCSHARES AND LIBERTY FOR APPROVING THE
MERGER
The directors of Liberty and Bancshares unanimously approved the Merger
and the Merger Agreement at a joint meeting held on June 16, 1998.
In approving the Merger and the Merger Agreement, the Boards of
Directors of Bancshares and Liberty took into account substantially the same
factors addressed by the Sac River Board of Directors. Of particular importance
to the Bancshares' directors were the capitalization of Sac River, the prior
relationships between the two banks, the purchase price, the economies of scale
that could be realized by nearly doubling Liberty's size, Bancshares' strategic
plan and Sac River's fit with that plan, Sac River's location, and consolidation
trends in the banking industry. Following consideration of these and other
factors, Bancshares' Board of Directors determined that the Merger would be in
the best interest of Liberty, Bancshares, and its shareholders.
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TERMS OF THE MERGER
On the Effective Time (as defined below), Sac River will merge with and
into Liberty and Liberty will be the surviving corporation. The separate
existence of Sac River will cease after the Effective Time. The Articles of
Agreement and by-laws of Liberty, as in effect immediately prior to the
Effective Time, will continue in effect as the Articles of Agreement and the
by-laws of the surviving corporation until amended or repealed in accordance
with applicable law.
All shares of Bancshares capital stock issued and outstanding
immediately before the Effective Time will remain issued and outstanding and
unchanged by the Merger. Upon the Effective Time, each share of Sac River Common
Stock issued and outstanding immediately prior to the Effective Time shall cease
to be outstanding, and shall be automatically canceled and retired and shall be
converted into the right to receive:
(i) cash in the amount of $485.70 per share (the "Mandatory
Per Share Cash Amount") subject, however, to the approval or consent of
all regulatory authorities having authority over the Merger; and
(ii) at the election of each shareholder, cash in an amount of
$1,050 per share (the "Optional Per Share Amount"), the right to
receive 35.516 shares of Bancshares Common Stock, or a combination of
cash and shares. Sac River shareholders may make the election on the
Election Notice that accompanies this Prospectus/Proxy Statement, which
they may return by mail or delivery to Sac River at any time before the
commencement of the vote on the Merger at the Special Meeting or during
any adjournment of the Special Meeting. Sac River shareholders may
change their election at any time before the commencement of the vote
at the Special Meeting or during any adjournment of the Special Meeting
by delivering a new Election Notice to Sac River. Sac River will supply
its shareholders additional copies of Election Notices upon receipt of
their written request for them. Sac River shareholders who vote in
favor of the Merger at the Special Meeting but do not submit an
Election Notice will receive only Bancshares Stock if the Merger is
approved. Shareholders who vote against the Merger or do not vote and,
in either case do not submit an Election Notice, will receive only cash
if the Merger is approved.
The aggregate Mandatory Per Share Cash Amount will not exceed
$4,857,000, and the total cash payable by Bancshares as to the Optional Per
Share Amount to all shareholders of Sac River cannot exceed $2,800,000 less cash
distributed in lieu of fractional shares.
DISSENTERS' RIGHTS
The issued and outstanding shares of Sac River Common Stock held by a
shareholder who has validly exercised dissenters' rights under the Missouri
Revised Statutes ss. 362.730 (a copy of which is attached as Appendix C) will
not be converted into the right to receive cash or Bancshares Common Stock, as
described above, but instead a shareholder who validly exercises dissenter
rights will receive payment for his or her shares of Sac River Common Stock as
set forth in ss. 362.730. See "Dissenters' Rights of Sac River Shareholders."
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EFFECTIVE TIME OF THE MERGER
The Merger will become effective on a date (the "Effective Time") as
soon as the Merger Agreement is filed with the Division of Finance, which will
occur as soon as possible after the closing of the Merger. The closing of the
Merger will take place after the satisfaction of all of the conditions to the
Merger set forth in the Merger Agreement. There can be no assurance about
whether or when the Merger will occur. See "Condition to the Merger,"
"Regulatory Approvals" and "Termination."
SURRENDER OF SAC RIVER COMMON STOCK CERTIFICATES AND PAYMENT
Promptly after the Effective Time, Husch & Eppenberger, LLC, the
transfer agent selected by Bancshares and Sac River, will mail to each former
holder of record of shares of Sac River Common Stock (other than a shareholder
who has exercised dissenters' rights, as described below) a notice and
transmittal form, together with instructions for the exchange of stock
certificates evidencing Sac River Common Stock for stock certificates evidencing
Bancshares Common Stock or cash.
SHAREHOLDERS SHOULD NOT SEND IN THEIR SAC RIVER STOCK CERTIFICATES
UNTIL THEY RECEIVE THE TRANSMITTAL FORM AND INSTRUCTIONS.
CONDITIONS TO THE MERGER
The Merger will occur only if the Merger Agreement is approved by the
vote of the holders of two-thirds of the issued and outstanding shares of Sac
River Common Stock. The parties' mutual obligations of the parties to consummate
the Merger are subject to:
(a) Board Approvals. The Boards of Directors of Sac River,
Liberty and Bancshares must have approved and adopted the Merger
Agreement by a vote of a majority of each board's members. This
condition has been satisfied.
(b) Shareholder Approval. The holders two-thirds of the issued
and outstanding shares of Sac River Common Stock and Liberty Common
Stock must have approved and adopted the Merger Agreement. The Liberty
shareholder approval requirement has been satisfied.
(c) Regulatory Action. The FRS Board, the Division of Finance,
and the FDIC, as applicable, and any other applicable bank regulatory
authorities, must have approved the Merger Agreement without any
condition not reasonably satisfactory to Bancshares and Sac River. All
conditions required to be satisfied before the Effective Time under
these regulatory approvals must be satisfied and all related waiting
regulatory period must have expired before the closing may occur.
(d) S-4: Securities Laws. The S-4 must have become effective
under the Securities Act and not been the subject of any stop order or
proceedings seeking a stop order. Bancshares must have received all
state securities or "blue sky" permits or exemptions necessary to issue
the Bancshares Common Stock in exchange for the Sac River Common Stock
and to consummate the Merger.
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(e) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger can be in effect.
(f) Tax Opinion. The Boards of Directors of Sac River and
Bancshares must have received an opinion of Husch and Eppenberger, LLC,
in a form satisfactory to Sac River, to the effect that (i) the Merger
will be treated for federal income tax purposes as one or more
reorganizations within the meaning of Code Section 368(a), (ii) that
Bancshares, Liberty and Sac River will be a party to that
reorganization within the meaning of Code Section 368(b), and (iii) no
gain or loss will be recognized by the shareholders of Sac River upon
the receipt solely of Bancshares Common Stock in the Merger in exchange
of their shares of Sac River Common Stock. The date of the opinion will
be the date of this Proxy Statement-Prospectus. The opinion will be in
substantially the form of Appendix B to this Proxy
Statement-Prospectus.
The obligation of Sac River to consummate the Merger is also subject to
the condition that as of the Closing Date:
(a) Representations and Warranties. Each of the
representations and warranties of Bancshares set forth in the Merger
Agreement, without giving effect to any update, must be true and
correct in all material respects as of the date of the Merger Agreement
and (except to the extent such representations speak as of an earlier
date) as of the closing date of the Merger Agreement as though made on
and as of the closing date of the Merger Agreement. Bancshares' chief
executive officer must give Sac River a certificate to such effect.
(b) Performance of Obligations of Bancshares. Bancshares must
have performed in all material respects each of the obligations it is
required to perform under the Merger Agreement at or before the closing
date under the Merger Agreement. Bancshares' chief executive officer
must give Sac River a certificate to that effect.
(c) Consents Under Agreements. Each person whose consent or
approval is required in connection with the transactions contemplated
by the Merger Agreement under any loan or credit agreement, note,
mortgage, indenture, lease or other agreement or instrument must have
given Bancshares their consent or approval, except those consents and
approvals that if not obtained would not, individually or in the
aggregate, have a material adverse effect on Bancshares.
(d) No Material Adverse Change. Since the date of the Merger
Agreement, no material adverse change in the business, operations,
prospects or financial condition of Bancshares or Liberty may occur
other than any such change attributable to or resulting from any change
in law, regulation or generally accepted accounting principles that
impairs both Sac River and Liberty in a substantially similar manner.
At closing, Bancshares' chief executive officer must give Sac River a
certificate to that effect.
(e) No Proceeding or Litigation. No material action, suit or
proceeding before any court or any governmental or regulatory authority
can be pending against Bancshares, Liberty, Sac River or any affiliate,
associate, officer or director of any of them seeking to restrain,
enjoin,
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prevent, change or rescind the transactions under the Merger
Agreement or questioning their validity or legality.
(f) Allowance for Losses on Loans. If Sac River believes that
Liberty's allowance for loan losses is inadequate, not later than ten
(10) days before the closing of the Merger Sac River must recommend to
the Board of Directors of Liberty an adjustment in the amount of the
allowance. If the Liberty Board of Directors determines that the
adjustment is reasonable and consistent with prudent banking practices,
it must adopt the adjustment. If Liberty's Board of Director's does not
adopt the adjustment, Sac River has the option to not consummate the
Merger.
(g) Optional Cash Payment Limitation. The aggregate Optional
Per Share Cash Amounts elected by the Sac River shareholders as of the
closing date cannot exceed $2,800,000, less any amount paid for
fractional shares.
(h) Tax Treatment. Sac River must reasonably believe, as of
the Closing Date, that the Merger will qualify as one or more
reorganizations under Code Section 368(a)(1).
The obligation of Bancshares to consummate the Merger is also subject
to:
(a) Representations and Warranties. Each of the
representations and warranties of Sac River set forth in the Merger
Agreement, without giving effect to any update, must be true and
correct in all material respects as of the date of the Merger
Agreement, and (except to the extent such representations and
warranties speak as of an earlier date) as of the closing date of the
Merger Agreement as though made on and as of the closing date. Sac
River's chief executive officer must give Bancshares a certificate to
that effect.
(b) Performance of Obligations of Sac River. Sac River shall
have performed in all material respects each of the obligations it is
required to perform under the Merger Agreement at or before the closing
date under the Merger Agreement. Sac River's chief executive officer
must give Bancshares a certificate to that effect.
(c) Consents Under Agreements. Each person whose consent or
approval shall be required in order to permit the succession by Liberty
pursuant to the Merger Agreement to any obligation, right or interest
of Sac River under any loan or credit agreement, note, mortgage,
indenture, lease or other agreement or instrument must have given Sac
River their consent or approval, except those for consents and
approvals that if not obtained would not, individually or in the
aggregate, have a material adverse effect on Sac River or Liberty.
(d) No Material Adverse Change. Since the date of the Merger
Agreement, there must have been no material adverse change in the
business, operations, prospects or financial condition of Sac River
other than any such change attributable to or resulting from any change
in law, regulation or generally accepted accounting principles that
impairs both Sac River and Liberty in a substantially similar manner.
Sac River's chief executive officer must give Bancshares a certificate
to that effect.
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(e) No Proceeding or Litigation. No material action, suit or
proceeding before any court or any governmental or regulatory authority
can be pending against Bancshares, Liberty, Sac River or any affiliate,
associate, officer or director of any of them seeking to restrain,
enjoin, prevent, change or rescind the transactions under the Merger
Agreement questioning their validity or legality.
(f) Allowance for Losses on Loans. If Bancshares believes that
Sac River's allowance for loan losses is inadequate, not later than ten
(10) days before the closing of the Merger, Bancshares will recommend
to the Board of Directors of Sac River an adjustment in the amount of
the allowance. If the Sac River Board of Directors determines that the
adjustment is reasonable and consistent with prudent banking practices,
it must adopt the adjustment. If Sac River's Board of Directors does
not adopt the adjustment, Bancshares has the option to not consummate
the Merger.
(g) Outstanding Common Stock. As of the Closing Date, no more
than ten thousand (10,000) shares of Sac River Common Stock can be
outstanding, and the Optional Per Share Cash Amount cannot exceed
$2,800,000, less any amount paid for fractional shares.
Sac River and Bancshares cannot provide assurances about when or
whether all of the conditions precedent to the Merger can or will be satisfied,
or waived by the party permitted to waive them.
CONDUCT OF BUSINESS PENDING THE MERGER
Under the Merger Agreement, Sac River must conduct its business in the
usual and ordinary course consistent with its past practice until the Merger is
concluded. Sac River has agreed to use its best efforts to preserve its business
organization and assets and maintain its rights and to use its reasonable best
efforts to retain the services of its officers and key employees.
WAIVER AND AMENDMENT
The parties to the Merger Agreement may amend it by action taken or
authorized by their respective Boards of Directors at any time before approval
of the Merger by the shareholders of Sac River and Liberty. After those
approvals the parties cannot adopt an amendment that changes the consideration
the shareholders will receive in the Merger in a way that is adverse to the
shareholders interests. Any amendment must be in writing and signed by each of
the parties.
If authorized by their respective Boards of Directors, and to the
extent legally allowed, before the Effective Time, Sac River or Bancshares may:
(i) extend the time for the performance of any of the obligations or other acts
of the other party under the Merger Agreement, (ii) waive any inaccuracies in
the representations and warranties of the other contained in the Merger
Agreement or in any document delivered by the other pursuant to the Merger
Agreement, and (iii) waive compliance by the other with any of the agreements or
conditions contained in the Merger Agreement. Any agreement on the part of a
party to any extension or waiver is valid only if set forth in a written
instrument signed on behalf of that party.
Sac River represents in the Merger Agreement, among other things, that
it is duly organized and in good standing, that it has the authority to enter
into the Merger Agreement, that its capital stock is
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accurately described in the Merger Agreement, that it has provided Bancshares
with accurate financial statements, that it has all necessary authorizations to
conduct its business, that it has paid all of its taxes and that it is not
involved in any litigation. Bancshares and Liberty make similar representations.
These representations and warranties do not survive following the Effective Time
of the Merger. If any of the representations and warranties are not true, the
other party is not entitled to indemnification from the party making the
representation and warranty for any loss suffered as a result.
TERMINATION
The Merger Agreement and the Merger may be terminated at any time
before the Effective Time, both before or after the Sac River shareholders have
approved the Merger Agreement:
(a) by mutual consent of the Boards of Directors of Bancshares
and of Sac River;
(b) by Bancshares or Sac River (i) if there has been a
material breach of any representation, warranty, covenant or agreement
contained in the Merger Agreement by Sac River, on the one hand, or
Bancshares, on the other hand, or (ii) if the representations and
warranties of Sac River, on the one hand, or Bancshares, on the other
hand, are or have become materially untrue in the aggregate, and in
either case the breach or other condition has not been cured within
thirty (30) business days following receipt of the non-terminating
party of notice of the breach or other condition;
(c) by Bancshares, on the one hand, or Sac River, on the other
hand, if any permanent injunction preventing the consummation of the
Merger has become final and nonappealable;
(d) subject to the Merger Agreement, by the Board of Directors
of Bancshares or the Board of Directors of Sac River if the Merger
shall not have been consummated before March 31, 1999, for a reason
other than the failure of the terminating party to comply with its
obligations under the Merger Agreement;
(e) by the Board of Directors of Bancshares or the Board of
Directors of Sac River if (i) the Federal Reserve Board, the Division
of Finance, the FDIC or other applicable bank regulatory authority has
denied approval of the Merger and neither Bancshares nor Sac River has,
within thirty days after the entry of the order denying approval, filed
a petition seeking review of such order as provided by applicable law
or (ii) if the parties petition for review, relief is denied; and
(f) by Sac River or Bancshares, if the shareholders of Sac
River and Liberty do not approve the Merger Agreement and the Merger
after a vote at a meeting of Sac River's or Liberty's shareholders (or
any adjournment thereof) called and held for the purpose of acting on
the Merger Agreement.
EXPENSES
Except for printing and regulatory filing fees, Bancshares and Sac
River are responsible for the payment of their respective expenses in connection
with the Merger. Bancshares will pay the total printing
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and regulatory filing fees required for the Merger. If Sac River has not paid
certain expenses by the time of the Merger, Liberty will pay them following the
Merger.
EFFECT ON EMPLOYEE BENEFIT PLANS
Bancshares Incentive Stock Option Plan. In 1995, Bancshares established
an incentive stock option plan for key employees of Bancshares and Liberty (the
"ISO Plan"). Under the ISO Plan only employees of Liberty and Bancshares
selected by the Incentive Stock Option Committee of Bancshares are eligible to
receive options. Each option granted by the Incentive Stock Option Committee is
evidenced by a written agreement. The purchase price of the stock under each
option is the fair market value of the stock at the time of the grant of the
option. All outstanding option agreements provide that the option recipients
must exercise their options within ten (10) or fewer years after the options
were granted.
Options granted under the ISO Plan are intended to be treated as
incentive stock options under I.R.C. Section 422. At the time of option grant or
exercise, the option holder incurs no income tax liability. Generally, when the
option holder sells the shares obtained upon exercise of the option, he or she
will be taxed at capital gains rates on the difference between the sale price
and the option exercise price. However, if the employee disposes of ISO stock
before the statutory holding period expires, it is considered a disqualifying
disposition. The effect of a disqualifying disposition on the employee is that
the employee must recognize as compensation income the gain on the disposition.
For this purpose, the gain is equal to the difference between the option
exercise price and the stock's fair market value at the time of option exercise.
The statutory holding period is the later of two years from the date of the
granting of the ISO to the employee or one year from the date that the shares
were transferred to the employee upon exercise.
Bancshares, as the grantor of the option, does not recognize any
compensation expense upon the grant or exercise of incentive stock options or
upon the sale of any shares issued upon the exercise of the options. However,
upon a disqualifying disposition of ISO stock, the employer may deduct from
income in the year of the disqualifying disposition an amount equal to the
amount that the employee recognizes as compensation income due to the
disqualifying disposition.
As of June 1, 1998, Bancshares has issued options to purchase 16,000
shares of Bancshares common stock under the ISO plan to five (5) employees. The
options have an average exercise price of $12.88 per share. As of June 1, 1998,
none of these options had been exercised.
Bancshares intends to continue the ISO Plan after the Merger is
concluded and may, from time to time, issue additional options to employees of
Bancshares and Liberty, including former employees of Sac River who become
employees of Liberty or Bancshares.
Sac River's Employee Stock Ownership Plan. Effective January 1, 1989,
Sac River established an employee stock ownership plan (the "ESOP"). The ESOP is
a qualified retirement plan within the meaning of I.R.C. Section 401. As of
December 31, 1997, the ESOP held 433 1/3 shares of Sac River Common Stock and
had 22 participants who were employees (or former employees) of Sac River.
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Sac River established the ESOP to provide retirement benefits to
eligible employees. The ESOP is designed to invest primarily in Sac River common
stock (commonly referred to as "employer securities"). The plan year for the
ESOP is the calendar year.
The sole trustee of the ESOP is Garry Robinson, President and a
director of Sac River. As trustee, Mr. Robinson has certain fiduciary duties to
the participants of the ESOP, including a duty to discharge his duties solely in
the interests of the participants and their beneficiaries and for the exclusive
purpose of providing benefits to participants and their beneficiaries, with the
care, skill, prudence and diligence under the circumstances then prevailing that
a prudent person acting in a like capacity and familiar with such matters would
use.
Sac River Common Stock held by the ESOP is allocated to the accounts of
the participants (commonly referred to as "employer securities accounts"). In
addition to employer securities accounts, participants also have general
investments accounts, to which are allocated all assets of the ESOP other than
Sac River Common Stock. A participant has the right to direct the trustee
regarding the voting of the Sac River Common Stock allocated to his or her
account with respect to the approval or disapproval of the Merger. The trustee
does not have the right to vote any Sac River Common Stock for which he receives
no direction.
Although the ESOP does not provide that the ESOP participants may
direct the trustee as to the investment of their accounts, the trustee has
determined to allow ESOP participants to elect to receive cash or Bancshares
Common Stock for the shares of Sac River Common Stock allocated to their
accounts. Any cash received by the trustee for shares of Sac River Common Stock
allocated to the accounts of participants will be allocated to the general
investments accounts of those participants, and will be invested by the trustee
in a manner similar to the current investment of the general investment accounts
of the participants. As to any participants who fail to make an election, the
trustee has determined to elect to receive cash for the shares of Sac River
common stock allocated to their accounts. The trustee believes such investment
to be prudent and reasonable and to be in the best interests of the
participants.
Following the Merger, Liberty will be considered the employer with
respect to the ESOP, and any shares of Bancshares Common Stock allocated to the
accounts of the participants will be considered "employer securities" under the
ESOP. Under the ESOP, the employer issues a "put option" to each participant
receiving a distribution of employer securities from the ESOP. The put option
permits the participant to sell the employer securities to the employer, at any
time during two (2) option periods, at the current fair market value of the
employer securities. The first put option period runs for a period of at least
sixty days commencing on the date of distribution of employer securities to the
participant. The second put option period runs for a period of at least sixty
days commencing after a new determination of the fair market value of the
employer securities and notice to the participants of the new fair market value.
If a participant exercises his or her put option, the employer must purchase the
employer securities at fair market value upon the terms as set forth in the
ESOP. If a participant of the ESOP elects to exercise his or her put option,
Bancshares will purchase the employer securities held by the participant at fair
market value as provided in the ESOP. "Fair market value", for purposes of the
ESOP, means the value of the employer securities determined as of the last day
of the preceding plan year (except for certain individuals, such as officers,
directors, or highly compensated employees of the employer, in which case, fair
market value shall be determined as of the date of the exercise of the put
option).
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Following the merger, the trustee must value the assets of the ESOP as
of the last day of each plan year to determine the fair market value of each
participant's accrued benefit in the ESOP. An independent appraiser must perform
all valuations of employer securities which are not readily tradeable on an
established securities market.
Liberty's and Sac River's 401(k) Plans. Each of Liberty and Sac River
maintains a defined contribution plan that is qualified under IRC Section
401(k). Section 401(k) plans allow participants who have met certain
eligibility requirements to defer a percentage of their compensation each year
(up to a maximum dollar amount allowed by law--$10,000 for 1998) instead of
receiving such amount in cash. The amount elected to be deferred, and any
earnings on that amount, will not be subject to income tax until it is actually
distributed to the participant.
Sac River's Section 401(k) Plan. Sac River's Section 401(k) Plan was
originally adopted as of January 1, 1988, and was subsequently amended as of
January 1, 1996. The plan specifications are as follows:
1. Plan Contributions. Plan contributions to a participant's
account may consist of one or more of the following: (a) Employee
salary deferrals (maximum of $10,000 in 1998); (b) Employer
discretionary matching contributions equal to an employee's salary
deferrals up to a maximum of six percent (6%) of compensation (employee
need not be employed on last day of plan year to receive this
contribution); (c) Employer qualified non-elective contributions on
behalf of non-highly compensated employees (employee must be employed
on last day to receive contribution); and (d) Employer discretionary
non-elective contributions (employee must be employed on last day of
plan year to receive contribution.)
Any employer contributions will be allocated based on the
participant's pro rata share of compensation in relation to all
participants' total compensation.
2. Eligibility Requirements. An employee is eligible to
participate in the Section 401(k) plan upon completion of six (6)
months of service and has attained the age of 20 1/2. If the employee
is in the employ of the employer six (6) months after his/her
employment commencement date, then the employee will have completed six
(6) months of service.
3. Effective Date of Participation. An employee will become a
participant of the Section 401(k) plan on the first day of the plan
year following the date the employee satisfies the eligibility
requirements.
4. Vesting Schedule. An employee's "vested percentage" in his
Section 401(k) account shall be determined on a seven (7) year graded
vesting schedule (20% after second year of service and 100% after seven
years of service); provided, however, the employee shall always be 100%
vested in any salary reduction amounts, direct roll overs from another
qualified plan and any special qualified non-elective contributions by
the employer. A six (6) year graded vested schedule (20% after first
year of service and 100% after six years of service) shall be used for
"top-heavy" plans.
For vesting purposes, an employee will have completed a year
of service if credited with 1,000 hours of service during the plan
year.
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5. Participant Loans. An employee is eligible to receive a
loan from his or her Section 401(k) plan subject to the lesser of (i)
$50,000 or (ii) one-half of his or her account balance (but in no event
shall a loan be made for less than $1,000); provided, such loan is
adequately secured, bears a reasonable interest rate and is paid over a
reasonable period of time, not to exceed five (5) years.
6. Retirement Benefits. Upon reaching the age of 65, an
employee shall be 100% vested in his or her Section 401(k) account;
provided, however, an employee shall be eligible for an early
retirement at age 55 if such employee has completed 10 years of
service.
Liberty's Section 401(k) Plan. Liberty's Section 401(k) plan was
adopted on January 1, 1998, and the plan specifications are as follows:
1. Plan Contributions. Plan contributions to a participant's
account may consist of one or more of the following: (a) Employee
salary reductions subject to a maximum of 15% of compensation but not
to exceed the amount allowed by law (maximum of $10,000 in 1998); (b)
Employer discretionary matching contributions based upon the employee's
salary deferrals; (c) Employer discretionary qualified non-elective
contributions on behalf of non-highly compensated employees; and (d)
Employer discretionary non-elective contributions.
Employer discretionary contributions shall be based on an
employee's pro rata share of compensation as it relates to the total
compensation paid to all employees.
2. Plan Year. The plan year begins on January 1 and ends on
December 31 of each year.
3. Eligibility Requirements. An employee shall be eligible to
participate in the Section 401(k) plan upon completion of one year of
service and has attained the age of eighteen (18). An employee shall be
credited with one year of service upon completion of 1,000 hours of
service.
4. Effective Date of Participation. The plan provides for
semi-annual entry dates (January 1 or July 1) whereby the employee
shall commence participation in the plan on the earlier of such date
after the employee satisfies the eligibility requirements.
5. Vesting Schedule. An employee's "vested percentage" in his
or her Section 401(k) account shall be 100% after six years of service
for any non-qualified employer contributions; provided, however, the
employee shall have a 100% nonforfeitable interest at all times in any
salary deferral contributions, any employer qualified non-elective
contributions, and any qualified matching contributions. For
"top-heavy" plans, a six (6) year graded vesting schedule shall apply
(20% after the first year of service and 100% after five years of
service).
6. Participant Loans. Employee loans are not allowed.
7. Retirement Benefits. Upon attaining the age of 65, an
employee shall be 100% vested in his or her Section 401(k) account.
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As soon as administratively practicable following the merger, Sac
River's Section 401(k) plan shall be terminated or merged with Liberty's 401(k)
plan at the discretion of Liberty's Board of Directors.
BANK REGULATORY MATTERS
Under the Merger Agreement, it is a condition to each party's
obligation to effect the Merger that all regulatory approvals, authorizations,
and consents required to consummate the Merger (collectively the "Requisite
Regulatory Approvals") have been obtained and are in full force and effect and
all waiting periods associated with them have expired. Bancshares and Sac River
have agreed to use all reasonable efforts to obtain the approvals discussed
below. There can be no assurance that any or all regulatory approvals will be
obtained, and, if obtained, there can be no assurance about the date of any of
them. It is also possible that some or all of the Requisite Regulatory Approvals
will impose a condition or restriction that would materially adversely affect
the benefits of the Merger to Bancshares or Sac River or their shareholders and
render the consummation of the Merger inadvisable. It is also possible that a
third party could challenge the approvals through litigation.
Bancshares must submit an application (the "FDIC Application") to the
FDIC pursuant to Section 18(c) of the Federal Deposit Insurance Act (the "FDIA")
seeking the prior approval of the FDIC to the Merger of Sac River with and into
Liberty. Under applicable law, the FDIC may not approve any transaction under
Section 18(c) of the FDIA: (i) that would result in a monopoly or which would be
in furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States; or (ii) the
effect of which in any section of the United States may be substantially to
lessen competition, or to tend to create a monopoly, or result in a restraint of
trade, unless the FDIC finds that the anti-competitive effects of the
transaction are clearly outweighed in the public interest of the probable effect
of the transaction in meeting the convenience and needs of the communities to be
served.
In addition, the FDIC must also take into consideration the financial
and managerial resources and future prospects of Sac River and Liberty, and the
convenience and needs of the communities to be served. A merger subject to
Section 18(c) of the FDIA may not be consummated before thirty days following
approval by the FDIC or any shorter period that the FDIC permits, during the
waiting period the Attorney General of the United States may object to the
merger on antitrust grounds.
Bancshares and Sac River must also submit applications (the "Division
of Finance Applications") to the Division of Finance. The Division of Finance
has full power to approve or disapprove the Merger. The Division of Finance
looks at substantially the same considerations as the FDIC in determining
whether to approve the Merger.
Bancshares must also submit an application (the "FRB Application") to
the Federal Reserve Board pursuant to Sections 3(a)(3) of the Bank Holding
Company Act of 1956, as amended (the "BHCA") seeking the prior approval of the
Federal Reserve Board to consummate the Merger. Assuming the Federal Reserve
Board approves the FRB Application, the Merger may not be consummated for up to
30 days after such approval, during which time the United States Department of
Justice may challenge the Merger on antitrust grounds.
The FRS Board is prohibited from approving any acquisition or merger
pursuant to Section 3 of the BHCA: (i) that would result in a monopoly or that
would be in furtherance of any combination or
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conspiracy to monopolize or to attempt to monopolize the business of banking in
any part of the United States; or (ii) the effect of which in any section of the
United States may be substantially to lessen competition, or to tend to create a
monopoly, or result in a restraint of trade, unless the Federal Reserve Board
finds that the anti-competitive effects of the transaction are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the communities to be served.
In reviewing the FRB Application, the FRS Board also considers the
financial condition and future prospects of Bancshares, Liberty and Sac River,
the convenience and needs of the community to be served, and the competency,
experience and integrity of their respective officers and directors. In
addition, the FRS Board will disapprove an application if the applicant has
failed to provide the FRS Board with adequate assurances it will make available
information about its operations and activities as the Board determined to be
appropriate.
SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary that contains a description of
the material United States Federal Income Tax considerations for Bancshares,
Liberty, Sac River, and Sac River shareholders with respect to the Merger, based
upon the opinion of Husch & Eppenberger, LLC, counsel for Bancshares and Liberty
about the material federal income tax matters with respect to the Merger. That
opinion is based on certain representations, warranties, and assumptions made by
the management of Bancshares, Liberty and Sac River, on which the management of
Bancshares, Liberty and Sac River expressly authorized Husch & Eppenberger, LLC
to rely in preparing its tax opinion. The opinion is also based on the Internal
Revenue Code of 1986, as amended (the "Code"), regulations, rulings and
decisions in effect on the date of this Proxy Statement-Prospectus, all of which
are subject to change. This summary does not discuss any aspect of state, local,
or foreign taxation and does not discuss all the tax considerations that may be
relevant to Sac River shareholders in light of their particular circumstances,
or to certain types of shareholders that may be subject to special tax rules,
such as financial institutions, tax exempt organizations, insurance companies,
dealers in stock or securities, foreign corporations, and individuals who are
not citizens or residents of the United States. The discussion with respect to
Sac River shareholders is limited to those shareholders who have held Sac River
Common Stock and who will hold the Bancshares Common Stock received in the
Merger as "capital assets" within the meaning of Section 1221 of the Code.
SAC RIVER SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS IN
DETERMINING THE TAX CONSIDERATIONS THAT MAY BE RELEVANT IN CONNECTION WITH THE
PROPOSED MERGER, INCLUDING THE APPLICATION TO THEIR PARTICULAR SITUATION OF THE
TAX CONSIDERATIONS DISCUSSED BELOW, AS WELL AS THE APPLICATION OF STATE, LOCAL,
FOREIGN, OR OTHER TAX LAWS.
Accordingly, in the opinion of Husch & Eppenberger, LLC the material
federal income tax
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consequences of the Merger will be:
1. The Merger will constitute a "reorganization" within the meaning of
Code Section 368(a)(1)(A) and Code Section 368(a)(2)(D), and each of
Bancshares, Liberty and Sac River will be a party to a reorganization
within the meaning of Code Section 368(b).
2. No gain or loss will be recognized by Bancshares, Liberty, or Sac
River as a result of the Merger.
3. Sac River shareholders will not recognize any gain or loss upon the
receipt of Bancshares Common Stock (as opposed to cash) in exchange for
their Sac River Common Stock.
4. The tax basis of the Bancshares Common Stock received by a Sac River
shareholder will be the same as the basis of the Sac River Common Stock
surrendered in exchange therefor reduced by the portion of the basis
allocable to the fractional share of Bancshares stock received in the
Merger.
5. The holding period for Bancshares stock received by a Sac River
shareholder in the Merger will include the period during which the Sac
River Common Stock surrendered in exchange therefor was held.
6. Each Sac River shareholder will recognize gain equal to the lesser
of (i) the amount of cash received in the Merger or (ii) the amount, if
any, by which the sum of the cash plus the fair market value of the
Bancshares stock received in the Merger exceeds the stockholder's basis
in the Sac River shares surrendered. For purposes of determining the
character of such gain, the cash received in the Merger will be treated
as if shares of Bancshares Common Stock equal in value to the cash had
been distributed to the Sac River shareholder as part of the Merger and
then immediately after the Merger such shares were redeemed by
Bancshares. Depending upon the particular circumstances of each
shareholder, such cash payments will be characterized as either having
been received as a distribution in full payment in exchange for the
Bancshares stock deemed to have been redeemed or as having been
received as a dividend, as provided in Section 302 of the Code. A cash
payment will be treated as a distribution in full payment in exchange
for the Bancshares stock if the deemed redemption is "substantially
disproportionate" within the meaning of Section 302(b)(2) of the Code,
is in complete termination of the shareholder's interest in the
corporation within the meaning of Section 302(b)(3) of the Code or is
"not essentially equivalent to a dividend" within the meaning of
Section 302(b)(1) of the Code. A redemption is treated as
"substantially disproportionate" if: (1) the shareholder owns less than
50% of the total combined voting power of all classes of stock
immediately after the redemption; (2) the ratio of the shareholder's
holdings of voting stock immediately after the redemption to all the
voting stock in the corporation at that time is less than 80% of the
ratio which the voting stock the shareholder
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owned immediately before the redemption bore to the entire voting stock
in the corporation at that time (the "80% Test"); and (3) the
shareholder's ownership of common stock (whether voting or nonvoting)
after and before the redemption also meets the 80% test. A redemption
is treated as "not essentially equivalent to a dividend" if it results
in a meaningful reduction of the shareholder's proportionate interest
in the corporation. When making a determination as to whether a
redemption is substantially disproportionate or not essentially
equivalent to a dividend, or, subject to certain exceptions, whether
the redemption terminates the shareholder's entire interest in the
corporation, the constructive ownership rules of Section 318 of the
Code apply. If the cash payment is treated as having been received by a
Sac River shareholder as a distribution in full payment in exchange for
redeemed shares, such shareholder's gain recognized on the Merger will
be short-term, mid-term or long-term capital gain, depending upon the
Sac River shareholder's holding period for the Sac River stock. If the
cash payment is treated as having been received by a Sac River
shareholder as a dividend, the shareholder's gain on the Merger will be
recognized as ordinary income. Sac River shareholders should consult
their tax advisors on the tax treatment of the cash payments that they
receive.
RESALES OF BANCSHARES COMMON STOCK ISSUED IN THE MERGER
The shares of Bancshares Common Stock issued pursuant to the Merger
will be freely transferable under the Securities Act immediately following the
Merger, except for shares issued to any Sac River shareholder who may be deemed
to be an "affiliate" of Sac River or Bancshares for purposes of Rule 145 under
the Securities Act. This Proxy Statement/Prospectus does not cover resales of
shares of Bancshares Common Stock received in the Merger by any person who may
be deemed to be an affiliate of Sac River or Bancshares. At the time of the Sac
River Special Meeting (in the case of Sac River affiliates) or at the Effective
Time (in the case of Bancshares affiliates), persons who may be deemed to be
affiliates of Sac River or Bancshares generally include individuals who, or
entities which, control, are controlled by or are under common control with Sac
River or Bancshares and will include directors and certain executive officers of
Sac River and Bancshares and may include principal shareholders of Sac River or
Bancshares.
Securities Act Rules 144 and 145 restrict the sale of Bancshares Common
Stock received in the Merger by Sac River affiliates and certain of their family
members and related interests.
Generally, during the one year period following the Effective Time,
affiliates of Sac River who are not affiliates of Bancshares may publicly resell
Bancshares Common Stock received by them in the Merger, subject to certain
limitations on the number of shares they can sell in any three month period and
subject to the requirement that they sell the shares in broker transactions.
Bancshares is under no obligation to insure that any registered broker-dealer
will be available to conduct sales in accordance with Rule 144.
Following the initial one year period, affiliates of Sac River who are
not affiliates of Bancshares and all other Sac River shareholders who received
Bancshares Common Stock in the Merger may resell their shares without these
restrictions so long as there is adequate current public information available
about Bancshares. Bancshares, however, is under no obligation to make such
information available and does not presently plan to do so. Accordingly, resales
under Rule 144 may not be possible, and the former Sac River shareholders should
consult their counsel about the availability of other exemptions under the
Securities Act before they attempt to sell their Bancshares stock.
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Sac River shareholders who become affiliates as a result of the Merger
will be subject to the same restrictions on resale that apply to Sac River
affiliates during the year following the Merger that are described above, but in
the case of these Bancshares' affiliates, the restrictions will continue until
they have ceased to be affiliates. These shareholders should also consult their
counsel about the availability of exemptions under the Securities Act before
they attempt to resell any of their Bancshares stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATED STOCK OWNERSHIP
Richard A. Pendleton, a director of Liberty and Bancshares, is
co-trustee of the Anise C. Brasher Revocable Trust U/T/A dated August 1, 1995,
which owns shares of Sac River Common Stock. No other directors, executive
officers or principal shareholders of Bancshares own shares of Sac River Common
Stock. No directors, executive officers or principal shareholders of Sac River
own shares of Bancshares Common Stock.
LOAN PARTiCIPATION
Sac River has purchased participations in loans originated by Liberty.
The outstanding balance of these participations as of June 30, 1998 was
$8,199,700. Liberty has purchased participations in loans originated by Sac
River. The outstanding balance of these participations as of June 30, 1998 was
$1,650,600. These loan participations were made in the ordinary course of
business of Liberty and Sac River and were made on an "arm's length" basis. None
were past due or nonperforming, and neither Sac River or Liberty has had to
write off all or any portion of a loan participation it has purchased from the
other.
LEGAL COUNSEL
The law firm of Husch & Eppenberger, LLC, has represented Bancshares
throughout the negotiation of the proposed acquisition. Members of Husch &
Eppenberger, LLC, have also represented Sac River in connection with the
establishment and administration of Sac River's ESOP. Sac River engaged the law
firm of Yates, Mauck, Bohrer, Ellif, Croessmann, Wieland, P.C. ("Yates, Mauck")
to assist Sac River in negotiating the terms of the Merger Agreement and to
provide legal advice with respect to the Merger. Yates, Mauck represented
Bancshares in the formation of Bancshares in 1995. Yates, Mauck ceased
representing Bancshares in 1996. Sac River and Bancshares have waived all actual
and potential conflicts of interest on the part of both firms.
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DIRECTORS OF BANCSHARES
Sac River has made loans to the following directors or officers of
Bancshares, either personally or to businesses that are owned in whole or in
part by them: Gary E. Metzger, William T. Gaut, Lyle D. Graesser, Kenneth E.
Hamilton, Howard Jackson Hoke, Dixie F. Letsch, Richard A. Pendleton, Wayne A.
Scheer and Charles Talbert Wooten, Jr. These loans were made in the ordinary
course of business of Sac River and were made on an "arm's length" basis on
terms equivalent to those extended to similar borrowers. The outstanding balance
of those loans at June 30, 1998, was $10,466,400. None of these loans are past
due or nonperforming. Liberty has not made any loans to officers or directors of
Sac River.
DISSENTERS' RIGHTS OF HOLDERS
OF SAC RIVER COMMON STOCK
If Sac River Shareholders approve the Merger and the Merger occurs, any
shareholder of Sac River who properly dissents from the Merger at the Special
Meeting may be entitled to receive in cash the reasonable value of his or her
shares of Sac River Common Stock determined immediately prior to the Merger,
excluding any appreciation or depreciation in anticipation of the Merger.
FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES PRESCRIBED BY APPLICABLE LAW WILL
RESULT IN THE LOSS OF DISSENTERS' RIGHTS.
Pursuant to Missouri Revised Statutes Section 362.730, any shareholder
of Sac River who does not vote in favor of the agreement to merge at the
shareholders' meeting called for that purpose is entitled to receive from
Bancshares the reasonable value of such shareholder's shares of Sac River Common
Stock at the time of the Merger. The value of Sac River Common Stock will be
determined as follows:
(1) Within sixty (60) days after the Effective Time of the
Merger, the dissenting shareholder may apply to the Circuit Court of
Greene County, Missouri, by petition for the appointment of appraisers
to value the dissenter's stock.
(2) At any time during the sixty (60) day period any other
dissenting shareholder of Sac River may file his or her petition in the
Circuit Court of Greene County for the determination of his or her
shares of stock.
(3) Any shareholder who does not become a party to a
proceeding in Greene County, within sixty (60) days from the Effective
Time of the Merger shall be conclusively presumed to have assented to
the Merger.
After expiration of the sixty (60) days from the Effective Time of the
Merger, the Circuit Court of Greene County will appoint three appraisers to
determine the value of the dissenting shareholders' share of Sac River Common
Stock. A copy of Section 362.730 is attached as Appendix C.
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<PAGE> 47
DESCRIPTION OF BANCSHARES COMMON STOCK
Bancshares is authorized to issue 5,000,000 shares of common stock, par
value $1 per share, of which 511,090 shares were issued and outstanding as of
June 30, 1998. Bancshares held no shares in its treasury on that date.
Bancshares has no other class of authorized or issued capital stock.
Each share of Bancshares Common Stock has the same rights, privileges
and preferences as every other share of Bancshares Common Stock. Each
shareholder is entitled to one vote per share in any matter requiring a vote at
any meeting, including the election of directors, and is entitled to participate
in the liquidation, dissolution or winding up on the basis of such shareholder's
pro rata holdings of the Bancshares Common Stock. Shareholders do not have
cumulative voting rights in the election of directors, and, as of the Effective
Time of the Merger, Bancshares' shareholders will not have preemptive rights
when Bancshares issues shares of the Common Stock to other persons.
Each Bancshares shareholder participates equally in dividends, which
are payable when and as declared by the board of directors of Bancshares out of
funds that are legally available for that purpose. Bancshares has never declared
or paid any cash dividends and has no present intention to do so after the
Merger.
COMPARISON OF SHAREHOLDER RIGHTS
Bancshares is a corporation incorporated under Chapter 351 of the
Revised Missouri Statutes and, as a result, the rights of stockholders of
Bancshares are governed by Missouri law, the Articles of Incorporation of
Bancshares (the "Bancshares Articles") and the by-laws of Bancshares
(the"Bancshares By-laws"). Sac River is a state chartered banking corporation
formed under Chapter 362 of the Revised Missouri Statutes and, as a result, the
rights of shareholders of Sac River are governed by Missouri law, the Articles
of Agreement of Sac River (the "Sac River Articles"), and the by-laws of Sac
River (the"Sac River By-laws"). If the Merger is consummated, each shareholder
of Sac River will become a shareholder of Bancshares, unless the shareholder
elects to receive cash in exchange for his shares of Sac River Common Stock, as
provided in the Merger Agreement, or exercises dissenters' rights. The following
is a summary of the material differences between the rights of holders of Sac
River Common Stock and the rights of holders of Bancshares Common Stock. These
differences arise from differences between the treatment of corporations and
banks under Missouri law, as well as from differences between the corporate
governing instruments of Bancshares and Sac River.
CAPITAL STOCK
BANCSHARES. The Bancshares Articles authorize the issuance of 5,000,000
shares of Bancshares Common Stock, of which 511,090 shares were outstanding as
of the date of this Proxy Statement-Prospectus. Bancshares does not have any
authorized shares of preferred stock.
SAC RIVER. Sac River is authorized to issue 10,000 shares of Sac River
Common Stock, of which 10,000 shares were outstanding as of the date of this
Proxy Statement-Prospectus. Sac River does not have any authorized shares of
preferred stock.
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<PAGE> 48
PREEMPTIVE RIGHTS
BANCSHARES. As of the Effective Time, the Bancshares Articles will
provide that when Bancshares issues shares for any reason no Bancshares
shareholder will have any preemptive right to subscribe for or acquire
additional shares of Bancshares capital stock of the same or any other class.
Prior to the Effective Time, Bancshares shareholders have preemptive rights.
SAC RIVER. The Sac River Articles provide that when Sac River issues
shares for any reason no Sac River shareholder will have any preemptive right to
subscribe for or acquire additional shares of Sac River capital stock of the
same or any other class.
VOTING RIGHTS Of CAPITAL STOCK
BANCSHARES. Under the Missouri law, unless a corporation's articles of
incorporation provide otherwise, each share of capital stock of the corporation
is entitled to one vote on each matter submitted to a vote of the shareholders.
The Bancshares Articles do not provide otherwise.
SAC RIVER. Under the Missouri law, unless a corporation's articles of
incorporation provide otherwise, each share of capital stock of the corporation
is entitled to one vote on each matter submitted to a vote of the shareholders.
The Sac River Articles do not provide otherwise.
BOARD OF DIRECTORS
BANCSHARES. Under the Bancshares Articles, the Bancshares Board of
Directors is to consist of eleven directors. Shareholders elect directors at
each annual meeting and the directors serve until the next annual meeting or
until their successors are duly elected and qualified. As of the Effective Time,
the Bancshares Board of Directors will consist of eighteen directors.
SAC RIVER. Under the Sac River Articles and By-laws, the Sac River
Board of Directors is to consist of not less than 5 directors nor more than 35
directors. The Sac River Board of Directors currently consists of seven
directors. Shareholders elect directors at each annual meeting of shareholders
and the directors serve until the next annual meeting of shareholders or until
their successors are duly elected and qualified.
CUMULATIVE VOTING
BANCSHARES. The Bancshares Articles do not provide for cumulative
voting for directors. Thus, under Missouri law, each shareholder who is entitled
to vote at an election of directors has the right to vote the number of shares
owned by him or her for as many persons as there are directors to be elected,
but a shareholder may not cumulate his or her votes for directors.
SAC RIVER. The Sac River By-laws provide for cumulative voting for
directors. In the election of directors, each shareholder has the right to cast
as many votes in the aggregate as equals the number of voting shares held by the
shareholder, multiplied by the number of directors to be elected at such
election. The shareholder may cast that aggregate number of votes for one
candidate or allocate the votes among more than one candidate.
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<PAGE> 49
REMOVAL OF DIRECTORS
BANCSHARES. Bancshares' By-laws provide that any director may be
removed at any time, with or without cause, by the vote of a majority of the
votes cast by the shareholders entitled to vote for the election of directors.
SAC RIVER. Sac River's Articles and By-laws do not provide for the
removal of directors. Under Missouri law, however, a director may be removed
upon the vote of the holders of a majority of shares entitled to vote at an
election of a director.
FILLING OF VACANCIES ON THE BOARD OF DIrECTORS AND NEWLY CREATED DIRECTORSHIPS
BANCSHARES. The Bancshares By-laws provide that any vacancy on the
Board of Directors or newly created directorship may be filled by the
affirmative vote of a majority of the remaining directors even though less than
a quorum of the Board, or by a sole remaining director.
SAC RIVER. The Sac River By-laws provide that vacancies on the Sac
River Board of Directors not exceeding one-third of the whole number of the
Board may be filled by the affirmative vote of a majority of the remaining
directors. Any director so elected will serve until the next election of
directors by the stockholders.
CALL OF SPECIAL MEETiNGS OF SHAREHOLDERS
BANCSHARES. The Bancshares By-laws provide that special meetings of the
shareholders may be called by the Board, the Chairman of the Board or the
President, and shall be called by the President or the Secretary at the written
demand of a least twenty-five percent (25%) of all outstanding shares entitled
to vote on the action proposed to be taken at such meeting, which demand must
state the purpose or purposes of the proposed meeting.
SAC RIVER. The Sac River By-laws provide that special meetings of the
stockholders may be called at any time by the Board of Directors or by written
request of the holders of a majority of outstanding capital stock of Sac River.
AMENDMENTS TO ARTICLES OF AGREEMeNT OR ARTICLES OF INCORPORATION
BANCSHARES. The Articles of Incorporation of Bancshares may be amended
upon the vote of the persons holding the majority of the shares of Bancshares
Common Stock.
SAC RIVER. Pursuant to Missouri Revised Statutes ss. 362.325, the
Articles of Agreement of Sac River may be amended upon the vote of the persons
holding the majority of the shares of Sac River Common Stock.
AMENDMENTS TO BY-LAWS
BANCSHARES. The Bancshares By-laws provide that they may be changed or
amended by the vote of a majority of the Board at any regular or special meeting
of the Board, provided, however, that the Board has received 10 days' notice of
the intention to change or offer an amendment to the By-laws.
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<PAGE> 50
SAC RIVER. The Sac River By-laws provide that they may be amended,
altered or repealed, by a vote of a majority of the whole number of the
Directors.
INDEMNIFICATION OF BANCSHARES' AND LIBERTY'S DIRECTORS AND OFFICERS
Bancshares and Liberty have adopted resolutions authorizing
indemnification for the acts or omissions of Bancshares' or Liberty's directors
or officers to the fullest extent allowed under Missouri Revised Statutes
Section 351.355. Section 351.355 allows a corporation to indemnify its officers
and directors against all expenses incurred as a result of any action brought
against such officer or director brought because he was a director or officer of
the corporation, as long as he acted in good faith, in a manner he reasonably
believed to be in the best interests of the corporation, and, with respect to
any criminal proceeding, had no reason to believe his conduct was unlawful.
Bancshares and Liberty provide insurance covering Bancshares' and Liberty's
directors and officers for any losses suffered by them as a result of holding
such position.
BUSINESS OF BANCSHARES
GENERAL
Bancshares is a Missouri corporation formed in 1995 for the sole
purpose of becoming a single bank holding company. Liberty is the only
subsidiary of Bancshares. Although it does not have any present acquisition
plans other than the Merger, Bancshares may acquire additional subsidiaries in
the future, including other banks.
Liberty is a commercial bank that opened for business in October 1995.
It offers a diversified range of commercial banking services for customers
located principally in Christian, Green, Lawrence and Dade Counties, Missouri.
Liberty's primary market area has a diversified economy, which includes service,
recreation, health care, construction, educational, light industrial, and other
business categories. The market area has enjoyed rapid economic growth in the
last decade. Liberty's services include customary depository products, safe
deposit facilities, commercial, agricultural and personal banking services, and
commercial, construction, consumer, residential real estate, and industrial
lending. Liberty does not intend to change the banking services it offers,
except as market or regulatory conditions may dictate.
Liberty's principal sources of income are interest on loans,
investments and service fees. Its principal expenses are interest paid on
deposits and general operating expenses.
EMPLOYEES
At June 1, 1998, Liberty employed 37 full-time and 5 part-time
employees. None of those employees is covered by a collective bargaining
agreement, and management believes that its employee relations are good.
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<PAGE> 51
DESCRIPTION OF LIBERTY'S PROPERTY
The executive offices of Bancshares are located at 1414 East Primrose,
Springfield, Missouri 65804, which is also the main branch of Liberty. The size
of the facility is 4,830 sq. ft., and Liberty owns the facility.
Liberty operates three (3) branches at the following locations in
Missouri: 2809 East Sunshine, Springfield, Missouri (2,930 sq. ft.); Greenfield,
Missouri (2,940 sq. ft.); and Mount Vernon, Missouri (3,925 sq. ft.). Liberty
owns the building occupied by each branch.
COMPETITION
Liberty's principal market areas are Christian, Greene, Lawrence and
Dade Counties, Missouri. The competition among depository institutions in this
area is strong. Liberty competes for deposits and loans with local, regional,
and national commercial banks and savings and loan associations that have
facilities in Liberty's market area and with a variety of other financial
intermediaries such as credit unions, mutual funds and brokerage firms. As of
December 31, 1997, Liberty ranked 14th among Springfield area banks in total
assets.
REGULATION AND SUPERvISION OF BANCSHARES
As a bank holding company, Bancshares is subject to regulation and
supervision by federal and state regulatory authorities, including the Division
of Finance and the FRS Board. Bancshares is required to file semiannual and
annual reports of its operations with the Federal Reserve Board. Under FRS Board
regulations, Bancshares can only conduct banking or bank management activities
or activities closely tied to banking, but cannot conduct activities such as
land development, real estate brokerage, insurance premium funding or any other
activities the FRS Board does not consider closely tied to banking.
REGULATION AND SUPERVISION OF LIBERTY
As a state bank whose deposits are insured by the FDIC, Liberty is
subject to regulation and supervision by federal and state regulatory
authorities, including the Division of Finance and the FDIC. Virtually every
aspect of Liberty's day-to-day operations are subject to numerous requirements
and restrictions. Applicable laws and regulations, among other things, prescribe
the nature and amount of certain investments, regulate the closure of branch
offices, and limit the amount of, and establish required approval procedures,
reporting requirements and credit standards for, loans and other extension of
credit. Liberty is also subject to the FDIC's regulatory capital requirements.
Liberty is required to submit quarterly "Call Reports" to the Division
of Finance and the FDIC, including a balance sheet, an income statement, a
statement of changes in equity capital and report of assets and liabilities. The
Division of Finance also requires Liberty to obtain prior approval of the
Division of Finance to open or operate a branch, to change par value of stock or
to acquire additional subsidiaries. The Division of Finance examines Liberty at
least once per eighteen months to ensure compliance with Division of Finance
regulations.
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<PAGE> 52
DIVIDENDS
Bancshares has not paid any dividends to its shareholders since its
formation. Bancshares does not anticipate declaring cash dividends following the
Merger. Under applicable bank regulations, until October 25, 1998, the third
anniversary of the commencement of its operations, Liberty cannot pay dividends
that would reduce the sum of its Tier I capital plus its loan loss reserve to
less than 8% of its adjusted total assets. After October 25, 1998, Liberty will
not be able to pay dividends that would reduce its Tier I capital to less than
3% of its adjusted total assets, or its Tier II capital to less than 4% of
adjusted total assets, or its risk weighted assets to less than 8% of adjusted
total capital.
LENDING POLICIES
Liberty makes commercial, consumer and real estate loans to individuals
and businesses. Loans are at both fixed and variable rates of interest. Variable
interest rate loans generally entail less risk because the interest rate adjusts
with the market interest rate, thereby lessening the risk that the interest
earned on a loan will be significantly lower than prevailing market rates over
the life of the loan. The majority of Liberty's commercial and real estate loans
are variable rate loans. The majority of Liberty's consumer loans are fixed-rate
loans. Most of Liberty's consumer loans reprice within one year, substantially
reducing any risks associated with fluctuating interest rates.
As of December 31, 1997, all of Liberty's construction real estate
loans were variable-rate; 94% of Liberty's mortgage real estate loans were
variable-rate and 79.5% of Liberty's commercial loans were variable-rate loans.
As of December 31, 1997, 99% of Liberty's consumer loans were fixed rate.
The operations of Liberty include funding commercial real estate,
business and construction loans. These loans involve significant risks compared
with other types of lending. See "Risk Factors-Risks Associated with Commercial
Real Estate, Business and Construction Loans."
Liberty requires collateral to secure most loans. Real estate loans,
both construction loans and mortgage loans, are secured by the real estate.
Liberty generally requires a loan-to-collateral value of not more than 80% of
the loan value. In the case of one-to-four family residential properties,
Liberty may increase the loan-to-collateral value to 85%. (In certain instances
in which Liberty sells such residential mortgages in secondary market programs,
the loan-to-collateral value may be higher). Commercial loans are generally
secured by inventories and receivables, equipment, machinery, marketable
securities or other liquid financial instruments. Liberty generally requires a
loan-to-collateral value of not more than 85% on commercial loans. Consumer
loans are both secured and unsecured. When secured, the security for these loans
consists of consumer goods, marketable securities, certificates of deposit and
similar items. In most cases, Liberty receives a first lien on collateral
securing loans. In the case of home equity loans, Liberty will take a second
lien on the collateral.
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<PAGE> 53
DIRECTORS AND EXECUTIVE OFFICERS OF BANCSHARES AND LIBERTY
The following table sets forth certain information with respect to the
current directors and executive officers of Bancshares and Liberty.
<TABLE>
<CAPTION>
NAME AND POSITIONS AGE AT YEAR FIRST BECAME DIRECTOR
WITH BANCSHARES AND LIBERTY JUNE 30, 1998 OF BANCSHARES AND LIBERTY
- --------------------------- ------------- --------------------------
<S> <C> <C>
William P. Gaut, Director 58 1995
Robert P. Gephardt, President, 45 ____
Mount Vernon's Community Bank
Lyle D. Graesser, Director 52 1995
Kenneth E. Hamilton, Director 57 1995
Howard Jackson Hoke, Director 51 1995
Dixie F. Letsch, Director 56 1997
Ronald McDowell, Senior Vice President 37 ____
Gary E. Metzger, Director, President, 47 1995
Chairman of the Board of Directors
Richard A. Pendleton, Director 54 1995
Ronald K. Pender, Senior Vice President 41 ____
David Petiford, Senior Vice President 42 ____
Wayne A. Scheer, Director 57 1995
Patricia L. Sechler, Secretary, Director, 52 1995
Senior Vice President
Maurice L. Stiles, President, 55 ____
Greenfield Community Bank
Charles Talbert Wooten, Jr., Director 55 1995
</TABLE>
GARY E. METZGER has served as President and Director of Bancshares and
Liberty since their formation in 1995. Prior to 1995, Mr. Metzger was president
of Southwest Bank, a Springfield area bank, and vice president of Southwest
Bancshares, Inc.
PATRICIA L. SECHLER has served as Director and Secretary of Bancshares
and as Senior Vice President of Liberty since 1995. Prior to 1995, she was vice
president of Southwest Bank, a Springfield area bank.
WILLIAM P. GAUT has served as Director of Bancshares and Liberty since
1995. Mr. Gaut has been the President of William P. Gaut, Inc., a consulting
company, for more than five years.
ROBERT P. GEPHARDT has been President of Liberty's Branch, Mount
Vernon's Community Bank since October, 1996. Prior to that, Mr. Gephardt was
employed as Vice President by First City National Bank.
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<PAGE> 54
LYLE D. GRAESSER has been a Director or Bancshares and Liberty since
1995. Mr. Graesser is the President of Micrographics Services Corporation, a
bank services corporation, a position he has held for more than five years.
KENNETH E. HAMILTON has been a Director of Bancshares and Liberty since
1995. Mr. Hamilton is the President of Hamilton Curtis Corporation, a
development company, Hamilton Properties, Inc., a property management company,
and Hamilton Contracting, Inc., a contracting company, and he is involved in a
number of apartment and real estate development companies. Mr. Hamilton has held
these positions for more than five years.
HOWARD JACKSON HOKE has been a Director of Bancshares and Liberty since
1995. Mr. Hoke has been the President of Jack Hoke Companies, Inc., a real
estate business, for more than five years. He is also the principle of Jack
Hoke, P.C., a law firm.
DIXIE F. LETSCH has been a Director of Bancshares and Liberty since
1997. Ms. Letsch has been the Secretary/Treasurer of Letsch Advertising, Inc.,
an advertising company for more than five years.
RONALD K. PENDER has been Senior Vice President at Liberty since
September 1997. Prior to joining Liberty, Mr. Pender served as Vice President at
Union Planters Bank (in 1997) and at Nations Bank (from 1985 to 1997), in both
instances in Springfield.
RICHARD A. PENDLETON has been a Director of Bancshares and Liberty
since 1995. Mr. Pendleton has been a director and officer of Pendleton-Talley
Company, a restaurant management company, and Restaurant Systems, Inc., a KFC
owner/operator, for more than five years. He is a partner or member in various
other real estate companies.
DAVID PETIFORD has served as Senior Vice President of Liberty since
1997. Prior to 1997, Mr. Petiford was employed as Vice President by Boatmen's
Bank of Southern Missouri.
WAYNE A. SCHEER has been a Director of Bancshares and Liberty since
1995. Mr. Scheer is the President of Liberty Car Rental, a Thrifty car rental
franchise, and Missouri Insulation, a building supply company, positions that he
has held for more than five years. Mr. Scheer is also Chairman of the Board of
Liberty Industries, Inc., a cultured marble manufacturer.
MAURICE L. STILES has been President of Liberty's Greenfield Community
Bank branch since August 31, 1997. From 1960 until joining Liberty, Mr. Stiles
was employed as community bank president at the Lockwood Boatmen's Bank.
CHARLES TALBERT WOOTEN, JR. has been a Director of Bancshares and
Liberty since 1995. Mr. Wooten owns Wooten Company, a commercial and residential
property management company, and is a partner in various residential and
commercial properties.
SECURITY OWNERSHIP OF BANCSHARES' AND LIBERTY'S MANAGEMENT
The following table sets forth, as of the date of this Proxy
Statement-Prospectus, the number of shares of Bancshares Common Stock owned
beneficially by each director and executive officer of Bancshares and Liberty,
and all directors and executive officers of Bancshares and Liberty as a group.
44
<PAGE> 55
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME POSITIONS WITH BANCSHARES BENEFICIALLY OWNED OF CLASS
- ---- ------------------------- ------------------ --------
<S> <C> <C> <C>
Gary E. Metzger Director, President, 11,440 2.24%
Chairman of Board of
Directors
Patricia L. Sechler Director, Secretary, 30,510 5.96%
Senior Vice President
William P. Gaut Director 15,260 2.99%
Robert P. Gephardt President, Mount Vernon 1,660 0.31%
Community Bank
Lyle D. Graesser Director 15,260 2.99%
Kenneth E. Hamilton Director 33,560 6.55%
Howard Jackson Hoke Director 22,880 4.47%
Ronald McDowell Senior Vice President 830 0.16%
Dixie F. Letsch Director 22,880 (1) 4.47%
Richard A. Pendleton Director 15,260 2.99%
David Petiford Senior Vice President 3,930 0.77%
Ronald K. Pender Senior Vice President 1,350 0.26%
Wayne A. Scheer Director 45,770 (2) 8.95%
Maurice L. Stiles President, Greenfield 0 0%
Community Bank
Charles Talbert Wooten, Jr. Director 15,260 (3) 2.99%
All directors and
executive officers
as a group 235,850 48.5%
</TABLE>
- -------------------------
(1) 22,870 shares held by Dixie F. Letsch, Trustee under the Dixie F.
Letsch Trust Agreement dated August 1992, 10 shares held by Ms. Letsch.
(2) 15,760 shares held by Wayne A. Scheer, Trustee under Revocable Living
Trust Agreement of Wayne A. Scheer dated August 23, 1993, 30,000 shares
held by Liberty Properties, L.P., a limited partnership of which Mr.
Scheer is the general partner, and 10 shares held by Mr. Scheer.
(3) 15,250 held by Mr. Wooten as Trustee of the Rosalie Wooten Irrevocable
Descendant Trust, 10 shares held by Mr. Wooten.
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<PAGE> 56
PRINCIPAL SHAREHOLDERS OF BANCSHARES
The following table sets forth, as of the date of this Proxy
Statement-Prospectus, the persons known by Bancshares to be beneficial owners of
more than five (5%) percent of the outstanding shares of Bancshares Common
Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ---------------- ------------------ ----------------
<S> <C> <C>
Kenneth E. Hamilton 33,560 6.55%
Errett C. and Patricia L. Sechler 30,510 5.96%
Wayne A. Scheer 45,770 (1) 8.95%
</TABLE>
- -------------------------
(1) 15,760 shares held by Wayne A. Scheer, Trustee under Revocable Living
Trust Agreement of Wayne A. Scheer dated August 23, 1993, 30,000 shares
held by Liberty Properties, L.P., a limited partnership of which Mr.
Scheer is the general partner, and 10 shares held by Mr. Scheer.
COMPENSATION OF BANCSHARES' MANAGEMENT
EXECUTIVE COMPENSATION
The following table sets forth the compensation that Liberty paid to
its chief executive officer for services rendered in the fiscal year ended
December 31, 1997. Bancshares paid no compensation to Mr. Metzger. Mr. Metzger
is the only executive officer of Bancshares and Liberty whose salary and bonus
exceeded $100,000 during the 1997 fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
ANNUAL COMPENSATION
------------------- ALL OTHER COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS ----------------------
- --------------------------- ------ -----
<S> <C> <C> <C>
Gary Metzger, President and Chief Executive
Officer
1997 $ 93,500 $ 18,700 (1)
1996 80,000 ____ (2)
1995 75,000 ____ (3)
</TABLE>
- -----------------------
(1) On January 20, 1998, Mr. Metzger was granted an option to purchase
2,500 shares of Bancshares Common Stock at a price per share of $14.79,
pursuant to the terms of the Incentive Stock Option Plan adopted by
Bancshares on October 27, 1995. See "Fiscal Year End Options."
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<PAGE> 57
(2) On January 21, 1997, Mr. Metzger was granted an option to purchase
2,500 shares of Bancshares Common Stock at a price per share of $12.90.
(3) On October 27, 1995, Mr. Metzger was granted an option to purchase
5,000 shares of Bancshares Common Stock at a price per share of $10.00.
The salary and bonus of the President and Chief Executive Officer of
Liberty and Bancshares is set on an annual basis by the Compensation Committee
of Liberty's Board of Directors. The current members of the Compensation
Committee are Gary E. Metzger, Richard A. Pendleton, Charles Talbert Wooten, Jr.
and William P. Gaut. The Compensation Committee considers Liberty's financial
performance as compared to budget, non-financial goals, including level of
expansion and recruitment of personnel, and the salaries of chief executive
officers at similar institutions in Missouri in setting Mr. Metzger's salary.
FISCAL YEAR END OPTIONS
The following table sets forth information regarding stock options for
shares of Bancshares Common Stock held by certain officers of Liberty as of June
1, 1998. Each option is exercisable for a period of ten years from the date such
option was granted, pursuant to the terms of an Incentive Stock Option Plan
adopted on October 27, 1995, as amended and restated. See "Effects on Employee
Benefit Plan - Bancshares Incentive Stock Option Plan."
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF
--------------------------- -------------------
NAME UNEXERCISED OPTIONS UNEXERCISED OPTIONS
- ---- --------------------------- -------------------
<S> <C> <C>
Gary E. Metzger 10,000(1) $ 175,775
Robert P. Gephardt 1,000(2) 14,710
Ronald McDowell 2,000(3) 31,310
David Petiford 2,000(2) 29,420
Patricia L. Sechler 1,000(2) 14,710
</TABLE>
- ----------------------
(1) Includes an option for 5000 shares granted on October 27, 1995, with an
exercise price of $10 per share, an option for 2,500 shares granted on
January 21, 1997, with an exercise price of $12.90 per share, and an
option for 2,500 shares granted on January 20, 1998, with an exercise
price of $14.79 per share.
(2) Option granted on January 20, 1998, with an exercise price of $14.79
per share.
(3) Includes an option for 1,000 shares granted on January 21, 1997, with
an exercise price of $12.90 per share and an option for 1,000 shares
granted on January 20, 1998, with an exercise price of $14.79 per
share.
The exercise price of each option is the fair market value of
Bancshares Common Stock as of the option grant date, as determined by the
Incentive Stock Option Committee. The Incentive Stock Option Committee's current
members are Wayne A. Scheer, Richard A. Pendleton, William P. Gaut, Howard
Jackson Hoke and Lyle D. Graesser. The Incentive Stock Option Committee also
determines the number of options to grant each year based upon recommendations
from Liberty's Compensation Committee, which takes into account the performance
of each eligible employee in making its determination.
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<PAGE> 58
COMPENSATION OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
The directors of Bancshares and Liberty receive $200 per meeting for
serving as directors of Bancshares and Liberty. The members of the Loan
Committee of the Liberty Board of Directors receive an additional $200 for each
meeting of the Loan Committee. In 1997, the Bancshares and Liberty Boards of
Directors held twelve (12) meetings, and the Liberty Loan Committee held twelve
(12) meetings.
The Loan Committee consists of the President, three directors who serve
permanently and one director who rotates on a quarterly basis. The Loan
Committee has the power to discount and purchase bills, notes and other
evidences of debt, and to buy and sell bills of exchange. The Committee approves
all new loans over certain limits. The permanent members of the Loan Committee
are Gary E. Metzger, Wayne A. Scheer, Richard A. Pendleton and Charles Talbert
Wooten, Jr.
Liberty's Board of Directors also has an Audit Committee, consisting of
not less than three directors of Liberty, none of whom may be an officer of
Liberty. The Audit Committee makes an examination of the affairs of Liberty and
makes a report to the Board of Directors stating whether Liberty is in sound
condition, whether adequate internal audit controls and procedures are being
maintained and recommending any changes in the manner of doing business or
conducting the affairs of Liberty as the Audit Committee deems advisable. The
current members of the Audit Committee are Richard A. Pendleton, Lyle D.
Graesser, Howard Jackson Hoke and William P. Gaut.
BANCSHARES' LEGAL PROCEEDINGS
As of the date of this proxy statement/prospectus, there are no pending
actions, lawsuits or other legal proceedings involving Bancshares.
BANCSHARES' MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the shares of
Bancshares Common Stock. Until the Effective Time of the Merger, a Stock
Purchase Agreement entered into by and among the shareholders of Bancshares in
1995 will restrict the sales of Bancshares Common Stock. That agreement will be
terminated at the Effective Time. To the knowledge of Bancshares' management, in
1997 there was one sale involving 1,000 shares of Bancshares Common Stock at a
price of $10.78 per share. The shares of Bancshares Common Stock involved in the
sale were subject to the Stock Purchase Agreement and the purchase price was
determined in accordance with the terms of the Stock Purchase Agreement. As of
June 30, 1998, outstanding options entitled the holders thereof to acquire
16,000 shares of Bancshares Common Stock.
Upon the completion of the Merger, Bancshares will have up to 5,000,000
outstanding shares of Bancshares Common Stock. The shares of Bancshares issued
in this Merger will be freely transferable without restriction under the
Securities Act, except for certain restrictions placed on sales by "affiliates"
of Bancshares and Sac River. See "THE MERGER - Resales of Bancshares Common
Stock Issued in the Merger." As of the date of this Proxy Statement-Prospectus,
approximately 235,850 outstanding shares of Bancshares Common Stock were held by
affiliates of Bancshares and approximately 275,240 shares were held by
nonaffiliates of Bancshares.
As of June 30, 1998, the outstanding shares of Bancshares Common Stock
were held of record by 36 persons.
48
<PAGE> 59
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF BANCSHARES
The following table sets forth certain historical financial data with respect to
Bancshares on a consolidated basis. The financial data for the fiscal years
ended December 31, 1997 and 1996 and for the 65 day period ended December 31,
1995 is derived from Bancshares' audited financial statements. The financial
data for the six months ended June 30, 1998 and 1997 is unaudited, but it
reflects all normal recurring adjustments which are, in the opinion of
management, considered necessary for a fair presentation of the financial
condition and results of operations for such interim periods. The results for
the interim period presented herein are not necessarily indicative of results to
be expected for any other period or for the entire fiscal year. The information
contained in this table should be read in conjunction with Bancshares'
Historical Consolidated Financial Statements and related notes found in this
Prospectus.
<TABLE>
<CAPTION>
65 Days
SIX MONTHS Fiscal Year Ended
ENDED JUNE 30 Ended December 31 December 31
-------------------------------------------------------------------------------------
1998 (1) 1997 (1) 1997 1996 1995
----- ------ ------ ----- -----
(Dollars in thousands, except for per share data)
SELECTED CONSOLIDATED
STATEMENT OF CONDITION
INFORMATION:
<S> <C> <C> <C> <C> <C>
Total Assets $111,462 $50,861 $80,025 $31,590 $12,223
Loans, net of allowance for
loan losses 79,499 35,739 51,129 19,285 4,428
Investment Securities 16,172 3,643 12,265 1,448 692
Total Deposits 90,495 43,307 64,585 27,309 8,210
Short-term borrowings 9,970 2,184 9,700 600 500
Stockholders' Equity 6,322 3,584 5,288 3,559 3,461
CONSOLIDATED STATEMENT
OF INCOME INFORMATION:
</TABLE>
49
<PAGE> 60
<TABLE>
<CAPTION>
65 Days
Six Months Fiscal Year Ended
Ended June 30 Ended December 31 December 31
-------------------------------------------------------------------------------------------
1998 (1) 1997 (1) 1997 1996 1995
----- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Interest Income $3,544 $1,456 $3,948 $1,384 $198
Interest Expense 1,953 757 2,131 675 41
Net Interest Income 1,591 699 1,817 709 157
Provision for Loan Losses 227 72 447 71 6
Net Interest Income after
Provision For Loan Losses 1,364 627 1,370 638 151
Noninterest Income 171 70 201 47 1
Noninterest Expense 1,097 476 1,288 552 137
Provision for Income Taxes 146 83 117 39 4
Net Income $293 $138 $166 $94 $11
PER SHARE DATA
Earnings per Common Share $.60 $.41 $.42 $.27 $.03
Cash Dividends Declared per
Common Share _____ ____ ____ ____ ____
Book Value per Common Share 12.07 10.70 13.43 10.32 10.03
Dividend Payout Ratio ____ ____ ____ ____ ____
Weighted Average Number of
Common Shares Outstanding 489,190 336,160 393,900 345,000 345,000
</TABLE>
50
<PAGE> 61
<TABLE>
<CAPTION>
65 Days
Six Months Fiscal Year Ended
Ended June 30 Ended December 31 December 31
-------------------------------------------------------------------------------------------
1998 (1) 1997 (1) 1997 1996 1995
----- ------ ------ ----- -----
FINANCIAL RATIOS
<S> <C> <C> <C>
Return on Average Assets 0.76% 0.69% 0.31% 0.47% 0.11%
Return on Average Shareholder's
Equity(1) 12.19% 7.85% 3.63% 2.69% 1.31%
Average Equity to Average Assets 6.26% 8.85% 8.62% 17.34% 32.91%
Earnings to Fixed Charges 126.7% 129.2% 113.2% 119.7% 136.6%
Net Interest Margin 3.72% 3.45% 3.56% 3.75% 4.17%
Net Interest Spread 3.53% 3.70% 3.27% 3.24% 2.09%
CAPITAL RATIOS - LIBERTY BANK
Tier 1 Capital Ratio 9.2% 11.2% 10.4% 12.7% 49.8%
Tier 1 Risk-Based Capital Ratio 13.0% 14.0% 14.8% 12.6% 53.1%
Total Risk-Based Capital Ratio 13.9% 14.4% 15.8% 12.9% 53.2%
ASSET QUALITY RATIOS
Non-performing loans to total loans 0.42% 0% 0% 0% 0%
Non-performing assets to total assets 0.30% 0% 0% 0% 0%
Allowance for loan losses to
Non-performing loans 226.08% N/A N/A N/A N/A
Allowance for loan losses as
a percentage of loans 0.94% 0.41% 1.01% 0.40% 0.14%
- -----------------------
(1) Interim ratios have been annualized for purposes of comparability with year-end data.
</TABLE>
51
<PAGE> 62
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF LIBERTY BANCSHARES
The following discussion of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements of Liberty Bancshares and the related notes. As used in the following
discussion, the term "Company" refers to Liberty Bancshares and its subsidiary
on a consolidated basis; the term "Bank" refers to Liberty Bank; and the term
"Liberty Bancshares" refers to Liberty Bancshares, Inc., on a parent company
only basis.
RESULTS OF OPERATIONS
GENERAL
Bancshares has enjoyed rapid growth since its commencement of
operations in late October 1995. Total assets increased from $12,223,000 at
December 31, 1995, to $111,462,000 at June 30, 1998, or 811.9%. This growth is
reflected in all aspects of changes in the Company's financial condition from
1996 to 1997 and in the period ended June 30, 1998, and in the results of the
Company's operations in those periods. (The following discussion does not
address results of operations in the 65 days ended December 31, 1995, and the
year ended December 31, 1996, because the periods are not susceptible to
meaningful comparison). This growth is the result of a number of factors,
including the opening of new branches, hiring of experienced lending officers
seeking new positions after mergers of large banks that serve the Springfield
area, the addition of depositors as a result of those bank mergers, the economic
vitality of the Springfield area, and the Bank's marketing program.
The Bank's rapid growth has required the injection of additional
capital from time to time to ensure that the Bank remains well capitalized. (See
"Selected Information of Bancshares" for historical information about the Bank's
capital position for regulatory purposes.) Bancshares has provided additional
capital for the Bank by borrowing under its line of credit and by issuing
additional shares of capital stock to Bancshares' existing shareholders. In May
1998, Bancshares borrowed $875,000 under its line of credit and issued $375,000
of additional shares of Bancshares Common Stock. Bancshares contributed the
resulting $1,250,000 to the Bank's capital. At June 30, 1998, Bancshares'
$4,500,000 line of credit had $4,125,000 of outstanding borrowings.
FINANCIAL CONDITION
TOTAL ASSETS
The Company's total assets increased from $31,590,000 at December 31,
1996, to $80,025,000 at December 31, 1997, or 153.3%. This increase was driven
by the growth of total deposits during the period.
At June 30, 1998, total assets were $111,462,000, a $60,601,000, or
119.2%, increase over the same date a year earlier, and
<PAGE> 63
$31,437,000, or 39.3%, greater than total assets at December 31, 1997. Again,
increases in deposits underlay the increase in total assets.
NET LOANS
Loans net of loan allowances were the principal component of
Bancshares' asset growth. Net loans increased from $19,285,000 at December 31,
1996, to $51,129,000 at December 31, 1997, or 165.1%. At June 30, 1998, net
loans were $79,499,000, an increase of $43,760,000, or 122.4%, over net loans at
June 30, 1997, and a $28,370,000, or 55.5%, increase over net loans at December
31, 1997.
INVESTMENT SECURITIES
The growth in investment securities was a result of the rapid increase
in the Bank's deposits, which were not fully absorbed by loan production. The
increase from December 31, 1996, to December 31, 1997, was $10,817,000, or
747.0%. The increase from June 30, 1997, to June 30, 1998, was $12,529,000, or
343.9%, and from December 31, 1997, to June 30, 1998, was $3,907,000, or 31.9%.
DEPOSITS
Deposits grew as a result of the Bank's opening new branches and its
marketing efforts as well as the addition of customer deposits of new borrowers
and individuals and businesses moving their accounts in the aftermath of bank
mergers that affected the Springfield market. Total deposits at December 31,
1998, were $64,585,000, a $37,276,000, or 136.5%, increase over $27,309,000 at
December 31, 1996. At June 30, 1998, total deposits were $90,495,000, an
increase of $47,188,000, or 108.9% from June 30, 1997. Total deposits at June
30, 1998, also were $25,910,000, or 40.1%, greater than those at December 31,
1997.
SHORT-TERM BORROWINGS
Short-term borrowings, which were primarily repurchase agreements and a
bank note payable, also paralleled the Bank's growth, rising from $600,000 at
December 31, 1996, to $9,700,000 at December 31, 1997, a $1,516.7 increase.
Similarly, short term borrowings rose from $2,184,000 at June 30, 1997, to
$14,095,000 at June 30, 1998, a 545.4% increase.
The primary purpose of the bank note payable, which was $4,125,000 at
June 30, 1998 and $2,500,000 at December 31, 1997, was to increase capital at
the subsidiary bank.
STOCKHOLDERS EQUITY
As a result of both growth of retained earnings and sales of Bancshares
Common Stock to existing stockholders, Bancshares' stockholders' equity
increased by $1,729,000, or 48.6%, from $3,559,000 at December 31, 1996, to
$5,288,000 at December 31, 1997. At June 30, 1998, stockholders' equity was
$6,322,000, a $2,738,000, or 76.4% increase over the
53
<PAGE> 64
amount at June 30, 1997, and a $1,034,000, or 19.6%, increase over stockholders'
equity at December 31, 1997.
RESULTS OF OPERATIONS
NET INCOME
Since Bancshares' sole subsidiary is a newly formed bank, the Company's
income and returns on average assets and stockholders' equity have lagged those
of longer established comparably sized institutions. For the year ended December
31, 1997, net income was $166,000, an increase of $72,000, or 76.6%, over
$94,000 in the prior year. As a result of the costs of opening two new branches
in 1997 plus the addition of retail and secondary market home loan servicing
departments in the same year, average return on assets declined from .47% for
1996, to .31% for 1997, and return on average shareholders' equity increased
only slightly from 2.69% to 3.63%.
Net income for the six months ended June 30, 1998, was $293,000,
compared to $138,000 for the same period a year earlier, a 112.3% increase. As a
result of the increase in the Bank's assets, return on average assets increased
to .76% for the six months ended June 30, 1998, over .69% in the same period a
year earlier, and return on shareholders' equity grew to 12.19% from 7.85%.
The Company's net income growth has been restrained by the need to
build the Bank's provision for loan losses to an amount equal to 1% of the
Bank's total loans (less the SBA guaranteed portion of loans and less loans
secured by borrowers' deposits at the Bank). Under applicable bank
regulations, the Bank had three years from inception to reach the 1% level. At
June 30, 1998, the Bank's allowance for loan losses equaled that level.
INTEREST INCOME
The Company's interest income has increased with the Bank's asset
growth. Interest income in the year ended December 31, 1997, was $3,948,000, a
$2,564,000, or 185.3%, increase over the prior year. For the six months ended
June 30, 1998, the increase was $2,088,000, or 143.4%, over the same period a
year earlier.
INTEREST EXPENSE
Interest expense primarily reflected the growth in the Bank's interest
bearing deposits. Interest expense in the year ended December 31, 1997, was
$2,131,000, an increase of $1,456,000, or 215.7%, over the prior year. For the
six months ended June 30, 1998, interest expense was $1,953,000, an increase of
$1,196,000, or 158.0% over the same period a year earlier.
NONINTEREST INCOME AND EXPENSE
Noninterest income has been provided primarily by overdraft charges,
account servicing charges, safe deposit box fees, and other sources. While not
material in comparison to interest income, noninterest income grew by 327.7% in
the year ended December 31, 1997, over the prior year, and by
54
<PAGE> 65
144.3% in the six months ended June 30, 1998, over the same period in the prior
year.
Noninterest expense includes the cost of operations, including overhead
and expenses associated with the opening of new branches and departments in the
Bank, including the costs of additional personnel. For the year ended December
31, 1997, when the Bank opened two branches and added two departments,
noninterest expense was $1,288,000, an increase of $736,000, or 133.3%, over the
prior year. In the six months ended June 30, 1998, noninterest expense was
$1,097,000, an increase of $621,000, or 130.5%, over the same period a year
earlier.
NET INTEREST INCOME
Net interest income, the primary source of earnings for the Company, is
the difference between interest income earned on loans and other earning assets,
and interest paid on deposits and other interest bearing liabilities. Earning
assets include loans, investment securities and federal funds sold. Interest
bearing liabilities include interest-bearing deposits (NOW accounts, MMDA,
savings and others), time deposits, federal funds purchased and securities sold
under agreements to repurchase.
The following table sets forth the Company's average balance of assets,
liabilities and stockholders' equity as well as the amount of interest income or
interest expense and the average rate for each category of interest earning
assets and interest bearing liabilities. Included in the average balances are
non-accruing loans. Loan fees are included in interest income. Average balances
are computed on a daily basis.
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------- ---------------------------------------------------
Interest Interest
Average and Average Average Interest Average
Balance Fees Rate Balance and Fees Rate
--------- ----------- --------------- --------------- -------------- --------------
ASSETS ................. (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Cash and Due
from Banks(1)......... $2,326 ___ ___% ___ ___% $ 922
Federal Funds Sold
and Securities
Purchased under
Agreements to
Resell................ 9,284 534 5.75 5,853 324 5.54
Taxable Investment
Securities............ 4,585 282 6.15 1,134 64 5.64
Non-taxable
Investment
Securities............ 7 1 14.29 ___ ___ ___
Loans, Net(2)......... 34,801 3,131 9.00 10,993 996 9.06
------- ------- ----- ------- ----- -----
Total
Interest
Earning
Assets.......... 51,003 3,948 7.74% 18,902 1,384 7.32%
</TABLE>
55
<PAGE> 66
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------------------------------------------------
1997 1996
--------------------------------------------- -------------------------------------------------
Interest
Average and Average Average Interest Average
Balance Fees Rate Balance and Fees Rate
------------ ----------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS...................... (Dollars in Thousands)
Bank Premises and
Equipment................ 1,875 1,075
Other Assets............. 294 95
------------ -----------
TOTAL
Assets....... $53,172 $20,072
============ ===========
<CAPTION>
DECEMBER 31
-----------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------- --------------------------------------------
Interest Interest
Average and Average Average and Average
Balance Fees Rate Balance Fees Rate
---------------- -------------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND (Dollars in Thousands)
SHAREHOLDER'S
EQUITY
Non-interest Bearing
Deposits........ $ 7,366 $ _ _ % 2,765 $ _ _ %
Interest Bearing
Deposits........ 12,237 488 3.99 5,682 226 3.98
Time Deposits... 25,754 1,438 5.58 7,459 414 5.55
Federal Funds
Purchased and
Securities Sold under
Agreements to
Repurchase 2,434 121 4.97 653 35 5.36
Notes Payable 990 84 8.48
---------------- ------------- ---------- ----------- ---------- --------
Total Interest Bearing
Liabilities..... 48,781 2,131 4.46 16,559 675 4.08
Other Liabilities 293 83
Stockholders' Equity 4,098 3,430
---------------- -----------
Total Liabilities and
Stockholders' Equity $ 53,172 $ 20,072
================ ===========
NET INTEREST
INCOME, NET
INTEREST SPREAD.... $ 1,817 3.27% $ 709 3.24%
NET INTEREST
YIELD(3)........... 3.56% 3.75%
</TABLE>
(1) Includes non-interest bearing balances, cash and cash items.
(2) Loans, net of loan losses.
(3) Net interest yield is net interest earnings divided by total
interest-earning assets, with net interest earnings equal to the difference
between total interest earned and total interest paid.
During 1997, average deposit growth, particularly time deposits,
exceeded the growth of loans. Total average interest bearing liabilities grew by
194.6% in 1997 over 1996, and total average interest earning assets grew at a
less rapid 169.8% in the same period. The difference reflected, in part, the
opening of new branches and the addition of new depository accounts as a result
of large bank mergers
56
<PAGE> 67
that affected the Springfield market area. The net interest spread over that
time period was virtually unchanged and the net interest yield declined by 5.1%
to 3.56%.
The effect of changes in average balance and rate from the
corresponding prior period on interest income, interest expense and net interest
income for the year ended December 31, 1997 is set forth below. The effect of a
change in average balance has been determined by applying the average rate for
the earlier period to the change in the average balance for the later period, as
compared with the earlier period. The effect of a change in the average rate has
been determined by applying the average balance for the earlier period to the
change in the average rate for the later period, as compared with the earlier
period. The variances attributable to simultaneous balance and rate changes have
been allocated in proportion to the relationship of the dollar amount of change
in each category.
<TABLE>
<CAPTION>
1997 COMPARED WITH 1996
--------------------------------------------------------------
Increase (decrease)
Due to a Change in
--------------------------------------------------------------
Average Average
Balance Rate Total
----------------- -------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C>
Interest earned on:
Federal Funds Sold and Securities Purchased
under Agreements to Resell................................. $ 197 $ 13 $ 210
Taxable Investment Securities.............................. 210 8 218
Non-taxable Investment Securities.......................... 1 - 1
Loans, Net................................................. 2,143 (8) 2,135
-------- ------ -------
Total Interest Income...................................... $2,551 $13 $ 2,564
-------- ------ -------
Interest Paid on:
Interest-bearing Deposits (NOW accounts, MMDA,
savings and other)......................................... $ 261 $ 1 $262
Time Deposits.............................................. 1,022 2 1,024
Federal Funds Purchased and Securities Sold
under Agreements to Repurchase............................. 90 (4) 86
Note Payable............................................... 84 -- 84
-------- ------ -------
Total Interest Expense..................................... 1,457 (1) 1,456
-------- ------ -------
Change in Net Interest Income....................................... $ 1,094 $ 14 $ 1,108
======== ====== =======
Percent Increase in Net Interest Income over the Prior Period....... 156.28%
</TABLE>
INVESTMENT SECURITIES PORTFOLIO ANALYSIS
The Company invests a portion of its available funds in short-term and
longer-term instruments, including federal funds sold and investment securities.
Investment securities include obligations of the U.S. Government or its
agencies, obligations of state and political subdivisions and debt securities.
Federal funds sold are used primarily for daily cash management
purposes. The Company's investment securities portfolio is utilized to
collateralize certain of the Bank's line of credit and public and fiduciary
deposits. It also provides liquidity through proceeds from scheduled maturities.
The
57
<PAGE> 68
majority of the Company's investment securities carry fixed interest rates,
and at December 31, 1997 and June 30, 1998, the Company's investment portfolio
reflected a net unrealized loss of approximately $504 and $16,000, respectively.
The following table presents the Company's investments in certain
securities accounted for as held to maturity ("HTM") or as available for sale
("AFS") on the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------
1997 1996
------------------ -------------------
BOOK VALUE
(IN THOUSANDS)
<S> <C> <C>
U.S. Government, HTM........................................... $ 0 $ 0
U.S. Government, AFS........................................... 600 849
U.S. Agencies, HTM............................................. 0 0
U.S. Agencies, AFS............................................. 10,445 599
Mortgage Backed Bonds, HTM..................................... 0 0
Mortgage Backed Bonds, AFS..................................... 0 0
Municipal Securities, HTM...................................... 0 0
Municipal Securities, AFS...................................... 1,220 0
Corporates..................................................... 0 0
------------------ -------------------
Total Securities...................................... 12,265 1,448
Federal Funds Sold and Securities Purchased under
Agreements to Resell.................................. 8,373 6,450
------------------ -------------------
Total Investments..................................... $20,638 $7,898
================== ===================
</TABLE>
The following table sets forth the amounts by book value and weighted
average yields, as of December 31, 1997, of each category of investment listed
in the preceding table maturing during certain time periods.
<TABLE>
<CAPTION>
MATURING
---------------------------------------------------------------------------------------
AFTER FIVE
AFTER ONE YEAR YEARS BUT
WITHIN ONE BUT WITHIN WITHIN TEN AFTER TEN
YEAR FIVE YEARS YEARS YEARS
---------- -------------- ---------- ---------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
(IN THOUSANDS)
Held to Maturity:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government.......... $ 0 - $ 0 - $ 0 - 0
U.S. Agencies............ 0 - 0 - 0 - 0 -
Mortgaged Backed
Bonds.................. 0 - 0 - 0 - 0 -
Municipal Securities..... 0 - 0 - 0 - 0 -
Corporates............... 0 - 0 - 0 - 0 -
Available for Sale:
U.S. Government.......... $ 600 5.38
U.S. Agencies............ 500 5.98 9,945 6.28
Mortgaged Backed
Bonds.................. 0 - 0 - 0 - 0 -
Municipal Securities..... 1,220 4.66
<CAPTION>
MATURING
-----------------------------
TOTAL
AMOUNT YIELD
------ -----
Held to Maturity:
<S> <C> <C>
U.S. Government.......... 0 -
U.S. Agencies............ 0 -
Mortgaged Backed
Bonds.................. 0 -
Municipal Securities..... 0 -
Corporates............... 0 -
Available for Sale:
U.S. Government.......... 600 5.38
U.S. Agencies............ 10,445 6.26
Mortgaged Backed
Bonds.................. 0 -
Municipal Securities..... 1,220 4.66
------- ------
$12,265 6.06%
======= ======
</TABLE>
58
<PAGE> 69
On December 31, 1997, the Company had no investments in the debt
securities of any issuer (excluding U.S. Government and U.S. Agencies and
corporations) with a book value of more than ten percent (10%) of the Company's
shareholders' equity.
LOAN PORTFOLIO
The following table presents the amount of loans outstanding at the
dates indicated, according to loan category:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1997 1996
----------------- ----------------
(In Thousands)
<S> <C> <C>
Real Estate Loans; Construction....... $ 7,052 $ 2,787
Real Estate Loans; Mortgage........... 32,159 12,556
Installment Loans..................... 2,594 549
Commercial Loans and Other............ 9,848 3,470
------- -------
Total Loans.................. $51,653 $19,362
======= =======
</TABLE>
The 166.8% increase in total loans generally reflects the rapid
increase in the Bank's deposit base, the demand for loans in the Bank's market
area, and the Bank's marketing efforts, which were enhanced by the addition of
experienced lending officers hired from other area banks.
Real estate construction loans consist primarily of residential and
commercial construction loans for properties located in Greene County, Missouri.
Real estate mortgage loans, including 1-4 family and multi-family loans, are
collateralized by residential properties that are principally located in Greene
County, Missouri. Real estate-non-farm, non-residential loans are secured by
commercial properties principally located in Greene County, Missouri.
Commercial and industrial loans are comprised primarily of loans to
customers in the southwest Missouri trade area and are diversified from an
industry and customer standpoint, which helps to minimize risk. Consistent with
management's emphasis on relationship banking, most borrowing customers also
maintain deposit accounts and utilize other banking service.
The consumer loan portfolio consists of both secured and unsecured
loans to individuals for various personal reasons such as automobile financing,
home improvements, education and recreational purposes.
59
<PAGE> 70
The following table presents the repricing frequency of certain loan
categories at December 31, 1997.
<TABLE>
<CAPTION>
WITHIN 1-5 Over 5
ONE YEAR Years Years Total
-------- ------ ------ -----
(In Thousands)
<S> <C> <C> <C> <C>
Real Estate Loans; Construction.. $7,052 $ -- $ -- $7,052
Real Estate Loans; Mortgage ..... 30,547 1,535 77 32,159
Installment Loans ............... 1,305 1,255 34 2,594
Commercial Loans and Other ...... 9,323 525 -- 9,848
------- ------ ---- -------
Total Loans ... $48,227 $3,315 $111 $51,653
======= ====== ==== =======
</TABLE>
The table below presents the interest rate sensitivity at December 31,
1997, on loans contractually due after one year in the following categories.
<TABLE>
<CAPTION>
Fixed Adjustable
Interest Rate Interest Rate
-------------- -------------
(In Thousands)
<S> <C> <C>
Real Estate Loans; Construction..................................... $ -- $ 22
Real Estate Loans; Mortgage......................................... 1,459 22,135
Installment Loans................................................... 1,700 22
Commercial Loans and Other.......................................... 701 2,721
------- ----------
Total loans....................................... $ 3,860 $ 24,900
======= ==========
</TABLE>
The Company's loan portfolio is varied, with no undue concentration in
any single industry, although most of the loans in the Company's portfolio have
been made to borrowers in the Greene County area.
RISK ELEMENTS OF LOAN PORTFOLIO
Management reviews the Company's loan portfolio continuously for
problem loans. During the ordinary course of business, management becomes aware
of borrowers that may not be able to meet contractual requirements of loan
agreements. Such loans are placed under close supervision, with consideration
given to placing the loan on a nonaccrual status. Management then determines the
need for additions to the allowance for loan loss or, if appropriate, partial or
full charge-off. Those loans on which management does not expect to collect
interest in the normal course of business, or which are 90 days or more past due
as to principal or interest, are generally placed on nonaccrual status. After a
loan is placed on nonaccrual status, interest income is recognized only on a
cash basis so long as management is satisfied there is not impairment of the
book value of the loan. The loan is returned to accrual status only when the
borrower has brought all past due principal and interest payments current, and
in the opinion of management, the borrower has demonstrated the ability to make
future payments of principal and interest as scheduled.
60
<PAGE> 71
The following table presents the amount of non-performing loans
outstanding at the dates indicated, by category:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
--------------- -----------------------------------
1998 1997 1996
--------------- ------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual Loans......... $332 $0 $0
Loans 90 Days Past 0 0 0
Due and Still Accruing...
Restructured Loans....... 0 0 0
--------------- ------------- ---------------
Total Non-performing
Loans.................... $332 $0 $0
=============== ============= ===============
</TABLE>
It is the Bank's stated policy that when a loan becomes over 90 days
delinquent, it is automatically placed on nonaccrual status. In addition, other
loans showing a high apparent risk and potential for deterioration in financial
strength or collateral value may be placed on a nonaccrual status.
As of June 30, 1998 and December 31, 1997, the gross interest income on
loans recorded for the period then ended was $2,955,737 and $3,130,609. The
amount of interest income on the above-referenced loans accounted for in
nonaccrual status that would have been recorded during such year if such loans
had been current in accordance with their terms was $0 for both periods.
As of December 31, 1996, the gross interest income on loans recorded
for the year then ended was $995,765. The amount of interest income on the
above-referenced loans accounted for in nonaccrual status that would have been
recorded during such year if such loans had been current in accordance with
their terms was $0.
The following table presents the book value of certain loans excluded
from the previous table but classified by the Bank as potential problem loans.
<TABLE>
<CAPTION>
BOOK VALUE
--------------------------------------------------------
(IN THOUSANDS)
--------------------------------------------------------
JUNE 30, 1998 DECEMBER 31, 1997
----------------------- -------------------------
<S> <C> <C>
Installment Loans............................ $ 23 $ 0
Real Estate Loans; Construction.............. 0 0
Real Estate Loans; Mortgage.................. 0 0
</TABLE>
61
<PAGE> 72
<TABLE>
<S> <C> <C>
Commercial Loans and Other................... 338 600
----------------------- -------------------------
Total Loans......................... $361 $600
======================= =========================
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses represents management's determination of
the amount necessary to be charged against the current period's earnings, in
order to maintain the allowance for loan losses at a level which is considered
adequate, in relation to the estimated risk inherent in the loan portfolio.
Since the Bank was formed in 1995, it has been building its loan loss reserves
up to 1% of total loans. The loan loss reserve (which is total loans less Small
Business Administration guaranteed loans and loans secured by deposits at
Liberty) at December 31, 1997, and June 30, 1998 equaled the 1% level.
Notwithstanding the process of building a loan loss reserve, management believes
its provision for loan losses has been sufficient since 1995. See "Financial
Condition - Allowances for Loan Losses."
The following table presents an analysis of the Company's loss
experience for the periods indicated.
<TABLE>
<CAPTION>
Period Ended
June 30, 1998 Year Ended December 31
---------------------- ---------------------------------------
1997 1996
---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at Beginning of Period.................... $524 $ 77 $ 6
Charge-offs: 0
Real Estate Loans; Construction.......... 0 0 0
Real Estate Loans; Mortgage.............. 0 0 0
Installment Loans........................ 0 0 0
Commercial Loans and Other............... 0 0 0
Recoveries:
Real Estate Loans; Construction.......... 0 0 0
Real Estate Loans; Mortgage.............. 0 0 0
Installment Loans........................ 0 0 0
Commercial Loans and Other............... 0 0 0
Net Provision For Loan Losses............ 227 447 71
Additional Provision for Loan Losses..... 0 0 0
Additional Charged to Operations......... 0 0 0
---------------------- -------------- ---------------
Balance at End of Period.......................... $751 $524 $77
====================== ============== ===============
</TABLE>
62
<PAGE> 73
<TABLE>
<CAPTION>
Period Ended
June 30, 1998 Year Ended December 31
---------------------- ---------------------------------------
1997 1996
---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Ratio of Net Charge-offs During the Period to
Average Net Loans Outstanding During the Period... 0% 0% 0%
</TABLE>
The following table presents a breakdown of the allowance for loan
losses for the period indicated.
<TABLE>
<CAPTION>
------------------------------- --------------------
June 30, 1998 December 31, 1997
------------------------------- --------------------
Percent of
loans
in each
category
to total
Amount loans Amount
--------------- --------------- -----------
<S> <C> <C> <C>
Balance at End of Period
Applicable to:
Real Estate Loans: $____ ___% $ _
Construction............
Real Estate Loans;
Mortgage ____ ___ _
Installment Loans....... 3 .40 _
Commercial Loans and 51 6.79 42
Other...................
Unallocated Allowance... 697 92.81 482
--------------- --------------- -------------
Total.......... $ 751 100% $ 524
=============== =============== =============
</TABLE>
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------
1997 1996
------------------ --------------------------------
Percent Percent
of loans of loans
in each in each
category category
to total to total
loans Amount loans
------------- ------------- ------------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at End of Period
Applicable to:
Real Estate Loans: _ % $ _ _ %
Construction.........
Real Estate Loans;
Mortgage _ _ _
Installment Loans.... _ _ _
Commercial Loans and 0.43 _ _
Other................
Unallocated Allowance 99.57 77 100.00
------------ ------------- ------------
Total....... 100.00% $ 77 100.00%
============ ============= ============
</TABLE>
The following table presents an analysis of the activity in the
foreclosed assets held for sale account for the period indicated.
63
<PAGE> 74
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER 31
------------ ----------------------
JUNE 30, 1998
-------------
1997 1996
---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at Beginning of Period..... $0 $0 $0
Foreclosures During the Year....... 0 0 0
Writedowns During the Year......... 0 0 0
Proceeds from Sales................ 0 0 0
Gain (Loss) on Sales (Net)......... 0 0 0
------------------ --------------------- ----------------------
Balance at End of Period........... $0 $0 $0
================== ===================== ======================
Ratio of Foreclosed Assets to
Loans Outstanding.................. 0% 0% 0%
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for
loan losses based on management's evaluation of the risk inherent in its loan
portfolio and the general economy. Such evaluation, which includes a review of
all loans on which full collectibility may not be reasonably assured, considers
among other matters, the estimated fair value of the underlying collateral,
economic conditions, historical loan loss experience, and other factors that
warrant recognition in providing for an adequate loan loss allowance. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses and valuation
of foreclosed assets held for sale. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.
Management has established an allowance for loan losses which reduces
the total loans outstanding by an estimate of potential loan losses, plus an
excess margin for potential future uncertainties. Loans deemed uncollectible are
charged against and reduce the allowance. Provisions for loan losses are
expensed against current income. The provision replenishes the allowance for
loan losses and maintains the allowance at acceptable levels based upon the
judgment of management. The allowance for loan losses is based upon current
economic conditions, risks in the loan portfolio, historical loan loss
experience and other factors which, in management's opinion, deserve current
recognition. See "-Results of Operations-Provision for Loan Losses."
DEPOSITS
The Bank's deposit base is its primary source of funds. The Bank offers
a broad range of deposit products, including noninterest demand deposits, NOW
accounts, saving deposits, individual retirement accounts and certificates of
deposit.
At December 31, 1997, 17.1% of total deposits were in noninterest
bearing accounts, 25.2 % in savings and interest bearing demand accounts and
57.7% in certificates of deposit.
64
<PAGE> 75
The following table presents the average balances of and the average
rate paid on certain categories of deposits for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------
1997 1996
----------------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE(1) RATE BALANCE(1) RATE
------------------ ---------------- ----------------- -----------
<S> <C> <C> <C> <C>
Non-interest Bearing: (In Thousands)
Demand Deposit Accounts..................... $ 7,366 ---% $ 2,765 ---%
Interest Bearing:
MMDA and NOW Accounts....................... 11,894 4.02 5,628 3.99
Savings Deposits............................ 343 2.92 54 3.00
IRA......................................... 852 5.87 205 5.85
CDS Under $100,000.......................... 12,016 5.47 3,116 5.36
CDS Over $100,000........................... 12,886 5.70 4,138 5.68
------------------ -----------------
Total Average Deposits................. $45,357 $15,906
================== =================
</TABLE>
- ------------------
(1) Averages are computed on a daily basis.
Overall total average deposits increased by 185.2% from 1996 to 1997,
with certificates of deposit accounting for 59.9% of the total growth.
The following table presents the amount outstanding as of December 31,
1997, of certain deposits in excess of $100,000 and the maturities thereof. The
Bank does not purchase brokered deposits, and the Bank's board of directors
review all deposits of $100,000 or more each month to monitor volatility, which,
historically, has been nominal.
<TABLE>
<CAPTION>
MATURING IN
3 MONTHS 3 TO 12 OVER 12 TOTAL
OR LESS MONTHS MONTHS
---------------- --------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Type of Deposit:
Certificate of Deposit......... $5,606 $10,222 $3,118 $18,946
Other Deposits................. 11,086 - - 11,086
---------------- --------------- -------------- ---------------
Total.................... $16,692 $10,222 $3,118 $30,032
================ =============== ============== ===============
</TABLE>
65
<PAGE> 76
RETURN ON EQUITY AND ASSETS
The following table presents the company's return on equity and assets
for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
<S> <C> <C>
Return on Assets (net income divided by average total assets)....... .31% .47%
Return on Equity (net income divided by average equity)............. 3.63% 2.69%
Dividend Payout Ratio (dividends declared per share divided by net
income per share)................................................... - -
Equity to Assets Ratio (average equity divided by average total assets) 8.62% 17.34%
</TABLE>
SHORT-TERM BORROWINGS
Short-term borrowings consist mainly of federal funds purchased and
securities sold under agreements to repurchase. These amounted to $7,200,361 at
December 31, 1997, and $600,000 at December 31, 1996. The average yield on
short-term borrowings was 4.96% and 5.36% during 1997 and 1996, respectively.
The majority of these investments have terms ranging from one to 30 days. The
maximum amounts of short-term borrowings outstanding at any month end during
1997 and 1996 were $10,645,000 and $950,200. Information regarding the levels of
short-term borrowings for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------
1997 1996
----------------------------------------- ---------------------------------
FEDERAL FEDERAL
FUNDS SECURITIES FUNDS SECURITIES
PURCHASED SOLD PURCHASED SOLD
----------------- ----------------- ----------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at End of Period............. $ - $ 7,200 - $ 600
Maximum outstanding during the $ -
period at any month end............ $ 865 10,645 $ 950
Average interest rate end of period.. - 4.70% - 5.52%
Average outstanding during period.... $ 43 $ 2,391 - $ 653
Average interest rate for the period. 4.86% 4.97% - 5.36%
</TABLE>
The average amount outstanding was computed from daily averages and the
average interest rates for the period were computed by dividing the respective
interest expense by the average balance outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity risk is managed by the Company through the composition of its
assets and liabilities in an effort to meet efficiently the borrowing needs and
withdrawal requirements of its customers. Cash and cash equivalents include
cash, due from banks and federal funds sold. The primary sources of the
66
<PAGE> 77
Company's liquidity are cash and cash equivalents, investment securities with
short-term maturities, $375,000 of remaining availability on its letter of
credit and the Bank's unsecured $1,300,000 line of credit (under which there
were no outstanding borrowings at December 31, 1997 and March 31, 1998).
Although the Company has a relatively high volume of its loans and
certificates of deposit (CD'S) that mature in one year or less, the company
believes its CD's, which are used primarily to fund loans, are a relatively
stable source of funds. Since the Bank's inception, a large majority of the
loans and certificates of deposit originated by the Bank have been renewed at
maturity. In addition, the Bank has been and continues to be competitive on
interest rates for both loans and CD's.
If a significant portion of CD's were not replaced, the Bank could draw
on its $1,675,000 available lines of credit or it could utilize borrowings
available to it from the Federal Home Loan Bank (the Bank recently became a
member). It could also raise CD rates to stay competitive in the marketplace.
The Bank could also sell investment securities, which are all classified as
available-for-sale, to the extent they are not pledged for public funds.
The Company can also increase its liquidity by causing the Bank to sell
SBA guaranteed loans and participations in commercial loans. The Company
believes its process of asset/liability management allows adequate reaction time
for trends in the marketplace as they occur, minimizing the negative impact of
such trends on the net interest margin.
If a significant amount of loans that mature over the next year were
not renewed, the Bank could participate in loans originated by other financial
institutions, it could increase its investments in securities, or it could lower
interest rates charged on loans to remain competitive in its marketplace.
Cash flows from operating activities for the periods covered by the
Statements of Cash Flows relate primarily to net income adjusted for changes in
deferred assets, accrued interest receivable, credits and other liabilities, the
provision for loan losses, depreciation and the amortization of discounts
(premiums) on investments, all of which are non-cash or non-operating
adjustments to operating cash flows. Depreciation has increased steadily due to
the growth of the Bank since its inception. Three additional branches have been
opened since that time. Due to the growth in the loan portfolio, accrued
interest receivable has also grown significantly. Operating activities provided
cash flows of $363,000 and $446,000 for the period ending June 30, 1998 and the
year ended December 31, 1997, respectively. Operating activities used cash flows
of $429,000 for the year ended December 31, 1996, primarily due to loans
originated for resale but not funded at December 31, 1996.
67
<PAGE> 78
During the six months ended June 30, 1998 and the years ended December
31, 1997 and 1996, investing activities used cash of $32.9 million, $43.7
million, and $16.7 million primarily due to the increases in loan, purchases of
premises and equipment, and purchases of available-for-sale securities in each
period.
Cash flows from financing activities increased during the six months
ended June 30, 1998, and the years ended December 31, 1997 and 1996, due to
increases in deposits after interest credited, increases in short-term
borrowings and increases in note payable. In addition, cash flows increased due
to issuance of additional shares during 1997 and 1998. Financing activities
provided cash of $31.1 million for the period ending June 30, 1998, and $47.9
million and $19.2 million for the years ending December 31, 1997 and 1996.
YEAR 2000
Liberty relies upon computer hardware, software, and data processing
services to operate and maintain customer accounts, loan accounts, investments,
ATM systems, and other core functions. Other non-core functions also use
software and embedded microprocessor technology. Both core and non-core
functions are susceptible to the "Year 2000" problem, which means that software
and microprocessors will report January 1, 2000, and subsequent dates as January
1, 1900, or other incorrect twentieth century dates. This incorrect dating could
make it very difficult for Liberty to conduct business electronically.
Third party suppliers provide Liberty with many of these
electronic services. (Many of Liberty's suppliers provide the same services to
Sac River, and as a result Liberty and Sac River have developed similar programs
for dealing with Year 2000 issues.) Liberty also owns or leases other
information technology, including equipment with embedded technology that
control various systems within the bank.
Liberty has formed a committee of bank employees to assess and
coordinate the bank's Year 2000 compliance. On a quarterly basis the committee
reports to Liberty's Board of directors on the status of the bank's compliance
efforts. Since its formation in 1997, the committee has undertaken the following
activities, among others:
o Identifying software and equipment that may not be Year 2000 compliant.
o Seeking certificates of compliance from vendors.
o Identifying borrowers who have Year 2000 problems and seeking
information from them about the extent of their compliance efforts.
<PAGE> 79
- - Arranging test schedules with vendors and conducting tests of
owned and leased equipment.
- - Contacting local utilities to determining their ability to
provide electricity, water, and gas service after December 31,
1999.
- - Installing compliant versions of core technologies provided by the
bank's vendors.
- - Preparing a liquidity plan.
- - Preparing a contingency plan.
- - Ordering or installing equipment with compliant embedded technology.
- - Mailing brochures to all customers advising them about some of
Liberty's plans for dealing with Year 2000 issues.
- - Assessing other commercial customers' Year 2000 readiness.
As of August 1998, Liberty's core data processing system and teller
software were Year 2000 compliant and have been extensively tested by their
vendors. Liberty also intends to conduct its own tests of these systems. In
addition, the bank's software for communication with the Federal Reserve was
compliant following upgrades. Tests of the bank's ATM software will occur before
the end of 1998. All of the bank's personal computers loan processing software
is compliant.
Liberty intends to have all remaining software and technology compliant
and fully tested by June 30, 1999.
Third party vendors have borne most of the cost of making Liberty Year
2000 compliant. Costs incurred by Liberty have largely been in the form of the
compensation and benefits provided existing bank employees who have conducted
the compliance activities. Liberty hired no consultants or new employees to
achieve Year 2000 compliance, and it has not allocated employee compensation and
benefit expense to the project. To date, Liberty has not incurred any
non-employee expenses in implementing its compliance program and expects that
its total non-employee costs through January 1, 2000, will be $5,000 or less.
While Liberty believes that its systems and technology will be
compliant on January 1, 2000, and thereafter, it faces an unquantifiable risk
that third parties such as customers will encounter Year 2000 problems that
cause them to reduce their use of bank services, default on loans, or reduce
levels of future borrowings. There is also a risk that other financial
organizations with which Liberty maintains relations could experience Year 2000
issues that would adversely affect Liberty. Finally, if other service providers,
such as public utilities or telephone companies, are not Year 2000 compliant,
the bank could experience service interruptions that would make the conduct of
business difficult.
Liberty has developed a contingency plan to address some of these
uncertainties. It will employ back-up generators as needed to provide electric
power beginning on January 1, 2000. It will also have in place a cellular based
modern communication system to maintain communication with its data service
providers in the event that landline communications are disrupted. Immediately
before the change of the century, electronic trial balances with extended
information will be downloaded for import into local database files. There will
also be a complete backup of all files before the century change, and critical
information will be printed in hardcopy. The bank will take other steps to
assure both liquidity and security.
69
<PAGE> 80
In summary, Liberty believes that it has completed about 90% of the
actions necessary to achieve Year 2000 compliance for its core systems and 50%
of the work necessary to achieve overall compliance. Liberty expects that it
will complete the rest of the program before the century date change. There
remains, however, the possibility that problems encountered by third parties
could adversely affect the bank.
INTEREST RATE SENSITIVITY
Asset and liability management encompasses both interest rate risk and
liquidity management. The Company's net interest margin can be vulnerable to
wide fluctuations arising from a change in the general level of interest rates
which may affect the yield on interest earning assets differently than the cost
of the interest bearing liabilities. The Company monitors its asset and
liability mix in an effort to maintain a consistent earnings performance through
control of interest rate risk.
Below is the "Static gap" table for the Company as of December 31,
1997. This is just one of several tools which may be used to measure and manage
interest rate sensitivity. Earning assets and interest bearing liabilities are
presented below within selected time intervals based on their repricing and
maturity characteristics. In this view, the sensitivity position is perfectly
matched when an equal amount of assets and liabilities reprice during any given
period. Excess assets or liabilities repricing in a given time period result in
the "Interest Sensitivity Gap" shown at the bottom of the table. A positive gap
indicates more assets than liabilities will reprice in that time period, while a
negative gap indicates more liabilities than assets will reprice.
The table indicates the Company is liability sensitive in the after
three months through twelve months period and is asset sensitive in all other
periods. This means that during the after three months through twelve months
period, interest bearing liabilities are repricing faster than earning assets,
thereby improving net interest income when rates are declining and reducing net
interest income when rates are rising. While the "static gap" is a widely used
measure of interest sensitivity, it is not, in management's opinion, the only
indicator of the Company's sensitivity position.
The following table indicates as of December 31, 1997, the time period
in which interest earning assets and interest bearing liabilities are scheduled
to mature or reprice in accordance with their contractual terms.
<TABLE>
<CAPTION>
AFTER AFTER
THREE THREE ONE
MONTHS THROUGH THROUGH AFTER
OR TWELVE FIVE FIVE
LESS MONTHS YEARS YEARS TOTAL
------- ------- -------- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets:
Federal Funds Sold and Securities
Purchased under Agreements to $ 8,373
Resell............................... $ 8,373 $ - $ - $ -
Taxable Investment Securities........ 500 600 9,937 - 11,037
Non-taxable Investment Securities.... - - 1,228 1,228
Loans, Net........................... 31,955 15,314 3,559 301 51,129
Other Assets......................... - - - - -
------- ------- -------- ------- -------
</TABLE>
70
<PAGE> 81
<TABLE>
<CAPTION>
AFTER AFTER
THREE THREE ONE
MONTHS THROUGH THROUGH AFTER
OR TWELVE FIVE FIVE
LESS MONTHS YEARS YEARS TOTAL
-------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total Assets ...................... $ 40,828 $ 15,914 $ 13,496 $ 1,529 $ 71,767
======== ======== ======== ======== ========
Liabilities:
Interest-bearing Deposits
(NOW, MMDA, Savings and
Other) ............................ $ 16,278 $ -- $ -- $ -- $ 16,278
Time Deposits ..................... 10,813 19,598 6,864 -- 37,275
Securities Sold under Agreements to
Repurchase ...................... 6,200 1,000 -- -- 7,200
Long-term Debt .................... 2,500 -- -- 2,500
Other Liabilities ................. -- -- -- -- --
-------- -------- -------- ------- --------
Total Liabilities ........ 33,291 $ 23,098 $ 6,864 $ -- $ 63,253
======== ======== ======== ======== ========
Sensitivity gap ................... $ 7,537 $ (7,184) $ 6,632 $ 1,529 $ 8,514
Gap as a percentage of assets ..... 10.50% (10.01)% 9.24% 2.13% 11.86%
Cumulative sensitivity gap ........ $ 7,537 $ 353 $ 6,985 $ 8,514 $ -
Cumulative gap as a percentage of
assets .......................... 10.50% 0.49 % 9.73% 11.86% -
Cumulative sensitivity ratio ...... 122.64% 100.63 % 111.04% 113.46% 113.46%
</TABLE>
An interest sensitivity table is not a complete picture of the possible
effect of interest rate changes on net interest income. First, changes in the
general level of interest rates will not affect all categories of assets and
liabilities equally or simultaneously. Second, the table represents a one-day
position; variations occur daily as the Company adjusts its interest sensitivity
throughout the year. Third, the repricing distribution of interest sensitive
assets may not be indicative of the liquidity of those assets. Finally, since
this table is based on contractual maturities, it does not include required
principal payments or estimates of early principal payments on residential
mortgages, installment loans and investment securities.
CAPITAL ADEQUACY
Stockholders' equity represented 5.67% of total assets at June 30,
1998. Risk-based capital and leverage ratios of the Bank exceeded minimum
requirements of regulatory banking authorities.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The FASB recently adopted Statement of Financial Accounting Standards
("SFAS") 128, "Earnings Per Share." This statement replaces the presentation of
primary earnings per share with a presentation of basic earnings per share. The
statement also requires dual presentation of basic and diluted earnings per
shares by entities with complex capital structures and requires a reconciliation
of the numerators and denominators between the two calculations. SFAS 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. Management has presented earnings per share in
accordance
71
<PAGE> 82
with SFAS 128 in its December 31, 1997 financial statements. The adoption of
SFAS 128 did not have a material impact on the Company's financial statements.
The FASB recently adopted SFAS 129, "Disclosure of Information about
Capital Structure." This statement establishes standards for disclosing
information about capital structure, including pertinent rights and privileges
of various securities outstanding. SFAS 129 is effective for financial
statements issued for periods ending after December 15, 1997. The adoption of
SFAS 129 did not have a material impact on the Company's financial statements.
The FASB recently adopted SFAS 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
income and its components, in a full set of financial statements. It does not
address issues of recognition or measurement. SFAS 130 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS 130 did not have a
material impact on the Company's financial statements.
The FASB recently adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in both annual financial statements and interim financial reports
issued to shareholders. The statement also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS 131 is effective for financial statements issued for periods beginning
after December 15, 1997. The adoption of SFAS 131 is not expected to have a
material impact on the Company's financial statements.
The FASB recently adopted SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. Management has not yet determined the impact, if any, of SFAS 133 on
the Company's financial statements.
EFFECT OF ECONOMIC CONDITIONS
The Company's financial statements have been prepared in accordance
with generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
consideration for changes in the relative purchasing power of money over time
due to inflation. The assets and liabilities of the Company are primarily
monetary and interest rates have a greater impact on the Company's performance
than does the effect of inflation. The local economy of the southwest Missouri
area has experienced growth over the last several years. The area has a good mix
of retail, agricultural related and industrial business.
BUSINESS OF SAC RIVER
GENERAL
Sac River is a state bank organized in Missouri in 1912, located in
Stockton, Missouri, which is approximately 65 miles northeast of Springfield and
has a population of approximately 1,050. Sac River's primary market area is
largely rural, containing agricultural, light industrial, recreational and
vacation oriented businesses and businesses that cater to the large retired
population. Sac River's market area has experienced moderate growth and stable
economic conditions in the last decade. Sac River offers
72
<PAGE> 83
a full range of commercial banking services including customary depository
products, safe deposit facilities, and commercial, consumer, residential real
estate, agricultural and industrial lending.
EMPLOYEES
As of June 1, 1998, Sac River employed 24 full-time employees. None of
these employees is covered by a collective bargaining agreement and management
believes that its employee relations are good.
DESCRIPTION OF SAC RIVER'S PROPERTY
The executive offices of Sac River are located at 14 Public Square,
Stockton, Missouri, which is also the location of Sac River's only banking
facility. Sac River owns the property and the building at this location, as well
as two adjacent buildings, currently vacant, and adjacent parking lots. In
addition, Sac River owns 1.9 undeveloped acres south of Stockton.
COMPETITION
Sac River's principal market area is within a 20 mile radius of
Stockton and includes portions of Cedar, Dade, Polk, Barton and Vernon Counties,
Missouri. In recent years, Sac River has also become a lender in the Springfield
market. The competition among depository institutions in the Stockton area is
strong. Sac River competes for deposits and loans with Tri-County State Bank and
Great Southern Bank, a savings association, both of which have branches in
Stockton. Sac River also competes in the Stockton area with a number of other
area, regional, and national commercial banks and savings and loans associations
and a variety of other financial intermediaries such as credit unions, mutual
funds and brokerage firms. In Springfield, Sac River competes for loans with a
large number of local, regional, and national banks and financial institutions.
Many of these competing institutions are much larger and have more resources
than Sac River. Sac River competes by providing personal service, pricing of
interest rates, advertising, and referrals from its customers.
REGULATION AND SUPERVISION OF SAC RIVER
Sac River is subject to regulation and supervision by the Division of
Finance, the FDIC and the FRS Board. Virtually every aspect of Sac River's
day-to-day operations are subject to numerous requirements and restrictions. Sac
River is subject to laws and regulations that, among other things, prescribe the
nature and amount of certain investments, regulate the closure of branch
offices, and limit the amount of, and establish required approval procedures,
reporting requirements and credit standards for, loans and other extension of
credit. Sac River is also subject to the FDIC's and the FRS Board's regulatory
capital requirements. Sac River submits quarterly "Call Reports" to the FDIC.
See "BUSINESS OF BANCSHARES - Regulation and Supervision of Liberty. The FRS
Board examines Sac River for safety and soundness at least once every two years.
In addition, Missouri law regulates the day to day activities of Sac
River, including deposit taking, lending and investment activities. The Division
of Finance and the FRS Board share results of their yearly examinations. The
Division of Finance examines Sac River at least every two years.
DIVIDENDS
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Sac River has paid dividends to its shareholders yearly for over forty
years. In 1997, Sac River paid dividends of $80 per each share of Sac River
Common Stock.
LENDING POLICIES
Sac River makes commercial, consumer and real estate loans to
individuals and businesses. Loans are at both fixed and variable rates of
interest. Variable interest rate loans generally entail less risk because the
interest rate adjusts with the market interest rate, thereby lessening the risk
that the interest earned on a loan will be significantly lower than prevailing
market rates over the life of the loan. The majority of Sac River's commercial
and real estate loans are variable rate loans. Slightly more than half of Sac
River's consumer loans are fixed-rate loans. Most of Sac River's consumer loans
reprice within one year, substantially reducing any risks associated with
fluctuating interest rates.
As of December 31, 1997, 80% of Sac River's mortgage real estate loans
were variable-rate, 93% of Sac River's commercial were variable-rate and 57% of
Sac River's consumer loans were variable-rate.
The operations of Sac River include funding commercial real estate,
business and construction loans. These loans involve significant risks compared
with other types of lending. See "Risk Factors-Risks Associated with Commercial
Real Estate, Business and Construction Loans."
Sac River requires collateral to secure most loans. Real estate loans,
both construction loans and mortgage loans, are secured by the real estate. Sac
River generally requires a loan-to-collateral value of not more than 80% of the
loan value. Commercial loans are generally secured by inventories and
receivables, equipment, machinery, marketable securities or other liquid
financial instruments. Sac River generally requires a loan-to-collateral value
of not more than 85% on commercial loans. Consumer loans are both secured and
unsecured. When secured, the security for these loans consists of consumer
goods, marketable securities, certificates of deposit and similar items. In most
cases, Sac River receives a first lien on collateral securing loans. In the case
of home equity loans, Sac River will take a second lien on the collateral.
INDEMNIFICATION OF SAC RIVER'S OFFICERS AND DIRECTORS
Sac River's Articles and By-laws do not provide for any indemnification
for the acts or omissions of Sac River's directors or officers. Sac River
provides insurance covering its directors and officers for losses related to the
performance of their duties. Under Missouri law, a bank may indemnify its
directors and officers for all expenses, fees and amounts paid as a result of a
suit, claim or other action brought against the officer or director because of
his service as an officer or director, as long as the officer or director acted
in good faith and in a manner he believed to be in the best interest of the bank
and had no reason to believe was unlawful. If the director or officer is
successful on the merits in any suit, claim or proceeding described above, he or
she shall be indemnified against expenses incurred in connection with the
action.
DIRECTORS AND EXECUTIVE OFFICERS OF SAC RIVER
The following table sets forth certain information with respect to the
current directors and executive officers of Sac River.
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Name and Positions AGE AT YEAR FIRST BECAME
With Sac River JUNE 30, 1998 DIRECTOR OF SAC RIVER
- -------------- ------------ ---------------------
Garry L. Robinson, President 37 1989
Howard K. Johnson, Director 70 1969
Neale W. Johnson, Director 52 1996
Charles W. Neale, Director 66 1985
Charles L. Skaggs, Director 59 1998
Franklin H. Smith, Director 62 1973
Stephen T. Wrenn, Director, 45 1996
Vice President
GARRY L. ROBINSON has been a Director of Sac River since 1989. He is
the President of Sac River and has held that position since 1989.
HOWARD K. JOHNSON has been a Director of Sac River since 1969. Mr.
Johnson farms near Stockton.
NEALE W. JOHNSON has been a Director of Sac River since 1985. Dr.
Johnson is a dentist and has been practicing since 1973 in Stockton.
CHARLES W. NEALE has been a Director of Sac River since 1985. Dr.
Neale, a dentist, is retired from his dental practice. Dr. Neale has served as
the coroner for Cedar County, Missouri since 1997.
CHARLES L. SKAGGS, has been a Director of Sac River since 1998. Mr.
Skaggs is retired. Prior to 1994, Mr. Skaggs was Merchandising Service Manager
for Mobil Oil Corporation.
FRANKLIN H. SMITH has been a Director of Sac River since 1973. Mr.
Smith has owned and operated Sac River Lumber Company for more than five years.
STEPHEN T. WRENN has been a Director of Sac River since 1996. Mr. Wrenn
is Vice President of Sac River. Mr. Wrenn has been employed by Sac River since
1975.
CERTAIN BUSINESS RELATIONSHIPS
At December 31, 1997 and 1996, Sac River had loans outstanding to
officers, directors, employees and companies in which the bank's executive
officers or directors were principal owners, in the amount of $624,000 and
$562,000, respectively.
Such loans and other extensions of credit and deposits were made in the
ordinary course of business and were made on substantially the same terms
(including interest rates and collateral) as those prevailing at the time for
comparable transactions with other persons. Further, these loans did not involve
more than normal risk of collectibility or present other unfavorable features.
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Effective June 1996, Sac River entered into a loan servicing agreement
with a company that was controlled by Garry Robinson. The agreement called for
the company to service certain of the Bank's existing loan portfolio for a fee.
Expense recognized by the Bank relating to this agreement was $161,513 and
$40,770 for 1997 and 1996, respectively. Included in the 1997 expense was a
payment of $66,000 made to terminate the contract effective December 31, 1997.
Fees under the agreement were set at a rate of 1/2% per month on the outstanding
balance of all loans serviced.
SECURITY OWNERSHIP OF SAC RIVER'S MANAGEMENT
The following table sets forth, as of the date of this Proxy
Statement-Prospectus, the number of shares of Sac River Common Stock owned
beneficially by each director and executive officer of Sac River, and all
directors and executive officers of Sac River as a group.
<TABLE>
<CAPTION>
POSITIONS WITH NUMBER OF SHARES PERCENT
NAME SAC RIVER BENEFICIALLY OWNED OF CLASS
- ---- --------- ------------------ --------
<S> <C> <C> <C>
Garry L. Robinson Director, 32.000 (1) .32%
President
Howard K. Johnson Director 71.667 (2) 0.72%
Neale W. Johnson Director 574.111 (3) 5.74%
Charles W. ("Bill") Neale Director 413.330 (4) 4.13%
Franklin H. Smith Director 182.3333 (5) 1.82%
Charles L. Skaggs Director 1.000 (6) 0.01%
Stephen T. Wrenn Director, Vice 1.000 (7) 0.01%
President
All directors and executive
officers as a group 1,275.441 12.75%
</TABLE>
- -----------------------
(1) Does not include 433.333 shares held by the Sac River ESOP of which Mr.
Robinson is the sole trustee. See "The Merger - Effect on Employee
Benefit Plans".
(2) Held by Howard K. Johnson, Trustee of Revocable Trust U/T/A dated
April 28,1995.
(3) 1 share held by Neale W. Johnson, 51 shares held jointly with Frances
A. Johnson, and 522.111 held by Neale W. Johnson and Piper Price as
Co-Trustees of the Darrell W. Johnson and Betty L. Johnson Family Trust
dated May 7, 1993.
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<PAGE> 87
(4) 1 share is held by Charles W. Neale and 412.33 shares held by Charles
W. Neale Revocable Living Trust dated May 28, 1992. Does not include an
additional 330 shares held by Janet Neale, Mr. Neale's wife, as Trustee
of the Janet Neale Revocable Living Trust dated May 28, 1992.
(5) Does not include 83 shares held by Mary Ruth Smith, Mr. Smith's wife.
(6) Does not include 75 shares held by Charlotte Ann Skaggs, Mr. Skagg's
wife.
(7) Does not include 2 shares held by Cede & Company for the benefit of
Rhonda Wrenn, Mr. Wrenn's wife, or 712.333 shares held by Thomas C.
Wrenn, Trustee under the Thomas C. Wrenn U/T/A dated April 26, 1996, of
which Stephen Wrenn is successor Trustee.
PRINCIPAL SHAREHOLDERS OF SAC RIVER
The following table sets forth, as of the date of this Proxy
Statement-Prospectus, the persons known by Sac River to be beneficial owners of
more than five (5%) percent of the outstanding shares of Sac River Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ---------------- ------------------ ----------------
<S> <C> <C>
Thomas C. Wrenn 712.333 (1) 7.12%
P.O. Box E
Stockton, MO 65785
Georgia Higgins 533.334 5.33%
707 South High
Stockton, MO 65785
Betty L. Johnson, Trustee of the Betty L. 527.111 5.27%
Johnson Trust dated February 2, 1997
Rt. 1, Box 60
Stockton, MO 65785
Neale W. Johnson and Piper Price, 522.111 5.22%
Trustees of the Darrell W. Johnson
and Betty L. Johnston Family Trust
dated May 7, 1993
RR 1, Box 60
Stockton, MO 65785
Dorothy Smith 515.333 (2) 5.15%
P.O. Box 94
Stockton, MO 65788
Darrell D. Church 501.000 (3) 5.01%
2860 Versailles
Springfield, MO 65804
</TABLE>
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<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ---------------- ------------------ ----------------
<S> <C> <C>
Nancy Church 500.000 (4) 5.00%
2860 Versailles
Springfield, MO 65804
</TABLE>
- -----------------------
(1) Includes 712.333 shares held by Thomas C. Wrenn, Trustee under the
Thomas C. Wrenn U/T/A dated April 26, 1996.
(2) Includes 432 shares held by Dorothy Smith as Trustee of the Dorothy
Smith Revocable Living Trust and 83.333 shares held by Dorothy Smith as
guardian of Susan Smith.
(3) Includes 500 shares held by Darrell Church as Trustee for the Darrell
D. Church U/T/A dated November 21, 1997.
(4) Includes 500 shares held by Darrell Church as Trustee for the Nancy
Church U/T/A dated June 10, 1980.
COMPENSATION OF SAC RIVER'S MANAGEMENT
EXECUTIVE COMPENSATION
The following table sets forth the compensation that Sac River paid to
its chief executive officer for services rendered in the fiscal year ended
December 31, 1997. Mr. Robinson is the only executive officer of Sac River whose
salary and bonus exceeded $100,000 during 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS ALL OTHER COMPENSATION
- --------------------------- ------ ----- ----------------------
<S> <C> <C> <C>
Garry Robinson, President and Chief
Executive Officer
1997 $83,041 $27,50 $ 0
1996 $75,000 $25,00 $ 0
1995 $68,958 $20,00 $ 0
</TABLE>
Mr. Robinson's compensation is set pursuant to an employment contract
between Sac River and Mr. Robinson. Mr. Robinson's current employment contract
will terminate on July 1, 1998, and a new contract will become effective.
Pursuant to the terms of the employment contract effective July 1, 1998, Mr.
Robinson will be entitled to receive compensation in the first year of $144,000,
with an annual raise of 5%. If the after-tax net profit of Sac River drops below
$1,000,000 in any year, Mr. Robinson's salary for the following year will be
reduced by 10% of the total salary for each $100,000 the profit is below
$1,000,000 for the previous year. The minimum salary paid to Mr. Robinson under
this formula is $50,000. In the event
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that the contract payment is reduced to $50,000 or below, Sac River may
terminate Mr. Robinson's employment in its sole discretion. Mr. Robinson will
not be entitled to any bonuses under the contract. The term of the contract is
for nine (9) years. Mr. Robinson's employment contract will continue in force
after the Merger.
COMPENSATION OF DIRECTORS
The directors of Sac River receive $200 per month plus a $2,000 annual
bonus for serving as directors of Sac River. The Sac River Board of Directors
held twelve (12) meetings in 1997. The full Board of Directors acts as the
Discount Committee of the Board of Directors and approves all loans that do not
adhere to the current loan policy of Sac River or loans that are above the
current loan limits of each of the officers of Sac River.
SAC RIVER'S LEGAL PROCEEDINGS
As of the date of this prospectus, there are no pending actions,
lawsuits or other legal proceedings involving Sac River.
SAC RIVER'S MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the shares of Sac
River Common Stock. To the knowledge of Sac River's management, in 1997 shares
of Sac River Common Stock were purchased by the ESOP at a price of $936.40 per
share. One sale of 88 8/9 shares of Sac River Common Stock occurred in February
1998 at a price of $1,400 per share. (The transaction was between a Sac River
director and a Bancshares director who were aware of Liberty Bancshares
overtures to Sac River.) As of June 30, 1998, there were 10,000 shares of Sac
River Common Stock authorized, issued and outstanding.
As of June 1, 1998, approximately 5,411.881 outstanding shares of Sac
River Common Stock were held by affiliates of Sac River and approximately
4,588.119 shares were held by nonaffiliates of Sac River. On that date there
were approximately 100 shareholders of Sac River.
SELECTED FINANCIAL INFORMATION OF SAC RIVER
The following table sets forth certain historical financial data with
respect to Sac River. The financial data for the fiscal years ended December 31,
1997, and 1996, is derived from Sac River's audited financial statements. The
financial data for the six months ended June 30, 1998 and 1997, and the years
ended 1995, 1994 and 1993 is unaudited, but it reflects all normal recurring
adjustments which are, in the opinion of management, considered necessary for a
fair presentation of the financial condition and results of operations for such
interim periods. The results for the interim period presented herein are not
necessarily indicative of results to be expected for any other period or for the
entire fiscal year. The information contained in this table should be read in
conjunction with Sac River's Historical Financial Statements and related notes
found in this Prospectus.
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<PAGE> 90
<TABLE>
<CAPTION>
SIX MONTHS Year
ENDED JUNE 30 Ended December 31
--------------------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT
OF CONDITION
INFORMATION:
Total Assets................. $90,944 $92,497 $103,044 $92,535 $85,026 $68,814 $70,666
Loans, Net of Allowance for
Loan Losses.................. 64,038 59,037 63,389 60,953 52,526 45,278 42,742
Investment Securities........ 25,270 29,696 22,785 19,603 18,706 19,458
Total Deposits............... 73,642 74,883 73,999 72,903 67,345 58,875 59,989
Short-term Borrowings........ 1,178 6,339 14,875 8,751 7,563 936 2,206
Stockholders' Equity......... 11,159 10,738 11,140 10,354 9,572 8,680 8,136
STATEMENT OF INCOME
INFORMATION:
Interest Income.............. $3,720 $3,565 $7,358 $6,928 $6,036 $5,051 $5,152
Interest Expense............. 1,879 1,738 3651 3,414 2,834 1,973 1,947
Net Interest Income.......... 1,841 1,827 3,707 3,514 3,202 3,078 3,205
</TABLE>
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<TABLE>
<CAPTION>
SIX MONTHS Year
ENDED JUNE 30 Ended December 31
------------------------------ -----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Provision for Loan Losses.... - 30 30 70 50 10 130
Net Interest Income After
Provision for Loan Losses.... 1,841 1,797 3,677 3,444 3,152 3,068 3,075
Noninterest Income .......... 205 150 303 277 248 273 274
Noninterest Expense.......... 750 723 1,606 1,296 1,289 1,375 1,265
STATEMENT OF INCOME
INFORMATION:
Provision for Income......... 469 433 791 799 667 444 658
Net Income................... 827 791 1,584 1,626 1,446 1,522 1,426
PER SHARE DATA
Earnings per Common Share.... $ 82.72 $ 79.08 $158.37 $ 162.1 $ 144.56 $152.25 $142.60
Cash Dividends Declared per
Common Share................. 80.00 40.00 80.00 80.00 80.00 80.00 80.00
Book Value per Common
Share........................ 1,115.90 1,073.80 1,1113.99 1,035.38 957.21 863.60 813.60
Dividend Payout Ratio........ 96.7% 50.6% 50.5% 49.2% 55.3% 52.5% 56.1%
Weighted Average Number of
Common Shares Outstanding.... 10,000 10,000 10,000 10,000 10,000 10,000 10,000
</TABLE>
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<TABLE>
<CAPTION>
SIX MONTHS Year
ENDED JUNE 30 Ended December 31
--------------------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL RATIOS
Return on Average Assets(1)..... 1.70% 1.71% 1.66% 1.85% 1.87% 2.15% 2.04%
Return on Average
Shareholders' Equity(1)......... 14.37% 14.71% 14.45% 16.05% 15.49% 17.48% 17.53%
Average Equity to Average
Assets.......................... 11.81% 11.60% 11.4% 11.51% 12.05% 12.31% 11.65%
Earnings to Fixed Charges....... 168.9% 170.4% 165.1% 171.0% 174.6% 199.6% 207.0%
Net Interest Margin............. 3.91% 4.02% 3.92% 4.06% 4.33% 4.51% 4.72%
Net Interest Spread............. 3.50% 3.56% 3.46% 3.58% 3.70% 3.95% 4.18%
CAPITAL RATIOS
Tier 1 Capital Ratio............ 12.1% 11.7% 11.2% 11.2% 11.4% 12.5% 11.7%
Tier 1 Risk-Based Capital
Ratio........................... 18.0% 18.7% 17.9% 16.8% 18.9% 20.8% 21.5%
Total Risk-Based Capital Ratio.. 19.2% 20.0% 19.2% 18.1% 20.5% 22.9% 23.3%
ASSET QUALITY RATIOS
Non-performing loans to total
loans........................... 0% 0.11% 0% 0.26% 0.57% 0.17% 0.18%
Non-performing assets to total
assets.......................... .06% .07% 0% 0.22% 0.36% 0.11% 0.11%
Allowance for loan losses to
Non-performing loans............ N/A 1,294.3% N/A 520.6% 258.8% 895.5% 908.2%
Allowance for loan losses as a
percentage of loans............. 1.34% 1.43% 1.33% 1.35% 1.48% 1.54% 1.61%
</TABLE>
- ------------------------
(1) Interim ratios have been annualized for purposes of comparability with
year-end data.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF SAC RIVER
The following discussion of financial condition and results of
operations should be read in conjunction with the financial statements of Sac
River and the related notes. As used in the following discussion, the term
"Bank" refers to Sac River.
GENERAL
Sac River's Stockton market area has not experienced the rapid
population and economic growth of the Springfield area. Nonetheless in 1997, two
other banking institutions opened branches in the Stockton market area,
increasing competitive pressures on Sac River.
FINANCIAL CONDITION
TOTAL ASSETS
Sac River's total assets at December 31, 1997, were $103,044,000, an
increase of $10,509,000, or 11.4%, over total assets of $92,535,000 at December
31, 1996. $6,124,000 of this increase resulted from the proceeds of repurchase
agreements with Liberty Bank and another southwest Missouri bank. Under these
agreements, Sac River sold Liberty Bank and the other institution securities
subject to Sac River's obligation to repurchase the securities on a specified
date. The balance of the increase in Sac River's assets reflected growth in
local deposits.
For the six months ended June 30, 1998, Sac River's total assets were
$90,944,000, a decrease of $1,553,000, or 1.7%, over the same period in the
prior year. This decrease reflected changes in both the repurchase agreements
with Liberty Bank and the other financial institution. Total assets at June 30,
1998, were lower by $12,100,000, or 11.7%, over total assets at December 31,
1997. This decrease also primarily reflected a reduction of the level of
repurchase agreements with Liberty Bank.
NET LOANS
Sac River's loans net of loan allowances grew by $2,436,000, or 4.0%,
from December 31, 1996, to December 31, 1997, and by $5,001,000, or 8.5%, from
June 30, 1997, to June 30, 1998. At June 30, 1998, net loans were $649,000, or
1.0% greater than the level at December 31, 1997.
INVESTMENT SECURITIES
Sac River's total investment securities increased $6,911,000, or 30.3%,
to $29,696,000 at December 31, 1997, from $22,785,000 at December 31, 1996. This
increase largely reflected Sac River's investment of the proceeds of repurchase
agreements with Liberty Bank and the other southwest Missouri bank. For the six
months ended June 30, 1998, investment securities totaled
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<PAGE> 94
$17,218,000, a decrease of $8,052,000, or 31.7%, over $25,270,000 of investment
securities at June 30, 1997. At June 30, 1998, investment securities were
$12,478,000 lower than six months earlier at December 31, 1997. Both of these
decreases reflected Liberty Bank's liquidation of some of its repurchase
agreements with Sac River to make funds available for loan production.
DEPOSITS
Sac River's deposits increased slightly from December 31, 1996, to
December 31, 1997, rising to $73,999,000 from $72,903,000, or 1.5%. From June
30, 1997, to June 30, 1998, total deposits decreased by $1,241,000, or 1.7%, to
$73,642,000 reflecting a stable deposit base during the periods.
SHORT-TERM BORROWINGS
Sac River's short-term borrowings grew from $8,751,000, at December 31,
1996, to $14,875,000 at December 31, 1997, an increase of 70.0%. For the six
months ended June 30, 1998, short-term borrowings were $1,178,000 compared to
$6,339,000 on the same date a year earlier, a decrease of 81.4%. At June 30,
1998, short-term borrowings were 92.1% lower than at December 31, 1997. The
increase in short-term borrowings in 1997 resulted from the increase in the
amount of repurchase agreements with Liberty Bank and the other southwest
Missouri bank, while the decrease in the first six months of 1998 reflected both
of those bank's reduction of the amount of repurchase agreements with Sac River.
STOCKHOLDERS' EQUITY
The $786,000 growth in Sac River's stockholders' equity in 1997
paralleled Sac River's net income after payment of dividends, while the $421,000
increase from June 30, 1997 to June 30, 1998, reflected the effect of the
payment of $800,000 of dividends in 1998 compared to $400,000 in 1997.
RESULTS OF OPERATIONS
NET INCOME
Sac River's net income for the year ended December 31, 1997, decreased
slightly to $1,584,000 from $1,626,000 for the year ended December 31, 1996. The
$42,000 decrease resulted from narrowing net interest margins and an increase in
noninterest expense associated with a computer conversion project and the
addition of personnel to administer new loans and loan participations. Net
income for the year ended December 31, 1996, was $180,000 or 12.4%, greater than
that realized in the year ended December 31, 1995.
For the six months ended June 30, 1998, net income increased by 4.6%
over net income in the period ended June 30, 1997, growing from $791,000 to
$827,000.
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INTEREST INCOME
In the two prior fiscal years, interest income has increased as total
assets have grown. Interest income of $7,358,000 for the year ended December 31,
1997, represented a 6.2%, or $430,000, increase over interest income of
$6,928,000 for the year ended December 31, 1996. Interest income for 1996
represented an $892,000, or 14.8%, increase of interest income of $6,036,000 for
the year ended December 31, 1995.
In the six months ended June 30, 1998, interest income reached
$3,720,000, an increase of $155,000, or 4.3%, over interest income of $3,565,000
for the six months ended June 30, 1997. The rate of increase was less than in
prior periods due to the decline in total assets.
NONINTEREST INCOME AND EXPENSE
Noninterest income has been provided primarily by overdraft charges,
service charges on depository accounts, safety deposit box fees, and other
similar charges, and while not material in comparison to interest income,
noninterest income grew by 9.4% in the year ended December 31, 1997, 11.7% in
the year ended December 31, 1996, and 36.7% in the six months ended June 30,
1998, when compared to the six months ended June 30, 1997.
Noninterest expense includes the costs of operations, including
overhead and added personnel expenses as employees are added to administer
additional loans and loan participations. Noninterest expense in the year ended
December 31, 1997, also included the costs of a computer conversion project and
totaled $1,606,000, an increase of $310,000, or 23.9%, over noninterest expense
of $1,296,000 in the year ended December 31, 1996. Noninterest expense in 1996
grew a nominal $7,000 over noninterest expense in the year ended December 31,
1995. For the six months ended June 30, 1998, noninterest expense increased by
$27,000 or 3.7% to $750,000 over the noninterest expense in the same period a
year earlier.
NET INTEREST INCOME
Net interest income, the primary source of earnings for the Bank, is
the difference between interest income earned on loans and other earning assets,
and interest paid on deposits and other interest bearing liabilities. Earning
assets include loans, investment securities and federal funds sold. Interest
bearing liabilities include interest-bearing deposits (NOW accounts, MMDA,
savings and others), time deposits, federal funds purchased and securities sold
under agreements to repurchase.
The following table sets forth the Bank's average balance of assets,
liabilities and stockholders' equity as well as the amount of interest income or
interest expense and the average rate for each category of interest earning
assets and interest bearing liabilities. Included in the average balances are
non-accruing loans. Loan fees are included in interest income. Average balances
are computed on a daily basis.
85
<PAGE> 96
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------------------------------
1997 1996
----------------------------------------- -------------------------------------------
Average Interest Average Average Interest Average
Balance and Fees Rate Balance and Fees Rate
------- -------- ------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS............................
Cash and Due From Banks(1)..... $ 2,451 $ -- --% $ 1,756 $ -- -- %
Federal Funds Sold and
Securities Purchased Under
Agreements to Resell........... 5,463 302 5.53 6,882 398 5.78
Deposits with Banks 600 32 5.33 400 23 5.75
Taxable Investment Securities.. 20,943 1,264 6.04 15,449 922 5.97
Non-taxable Investment 5,097 290 5.69 5,342 310 5.80
Securities.....................
Loans, Net(2).................. 59,987 5,470 9.12 56,423 5,275 9.35
-------- -------- -------- ---------
Total Interest Earning
Assets................... 94,541 7,358 7.78 86,652 6,928 8.00
Bank Premises and
Equipment...................... 453 -- 351 --
Other Assets................... 1,390 -- 1,366 --
-------- --------
Total Assets............. $96,384 $87,969
======== ========
</TABLE>
86
<PAGE> 97
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------------------
1997 1996
-------------------------------------- ---------------------------------------
Average Interest Average Average Interest Average
Balance and Fees Rate Balance and Fees Rate
------- -------- ------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES ANDSHAREHOLDER'S EQUITY
Non-interest Bearing Deposits ................ $ 4,854 $ 4,700
Interest Bearing Deposits .................... 24,486 $ 672 2.74% 23,642 $ 657 2.78%
Time Deposits ................................ 43,549 2,351 5.40 40,803 2,299 5.63%
Federal Funds Purchased and
Securities Sold Under Agreements
to Repurchase ................................ 11,653 627 5.38 8,057 458 5.68%
-------- ------ -------- ------
Total Interest Bearing
Liabilities ............................ 84,542 3,651 4.32 77,202 3,414 4.42
------ ------
Other Liabilities ............................ 881 639
Stockholders' Equity ......................... 10,961 10,128
-------- --------
Total Liabilities and
Stockholders' Equity ................... $96,384 $87,969
======== ========
NET INTEREST INCOME, NET
INTEREST SPREAD ................................. $ 3,707 3.46% $ 3,514 3.58%
NET INTEREST YIELD(3) ........................... 3.92% 4.06%
</TABLE>
- ---------------------
(1) Includes non-interest bearing balances, cash and cash items.
(2) Loans, net of loan losses.
(3) Net interest yield is net interest earnings divided by total
interest-earning assets, with net interest earnings equal to the difference
between total interest earned and total interest paid.
Total average interest bearing liabilities and average interest earning
assets grew by 9.5% and 9.1%, respectively, in 1997 over 1996. The net interest
spread and net interest yield each declined slightly, primarily reflecting the
effects of the loans made in the more price-competitive Springfield market.
The effect of changes in average balance and rate from the
corresponding prior period on interest income, interest expense and net interest
income for the year ended December 31, 1997 is set forth below. The effect of a
change in average balance has been determined by applying the average rate for
the earlier period to the change in the average balance for the later period, as
compared with the earlier period. The effect of a change in the average rate has
been determined by applying the average balance for the earlier period to the
change in the average rate for the later period, as compared with the earlier
period. The variances attributable to simultaneous balance and rate changes have
been allocated in proportion to the relationship of the dollar amount of change
in each category.
87
<PAGE> 98
<TABLE>
<CAPTION>
1997 COMPARED WITH 1996
-----------------------
Increase (decrease)
Due to a Change in
------------------
Average Average
Balance Rate Total
------- ---- -----
(Dollars in Thousands)
<S> <C> <C> <C>
Interest Earned On:
Federal Funds Sold and Securities Purchased Under Agreements to
Resell.............................................................. $ (119) $ 23 $ (96)
Deposits with Banks................................................. 11 (2) 9
Taxable Investment Securities....................................... 331 11 342
Non-taxable Investment Securities................................... (14) (6) (20)
Loans, Net.......................................................... 327 (132) 195
---------- ---------- ----------
Total Interest Income............................................... 536 (106) 430
---------- ---------- ----------
Interest Paid on:
Interest-bearing Deposits (NOW accounts, MMDA, savings and other)... 24 (9) 15
Time Deposits....................................................... 150 (97) 53
Federal Funds Purchased and Securities Sold under Agreements to
Repurchase.......................................................... 159 10 169
---------- ---------- ----------
Total Interest Expense.............................................. 333 (96) 237
---------- ---------- ----------
Change in Net Interest Income........................................... $ 203 $(10) $ 193
========== ========== ==========
Percent Increase in Net Interest Income over the Prior Period........... 5.49%
</TABLE>
INVESTMENT SECURITIES PORTFOLIO ANALYSIS
The Bank invests a portion of its available funds in short-term and
longer-term instruments, including federal funds sold and investment securities.
Investment securities include obligations of the U.S. Government or its
agencies, obligations of state and political subdivisions and debt securities.
Federal funds sold are used primarily for daily cash management
purposes. The Bank's investment securities portfolio is utilized to
collateralize certain of the Bank's line of credit and public and fiduciary
deposits. It also provides liquidity through proceeds from scheduled maturities.
The majority of the Bank's investment securities carry fixed interest rates, and
at December 31, 1997 and June 30, 1998, the Bank's investment portfolio
reflected a net unrealized gain of approximately $187,000 and $150,000,
respectively.
The following table presents the Bank's investments in certain
securities accounted for as held to maturity ("HTM") or as available for sale
("AFS") on the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------
1997 1996
------------------ -------------------
BOOK VALUE
(IN THOUSANDS)
<S> <C> <C>
U.S. Government, HTM............................................ $ - $ -
U.S. Government, AFS............................................ 11,497 8,748
U.S. Agencies, HTM.............................................. - -
U.S. Agencies, AFS.............................................. 11,754 9,001
</TABLE>
88
<PAGE> 99
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------
1997 1996
------------------ -------------------
BOOK VALUE
(IN THOUSANDS)
<S> <C> <C>
Mortgage Backed Bonds, HTM................................... - -
Mortgage Backed Bonds, AFS................................... - -
Municipal Securities, HTM.................................... 6,445 5,036
Municipal Securities, AFS.................................... - -
Corporates................................................... - -
---------- ----------
Total Securities........................................ 29,696 22,785
Federal Funds Sold and Securities Purchased under
Agreements to Resell.................................... 5,585 3,850
---------- ----------
Total Investments....................................... $35,281 $26,635
========== ==========
</TABLE>
The increase in total investments primarily reflected the growth of the
Bank.
The following table sets forth the amounts by book value and weighted
average yields, as of December 31, 1997, of each category of investment listed
in the preceding table maturing during certain time periods.
<TABLE>
<CAPTION>
MATURING
--------------------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
BUT WITHIN BUT WITHIN
WITHIN ONE YEAR FIVE YEARS TEN YEARS TOTAL
--------------- ---------- --------- -----
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
----- ----- ------ ----- ------ ----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity:
U.S. Government............ $___ ___% $___ ___% $___ ___% $___ ___%
U.S. Agencies.............. ___ ___ ___ ___ ___ ___ ___ ___
Mortgage Backed Bonds...... ___ ___ ___ ___ ___ ___ ___ ___
Municipal Securities....... 420 5.79% 3,701 5.31% 2,324 5.48% 6,445 5.40%
Corporates................. ___ ___ ___ ___ ___ ___ ___ ___
--------- -------
$ 6,445 5.40%
========= =======
Available for Sale:
U.S. Government............ $10,753 5.97% $ 744 5.68% $___ ___% $11,497 5.95%
U.S. Agencies.............. 4,256 6.16% 7,498 6.08% ___ ___ 11,754 6.11%
Mortgage Backed ___ ___ ___ ___ ___ ___ ___ ___
Bonds...................
Municipal Securities....... ___ ___ ___ ___ ___ ___ ___ ___
--------- -------
$23,251 6.03%
========= =======
</TABLE>
89
<PAGE> 100
On December 31, 1997, the Bank had no investments in the debt
securities of any issuer (excluding U.S. Government and U.S. Agencies and
corporations) with a book value of more than ten percent (10%) of the Bank's
shareholders' equity.
LOAN PORTFOLIO
The following table presents the amount of loans outstanding at the
dates indicated, according to loan category:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1996
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real Estate Loans; Construction........................... $ 2,394 $ 2,854
Real Estate Loans; Mortgage............................... 44,507 42,240
Installment Loans......................................... 3,238 3,381
Commercial Loans and Other................................ 14,102 13,311
---------- ----------
Total Loans...................................... $ 64,241 $ 61,786
========== ==========
</TABLE>
Real Estate construction loans consist primarily of residential and
commercial construction loans for properties located in southwest Missouri.
Real estate mortgage loans, including 1-4 family and multi-family
loans, are collateralized by residential properties that are principally located
in southwest Missouri.
Real estate-non-farm, non-residential loans are secured by commercial
properties principally located in Springfield, Missouri.
Sac River's commercial and industrial loans are primarily loans to
customers in the southwest Missouri trade area and are diversified from an
industry and customer standpoint, which helps to minimize risk. Consistent with
management's emphasis on relationship banking, most borrowing customers also
maintain deposit accounts and use other banking services. Management believes
the inherent risks of commercial and industrial loans to be relatively low,
given the diversity of the portfolio and collateral margins. Sac River holds
Small Business Administration guarantees of slightly more than half of the
amount of its commercial loans.
The consumer loan portfolio consists of both secured and unsecured
loans to individuals for various personal reasons such as automobile financing,
home improvements, education and recreational purposes. New charge-offs of
consumer loans have been relatively low for the past several years. Management
believes the inherent risks associated with these loans to be relatively low and
that net charge-offs on these loans will continue to be below industry averages,
due to sufficient collateral margins and the diversity of the portfolio.
90
<PAGE> 101
The following table presents the repricing frequency of certain loan
categories at December 31, 1997.
<TABLE>
<CAPTION>
WITHIN 1-5 Over 5
ONE YEAR YEARS YEARS TOTAL
----------- ----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Real Estate Loans; Construction......... $ 2,394 $ _ $ _ $ 2,394
Real Estate Loans; Mortgage............. 41,778 2,445 284 44,507
Installment Loans....................... 2,056 1,180 2 3,238
Commercial Loans and Other.............. 13,335 431 336 14,102
----------- ----------- ---------- ----------
Total Loans.................... $ 59,563 $ 4,056 $ 622 $ 64,241
=========== =========== ========== ==========
</TABLE>
The table below presents the interest rate sensitivity at December 31,
1997, on loans contractually due after one year in the following categories.
<TABLE>
<CAPTION>
FIXED ADJUSTABLE
INTEREST INTEREST
RATE RATE
------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Real Estate Loans; Construction................................... $ ____ $ _____
Real Estate Loans; Mortgage....................................... 2,810 11,216
Installment Loans................................................. 1,262 1,653
Commercial Loans and Other........................................ 586 7,685
------------- ---------------
Total Loans.............................................. $ 4,658 $ 20,554
============= ===============
</TABLE>
The Bank's loan portfolio is varied, with no undue concentration in any
single industry, although most of the loans in the Bank's portfolio have been
made to borrowers in the southwest Missouri area.
RISK ELEMENTS OF LOAN PORTFOLIO
Management reviews the Bank's loan portfolio on a regular basis for
problem loans. During the ordinary course of business, management becomes aware
of borrowers that may not be able to meet contractual requirements of loan
agreements. Such loans are placed on the Bank's watch list, which is reviewed by
the Bank's Board of Directors on a monthly basis. Management then determines the
need for additions to the allowance for loan loss. The Bank's allowance for loan
loss is determined as 50% of loans management considers doubtful, 10% of loans
on the watch list, and 1 1/2% of the remainder of the Bank's loan portfolio.
Those loans on which management does not expect to collect interest in the
normal course of business, or which are 90 days or more past due as to principal
or interest, are generally placed on nonaccrual status and management determines
the need for a partial or full charge-off of such loans. After a loan is placed
on nonaccrual status, interest income is recognized only on a cash
91
<PAGE> 102
basis so long as management is satisfied there is not impairment of the book
value of the loan. The loan is returned to accrual status only when the borrower
has brought all past due principal and interest payments current, and in the
opinion of management, the borrower has demonstrated the ability to make future
payments of principal and interest as scheduled.
The following table presents the amount of non-performing loans
outstanding at the dates indicated, by category:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
----------------- ----------------------------------------
1998 1997 1996
----------------- ---------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual Loans............................ $0 $0 $ 10
Loans 90 Days Past Due and Still Accruing... 0 0 150
Restructured Loans.......................... 0 0 0
----------------- ---------------- -----------------
Total Non-performing Loans......... $0 $0 $160
================= ================ =================
</TABLE>
As of June 30, 1998 and December 31, 1997, the gross interest income on
loans recorded for the year then ended was $2,826,310 and $5,469,502. The amount
of interest income on the above-referenced loans accounted for in nonaccrual
status that would have been recorded during such year if such loans had been
current in accordance with their terms was $0 for both periods.
As of December 31, 1996, the gross interest income on loans recorded
for the year then ended was $5,274,519. The amount of interest income on the
above-referenced loans accounted for in nonaccrual status that would have been
recorded during such year if such loans had been current in accordance with
their terms was $0.
The following table presents the book value of loans excluded from the
previous table but classified by the Bank, as of December 31, 1997, as watch
list loans.
<TABLE>
<CAPTION>
BOOK VALUE
---------------------------------------------------------
JUNE 30, 1998 DECEMBER 31, 1997
---------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Installment Loans......................................... $ 3 $ 0
Real Estate Loans; Construction........................... 0 0
Real Estate Loans; Mortgage............................... 770 882
Commercial Loans and Other................................ 22 65
------------------ -----------------------
Total Loans...................................... $795 $947
=================== =======================
</TABLE>
92
<PAGE> 103
PROVISION FOR LOAN LOSSES
The provision for loan losses represents management's determination of
the amount necessary to be charged against the current period's earnings, in
order to maintain the allowance for loan losses at a level which is considered
adequate, in relation to the estimated risk inherent in the loan portfolio. The
Bank determines its allowance for loan loss as 50% of loans the management
considers doubtful, 10% of loans on the watch list and 1 1/2% of all other loans
in the Bank's portfolio. See "Financial Condition-Allowances for Loan Losses."
The following table presents an analysis of the Bank's loss experience
for the periods indicated.
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED DECEMBER 31
------------ ----------------------
JUNE 30 31
------------ --
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at Beginning of Period................................ $852 $833 $792
Charge-offs: -
Real Estate Loans; Construction...................... (5) - -
Real Estate Loans; Mortgage.......................... - (33) (20)
Installment Loans.................................... - (1) (7)
Commercial Loans and Other........................... - (6) (29)
-------- -------- --------
(5) (40) (56)
-------- -------- --------
Recoveries:
Real Estate Loans; Construction...................... - - -
Real Estate Loans; Mortgage.......................... 17 12 -
Installment Loans.................................... - 1 5
Commercial Loans and Other........................... 7 16 22
-------- -------- --------
Net recovery ........................................ 24 29 27
-------- -------- --------
Net Provision for Loan Losses........................ - 30 70
Balance at End of Period...................................... $871 $852 $833
======== ======== =========
Ratio of Net Charge-offs During the Period to Average Net Loans
Outstanding During the Period............................... .00% .02% .05%
======== ======== =========
</TABLE>
93
<PAGE> 104
The following table presents a breakdown of the allowance for loan
losses for the period indicated.
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ --------------------------------------------------------
June 30, 1998 1997 1996
------------------------ ---------------------- -------------------------
PERCENT OF PERCENT PERCENT
LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
---------- ---------- ----------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at End of Period Applicable
to:
Real Estate Loans; Construction. $ - - % $ - - % $ - - %
Real Estate Loans; Mortgage .... 77 8.84 88 10.33 115 13.81
Installment Loans............... - - - - - -
Commercial Loans and - 0.23 7 .82 7 .84
Other........................... 2
Unallocated Allowance........... 792 90.93 757 88.85 711 85.35
--------- -------- -------- ---------- -------- ----------
Total.................. $871 100.00 $852 100.00% $833 100.00%
========= ======== ======== ========== ========= ==========
</TABLE>
The following table presents an analysis of the activity in the
foreclosed assets held for sale account for the period indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
PERIOD ENDED 1997 1996
------------ ---- ----
JUNE 30, 1998
-------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at Beginning of Period.............. $4 $45 $65
Foreclosures During the Year................ 72 3 -
Writedowns During the Year.................. - (10) (20)
Proceeds from Sales......................... (25) (28) -
Gain (Loss) on Sales (Net).................. - (6) -
--------------- ------------- --------------
Balance at End of Period.................... $51 $ 4 $45
=============== ============= ==============
Ratio of Foreclosed Assets to Loans .08% .01% .07%
Outstanding................................. =============== ============= ==============
</TABLE>
94
<PAGE> 105
ALLOWANCE FOR LOAN LOSSES
Management establishes the allowance for loan losses through a
provision for loan losses based on its evaluation of the risk inherent in its
loan portfolio and the general economy. This evaluation, which includes a review
of all loans on which full collectibility may not be reasonably assured,
considers among other matters, the estimated fair value of the underlying
collateral, economic conditions, historical loan loss experience, and other
factors that warrant recognition in providing for an adequate loan loss
allowance. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses and valuation of foreclosed assets held for sale. These agencies may
require the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
Management has established an allowance for loan losses which reduces
the total loans outstanding by an estimate of potential loan losses, plus an
excess margin for potential future uncertainties. Loans deemed uncollectible are
charged against and reduce the allowance. Sac River expenses its provisions for
loan losses against current income. The provision replenishes the allowance for
loan losses and maintains the allowance at acceptable levels based upon the
judgment of management. Sac River bases the allowance for loan losses upon
current economic conditions, risks in the loan portfolio, historical loan loss
experience and other factors that, in management's opinion, deserve current
recognition. See "Results of Operations-Provision for Loan Losses."
DEPOSITS
The Bank's deposit base is its primary source of funds. The Bank offers
a broad range of deposit products, including noninterest demand deposits, NOW
accounts, savings deposits, individual retirement accounts and certificates of
deposit.
At December 31, 1997, 6.9% of total deposits were in noninterest
bearing accounts, 32.2% in savings and interest bearing demand accounts and
60.9% in certificates of deposit.
The following table presents the average balances of and the average
rate paid on certain categories of deposits for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------
1997 1996
---------------------------------- ----------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE(1) RATE BALANCE(1) RATE
---------------- ---------------- ----------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest Bearing:
Demand Deposit Accounts................ $ 4,854 -- $ 4,700 --
Interest Bearing:
MMDA and NOW Accounts.................. 19,583 2.68% 19,275 2.73%
Savings Deposits....................... 4,903 2.99 4,367 3.00
IRA.................................... 2,409 5.50 2,931 5.60
CD's under $100,000.................... 33,428 5.58 31,262 5.71
CD's over $100,000..................... 7,712 4.57 6,610 5.30
--------------- --------------
Total Average Deposits........ $72,889 $69,145
=============== ==============
</TABLE>
95
<PAGE> 106
(1) Averages are computed on a daily basis.
Total average deposits grew by $3,744,000, or 5.4%, in 1997 over 1996,
with 87.3% of the growth in certificates of deposit.
The following table presents the amount outstanding as of December 31,
1997, of certain deposits in excess of $100,000 and the maturities thereof.
<TABLE>
<CAPTION>
MATURING IN
--------------------------------------------------------------------------------------------
OVER
THREE MONTHS THREE TO TWELVE
OR LESS TWELVE MONTHS MONTHS TOTAL
------------------ ---------------------- ------------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Type of Deposit:
Certificate of Deposit..... $3,592 $4,732 $644 $8,968
Other Deposits............. 852 -- -- 852
------------------ ---------------------- ------------------ ------------
Total............. $4,444 $4,732 $644 $9,820
================== ====================== ================== ============
</TABLE>
RETURN ON EQUITY AND ASSETS
The following table presents the Bank's return on equity and assets for
the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
----------------------------------------
1997 1996
---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Return on Assets (net income divided by average total assets)....... 1.66% 1.85%
Return on Equity (net income divided by average equity)............. 14.45% 16.05%
Dividend Payout Ratio (dividends declared per share divided by
net income per share)............................................... 50.5% 49.2%
Equity to Assets Ratio (average equity divided by average total
assets)............................................................. 11.4% 11.51%
</TABLE>
The decreases in return on assets and return on equity reflected the
effects of increases in non-interest expenses associated with a computer
conversion project and increased personnel costs, growth in the Bank's size, and
increased competition.
SHORT-TERM BORROWINGS
Short-term borrowings consist of securities sold under agreements to
repurchase. These amounted to $14,875,000 at December 31, 1997, and $8,751,000
at December 31, 1996. The average yield on
96
<PAGE> 107
short-term borrowings was 5.38% and 5.68% during 1997 and 1996, respectively.
The majority of these instruments have terms ranging from one to 365 days. The
maximum amounts of short-term borrowings outstanding at any month end during
1997 and 1996 were $14,875,000 and $9,936,000. Information regarding the levels
of short-term borrowings for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------
1997 1996
------------------------------------ ----------------------------------
FEDERAL FEDERAL
FUNDS SECURITIES FUNDS SECURITIES
PURCHASED SOLD PURCHASED SOLD
--------------- -------------- --------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at End of Period............. -- $ 14,875 -- $ 8,751
Maximum Outstanding During the
Period at any Month-end............ -- $ 14,875 -- $ 9,936
Average Interest Rate End of Period.. -- 5.93% -- 5.71%
Average Outstanding During Period.... -- $ 11,602 -- $ 8,056
Average Interest Rate For the Period. -- 5.38% -- 5.68%
</TABLE>
The average amount outstanding was computed from daily averages and the
average interest rates for the period were computed by dividing the respective
interest expense by the average balance outstanding. The increase in securities
sold under agreements to repurchase in 1997 resulted primarily from repurchase
agreements with Liberty Bank and another southwest Missouri bank.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity risk is managed by the Bank through the composition of its
assets and liabilities in an effort to meet efficiently the borrowing needs and
withdrawal requirements of its customers. Cash and cash equivalents include
cash, due from banks and federal funds sold. The primary sources of the Bank's
liquidity are cash and cash equivalents and investment securities with
short-term maturities. The Bank's primary method of asset/liability management
is the matching of the length of assets (loans) to the length of liabilities
(deposits). The Bank believes its process of asset/liability management allows
adequate reaction time for trends in the marketplace as they occur, minimizing
the negative impact of such trends on the net interest margin.
Although the Bank has a relatively high volume of its loans and
certificates of deposit (CD's) that mature in one year or less, the Bank's CD's
have historically been a stable source of funds. Historically, a large majority
of the loans and certificates of deposit originated by the Bank have been
renewed at maturity. In addition, the Bank has been and continues to be
competitive on interest rates for both loans and CD's.
If a significant portion of CD's were not replaced at maturity, the
Bank could utilize borrowings available to it from the Federal Home Loan Bank.
It could also raise CD rates to stay competitive in the marketplace. In
addition, the Bank could sell available-for-sale investment securities to the
extent they
97
<PAGE> 108
are not pledged for public funds. At December 31, 1997, the Bank had $23.3
million of available-for-sale securities in its portfolio.
If a significant amount of loans that mature over the next year were
not renewed, the Bank could participate in loans originated by other financial
institutions as it has done in the past, it could increase its investments in
securities, or it could lower interest rates charged on loans to remain
competitive in its marketplace.
Cash flows from operating activities for the periods covered by the
Statements of Cash Flows relate primarily to net income, adjusted for changes in
accrued interest receivable, credits and other liabilities, the provision for
loan losses, depreciation and the amortization of discounts (premiums) on
investments, all of which are non-cash or non-operating adjustments to operating
cash flows. Operating activities provided cash flows of $941,000, $2.0 million,
and $1.3 million for the period ended June 30, 1998 and the years ended December
31, 1997 and 1996, respectively.
During the six months ended June 30, 1998, investing activities
provided cash of $11.7 million primarily due to the maturity of $12.5 million of
available-for-sale securities. For the years ended December 31, 1997 and 1996,
investing activities used cash of $10.0 million and $12.2 million, respectively,
due to the purchase of available-for-sale and held-to-maturity securities in
each period, as well as the net originations of loans.
Cash flows used in financing activities was $12.5 million during the
six months ended June 30, 1998, due primarily to a decrease in securities sold
under agreement to repurchase of $13.7 million. This was partially offset by
$2.0 million in loan proceeds taken as a Federal Home Loan Bank advance.
Financing activities increased during the years ended December 31, 1997 and 1996
due to increases in deposits after interest credited and an increase in
securities sold under agreement to repurchase in both years. In all periods, the
bank paid dividends of $800,000. Cash provided by financing activities was $8.9
million and $5.9 million for the years ended December 31, 1997 and 1996.
YEAR 2000
Like all banks, Sac River is heavily reliant upon computer hardware and
software, including data processing services to operate and maintain customer
accounts, loan accounts, investments, ATM systems, and other core functions.
Other non-core functions also use software and embedded microprocessor
technology. Both core and non-core functions are susceptible to the "Year 2000"
problem, which means that software and microprocessors will report January 1,
2000, and subsequent dates as January 1, 1900, or other incorrect twentieth
century dates. This incorrect dating could make it very difficult for Sac River
to conduct business electronically.
98
<PAGE> 109
Third party suppliers provide Sac River with many of these electronic
services. (Many of Sac River's suppliers provide the same services to Liberty,
and as a result Sac River and Liberty have developed similar programs for
dealing with Year 2000 issues.) Sac River also owns or leases other information
technology, including equipment with embedded technology that control various
systems within the bank.
In 1997, Sac River formed a committee of employees to assess the bank's
Year 2000 issues and implement remedies. The committee meets regularly and has
undertaken the following activities, among others:
- Identifying software and equipment that may not be Year 2000
compliant.
- Identifying borrowers who may face Year 2000 issues and
assessing the seriousness of the problem.
- Creating a database identifying each system, its compliance
status, its level of risk, estimated cost to comply, estimated
date to comply, and last test date.
- Seeking certificates of compliance from vendors.
- Arranging test schedules with vendors and conducting tests of
owned and leased equipment.
- Contacting local utilities to determining their ability to
provide electricity, water, and gas service after December 31,
1999.
- Installing compliant versions of core technologies provided
by the bank's vendors.
- Preparing a liquidity plan.
- Preparing a contingency plan.
- Ordering or installing equipment with compliant embedded
technology.
As of August 1998, Sac River's core data processing system and teller
software were Year 2000 compliant and had been extensively tested by their
vendors. Sac River intends, however, to conduct its own tests of these systems.
Similarly, the bank's software for communication with the Federal Reserve was
compliant following upgrades. Tests of the bank's ATM software will occur in
February 1999. All of the bank's personal computers are compliant, as is the
bank's loan processing software.
Certain less significant systems remain to be tested, including the
payroll, processing software, certain credit services software, and the
telephone switch software. Sac River anticipates that all remaining software and
technology will be compliant and fully tested by June 30, 1999.
Third party vendors have borne most of the cost of making Sac River
Year 2000 compliant. Costs incurred by Sac River have largely been in the form
of the compensation and benefits provided existing bank employees who have
conducted the compliance activities. Sac River hired no consultants or new
employees to achieve Year 2000 compliance, and it has not allocated employee
compensation and benefit expense to the project. Sac River has not incurred any
non-employee
99
<PAGE> 110
expenses to date in implementing its compliance program and expects that its
total non-employee costs will be $3,000 or less through January 1, 2000.
While Sac River believes that its systems and technology will be
compliant on January 1, 2000, and thereafter, it faces an unquantifiable risk
that third parties such as customers will encounter Year 2000 problems that
cause them to reduce their use of bank services, default on loans, or reduce
levels of future borrowings. There is also a risk that other financial
organizations with which Sac River maintains relations could experience Year
2000 issues that would adversely affect Sac River. Finally, if other service
providers, such as public utilities or telephone companies, are not Year 2000
compliant, the bank could experience service interruptions that would make the
conduct of business difficult.
Sac River has developed a contingency plan to address some of these
uncertainties. For example, the bank will have a backup generator available if
its electric utility cannot deliver power. It also plans to have in place a
cellular based modern communication system to maintain communication with its
data service providers in the event that landline communications are disrupted.
Immediately before the change of the century, electronic trial balances with
extended information will be downloaded for import into local database files.
There will also be a complete backup of all files before the century change, and
critical information will be printed in hardcopy. The bank will take other steps
to assure both liquidity and security.
In summary, Sac River believes that it has completed about 90% of the
actions necessary to achieve Year 2000 compliance for its core systems and 50%
or more of the work necessary to achieve overall compliance. Sac River believes
that it will complete the rest of the program and achieve compliance before the
century date change. There remains, however, the possibility that problems
encountered by third parties could adversely affect the bank.
INTEREST RATE SENSITIVITY
Asset and liability management encompasses both interest rate risk and
liquidity management. Sac River's net interest margin can be vulnerable to wide
fluctuations arising from a change in the general level of interest rates which
may affect the yield on interest earning assets differently than the cost of the
interest bearing liabilities. Sac River monitors its asset and liability mix in
an effort to maintain a consistent earnings performance through control of
interest rate risk.
Below is the "Static gap" table for Sac River as of December 31, 1997.
This is just one of several tools which may be used to measure and manage
interest rate sensitivity. Earning assets and interest bearing liabilities are
presented below within selected time intervals based on their repricing and
maturity characteristics. In this view, the sensitivity position is perfectly
matched when an equal amount of assets and liabilities reprice during any given
period. Excess assets or liabilities repricing in a given time period result in
the "Interest Sensitivity Gap" shown at the bottom of the table. A positive gap
indicates more assets than liabilities will reprice in that time period, while a
negative gap indicates more liabilities than assets will reprice.
The table indicates Sac River is liability sensitive in the three
months or less period and is asset sensitive in all other periods. This means
that during the three months or less period, interest bearing
100
<PAGE> 111
liabilities are repricing faster than earning assets, thereby improving net
interest income when rates are declining and reducing net interest income when
rates are rising. While the "static gap" is a widely used measure of interest
sensitivity, it is not, in management's opinion, the only indicator of Sac
River's sensitivity position.
The following table indicates as of December 31, 1997, the time period
in which interest earning assets and interest bearing liabilities are scheduled
to mature or reprice in accordance with their contractual terms.
<TABLE>
<CAPTION>
AFTER AFTER
THREE THREE ONE
MONTHS THROUGH THROUGH AFTER
OR TWELVE FIVE FIVE
LESS MONTHS YEARS YEARS TOTAL
----------- ------------ ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets:
Deposits with Banks ......................... $ 100 $ 550 $ 200 $ -- $ 850
Federal Funds Sold and Securities Purchased
Under Agreements to Resell .................. 2,100 -- -- --
Taxable Investment Securities ............... 2,249 12,759 8,243 -- 23,251
Non-taxable Investment Securities ........... 265 155 3,701 2,323 6,444
Loans, Net .................................. 31,906 26,667 3,834 982 63,389
Other Assets ................................ -- -- -- -- --
-------- -------- -------- -------- --------
Total Assets ....................... $ 36,620 $ 40,131 $ 15,978 $ 3,305 $ 96,034
======== ======== ======== ======== ========
Liabilities:
Interest-bearing Deposits (NOW, MMDA, Savings
and Other) .................................. $ 29,248 $ -- $ -- $ -- $ 29,248
Time Deposits ............................... 14,203 23,298 7,580 -- 45,081
Securities Sold Under Agreements to
Repurchase .................................. 11,801 2,774 300 -- 14,875
Long-term Debt .............................. -- 2,500 -- -- 2,500
Other Liabilities ........................... -- -- -- -- --
-------- -------- -------- -------- --------
Total Liabilities .................. $ 55,252 $ 28,572 $ 7,880 $ -- $ 91,704
======== ======== ======== ======== ========
Sensitivity Gap ............................. $(18,632) $ 11,559 $ 8,098 $ 3,305 $ 4,330
Gap as a Percentage of Assets ............... (19.40)% 12.04% 8.43% 3.44% 4.51%
Cumulative Sensitivity Gap .................. $(18,632) $ (7,073) $ 1,025 $ 4,330 $ --
Cumulative Gap as a Percentage of Assets .... (19.40)% (7.37)% 1.07% 4.51% --%
Cumulative Sensitivity Ratio ................ (66.28)% (91.56)% 101.12% 104.72% 104.72%
</TABLE>
An interest sensitivity table is not a complete picture of the possible
effect of interest rate changes on net interest income. First, changes in the
general level of interest rates will not affect all categories of assets and
liabilities equally or simultaneously. Second, the table represents a one-day
position; variations
101
<PAGE> 112
occur daily as the Company adjusts its interest sensitivity throughout the year.
Third, the repricing distribution of interest sensitive assets may not be
indicative of the liquidity of those assets. Finally, since this table is based
on contractual maturities, it does not include required principal payments or
estimates of early principal payments on residential mortgages, installment
loans and investment securities.
CAPITAL ADEQUACY
Stockholders' equity represented 12.3% of total assets at June 30,
1998. Risk-based capital and leverage ratios of the Bank exceeded minimum
requirements of regulatory banking authorities. See note 10 to Sac River's
financial statements for the years ended December 31, 1997 and 1996 for
additional information about Sac River's capitalization and regulatory capital
requirements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The FASB recently adopted Statement of Financial Accounting Standards
("SFAS") 128, "Earnings Per Share." This statement replaces the presentation of
primary earnings per share with a presentation of basic earnings per share. The
statement also requires dual presentation of basic and diluted earnings per
shares by entities with complex capital structures and requires a reconciliation
of the numerators and denominators between the two calculations. SFAS 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. Management has presented earnings per share in
accordance with SFAS 128 in its December 31, 1997 financial statements. The
adoption of SFAS 128 did not have a material impact on the Bank's financial
statements.
The FASB recently adopted SFAS 129, "Disclosure of Information about
Capital Structure." This statement establishes standards for disclosing
information about capital structure, including pertinent rights and privileges
of various securities outstanding. SFAS 129 is effective for financial
statements issued for periods ending after December 15, 1997. The adoption of
SFAS 129 did not have a material impact on the Bank's financial statements.
The FASB recently adopted SFAS 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
income and its components, in a full set of financial statements. It does not
address issues of recognition or measurement. SFAS is effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS 130 did not have a
material impact on the Bank's financial statements.
The FASB recently adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in both annual financial statements and interim financial reports
issued to shareholders. The statement also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS 131 is effective for financial statements issued for periods beginning
after December 15, 1997. The adoption of SFAS 131 is not expected to have a
material impact on the Bank's financial statements.
The FASB recently adopted SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. Management has not yet determined the impact, if any, of SFAS 133 on
the Bank's financial statements.
102
<PAGE> 113
EFFECT OF ECONOMIC CONDITIONS
The Bank's financial statements have been prepared in accordance with
generally accepted accounting principles, which required the measurement of
financial position and operating results in terms of historical dollars without
consideration for changes in the relative purchasing power of money over time
due to inflation. The assets and liabilities of the Bank are primarily monetary
and interest rates have a greater impact on the Bank's performance than does the
effect of inflation. The local economy of the Southwest Missouri area has
experienced growth over the last several years. The area has a good mix of
retail, agricultural related and industrial business.
ADJOURNMENT OF SPECIAL MEETING
Under certain circumstances, Sac River's management may determine at
the time of the Special Meeting that it is in the best interest of Sac River and
its shareholders to adjourn the Special Meeting to a later date. For example, in
the event that the number of shares present, in person or by proxy, at the
Special Meeting is insufficient to constitute a quorum or to approve the Merger
Agreement, Sac River might decide to adjourn the Special Meeting to permit
further solicitation of proxies. Sac River might also decide to adjourn the
Special Meeting in the event that the parties determine that events occurring
subsequent to the date of this Proxy Statement require Sac River to furnish
additional proxy soliciting information to the shareholders and to give the
shareholders an opportunity to assimilate such information. If the Special
Meeting is adjourned, no further notice of the time and place of the adjourned
meeting is required to be given to Sac River shareholders other than an
announcement of such time and place at the Special Meeting. The vote of the
holders of a majority of shares of Sac River Common Stock present at the Special
Meeting in person or by proxy, whether or not a quorum is present, is required
to approve a proposal for adjournment at the Special Meeting.
Sac River's management also may determine at the time of the Special
Meeting that it is in the best interest of Sac River and its shareholders to
adjourn the Special Meeting for up to 90 days if, at the time of the Special
Meeting, the holders of a sufficient number of Sac River Common Stock have
indicated that they intend to elect under the Merger Agreement to receive the
Optional Per Share Cash Amount rather than the right to receive shares of
Bancshares Common Stock, and, as a result, the total cash payable by Bancshares
as the Optional Per Share Cash Amount to all shareholders of Sac River would
exceed $2,800,000. During the adjournment, representatives of Sac River would
ascertain whether a sufficient number of shareholders would change their
election so that the Option Per Share Cash Amount would not exceed $2,800,000.
SAC RIVER SHAREHOLDERS WILL NOT HAVE A VOTE ON ANY OF THE ADJOURNMENTS
DESCRIBED IN THIS SECTION.
The board of directors of Sac River recommends that shareholders vote
FOR the proposal to adjourn the Special Meeting so that such proxies may be
voted in favor of such adjournment under such circumstances.
LEGAL OPINIONS
The legality of the Bancshares Common Stock to be issued pursuant to
the Merger will be passed upon for Bancshares by Husch & Eppenberger, LLC. Husch
& Eppenberger has also delivered an opinion
103
<PAGE> 114
to Bancshares and Sac River concerning certain federal income tax consequences
of the Merger. See "THE MERGER-Federal Income Tax Consequences."
EXPERTS
Bancshares' financial statements at December 31, 1995, 1996, and 1997,
and for the 65 days and years then respectively ended, in the Proxy
Statement-Prospectus and Registration Statement have been audited by Baird,
Kurtz & Dobson, independent accountants as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
Sac River's financial statements at December 31, 1996, and 1997, and
for the years then ended, in the Proxy Statement-Prospectus and Registration
Statement have been audited by Baird, Kurtz & Dobson, independent accountants as
set forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given the
authority of such firm as experts in accounting and auditing.
104
<PAGE> 115
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
LIBERTY BANCSHARES, INC. AND SUBSIDIARY............................................................................LF-1
Independent Accountants' Report...........................................................................LF-2
Consolidated Balance Sheets at June 30, 1998 (unaudited)
and December 31, 1997 and 1996............................................................................LF-3
Consolidated Statements of Income for Six Months Ended June 30, 1998
and 1997 (unaudited) and Years Ended December 31, 1997 and 1996
and 65 Days Ended December 31, 1995.......................................................................LF-4
Consolidated Statements of Changes in Stockholders' Equity for
Six Months Ended June 30, 1998 and 1997 (unaudited) and Years Ended December 31, 1997
and 1996 and 65 Days Ended December 31, 1995..............................................................LF-5
Consolidated Statements of Cash Flows for Six Months Ended June 30,
1998 and 1997 (unaudited) and Years Ended December 31, 1997 and 1996
and 65 Days Ended December 31, 1995.......................................................................LF-6
Notes to Financial Statements.............................................................................LF-8
SAC RIVER VALLEY BANK..............................................................................................SF-1
Independent Accountant's Report...........................................................................SF-2
Balance Sheets at June 30, 1998 (unaudited) and December 31, 1997 and 1996................................SF-3
Statements of Income for Six Months ended June 30, 1998 and 1997 (unaudited)
and Years Ended December 31, 1997 and 1996................................................................SF-4
Statements of Changes in Stockholders' Equity for Six Months Ended June 30, 1998
and 1997 (unaudited), and Years Ended December 31, 1997 and 1996..........................................SF-5
Statements of Cash Flow for the Six Months Ended June 30, 1998 and 1997 (unaudited)
and Years Ended December 31, 1997 and 1996................................................................SF-6
Notes to Financial Statements.............................................................................SF-8
</TABLE>
105
<PAGE> 116
<TABLE>
<CAPTION>
<S> <C>
LIBERTY BANCSHARES, INC. AND SUBSIDIARIES PRO-FORMA CONDENSED, CONSOLIDATED
FINANCIAL STATEMENTS...............................................................................................PF-1
Pro-forma Condensed, Consolidated Balance Sheet at June 30, 1998 (unaudited)..............................PF-2
Pro-forma Condensed, Consolidated Statements of Income for
Six Months Ended June 30, 1998 (unaudited)................................................................PF-3
Pro-forma Condensed, Consolidated Statements of Income
for Twelve Months Ended December 31, 1997 (unaudited).....................................................PF-4
Notes to Pro-form Condensed, Consolidated Financial Statements............................................PF-5
</TABLE>
<PAGE> 117
INDEX TO FINANCIAL STATEMENTS OF LIBERTY BANCSHARES, INC. AND SUBSIDIARY
<TABLE>
<S> <C>
Independent Accountants' Report...........................................................................LF-2
Consolidated Balance Sheets June 30, 1998 and December 31, 1997 and 1996..................................LF-3
Consolidated Statements of Income.........................................................................LF-4
Consolidated Statements of Changes in Stockholders' Equity................................................LF-5
Consolidated Statements of Cash Flows.....................................................................LF-6
Notes to Consolidated Financial Statements................................................................LF-8
</TABLE>
LF-1
<PAGE> 118
[BAIRD, KURTZ & DOBSON LETTERHEAD]
Independent Accountants' Report
Board of Directors
Liberty Bancshares, Inc.
and Subsidiary
Springfield, Missouri
We have audited the accompanying consolidated balance sheets of LIBERTY
BANCSHARES, INC. AND SUBSIDIARY as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the years ended December 31, 1997 and 1996, and for the 65-day
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on 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 includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LIBERTY
BANCSHARES, INC. AND SUBSIDIARY as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the two years ended
December 31, 1997 and 1996, and for the 65-day period ended December 31, 1995,
in conformity with generally accepted accounting principles.
/s/ Baird, Kurtz & Dobson
Springfield, Missouri
February 27, 1998
LF-2
<PAGE> 119
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
June 30,
1998 December 31,
---------------- ------------------------------------
(Unaudited) 1997 1996
---- ----
<S> <C> <C> <C>
Cash $ 858,459 $ 362,519 $ 206,238
Due from banks 10,818,783 4,410,937 1,800,015
Securities purchased under agreements to resell -- 7,600,000 6,100,000
Federal funds sold -- 772,710 350,000
---------------- ---------------- -----------------
Cash and cash equivalents 11,677,242 13,146,166 8,456,253
Available-for-sale securities 16,172,212 12,264,610 1,448,052
Mortgage loans held for sale 470,828 625,000 587,000
Loans, net of allowance for loan losses 79,028,525 51,129,119 19,284,811
Premises and equipment, net 3,000,355 2,204,038 1,599,584
Interest receivable 744,725 455,783 120,606
Deferred income taxes 181,581 53,869 --
Other 186,531 146,730 93,432
---------------- ---------------- -----------------
Total Assets $ 111,461,999 $ 80,025,315 $ 31,589,738
================ ================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand deposits $ 14,308,981 $ 11,032,300 $ 4,874,735
Savings, NOW and money market deposits 20,396,181 16,277,598 8,003,295
Time deposits 55,790,011 37,274,872 14,430,677
---------------- ---------------- -----------------
Total Deposits 90,495,173 64,584,770 27,308,707
Securities sold under agreements to repurchase 8,481,801 7,200,361 600,000
Federal funds purchased 1,488,567 -- --
Note payable 4,125,000 2,500,000 --
Accrued interest payable 387,232 250,463 89,471
Income taxes payable 154,701 181,241 2,722
Deferred income taxes -- -- 18,000
Accrued expenses and other liabilities 7,382 20,328 11,582
---------------- ---------------- -----------------
Total Liabilities 105,139,856 74,737,163 28,030,482
---------------- ---------------- -----------------
STOCKHOLDERS' EQUITY
Capital stock
Class A common; June 30, 1998, par value $1 a share,
authorized 556,090 shares, issued 511,090 shares;
December 31, 1997, par value $5 a share, authorized
505,280 shares, issued 470,280 shares; December 31,
1996, par value $5 a share authorized 360,000 shares,
issued 345,000 shares 511,090 2,351,400 1,725,000
Additional paid-in capital 5,256,480 2,773,600 1,725,000
Retained earnings 563,937 271,330 105,045
Treasury stock, at cost; June 30, 1998 and
December 31, 1997 - 10,000 shares -- (107,830) --
Accumulated other comprehensive income -
unrealized appreciation (depreciation) on
available-for-sale securities, net of income taxes (9,364) (348) 4,211
---------------- ---------------- -----------------
Total Stockholders' Equity 6,322,143 5,288,152 3,559,256
---------------- ---------------- -----------------
Total Liabilities and Stockholders' Equity $ 111,461,999 $ 80,025,315 $ 31,589,738
================ ================ =================
</TABLE>
See Notes to Consolidated Financial Statements
LF-3
<PAGE> 120
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
June 30, December 31,
------------------------------ ------------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 2,955,737 $ 1,177,587 $3,130,609 $ 995,765 $ 38,161
Available-for-sale securities 426,467 78,848 283,400 63,687 5,188
Federal funds sold and securities
purchased under agreements to resell 161,677 199,616 533,891 324,158 59,128
Deposits with banks -- -- -- -- 95,758
---------------- ------------ ---------- --------- ---------
3,543,881 1,456,051 3,947,900 1,383,610 198,235
---------------- ------------ ---------- --------- ---------
INTEREST EXPENSE
Deposits 1,728,084 720,466 1,926,555 639,642 40,364
Federal funds purchased and securities
sold under agreements to repurchase 140,620 28,842 120,640 35,464 815
Notes payable 84,055 8,038 83,756 -- --
---------------- ------------ ---------- --------- ---------
1,952,759 757,346 2,130,951 675,106 41,179
---------------- ------------ ---------- --------- ---------
NET INTEREST INCOME 1,591,122 698,705 1,816,949 708,504 157,056
PROVISION FOR LOAN LOSSES 226,800 72,000 447,000 70,800 6,000
---------------- ------------ ---------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,364,322 626,705 1,369,949 637,704 151,056
---------------- ------------ ---------- --------- ---------
NONINTEREST INCOME
Service charges and fees 166,917 67,832 170,981 43,191 1,064
Other income 3,683 2,257 30,517 3,587 22
---------------- ------------ ---------- --------- ---------
170,600 70,089 201,498 46,778 1,086
---------------- ------------ ---------- --------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits 649,429 271,434 671,290 258,516 77,801
Net occupancy expense 44,507 29,568 67,795 45,225 7,384
Equipment expense 59,868 33,825 80,828 45,017 3,859
Deposit assessments and fees 11,196 4,214 13,603 5,039 --
Other operating expenses 331,815 137,111 454,646 197,777 48,061
---------------- ------------ ---------- --------- ---------
1,096,815 476,152 1,288,162 551,574 137,105
---------------- ------------ ---------- --------- ---------
INCOME BEFORE INCOME TAXES 438,107 220,642 283,285 132,908 15,037
PROVISION FOR INCOME TAXES 145,500 83,000 117,000 39,200 3,700
---------------- ------------ ---------- --------- ---------
NET INCOME 292,607 137,642 166,285 93,708 11,337
OTHER COMPREHENSIVE INCOME
Unrealized appreciation (depreciation)
on available-for-sale securities, net
of income taxes of ($5,342) and ($3,093) for
June 30, 1998 and 1997, and ($2,690)
and $2,484 for December 31, 1997
and 1996 (9,016) (5,266) (4,559) 4,211 --
---------------- ------------ ---------- --------- ---------
COMPREHENSIVE INCOME $ 283,591 $ 132,376 $ 161,726 $ 97,919 $ 11,337
================ ============ ========== ========= =========
BASIC EARNINGS PER SHARE $ .60 $ .41 $ .42 $ .27 $ .03
================ =========== =========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
LF-4
<PAGE> 121
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income -
Appreciation
(Depreciation)
Additional on Available-
Common Paid-in Retained Treasury for-Sale
Stock Capital Earnings Stock Securities, Net Total
----- ------- -------- ----- --------------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, INCEPTION $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Issuance of common stock
for cash 1,725,000 1,725,000 -- -- -- 3,450,000
Net income -- -- 11,337 -- -- 11,337
------------- ------------- -------------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1995 1,725,000 1,725,000 11,337 -- -- 3,461,337
Net income -- -- 93,708 -- -- 93,708
Change in unrealized
appreciation on
available-for-sale
securities,
net of income taxes -- -- -- -- 4,211 4,211
------------- ------------- -------------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1996 1,725,000 1,725,000 105,045 -- 4,211 3,559,256
Issuance of common stock
for cash 626,400 1,048,600 -- -- -- 1,675,000
Net income -- -- 166,285 -- -- 166,285
Treasury stock purchased -- -- -- (107,830) -- (107,830)
Change in unrealized
depreciation on
available-for-sale
securities, net of
income taxes -- -- -- -- (4,559) (4,559)
------------- ------------- -------------- -------------- -------------- --------------
BALANCE, DECEMBER 31, 1997 2,351,400 2,773,600 271,330 (107,830) (348) 5,288,152
Issuance of common stock
for cash (unaudited) 254,050 496,350 -- -- -- 750,400
Net income (unaudited) -- -- 292,607 -- -- 292,607
Retirement of treasury
stock (unaudited) (107,830) -- -- 107,830 -- --
Change in par value of
stock outstanding
(unaudited) (1,986,530) 1,986,530 -- -- -- --
Change in unrealized
depreciation on
available-for-sale
securities, net of
income taxes (unaudited) -- -- -- -- (9,016) (9,016)
------------- ------------- -------------- -------------- -------------- --------------
BALANCE, JUNE 30, 1998
(UNAUDITED) $ 511,090 $ 5,256,480 $ 563,937 $ -- $ (9,364) $ 6,322,143
============= ============= ============== ============== ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
LF-5
<PAGE> 122
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
June 30, December 31,
-------------------------------- ---------------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 292,607 $ 137,642 $ 166,285 $ 93,708 $ 11,337
Originations of loans held for sale (7,693,600) (2,179,400) (6,288,000) (1,074,000) --
Proceeds of loans held for sale 7,894,872 2,766,400 6,250,000 487,000 --
Items not requiring (providing) cash:
Depreciation and amortization 46,389 24,489 78,660 42,940 3,144
Provision for loan losses 226,800 72,000 447,000 70,800 6,000
Amortization of premiums and discounts on
securities (3,339) 956 (2,864) (314) (2,553)
Deferred income taxes (122,370) (27,657) (71,713) 15,000 3,000
Gain on sale of loans (47,100) -- (71,373) -- --
Gain on sale of premises and equipment -- -- (22,666) -- --
Changes in:
Accrued interest receivable (288,942) (129,388) (335,177) (98,691) (21,915)
Prepaid expenses and other (39,801) 19,465 (51,989) (20,778) (77,412)
Accrued interest payable 136,769 64,434 160,992 68,117 21,354
Accounts payable and accrued expenses (12,946) 4,054 8,746 (15,127) 26,709
Income taxes payable (receivable) (26,540) 113,387 178,519 2,022 700
--------------- --------------- --------------- --------------- -----------
Net cash provided by (used in)
operating activities 362,799 866,382 446,420 (429,323) (29,636)
--------------- --------------- --------------- --------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net originations of loans (28,126,206) (16,526,034) (40,149,252) (14,927,187) (4,434,424)
Proceeds from sales of loans -- -- 7,929,317 -- --
Purchase of premises and equipment (842,706) (256,434) (822,583) (1,002,112) (638,798)
Proceeds from sales of premises and
equipment -- -- 165,826 -- --
Proceeds from maturities of
available-for-sale securities 1,900,000 600,000 350,000 700,000 --
Proceeds from sales of available-for-sale
securities -- -- 500,000 -- --
Purchases of available-for-sale securities (5,818,621) (2,804,358) (11,668,409) (1,451,089) (689,885)
Investment in trust company -- -- (5,000) -- --
--------------- --------------- --------------- --------------- -----------
Net cash used in investing activities (32,887,533) (18,986,826) (43,700,101) (16,680,388) (5,763,107)
--------------- --------------- --------------- --------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, money
market, NOW and savings deposits 7,395,264 7,046,474 14,431,868 7,853,403 5,024,627
Net increase in time deposits 18,515,139 8,952,114 22,844,195 11,245,232 3,185,445
Proceeds from notes payable 1,625,000 1,500,000 2,500,000 -- --
Proceeds from issuance of common stock 750,400 -- 1,675,000 -- 3,450,000
Purchase of treasury stock -- (107,830) (107,830) -- --
Net increase in federal funds purchased 1,488,567 -- -- -- --
Net increase in securities sold under
agreements to repurchase 1,281,440 1,584,164 6,600,361 100,008 499,992
--------------- --------------- --------------- --------------- -----------
Net cash provided by financing
activities 31,055,810 18,974,922 47,943,594 19,198,643 12,160,064
--------------- --------------- --------------- --------------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
LF-6
<PAGE> 123
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
June 30, December 31,
-------------------------------- ---------------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $(1,468,924) $ 854,478 $ 4,689,913 $ 2,088,932 $6,367,321
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 13,146,166 8,456,253 8,456,253 6,367,321 0
----------- ----------- ----------- ----------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $11,677,242 $ 9,310,731 $13,146,166 $ 8,456,253 $6,367,321
=========== =========== =========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
LF-7
<PAGE> 124
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF OPERATIONS
Liberty Bancshares, Inc. (the Company) operates as a one-bank holding
company. Liberty Bank (the Bank) opened for business on October 27, 1995, and is
primarily engaged in providing a full range of banking and mortgage services to
individual and corporate customers in southwest Missouri. The Bank is subject to
competition from other financial institutions. The Bank also is subject to the
regulation of certain federal and state agencies and undergoes periodic
examinations by those regulatory authorities.
The consolidated financial statements as of June 30, 1998, and for the
periods ended June 30, 1998 and 1997, are unaudited, but in the opinion of
management, include all adjustments, consisting only of normal, recurring items,
necessary for fair presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowance for loan losses and
the valuation of foreclosed assets held for sale, management obtains independent
appraisals for significant properties.
Management believes that the allowances for losses on loans are adequate.
While management uses available information to recognize losses on loans,
changes in economic conditions may necessitate revision of these estimates in
future years. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowances for losses
on loans. Such agencies may require the Bank to recognize additional losses
based on their judgments of information available to them at the time of their
examination.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Liberty
Bancshares, Inc. and its 100%-owned subsidiary, Liberty Bank. Significant
intercompany accounts and transactions have been eliminated in consolidation.
CASH EQUIVALENTS
The Bank considers all liquid investments with original maturities of three
months or less to be cash equivalents. At December 31, 1997 and 1996, cash
equivalents consisted of federal funds sold and securities purchased under
agreements to resell.
LF-8
<PAGE> 125
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Available-for-sale securities, which include any security for which the Bank
has no immediate plan to sell but which may be sold in the future, are carried
at fair value. Realized gains and losses, based on specifically identified
amortized cost of the specific security, are included in other income.
Unrealized gains and losses are recorded, net of related income tax effects, in
stockholders' equity. Premiums and discounts are amortized and accreted,
respectively, to interest income using the level-yield method over the period to
maturity. The Bank has classified all of its investment securities as
available-for-sale.
Interest and dividends on investments in debt and equity securities are
included in income when earned.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of cost or fair value,
determined using an aggregate basis. Write-downs to fair value are recognized as
a charge to earnings at the time the decline in value occurs. Forward
commitments to sell mortgage loans are acquired to reduce market risk on
mortgage loans in the process of origination and mortgage loans held for sale.
Amounts paid to investors to obtain forward commitments are deferred until such
time as the related loans are sold. The fair values of the forward commitments
are not recognized in the financial statements. Gains and losses resulting from
sales of mortgage loans are recognized when the respective loans are sold to
investors. Gains and losses are determined by the difference between the selling
price and the carrying amount of the loans sold, net of discounts collected or
paid, commitment fees paid and considering a normal servicing rate. Fees
received from borrowers to guarantee the funding of mortgage loans held for sale
and fees paid to investors to ensure the ultimate sale of such mortgage loans
are recognized as income or expense when the loans are sold or when it becomes
evident that the commitment will not be used.
LOANS
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-offs are reported at their outstanding principal
adjusted for any charge-offs, the allowance for loan losses and any deferred
fees or costs on originated loans and unamortized premiums or discounts on
purchased loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to expense
and reduced by loans charged off, net of recoveries. The allowance is maintained
at a level considered adequate to provide for potential loan losses, based on
management's evaluation of the loan portfolio, as well as on prevailing and
anticipated economic conditions and historical losses by loan category. General
allowances have been established, based upon the aforementioned factors, and
allocated to the individual loan categories. Allowances are accrued on specific
loans evaluated for impairment for which the basis of each loan, including
accrued interest, exceeds the discounted amount of expected future collections
of interest and principal or, alternatively, the fair value of loan collateral.
A loan is considered impaired when it is probable that the Bank will not
receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more (nonaccrual loans) and
certain other loans identified by management. Accrual of interest is
discontinued, and interest accrued and unpaid is removed, at the time such
amounts are delinquent 90 days. Interest is recognized for nonaccrual loans only
upon receipt, and only after all principal amounts are current according to the
terms of the contract.
LF-9
<PAGE> 126
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
PREMISES AND EQUIPMENT
Depreciable assets are stated at cost less accumulated depreciation.
Depreciation is charged to expense using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are capitalized and
amortized using the straight-line method over the terms of the respective leases
or the estimated useful lives of the improvements, whichever is shorter.
FEE INCOME
Loan origination fees, net of direct origination costs, are recognized as
income over the term of the loans.
EARNINGS PER SHARE
Effective December 15, 1997, the Company adopted the provisions of SFAS No.
128, Earnings Per Share (EPS), which requires dual presentation of basic and
diluted EPS for all entities with complex capital structures. Basic earnings per
share is computed based on the weighted average number of shares outstanding
during each year. Diluted earnings per share is computed using the weighted
average common shares and all potential dilutive common shares outstanding
during the period.
The computation of per share earnings is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
---------------------------- -------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net income $ 292,607 $ 137,642 $ 166,285 $ 93,708 $ 11,337
============ =========== ============ ============ ===========
Average common shares outstanding 489,190 336,160 393,900 345,000 345,000
Average common share stock options outstanding 2,344 2,194 2,831 1,123 1,013
------------ ----------- ------------ ------------ -----------
Average diluted common shares 491,534 338,354 396,731 346,123 346,013
============ =========== ============ ============ ===========
Basic earnings per share $ .60 $ .41 $ .42 $ .27 $ .03
============ =========== ============ ============ ===========
Diluted earnings per share $ .60 $ .41 $ .42 $ .27 $ .03
============ =========== ============ ============ ===========
</TABLE>
Subsequent to December 31, 1997, the Company declared a 10 for 1 stock split
effective in the form of a dividend on the outstanding common stock of the
Company. Historical per share disclosures have been updated where applicable to
account for the stock split.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the tax effect of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.
LF-10
<PAGE> 127
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
ADOPTION OF NEW ACCOUNTING STANDARD
During the period ended June 30, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" by reclassification of all prior periods presented.
NOTE 2: INVESTMENTS IN DEBT SECURITIES
The amortized cost and approximate fair value of available-for-sale
securities are as follows:
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 599,949 $ -- $ 75 $ 599,874
U.S. government agencies 10,437,349 18,200 10,339 10,445,210
State and political subdivisions 1,227,816 -- 8,290 1,219,526
----------------- ----------------- ----------------- -----------------
$ 12,265,114 $ 18,200 $ 18,704 $ 12,264,610
================= ================= ================= =================
<CAPTION>
December 31, 1996
---------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 849,199 $ 903 $ 1,318 $ 848,784
U.S. government agencies 594,642 4,626 -- 599,268
----------------- ----------------- ----------------- -----------------
$ 1,443,841 $ 5,529 $ 1,318 $ 1,448,052
================= ================= ================= =================
</TABLE>
Maturities of available-for-sale debt instruments at December 31, 1997:
<TABLE>
<CAPTION>
Amortized Approximate
Cost Fair Value
----------------- -----------------
<S> <C> <C>
One year or less $ 1,099,809 $ 1,100,029
After one through five years 9,937,489 9,945,054
After ten years 1,227,816 1,219,527
----------------- -----------------
$ 12,265,114 $ 12,264,610
================= =================
</TABLE>
The book value of securities pledged as collateral to secure public deposits
amounted to $3,988,000 and $749,300 at December 31, 1997 and 1996, respectively.
The approximate fair value of pledged securities amounted to $3,989,000 at
December 31, 1997, and $752,000 at December 31, 1996.
LF-11
<PAGE> 128
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
The book value of securities sold under agreements to repurchase amounted to
$7,586,000 and $593,700 at December 31, 1997 and 1996, respectively (see Note
7).
There were no gains or losses realized from sales of available-for-sale
securities for the years ended December 31, 1997 and 1996, and for the 65-day
period ended December 31, 1995.
NOTE 3: SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Securities purchased under agreements to resell at December 31, 1997 and
1996, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
State and political subdivision securities with
an estimated fair value of $5,146,000 $ -- $ 5,100,000
U.S. government securities with an estimated
fair value of $7,589,000 and $997,600, respectively 7,600,000 1,000,000
------------------- -------------------
$ 7,600,000 $ 6,100,000
=================== ===================
</TABLE>
The Bank enters into purchases of securities under agreements to resell. The
amounts advanced under these agreements represent short-term loans and are
reflected as a receivable in the balance sheet. The securities underlying the
agreements are book-entry securities. During the period, the securities were
delivered by appropriate entry into a third-party custodian's account designated
by the Bank under a written custodial agreement that explicitly recognizes the
Bank's interest in the securities. These agreements mature on demand. At
December 31, 1997 and 1996, all agreements to resell securities purchased were
with one correspondent bank. Securities purchased under agreements to resell
averaged $8,010,000 and $5,327,000 during 1997 and 1996, and the maximum amount
outstanding at any month end during 1997 and 1996 was $12,520,000 and
$6,900,000, respectively.
NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, 1997 and 1996, include:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Commercial $ 9,803,933 $ 3,452,940
Real estate construction and development 7,052,362 2,787,188
Commercial real estate and agricultural 23,464,589 9,054,430
Residential real estate 8,694,785 3,501,261
Consumer 2,594,039 548,578
Other 43,211 17,214
------------------- -------------------
Total loans 51,652,919 19,361,611
Less: Allowance for loan losses 523,800 76,800
------------------- -------------------
Net loans $ 51,129,119 $ 19,284,811
=================== ===================
</TABLE>
LF-12
<PAGE> 129
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
Loans sold and serviced for others totaled $5,212,984 and $6,967,120 at
December 31, 1997 and 1996, respectively. The Bank has not had any loans
considered impaired since inception.
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of period $ 76,800 $ 6,000 $ 0
Provision charged to expense 447,000 70,800 6,000
------------------- ------------------- -------------------
Balance, end of period $ 523,800 $ 76,800 $ 6,000
=================== =================== ===================
</TABLE>
NOTE 5: PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost, at December
31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 632,340 $ 734,753
Buildings and improvements 956,629 489,759
Vehicles 101,415 53,591
Equipment 629,949 362,807
------------------- -------------------
2,320,333 1,640,910
Less accumulated depreciation 116,295 41,326
------------------- -------------------
Net premises and equipment $ 2,204,038 $ 1,599,584
=================== ===================
</TABLE>
Depreciation expense totaled $74,969 and $38,182 for the years ended December
31, 1997 and 1996, and $3,144 for the 65-day period ended December 31, 1995.
NOTE 6: INTEREST BEARING TIME DEPOSITS
Interest bearing time deposits in denominations of $100,000 or more were
$18,946,000 and $7,813,000 on December 31, 1997 and 1996, respectively.
At December 31, 1997, the scheduled maturities of certificates of deposit are
as follows:
<TABLE>
<S> <C>
1998 $ 30,411,000
1999 6,000,000
2000 510,000
Thereafter 353,872
-----------------
$ 37,274,872
=================
</TABLE>
LF-13
<PAGE> 130
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
NOTE 7: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Bank enters into sales of securities under agreements to repurchase.
These agreements are treated as financings, and the obligations to repurchase
securities sold are reflected as a liability in the balance sheet. The dollar
amount of securities underlying the agreements remains in the asset accounts.
Securities sold under agreements to repurchase totaled $7,200,361 and $600,000
at December 31, 1997 and 1996, respectively. At December 31, 1997 and 1996, no
material amount of agreements to repurchase securities sold was outstanding with
any individual dealer. Securities sold under agreements to repurchase averaged
$2,392,000 and $551,800 during 1997 and 1996, and the maximum amount outstanding
at any month end during 1997 and 1996 was $10,645,000 and $950,200,
respectively.
NOTE 8: NOTE PAYABLE
The note payable to bank, secured by 34,000 shares of Liberty Bank, is due
December 24, 1998, with interest payable quarterly and rates adjusted daily to
the then prime rate offered by Chase Manhattan in New York, which as adjusted at
December 31, 1997, was 8.50%.
NOTE 9: INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Taxes currently payable $ 188,713 $ 24,200 $ 700
Deferred income taxes (71,713) 15,000 3,000
------------------- ------------------- -------------------
$ 117,000 $ 39,200 $ 3,700
=================== =================== ===================
</TABLE>
The tax effects of temporary differences related to deferred taxes shown on
the balance sheets were:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 121,500 $ 23,800
Unrealized depreciation on available-for-sale securities 156 --
------------------- -------------------
121,656 23,800
Deferred tax liability:
Accumulated depreciation (67,787) (41,800)
------------------- -------------------
Net deferred tax liability $ 53,869 $ (18,000)
=================== ===================
</TABLE>
LF-14
<PAGE> 131
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
A reconciliation of income tax expense at the statutory rate to the Bank's
actual income tax expense is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed at the statutory rate (34%) $ 96,300 $ 45,200 $ 5,100
Increase (decrease) resulting from:
Nondeductible officers' life insurance costs 1,100 1,000 --
Nondeductible expenses 3,800 1,300 --
State income taxes - net of federal tax
benefit 19,500 6,800 300
Graduated rates -- (14,900) (1,700)
Other (3,700) (200) --
------------------- ------------------- -------------------
Actual tax provision $ 117,000 $ 39,200 $ 3,700
=================== =================== ===================
</TABLE>
NOTE 10: REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possible additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are also presented in the table.
LF-15
<PAGE> 132
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollar Amounts In Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Risk Based Capital
(to Risk Weighted Assets) $8,114 15.8% $4,109 8.0% $5,136 10.0%
Tier I Capital
(to Risk Weighted Assets) 7,590 14.8% 2,055 4.0% 3,082 6.0%
Tier I Capital
(to Average Assets) 7,590 10.4% 2,920 4.0% 3,650 5.0%
As of December 31, 1996:
Total Risk Based Capital
(to Risk Weighted Assets) 3,579 12.9% 2,226 8.0% 2,783 10.0%
Tier I Capital
(to Risk Weighted Assets) 3,502 12.6% 1,113 4.0% 1,670 6.0%
Tier I Capital
(to Average Assets) 3,502 12.7% 1,105 4.0% 1,381 5.0%
</TABLE>
Additionally, the Bank is subject to certain restrictions on the amount of
dividends that it may pay without prior regulatory approval. Currently, the Bank
may not pay dividends which would reduce Tier I Capital below 10.0%.
Subsequent to December 31, 1997, the Company's Board of Directors voted to
inject additional capital of $750,400 into the Bank during 1998.
NOTE 11: STOCK OPTION PLAN
Under the Company's stock option plan, 15,000 shares of common stock were
reserved for issuance upon exercise of options granted to officers and key
employees. The plan basically provides that the option price will be no less
than fair market value of the stock at the date of the grant. Options granted
are exercisable immediately after the date of grant and expire October 27, 2006.
A summary of the status of the plan at December 31, 1997 and 1996, and
changes during the periods then ended is presented below:
LF-16
<PAGE> 133
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996
----------------------------- ---------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C>
Outstanding, Beginning of Year 5,000 $ 10 -- $ --
Granted 3,500 13 5,000 10
----- -------- ----- --------
Outstanding, End of Year 8,500 $ 11 5,000 $ 10
===== ======== ===== ========
Options Exercisable, End of Year 8,500 $ 11 5,000 $ 10
===== ======== ===== ========
</TABLE>
The fair value of each option granted is estimated on the date of the grant
using the minimum value method with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Dividends per share -- --
Risk-Free Interest Rate 6% 6%
Expected Life of Options 8.75 years 10 years
Weighted Average Fair Value of
Options Granted During the Year $5.15 $4.42
</TABLE>
The following table summarizes information about stock options under the plan
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Weighted- Weighted- Weighted-
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
--------------- ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$10 5,000 8.8 years $10 5,000 $10
$13 3,500 8.8 years $13 3,500 $13
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in accounting
for the plan, and no compensation cost has been recognized. Had compensation
cost for the Company's Plan been determined based on the fair value at the grant
dates using Statement of Financial Accounting Standards No. 123, the Company's
net income would have decreased by $13,600 and $14,600 and earnings per share
would have decreased by $.03 and $.04 for 1997 and 1996, respectively. The
effects of applying this statement for either recognizing compensation cost or
providing pro forma disclosures are not likely to be representative of the
effects on reported net income for future years because options vest over
several years and additional awards generally are made each year.
LF-17
<PAGE> 134
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
NOTE 12: TRANSACTIONS WITH RELATED PARTIES
At December 31, 1997 and 1996, the Bank had loans outstanding to employees,
executive officers, directors and companies in which the bank's executive
officers or directors were principal owners, in the amount of $11,862,000 and
$3,042,000, respectively.
A reconciliation of the activity in these loans for the year ended December
31, 1997, is as follows:
<TABLE>
<S> <C>
Balance, beginning of year $ 3,042,000
Loans originated 11,868,000
Loans paid (3,048,000)
---------------
Balance, end of year $ 11,862,000
===============
</TABLE>
In management's opinion, such loans and other extensions of credit and
deposits were made in the ordinary course of business and were made on
substantially the same terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with other persons. Further,
in management's opinion, these loans did not involve more than normal risk of
collectibility or present other unfavorable features.
NOTE 13: ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
ADDITIONAL CASH PAYMENT INFORMATION
Interest paid $1,969,959 $607,354 $19,460
Income taxes paid $13,468 $21,832 --
</TABLE>
NOTE 14: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations.
Estimates related to the allowance for loan losses are reflected in the footnote
regarding loans. Current vulnerabilities due to certain concentrations of credit
risk are discussed in the footnote on commitments and credit risk.
NOTE 15: COMMITMENTS AND CREDIT RISK
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since a portion of the commitments may expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. Each customer's credit worthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, is
based on management's credit evaluation of the counterparty. Collateral held
varies, but may include accounts receivable, inventory, property, plant and
equipment, commercial real estate and residential real estate.
At December 31, 1997 and 1996, the Bank had outstanding commitments to
originate loans aggregating approximately $3,927,000 and $4,110,000,
respectively. The commitments extended over varying periods of time with the
majority being disbursed within a one-year period.
LF-18
<PAGE> 135
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
Letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. Those guarantees are primarily
issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
The Bank had total outstanding letters of credit amounting to $218,000 and
$846,000 at December 31, 1997 and 1996, with terms ranging from 30 days to 24
months.
Lines of credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Lines of credit
generally have fixed expiration dates. Since a portion of the line may expire
without being drawn upon, the total unused lines do not necessarily represent
future cash requirements. Each customer's credit worthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, is
based on management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property, plant and
equipment, commercial real estate and residential real estate. Management uses
the same credit policies in granting lines of credit as it does for on-balance
sheet instruments.
At December 31, 1997 and 1996, the Bank had granted unused lines of credit to
borrowers aggregating approximately $2,927,000 and $797,000, respectively, for
commercial lines and open-end consumer lines.
NOTE 16: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term instruments, the carrying amount approximates fair
value.
INVESTMENT SECURITIES
Fair values for investment securities equal quoted market prices, if
available. If quoted market prices are not available, fair values are estimated
based on quoted market prices of similar securities.
LOANS
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. Loans with similar
characteristics were aggregated for purposes of the calculations. The carrying
amount of accrued interest receivable approximates its fair value.
DEPOSITS
The fair value of demand deposits, savings accounts, NOW accounts and certain
money market deposits is the amount payable on demand at the reporting date
(i.e., their carrying amount). The fair value of fixed-maturity time deposits is
estimated using a discounted cash flow calculation that applies the rates
currently offered for deposits of similar remaining maturities. The carrying
amount of accrued interest payable approximates its fair value.
LF-19
<PAGE> 136
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
NOTE PAYABLE
Rates currently available to the Bank for debt with similar terms and
remaining maturities are used to estimate fair value of the existing note
payable.
LETTERS OF CREDIT AND LINES OF CREDIT
The fair value of letters of credit and lines of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate
or otherwise settle the obligations with the counterparties at the reporting
date.
The following table presents estimated fair values of the Company's financial
instruments. The fair values of certain of these instruments were calculated by
discounting expected cash flows, which method involves significant judgments by
management and uncertainties. Fair value is the estimated amount at which
financial assets or liabilities could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Because no
market exists for certain of these financial instruments and because management
does not intend to sell these financial instruments, the Company does not know
whether the fair values shown below represent values at which the respective
financial instruments could be sold individually or in the aggregate.
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------
Carrying
Amount Fair Value
------ ----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $13,146,166 $13,146,166
Available-for-sale securities 12,264,610 12,264,610
Interest receivable 455,783 455,783
Loans held for sale 625,000 625,000
Loans, net of allowance for loan losses 51,129,119 51,173,000
Financial liabilities:
Deposits 64,584,770 64,652,000
Securities sold under agreements to repurchase 7,200,361 7,200,361
Note payable 2,500,000 2,500,000
Interest payable 250,463 250,463
Unrecognized financial instruments (net of contract amount):
Letters of credit -- --
Lines of credit -- --
Loan commitments -- --
</TABLE>
LF-20
<PAGE> 137
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
NOTE 17: CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheets at December 31, 1998 and 1997, and statements of
income and cash flows for the years ended December 31, 1998 and 1997, and the 65
days ended December 31, 1995, for the parent company, Liberty Bancshares, Inc.,
are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
BALANCE SHEETS
Assets
Cash $ 129,602 $ 17,656
Investment in subsidiary bank 7,589,931 3,502,290
Other 68,619 39,310
------------------- -------------------
$ 7,788,152 $ 3,559,256
=================== ===================
Liabilities and Stockholders' Equity
Note payable $ 2,500,000 $ --
Common stock 2,351,400 1,725,000
Additional paid-in capital 2,773,600 1,725,000
Retained earnings 271,330 105,045
Treasury stock (107,830) --
Accumulated other comprehensive income -
unrealized appreciation (depreciation) on
available-for-sale securities, net (348) 4,211
------------------- -------------------
$ 7,788,152 $ 3,559,256
=================== ===================
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
STATEMENTS OF INCOME
Income
Interest income $ 2,236 $ 948 $ 95,758
------------------- ------------------- -------------------
Total income 2,236 948 95,758
------------------- ------------------- -------------------
Expense
Operating expenses 13,395 12,258 70,982
Interest expense 83,756 -- --
------------------- ------------------- -------------------
Total expenses 97,151 12,258 70,982
------------------- ------------------- -------------------
Income (loss) before income taxes and equity in
undistributed earnings of subsidiary (94,915) (11,310) 24,776
Provision (credit) for income taxes (33,000) 300 6,200
------------------- ------------------- -------------------
Income before equity in earnings of subsidiary (61,915) (11,610) 18,576
Equity in undistributed earnings of subsidiary 228,200 105,318 (7,239)
------------------- ------------------- -------------------
Net Income $ 166,285 $ 93,708 $ 11,337
=================== =================== ===================
</TABLE>
LF-21
<PAGE> 138
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND 65 DAYS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
STATEMENTS OF CASH FLOWS
Cash Flows from Operating Activities
Net income $ 166,285 $ 93,708 $ 11,337
Items not requiring (providing) cash
Amortization 3,691 4,758 --
Equity in earnings of subsidiary (228,200) (105,317) 7,238
Changes in:
Other assets (33,000) (6,191) 6,191
Income taxes payable -- (700) 700
------------------- ------------------- -------------------
Net cash provided by (used in)
operating activities (91,224) (13,742) 25,466
------------------- ------------------- -------------------
Cash Flows from Investing Activities
Investment in subsidiary (3,864,000 -- (3,400,000)
Capitalized organizational costs -- -- (44,068)
------------------- ------------------- -------------------
Net cash used in investing activities (3,864,000) -- (3,444,068)
------------------- ------------------- -------------------
Cash Flows from Financing Activities
Proceeds from note payable 2,500,000 -- --
Treasury stock purchased (107,830) -- --
Proceeds from issuance of common stock 1,675,000 -- 3,450,000
------------------- ------------------- -------------------
Net cash provided by financing activities 4,067,170 -- 3,450,000
------------------- ------------------- -------------------
Increase (decrease) in cash 111,946 (13,742) 31,398
Cash, Beginning of Year 17,656 31,398 --
------------------- ------------------- -------------------
Cash, End of Year $ 129,602 $ 17,656 $ 31,398
=================== =================== ===================
</TABLE>
LF-22
<PAGE> 139
SAC RIVER VALLEY BANK
Accountants' Report and
Financial Statements
December 31, 1997 and 1996
<PAGE> 140
INDEX TO FINANCIAL STATEMENTS OF SAC RIVER VALLEY BANK
Independent Accountants' Report............................................SF-2
Balance Sheets June 30, 1998 and December 31, 1997 and 1996................SF-3
Statements of Income.......................................................SF-4
Statements of Changes in Stockholders' Equity..............................SF-5
Statements of Cash Flows...................................................SF-6
Notes to Financial Statements..............................................SF-8
SF-1
<PAGE> 141
[BAIRD, KURTZ & DOBSON LETTERHEAD]
Independent Accountants' Report
Board of Directors
Sac River Valley Bank
Springfield, Missouri
We have audited the accompanying balance sheets of SAC RIVER VALLEY BANK as
of December 31, 1997 and 1996, and the related statements of income, changes in
stockholders' equity and cash flows for each of the years then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on 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 includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SAC RIVER VALLEY BANK as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the years then ended in conformity with generally accepted
accounting principles.
/s/ Baird, Kurtz & Dobson
Springfield, Missouri
May 13, 1998
SF-2
<PAGE> 142
SAC RIVER VALLEY BANK
BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
June 30,
1998 December 31,
---------- ----------------------------------
(Unaudited) 1997 1996
---- ----
<S> <C> <C> <C>
Cash $ 208,503 $ 239,342 $ 286,335
Due from banks 759,729 973,741 1,684,850
Securities purchased under agreements to resell 1,000,000 2,100,000 600,000
Federal funds sold 4,645,000 3,485,000 3,250,000
---------------- ---------------- ----------------
Cash and cash equivalents 6,613,232 6,798,083 5,821,185
Interest bearing deposits with banks 850,000 850,000 550,000
Available-for-sale securities 11,775,050 23,251,031 17,748,410
Held-to-maturity securities 5,442,585 6,444,524 5,036,475
Loans held for sale -- 15,812 257,055
Loans, net of allowance for loan losses 64,037,772 63,389,112 60,952,945
Premises and equipment, net 509,190 448,117 422,869
Foreclosed assets held for sale, net 50,811 4,013 44,544
Interest receivable 1,077,057 1,327,381 1,232,966
Deferred income taxes 187,336 182,554 179,450
Refundable income taxes 4,997 18,756 --
Other 395,973 315,012 289,114
---------------- ---------------- ----------------
Total Assets $ 90,944,003 $ 103,044,395 $ 92,535,013
================ ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand deposits $ 4,994,344 $ 5,127,563 $ 5,454,460
Savings, NOW and money market deposits 23,007,538 23,790,546 24,423,983
Time deposits 45,640,552 45,080,763 43,024,866
---------------- ---------------- ----------------
73,642,434 73,998,872 72,903,309
Securities sold under agreements to repurchase 1,177,808 14,875,049 8,751,000
Advances from Federal Home Loan Bank 4,500,000 2,500,000 --
Income taxes payable -- -- 51,973
Accrued interest and other liabilities 464,760 530,542 474,898
---------------- ---------------- ----------------
Total Liabilities 79,785,002 91,904,463 82,181,180
---------------- ---------------- ----------------
STOCKHOLDERS' EQUITY
Capital stock
Class A common, par value $30 a share,
authorized, issued and outstanding 10,000 shares 300,000 300,000 300,000
Additional paid-in capital 500,000 500,000 500,000
Retained earnings 10,341,561 10,314,351 9,530,649
---------------- ---------------- ----------------
11,141,561 11,114,351 10,330,649
Accumulated other comprehensive income - unrealized
appreciation on available-for-sale securities, net
of income taxes of $10,243 at June 30, 1998 and
$15,024 and $13,616 at December 31, 1997 and 1996,
respectively 17,440 25,581 23,184
---------------- ---------------- ----------------
Total Stockholders' Equity 11,159,001 11,139,932 10,353,833
---------------- ---------------- ----------------
Total Liabilities and Stockholders' Equity $ 90,944,003 $ 103,044,395 $ 92,535,013
================ ================ ================
</TABLE>
See Notes to Financial Statements
SF-3
<PAGE> 143
SAC RIVER VALLEY BANK
STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
June 30, December 31,
------------------------------- --------------------------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 2,826,310 $ 2,692,268 $ 5,469,502 $ 5,274,519
Available-for-sale securities 547,639 589,638 1,263,971 922,593
Held-to-maturity securities 164,083 140,794 290,110 309,963
Federal funds sold and securities purchased
under agreements to resell 157,974 103,649 302,333 376,198
Deposits with banks 24,337 38,748 32,431 44,744
--------------- --------------- --------------- ---------------
3,720,343 3,565,097 7,358,347 6,928,017
--------------- --------------- --------------- ---------------
INTEREST EXPENSE
Deposits 1,564,784 1,486,012 3,024,209 2,955,761
Federal funds purchased and
securities sold under agreements to repurchase 231,146 252,149 626,915 457,951
Advances from Federal Home
Loan Bank 83,555 -- -- --
--------------- --------------- --------------- ---------------
1,879,485 1,738,161 3,651,124 3,413,712
--------------- --------------- --------------- ---------------
NET INTEREST INCOME 1,840,858 1,826,936 3,707,223 3,514,305
PROVISION FOR LOAN LOSSES -- 30,000 30,000 70,000
--------------- --------------- --------------- ---------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,840,858 1,796,936 3,677,223 3,444,305
--------------- --------------- --------------- ---------------
NONINTEREST INCOME
Service charges and fees 164,743 131,721 267,196 226,592
Other income 40,752 18,464 36,254 50,706
--------------- --------------- --------------- ---------------
205,495 150,185 303,450 277,298
--------------- --------------- --------------- ---------------
NONINTEREST EXPENSE
Salaries and employee benefits 456,567 388,644 831,754 797,432
Net occupancy expense 21,257 18,367 44,860 34,877
Equipment expense 22,533 22,713 51,158 30,946
Deposit assessments and fees 4,546 6,317 10,933 2,000
Outside processing fees 91,795 72,560 305,382 135,978
Other operating expenses 153,145 214,646 361,984 294,943
--------------- --------------- --------------- ---------------
749,843 723,247 1,606,071 1,296,176
--------------- --------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 1,296,510 1,223,874 2,374,602 2,425,427
PROVISION FOR INCOME TAXES 469,300 433,100 790,900 799,300
--------------- --------------- --------------- ---------------
NET INCOME 827,210 790,774 1,583,702 1,626,127
OTHER COMPREHENSIVE INCOME
Unrealized appreciation (depreciation)
on available-for-sale securities,
net of income taxes of ($4,781) and ($4,124)
at June 30, 1998 and 1997 and $1,408 and
($26,079) at December 31, 1997 and 1996 (8,141) (7,021) 2,397 (44,405)
--------------- --------------- --------------- ---------------
COMPREHENSIVE INCOME $ 819,069 $ 783,753 $ 1,586,099 $ 1,581,722
=============== =============== =============== ===============
BASIC EARNINGS PER SHARE $ 82.72 $ 79.08 $ 158.37 $ 162.61
=============== ============== ============== ==============
</TABLE>
SF-4
<PAGE> 144
SAC RIVER VALLEY BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income -
Unrealized
Appreciation
(Depreciation)
Additional on Available-
Common Paid-in Retained for-Sale
Stock Capital Earnings Securities, Net Total
----- ---------- -------- --------------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 300,000 $ 500,000 $ 8,704,522 $ 67,589 $ 9,572,111
Net income -- -- 1,626,127 -- 1,626,127
Dividends on common stock, $80 per
share -- -- (800,000) -- (800,000)
Change in unrealized appreciation
on available-for-sale securities,
net of income taxes of $26,079 -- -- -- (44,405) (44,405)
------------ ------------ -------------- -------------- --------------
BALANCE, JANUARY 1, 1997 300,000 500,000 9,530,649 23,184 10,353,833
Net income -- -- 1,583,702 -- 1,583,702
Dividends on common stock, (800,000) -- (800,000)
$80 per share -- --
Change in unrealized appreciation
on available-for-sale securities, net
of income taxes of $1,408 -- -- -- 2,397 2,397
------------ ------------ -------------- -------------- --------------
BALANCE, DECEMBER 31, 1997 300,000 500,000 10,314,351 25,581 11,139,932
Net income (unaudited) -- -- 827,210 -- 827,210
Dividends on common stock, $80 per share -- -- (800,000) -- (800,000)
Change in unrealized appreciation
on available-for-sale securities,
net of income taxes of $4,781 -- -- -- (8,141) (8,141)
------------ ------------ -------------- -------------- --------------
BALANCE, JUNE 30, 1998
(UNAUDITED) $ 300,000 $ 500,000 $ 10,341,561 $ 17,440 $ 11,159,001
============ ============ ============== ============== ==============
</TABLE>
See Notes to Financial Statements
SF-5
<PAGE> 145
SAC RIVER VALLEY BANK
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
June 30, December 31,
----------------------------------- -----------------------------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 827,210 $ 790,774 $ 1,583,702 $ 1,626,127
Items not requiring (providing) cash:
Depreciation 19,070 17,790 43,267 24,636
Amortization of premiums and
discounts on securities (22,759) (18,309) 12,766 1,561
Provision for loan losses -- 30,000 30,000 70,000
Deferred income taxes -- (1,382) (4,512) (18,100)
Loss on sale of foreclosed assets -- 6,000 15,589 --
Origination of loans held for delivery
against commitments (3,207,751) (1,450,937) (2,075,453) (2,411,719)
Proceeds from sale of loans 3,238,632 1,634,223 2,557,939 2,074,105
Gain on loans sold (30,881) -- -- --
Changes in:
Accrued interest receivable 250,324 172,464 (94,415) (48,209)
Prepaid expenses (80,961) (26,892) (25,898) (42,105)
Accrued interest and other accrued
expenses (65,782) 5,054 55,644 36,827
Income taxes (payable) refundable 13,759 (15,431) (70,729) (11,364)
----------------- ----------------- ----------------- -----------------
Net cash provided by
operating activities 940,861 1,143,354 2,027,900 1,301,759
----------------- ----------------- ----------------- -----------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Net (originations) repayment of loans (705,314) 1,970,675 (2,710,704) (8,461,090)
Purchase of premises and equipment (80,143) (48,537) (68,515) (171,928)
Proceeds from sale of foreclosed assets 25,668 25,499 28,236 --
Proceeds from maturities of available-for-
sale securities 12,500,000 4,250,000 6,500,000 5,500,000
Purchases of available-for-sale securities (1,007,344) (6,947,500) (12,003,405) (9,469,375)
Proceeds from maturities of held-to-
maturity securities 995,100 320,000 395,750 975,000
Purchases of held-to-maturity securities -- (100,000) (1,811,976) (260,000)
Purchases of interest bearing deposits
with banks -- (800,000) (400,000) (300,000)
Maturities of interest bearing deposits
with banks -- -- 100,000 --
----------------- ----------------- ----------------- -----------------
Net cash provided by (used in)
investing activities 11,727,967 (1,329,863) (9,970,614) (12,187,393)
----------------- ----------------- ----------------- -----------------
</TABLE>
See Notes to Financial Statements
SF-6
<PAGE> 146
SAC RIVER VALLEY BANK
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
June 30, December 31,
----------------------------------- -----------------------------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Net increase (decrease) in demand deposits,
money market, NOW and savings
accounts $ (916,227) $ 1,781,058 $ (960,334) $ 785,743
Net increase in time deposits 559,789 198,890 2,055,897 4,773,026
Proceeds from FHLB advances 2,000,000 -- 2,500,000 --
Dividends paid (800,000) (400,000) (800,000) (800,000)
Net increase (decrease) in securities sold
under agreements to repurchase (13,697,241) (2,411,602) 6,124,049 1,188,000
----------------- ----------------- ----------------- -----------------
Net cash provided by
(used in) financing activities (12,853,679) (831,654) 8,919,612 5,946,769
----------------- ----------------- ----------------- -----------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (184,851) (1,018,163) 976,898 (4,938,865)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 6,798,083 5,821,185 5,821,185 10,760,050
----------------- ----------------- ----------------- -----------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 6,613,232 $ 4,803,022 $ 6,798,083 $ 5,821,185
================= ================= ================= =================
</TABLE>
See Notes to Financial Statements
SF-7
<PAGE> 147
SAC RIVER VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF OPERATIONS
Sac River Valley Bank is primarily engaged in providing a full range of
banking and mortgage services to individual and corporate customers in southwest
Missouri. The Bank is subject to competition from other financial institutions.
The Bank also is subject to the regulation of certain federal and state agencies
and undergoes periodic examinations by those regulatory authorities.
The consolidated financial statements as of June 30, 1998, and for the
periods ended June 30, 1998 and 1997, are unaudited, but in the opinion of
management, include all adjustments, consisting only of normal, recurring items,
necessary for fair presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowance for loan losses and
the valuation of foreclosed assets held for sale, management obtains independent
appraisals for significant properties.
Management believes that the allowances for losses on loans and the valuation
of foreclosed assets held for sale are adequate. While management uses available
information to recognize losses on loans and foreclosed assets held for sale,
changes in economic conditions may necessitate revision of these estimates in
future years. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowances for losses
on loans and valuation of foreclosed assets held for sale. Such agencies may
require the Bank to recognize additional losses based on their judgments of
information available to them at the time of their examination.
CASH EQUIVALENTS
The Bank considers all liquid investments with original maturities of three
months or less to be cash equivalents. At December 31, 1997 and 1996, cash
equivalents consisted of federal funds sold and securities purchased under
agreements to resell.
INVESTMENTS IN DEBT SECURITIES
Available-for-sale securities, which include any security for which the Bank
has no immediate plan to sell but which may be sold in the future, are carried
at fair value. Realized gains and losses, based on specifically identified
amortized cost of the specific security, are included in other income.
Unrealized gains and losses are recorded, net of related income tax effects, in
stockholders' equity. Premiums and discounts are amortized and accreted,
respectively, to interest income using the level-yield method over the period to
maturity.
SF-8
<PAGE> 148
SAC RIVER VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
Held-to-maturity securities, which include any security for which the Bank
has the positive intent and ability to hold until maturity, are carried at
historical cost adjusted for amortization of premiums and accretion of
discounts. Premiums and discounts are amortized and accreted, respectively, to
interest income using the level-yield method over the period to maturity.
Interest and dividends on investments in debt and equity securities are
included in income when earned.
LOANS HELD FOR SALE
Loans held for sale are carried at the lower of cost or fair value,
determined using an aggregate basis. Write-downs to fair value are recognized as
a charge to earnings at the time the decline in value occurs. Gains and losses
resulting from sales of loans are recognized when the respective loans are sold
to investors. Gains and losses are determined by the difference between the
selling price and the carrying amount of the loans sold, net of discounts
collected or paid and considering a normal servicing rate. Fees received from
borrowers to guarantee the funding of loans held for sale and fees paid to
investors to ensure the ultimate sale of such loans are recognized as income or
expense when the loans are sold or when it becomes evident that the commitment
will not be used.
LOANS
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off are reported at their outstanding principal
adjusted for any charge-offs, the allowance for loan losses, and any deferred
fees or costs on originated loans and unamortized premiums or discounts on
purchased loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to expense
and reduced by loans charged off, net of recoveries. The allowance is maintained
at a level considered adequate to provide for potential loan losses, based on
management's evaluation of the loan portfolio, as well as on prevailing and
anticipated economic conditions and historical losses by loan category. General
allowances have been established, based upon the aforementioned factors and
allocated to the individual loan categories. Allowances are accrued on specific
loans evaluated for impairment for which the basis of each loan, including
accrued interest, exceeds the discounted amount of expected future collections
of interest and principal or, alternatively, the fair value of loan collateral.
A loan is considered impaired when it is probable that the Bank will not
receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more (nonaccrual loans) and
certain other loans identified by management. Accrual of interest is
discontinued and interest accrued and unpaid is removed at the time such amounts
are delinquent 90 days. Interest is recognized for nonaccrual loans only upon
receipt, and only after all principal amounts are current according to the terms
of the contract.
PREMISES AND EQUIPMENT
Depreciable assets are stated at cost less accumulated depreciation.
Depreciation is charged to expense using straight-line and accelerated methods
over the estimated useful lives of the assets.
SF-9
<PAGE> 149
SAC RIVER VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
FORECLOSED ASSETS HELD FOR SALE
Assets acquired by foreclosure or in settlement of debt and held for sale are
valued at estimated fair value as of the date of foreclosure, and a related
valuation allowance is provided for estimated costs to sell the assets.
Management evaluates the value of foreclosed assets held for sale periodically
and increases the valuation allowance for any subsequent declines in fair value.
Increases in the valuation allowance and gains/losses on sales of foreclosed
assets are included in noninterest expense.
INCOME TAXES
Deferred tax liabilities and assets are the tax effect of differences between
the financial statement and tax bases of assets and liabilities. A valuation
allowance is established to reduce deferred tax assets if it is more likely than
not that a deferred tax asset will not be realized.
ADOPTION OF NEW ACCOUNTING STANDARD
During the period ended June 30, 1998, the Bank adopted the provisions of
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" by reclassification of all prior periods presented.
NOTE 2: INVESTMENTS IN DEBT SECURITIES
The amortized cost and approximate fair value of available-for-sale
securities are as follows:
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 11,480,747 $ 17,899 $ (1,849) $ 11,496,797
U.S. government agencies 11,729,679 25,333 (778) 11,754,234
----------------- ----------------- ----------------- -----------------
$ 23,210,426 $ 43,232 $ (2,627) $ 23,251,031
================= ================= ================= =================
<CAPTION>
December 31, 1996
--------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 8,732,889 $ 26,737 $ (12,086) $ 8,747,540
U.S. government agencies 8,978,721 26,531 (4,382) 9,000,870
----------------- ----------------- ----------------- -----------------
$ 17,711,610 $ 53,268 $ (16,468) $ 17,748,410
================= ================= ================= =================
Maturities of available-for-sale securities at December 31, 1997:
Approximate
Amortized Fair
Cost Value
----------- -----------
One year or less $ 14,980,211 $ 15,008,018
After one through five years 8,230,215 8,243,013
----------------- -----------------
$ 23,210,426 $ 23,251,031
================= =================
</TABLE>
SF-10
<PAGE> 150
SAC RIVER VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
The amortized cost and approximate fair value of held-to-maturity securities
are as follows:
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
State and political subdivisions $ 6,444,523 $ 158,589 $ (12,112) $ 6,591,000
================= ================ ================ ================
December 31, 1996
--------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----------
State and political subdivisions $ 5,036,475 $ 130,327 $ (20,802) $ 5,146,000
================= ================ ================ ================
</TABLE>
Maturities of held-to-maturity securities at December 31, 1997:
<TABLE>
<CAPTION>
Approximate
Amortized Fair
Cost Value
--------- -----------
<S> <C> <C>
One year or less $ 420,363 $ 421,000
After one through five years 3,701,200 3,753,000
After five through ten years 2,322,960 2,417,000
------------------ ------------------
$ 6,444,523 $ 6,591,000
================== ==================
</TABLE>
The book value of securities pledged as collateral, to secure public deposits
and for other purposes, amounted to $8,529,545 at December 31, 1997, and
$7,462,630 at December 31, 1996. The approximate fair value of pledged
securities amounted to $8,647,000 at December 31, 1997, and $7,479,000 at
December 31, 1996.
The book value of securities sold under agreements to repurchase amounted
to $16,517,443 and $9,374,420 at December 31, 1997 and 1996, respectively (See
Note 7).
There were no sales of available-for-sale securities during 1997 or 1996.
NOTE 3: SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
The Bank enters into purchases of securities under agreements to resell. The
amounts advanced under these agreements represent short-term loans and are
reflected as a receivable in the balance sheet. The securities underlying the
agreements are book-entry securities. During the period, the securities were
delivered by appropriate entry into a third-party custodian's account designated
by the Bank under a written custodial agreement that explicitly recognizes the
Bank's interest in the securities. These agreements have a weighted average
remaining maturity of three months. At December 31, 1997 and 1996, these
agreements to resell securities purchased were all outstanding with one entity.
The Bank's policy requires that all securities purchased under agreements to
resell be fully collateralized.
SF-11
<PAGE> 151
SAC RIVER VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, 1997 and 1996, include:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Commercial $ 13,975,657 $ 13,260,000
Real estate construction and development 2,394,077 2,854,000
Commercial real estate and agricultural 27,963,916 25,524,940
Residential real estate 16,543,001 16,715,000
Consumer 3,237,988 3,380,944
Other 126,464 51,000
------------------- -------------------
64,241,103 61,785,884
Less: Allowance for loan losses 851,991 832,939
------------------- -------------------
Net loans $ 63,389,112 $ 60,952,945
=================== ===================
</TABLE>
Impaired loans totaled $-0- and $10,118 at December 31, 1997 and 1996,
respectively. There was no allowance for loan losses related to these impaired
loans at December 31, 1997 or 1996.
Interest of $2,343 and $6,661 was received on a cash basis on average
impaired loans of $6,200 and $16,900 for 1997 and 1996. The amount of interest
recognized on these loans was not materially different from amounts received on
a cash basis.
Transactions in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance, beginning of year $ 832,939 $ 791,904
Provision charged to expense 30,000 70,000
Losses charged off (39,830) (55,796)
Recoveries 28,882 26,831
------------------- -------------------
Balance, end of year $ 851,991 $ 832,939
=================== ===================
</TABLE>
The amount of loans serviced for others amounted to $3,509,000 and $2,412,000
at December 31, 1997 and 1996, respectively.
NOTE 5: PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost, at December
31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 34,305 $ 34,305
Buildings and improvements 400,230 384,502
Equipment 479,244 426,457
------------------- -------------------
913,779 845,264
Less accumulated depreciation 465,662 422,395
------------------- -------------------
$ 448,117 $ 422,869
=================== ===================
</TABLE>
SF-12
<PAGE> 152
SAC RIVER VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE 6: INTEREST BEARING TIME DEPOSITS
Interest bearing time deposits in denominations of $100,000 or more were
$8,968,000 and $7,460,000 on December 31, 1997 and 1996, respectively.
At December 31, 1997, the scheduled maturities of certificates of deposit are
as follows:
1998 $ 37,501,000
1999 6,036,000
2000 1,543,763
------------------
$ 45,080,763
==================
NOTE 7: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase totaled $14,875,049 and
$8,751,000 at December 31, 1997 and 1996, respectively.
At December 31, 1997, the maturities of securities sold under agreements to
repurchase are as follows:
U.S. government securities:
Maturing on demand $ 4,600,651
Maturing 0-30 days 6,000,000
Maturing 31-90 days 1,200,000
Maturing >90 days 3,074,398
-----------------
$ 14,875,049
=================
The Bank enters into sales of securities under agreements to repurchase.
These agreements are treated as financings, and the obligations to repurchase
securities sold are reflected as a liability in the balance sheet. The dollar
amount of securities underlying the agreements remains in the asset accounts.
Securities sold under agreements to repurchase had book values including accrued
interest of $16,691,092 and $9,513,559 and fair values of $16,517,000 and
$9,500,000 at December 31, 1997 and 1996, respectively. Securities sold under
agreements to repurchase averaged $11,602,000 and $8,056,000 during 1997 and
1996, and the maximum amount outstanding at any month end during 1997 and 1996
was $14,875,000 and $9,936,000, respectively. The weighted average interest
rates on securities sold under agreements to repurchase was 5.93% and 5.71% at
December 31, 1997 and 1996, respectively.
NOTE 8: ADVANCES FROM FEDERAL HOME LOAN BANK
The Bank has an advance from the Federal Home Loan Bank outstanding at
December 31, 1997, in the amount of $2,500,000, with an interest rate of 5.81%.
This advance matures December 31, 1998.
Although no loans are specifically pledged, the FHLB requires the Bank to
maintain mortgage loans free of other pledges, liens and encumbrances in an
amount equal to at least 150% of outstanding advances as collateral for such
borrowings.
SF-13
<PAGE> 153
SAC RIVER VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE 9: INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Taxes currently payable $ 795,412 $ 817,400
Deferred income taxes (4,512) (18,100)
---------------- ----------------
$ 790,900 $ 799,300
================ ================
</TABLE>
A reconciliation of income tax expense at the statutory rate to the Bank's
actual income tax expense is shown below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Computed at the statutory rate (34%) $ 807,365 $ 824,645
Increase (decrease) resulting from:
Tax-exempt interest (80,200) (92,051)
State income taxes - net of federal tax benefit 60,477 67,880
Other 3,258 (1,174)
---------------- ----------------
Actual tax provision $ 790,900 $ 799,300
================ ================
</TABLE>
The tax effects of temporary differences related to deferred taxes shown on
the balance sheets are:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 217,181 $ 206,068
---------------- ----------------
217,181 206,068
---------------- ----------------
Deferred tax liabilities:
Accumulated depreciation (19,603) (13,002)
Unrealized appreciation on available-for-sale securities (15,024) (13,616)
---------------- ----------------
(34,627) (26,618)
---------------- ----------------
Net deferred tax asset $ 182,554 $ 179,450
================ ================
</TABLE>
NOTE 10: REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possible additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
SF-14
<PAGE> 154
SAC RIVER VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollar Amounts In Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Risk-Based Capital
(to Risk Weighted Assets) $11,891 19.2% $4,964 8.0% $6,205 10.0%
Tier I Capital
(to Risk Weighted Assets) 11,114 17.9% 2,482 4.0% 3,723 6.0%
Tier I Capital
(to Average Assets) 11,114 11.2% 3,979 4.0% 4,974 5.0%
As of December 31, 1996:
Total Risk-Based Capital
(to Risk Weighted Assets) 11,099 18.1% 4,916 8.0% 6,145 10.0%
Tier I Capital
(to Risk Weighted Assets) 10,331 16.8% 2,458 4.0% 3,687 6.0%
Tier I Capital
(to Average Assets) 10,331 11.2% 3,696 4.0% 4,620 5.0%
</TABLE>
The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. At December 31, 1997 and 1996,
the Bank exceeded its minimum capital requirements. The Bank may not pay
dividends which would reduce capital below the minimum requirements shown above.
SF-15
<PAGE> 155
SAC RIVER VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE 11: TRANSACTIONS WITH RELATED PARTIES
At December 31, 1997 and 1996, the Bank had loans outstanding to officers,
directors and employees and companies in which the bank's executive officers or
directors were principal owners, in the amount of $624,000 and $562,000,
respectively.
A reconciliation of the activity in these loans for the year ended December
31, 1997, is as follows:
Balance, beginning of year $ 562,000
New loans 300,000
Repayments (238,000)
--------------
Balance, end of year $ 624,000
==============
In management's opinion, such loans and other extensions of credit and
deposits were made in the ordinary course of business and were made on
substantially the same terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with other persons. Further,
in management's opinion, these loans did not involve more than normal risk of
collectibility or present other unfavorable features.
Effective June 1996, the Bank entered into a loan servicing agreement with a
company that was controlled by one of the executive officers of the Bank. The
agreement called for the outside company to service certain of the Bank's
existing loan portfolio for a fee. Expense recognized by the Bank relating to
this agreement was $161,513 and $40,770 for 1997 and 1996, respectively.
Included in the 1997 expense was a payment of $66,000 made to terminate the
contract effective December 31, 1997.
NOTE 12: EMPLOYEE BENEFIT PLANS
The Bank has a defined contribution pension plan covering substantially all
employees. Employees may contribute up to $9,500 of their compensation with the
Bank matching a discretionary amount determined annually by the Board of
Directors up to the first 6% of the employee's compensation. Employer
contributions charged to expense for 1997 and 1996 were $11,191 and $9,174,
respectively.
The Bank has in place an Employee Stock Ownership Plan (ESOP) for full-time
employees age 21 years or older who have at least one year of credited service.
Annual contributions to the ESOP are discretionary and are determined annually
by the Bank's Board of Directors. Contributions are credited to participants'
individual accounts based proportionally on each participant's compensation for
the plan year to total compensation of all participants in that plan year.
Benefits become 100% vested after seven years of service. Forfeitures are
reallocated among remaining participating employees. Benefits are payable upon
retirement, disability or separation from service. Distributions may be paid in
shares of the Bank's stock or in cash. The Plan includes a stock repurchase
option, whereby a participant electing to receive a distribution can elect to
sell the vested shares back to the Bank at its determined fair market value. At
December 31, 1997, the repurchase option was $986 per share. All shares are
considered outstanding for Earnings Per Share computations. The ESOP holds
433.33 shares of the Bank's stock at December 31, 1997.
Compensation expense was $41,000 and $43,000 for the years ended December 31,
1997 and 1996, respectively. Dividends declared on ESOP shares were $34,666 for
both 1997 and 1996.
SF-16
<PAGE> 156
SAC RIVER VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE 13: ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
NONCASH INVESTING AND FINANCING ACTIVITIES
Real estate acquired in settlement of loans $ 3,294 $ 64,919
ADDITIONAL CASH PAYMENT INFORMATION
Interest paid 3,573,461 3,372,833
Income taxes paid 864,753 830,217
</TABLE>
NOTE 14: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term instruments, the carrying amount approximates fair
value.
INVESTMENT SECURITIES
Fair values for investment securities equal quoted market prices, if
available. If quoted market prices are not available, fair values are estimated
based on quoted market prices of similar securities.
LOANS
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. Loans with similar
characteristics were aggregated for purposes of the calculations. The carrying
amount of accrued interest receivable approximates its fair value.
DEPOSITS
The fair value of demand deposits, savings accounts, NOW accounts and certain
money market deposits is the amount payable on demand at the reporting date
(i.e., their carrying amount). The fair value of fixed-maturity time deposits is
estimated using a discounted cash flow calculation that applies the rates
currently offered for deposits of similar remaining maturities. The carrying
amount of accrued interest payable approximates its fair value.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
ADVANCES FROM FEDERAL HOME LOAN BANK
Rates currently available to the Bank for debt with similar terms and
remaining maturities are used to estimate fair value of existing advances.
SF-17
<PAGE> 157
SAC RIVER VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
LETTERS OF CREDIT AND LINES OF CREDIT
The fair value of letters of credit and lines of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate
or otherwise settle the obligations with the counterparties at the reporting
date.
The following table presents estimated fair values of the Bank's financial
instruments. The fair values of certain of these instruments were calculated by
discounting expected cash flows, which method involves significant judgments by
management and uncertainties. Fair value is the estimated amount at which
financial assets or liabilities could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Because no
market exists for certain of these financial instruments and because management
does not intend to sell these financial instruments, the Bank does not know
whether the fair values shown below represent values at which the respective
financial instruments could be sold individually or in the aggregate.
<TABLE>
<CAPTION>
December 31, 1997
------------------------------
Carrying
Amount Fair Value
-------- ----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $6,798,083 $6,798,083
Interest bearing deposits with banks 850,000 850,000
Available-for-sale securities 23,251,031 23,251,031
Held-to-maturity securities 6,444,524 6,591,000
Interest receivable 1,327,381 1,327,381
Loans held for sale 15,812 15,812
Loans, net of allowance for loan losses 63,389,112 63,355,000
Financial liabilities:
Deposits 73,998,872 74,081,000
Securities sold under agreements to repurchase 14,875,049 14,875,049
Advances from Federal Home Loan Bank 2,500,000 2,500,000
Interest payable 530,542 530,542
Unrecognized financial instruments (net of contract amount):
Letters of credit -- --
Lines of credit -- --
</TABLE>
NOTE 15: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations.
Estimates related to the allowance for loan losses are reflected in the footnote
regarding loans. Current vulnerabilities due to certain concentrations of credit
risk are discussed in the footnote on commitments and credit risk.
SF-18
<PAGE> 158
SAC RIVER VALLEY BANK
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE 16: COMMITMENTS AND CREDIT RISK
Letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. Those guarantees are primarily
issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
The Bank had total outstanding letters of credit amounting to $686,000 and
$800,000 at December 31, 1997 and 1996, respectively, with terms ranging from
five months to five years.
Lines of credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Lines of credit
generally have fixed expiration dates. Since a portion of the line may expire
without being drawn upon, the total unused lines do not necessarily represent
future cash requirements. Each customer's creditworthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, is
based on management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property, plant and
equipment, commercial real estate and residential real estate. Management uses
the same credit policies in granting lines of credit as it does for
on-balance-sheet instruments.
At December 31, 1997 and 1996, the Bank had granted unused lines of credit to
borrowers aggregating approximately $4,375,000 and $6,735,000 for commercial
lines and open-end consumer lines, respectively.
NOTE 17: MERGER AGREEMENT
On April 9, 1998, the Bank entered into a letter of intent to merge with
Liberty Bancshares, Inc., a Missouri based one-bank holding company with
approximately $80 million in total assets. The agreement formulates a
transaction whereby all of the outstanding stock of Sac River Valley Bank would
be exchanged for shares of Liberty Bancshares, Inc. The merger is subject to
regulatory and shareholder approval and, if approved, is anticipated to occur in
late 1998.
SF-19
<PAGE> 159
LIBERTY BANCSHARES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1998
(IN THOUSANDS)
(UNAUDITED)
Liberty
Bancshares, Sac River Pro Forma
Inc. Valley Bank Adjustment Pro Forma
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans - net $ 79,167 $ 64,038 $ -- $ 143,205
Securities available-for-sale 16,172 11,775 -- 27,947
Other earning assets -- 11,938 (2,000)(1) 9,938
---------------- ---------------- ---------------- ----------------
Total Earning Assets 95,339 87,751 (2,000) 181,090
(19)(1)
4,198(2)
Other 16,123 3,203 (4,857)(3) 18,648
---------------- ---------------- ---------------- ----------------
Total Assets $ 111,462 $ 90,954 $ (2,678) $ 199,738
================ ================ ================ ================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest Bearing Liabilities:
Interest Bearing Deposits:
Interest checking $ 19,178 $ 18,420 $ -- $ 37,598
Certificates of deposit and other 57,008 50,228 -- 107,236
---------------- ---------------- ---------------- ----------------
Total Interest Bearing Deposits 76,186 68,648 -- 144,834
Other interest bearing liabilities 14,095 5,678 (2,000)(1) 20,573
-- -- 2,800(4) --
---------------- ---------------- ---------------- ----------------
Total Interest Bearing Liabilities 90,281 74,326 800 165,407
Demand deposits 14,309 4,994 (19)(1) 19,284
---------------- ---------------- ---------------- ----------------
Total Sources of Funds 104,590 79,320 781 184,691
Other liabilities 550 475 -- 1,025
---------------- ---------------- ---------------- ----------------
Total Liabilities 105,140 79,795 781 185,716
---------------- ---------------- ---------------- ----------------
Stockholders' Equity
260(2)
Common stock 511 300 (300)(2) 771
Capital surplus 5,256 500 14,597(2) 12,696
(2,800)(4)
(4,857)(3)
Retained earnings 564 10,342 (10,342)(2) 564
Unrealized appreciation (depreciation)
on available-for-sale securities (9) 17 (17)(2) (9)
---------------- ---------------- ---------------- ----------------
Total Stockholders' Equity 6,322 11,159 (3,459) 14,022
---------------- ---------------- ---------------- ----------------
Total Liabilities and
Stockholders' Equity $ 111,462 $ 90,954 $ (2,678) $ 199,738
================ ================ ================ ================
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements
PF-1
<PAGE> 160
LIBERTY BANCSHARES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS
OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Liberty
Bancshares, Sac River Pro Forma
Inc. Valley Bank Adjustment Pro Forma
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 2,956 $ 2,826 $ -- $ 5,782
Available-for-sale securities 426 548 -- 974
Held-to-maturity securities -- 164 -- 164
Federal funds sold and securities purchased
under agreements to resell 162 158 -- 320
Other -- 24 -- 24
-------------- -------------- -------------- --------------
3,544 3,720 -- 7,264
-------------- -------------- -------------- --------------
INTEREST EXPENSE
Deposits 1,728 1,565 -- 3,293
Federal funds purchased and securities sold
under agreements to repurchase 141 231 -- 372
Notes payable 84 -- 108(5) 192
Advances from Federal Home Loan Bank -- 83 -- 83
-------------- -------------- -------------- --------------
1,953 1,879 108 3,940
-------------- -------------- -------------- --------------
NET INTEREST INCOME 1,591 1,841 (108) 3,324
PROVISION FOR LOAN LOSSES 227 -- -- 227
-------------- -------------- -------------- --------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,364 1,841 (108) 3,097
-------------- -------------- -------------- --------------
NONINTEREST INCOME
Service charges and fees 167 165 -- 332
Other income 4 40 -- 44
-------------- -------------- -------------- --------------
171 205 -- 376
-------------- -------------- -------------- --------------
NONINTEREST EXPENSE
Salaries and employee benefits 649 457 -- 1,106
Net occupancy expense 45 21 -- 66
Equipment expense 60 23 -- 83
Outside processing fees 66 92 -- 158
Other operating expenses 277 157 140(5) 574
-------------- -------------- -------------- --------------
1,097 750 140 1,987
-------------- -------------- -------------- --------------
INCOME BEFORE INCOME TAXES 438 1,296 (248) 1,486
PROVISION FOR INCOME TAXES 145 469 (40)(5) 574
-------------- -------------- -------------- --------------
NET INCOME $ 293 $ 827 $ (208) $ 912
============== ============== ============== ==============
BASIC EARNINGS PER SHARE $ .60 $ 82.72 $ -- $ 1.08
============== ============== ============== ==============
WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING 489,190 10,000 -- 844,350
============== ============== ============== ==============
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements
PF-2
<PAGE> 161
LIBERTY BANCSHARES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS
OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Liberty
Bancshares, Sac River Pro Forma
Inc. Valley Bank Adjustment Pro Forma
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 3,131 $ 5,470 $ -- $ 8,601
Available-for-sale securities 283 1,264 -- 1,547
Held-to-maturity securities -- 290 -- 290
Federal funds sold and securities purchased
under agreements to resell 534 302 -- 836
Deposits with banks -- 33 -- 33
-------------- -------------- -------------- --------------
3,948 7,359 -- 11,307
-------------- -------------- -------------- --------------
INTEREST EXPENSE
Deposits 1,926 3,024 -- 4,950
Federal funds purchased and securities sold
under agreements to repurchase 121 627 -- 748
Notes payable 84 -- 227(5) 311
-------------- -------------- -------------- --------------
2,131 3,651 227 6,009
-------------- -------------- -------------- --------------
NET INTEREST INCOME 1,817 3,708 (227) 5,298
PROVISION FOR LOAN LOSSES 447 30 -- 477
-------------- -------------- -------------- --------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,370 3,678 (227) 4,821
-------------- -------------- -------------- --------------
NONINTEREST INCOME
Service charges and fees 171 267 -- 438
Other income 30 36 -- 66
-------------- -------------- -------------- --------------
201 303 -- 504
-------------- -------------- -------------- --------------
NONINTEREST EXPENSE
Salaries and employee benefits 671 832 -- 1,503
Net occupancy expense 68 45 -- 113
Equipment expense 81 51 -- 132
Outside processing fees -- 305 -- 305
Other operating expenses 468 373 280(5) 1,121
-------------- -------------- -------------- --------------
1,288 1,606 280 3,174
-------------- -------------- -------------- --------------
INCOME BEFORE INCOME TAXES 283 2,375 (507) 2,151
PROVISION FOR INCOME TAXES 117 791 (84)(5) 824
-------------- -------------- -------------- --------------
NET INCOME $ 166 $ 1,584 $ (423) $ 1,327
============== ============== ============== ==============
BASIC EARNINGS PER SHARE $ .42 $ 158.37 $ -- $ 1.77
============== ============== ============== ==============
WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING 393,900 10,000 -- 749,060
============== ============== ============== ==============
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements
PF-3
<PAGE> 162
LIBERTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1: PRO FORMA PRESENTATION
The unaudited pro forma combined financial statements assume a business
transaction between Liberty Bancshares, Inc. (Bancshares) and Sac River Valley
Bank (Sac River) (in the form of a merger) accounted for as a purchase. The pro
forma condensed balance sheet combines Bancshares' and Sac River's unaudited
balance sheets at June 30, 1998, giving effect to the merger as if such
transaction had occurred as of that date. The pro forma condensed consolidated
statements of income combine Bancshares historical consolidated statements of
income for the unaudited three-month period as of June 30, 1998, and the year
ended December 31, 1997, with the corresponding Sac River historical statements
of income for such periods, giving effect to the merger as if such transaction
had happened at the beginning of the earliest period.
The unaudited historical consolidated financial statement data of Bancshares
as of June 30, 1998, and for the six months ended June 30, 1998, and the
unaudited historical financial statements of Sac River as of June 30, 1998, and
for the six months ended June 30, 1998, have been prepared on the same basis as
the historical information derived from audited financial statements, and in the
opinion of their respective managements, reflects all adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation of the
financial position and results of operations for such periods.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the actual operating results or financial position
of the combined entity that would have been achieved had the merger been
consummated at the dates presented, nor is it necessarily indicative of the
combined entity's future operating results or financial position. The unaudited
pro forma condensed financial statements do not incorporate any benefits from
cost savings or synergies of operations of the combined entity that may occur.
Bancshares and Sac River anticipate incurring direct transaction costs and
integration costs related to the merger.
The pro forma condensed financial statements are based on the historical
consolidated financial statements of Bancshares and notes thereto and the
historical financial statements of Sac River and the notes thereto, and should
be read in conjunction with the financial statements of Bancshares and Sac River
included elsewhere in this Form S-4 filing.
PF-4
<PAGE> 163
LIBERTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1: PRO FORMA PRESENTATION (CONTINUED)
Although the pro forma condensed financial statements shown are subject to
change when the proposed transaction is consummated, final adjustments are not
expected to be material to the pro forma financial statements shown. Certain
factors may change, however, depending on the length of time it takes the
transaction to be consummated.
NOTE 2: PRO FORMA BALANCE SHEET ADJUSTMENTS
The following pro forma balance sheet adjustments were made in the pro forma
condensed consolidated financial statements.
<TABLE>
<CAPTION>
Debit Credit
----- ------
<S> <C> <C>
1. Demand deposits $ 19 $
Other interest bearing liabilities 2,000
Other earning assets 2,000
Other assets 19
To eliminate interbank items (repo agreement and DDA account).
2. Retained earnings 10,342
Common stock 300
Other assets 4,198
Unrealized appreciation on AFS securities 17
Capital surplus 14,597
Common stock 260
To record reclassification of Sac River Valley Bank equity accounts to
surplus and issuance of Bancshares common stock.
3. Capital surplus 4,857
Other assets 4,857
To record payment of cash to Sac River shareholders by Bancshares.
</TABLE>
PF-5
<PAGE> 164
LIBERTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 2: PRO FORMA BALANCE SHEET ADJUSTMENTS (CONTINUED)
<TABLE>
<CAPTION>
Debit Credit
----- ------
<S> <C> <C>
4. Capital surplus $ 2,800 $
Other interest-bearing liabilities 2,800
To record estimated cash out of approximately 28% of Sac River
shareholders funded by borrowings on note payable. The borrowing
has an interest rate of 8.375%, which is fixed for the first three
years. The borrowing will be amortized over a 10-year period.
</TABLE>
NOTE 3: PRO FORMA INCOME STATEMENT ADJUSTMENTS
The pro forma income statement adjustment shown in the pro forma condensed
consolidated financial statements and denoted by a (5) reflects goodwill
amortization as if the transaction had occurred as of the beginning of the
applicable period presented. The goodwill will be amortized on a straight-line
basis over fifteen years. The adjustment also reflects interest expense (net of
related income taxes) for debt to be issued.
NOTE 4: CALCULATION OF GOODWILL
As stated in Note 1, the pending merger is accounted for utilizing the
purchase method of accounting and, accordingly, the net assets of Sac River are
adjusted to fair value. The components of the transaction assumed in the pro
forma condensed consolidated balance sheet are outlined as follows:
Cash paid $ 4,857,000
Debt origination 2,800,000
Issuance of common stock 7,700,000
----------------
15,357,000
Historical book value of Sac River (11,159,000)
Excess of cost over fair value of net
assets acquired $ 4,198,000
================
PF-6
<PAGE> 165
LIBERTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 4: CALCULATION OF GOODWILL (CONTINUED)
The number of shares expected to be issued for the transaction is 260,450
shares of Bancshares stock, which is the difference between the number of Sac
River's total shares outstanding (10,000 shares) and the number of shares for
which it is expected the holder will exercise the cash option (2,667 shares),
multiplied by the exchange ratio of 35.516 shares of Bancshares stock for each
share of Sac River stock. The value assigned to the shares to be issued is
$29.56 per share, which is the equivalent cash price to be paid to Sac River
shareholders exercising the cash option.
The fair value of the identifiable assets acquired and the liabilities
assumed by Bancshares at the transaction date are expected to materially
approximate their book values. Therefore, the excess cost over fair value of net
assets acquired has been allocated entirely to goodwill.
PF-7
<PAGE> 166
Form S-4 Registration Statement
GLOSSARY OF TERMS
1. BANCSHARES: Liberty Bancshares, Inc.
2. BANCSHARES ARTICLES: The articles of incorporation of Liberty
Bancshares, Inc., as amended.
3. BANCSHARES BY-LAWS: The By-laws of Liberty Bancshares, Inc., as
amended.
4. BANCSHARES COMMON STOCK: Common Stock, $5.00 par value per share, of
Liberty Bancshares, Inc.
5. BHCA: Bank Holding Company Act of 1956, as amended.
6. COMMISSION: Securities and Exchange Commission.
7. DIVISION OF FINANCE: Missouri Division of Finance.
8. DIVISION OF FINANCE APPLICATIONS: Applications to be filed with the
Division of Finance for approval of the Merger.
9. EFFECTIVE TIME: The time at which the Merger becomes effective,
immediately upon filing of the Merger Agreement with the Division of Finance.
10. ESOP: Sac River Valley Bank's Employee Stock Option Plan, adopted
in 1989.
11. EXCHANGE ACT: Securities Exchange Act of 1934, as amended.
12. FDIA: Federal Deposit Insurance Act.
13. FDIC: Federal Deposit Insurance Corporation.
14. FDIC APPLICATION: Application to be filed with the FDIC for
approval of the Merger.
15. FRB APPLICATION: Application to be filed with the FRS Board for
approval of the Merger.
16. FRS: Federal Reserve System.
17. FRS BOARD: Board of Governors of the Federal Reserve System.
18. ISO PLAN: Liberty Bank's Incentive Stock Option Plan, adopted in
1995.
19. LIBERTY: Liberty Bank.
<PAGE> 167
INDEX TO APPENDICES
APPENDIX A: AGREEMENT AND PLAN OF MERGER
APPENDIX B: TAX OPINION
APPENDIX C: MISSOURI REVISED STATUTES SECTION 362.730
<PAGE> 168
APPENDIX A
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SAC RIVER VALLEY BANK
AND
LIBERTY BANCSHARES, INC.
AND
LIBERTY BANK
DATED JUNE 18, 1998
- -------------------------------------------------------------------------------
<PAGE> 169
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
THE MERGER
1.1 Merger
1.2 Closing ............................................................ 2
1.3 Effective Time ..................................................... 2
ARTICLE II
TERMS OF MERGER
2.1 Charter ............................................................ 3
2.2 By-Laws ............................................................ 3
2.3 Directors .......................................................... 3
2.4 Officers ........................................................... 3
2.5 Principal Office ................................................... 4
2.6 Capital Structure .................................................. 4
ARTICLE III
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares................................................ 4
3.2 Adjustments to Exchange Ratio....................................... 5
3.3 Fractional Shares................................................... 5
3.4 Election to Receive Optional Per Share Cash Amount.................. 6
3.5 Exchange Procedures................................................. 6
3.6 Rights of Former Sac River Shareholders............................. 7
3.7 Termination of Exchange Fund........................................ 8
3.8 Lost or Destroyed Shares............................................ 8
3.9 Dissenters' Rights.................................................. 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SAC RIVER
4.1 Organization, Standing, and Power................................... 9
4.2 Subsidiaries........................................................ 9
4.3 Capital Structure................................................... 9
4.4 Authority.......................................................... 10
4.5 Financial Statements............................................... 11
4.6 Reports ........................................................... 13
4.7 Authorizations; Compliance with Applicable Laws.................... 13
4.8 Litigation and Claims.............................................. 15
4.9 Taxes.............................................................. 15
4.10 Certain Agreements................................................. 16
4.11 Benefit Plans...................................................... 17
4.12 Insurance.......................................................... 19
4.13 Absence of Certain Changes or Events............................... 19
4.14 Properties, Leases and Other Agreements............................ 21
</TABLE>
-i-
<PAGE> 170
<TABLE>
<S> <C>
4.15 Votes Required..................................................... 21
4.16 Tax Matters........................................................ 22
4.17 Regulatory Impediments............................................. 22
4.18 Full Disclosure.................................................... 22
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BANCSHARES AND LIBERTY
5.1 Organization, Standing and Power................................... 22
5.2 Subsidiaries....................................................... 22
5.3 Capital Structure.................................................. 23
5.4 Authority.......................................................... 24
5.5 Bancshares Financial Statements.................................... 24
5.6 Reports............................................................ 26
5.7 Authorizations; Compliance with Applicable Laws.................... 26
5.8 Litigation and Claims.............................................. 28
5.9 Taxes.............................................................. 28
5.10 Certain Agreements................................................. 29
5.11 Benefit Plans...................................................... 30
5.12 Insurance.......................................................... 31
5.13 Absence of Certain Changes or Events............................... 32
5.14 Properties, Leases and Other Agreements............................ 33
5.15 Votes Required..................................................... 34
5.16 Tax Matters........................................................ 34
5.17 Regulatory Impediments............................................. 34
5.18 Full Disclosure.................................................... 34
ARTICLE VI
COVENANTS OF SAC RIVER
6.1 Affirmative Covenants.............................................. 34
6.2 Negative Covenants................................................. 35
6.3 Access and Information............................................. 38
6.4 Update Disclosure; Breaches........................................ 39
6.5 Tax Treatment...................................................... 39
6.6 Dissent Process.................................................... 39
6.7 Expenses........................................................... 40
6.8 Delivery of Shareholder Lists...................................... 40
6.9 Shareholder Meetings............................................... 40
6.10 Processing Contracts............................................... 40
ARTICLE VII
COVENANTS OF LIBERTY AND BANCSHARES
7.1 Affirmative Covenants.............................................. 41
7.2 Negative Covenants................................................. 42
7.3 Access and Information............................................. 44
7.4 Update Disclosure; Breaches........................................ 45
7.5 Liberty Benefit Plans.............................................. 45
7.6 Tax Treatment...................................................... 46
</TABLE>
-ii-
<PAGE> 171
<TABLE>
<S> <C>
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Filings and Approvals.............................................. 46
8.2 Registration Statement............................................. 47
8.3 Reports............................................................ 49
8.4 Brokers and Finders................................................ 49
8.5 Additional Agreements; Reasonable Efforts.......................... 49
ARTICLE IX
CONDITIONS PRECEDENT
9.1 Conditions to Each Party's Obligation
to Effect the Merger............................................... 50
9.2 Conditions to Obligations of Bancshares............................ 51
9.3 Conditions to Obligations of Sac River............................. 53
ARTICLE X
TERMINATION AND AMENDMENT
10.1 Termination........................................................ 54
10.2 Investigation and Review........................................... 55
10.3 Effect of Termination.............................................. 56
10.4 Amendment.......................................................... 56
10.5 Extension; Waiver.................................................. 56
ARTICLE XI
GENERAL PROVISIONS
11.1 Non-Survival of Representations, Warranties and
Agreements......................................................... 56
11.2 Notices............................................................ 56
11.3 Counterparts....................................................... 57
11.4 Entire Agreement; No Third Party Beneficiaries..................... 57
11.5 Governing Law...................................................... 57
11.6 Publicity.......................................................... 57
11.7 Assignment......................................................... 57
11.8 Knowledge of the Parties........................................... 58
11.9 Confidentiality.................................................... 58
</TABLE>
Exhibit A, Agreement to Merge
Exhibit B, List of Directors of Surviving Bank
-iii-
<PAGE> 172
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement"), made and entered into the
18th day of June, 1998, by and among Sac River Valley Bank, a banking
corporation organized under the laws of the State of Missouri ("Sac River"),
Liberty Bank, a banking corporation organized under the laws of the State of
Missouri (hereinafter referred to as "Liberty") and Liberty Bancshares, Inc., a
Missouri corporation (hereinafter referred to as "Bancshares"), a one bank
holding company owning all of the issued and outstanding capital stock of
Liberty (all of said corporations being hereinafter sometimes referred to
collectively as the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, as of December 31, 1997, the equity capital of Sac River was
$11,140,000.00, divided into 10,000 shares of common stock, each of a par value
of $30.00 each, surplus of $500,000.00, undivided profits, including capital
reserves, of $10,315,000.00, and net unrealized holding gains on
available-for-sale securities of $25,000.00; and
WHEREAS, as of December 31, 1997, the equity capital of Liberty was
$7,603,000.00, divided into 34,000 shares of common stock, each of a par value
of $50.00 each, surplus of $5,592,000.00, and undivided profits, including
capital reserves, of $311,000.00; and
WHEREAS, Bancshares has, on the date hereof, authorized capital
consisting of 5,000,000 shares of common stock, par value of $1.00 per share (as
approved by the shareholders of Bancshares on May 19, 1998), of which on the
date hereof 511,090 shares are issued and outstanding; and
WHEREAS, subject to full due diligence and final approval by the
respective Boards of Directors of Sac River and Bancshares, the respective
Boards of Directors of Sac River and Bancshares are of the opinion that the
transactions described herein are in the best interests of the parties and their
respective shareholders. This Agreement provides for the acquisition of Sac
River by Bancshares pursuant to the merger of Sac River with and into Liberty.
At the effective time of such merger, the outstanding shares of common stock of
Sac River shall be converted into the right to receive shares of common stock of
Bancshares, cash, or a combination thereof, subject to the limitations set forth
herein. As a result, shareholders of Sac River shall become shareholders of
Bancshares, and Liberty, as the wholly owned subsidiary of Bancshares, shall
continue to conduct, under its charter, its banking business and
<PAGE> 173
the banking business formerly conducted by Sac River. The transactions described
in this Agreement are subject to the approvals of the shareholders of Sac River
and Liberty, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Missouri Division of Finance, and other
applicable federal and state regulatory authorities, and the satisfaction of
certain other conditions described in this Agreement. It is the intention of the
parties to this Agreement that the Merger, for federal income tax purposes,
shall qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Constituent Corporations desire to make certain
representations, warranties and agreements in connection with the Merger and to
set forth the terms and conditions of the Merger;
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement,
at the Closing Date (as hereinafter defined), Sac River shall be merged with and
into Liberty (the "Merger"). Liberty shall be the surviving bank (the "Surviving
Bank") resulting from the Merger and shall operate under its charter. The
corporate identity and existence of Sac River, separate and apart from Liberty,
shall cease on consummation of the Merger.
1.2 Closing. The closing of the Merger (the "Closing") shall take
place at 9:00 a.m. on a date (the "Closing Date") to be specified by the
parties, which, unless all parties agree, shall be no later than thirty (30)
days after the latest to occur of (i) receipt of all necessary consent and
approvals from the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), the Federal Deposit Insurance Corporation (the
"FDIC"), the Missouri Division of Finance (the "Division of Finance") and any
other applicable bank regulatory or other governmental authorities and the
expiration of any waiting periods imposed by law, (ii) the date on which the
Shareholders of Sac River approve the Merger, (iii) the date on which
Bancshares, as the sole shareholder of Liberty, approves the Merger, and (iv)
the date on which all other conditions precedent to each party's obligations
hereunder shall have been satisfied and waived. The Closing shall be held at
such place as may be mutually agreed upon by the parties.
1.3 Effective Time. On or as soon as practicable after the Closing
Date, this Agreement (or, in lieu thereof, a separate merger agreement,
substantially in the form attached hereto as
2
<PAGE> 174
Exhibit "A", and made a part hereof by this reference (the "Merger Agreement")),
a copy of the minutes of the respective shareholders' meetings at which the
Merger was approved, with a copy of the approval of the Boards of Directors of
the Constituent Corporations, all certified and verified by the respective
secretaries of the meetings, shall be filed with the Division of Finance and in
and with such additional offices as required by RSMo. Section 362.700, and upon
such filing, the Merger shall be effective (the "Effective Time"). In the
event of any inconsistency between the Merger Agreement and this Agreement, the
terms of this Agreement shall control.
ARTICLE II
TERMS OF MERGER
2.1 Charter. The charter of Liberty in effect immediately prior to
the Effective Time shall be the charter of the Surviving Bank until otherwise
amended or repealed. The name of the Surviving Bank shall be Liberty Bank.
2.2 By-Laws. The By-Laws of Liberty in effect immediately prior to
the Effective Time shall be the By-Laws of the Surviving Bank until otherwise
amended or repealed.
2.3 Directors. The directors of Sac River and Liberty in office
immediately prior to the Effective Time, as listed on Exhibit "B" attached
hereto and made a part hereof by this reference, shall serve as the directors of
the Surviving Bank from and after the Effective Time in accordance with the
By-Laws of the Surviving Bank.
The directors of Sac River and Bancshares in office immediately prior
to the Effective Time, together with such additional persons as may thereafter
be elected, shall serve as the directors of Bancshares, from and after the
Effective Time, in accordance with the By-Laws of the Bancshares.
2.4 Officers. The officers of Bancshares in office immediately
prior to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the officers of Bancshares from and after
the Effective Time in accordance with the By-Laws of Bancshares. In addition,
Garry L. Robinson shall serve as the Executive Vice-President of Bancshares, in
accordance with the By-Laws of Bancshares.
The officers of Liberty in office immediately prior to the Effective
Time shall serve in the same capacities with the Surviving Bank from and after
the Effective Time in accordance with the By-Laws of the Surviving Bank. In
addition, Garry L. Robinson shall serve as the Executive Vice-President of the
Surviving Bank, and all current vice-presidents of Sac River shall serve as
vice-
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presidents of the Surviving Bank, in accordance with the By-Laws of the
Surviving Bank.
2.5 Principal Office. The business of the Surviving Bank shall be
conducted as its main office which shall be located at 1414 E. Primrose,
Springfield, Missouri, and its legally established branches, shall include all
of the existing locations of Sac River.
2.6 Capital Structure. As of the Effective Time of the Merger, the
amount of the capital stock of the Surviving Bank, surplus and undivided
profits, will be equal to the combined capital structures of Liberty and Sac
River as stated in the recitals of this Agreement, adjusted, however, for (i)
normal earnings and expenses between December 31, 1997 and the Effective Time of
the Merger (and, if applicable, purchase accounting adjustments), (ii) the
amount of the Mandatory Per Share Cash Amounts (as hereafter defined), Optional
Per Share Cash Amounts (as hereafter defined) (if any) and cash distributed in
lieu of fractional shares, and (iii) regular cash dividends paid by Sac River
and Liberty with respect to their capital stock between December 31, 1997 and
the Effective Time of the Merger. All assets as they exist at the Effective Time
of the Merger shall pass to and vest in the Surviving Bank without any
conveyance or other transfer. The Surviving Bank shall be responsible for all of
the liabilities of every kind and description of Sac River and Liberty existing
as of the Effective Time of the Merger.
ARTICLE III
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. As of the Effective Time, by virtue of
the Merger and without any action on the part of a Constituent Corporation, or
the shareholders of a Constituent Corporation, but subject to RSMo. Section
362.730 with respect to the rights of dissenting shareholders and subject to
adjustment as provided herein, the shares of the Constituent Corporations
shall be converted and exchanged as follows:
(a) Each share of common stock of Bancshares issued and
outstanding immediately prior to the Effective Time shall remain issued
and outstanding from and after the Effective Time.
(b) Each share of common stock of Liberty issued and
outstanding immediately prior to the Effective Time shall remain issued
and outstanding from and after the Effective Time.
(c) Each share of Sac River common stock issued and
outstanding at the Effective Time shall cease to be outstanding, and
shall be automatically cancelled and retired
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and shall cease to exist, and shall be converted into and exchanged for
the right to receive common stock of Bancshares, fully paid and
nonassessable, and cash from Bancshares, as follows:
(i) Cash in the amount of Four Hundred Eighty
Five Dollars & 70/100 ($485.70) per share (the "Mandatory Per
Share Cash Amount"). In no event shall the Mandatory Per Share
Cash Amounts exceed, in the aggregate, Four Million Eight
Hundred Fifty-Thousand Dollars ($4,857,000.00); and
(ii) At the election of the each shareholder of
Sac River, with respect to each share of common stock of Sac
River:
(A) Cash in the amount of One Thousand
Fifty Dollars ($1,050.00) per share (the " Optional
Per Share Cash Amount"); provided, however, that the
total cash payable by Bancshares with respect to the
Optional Per Share Cash Amount to all shareholders of
Sac River shall not exceed Two Million Eight Hundred
Thousand Dollars ($2,800,000.00), less cash
distributed in lieu of fractional shares (the
"Optional Cash Payment Limitation"); or
(B) The right to receive 35.516 shares
of common stock of Bancshares (the "Exchange Ratio").
3.2 Adjstments to Exchange Ratio. In the event Bancshares changes
the number of shares of Bancshares common stock issued and outstanding prior to
the Effective Time as a result of a stock split, stock dividend, or similar
recapitalization with respect to such stock and the record date therefore (in
the case of a stock dividend) or the effective date thereof (in the case of a
stock split or similar recapitalization for which a record date is not
established) shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted.
3.3 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of Sac River common stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of Bancshares common stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a shares of Bancshares
common stock multiplied by the value of one share of Bancshares common stock at
the Effective Time. For purposes of this Agreement, the value of one share of
Bancshares common stock at the Effective Time shall be $29.56 (subject to
adjustment as provided in Section 3.2 hereof). No such holder shall be entitled
to
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dividends, voting rights, or any other rights as a shareholder in respect of
any fractional shares.
3.4 Election to Receive Optional Per Share Cash Amount. Elections
by shareholders of Sac River to receive Optional Per Share Cash Amounts shall be
made by mailing or delivering to the Exchange Agent (as defined below) the Form
of Election delivered to the shareholders of Sac River with the Proxy Statement
(as defined in Section 8.2 hereof). To be effective, a Form of Election must be
properly completed, signed and submitted by the shareholder no later than the
date of the special meeting of the shareholders of Sac River held to approve the
Merger (the "Election Deadline"). In the event the special shareholders meeting
is adjourned to a specified date no longer than ninety (90) days after such
adjournment, the Election Deadline shall be such specified date (the "Extended
Electing Deadline"). Sac River and Bancshares shall mail the Form of Election
with the Proxy Statement to all holders of Sac River common stock on the record
date of the Sac River special shareholders' meeting and shall make the Form of
Election available to all persons who become holders of Sac River common stock
subsequent to such day and no later than the close of business on the business
day prior to the Extended Election Deadline. All elections by shareholders to
receive Optional Per Share Cash Amounts may be revoked or amended until the
Extended Election Deadline. If no such election is filed by a Sac River
shareholder, no Optional Per Share Cash Amount shall be made to the shareholder,
and all of the Sac River shares held by the shareholder shall be exchanged for
Bancshares common stock in accordance with the Exchange Ratio (except for the
Mandatory Per Share Cash Amount) Each Sac River shareholder who does not vote in
favor of the Merger as of the Extended Election Deadline shall be deemed,
subject to the right hereinabove provided for amendment or revocation of the
election and subject to the provisions of Section 3.9 hereof, to have made an
election to receive Optional Per Share Cash Amounts with respect to his or her
shares, regardless of the actual Forms of Election submitted by said
shareholder.
3.5 Exchange Procedures. At the Closing, Bancshares shall deposit
with Husch & Eppenberger, LLC (the "Exchange Agent"), for the benefit of the
then holders of shares of Sac River common stock, certificates dated as of the
Closing Date representing the shares of Bancshares common stock, the cash to be
paid in lieu of fractional shares, the Optional Per Share Cash Amounts (if any),
and the Mandatory Per Share Cash Amounts (such cash and certificates of
Bancshares common stock, together with any dividend or distributions with
respect thereto, being hereinafter referred to as the "Exchange Fund") to be
issued and paid pursuant to Section 3.1 hereof in exchange for the outstanding
shares of Sac River common stock. Within five (5) business days after the
Closing Date, Bancshares shall cause the Exchange Agent to mail to each holder
of record as of the Closing Date of a Sac River certificate or certificates (i)
a letter of transmittal which will
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specify that delivery shall be effective, and risk of loss and title to the Sac
River certificate(s) shall pass, only upon delivery of the Sac River
certificate(s) to the Exchange Agent and which shall be in such form and have
such other provisions as Bancshares and Sac River may reasonably specify, and
(ii) instructions for use in effecting the surrender of the Sac River
certificate(s) in exchange for a certificate representing shares of Bancshares
common stock, cash to be paid in lieu of any fractional share, the Optional Per
Share Cash Amount (if any) and the Mandatory Per Share Cash Amount. Upon
surrender of a shareholder's Sac River certificate or certificates for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, the holder of such Sac River certificate(s) shall be entitled to
receive in exchange therefore, within ten (10) business days following said
surrender, (1) a certificate representing the applicable number of whole shares
of Bancshares common stock, and (2) a check representing the amount of the cash
to be paid in lieu of a fractional share, if any, the Optional Per Share Cash
Amount (if any) and the Mandatory Per Share Cash Amount, and the Sac River
certificate(s) so surrendered shall forthwith be cancelled; provided, however,
that any Sac River shareholder who does not vote in favor of the Merger shall
not be entitled to receive said cash earlier than sixty (60) days after the
Effective Time. Except for said shareholders (who, except as provided in Section
3.9 hereof, shall receive interest at the rate of 9% per annum during the period
of sixty (60) days following the Effective Time), no interest will be paid on
cash in lieu of fractional shares, the Optional Per Share Cash Amount (if any),
and the Mandatory Per Share Cash Amount. Any applicable stock transfer taxes
shall be paid by Bancshares. Adoption of this Agreement by the shareholders of
Sac River and Liberty shall constitute ratification of the appointment of the
Exchange Agent.
3.6 Rights of Former Sac River Shareholders. At the Effective Time,
the stock transfer books of Sac River shall be closed as to holders of Sac River
common stock immediately prior to the Effective Time and no transfer of Sac
River common stock by any such holder shall thereafter be made or recognized.
Until surrendered for exchange in accordance with the provisions of Section 3.5
hereof, each certificate theretofore representing shares of Sac River common
stock shall from and after the Effective Time represent for all purposes only
the right to receive the consideration provided in Section 3.1 hereof in
exchange therefore, subject, however, to Bancshares' obligation to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which have been declared or made by Sac River in respect of such
shares of Sac River common stock in accordance with the terms of this Agreement
and which remain unpaid at the Effective Time. Whenever a dividend or other
distribution is declared by Bancshares on the Bancshares common stock, the
record date for which is at or after the Effective Time, the declaration shall
include dividends or other distributions on all shares of
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Bancshares common stock issuable pursuant to this Agreement, but beginning
thirty (30) days after the Effective Time no dividend or other distribution
payable to the holders of record of Bancshares common stock as of any time
subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of Sac River common stock issued and outstanding
at the Effective Time until such holder surrenders such certificate (or an
affidavit in lieu thereof pursuant to Section 3.8 hereof) for exchange as
provided in Section 3.5 of this Agreement. However, upon surrender of Sac River
common stock certificate, both the Bancshares common stock certificate (together
with all such undelivered dividends or other distributions without interest) and
any undelivered dividends and cash payments payable thereunder (without
interest) shall be delivered and paid with respect to each share represented by
such certificate.
3.7 Termination of Exchange Fund. Any portion of the Exchange Fund
that remains unclaimed by the shareholders of Sac River for twelve (12) months
after the Closing Date shall be paid to Bancshares. Any shareholders of Sac
River who have not theretofore complied with this Article III shall thereafter
look only to Bancshares for payment of their shares of Bancshares common stock,
cash in lieu of any fractional share of Bancshares common stock, Optional Per
Share Cash Amount (if any) and Mandatory Per Share Cash Amount, without any
interest thereon. Notwithstanding the foregoing, neither the Exchange Agent nor
Bancshares shall be liable to any former holder of shares of Sac River common
stock for any amount properly delivered to a public official pursuant to any
applicable abandoned property, escheat or similar laws.
3.8 Lost or Destroyed Shares. In the event any Sac River
certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Sac River certificate to be
lost, stolen or destroyed and, if required by the Exchange Agent, the execution
and delivery of an indemnity agreement whereby said person shall agree to
indemnify the Exchange Agent and Bancshares against any claim which may be made
against it with respect to such Sac River certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Sac River certificate the
shares of Bancshares common stock and cash in an amount as determined in
accordance with Section 3.1 hereof, deliverable in respect thereof pursuant to
this Agreement.
3.9 Dissenters' Rights. Each issued and outstanding share of Sac
River common stock, the holder of which has validly asserted dissenters' rights
pursuant to RSMo. Section 362.730 and has not effectively withdrawn or lost such
rights, shall not be converted into or represent a right to receive the
consideration specified in Section 3.1 hereof, but the holder thereof shall be
entitled only to such rights as are granted by RSMo. Section 362.730. In the
event the holder of Sac River common stock validly asserts dissenter's rights
pursuant to RSMo. Section 362.730, any cash held by the Exchange Agent
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with respect to said shareholder's shares shall be paid by the Exchange Agent to
the Surviving Bank. Each shareholder entitled, pursuant to the provisions of
RSMo. Section 362.730, to payment for his or her shares of Sac River common
stock, shall receive payment therefore from the Surviving Bank (but only after
the amount thereof shall have been agreed upon or determined pursuant to
such provisions) and such shares of Sac River common stock shall be cancelled.
If any holder of shares of Sac River common stock who asserts dissenters'
rights under RSMo. Section 362.730 effectively withdraws or loses (through
failure to perfect or otherwise) such rights, each such share of Sac River
common stock shall be converted into the right to receive the consideration
specified in Section 3.1 hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SAC RIVER
Sac River hereby represents and warrants to Liberty and Bancshares as
follows:
4.1 Organization, Standing, and Power. Sac River is a banking
corporation duly organized, validly existing, and in good standing under the
laws of the State of Missouri, and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Copies of the charter and by-laws of Sac River, as
certified by the secretary of Sac River, have heretofore been delivered to
Bancshares, and are complete and correct as of the date of this Agreement.
4.2 Subsidiaries. Sac River has no subsidiaries.
4.3 Capital Structure.
(a) As of the date hereof, the authorized capital stock of
Sac River consists of ten thousand (10,000) shares, of common stock,
par value $30.00 per share.
(b) As of the date hereof, ten thousand (10,000) shares
of common stock of Sac river are issued and outstanding, and no shares
of common stock are held in treasury.
(c) Except as set forth in the Sac River Disclosure Letter
(which is a letter delivered by Sac River to Bancshares within thirty
(30) days after the date hereof, the receipt of whereof to be
acknowledged by Bancshares, and which identifies, as to each matter
disclosed therein, the Section of this Agreement to which the matter
relates), as of the date hereof, Sac River has not issued any
outstanding bonds, debentures, notes or other indebtedness having the
right to vote (or convertible into securities having the right to vote)
on any matters on which shareholders may vote ("Voting Debt").
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All outstanding shares of Sac River capital stock are validly issued,
fully paid and non-assessable and not subject to or issued in violation
of any preemptive rights, and there are no options, warrants, calls,
rights, or agreements of any character whatsoever to which Sac River is
a party or by which it is bound obligating Sac River to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of
its capital stock or Voting Debt or obligating Sac River to grant,
extend or enter into any such option, warrant, call, right, or
agreement. Immediately after the Effective Time, there will be no
option, warrant, call, right or agreement obligating Sac River to
issue, deliver or sell, or cause to be issued, delivered or sold, any
shares of its capital stock or Voting Debt or obligating Sac River to
grant, extend or enter into any such option, warrant, call, right or
agreement.
(d) Sac River has not purchased, redeemed, cancelled or
otherwise acquired any of its capital stock or Voting Debt during the
two (2) years preceding the date hereof, and there are no obligations,
contingent or otherwise, of Sac River to repurchase, redeem or
otherwise acquire any shares of its capital stock or Voting Debt.
(e) As of December 31, 1997, Sac River had capital of
$11,140,000.00, divided into ten thousand (10,000) shares of common
stock, surplus of $500,000.00, and undivided profits, including capital
reserves, of $10,315,000.00, and net unrealized holding gains on
available-for-sale securities of $25,000.00.
4.4 Authority.
(a) Sac River has all requisite corporate power and
authority necessary to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery, and performance of this Agreement, and
the consummation of the transactions contemplated herein, including the
Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of Sac River, subject
to the approval of this Agreement by the Board of Directors and the
holders of two-thirds (2/3) of the outstanding shares of Sac River
common stock, which is the only shareholder vote required for approval
of this Agreement and consummation of the Merger by Sac River. This
Agreement has been duly executed and delivered by Sac River, and
constitutes a valid and binding obligation of Sac River enforceable in
accordance with its terms, subject to such requisite Board of Directors
and shareholder approval and compliance with the provisions of RSMo.
Sections 362.610 to 362.810, inclusive (the "Missouri Bank Merger
Laws"), the Securities Act of 1933 (the "Securities Act"), the
Securities Exchange Act of 1934 (the "Exchange
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Act"), and the securities or "blue sky" laws of the various states
(collectively the "Securities Laws") and consents, authorizations or
approvals required from regulatory authorities.
(b) The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated herein, will not,
conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or
the loss of a benefit under, or the creation of a lien, pledge,
security interest or other encumbrance on assets (any such conflict,
violation, default, right of termination, cancellation or acceleration
loss or creation, a "Violation"), pursuant to the provisions of (i) the
charter or by-laws of Sac River, or (ii) any loan or credit agreement,
note, mortgage, indenture, lease, Sac River Benefit Plan (as
hereinafter defined) or other agreement, obligation, instrument,
permit, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Sac River, or its
properties or assets, which Violation would have a material adverse
effect on the business, operations, prospects or financial condition of
Sac River (a "Sac River Material Adverse Effect").
4.5 Financial Statements.
(a) The statement of financial condition of Sac River as
of December 31, 1997, and the related statements of income, cash flow
and shareholder's equity for the period ending December 31, 1997 (the
"Sac River Latest Statement Date"), in the form prepared for Sac
River's internal use, copies which have been furnished by Sac River to
Bancshares, and the statement of financial condition of Sac River, as
of March 31, 1998, and the related statements of income, cash flow and
shareholder's equity for the three (3) months then ended, in the form
prepared for Sac River's internal use, copies of which have been
furnished by Sac River to Bancshares (collectively the "Sac River
Financial Statements") have been prepared in accordance with generally
accepted accounting principles as utilized in the Sac River Financial
Statements applied on a consistent basis (except as may be indicated
therein or in the notes thereto), and present fairly the financial
position of Sac River, at the dates and results of operations, changes
in shareholder's equity and cash flows for the periods stated therein.
In the case of interim fiscal periods, all adjustments, consisting only
of normal reoccurring items, which management of Sac River believes
necessary for a fair presentation of such financial information, have
been made, subject to year end audit
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adjustments, none of which could reasonably be expected to have a Sac
River Material Adverse Effect.
(b) Except as and to the extent set forth in the statement
of financial condition of Sac River as of March 31, 1998, or in the
notes thereto, Sac River has no liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) that would
be required to be reflected on a statement of financial condition, or
in the notes thereto, prepared in accordance with generally accepted
accounting principles, except (i) for liabilities or obligations
incurred in the ordinary course of business since the Sac River Latest
Statement Date that would not, individually or in the aggregate, have a
Sac River Material Adverse Effect, or (ii) as otherwise reflected in
the Sac River Reports (as defined below) filed prior to the date of
this Agreement. Except as set forth in the Sac River Disclosure Letter,
Sac River has no liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that are not required to be
reflected on a balance sheet, or in the notes thereto, except for
liabilities or obligations that do not, individually or in the
aggregate, have a Sac River Material Adverse Effect.
(c) Without limitation to the foregoing, Sac River's
allowance for loan losses included in the Sac River Financial
Statements as of March 31, 1998, was $854,231.02. To the knowledge of
sac River, the amount of such allowance for loan losses was adequate to
absorb reasonably expected losses in the loan portfolio of Sac River.
To the knowledge of Sac River, there are no facts which would cause it
to increase the level of such allowance for loan losses. To the
knowledge of Sac River, the documentation relating to loans made by Sac
River and relating to all security interests, mortgages and other liens
with respect to all collateral for such loans, taken as a whole is
adequate for the enforcement of the material terms of such loans and of
the related security interests, mortgages and other liens, except as
enforcement may be limited by bankruptcy or similar laws or principles
of equity. To the knowledge of Sac River, the terms of such loans and
of the related security interests, mortgages and other liens comply in
all material respects with all applicable laws, rules and regulations
(including laws, rules and regulations relating to the extension of
credit). Except as set forth in the Sac River Disclosure Letter, (i) as
of March 31, 1998, there are no loans, leases, other extensions of
credit or commitments to extend credit of Sac River that have been or
should be, in accordance with generally accepted accounting principles,
classified by Sac River as non-accrual, as restructured, as ninety days
past due, as still accruing and doubtful of collection or any
comparable classification, and (ii) Sac River has provided Bancshares
true, correct and
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complete in all material respects, such written information concerning
the loan portfolio of Sac River as requested. Notwithstanding any
provision in this Section 4.5(c) to the contrary, Sac River makes no
representation or warranty with respect to the collectability of any
loan.
4.6 Reports. Sac River has filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that were or are required to be filed with (i) the FDIC, (ii) the
Division of Finance, and (iii) any other applicable federal or state agencies or
bank authorities (all such reports and statements are collectively referred to
herein as the "Sac River Reports"). As of their respective dates, the Sac River
Reports filed prior to the date hereof complied in all material respects with
all of the statutes, rules and regulations enforced or promulgated by any
regulatory authority which they are filed, and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
4.7 Authorizations; Compliance With Applicable Laws.
(a) Sac River holds all authorizations, permits, licenses,
variances, exemptions, orders and approvals of all governmental
entities which are material to the operations of its business (the "Sac
River Permits"). All such Sac River Permits are in full force and
effect as of the Closing Date, and Sac River is in compliance with the
terms of the Sac River Permits, except where the failure to so comply
could not reasonably be expected to have a Sac River Material Adverse
Effect. Except as disclosed in the Sac River Reports filed prior to the
date of this Agreement or in the Sac River Disclosure Letter, the
business of Sac River is not deemed, and has not been, conducted in
violation of any domestic (federal, state or local) law, statute,
ordinance or regulation of any governmental entity (collectively
"Laws") except for possible violations which individually or in the
aggregate do not and, insofar as reasonably can be foreseen, in the
future will not, have a Sac River Material Adverse Effect. Except as
set forth in the Sac River Disclosure Letter, as of the date hereof, no
investigation or review by any governmental entity with respect to Sac
River is pending or, to the knowledge of Sac River, threatened, nor has
any governmental entity indicated an intention to conduct the same. The
deposits of Sac River are insured by the FDIC to the extent provided by
law.
(b) The Sac River Disclosure Letter identifies each parcel of
real estate currently owned, leased or otherwise possessed or
controlled by Sac River on the date of this Agreement, including real
estate owned as a result of
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foreclosure and properties managed or controlled by Sac River in
connection with its lending or fiduciary obligations (collectively, the
"Sac River Property"). Except as set forth in the Sac River Disclosure
Letter, to the knowledge of Sac River, none of the Sac River Property
owned or leased by Sac River for use in the operation of its business
is in violation of any applicable zoning ordinance or other law,
regulation or requirement relating to operation of any properties used,
including, without limitation, applicable federal, state and local
laws, rules and regulations relating to the environment or to human
health and safety associated with the environment (collectively
"Environmental Laws"), other than violations that, in the aggregate,
would not have a Sac River Material Adverse Effect; and Sac River has
not received any notice of any such violation, or the existence of any
condemnation proceeding with respect to any Sac River Property. Except
as set forth in the Sac River Disclosure Letter, to the knowledge of
Sac River, no Toxic Substances (as defined below) have been deposited
or disposed in, on or under any Sac River Property during the period in
which Sac River has owned, occupied, managed, controlled or operated
such properties, except to the extent the same would not have a
Material Adverse Effect. Except as set forth in the Disclosure Letter,
to Sac Rivers' knowledge, no portion of the Sac River Property has ever
been used as a dump or gasoline service station by any person,
including past owners, occupants and operators of such properties. To
the knowledge of Sac River, there are no underground or aboveground
storage tanks (whether or not currently in use) located on or under the
Sac River Property, and no underground tank previously located on the
Sac River Property has been removed therefrom. To the knowledge of Sac
River, there are no conditions or circumstances in connection with the
Sac River Property that could reasonably be anticipated to (i) cause
any Sac River Property to be subject to any restrictions on ownership,
occupancy, use or transferability under any applicable Environmental
laws, or (ii) materially reduce the value of any Sac River Property. To
the knowledge of Sac River, Sac River has not been identified as a
potentially responsible party in a matter arising under any
Environmental Laws. For purposes of this Agreement, (1) "Toxic
Substances" shall mean petroleum or petroleum based substance or waste,
solid waste, PCBs, pesticides, herbicides, lead, radioactive materials,
asbestos or asbestos containing materials, ureaformaldehyde foam
installation, or substances defined as "hazardous substances" or "toxic
substances" in any Environmental Laws, and (2) materials will be
considered to be deposited or disposed in, on or under any real
property if such materials have been stored, treated, recycled, used or
accidentally or intentionally spilled, released, dumped, emitted, or
otherwise placed, deposited or disposed of, or used in any
construction, in, on or under such property.
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4.8 Litigation and Claims. Except as disclosed in the Sac River
Reports filed prior to the date of this Agreement or in the Sac River Disclosure
Letter:
(a) Sac River is not subject to any continuing order of, or
written agreement or memorandum or understanding with any federal or
state banking or insurance authority or other governmental entity, or
any judgment, order, writ, injunction, decree or award of any
governmental entity or arbitrator, including, without limitation,
cease-and-desist or other orders of any banking authority,
(b) There is no action, suit, litigation, proceeding or
arbitration against or affecting Sac River, or to the knowledge of Sac
River, any directors, officers, employees or agents of Sac River (in
their respective capacities as directors, officers, employees or
agents) pending or, to the knowledge of Sac River, threatened, which
would, if adversely determined, have a Sac River Material Adverse
Effect or, to the knowledge of Sac River, any basis therefore, and
(c) There are no uncured material violations, or violations
with respect to which material refunds or restitutions may be required,
cited in any compliance report to Sac River as a result of the
examination by any bank regulatory authority.
4.9 Taxes. Sac River has filed all tax returns required to be filed by
it and has paid or has set up an adequate reserve for the payment of, all taxes
required to be paid as shown on such returns, except to the extent such
nonpayment did not result in a Sac River Material Adverse Effect. The most
recent Sac River financial statements contained in the Sac River Reports reflect
an adequate reserve for all taxes payable by Sac River accrued to the date of
such financial statements. The Sac River Disclosure Letter sets forth, as of the
date hereof, the following information with respect to Sac River:
(a) Whether there is an examination pending by the Internal
Revenue Service ("IRS") with respect to Sac River and, if so, the tax
years involved,
(b) Whether Sac River has executed or filed with the IRS any
agreement which is still in effect extending the period for assessment
and collection of any federal tax, and if so, the tax years covered by
such agreement and the expiration of such extension, and
(c) Whether there are any existing material disputes as to
state or local taxes.
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There are no liens for taxes upon the assets of Sac River,
except for statutory liens for taxes not yet delinquent or the validity
of which is being contested in good faith by appropriate proceedings
and, in either case, only if adequate reserves therefor have been
established on Sac River's books in accordance with generally accepted
accounting principals. Except as disclosed in the Sac River Disclosure
Letter, Sac River is not a party to any action or proceeding by any
governmental authority for assessment and collection of taxes, and no
claim for assessment and collection of taxes has been asserted against
it. For purposes of this Agreement, the term "tax" shall include all
federal, state and local income, profits, franchise, gross receipts,
payroll, sales, employment, use, personal and real property,
withholding, excise and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions
imposed with respect to such amounts. Sac River has withheld from its
employees (and timely paid to the appropriate governmental agency)
amounts which are proper and accurate in all material respects for all
periods through the date hereof in material compliance with all tax
withholding provisions of applicable federal, state and local laws
(including, without limitation, income, social security and employment
tax withholding for all types of compensation).
4.10 Certain Agreements. Except as discussed in the Sac River
Reports filed prior to the date of this Agreement or as disclosed in the Sac
River Disclosure Letter, and except for this Agreement, Sac River is not a party
to any oral or written (i) consulting or employment agreement or other agreement
providing any term of employment, compensation guarantee, or severance benefit,
(ii) union or collective bargaining agreement, (iii) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
option or stock purchase plan, any of the benefits of which will be increased,
or the vesting of the benefits of which will be accelerated, by the occurrence
of any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of the transactions
contemplated by this Agreement, (iv) contract, agreement or understanding to
repurchase assets previously sold (or to indemnify or otherwise compensate the
purchaser in respect of such assets) (other than contracts entered into in the
ordinary course of business,), (v) contract containing covenants which limit the
liability of Sac River to compete in any line of business or with any person or
which involve any restriction of the geographical area in which, or method by
which, Sac River may carry on its business (other than as may be required by law
for applicable regulatory authorities), (vi) any contract, agreement or other
instrument or undertaking which is not terminable by Sac River without
additional payment or penalty within sixty (60) days and obligates Sac River for
payments or other consideration for a value in excess of $10,000.00, other than
loan agreements entered
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into in the ordinary course of business, or (vii) other executory material
agreement. Except as set forth in the Sac River Disclosure Letter, Sac River is
not in Violation of any loan or credit agreement, note, mortgage, indenture or
other agreement, obligation or instrument applicable to Sac River or its
properties or assets, except for any such Violations that would not,
individually or in the aggregate, have a Sac River Material Adverse Effect.
4.11 Benefit Plans.
(a) The Sac River Disclosure Letter lists (i) each employee
bonus, incentive, deferred compensation, stock purchase, stock
appreciation right, stock option, fringe benefit and severance pay
plan, (ii) each pension, profit sharing, stock bonus, thrift, savings
and employee stock ownership plan, (iii) each health, welfare,
disability, vacation, leave, perquisite or executive plan, program,
policy or practice, and (iv) every other employee benefit plan (within
the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) (collectively "Sac River Benefit
Plans"), which Sac River maintains or to which Sac River contributes on
behalf of current or former employees. Except as disclosed in the Sac
River Disclosure Letter, to the knowledge of Sac River, all of the Sac
River Benefit Plans listed in the Sac River Disclosure Letter comply
with all applicable requirements of the Internal Revenue Code, ERISA
and all other applicable federal and state laws and regulations,
including, without limitation, the reporting and disclosure
requirements of ERISA. Each of the Sac River Benefit Plans that is
intended to be a pension, profit sharing, stock bonus, thrift, savings
or employee stock ownership plan that is qualified under Code
Section 401(a), has been determined by the IRS to so qualify under Code
Section 401(a), and, except as disclosed in the Sac River Disclosure
Letter, to the knowledge of Sac River, there exists no circumstances
that would adversely affect the qualified status of any Sac River
Benefit Plan under that Section. Except as set forth in the Sac River
Disclosure Letter, there is no pending or, to the knowledge of Sac
River, threatened litigation, governmental proceeding or investigation
against or relating to any Sac River Benefit Plan, and to the
knowledge of Sac River there is no reasonable basis for any material
proceedings, claims, actions or proceedings against Sac River, any Sac
River Benefit Plan, or any fiduciary of any Sac River Benefit Plan.
Except as set forth in the Sac River Disclosure Letter, neither Sac
River nor any party in interest (as defined in Section 3(14) of ERISA
and Code Section 4975(e)) nor any Sac River Benefit Plan has engaged
in a "prohibited transaction" (as defined in Section 406 of ERISA and
Code Section 4975(c)) since the date on which said Sections became
applicable to such Plan, and no Sac River Benefit Plan has engaged in
a transaction
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involving the purchase or sale of employer securities by such Plan
from or to a "disqualified person" (within the meaning of Code Section
4975), other than pursuant to an exemption provided therein. All Sac
River Benefit Plans that are group health plans, within the meaning of
Code Section 4980B or Section 601 of ERISA, have been operated in
material compliance with the group health plan continuation coverage
requirements of Code Section 4980B and Section 601 of ERISA to the
extent such requirements are applicable.
(b) There has been no amendment to, written interpretation
of, or announcement (whether or not written) relating to, or any change
in employee participation or coverage under, any Sac River Benefit Plan
that is not reflected in the text of such Sac River Benefit Plan which
would materially increase the expense (whether or not such expense is
recognized under generally accepted accounting principles) to the
employer whose employees are covered by such Sac River Benefit Plan.
Except as expressly provided by applicable law or the terms of a Sac
River Benefit Plan, no condition exists that would prevent the
amendment or termination of any Sac River Benefit Plan with respect to
any employee. All employee and employer contributions with respect to
employees which are due and owing as of the Closing Date pursuant to
the Sac River Benefit Plans have been made or will be accrued on the
Closing Date Financial Statements and, except for such accrued
liabilities, there are as of the Closing Date no other liabilities of
Sac River with respect to the Sac River Benefit Plans.
(c) Sac River has delivered to Bancshares copies of (i) each
Sac River Benefit Plan or if no plan document exists, a written
summary of the material terms thereof, (ii) current summary plan
descriptions of each Sac River Benefit Plan for which they are
required, (iii) each trust agreement, insurance policy or other
instrument relating to the funding of any Sac River Benefit Plan, (iv)
the most recent Annual Reports (Form 5500 Series) and accompanying
schedules filed with the IRS or the United States Department of Labor
with respect to each Sac River Benefit Plan for which they are
required, (v) the most recent determination letter issued by the IRS
with respect to each Sac River Benefit Plan that is intended to
qualify under Code Section 401, (vi) the most recent available
financial statements for each Sac River Benefit Plan that has assets,
and (vii) the most recent audited financial statements for each Sac
River Benefit Plan for which audited financial statements are required
by ERISA.
(d) The Sac River Disclosure Letter describes any obligation
that Sac River has to provide health and welfare benefits to retirees
or other former employees or their dependents (other than rights
arising solely under Section 601
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of ERISA or Code Section 4980B) including information as to the number
of retirees, other former employees and dependents entitled to
such coverage and their ages.
4.12 Insurance. Sac River is presently insured, and during each of
the past five calendar years has been insured, for reasonable amounts with
financially sound and reputable insurance companies against such risks as, to
the knowledge of Sac River, companies engaged in the similar business would, in
accordance with good business practice, customarily be insured. Sac River does
not have any liability for material unpaid premiums or premium adjustments not
properly reflected on the Sac River Financial Statements and no notice of
cancellation or termination has been received by Sac River with respect to any
material insurance policy currently in effect. Within the last five years,
except as disclosed in the Sac River Disclosure Letter, Sac River has not been
refused any insurance with respect to any assets or operations, nor has any
coverage been limited in any material respect as to any assets or operations, by
any insurance carrier to which it has applied for any such insurance or with
which it has carried insurance during the last five years.
4.13 Absence of Certain Changes or Events. Except as disclosed in
the Sac River Reports filed prior to the date of this Agreement or in the Sac
River Disclosure Letter, and except as contemplated by this Agreement, from and
after January 1, 1998 through the date of this Agreement:
(a) Sac River has carried on its business in the ordinary
and usual course consistent with past practices;
(b) Sac River has not amended its charter;
(c) Sac River has not issued or sold any of its capital
stock, or issued or sold any corporate debt securities or otherwise
incurred debt which would be classified as long term debt on its
balance sheet;
(d) Sac River has not granted any option for the purchase of
its capital stock, effected any stock split, or otherwise changed its
capitalization;
(e) Sac River has not declared, set aside, or paid a dividend
or other distribution in respect of its capital stock, other than its
normal 1998 cash dividend in the amount of not more than $80.00 per
share with usual record and payment dates (except as otherwise provided
herein), or, directly or indirectly, redeemed or otherwise acquired any
of its capital stock;
(f) Sac River has not (i) incurred any material obligations
or liability (absolute or contingent), except
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obligations or liabilities incurred in the ordinary course of business,
or (ii) mortgaged, pledged, or subjected to lien, claim, security
interest, charge, encumbrance or restriction any of its assets or
properties;
(g) Sac River has not discharged or set aside any material
lien, mortgage, pledge, claim, security interest, charge, encumbrance,
or restriction or paid any material obligation or liability (absolute
or contingent), other than in the ordinary course of business;
(h) Sac River has not sold, assigned, transferred, leased,
exchanged, or otherwise disposed of, other than in the ordinary course
of business, any of its properties or assets;
(i) Sac River has not increased the rate of compensation of,
or paid any bonus to, any of its directors or officers, except merit or
promotion increases in accordance with existing policy; entered into
any new, or amended or supplemented any existing, employment,
management, consulting, deferred compensation, severance, or other
similar contract not heretofore provided to Bancshares; adopted,
entered into, terminated, amended or modified any Sac River Benefit
Plan in respect of any of its present or former directors, officers or
other employees; or agreed to any of the foregoing;
(j) Sac River has not suffered any material damage,
destruction or loss as a result of fire, accident, casualty, labor
trouble, or taking of property by any government or any agency of any
government, flood, or other similar or dissimilar casualty or event or
otherwise, and whether or not covered by insurance;
(k) Sac River has not cancelled or compromised any debt to
the extent exceeding $10,000.00 owed to Sac River or claim to an extent
exceeding $10,000.00 asserted by Sac River;
(l) Sac River has not entered, or agreed to enter, into any
agreement or arrangement granting any right of refusal or other
preferential right to purchase any of its material assets, properties
or rights or requiring the consent of any party to the transfer or
assignment of any such material assets, properties or rights;
(m) There has not been any other transaction, commitment,
dispute or other event or condition of any character (whether or not in
the ordinary course of business) individually or in the aggregate
having or which, insofar as reasonably can be foreseen, in the future
is reasonably likely to have, a Sac River Material Adverse Effect; and
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(n) There has not been any change in the method of accounting
or accounting practices of Sac River, except as may be required by law
or generally accepted accounting principles. Except as set forth in the
Sac River Disclosure Letter, Sac River has no knowledge of the
announced or anticipated resignation of any executive officer or key
employee of Sac River. From and after the date of the latest Sac River
Financial Statement, through the date of this Agreement, no customers
of Sac River have indicated to Sac River that they will stop or
decrease the rate of business done with Sac River (except for changes
in the ordinary course of business) such as to, individually or in the
aggregate, have a Sac River Material Adverse Effect.
4.14 Properties, Leases and Other Agreements. Except as may be
reflected in the Sac River Financial Statements, for any lien for current taxes
not yet delinquent, for pledges to secure deposits and for such other liens,
security interests, claims, charges, options or other encumbrances or
imperfections of title which do not materially affect the value of personal or
real property reflected in the Sac River Financial Statements or acquired since
the date of such Financial Statements and which do not materially interfere with
or impair the present and continued use of such property, Sac River has good
title, free and clear of any liens, security interests, claims, charges, options
or other encumbrances, to all of the personal and real property reflected in the
Sac River Financial Statements, and all real and personal property acquired
since the date of such Statements, except such real and personal property as has
been disposed of in the ordinary course of business. The Sac River Disclosure
Letter lists all acquisitions or dispositions of capital assets planned as of
the date of this Agreement by Sac River, other than individual transactions with
a value not in excess of $50,000.00 each. Substantially all of Sac River's
buildings and equipment in regular use (including such buildings and equipment
as are leased) have been well maintained and are in good and serviceable
condition, reasonable wear and tear excepted. The Sac River Disclosure Letter
contains a brief description, including terms, of each lease for real or
personal property to which Sac River is a party. Sac River, as lessee, has a
valid and existing leasehold interest under each of such leases, true and
correct copies of which Sac River has delivered to Bancshares. There is not,
under any of such leases relating to real property or any other material leases,
any material existing default by Sac River, or, to the knowledge of Sac River,
any other party thereto, or any event with notice or lapse of time or both would
constitute such a material default.
4.15 Votes Required. The affirmative vote of holders of two-thirds
of the outstanding shares of Sac River common stock is the only vote of the
holders of any class of Sac River capital stock necessary to approve this
Agreement and the transactions contemplated hereby.
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4.16 Tax Matters. Sac River, to its knowledge, has not taken or
agreed to take any action which would prevent the Merger from qualifying as one
or more reorganizations under Code Section 368(a)(1).
4.17 Regulatory Impediments. As of the date hereof, Sac River is
unaware of the existence of any factor that would materially delay or materially
hinder the issuance of any of the required regulatory approvals necessary to
consummate the Merger or the other transactions contemplated hereby, other than
any protest by any non-governmental parties.
4.18 Full Disclosure. The representation and warranties of Sac River
contained in this Agreement do not omit any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. There is no fact known to Sac River which has not
been disclosed to Bancshares pursuant to this Agreement, the Sac River
Disclosure Letter and the Sac River Reports, all taken as a whole, which would
reasonably be expected to have a Sac River Material Adverse Effect on the
ability of Bancshares or Sac River to consummate the transactions contemplated
hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BANCSHARES AND LIBERTY
Bancshares and Liberty hereby represent and warrant to Sac River as
follows:
5.1 Organization, Standing and Power. Bancshares is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Missouri, and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Liberty is a banking corporation duly organized, validly existing, and in good
standing under the laws of the State of Missouri, and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Copies of the charters and by-laws
of Bancshares and Liberty, as certified by their respective secretaries, have
heretofore been delivered to Sac River, and are complete and correct as of the
date of this Agreement.
5.2 Subsidiaries. Bancshares owns all of the issued and outstanding
shares of Liberty. Bancshares has no other subsidiaries. All of the shares of
capital stock of Liberty owned by Bancshares are fully paid and non-assessable,
and are owned by it free and clear of any claim, lien, encumbrance or agreement
with respect thereto.
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5.3 Capital Structure.
(a) As of the date hereof, the authorized capital stock
of Bancshares consists of 5,000,000 shares of common stock, par value
$1.00 per share (as approved by the shareholders of Bancshares on May
19, 1998). As of the date hereof, the authorized capital stock of
Liberty consists of 34,000 shares of common stock, par value $50.00 per
share.
(b) As of the date hereof, 511,090 shares of common stock of
Bancshares are issued and outstanding. As of the date hereof, 34,000
shares of common stock of Liberty are issued and outstanding, all of
which are held by Bancshares, and no shares of common stock of Liberty
are held in treasury.
(c) Except as set forth in the Bancshares Disclosure Letter
(which is a letter delivered by Bancshares to Sac River within thirty
(30) days after the date hereof, the receipt whereof to be acknowledged
by Sac River, and which identifies, as to each matter disclosed
therein, the Section of this Agreement to which the matter relates), as
of the date hereof, Bancshares has not issued any outstanding bonds,
debentures, notes or other indebtedness having the right to vote (or
convertible into securities having the right to vote) on any matters on
which shareholders may vote ("Voting Debt"). All outstanding shares of
Bancshares capital stock are validly issued, fully paid and
non-assessable and not subject to or issued in violation of any
preemptive rights, and there are no outstanding options, warrants,
calls, rights, commitments or agreements of any character whatsoever to
which Bancshares or Liberty is a party or by which it is bound
obligating Bancshares or Liberty to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock or any
Voting Debt securities of Bancshares or Liberty or obligating
Bancshares or Liberty to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement. The shares of Bancshares
common stock to be issued pursuant to or as specifically contemplated
by this Agreement will be validly issued, fully paid and non-assessable
and not subject to preemptive rights.
(d) Bancshares has not purchased, redeemed, cancelled or
otherwise acquired any of its capital stock or Voting Debt, except as
disclosed in the Bancshares Disclosure Letter, and there are no
obligations, contingent or otherwise, of Bancshares to repurchase,
redeem or otherwise acquire any shares of its capital stock or Voting
Debt.
(e) As of December 31, 1997, Liberty had capital of
$7,603,000.00, divided into 34,000 shares of common stock, surplus of
$5,592,000.00, and undivided profits, including capital reserves, of
$311,000.00.
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5.4 Authority. Bancshares has all requisite corporate power and
authority to enter into this Agreement and the Merger and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of Bancshares. This Agreement has been duly executed and delivered by Bancshares
and, subject to appropriate Board of Directors and shareholder approval and
compliance with the Missouri Bank Merger Laws and Securities Laws and consents,
authorizations and approvals from regulatory authorities, constitutes a valid
and binding obligation of Bancshares enforceable in accordance with its terms.
The execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby will not, result in any Violation pursuant
to any provision of (a) the articles of incorporation, charter or by-laws of
Bancshares or Liberty or (b) any loan or credit agreement, note, mortgage,
indenture, lease, Benefit Plan maintained by Bancshares or other agreement,
obligation, instrument, permit, franchise, license, judgment, order, decree,
statute, law ordinance, rule or regulation applicable to Bancshares or Liberty
or their respective properties or assets, which Violation pursuant to this
clause (b) would have a material adverse effect on the business, operations,
prospects or financial condition of Bancshares and Liberty taken as a whole (a
"Bancshares Material Adverse Effect"). Other than in connection or in compliance
with the provisions of The General and Business Corporation Law of Missouri (the
"Missouri General Corporation Law"), the Missouri Bank Merger Laws, the
Securities Laws, and consents, authorizations, approvals, notices of exemptions
required from the FDIC, the Division of Finance, or under the federal Bank
Holding Company Act ("BHC Act"), no consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental entity is
required on the part of Bancshares or Liberty in connection with the execution
and delivery of this Agreement or the consummation by Bancshares or Liberty of
the transactions contemplated hereby and thereby, the failure to obtain which
would have a Bancshares Material Adverse Effect.
5.5 Bancshares Financial Statements.
(a) The consolidated balance sheets of Bancshares and Liberty
as of December 31, 1997 and the related consolidated statements of
income, consolidated statements of cash flows and consolidated
statements of stockholders' equity for the period ended December 31,
1997 (the "Bancshares Latest Statement Date") accompanied by the
unqualified opinion of Baird, Kurtz & Dobson, copies of which have been
furnished by Bancshares to Sac River; and the unaudited consolidated
balance sheet of Bancshares and Liberty as of March 31, 1998 and the
related consolidated statement of income, consolidated statement of
cash flows and consolidated statement of stockholders' equity for the
three (3) months then ended in
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the form prepared for Bancshares internal use, copies of which have
been furnished by Bancshares to Sac River (collectively, the
"Bancshares Financial Statements"), have been prepared in accordance
with generally accepted accounting principles as utilized in the
Bancshares Financial Statements applied on a consistent basis (except
as may be indicated therein or in the notes thereto), and present
fairly the consolidated financial condition of Bancshares and Liberty
at the dates, and the consolidated results of operations, changes in
stockholders' equity and cash flows for the periods, stated therein. In
the case of interim fiscal periods, all adjustments, consisting only of
normal recurring items, which management of Bancshares believes
necessary for a fair presentation of such financial information, have
been made, subject to year-end audit adjustments, none of which could
reasonably be expected to have a Bancshares Material Adverse Effect.
(b) Except as and to the extent set forth on the consolidated
balance sheets of Bancshares and Liberty, as of March 31, 1998, or in
the notes thereto, neither, Bancshares nor Liberty has any liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise) that would be required to be reflected on a balance sheet,
or in the notes thereto, prepared in accordance with generally accepted
accounting principles, except (i) for liabilities or obligations
incurred in the ordinary course of business since the Bancshares Latest
Statement Date that would not, individually or in the aggregate, have a
Bancshares Material Adverse Effect; or (ii) as otherwise reflected in
the Bancshares Reports (as defined below) filed prior to the date of
this Agreement. Except as disclosed in the Bancshares Disclosure
Letter, neither Bancshares nor Liberty has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or
otherwise) that are not required to be reflected on a balance sheet, or
in the notes thereto, except for liabilities or obligations that do
not, individually or in the aggregate, have a Bancshares Material
Adverse Effect.
(c) Without limitation to the foregoing, Bancshares'
consolidated allowance for the losses on loans included in the
Bancshares Financial Statements as of March 31, 1998 was $573,800.00.
To the knowledge of Bancshares, the amount of such allowance for losses
on loans was adequate to absorb reasonably expectable losses in the
loan portfolio of Liberty. To the knowledge of Bancshares, there are no
facts which would cause it to increase the level of such allowance for
losses on loans. To the knowledge of Bancshares, the documentation
relating to loans made by Liberty and relating to all security
interests, mortgages and other liens with respect to all collateral for
such loans, taken as a whole, is adequate for the enforcement of the
material terms of such loans and of the related security interests,
mortgages and other liens, except
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as enforcement may be limited by bankruptcy or similar laws or
principles of equity. To the knowledge of Bancshares, the terms of such
loans and of the related security interests, mortgages and other liens
comply in all material respects with all applicable laws, rules and
regulations (including laws, rules and regulations relating to the
extension of credit). Except as set forth in the Bancshares Disclosure
Letter, (i) as of March 31, 1998, there are no loans, leases, other
extensions of credit or commitments to extend credit of Liberty that
have been or should be, in accordance with generally acceptable
accounting principles, classified by Liberty as non-accrual, as
restructured, as ninety (90) days past due, as still accruing and
doubtful of collection or any comparable classification; and (ii)
Bancshares has provided to Sac River true, correct and complete in all
material respects such written information concerning the loan
portfolios of Liberty as Sac River has requested. Notwithstanding any
provision in this Section 5.5(c) to the contrary, Liberty makes no
representation or warranty with respect to the collectability of any
loan.
5.6 Reports. Bancshares and Liberty have filed all reports
registrations and statements, together with any amendments required to be made
with respect thereto, that were and are required to be filed with (i) the
Federal Reserve Board (i) the Division of Finance, (iii) the FDIC and (iv) any
other applicable federal or state banking authorities (all such reports and
statements are collectively referred to herein as the "Bancshares Reports"). As
of their respective dates, the Bancshares Reports filed prior to the date hereof
complied and will comply in all material respects with all of the statutes,
rules and regulations enforced or promulgated by the regulatory authority with
which they were filed, and did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5.7 Authorizations; Compliance with Applicable Laws.
(a) Bancshares and the Liberty hold all authorizations,
permits, licenses, variances, exemptions, orders and approvals of all
governmental entities which are material to the operation of the
businesses of Bancshares and Liberty taken as a whole (the "Bancshares
Permits"). All such Bancshares Permits are in full force and effect as
of the Closing Date, and Bancshares and Liberty are in compliance with
the terms of the Bancshares Permits, except where the failure so to
comply could not reasonably be expected to have a Bancshares Material
Adverse Effect. Except as disclosed in the Bancshares Reports filed
prior to the date of this Agreement or the Bancshares Disclosure
Letter, the businesses of Bancshares and Liberty are not being
conducted in violation of any Laws, except for
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possible violations which individually or in the aggregate do not, and,
insofar as reasonably can be foreseen, in the future will not, have a
Bancshares Material Adverse Effect. Except as set forth in the
Bancshares Disclosure Letter, as of the date hereof, no investigation
or review by a governmental entity with respect to Bancshares or to
Liberty that would cause a Bancshares Material Adverse Effect is
pending or, to the knowledge of Bancshares, threatened, nor has any
governmental entity indicated an intention to conduct the same. The
deposits of Liberty are insured by the FDIC to the extent provided by
law.
(b) The Bancshares Disclosure Letter identifies each parcel
of real estate currently owned, leased or otherwise possessed or
controlled by Bancshares or Liberty on the date of this Agreement,
including real estate owned as a result of foreclosure and properties
managed/or controlled by Liberty in connection with its lending or
fiduciary obligations (collectively the "Bancshares Property"). Except
as set forth in the Bancshares Disclosure Letter, to Bancshares'
knowledge, none of the Bancshares Property owned or leased by them for
use in the operation of their respective businesses is in violation of
any applicable zoning ordinance or other law, regulation or
requirements relating to the operation of any properties used,
including, without limitation, applicable federal, state, and local
laws, rules and regulations relating to the environment or to human
health and safety associated with the environment (collectively
"Environmental Laws"), other than violations that, in the aggregate
with any other conditions described in this Section 5.7(b), would not
have a Bancshares Material Adverse Effect; and neither Bancshares nor
Liberty has receive any notice of any such violation, or the existence
of any condemnation proceeding with respect to any Bancshares Property.
Except as set forth in the Bancshares Disclosure Letter, to the
knowledge of Bancshares, no Toxic Substances have been deposited or
disposed of in, on or under any Bancshares Property during the period
in which Bancshares or Liberty has owned, occupied, managed, controlled
or operated such properties, except to the extent the same, in the
aggregate with any other conditions described in this Section 5.7(b)
would not have a Bancshares Material Adverse Effect. Except as set
forth in the Bancshares Disclosure Letter, to Bancshares' knowledge, no
portion of the Bancshares Property has ever been used as a dump or
gasoline service station by any person, including past owners,
occupants and operators of such properties. To the knowledge of
Bancshares, there are no underground or above ground storage tanks
(whether or not currently in use) located on or under the Bancshares
Property, and no underground tanks previously located on the Bancshares
Property has been removed therefrom. To the knowledge of Bancshares,
there are no conditions or circumstances in connection with the
Bancshares Property that
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could reasonably be anticipated to (i) cause any Bancshares Property to
be subject to any restrictions on ownership, occupancy, use or
transferability under any applicable Environmental Laws; or (ii)
materially reduce the value of any Bancshares Property. To the
knowledge of Bancshares or Liberty, neither Bancshares nor Liberty has
been identified as a potentially responsible party in a matter arising
under any Environmental Laws.
5.8 Litigation and Claims. Except as disclosed in the Bancshares
Reports filed prior the date of this Agreement or in the Bancshares Disclosure
Letter, (a) neither Bancshares nor Liberty nor any Bancshares Property is
subject to any continuing order of, or written agreement or memorandum of
understanding with any federal or state banking or insurance authority or other
governmental entity, or any judgment, order, writ, injunction, decree or award
of any governmental entity or arbitrator, including, without limitation,
cease-and-desist or other orders of any banking authority; (b) there is no
action, suit, litigation, proceeding or arbitration against or affecting
Bancshares or Liberty, to the knowledge of Bancshares, any directors, officers,
employees or agents of Bancshares or Liberty (in their respective capacities as
directors, officers, employees or agents) pending or, to the knowledge of
Bancshares, threatened, which would, if adversely determined, have a Bancshares
Material Adverse Effect or, to the knowledge of Bancshares, any basis therefor;
and (c) there are no uncured material violations, or violations with respect to
which material refunds or restitutions may be required, cited in any compliance
report to Bancshares or Liberty as a result of the examination of any bank
regulatory authority.
5.9 Taxes. Bancshares and Liberty have filed all tax returns
required to be filed by them and have paid or has set up an adequate reserve
for the payment of all taxes required to be paid by them, except to the extent
which nonpayment did not result in a Bancshares Material Adverse Effect. The
most recent Bancshares financial statements contained in the Bancshares Reports
reflect an adequate reserve for all taxes payable by Bancshares and Liberty
accrued to the date of such financial statements. The Bancshares Disclosure
Letter sets forth, as of the date hereof, the following information with respect
to Bancshares and Liberty: (a) whether there is an examination pending by the
IRS with respect to such corporation and, if so, the tax years involved; (b)
whether such corporation has executed or filed with the IRS any agreement which
is still in effect extending the period for assessment and collection of any
federal tax and, if so, the tax years covered by such agreement and the
expiration date of such extension; and (c) whether there are any existing
material disputes as to state or local taxes. There are no liens for taxes upon
the assets of Bancshares or Liberty, except for statutory liens for taxes not
yet delinquent or the validity of which is being contested in good faith by
appropriate proceedings and, in either case, only if
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adequate reserves therefor have been established on Bancshares' books in
accordance with generally accepted accounting principles. Except as disclosed in
the Bancshares Disclosure Letter, neither Bancshares nor Liberty is a party to
any action or proceeding by any governmental authority for assessment and
collection of taxes, and no claim for assessment and collection of taxes has
been asserted against any of them. Bancshares and Liberty have withheld from
their employees (and timely paid to the appropriate governmental agency) amounts
which are proper and accurate in all material respects for all periods through
the date hereof in material compliance with all tax withholding provisions of
applicable federal, state, and local laws (including without limitation income,
social security and employment tax withholding for all types of compensation).
5.10 Certain Agreements. Except as discussed in the Bancshares
Reports filed prior to the date of this Agreement or as disclosed in the
Bancshares Disclosure Letter, and except for this Agreement and the agreements
expressly contemplated hereby, neither Bancshares nor Liberty is a party to any
oral or written (i) consulting or employment agreement or other agreement
providing any term of employment, compensation guarantee, or severance benefit,
(ii) union or collective bargaining agreement, (iii) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
option or stock purchase plan, any of the benefits of which will be increased,
or the vesting of the benefits of which will be accelerated, by the occurrence
of any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of the transactions
contemplated by this Agreement, (iv) any contract, agreement or other instrument
or undertaking which is not terminable by Bancshares without additional payment
or penalty within sixty (60) days and obligates Bancshares or Liberty for
payments or other consideration for a value in excess of Ten Thousand Dollars
($10,000.00), other than loan agreements entered into in the ordinary course of
business, (v) contract, agreement or understanding to repurchase assets
previously sold (or to indemnify or otherwise compensate the purchaser in
respect to such assets) (other than repurchase agreements entered into in the
normal course of business); (vi) contract containing covenants which limit the
liability of Bancshares or Liberty to compete in any line of business or with
any person or which involve any restriction of the geographical area in which,
or method by which, Bancshares or Liberty, as applicable, may carry on its
business (other than as may be required by law or applicable regulatory
authorities); or (vii) other executory material agreement. Except as set forth
in the Bancshares Disclosure Letter, neither Bancshares nor Liberty is in
Violation of any loan or credit agreement, note, mortgage, indenture or other
agreement, obligation or instrument applicable to Bancshares or Liberty or their
respective properties or assets, except for any such Violations that would not,
individually or in the aggregate, have a Bancshares Material Adverse Effect.
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5.11 Benefit Plans.
(a) The Bancshares Disclosure Letter lists (i) each
employee bonus, incentive, deferred compensation, stock purchase, stock
appreciation right, stock option, fringe benefit and severance pay
plan, (ii) each pension, profit sharing, stock bonus, thrift, savings
and employee stock ownership plan, (iii) each health, welfare,
disability, vacation, leave, perquisite or executive plan, program,
policy or practice, and (iv) every other employee benefit plan (within
the meaning of Section three (3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) (collectively "Bancshares
Benefit Plans") which Bancshares or Liberty maintains or to which
Bancshares or Liberty contributes on behalf of current or former
employees. Except as disclosed in the Bancshares Disclosure Letter, to
the knowledge of Bancshares, all of the Bancshares Benefit Plans listed
in the Bancshares Disclosure Letter comply with all applicable
requirements of the Internal Revenue Code, ERISA and all other
applicable federal and state laws and regulations, including, without
limitation, the reporting and disclosure requirements of ERISA. Each of
the Bancshares Benefit Plans which is intended to be a pension, profit
sharing, stock bonus, thrift, savings or employee stock ownership plan
that is qualified under Code Section 401(a) has been determined by the
IRS who so qualify under Code Section 401(a), and, except as disclosed
in the Bancshares Disclosure Letter, to the knowledge of Bancshares,
there exists no circumstances that would adversely affect the qualified
status of any such Bancshares Benefit Plan under that Section. Except
as set forth in the Bancshares Disclosure Letter, there is no pending
or, to the knowledge of Bancshares, threatened litigation, governmental
proceeding or investigation against or relating to any Bancshares
Benefit Plan, and to the knowledge of Bancshares there is no reasonable
basis for any material proceedings, claims, actions or proceedings
against Bancshares, Liberty, any Bancshares Benefit Plan, or any
fiduciary of any Bancshares Benefit Plan. Except as set forth in the
Bancshares Disclosure Letter, neither Bancshares, Liberty nor any party
in interest (as defined in Section 3(14) of ERISA and Code Section
4975(e)) nor any Bancshares Benefit Plan has engaged in a "prohibited
transaction" (as defined in Section 406 of ERISA and Code Section
4975(c)), and no Bancshares Benefit Plan has engaged in a transaction
involving the purchase or sale of employer securities by such Plan from
or to a "disqualified person" (within the meaning of Code Section
4975), other than pursuant to an exemption provided therein. All
Bancshares Benefit Plans that are group health plans, within the
meaning of Code Section 4980B or Section 601 of ERISA, have been
operated in material compliance with the group health plan continuation
coverage requirements of Code
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Section 4980B and Section 601 of ERISA to the extent such requirements
are applicable.
(b) There has been no amendment to, written interpretation
of, or announcement (whether or not written) relating to, or any change
in employee participation or coverage under, any Bancshares Benefit
Plan that is not reflected in the text of the Bancshares Benefit Plan
which would materially increase the expense (whether or not such
expense is recognized under generally accepted accounting principles)
to the employer whose employees are covered by such Bancshares Benefit
Plan. Except as expressly provided by applicable law where the terms of
a Bancshares Benefit Plan, no condition exists that would prevent the
amendment or termination of any Bancshares Benefit Plan with respect to
any employee. All employee and employer contributions with respect to
employees which are due and owing as of the Closing Date pursuant to
the Bancshares Benefit Plans have been made or will be accrued on the
Closing Date Financial Statements and, except for such accrued
liabilities, there are as of the Closing Date no other liabilities of
Bancshares or Liberty with respect to the Bancshares Benefit Plans.
(c) Bancshares has delivered to Sac River copies of (i) each
Bancshares Benefit Plan or if no plan document exists, a written
summary of the material terms thereof, (ii) current summary plan
descriptions of each Bancshares Benefit Plan for which they are
required, (iii) each trust agreement, insurance policy or other
instrument relating to the funding of any Bancshares Benefit Plan, (iv)
the most recent Annual Reports (Form 5500 Series) and accompanying
schedules filed with the IRS or the United States Department of Labor
with respect to each Bancshares Benefit Plan for which they are
required, (v) the most recent determination letter issued by the IRS
with respect to each Bancshares Benefit Plan that is intended to
qualify under Code Section 401, (vi) the most recent available
financial statements for each Bancshares Benefit Plan that has assets,
and (vii) the most recent audited financial statements for each
Bancshares Benefit Plan for which audited financial statements are
required by ERISA.
(d) The Bancshares Disclosure Letter describes any obligation
that Bancshares or Liberty has to provide health and welfare benefits
to retirees or other former employees or their dependents (other than
rights arising solely under Section 601 of ERISA or Code Section 4980B)
including information as to the number of retirees, other former
employees and dependents entitled to such coverage and their ages.
5.12 Insurance. Bancshares and Liberty are presently insured for
reasonable amounts with financially sound and reputable
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insurance companies against such risks as, to the knowledge of Bancshares,
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured. Neither Bancshares nor Liberty has any
liability for material unpaid premiums or premium adjustments not properly
reflected on the Bancshares Financial Statements and no notice of cancellation
or termination has been received by Bancshares or Liberty with respect to any
material insurance policy currently in effect. Except as disclosed in the
Bancshares Disclosure Letter, neither Bancshares nor Liberty has been refused
any insurance with respect to any assets or operations, nor has any coverage
been limited in any material respect as to any assets or operations, by any
insurance carrier to which it has applied for any such insurance or with which
it has carried insurance.
5.13 Absence of Certain Changes or Events. Except as disclosed in
the Bancshares Reports filed prior to the date of this Agreement or in the
Bancshares Disclosure Letter, and except as contemplated by this Agreement, from
and after January 1, 1998 through the date of this Agreement: (a) Bancshares and
Liberty have conducted their respective businesses only in the ordinary and
usual course consistent with past practice, (b) neither Bancshares nor Liberty
have amended their respective charters, (c) Bancshares has not granted any
option for the purchase of its capital stock, effected any stock split, or
otherwise changed its capitalization, (d) Bancshares has not declared, set aside
or paid any dividend or other distribution in respect to any of its capital
stock, (e) neither Bancshares, nor Liberty has issued or sold any of its capital
stock, or issued or sold any corporate debt securities or otherwise incurred
debt which would be classified as long term on the balance sheet, (f) Bancshares
has not (i) incurred any material obligations or liability (absolute or
contingent), except obligations or liabilities incurred in the ordinary course
of business, or (ii) mortgaged, pledged, or subjected to lien, claim, security
interest, charge, encumbrance or restriction any of its assets or properties,
(g) Bancshares has not discharged or set aside any material lien, mortgage,
pledge, claim, security interest, charge, encumbrance, or restriction or paid
any material obligation or liability (absolute or contingent), other than in the
ordinary course of business (h) Bancshares has not sold, assigned, transferred,
leased, exchanged, or otherwise disposed of, other than in the ordinary course
of business, any of its properties or assets, (i) Bancshares has not increased
the rate of compensation of, or paid any bonus to, any of its directors or
officers, except merit or promotion increases in accordance with existing
policies; entered into any new, or amended or supplemented any existing,
employment, management, consulting, deferred compensation, severance, or other
similar contract not heretofore provided to Sac River; adopted, entered into,
terminated, amended or modified any Bancshares Benefit Plan in respect to any of
its present or former directors, officers or other employees; or agreed to any
of the foregoing, (j) Bancshares has not suffered any material damage,
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destruction or loss as a result of fire, accident, casualty, labor trouble, or
taking of property by any government or any agency of any government, flood, or
other similar or dissimilar casualty or event or otherwise, and whether or not
covered by insurance (k) neither Bancshares nor Liberty has cancelled or
compromised any debt to the extent exceeding Ten Thousand Dollars ($10,000.00)
owed to Bancshares or Liberty or claim to an extent exceeding Ten Thousand
Dollars ($10,000.00) asserted by Bancshares or Liberty, (l) neither Bancshares
nor Liberty has entered, or agreed to enter, into any agreement or arrangement
granting any right of refusal or other preferential right to purchase any of its
material assets, properties or rights or requiring the consent of any party to
the transfer or assignment of any such material assets, properties or rights,
(n) there has not been any transaction, commitment, dispute or other event or
condition of any character (whether or not in the ordinary course of business)
individually or in the aggregate having or which, insofar as reasonably can be
foreseen, in the future is reasonably likely to have, a Bancshares Material
Adverse Effect (m) there has not been any material change in the method of
accounting or accounting practices of Bancshares and Liberty, except as required
by law or generally accepted accounting principles. Except as set forth in the
Bancshares Disclosure Letter, Bancshares has no knowledge of the announced or
anticipated resignation of any executive officer or key employee of Bancshares
or Liberty. From and after the date of the latest Bancshares Financial
Statement, through the date of this Agreement, no customers of Liberty have
indicated to Liberty that they will stop or decrease the rate of business done
with Liberty (except for changes in the ordinary course of business) such as to,
individually or in the aggregate, have a Bancshares Material Adverse Effect.
5.14 Properties, Leases and Other Agreements. Except as may be
reflected in the Bancshares Financial Statements, for any lien for current taxes
not yet delinquent, for pledges to secure deposits and for such other liens,
security interests, claims, charges, options or other encumbrances and
imperfections of title which do not materially affect the value of personal or
real property reflected in the Bancshares Financial Statements or acquired since
the date of such Financial Statements and which do not materially interfere with
or impair the present and continued use of such property, Bancshares and Liberty
have good title, free and clear of any liens, security interests, claims,
charges, options or other encumbrances, to all of the personal and real property
reflected in the Bancshares Financial Statements, and all personal and real
property acquired since the date of such Statements, except such personal and
real property as has been disposed of in the ordinary course of business. The
Bancshares Disclosure Letter lists all acquisitions or dispositions of capital
assets planned as of the date of this Agreement by Bancshares or Liberty, other
than individual transactions with a value not in excess of $50,000.00 each.
Substantially all Bancshares' and
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Liberty's buildings and equipment in regular use (including such buildings and
equipment as are leased) have been well maintained and are in good and
serviceable condition, reasonable wear and tear excepted. The Bancshares
Disclosure Letter contains a brief description, including terms, of each lease
for real or personal property to which Bancshares or Liberty is a party.
Bancshares or Liberty, as lessee, has a valid and existing leasehold interest
under each of such leases, true and correct copies of which Bancshares has
delivered to Sac River. There is not, under any of such leases relating to real
property or any other material leases, any material existing default by
Bancshares, Liberty or, to the knowledge of Bancshares, any other party thereto,
or any event with notice or lapse of time or both would constitute such a
material default.
5.15 Vote Required. The affirmative vote of holders of two-thirds
(2/3) fof the outstanding shares of Liberty common stock is the only
vote of the holders of Liberty common stock necessary to approve the
Agreement and the transactions contemplated hereby.
5.16 Tax Matters. To the knowledge of Bancshares, neither Bancshares
nor any of its affiliates has through the date hereof taken or agreed to take
any action that would prevent the Merger from qualifying as one or more
reorganizations under Code Section 368(a)(1).
5.17 Regulatory Impediments. As of the date hereof, Bancshares is
unaware of the existence of any factor that would materially delay or materially
hinder the issuance of any of the required regulatory approvals necessary to
consummate the Merger or the other transactions contemplated hereby, other than
any protests by an nongovernmental parties.
5.18 Full Disclosure. The representations and warranties of
Bancshares contained in this Agreement do not omit any material fact necessary
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading. There is no fact known to Bancshares which
has not been disclosed to Sac River pursuant to this Agreement, the Bancshares
Disclosure Letter and the Bancshares Reports, all taken together as a whole,
which would reasonably be expected to have a Bancshares Material Adverse Effect
or a material adverse effect on the ability of Bancshares or Sac River to
consummate the transactions contemplated hereby.
ARTICLE VI
COVENANTS OF SAC RIVER
6.1 Affirmative Covenants. Sac River hereby covenants and agrees
with Liberty and Bancshares that prior to the Effective Time or until the
earlier termination or abandonment of this Agreement in accordance with its
terms, unless the prior written consent of
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Liberty shall have been obtained (which consent shall not be unreasonably
withheld) and except as otherwise contemplated herein, it will:
(a) operate its business only in the usual, regular and
ordinary course consistent with past practices;
(b) preserve substantially intact its business organization
and assets (except for acquisitions and dispositions of assets in the
ordinary course of business consistent with past practices, unless
otherwise required by the terms of this Agreement), and maintain its
rights and franchises, and use its reasonable best efforts to retain
the services of its officers and key employees (except that it shall
have the right to terminate the employment of any officer or key
employee in accordance with established employment procedures) and
maintain its relationships with customers;
(c) maintain its corporate existence in good standing and
maintain all books and records in accordance with accounting principals
and practices as utilized in the Sac River Financial Statements
supplied on a consistent basis, except as may be required to implement
changes in the generally accepted accounting principles;
(d) maintain and keep its properties in as good repair and
condition as at present, except for depreciation due to ordinary wear
and tear;
(e) keep in full force and effect, insurance and bonds
comparable in amount and scope of coverage to that now maintained by
it;
(f) perform in all material respects all obligations required
to be performed by it under all material contracts, leases, and
documents relating to or affecting its assets, properties, and
business; and
(g) conduct its business in a manner but does not violate any
Laws, except for possible violations which individually or in the
aggregate do not, and, insofar as reasonably can be foreseen, in the
future will not, have a Sac River Material Adverse Effect.
6.2 Negative Covenants. Except as specifically contemplated by this
Agreement, from the date hereof unto the Effective Time, Sac River shall not do,
without the prior written consent of Bancshares (which shall not be unreasonably
withheld), any of the following:
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(a) incur any material liabilities or material obligations,
whether directly or by way of guaranty, including any obligation for
borrowed money whether or not evidenced by a note, bond, debenture or
similar instrument, except in the ordinary course of business
consistent with past practice;
(b) (i) grant any general increase in compensation to its
employees as a class, or to its officers or directors, except in
accordance with past practice or as required by law, or increases which
are not material, (ii) effect any change in retirement benefits to any
class of employees or officers (unless any such change shall be
required by applicable law) which would increase its retirement benefit
liabilities, (iii) adopt, enter into, amend or modify any Benefit Plan,
or (iv) enter into or amend any employment, severance or similar
agreements or arrangements with any directors or officers or former
directors or officers;
(c) declare or pay any dividend on, or make any other
distribution in respect to its outstanding shares of capital stock,
except its normal 1998 cash dividend not to exceed $80.00 per share,
with usual record and payment dates (provided, however, that the normal
dividend payable in December, 1998, may be paid immediately prior to
the Effective Date, if the Effective Date occurs prior to normal
December dividend payment date);
(d) (i) redeem, purchase or otherwise acquire any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, or any options,
warrants, conversion or other rights to acquire any shares of its
capital stock or any such securities or obligations; (ii) merge with or
into any other corporation or bank, permit any other corporation or
bank to merge into it or consolidate with, any other corporation or
bank, or effect any reorganization or recapitalization; (iii) purchase
or otherwise acquire any substantial portion of the assets, or more
than 5% of any class of stock, of any corporation, bank, or other
business; (iv) liquidate, sell dispose of, or encumber any assets or
acquire any assets, except in the ordinary course of its business
consistent with past practice; or (v) split, combine or reclassify any
of its capital stock or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of its capital stock;
(e) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale of, any shares of
its capital stock of any class (including shares held in treasury), any
Voting Debt or any securities convertible into, or any rights, warrants
or options to
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acquire, any such shares, Voting Debt or convertible securities;
(f) propose or adopt any amendments to its charter or by-laws
in any way adverse to Bancshares or Liberty;
(g) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into an agreement in
principle with respect to any acquisition of a material amount of
assets or securities or any release or relinquishment of any material
contract rights not in the ordinary course of business;
(h) with respect to properties leased by Sac River, renew,
exercise an option to extend, cancel or surrender any lease of real
property or allow any such lease to lapse, without prior consultation
with Liberty;
(i) change any of its methods of accounting in effect at
December 31, 1997, or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of the federal income tax returns for the taxable year
ending December 31, 1997, except as may be required by law or generally
accepted accounting principles;
(j) take action which would or is reasonably likely to (i)
adversely affect the ability of Sac River, Bancshares or Liberty to
obtain any necessary approvals of governmental authorities required for
the transactions contemplated hereby; (ii) adversely affect Sac River's
ability to perform its covenants and agreements under this Agreement;
or (iii) result in any of the conditions to the Merger set forth in
Article VIII hereof not being satisfied;
(k) change the lending, investment, liability management and
other material policies concerning the banking business of Sac River,
unless required by Law or order or unless such change does not cause a
Sac River Material Adverse Effect;
(l) (A) make, or agree to make, any loan or increase any
existing loan to any one borrower, (1) in the amount of $250,000.00; or
(2) would result in the aggregate indebtedness of said borrower to be
in excess of $500,000.00, unless said loan is made pursuant to a
properly documented and legally enforceable commitment of Sac River to
the borrower made prior to the date of this Agreement; (B) make or
agree to make, any new loan or advance on any existing loan, except of
in conformity with Sac River's current loan policies; (C) make any
change with respect to the terms of any existing loan, except in the
ordinary course of business; or (D) make or commit to make any further
advances on any loan which is
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either in default or classified, whether such classification is a
result of a federal or state bank regulatory examination or internal
classification of substandard or lower by Sac River's officers or
directors, unless Sac River is under a legal obligation to do so. With
respect to any Bancshares consent required by this Section 6.2(l),
Bancshares shall provide advice of its consent within three business
days after Bancshares has received the request for consent and
accompanying information necessary for Bancshares to consider the
request (the provisions of part A of this section shall not apply to
renewals of existing loans, advances under existing loans or increases
to existing loans for an amount below the applicable limits set forth
in part A);
(m) purchase any equity securities not in the ordinary course
of business; or
(n) agree in writing or otherwise to do any of the foregoing.
6.3 Access and Information. Except where prohibited by law, upon
reasonable prior notice, Sac River shall afford to Bancshares' officers,
employees, accountants, counsel and other representatives, access, from time to
time during normal business hours during the period prior to the Effective
Time, to all books, papers and records relating tot he assets, stock,
properties, operations, obligations and liabilities of Sac River, including
without limitation all books of account, tax records, minute books of
directors' and stockholders' meetings, contracts and agreements, filings with
any regulatory authority, accountants' work papers, litigation files (other
than attorney work product or materials protected by any attorney-client
privilege), documents relating to assets and title thereto, plans affecting
employees, securities transfer records and stockholder lists, and any books,
papers and records relating to other assets, business activities or prospects
in which Bancshares may have a reasonable interest, including without
limitation, its interest in planning for integration and transition with
respect to the business of Sac River. During such period, Sac River will cause
one or more of its representatives to confer on a regular and frequent basis
with representatives of Liberty, to report on the general status of its ongoing
operations and to consult as to the making of any decisions or the taking of
any actions in matters other than in the ordinary course of business. During
such period, Sac River shall, except where prohibited by law, furnish promptly
to Bancshares (i) Sac River Report filed or received by it during such period
pursuant to the requirements of any federal or state banking laws promptly
after such documents are available, (ii) the monthly financial statements of
Sac River (as prepared by Sac River in accordance with its normal accounting
procedures) promptly after such financial statements are available, (iii) a
summary of any action taken by the Board of Directors, or any committee
thereof,
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of Sac River, (iv) minutes of the Sac River Board of Directors meetings and the
reports of management of Sac River customarily provided to its Board of
Directors, and (v) all other information concerning its business, properties and
personnel as Bancshares may reasonably request. During such period, Sac River
shall instruct its officers, employees, counsel and accountants to be available
for, and respond to any questions of Bancshares' officers, employees,
accountants, counsel and other representatives at reasonable hours and with
reasonable notice by Bancshares to such individuals, and to cooperate fully with
Bancshares in planning for the integration of the business of Sac River with the
business of Bancshares and Liberty.
6.4 Update Disclosure; Breaches.
(a) From and after the date hereof until the Effective Time,
Sac River shall promptly, but not less frequently than monthly, update
the Sac River Disclosure Letter by notice to Bancshares to reflect any
matters which have occurred from and after the date hereof which, if
existing on the date hereof, would have been required to be described
therein; provided, however, that no such update shall affect the
conditions to the obligation of Bancshares to consummate the
transactions contemplated hereby, except as provided herein, and any
and all changes reflected in any such update shall be considered in
determining whether such conditions have been satisfied.
(b) Sac River shall, in the event it becomes aware of the
impending or threatened occurrence of any event or condition which
would cause or constitute a material breach (or would have caused or
constituted a breach had such even occurred or been known prior to the
date hereof) of any of its representations or agreements contained or
referred to herein of which would cause any of the conditions to the
obligations of any party set forth in Article IX hereof not to be
satisfied, give prompt written notice thereof to Bancshares and use its
best efforts to prevent or promptly remedy the same.
6.5 Tax Treatment. Sac River will use its best efforts to cause the
Merger to qualify as one or more reorganizations under Code Section 368(a)(1).
6.6 Dissent Process. Sac River will give to Bancshares prompt
notice of its receipt of any written notice relating to the exercise of
dissenters' rights granted under RSMo. ss.362.730, including the name of the
dissenting stockholder and the number of shares of stock to which the dissent
relates. Bancshares will have the right to participate in all negotiations and
proceedings with the Sac River stockholders relating to any such notice or the
exercise of such rights, and except as required by law, Sac River will not make
any payment with respect to, or settle or offer to
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settle, any dissent demands without the prior written consent of Bancshares.
6.7 Expenses.
(a) "Expenses" as used in this Agreement shall include all
reasonable out-of-pocket expenses (including all fees and expenses of
counsel, accountants, experts and consultants to the party and its
affiliates) incurred by a party or on its behalf in connection with the
consummation of the transactions contemplated by this Agreement.
(b) Except as otherwise provided herein or by law, all
Expenses incurred by Bancshares and Sac River in connection with or
related to the authorization, preparation and execution of this
Agreement and the Merger, the solicitation of stockholder approvals and
all other matters related to the closing of the transactions
contemplated hereby, including all fees and expenses of agents,
representatives, counsel and accountants employed by either such party
or its affiliates, shall be borne solely and entirely by the party
which has incurred the same, except that Bancshares shall pay the
expense of printing the S-4 and the Proxy Statement (as defined below)
and the expense of all SEC and other regulatory filing incurred in
connection herewith.
6.8 Delivery of Shareholder Lists. Sac River shall deliver to
Bancshares or its designee, from time to time prior to the Closing Date, a true
and complete list setting forth the names and addresses of all its shareholders
of record, their holdings of such stock as of the latest practicable date, and
such other shareholder information as is reasonably available that Bancshares
may reasonably request.
6.9 Shareholder Meetings. Sac River shall call a special meeting of
its shareholders for the purpose of voting upon the Merger and related matters,
and deliver notice of such meeting, as part of the Proxy Statement (as defined
below) to Sac River shareholders in accordance with applicable law. Sac River
shall coordinate and cooperate with Bancshares with respect to the timing of
such meeting and shall use its best efforts to hold such meeting as soon as
practicable after the date hereof, and in compliance with the Missouri Bank
Merger Laws. Unless otherwise required by law, Sac River shall not, at such
shareholders' meeting, submit any other matter for approval of its shareholders
(except with the prior written consent of Bancshares). Sac River will (i)
recommend to its shareholders approval of such matters, (ii) not withdraw,
modify or amend such recommendation, and (iii) use its best efforts to obtain
such shareholder approval.
6.10 Processing Contracts. As soon as reasonably practicable after
the approval of this Agreement by the Board of Directors of
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Sac River, Sac River will give notice to the other parties under such of Sac
River's agreements for credit card and merchant processing services and data
processing services as Bancshares may designate as to the intended termination
of such parties' respective agreements as soon as reasonably practicable after,
and contingent on, the Merger. Sac River will cooperate with Bancshares in using
its best efforts to minimize any termination penalties under such agreements.
ARTICLE VII
COVENANTS OF LIBERTY AND BANCSHARES
7.1 Affirmative Covenants. Liberty and Bancshares hereby covenant
and agree with Sac River that prior to the Effective Time, unless the prior
written consent of Sac River shall have been obtained (which consent shall not
be unreasonably withheld) and except as otherwise contemplated herein, they
will:
(a) operate their business only in the usual, regular and
ordinary course consistent with past practices;
(b) preserve substantially intact their business organization
and assets (except for acquisitions and dispositions of assets in the
ordinary course of business consistent with past practices unless
otherwise required by the terms of this Agreement), and maintain their
rights and franchises, and use their reasonable best efforts to retain
the services of their officers and key employees (except that they
shall have the right to terminate the employment of any officer or key
employee in accordance with established employment procedures) and
maintain their relationships with customers.
(c) maintain their corporate existence in good standing and
maintain all books and records in accordance with accounting principles
and practices as utilized in the Bancshares and Liberty Financial
Statements applied on a consistent basis, except as may be required to
implement changes in generally accepted accounting principles;
(d) maintain and keep their properties in as good repair and
condition as at present, except for depreciation due to ordinary wear
and tear;
(e) keep in full force and effect, insurance and bonds
comparable in amount and scope of coverage to that now maintained by
them;
(f) perform in all material respects all obligations required
to be performed by them under all material contracts,leases, and
documents relating to or affecting their assets, properties, and
business; and
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(g) conduct their business in a manner that does not violate
any Laws, except for possible violations which individually or in the
aggregate do not, and, insofar as reasonably can be foreseen, in the
future will not, have a Bancshares Material Adverse Effect.
7.2 Negative Covenants. Except as specifically contemplated by this
Agreement, from the date hereof until the Effective Time, Liberty and Bancshares
shall not do, or agree or commit to do, without the prior written consent of Sac
River (which shall not be unreasonably withheld) any of the following:
(a) incur any material liabilities or material obligations,
whether directly or by way of guaranty, including any obligation for
borrowed money whether or not evidenced by a note, bond, debenture or
similar instrument, except in the ordinary course of business
consistent with past practice;
(b) (i) grant any general increase in compensation to its
employees as a class, or to its officers or directors, except in
accordance with past practice or as required by law, or increases which
are not material, (ii) effect any change in retirement benefits to any
class of employees or officers (unless any such change shall be
required by applicable law) which would increase its retirement benefit
liabilities, (iii) adopt, enter into, amend or modify any Benefit Plan,
or (iv) enter into or amend any employment, severance or similar
agreements or arrangements with any directors or officers or former
directors or officers;
(c) declare or pay any dividend on, or make any other
distribution in respect to its outstanding shares of capital stock,
except normal cash dividends declared and paid by Liberty to
Bancshares;
(d) (i) redeem, purchase or otherwise acquire any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, or any options,
warrants, conversion or other rights to acquire any shares of its
capital stock or any such securities or obligations; (ii) merge with or
into any other corporation or bank, permit any other corporation or
bank to merge into it or consolidate with, any other corporation or
bank, or effect any reorganization or recapitalization; (iii) purchase
or otherwise acquire any substantial portion of the assets, or more
than 5% of any class of stock, of any corporation, bank, or other
business; (iv) liquidate, sell dispose of, or encumber any assets or
acquire any assets, except in the ordinary course of its business
consistent with past practice; or (v) except as provided herein, split,
combine or reclassify any of its capital stock or issue or authorize or
propose the
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issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock;
(e) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale of, any shares of
its capital stock of any class (including shares held in treasury), any
Voting Debt or any securities convertible into, or any rights, warrants
or options to acquire, any such shares, Voting Debt or convertible
securities;
(f) propose or adopt any amendments to its charter or by-laws
in any way adverse to Sac River or Liberty;
(g) authorize, recommend, propose or announce an intention
to authorize, recommend or propose, or enter into an agreement in
principle with respect to any acquisition of a material amount of
assets or securities or any release or relinquishment of any material
contract rights not in the ordinary course of business;
(h) with respect to properties leased by Liberty or
Bancshares, renew, exercise an option to extend, cancel or surrender
any lease of real property or allow any such lease to lapse, without
prior consultation with Sac River;
(i) change any of its methods of accounting in effect at
December 31, 1997, or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of the federal income tax returns for the taxable year
ending December, 1997, except as may be required by law or generally
accepted accounting principles;
(j) take action which would or is reasonably likely to (i)
adversely affect the ability of Sac River, Bancshares or Liberty to
obtain any necessary approvals of governmental authorities required for
the transactions contemplated hereby; (ii) adversely affect Bancshares'
or Liberty's respective ability to perform its covenants and agreements
under this Agreement; or (iii) result in any of the conditions to the
Merger set forth in Article VIII hereof not being satisfied;
(k) change the lending, investment, liability management and
other material policies concerning the banking business of Liberty,
unless required by Law or order or unless such change does not cause a
Bancshares Material Adverse Effect;
(l) (A) make, or agree to make, any loan or increase any
existing loan to any one borrower, (1) in the amount of $250,000.00; or
(2) would result in the aggregate indebtedness of said borrower to be
in excess of $500,000.00, unless said
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loan is made pursuant to a properly documented and legally enforceable
commitment of Liberty to the borrower made prior to the date of this
Agreement; (B) make or agree to make, any new loan or advance on any
existing loan, except of in conformity with Liberty's current loan
policies; (C) make any change with respect to the terms of any existing
loan, except in the ordinary course of business; or (D) make or commit
to make any further advances on any loan which is either in default or
classified, whether such classification is a result of a federal or
state bank regulatory examination or internal classification of
substandard or lower by Liberty's officers or directors, unless Liberty
is under a legal obligation to do so. With respect to any Sac River
consent required by this Section 7.2(l), Sac River shall provide advice
of its consent within three business days after Sac River has received
the request for consent and accompanying information necessary for Sac
River to consider the request (the provisions of part A of this section
shall not apply to renewals of existing loans, advances under existing
loans or increases to existing loans for an amount below the applicable
limits set forth in part A);
(m) purchase any equity securities not in the ordinary course
of business; or
(n) agree in writing or otherwise to do any of the foregoing.
7.3 Access and Information. Except where prohibited by law, upon
reasonable prior notice Bancshares shall ( and shall cause Liberty to) afford to
Sac River's officers, employees, accountants, counsel and other representatives,
access, from time to time during normal business hours during the period prior
to the Effective Time, to all books, papers and records relating to the assets,
stock, properties, operations, obligations and liabilities of Bancshares and
Liberty, including without limitation all books of account tax records, minute
books of directors' and stockholders' meetings, contracts and agreements,
filings with any regulatory authority, accountants' work papers, litigation
files (other than attorney work product or materials protected by any
attorney-client privilege), documents relating to assets and title thereto,
plans affecting employees, securities transfer records and stockholder lists,
and any books, papers and records relating to other assets, business activities
or prospects in which Sac River may have a reasonable interest. During such
period, Bancshares will cause one or more of its representatives to confer on a
regular and frequent basis with representatives of Sac River, to report on the
general status of its ongoing operations and to consult as to the making of any
decision or the taking of any actions in matters other than in the ordinary
course of business. During such period, Bancshares shall (and shall cause
Liberty to), except where prohibited by law, furnish promptly to Sac River (i) a
copy of each Bancshares
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Report filed or received by it during such period pursuant to the requirements
of the BHC Act and any other federal or state banking laws promptly after such
documents are available; (ii) the monthly financial statements of Bancshares and
Liberty (as prepared by Bancshares in accordance with its normal accounting
procedures) promptly after such financial statements are available; (iii) a
summary of any action taken by the Board of Directors, or any committee thereof,
of Bancshares; (iv) minutes of the Bancshares Board of Directors meetings and
the reports of management of Bancshares and Liberty customarily provided to
their respective Boards of Directors; and (v) all other information concerning
its business, properties and personnel as Sac River may reasonably request.
During such period, Bancshares shall, and shall cause Liberty to, instruct its
officers, employees, counsel and accountants to be available for, and respond to
any questions of, Sac River's officers, employees, accountants, counsel and
other representatives at reasonable hours and with reasonable notice by Sac
River to such individuals, and to cooperate fully with Sac River in planning for
the integration of the business of Sac River with the business of Bancshares and
Liberty.
7.4 Update Disclosure; Breaches.
(a) From and after the date hereof until the Effective Time,
Bancshares shall promptly, but not less frequently than monthly, update
the Bancshares Disclosure Letter by notice to Sac River to reflect any
matters which have occurred from and after the date hereof which, if
existing on the date hereof, would have been required to be described
therein; provided, however, that no such update shall affect the
conditions to the obligation of Sac River to consummate the
transactions contemplated hereby, except as provided herein, and any
and all changes reflected in any such update shall be considered in
determining whether such conditions have been satisfied.
(b) Bancshares shall, in the event it becomes aware of the
impending or threatened occurrence of any event or condition which
would cause or constitute a material breach (or would have caused or
constituted a breach had such event occurred or been known prior to the
date hereof) of any of its representations or agreements contained or
referred to herein or which would cause any of the conditions to the
obligations of any party set forth in Article IX to be satisfied, give
prompt written notice thereof to Sac River and use its best efforts to
prevent or promptly remedy the same.
7.5 Liberty Benefit Plans. Liberty shall provide to retained
employees of Sac River all corporate-wide employee retirement, health, dental,
life and long-term disability benefits that Liberty provides to its similarly
situated employees, subject to the age and eligibility requirements for such
benefits. Each such employee's last continuous period of service prior to the
Effective
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Time with Sac River shall count for purposes of determining eligibility and
vesting for all such benefits. If such coverage under the Liberty benefits is
not provided immediately after the Effective Time, Liberty shall continue the
Sac River plans until coverage is effective under Liberty's plans so that no
lapse in benefits occurs. Without limiting the generality of the foregoing, no
preexisting condition limits shall be applied to participants in Benefit Plans
upon their eligibility for such Liberty benefits (except for continuation of any
such limits that were in effect under the applicable Benefit Plans). For the
purpose of determining each employees's benefit for the year in which the Merger
occurs under the Liberty vacation program, vacation taken by an employee in the
year in which the Merger occurs will be deducted from the total Liberty benefit.
7.6 Tax Treatment. Bancshares will use its best efforts to cause
the Merger to qualify as one or more reorganizations under Code ss.368(a)(1).
Following the Merger, Bancshares and Liberty will not take any action the effect
of which will prevent the Merger from qualifying as one or more reorganizations
under Code Section 368(a)(1).
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 Filings and Approvals.
(a) Each party will use all reasonable efforts and will
cooperate with the other in the preparation and filing, as soon as
practicable, of all applications or other documents required to obtain
the requisite approvals of and consents to the Merger and other
transactions contemplated by this Agreement, from the Federal Reserve
Board, the Division of Finance and the FDIC as applicable, and from any
other applicable bank regulatory authorities and provide copies of
nonconfidential portions of such applications, filings and related
correspondence to the other parties. Prior to filing each application,
notice or other documents with the applicable regulatory authority,
each party will provide the other party with an opportunity to review
and comment on the nonconfidential portions of each such application,
notice or other document. Each party shall ensure that none of the
information supplied or to be supplied by it for inclusion or
incorporation by reference in any documents to be filed with the
Federal Reserve Board, the Division of Finance, the FDIC or any other
regulatory agency in connection with the transactions contemplated
hereby will, at the time of filing, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein. Subject to the terms and conditions herein provided, each
party will use all reasonable efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary,
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proper or advisable to cause the conditions herein provided, each party
will use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to cause the conditions set forth in Article IX to be
satisfied, including participating in any required hearings or
proceedings, and to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement. Each party
shall keep the other advised of all material regulatory developments in
a timely manner.
(b) In the event of a restraining order or injunction which
prevents the Closing by reason of the operation of Section 9.1(a), Sac
River and Bancshares shall use their respective best efforts to cause
such order or injunction to be lifted and the Closing to be consummated
as soon as reasonably practicable.
8.2 Registration Statement.
(a) For the purposes of (i) holding a meeting of the
stockholders of Sac River to approve this Agreement and the Merger (the
"Meeting") and (ii) registering the Bancshares common stock to be
issued to holders of Sac River common stock in connection with the
Merger with the Securities and Exchange Commission (the "SEC") and with
applicable state securities authorities, the parties hereto shall
cooperate in the preparation of an appropriate registration statement
(such registration statement, together with all and any amendments and
supplements thereto, being herein referred to as the "S-4"), which
shall include a joint prospectus of Bancshares and proxy statement of
Sac River (the "Proxy Statement") that shall satisfy all applicable
requirements of the Securities Act, the Exchange Act, applicable state
securities laws and the rules and regulations thereunder.
(b) Bancshares shall furnish such information concerning
Bancshares as is necessary in order to cause the Proxy Statement,
insofar as it relates to Bancshares to be prepared in accordance with
Section 8.2(a) hereof. Bancshares agrees promptly to advise Sac River
if any time prior to the Meeting any information provided by Bancshares
in the Proxy Statement becomes incorrect or incomplete in any material
respect, and to provide the information needed to correct such
inaccuracy or omission. At the time the S-4 becomes effective and at
the time the Proxy Statement is mailed to the shareholders of Sac River
and at all times subsequent to such mailing up to and including the
time of the Meeting, the S-4 and such Proxy Statement (including any
amendments or supplements thereto), with respect to all information set
forth therein relating to Bancshares (including Liberty) and the
Bancshares common stock, this Agreement, the Merger and all other
transactions
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contemplated hereby, will (a) comply in all material respects with
applicable provisions of the Securities Act and the Exchange Act, and
(b) not contain any untrue statement of material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which
they are made, not misleading.
(c) Sac River shall furnish Bancshares with such information
concerning Sac River as is necessary in order to cause the Proxy
Statement, insofar as it relates to Sac River, to be prepared in
accordance with Section 8.2(a) hereof. Sac River agrees promptly to
advise Bancshares if at any time prior to the Meeting any information
provided by Sac River in the Proxy Statement become incorrect or
incomplete in any material respect, and to provide Bancshares with the
information needed to correct such inaccuracy or omission. At the time
the S-4 become effective and at the time the Proxy Statement is mailed
to the shareholders of Sac River and at all times subsequent to such
mailings up to and including the time of the Meeting, the S-4 and the
Proxy Statement (including any supplements thereto), with respect to
all information set forth therein relating to Sac River and its
shareholders, Sac River common stock, this Agreement, the Merger and
all other transactions contemplated hereby will (a) comply in all
material respects with applicable provisions of the Securities Act and
the Exchange Act, and (b) not contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they are made, not misleading.
(d) Bancshares shall file the S-4 with the SEC and applicable
state securities agencies. Bancshares shall use best efforts to cause
the S-4 to become effective under the Securities Act and applicable
state securities laws at the earliest practicable date. Sac River
authorizes Bancshares to utilize in the S-4 the information concerning
Sac River provided to Bancshares for the purpose of inclusion in the
Proxy Statement. Sac River shall have the right to comment on and
approve the form of the proxy statement included in the S-4. Bancshares
shall advise Sac River promptly when the S-4 has become effective and
of any supplements or amendments thereto, and Bancshares shall furnish
Sac River with copies of all such documents. Prior to the Effective
Time or the termination of this Agreement, each party shall consult
with the other with respect to any material (other than the Proxy
Statement) that might constitute a "prospectus" relating to the Merger
within the meaning of the Securities Act.
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8.3 Reports.
(a) Prior to the Effective Time, (i) Sac River shall prepare
and file as and when required all Sac River Reports and (ii) Bancshares
and Liberty shall prepare and file as and when required all Bancshares
and Liberty Reports.
(b) Bancshares, Liberty and Sac River shall prepare such
Reports such that (i) they comply in all material respects with all of
the statutes, rules and regulations enforced or promulgated by the
regulatory authority with which they are filed and do not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made,not misleading, and (ii) with respect to any Report containing
financial information of the type included in the Sac River Financial
Statements or the Bancshares Financial Statements, respectively, the
financial information (A) is prepared in accordance with generally
accepted accounting principles as utilized in the Sac River Financial
Statements or the Bancshares Financial Statements, as of the case may
be, applied on a consistent basis (except as stated therein or in the
notes thereto), (B) presents fairly the consolidated financial
condition of Sac River and Bancshares, as the case may be, at the
dates, and the consolidated results of operations and cash flows for
the periods, stated therein and (C) in the case of interim fiscal
periods, reflects all adjustments, consisting only of normal recurring
items, subject to year-end audit adjustments.
8.4 Brokers or Finders. Each of Sac River and Bancshares
represents, as to itself, its subsidiaries and its affiliates, that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee in connection with nay of the transactions contemplated by this Agreement,
and each of Sac River and Bancshares respectively agree to indemnify and hold
the other harmless from and against any and all claims, liabilities or
obligations with respect to any other fees, commissions or expenses asserted by
any person on the basis of any act or statement alleged to have been made by
such party or its affiliate.
8.5 Additional Agreements; Reasonable Efforts. Subject to the terms
and conditions of this agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, subject to the appropriate vote of the shareholders of Sac River
described in Section 9.1 hereof, including cooperating fully with the other
party. In case at any
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time after the Effective Time any further action is reasonably necessary or
desirable to carry out the purposes of this Agreement or to vest Liberty with
full title to all properties, assets, rights approvals, immunities and
franchises of Sac River, the proper officers and directors of each party to this
Agreement shall take all such necessary action.
ARTICLE IX
CONDITIONS PRECEDENT
9.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction prior to the Closing Date of the following conditions:
(a) Corporate Approval.
(i) The Merger shall have been approved and
adopted by the requisite vote of the holders of the outstanding
shares of Sac River common stock and Liberty common stock.
(ii) The Board of Directors of Bancshares shall
have approved an increase in the number of directors of its
Board to seventeen (17) directors, and the Board of Directors
of Liberty shall have approved an increase in the number of
directors of its Board to sixteen (16) directors, and both
Boards shall have taken such action necessary to effectuate
such increases.
(iii) The Board of Directors and shareholders of
Bancshares shall have approved the following:
(1) Amending the articles of
incorporation of Bancshares to provide for the
elimination of preemptive rights of shareholders
effective as of the Effective Time of the Merger;
and
(2) Terminating the Bancshares
Shareholders Agreement dated May 1, 1995, effective
as of Effective Time of the Merger.
(b) Regulatory Approvals. This Agreement and the Merger shall
have been approved by the Federal Reserve Board, the Division of
Finance and the FDIC, as applicable and any other applicable bank
regulatory authorities without any condition not reasonably
satisfactory to Bancshares and Sac River, all conditions required to be
satisfied prior to the Effective Time imposed by the terms of such
approvals shall have been satisfied and all waiting period relating to
such approvals shall have expired.
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(c) S-4: Securities Laws. The S-4 shall have become
effective under the Securities Act and shall not be the subject of any
stop order or proceedings seeking a stop order. Bancshares shall
have received all state securities or "blue sky" permits or exemptions
necessary to issue the Bancshares common stock in exchange for the Sac
River common stock and to consummate the Merger.
(d) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect.
(e) Tax Opinion. An opinion of Husch and Eppenberger, LLC, in
a form satisfactory to Sac River, to the Boards of Directors of Sac
River and Bancshares, to the effect that (i) the Merger will be
treated for federal income tax purposes as one or more reorganizations
within the meaning of Code Section 368(a), (ii) each Constituent
Corporation will be a party to that reorganization within the meaning
of Code Section 368(b) and (iii) no gain or loss will be recognized by
the shareholders of Sac River upon the receipt solely of Bancshares
common stock in the Merger in exchange for their shares of Sac River
common stock, dated on or about the dates that are each two business
days prior to the date the Proxy Statement is first mailed to
stockholders of Sac River, shall have been delivered to Sac River and
to Bancshares and shall not have been withdrawn or modified in any
material respect. The opinion shall specifically state that it may be
relied upon by the shareholders of Sac River. Husch and Eppenberger,
LLC, may request that it be provided with certain representations,
warranties and assumptions from Bancshares, Liberty and Sac River upon
which it will be expressly authorized to rely in issuing said opinion.
9.2 Conditions to Obligations of Bancshares. The obligation of
Bancshares to effect the Merger are subject to the satisfaction of the following
conditions, unless waived in writing by Bancshares:
(a) Representations and Warranties. (i) Each of the
representations and warranties of Sac River set forth in this
Agreement, without giving effect to any update to the Sac River
Disclosure Letter or notice to Bancshares under Section 6.5 hereof,
shall be true and correct in all material respects as of the date of
this Agreement, and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as
though made on and as of the Closing Date, and (ii) Bancshares shall
have received a certificate to such effect signed on behalf of Sac
River by its chief executive officer.
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(b) Performance of Obligations of Sac River. Sac River shall
have performed in all material respects each of the obligations
required to be performed by it under this Agreement at or prior to the
Closing Date, and Bancshares shall have received a certificate to such
effect signed on behalf of Sac River by its chief executive officer.
(c) Consents Under Agreements. Sac River shall have obtained
the consent or approval of each person whose consent or approval shall
be required in order to permit the succession by Liberty pursuant to
the Merger to any obligation, right or interest of Sac River under any
loan or credit agreement, note, mortgage, indenture, lease or other
agreement or instrument, except those for which failure to obtain such
consents and approvals would not, individually or in the aggregate,
have a Sac River Material Adverse Effect, whether prior to or following
the consummation of the transactions contemplated hereby.
(d) No Material Adverse Change. There shall have been no
material adverse change since the date of this Agreement in the
business, operations, prospects or financial condition of Sac River
other than any such change attributable to or resulting from any change
in law, regulation or generally accepted accounting principles which
impairs both Sac River and Liberty in a substantially similar manner,
and Bancshares shall have received a certificate to such effect signed
on behalf of Sac River by its chief executive officer.
(e) No Proceeding or Litigation. No material action, suit or
proceeding before any court or any governmental or regulatory authority
shall be pending against Bancshares, Liberty, Sac River or any
affiliate, associate, officer or director of any of them seeking to
restrain, enjoin, prevent, change or rescind the transactions
contemplated hereby or questioning the validity or legality of any such
transactions.
(f) Allowance for Losses on Loans. If Bancshares believes
that Sac River's allowance for loan losses is inadequate, it will
within ten (10) days prior to the Closing recommend to the Board of
Directors of Sac River an adjustment in the amount of such allowance
which, if reasonable and consistent with prudent banking practices,
shall be approved by such Board.
(g) Outstanding Common Stock. As of the Closing Date, the
number of outstanding shares of Sac River common stock shall not be
greater than ten thousand (10,000), and the Optional Per Share Cash
Amounts elected by the Sac River shareholders shall not have exceeded
the Optional Cash Payment
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Limitation at the time of the Election Deadline (or, if applicable, the
Extended Election Deadline).
9.3 Conditions to Obligations of Sac River. The obligation of Sac
River to effect the Merger is subject to the satisfaction of the following
conditions, unless waived by Sac River:
(a) Representations and Warranties. (i) Each of the
representations and warranties of Bancshares set forth in this
Agreement, without giving effect to any update to the Bancshares
Disclosure Letter or notice to Sac River pursuant to Section 7.4, shall
be true and correct in all material respects as of the date of this
Agreement and (except to the extent such representations speak as of an
earlier date) as of the Closing Date as though made on and as of the
Closing Date, and (ii) Sac River shall have received a certificate to
such effect signed on behalf of Bancshares by its chief executive
officer.
(b) Performance of Obligations of Bancshares. Bancshares
shall have performed in all material respects each of the obligations
required to be performed by it under this Agreement at or prior to the
Closing Date, and Sac River shall have received a certificate to such
effect signed on behalf of Bancshares by its chief executive officer.
(c) Consents Under Agreements. Bancshares shall have obtained
the consent or approval of each person whose consent or approval shall
be required in connection with the transactions contemplated hereby
under any loan or credit agreement, note, mortgage, indenture, lease or
other agreement or instrument, except those for which failure to obtain
such consents and approvals would not, individually or in the
aggregate, have a Bancshares Material Adverse Effect whether prior to
or following the consummation of the transactions contemplated hereby.
(d) No Material Adverse Change. There shall have been no
material adverse change since the date of this Agreement in the
business, operations, prospects or financial condition of Bancshares or
Liberty other than any such change attributable to or resulting from
any change in law, regulation or generally accepted accounting
principles which impairs both Sac River and Liberty in a substantially
similar manner, and Sac River shall have received a certificate to such
effect signed on behalf of Bancshares by its chief executive officer.
(e) No Proceeding or Litigation. No material action, suit or
proceeding before any court or any governmental or regulatory authority
shall be pending against the Bancshares, Liberty, Sac River or any
affiliate, associate, officer or director or any of them seeking to
restrain, enjoin, prevent,
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change or resend the transactions contemplated hereby or questioning
the validity or legality of any such transactions.
(f) Allowance for Losses on Loans. If Sac River believes that
Bancshares' allowance for loan losses is inadequate, it will within ten
(10) days prior to the Closing recommend to the Board of Directors of
Liberty an adjustment in the amount of such allowance which, if
reasonable or consistent with prudent banking practices, shall be
approved by such Board.
(g) Optional Cash Payment Limitation. The Optional Per Share
Cash Amounts elected by the Sac River shareholders shall not have
exceeded the Optional Cash Payment Limitation at the time of the
Election Deadline (or, if applicable, the Extended Election Deadline).
(h) Tax Treatment. Sac River reasonably believes, as of the
Closing Date, that the Merger will qualify as one or more
reorganizations under Code Section 368(a)(1).
ARTICLE X
TERMINATION AND AMENDMENT
10.1 Termination. This Agreement and the Merger may be terminated at
any time prior to the Effective Time, whether before or after approval of the
matters presented in connection with the Merger by the shareholders of Sac
River:
(a) by mutual consent of the Board of Directors of Bancshares
and the Board of Directors of Sac River;
(b) by Bancshares or Sac River (i) if there has been a breach
in any material respect of any representation, warranty, covenant or
agreement on the part of Sac River, on the one hand, or Bancshares, on
the other hand, set forth in this Agreement, or (ii) if the
representations and warranties of Sac River, on the one hand, or
Bancshares, on the other hand, shall be discovered to have become
materially untrue in the aggregate, in either case which breach or
other condition has not been cured within thirty (30) business days
following receipt of the non-terminating party of notice of such breach
or other condition;
(c) by Bancshares, on the one hand, or Sac River, on the
other hand, if any permanent injunction preventing the consummation of
the Merger shall be become final and nonappealable;
(d) subject to Section 1.2 hereof, by the Board of Directors
of Bancshares or the Board of Directors of Sac River if the Merger
shall not have been consummated before March 31,
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1999, for a reason other than the failure of the terminating party to
comply with its obligations under this Agreement;
(e) by the Board of Directors of Bancshares or the Board of
Directors of Sac River if (i) the Federal Reserve Board, the Division
of Finance, the FDIC or other applicable bank regulatory authority has
denied approval of the Merger and neither Bancshares nor Sac River has,
within thirty (30) days after the entry of the order denying such
approval, filed a petition seeking review of such order as provided by
applicable law or (ii) any such petition for review has been denied;
(f) by Sac River or Bancshares, if (i) this Agreement and the
Merger are not duly approved by the shareholders of Sac River or
Liberty after a vote thereon at a meeting of Sac River's or Liberty's
shareholders (or any adjournment thereof) duly called and held for such
purpose;
10.2 Investigation and Review.
(a) Subject to the next following sentence, at any time on or
prior to the 20th day following the receipt of the Sac River Disclosure
Letter, Bancshares may, by action of its Board of Directors, elect to
terminate this Agreement on behalf of Bancshares. Nothing in this
Section 10.2(a) shall be construed (i) to limit the period of time
during which Bancshares may conduct its investigation and review of Sac
River, (ii) to limit any duty to Sac River otherwise to cooperate with
the investigation and review by Bancshares subsequent to the period
established pursuant to the first sentence of this subsection (a), or
(iii) to limit or qualify in any respect the representations and
warranties of Sac River to Bancshares set forth in this Agreement as a
result of any such investigation and review.
(b) Subject to the next following sentence, at any time on or
prior to the 20th day following receipt of the Bancshares Disclosure
Letter, Sac River may, by action of its Board of Directors, elect to
terminate this Agreement on behalf of Sac River. Nothing in this
Section 10.2(b) shall be construed (i) to limit the period of time
during which Sac River may conduct its investigation and review of
Bancshares and Liberty; (ii) to limit any duty of Bancshares otherwise
to cooperate with the investigation and review by Sac River subsequent
to the period established pursuant to the first sentence of this
subsection (b); or (iii) to limit or qualify in any respect the
representations and warranties of Bancshares to Sac River set forth in
this Agreement as a result of such investigation and review.
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10.3 Effect of Termination. In the event of termination of this
Agreement by Sac River or Bancshares as provided in Sections 10.1 or 10.2
hereof, this Agreement and the Merger shall forthwith become void and there
shall be no liability or obligation on the part of Bancshares or Sac River or
their respective officers or directors except (a) with respect to Sections 6.7
and 8.4 hereof, and (b) to the extent that such termination results from the
willful breach by a party hereto of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
10.4 Amendment. Subject to the last sentence of this Section 10.4,
this Agreement may be amended by the parties hereto by action taken or
authorized by their respective Boards of Directors at any time before or after
approval of the matters presented in connection with the Merger by the
shareholders of Sac River and Liberty, but after any such approval by the
shareholders of Sac River and Liberty, no amendment shall be made which changes
in any manner adverse to such shareholders the consideration to be provided to
such shareholders pursuant to this Agreement. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
10.5 Extension; Waiver. At any time prior to the Effective Time,
Bancshares and Sac River, by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties of the
other contained herein or in any document delivered by the other pursuant
hereto, and (iii) waive compliance by the other with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE XI
GENERAL PROVISIONS
11.1 Non-Survival of Representations, Warranties and Agreements.
None the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements and instruments contained or specified in
Sections 2.3 and 2.4, Article III, Sections 6.4, 6.7, 7.4, 7.5, 7.6, 8.5, and
9.1(e), the last sentence of Section 10.4, and this Article XI.
11.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by nationally
recognized overnight courier service, telecopied (with receipt confirmed) or
mailed by registered or certified mail (return receipt requested) to the parties
at the
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following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Bancshares and/or Liberty: Mr. Gary E. Metzger
President
Liberty Bank
1414 E. Primrose
Springfield, MO 65804
Fax: (417) 888-2080
(b) if to Sac River: Mr. Garry L. Robinson
President
Sac River Valley Bank
P.O. Box B
Stockton, MO 65785
Fax: (417) 276-4624
11.3 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
11.4 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein) (a) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof (b) except as expressly provided herein, is not intended to confer upon
any person other than the parties hereto any rights or remedies hereunder.
11.5 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Missouri.
11.6 Publicity. The parties hereto agree that they will consult with
each other concerning any proposed press release or public announcement
pertaining to the Merger and use their best efforts to agree upon the text of
such press release or public announcement prior to the publication of such press
release or the making of such public announcement.
11.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
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11.8 Knowledge of the Parties. Wherever in this Agreement any
representation or warranty is made upon the knowledge of a party hereto that is
not an individual, such knowledge shall include the knowledge, after due
inquiry, of any executive officer of such party or an executive officer of any
subsidiary thereof.
11.9 Confidentiality. Except for information that is available to
the public, all information concerning Sac River and its customers made
available to or in the possession of Bancshares shall be kept as confidential.
Except for information that is available to the public, all information
concerning Bancshares, Liberty and their customers made available to or in the
possession of Sac River shall be kept as confidential.
IN WITNESS WHEREOF, Bancshares, Liberty and Sac River have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
(Corporate Seal) LIBERTY BANCSHARES, INC.
ATTEST:
By /s/ Gary E. Metzger
-------------------------------------
/s/ Pat L. Sechler Gary E. Metzger, President
- -----------------------------
Secretary/Assistant Secretary "Bancshares"
(Corporate Seal) LIBERTY BANK
ATTEST:
By /s/ Gary E. Metzger
/s/ Pat L. Sechler -------------------------------------
- ----------------------------- Gary E. Metzger, President
Secretary/Assistant Secretary
"Liberty"
(Corporate Seal) SAC RIVER VALLEY BANK
ATTEST:
By /s/ Garry L. Robinson
/s/ Stephen T. Drew -------------------------------------
- ----------------------------- Garry L. Robinson, President
Secretary/Assistant Secretary
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STATE OF MISSOURI )
) ss.
COUNTY OF Greene )
On this 18th day of June, 1998, before me personally appeared Gary E.
Metzger, to me personally known, who being duly sworn, did say that he is the
President of Liberty Bancshares, Inc. (the "Corporation"), that the seal affixed
to this instrument is the corporate seal of the Corporation, and that the said
instrument was signed and sealed on behalf of the Corporation by authority of
its Board of Directors and the said Gary L. Metzger acknowledged said instrument
to be the free act and deed of the Corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal, at my office in Springfield, the day and year first above
written.
/s/ Pat L. Sechler
----------------------------------
Notary Public
My commission expires: 11-14-2000
STATE OF MISSOURI )
) ss.
COUNTY OF Greene )
On this 18th day of June, 1998, before me personally appeared Gary E.
Metzger, to me personally known, who being duly sworn, did say that he is the
President of Liberty Bank (the "Corporation"), that the seal affixed to this
instrument is the corporate seal of the Corporation, and that the said
instrument was signed and sealed on behalf of the Corporation by authority of
its Board of Directors and the said Gary L. Metzger acknowledged said instrument
to be the free act and deed of the Corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal, at my office in Springfield, the day and year first above
written.
/s/ Pat L. Sechler
------------------------------------
Notary Public
My commission expires: 11-14-2000
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STATE OF MISSOURI )
) ss.
COUNTY OF Cedar )
On this 18th day of June, 1998, before me personally appeared Garry L.
Robinson, to me personally known, who being duly sworn, did say that he is the
President of Sac River Valley Bank (the "Corporation"), that the seal affixed to
this instrument is the corporate seal of the Corporation, and that the said
instrument was signed and sealed on behalf of the Corporation by authority of
its Board of Directors and the said Gary L. Metzger acknowledged said instrument
to be the free act and deed of the Corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal, at my office in Stockton, MO, the day and year first above
written.
/s/ Carla S. Barnes
------------------------------------
Notary Public
My commission expires: 8/14/01
CARLA S. BARNES
NOTARY PUBLIC - NOTARY SEAL
STATE OF MISSOURI
CEDAR COUNTY
MY COMMISSION EXPIRES AUG. 14, 2001
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EXHIBIT "A"
AGREEMENT TO MERGE
SAC RIVER VALLEY BANK
WITH AND INTO
LIBERTY BANK
UNDER THE CHARTER OF
LIBERTY BANK
WITH THE TITLE OF
"LIBERTY BANK"
THIS AGREEMENT TO MERGE (hereinafter called this "Agreement"), dated
the ______ day of _______________, 1998, by and among Liberty Bancshares, Inc.,
a Missouri corporation with its principal place of business located at 1414 East
Primrose, Springfield, Missouri, 65804 ("Bancshares"); Liberty Bank, a Missouri
chartered bank and wholly owned subsidiary of Bancshares with its main office
located at 1414 East Primrose, Springfield, Greene County, Missouri ("Liberty");
and Sac River Valley Bank, a Missouri chartered bank with its main office
located in Stockton, Cedar County, Missouri ("Sac River"). (Liberty and Sac
River are sometimes hereinafter collectively referred to as the "Constituent
Banks").
W I T N E S S E T H:
WHEREAS, Liberty has an authorized capitalization consisting of
thirty-four thousand (34,000) shares of common stock, par value Fifty Dollars
($50.00) per share, all of which are issued and outstanding and are owned of
record and beneficially by Bancshares as of the date hereof; and
WHEREAS, Sac River has an authorized capitalization consisting of ten
thousand (10,000) shares of common stock, par value Thirty Dollars ($30.00) per
share, all of which are issued and outstanding as of the date hereof; and
WHEREAS, as of December 31, 1997, the equity capital of Liberty was
Seven Million Six Hundred Three Thousand Dollars ($7,603,000.00) divided into
thirty-four thousand (34,000) shares of common stock, of a par value of Fifty
Dollars ($50.00) each, surplus of Five Million Five Hundred Ninety-Two Thousand
Dollars ($5,592,000.00) and undivided profits, including capital reserves, of
Three Hundred Eleven Thousand Dollars ($311,000.00); and
<PAGE> 233
WHEREAS, as of December 31, 1997, the equity capital of Sac River was
Eleven Million One Hundred Forty Thousand Dollars ($11,140,000.00), divided into
ten thousand (10,000) shares of common stock, each of a par value of Thirty
Dollars ($30.00) each, surplus of Five Hundred Thousand Dollars ($500,000.00),
undivided profits, including capital reserves, of Ten Million Three Hundred
Fifteen Thousand Dollars ($10,315,000.00), and net unrealized holding gains
unavailable for sale securities of Twenty Five Thousand Dollars ($25,000.00);
and
WHEREAS, Bancshares has, on the date hereof, authorized capital
consisting of 5,000,000 shares of common stock, par value of $1.00 per share (as
approved by the shareholders of Bancshares on May 19, 1998), of which on the
date hereof 511,090 shares are issued and outstanding; and
WHEREAS, the Boards of Directors of Sac River, Liberty and Bancshares
deem it advisable to merge Sac River in and into Liberty (the "Merger") in
accordance with the provisions of RSMo. Sections 362.610 to 362.810, inclusive;
and
WHEREAS, Sac River, Liberty and Bancshares have entered into an
Agreement and Plan of Merger dated as of June 18, 1998 (the "Reorganization
Agreement"), providing for the Merger; and
WHEREAS, the Board of Directors and the shareholders of Sac River have
approved this Agreement and the Merger in accordance with the provisions of
RSMo. Sections 362.610 to 362.810, inclusive; and
WHEREAS, the Board of Directors and the sole shareholder of Liberty
have approved this Agreement and the Merger in accordance with RSMo.
Sections 362.610 to 362.810, inclusive, the Board of Directors of Bancshares has
approved this Agreement and the Merger in accordance with The General and
Business Corporation Law of Missouri and no action by the shareholders of
Bancshares is required under The General and Business Corporation Law of
Missouri in order to approve this Agreement and the Merger;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, mutual covenants and agreements herein contained,
the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 Subject to and in accordance with the provisions of this Agreement,
Sac River shall be merged with and into Liberty (being sometimes referred to
herein as the "Surviving Association") under the charter of Liberty. The time
the Merger becomes effective is hereinafter referred to as the "Effective Date."
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1.2 The name of the Surviving Association shall be "Liberty Bank".
1.3 From and after the Effective Date, the Surviving Association shall
be considered the same business and corporate entity as the Constituent Banks,
with all of the rights, powers, duties and liabilities of the Constituent Banks.
Pursuant to the Merger, all assets of Sac River as of the Effective Date shall
pass to and vest in the Surviving Association, and all liabilities of Sac River
as of the Effective Date shall attach to and become liabilities of the Surviving
Association, without any conveyance or other action.
1.4 Prior to and after the Effective Date, Bancshares, Liberty and Sac
River shall take all such actions as may be necessary or appropriate in order to
effect the Merger. If at any time after the Effective Date any further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Association with full title to all properties, assets and rights
of Sac River as of the Effective Date, the officers of Bancshares, Liberty and
Sac River shall take all such further action.
ARTICLE II
TERMS OF CONVERSION AND EXCHANGE OF SHARES
2.1 On the Effective Date, by virtue of the Merger and without any
action on the part of any holder of any share of Liberty common stock or any
share of Sac River common stock, but subject to RSMo. Section 362.730 with
respect to the rights of dissenting shareholders, the following shall occur:
(a) Each issued and outstanding share of Liberty common stock
on the Effective Date shall remain issued and outstanding and shall be
unchanged by the Merger.
(b) Each issued and outstanding share of Sac River common
stock issued and outstanding after the Effective Date shall cease to be
outstanding, and shall be automatically cancelled and retired and shall
cease to exist, and shall be converted into and exchanged for the right
to receive common stock of Bancshares, fully paid and non-assessable,
and cash from Bancshares, as follows:
(i) Cash in the amount of Four Hundred Eighty-Five
Dollars & 70/100 ($485.70) per share (the "Mandatory Per Share
Cash Amount"). In no event, however, shall the Mandatory Per
Share Cash Amounts exceed, in the aggregate, Four Million
Eight Hundred Fifty-Seven Thousand Dollars ($4,857,000.00);
and
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(ii) At the election of each shareholder of Sac
River, with respect to each share of Sac River common stock:
(A) Cash in the amount of One Thousand Fifty
Dollars ($1,050.00) per share (the "Optional Per
Share Cash Amount"); provided, however, that the
total cash payable by Bancshares with respect to the
Optional Per Share Cash Amount to all shareholders of
Sac River shall not exceed Two Million Eight Hundred
Thousand Dollars ($2,800,000.00), less cash
distributed in lieu of fractional shares (the
"Optional Cash Payment Limitation"); or
(B) The right to receive 35.516 shares of
common stock of Bancshares (the "Exchange Ratio").
2.2 In the event Bancshares changes the number of shares of Bancshares
common stock issued and outstanding prior to the Effective Date as a result of a
stock split, stock dividend, or similar recapitalization with respect to such
stock and the record date therefore (in the case of a stock dividend) or the
effective date thereof (in the case of a stock split or similar recapitalization
for which a record date is not established) shall be prior to the Effective
Date, the Exchange Ratio shall be proportionately adjusted.
2.3 Notwithstanding any other provision of this Agreement, each holder
of shares of Sac River common stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Bancshares
common stock (after taking into account all certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a shares of Bancshares common stock multiplied
by the value of one share of Bancshares common stock at the Effective Date. For
purposes of this Agreement, the value of one share of Bancshares common stock at
the Effective Date shall be $29.56 (subject to adjustment as provided in Section
2.2 hereof). No such holder shall be entitled to dividends, voting rights, or
any other rights as a shareholder in respect of any fractional shares.
2.4 Elections by shareholders of Sac River to receive Optional Per
Share Cash Amounts shall be made by mailing or delivering to the Exchange Agent
(as defined below) the Form of Election delivered to the shareholders of Sac
River with the Proxy Statement (as defined in the Reorganization Agreement). To
be effective, a Form of Election must be properly completed, signed and
submitted by the shareholder no later than the date of the special meeting of
the shareholders of Sac River held to approve the Merger (the "Election
Deadline"). In the event the special
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shareholders meeting is adjourned to a specified date no longer than ninety (90)
days after such adjournment, the Election Deadline shall be such specified date
(the "Extended Election Deadline"). Sac River and Bancshares shall mail the Form
of Election with the Proxy Statement to all holders of Sac River common stock on
the record date of the Sac River special shareholders' meeting and shall make
the Form of Election available to all persons who become holders of Sac River
common stock subsequent to such day and no later than the close of business on
the business day prior to the Extended Election Deadline. All elections by
shareholders to receive Optional Per Share Cash Amounts may be revoked or
amended until the Extended Election Deadline. If no such election is filed by a
Sac River shareholder, no Optional Per Share Cash Amount shall be made to the
shareholder, and all of the Sac River shares held by the shareholder shall be
exchanged for Bancshares common stock in accordance with the Exchange Ratio
(except for the Mandatory Per Share Cash Amount). Each Sac River shareholder who
does not vote in favor of the Merger as of the Extended Election Deadline shall
be deemed, subject to the right hereinabove provided for amendment or revocation
of the election and subject to the provisions of Section 2.9 hereof, to have
made an election to receive Optional Per Share Cash Amounts with respect to his
or her shares, regardless of the actual Form of Election submitted by said
shareholder
2.5 At the closing of the Merger (the "Closing" or "Closing Date"),
Bancshares shall deposit with Husch & Eppenberger, LLC (the "Exchange Agent"),
for the benefit of the then holders of shares of Sac River common stock,
certificates dated as of the Closing Date representing the shares of Bancshares
common stock, the cash to be paid in lieu of fractional shares, the Optional Per
Share Cash Amounts (if any), and the Mandatory Per Share Cash Amounts (such cash
and certificates of Bancshares common stock, together with any dividend or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") to be issued and paid pursuant to Section 2.1 hereof in
exchange for the outstanding shares of Sac River common stock. Within five (5)
business days after the Closing Date, Bancshares shall cause the Exchange Agent
to mail to each holder of record as of the Closing Date of a Sac River
certificate or certificates (i) a letter of transmittal which will specify that
delivery shall be effective, and risk of loss and title to the Sac River
certificate(s) shall pass, only upon delivery of the Sac River certificate(s) to
the Exchange Agent and which shall be in such form and have such other
provisions as Bancshares and Sac River may reasonably specify, and (ii)
instructions for use in effecting the surrender of the Sac River certificate(s)
in exchange for a certificate representing shares of Bancshares common stock,
cash to be paid in lieu of any fractional share, the Optional Per Share Cash
Amount (if any) and the Mandatory Per Share Cash Amount. Upon surrender of a
shareholder's Sac River certificate or certificates for cancellation to the
Exchange Agent together with such letter of transmittal, duly
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executed, the holder of such Sac River certificate(s) shall be entitled to
receive in exchange therefore, within ten (10) business days following said
surrender, (1) a certificate representing the applicable number of whole shares
of Bancshares common stock, and (2) a check representing the amount of the cash
to be paid in lieu of a fractional share, if any, the Optional Per Share Cash
Amount (if any) and the Mandatory Per Share Cash Amount, and the Sac River
certificate(s) so surrendered shall forthwith be cancelled; provided, however,
that any Sac River shareholder who does not vote in favor of the Merger shall
not be entitled to receive said cash earlier than sixty (60) days after the
Effective Date. Except for said shareholders (who, except as provided in Section
2.9 hereof, shall receive interest at the rate of 9% per annum during the period
of sixty (60) days following the Effective Date), no interest will be paid on
the cash in lieu of fractional shares, if any, the Optional Per Share Cash
Amount (if any), and the Mandatory Per Share Cash Amount. Any applicable stock
transfer taxes shall be paid by Bancshares. Adoption of this Agreement by the
shareholders of Sac River and Liberty shall constitute ratification of the
appointment of the Exchange Agent.
2.6 At the Effective Date, the stock transfer books of Sac River shall
be closed as to holders of Sac River common stock immediately prior to the
Effective Time and no transfer of Sac River common stock by any such holder
shall thereafter be made or recognized. Until surrendered for exchange in
accordance with the provisions of Section 2.5 hereof, each certificate
theretofore representing shares of Sac River common stock shall from and after
the Effective Time represent for all purposes only the right to receive the
consideration provided in Section 2.1 hereof in exchange therefore, subject,
however, to Bancshares' obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Date which have been
declared or made by Sac River in respect of such shares of Sac River common
stock in accordance with the terms of this Agreement and which remain unpaid at
the Effective Date. Whenever a dividend or other distribution is declared by
Bancshares on the Bancshares common stock, the record date for which is at or
after the Effective Date, the declaration shall include dividends or other
distributions on all shares of Bancshares common stock issuable pursuant to this
Agreement, but beginning thirty (30) days after the Effective Date no dividend
or other distribution payable to the holders of record of Bancshares common
stock as of any time subsequent to the Effective Date shall be delivered to the
holder of any certificate representing shares of Sac River common stock issued
and outstanding at the Effective Date until such holder surrenders such
certificate (or an affidavit in lieu thereof pursuant to Section 2.8 hereof) for
exchange as provided in Section 2.5 of this Agreement. However, upon surrender
of Sac River common stock certificate, both the Bancshares common stock
certificate (together with all such undelivered dividends or other distributions
without interest) and any undelivered dividends and cash payments payable
6
<PAGE> 238
thereunder (without interest) shall be delivered and paid with respect to each
share represented by such certificate.
2.7 Any portion of the Exchange Fund that remains unclaimed by the
shareholders of Sac River for twelve (12) months after the Closing Date shall be
paid to Bancshares. Any shareholders of Sac River who have not theretofore
complied with this Article II shall thereafter look only to Bancshares for
payment of their shares of Bancshares common stock, cash in lieu of any
fractional share of Bancshares common stock, Optional Per Share Cash Amount (if
any) and Mandatory Per Share Cash Amount, without any interest thereon.
Notwithstanding the foregoing, neither the Exchange Agent nor Bancshares shall
be liable to any former holder of shares of Sac River common stock for any
amount properly delivered to a public official pursuant to any applicable
abandoned property, escheat or similar laws.
2.8 In the event any Sac River certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Sac River certificate to be lost, stolen or destroyed and, if
required by the Exchange Agent, the execution and delivery of an indemnity
agreement whereby said person shall agree to indemnify the Exchange Agent and
Bancshares against any claim which may be made against it with respect to such
Sac River certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Sac River certificate the shares of Bancshares common stock
and cash in an amount as determined in accordance with Section 2.1 hereof,
deliverable in respect thereof pursuant to this Agreement.
2.9 Each issued and outstanding share of Sac River common stock, the
holder of which has validly asserted dissenters' rights pursuant to RSMo.
Section 362.730 and has not effectively withdrawn or lost such rights, shall
not be converted into or represent a right to receive the consideration
specified in Section 2.1 hereof, but the holder thereof shall be entitled only
to such rights as are granted by RSMo. Section 362.730. In the event the holder
of Sac River common stock validly asserts dissenters' pursuant to RSMo.
Section 362.730, any cash held by the Exchange Agent with respect to said
shareholder's shares shall be paid by the Exchange Agent to the Surviving
Association. Each shareholder entitled, pursuant to the provisions of RSMo.
Section 362.730, to payment for his or her shares of Sac River common stock,
shall receive payment therefore from the Surviving Association (but only after
the amount thereof shall have been agreed upon or determined pursuant to such
provisions) and such shares of Sac River common stock shall be cancelled. If
any holder of shares of Sac River common stock who asserts dissenters' rights
under RSMo. Section 362.730 effectively withdraws or loses (through failure to
perfect or otherwise) such rights, each such share of Sac River common stock
shall be converted into the right to receive the consideration specified in
Section 2.1 hereof.
7
<PAGE> 239
ARTICLE III
CONDUCT OF BUSINESS
3.1 The business of the Surviving Association shall be that of a
Missouri banking association.
3.2 The business of the Surviving Association shall be conducted at the
Surviving Association's main office, located at 1414 East Primrose, Springfield,
Missouri 65804, and at its legally established branches, as approved by the
Missouri Commissioner of Finance (the "Commissioner of Finance").
ARTICLE IV
ARTICLES OF ASSOCIATION AND BY-LAWS
4.1 From and after the Effective Date until they are duly amended, the
Articles of Association of the Surviving Association shall read in their
entirety as set forth in Schedule "1", attached hereto and made a part hereof by
this reference.
4.2 The By-Laws of Liberty immediately prior to the Merger shall be the
By-Laws of the Surviving Association from and after the Effective Date until
they are duly amended.
ARTICLE V
DIRECTORS AND OFFICERS
5.1 The directors of the Constituent Banks in office immediately prior
to the Effective Date, as listed on Schedule "2", attached hereto and made a
part hereof by this reference, shall serve as the directors of the Surviving
Association from and after the Effective Time in accordance with By-Laws of the
Surviving Association.
5.2 The officers of Liberty in office immediately prior to the
Effective Date shall serve in the same capacities with the Surviving Association
from and after the Effective Date in accordance with the By-Laws of the
Surviving Association. In addition, Garry L. Robinson shall serve as the
Executive Vice-President of the Surviving Association, and all current vice
presidents of Sac River shall serve as vice presidents of the Surviving
Association.
ARTICLE VI
EFFECTIVE DATE
6.1 The Effective Date of the Merger shall be at such time as this
Agreement, a copy of the minutes of the respective
8
<PAGE> 240
shareholders' meetings at which the Merger was approved, with a copy of the
approval of the Boards of Directors of the Constituent Banks, all certified and
verified by the respective secretaries of the meetings, shall be filed with the
Commissioner of Finance and in and with such additional offices as required by
the provisions of RSMo. Sections 362.610 to 362.810, inclusive.
ARTICLE VII
TERMINATION
7.1 This Agreement shall automatically terminate and the Merger shall
be abandoned upon termination of the Reorganization Agreement by Liberty or Sac
River in accordance with the provisions of Article X of the Reorganization
Agreement.
ARTICLE VIII
AMENDMENT
8.1 Subject to the last sentence of this Section 8.1, this Agreement
may be amended by the parties hereto by action taken or authorized by the
respective Boards of Directors at any time before or after approval of the
matters presented in connection with the Merger by the shareholders of Sac River
and Liberty, but after any such approval by the shareholders of Sac River and
Liberty, no amendment shall be made which changes in any manner adverse to such
shareholders the consideration to be provided to such shareholders pursuant to
this Agreement. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
ARTICLE IX
MISCELLANEOUS
9.1 This Agreement may be executed in counterparts, each of which when
so executed shall be deemed to be an original and such counterparts shall
constitute but one and the same instrument.
9.2 This Agreement shall be governed and construed in accordance with
the laws of the State of Missouri.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first above written.
9
<PAGE> 241
(Corporate Seal) LIBERTY BANCSHARES, INC.
ATTEST:
By__________________________________
_____________________________ Gary E. Metzger, President
Secretary/Assistant Secretary
"Bancshares"
(Corporate Seal) LIBERTY BANK
ATTEST:
By__________________________________
_____________________________ Gary E. Metzger, President
Secretary/Assistant Secretary
"Liberty"
(Corporate Seal) SAC RIVER VALLEY BANK
ATTEST:
By__________________________________
_____________________________ Garry L. Robinson, President
Secretary/Assistant Secretary
STATE OF MISSOURI )
) ss.
COUNTY OF ____________ )
On this _______ day of __________________, 1998, before me personally
appeared Gary E. Metzger, to me personally known, who being duly sworn, did say
that he is the President of Liberty Bancshares, Inc. (the "Corporation"), that
the seal affixed to this instrument is the corporate seal of the Corporation,
and that the said instrument was signed and sealed on behalf of the Corporation
by authority of its Board of Directors and the said Gary L. Metzger acknowledged
said instrument to be the free act and deed of the Corporation.
10
<PAGE> 242
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal, at my office in _____________________________, the day and year
first above written.
__________________________
Notary Public
My commission expires:___________________________
STATE OF MISSOURI )
) ss.
COUNTY OF ____________ )
On this _______ day of __________________, 1998, before me personally
appeared Gary E. Metzger, to me personally known, who being duly sworn, did say
that he is the President of Liberty Bank (the "Corporation"), that the seal
affixed to this instrument is the corporate seal of the Corporation, and that
the said instrument was signed and sealed on behalf of the Corporation by
authority of its Board of Directors and the said Gary L. Metzger acknowledged
said instrument to be the free act and deed of the Corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal, at my office in _____________________________, the day and year
first above written.
__________________________
Notary Public
My commission expires:___________________________
STATE OF MISSOURI )
) ss.
COUNTY OF ____________ )
On this _______ day of __________________, 1998, before me personally
appeared Garry L. Robinson, to me personally known, who being duly sworn, did
say that he is the President of Sac River Valley Bank (the "Corporation"), that
the seal affixed to this instrument is the corporate seal of the Corporation,
and that the said instrument was signed and sealed on behalf of the Corporation
by authority of its Board of Directors and the said Gary L. Metzger acknowledged
said instrument to be the free act and deed of the Corporation.
11
<PAGE> 243
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal, at my office in _____________________________, the day and year
first above written.
___________________________
Notary Public
My commission expires:___________________________
12
<PAGE> 244
EXHIBIT "B"
LIST OF DIRECTORS OF SURVIVING BANK
William P. Gaut
Lyle D. Graesser
Kenneth E. Hamilton
Jack Hoke
Gary E. Metzger
Richard A. Pendleton
Wayne E. Scheer
C. Tal Wooten, Jr.
Dixie Letsch
C. W. "Bill" Neale
Howard K. Johnson
Franklin Smith
Neale W. Johnson
Garry L. Robinson
Stephen T. Wrenn
Charles Skaggs
13
<PAGE> 245
APPENDIX B
[HUSCH & EPPENBERGER, LLC LETTERHEAD]
October 9, 1998
Liberty Bancshares, Inc.
1414 East Primrose
Springfield, MO 65804
Liberty Bank
1414 East Primrose
Springfield, MO 65804
Sac River Valley Bank
P.O. Box B
Stockton, MO 65785
RE: Agreement and Plan of Merger, Dated as of June 18, 1998, among
Sac River Valley Bank, Liberty Bancshares, Inc. and Liberty Bank
Ladies and Gentlemen:
We have acted as counsel for Liberty Bank ("Liberty") and Liberty
Bancshares, Inc. ("Bancshares") in connection with the proposed merger (the
"Merger") of Sac River Valley Bank ("Sac River") with and into Liberty, pursuant
to the terms of the above-referenced agreement (the "Agreement"). Liberty is the
wholly owned subsidiary of Bancshares. Unless otherwise defined herein, all
capitalized terms shall have the respective meetings set forth in the Agreement.
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion, including, but not limited to,
the current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Regulations promulgated thereunder, and applicable
judicial and administrative interpretations thereof, existing as of the date
hereof, any of which is subject to change at any time. We have also made the
following factual assumptions:
1. The Merger will be consummated in accordance with the
terms of the Agreement.
<PAGE> 246
HUSCH & EPPENBERGER, LLC
Liberty Bancshares, Inc.
Liberty Bank
Sac River Valley Bank
October 9, 1998
Page 2
2. The representations and warranties of the parties under
the Agreement will be true and correct in all material respects as of
the effective date of the Merger, except to the extent waived by the
parties.
3. As of the effective date of the Merger, there will be
no plan or intention on the part of Bancshares or any entity related to
Bancshares to reacquire any of the shares of Bancshares common stock to
be issued in the Merger.
4. Bancshares will not terminate the Sac River Valley Bank
Employee Stock Ownership Plan at any time sooner than one year
following the effective date of the Merger.
5. Bancshares will not have any call rights with respect
to the Bancshares stock to be received by the Sac River stockholders in
the Merger.
6. Except as may be provided in Article XI of the Sac
River Valley Bank Employee Stock Ownership Plan and Trust Agreement, no
Sac River shareholder will have put rights with respect to any
Bancshares stock to be received in the Merger.
7. Total cash consideration to Sac River shareholders in
exchange for their Sac River common stock, including the reasonable
cash value of shares of Sac River shareholders who exercise dissenters'
rights granted under RSMo. Section 362.730 with respect to their Sac
River common stock (by applying in the appropriate court either before
or after the Merger by petition for the appointment of appraisers to
value said shares), as finally determined by a court of competent
jurisdiction, shall not exceed, in the aggregate, $8,657,000.00.
8. Liberty will acquire at least 90% of the fair market
value of the net assets and at least 70% of the fair market value of
the gross assets held by Sac River immediately prior the Merger.
9. Prior to the Merger, Bancshares will own all of the
issued and outstanding shares of stock of Liberty.
10. Following the Merger, Liberty will not issue additional
shares of its stock that would result in Bancshares losing control of
Liberty within the meaning of Code Section 368(c).
<PAGE> 247
HUSCH & EPPENBERGER, LLC
Liberty Bancshares, Inc.
Liberty Bank
Sac River Valley Bank
October 9, 1998
Page 3
11. As of the effective date of the Merger, Bancshares will
have no plan or intention to liquidate Liberty; to merge Liberty with
and into another corporation; to sell or otherwise dispose of the stock
of Liberty; or to cause Liberty to sell or otherwise dispose of any of
the operating assets of Sac River acquired in the Merger, except for
dispositions made in the ordinary course of business or transfers
described in Code Section 368(a)(2)(C).
12. The liabilities of Sac River assumed by Liberty and the
liabilities to which the transferred assets of Sac River are subject
were incurred by Sac River in the ordinary course of its business.
13. Following the Merger, Liberty will continue the
historic business of Sac River or use a significant portion of Sac
River's business assets in a business.
14. Bancshares, Liberty, Sac River, and the shareholders of
Sac River will pay their respective expenses, if any, incurred in
connection with the Merger.
15. There is no inter-corporate indebtedness existing
between Bancshares and Liberty or between Liberty and Sac River that
was issued, acquired or will be settled at a discount.
16. The fair market value of the assets of Sac River
transferred to Liberty will equal or exceed the sum of the liabilities
assumed by Liberty, plus the amount of liabilities, if any, to which
the transferred assets are subject.
17. No stock of Liberty will be used in the Merger.
Based upon the foregoing assumptions, and in reliance upon the matters
set forth above, and subject to the exceptions and qualifications contained
herein, we are of the opinion that, for federal income tax purposes:
1. The Merger will constitute a "reorganization" within
the meaning of Code Section 368(a)(1)(A) and Code Section 368(a)(2)(D),
and each of Bancshares, Liberty and Sac River will be a party to a
reorganization within the meaning of Code Section 368(b).
<PAGE> 248
HUSCH & EPPENBERGER, LLC
Liberty Bancshares, Inc.
Liberty Bank
Sac River Valley Bank
October 9, 1998
Page 4
2. No gain or loss will be recognized by Bancshares,
Liberty, or Sac River as a result of the Merger.
3. Sac River stockholders will not recognize any gain or
loss upon the receipt of Bancshares common stock (as opposed to cash)
in exchange for their Sac River common stock.
4. The tax basis of the Bancshares common stock received
by a Sac River stockholder will be the same as the basis of the Sac
River common stock surrendered in exchange therefor reduced by the
portion of the basis allocable to the fractional shares of Bancshares
stock received in the Merger.
5. The holding period for Bancshares stock received by Sac
River stockholder in the Merger will include the period during which
the Sac River common stock surrendered in exchange therefor was held.
6. Each Sac River stockholder will recognize gain equal to
the lesser of (i) the amount of cash received in the Merger or (ii)
the amount, if any, by which the sum of the cash plus the fair market
value of the Bancshares stock received in the Merger exceeds the
stockholder's basis in the Sac River shares surrendered. For purposes
of determining the character of such gain, the cash received in the
Merger will be treated as if shares of Bancshares common stock equal in
value to the cash had been distributed to the Sac River shareholders as
part of the Merger and then immediately after the Merger such shares
were redeemed by Bancshares. Depending upon the particular
circumstances of each shareholder, such cash payments will be
characterized as either having been received as a distribution in full
payment in exchange for the Bancshares stock deemed to have been
redeemed or as having been received as a dividend, as provided in Code
Section 302. A cash payment will be treated as distribution in full
payment in exchange for the Bancshares stock if the deemed redemption
is "substantially disproportionate" within the meaning of Code Section
302(b)(2), is in complete termination of the shareholder's interest in
the corporation within the meaning of Code Section 302(b)(3), or is
"not essentially equivalent to a dividend" within the meaning of Code
Section 302(b)(1). A redemption is treated as "substantially
disproportionate" if (1) the shareholder owns less than 50% of the
total combined voting power of all classes of stock immediately after
the redemption; (2) the ratio of the shareholders' holdings of voting
stock immediately after the redemption to all the voting stock in the
corporation at that time is less than 80% of the ratio which the voting
stock the shareholder owned immediately before the redemption bore to
the entire voting stock in the corporation at that time (the "80%
test");
<PAGE> 249
HUSCH & EPPENBERGER, LLC
Liberty Bancshares, Inc.
Liberty Bank
Sac River Valley Bank
October 9, 1998
Page 5
and (3) the shareholders' ownership of common stock (whether voting or
nonvoting) after and before the redemption also meets the 80% test. A
redemption is treated as "not essentially equivalent to a dividend" if
it results in a meaningful reduction of the shareholder's
proportionate interest in the corporation. When making a determination
as to whether a redemption is substantially disproportionate or not,
essentially equivalent to a dividend, or, subject to certain
exceptions, whether the redemption terminates the shareholder's entire
interest in the corporation, the constructive ownership rules of Code
Section 318 apply. If the cash payment is treated as having been
received by a Sac River stockholder as a distribution in full payment
in exchange for redeemed shares, such stockholder's gain recognized in
the Merger will be short-term, mid-term or long-term capital gain,
depending upon the Sac River stockholder's holding period for the Sac
River stock. If the cash payment is treated as having been received by
a Sac River stockholder as a dividend, the stockholder's gain on the
Merger will be recognized as ordinary income.
This opinion is subject to the following additional assumptions and
qualifications:
(a) This opinion is specifically limited to applicable
federal income tax laws in effect as of the date hereof.
(b) We undertake no responsibility to advise you of any
changes in the federal income tax law or as to any events that may
occur or as to any amendment of any of the documents referred to
herein, after the Closing of the Merger, that may alter the scope or
substance of this opinion.
(c) This opinion is based upon the assumption by management
of Liberty and Bancshares (without independent verification by us)
that, to the best of management's knowledge and belief:
(i) As of the effective date of the Merger, the
fair market value of the Bancshares stock and other
consideration to be received by each Sac River shareholder
will be approximately equal to the fair market value of the
Sac River stock surrendered in the Merger; and
(ii) As of the effective date of the Merger, the
fair market value of Bancshares common stock shall not be less
than $29.50 per share.
This opinion may be specifically relied upon by the shareholders of Sac
River.
<PAGE> 250
HUSCH & EPPENBERGER, LLC
Liberty Bancshares, Inc.
Liberty Bank
Sac River Valley Bank
October 9, 1998
Page 6
This opinion is being furnished to you solely in connection with the
Merger and is solely for your benefit and the benefit of shareholders of Sac
River. Accordingly, without our prior written consent, this letter may not be
quoted in whole or in part or otherwise referred to in any reported document or
otherwise referred to or circulated in connection with any transaction other
than the Merger. Notwithstanding the foregoing, we hereby consent to the
inclusion of this opinion in the Registration Statement on Form S-4 to be filed
by Bancshares with the Securities and Exchange Commission to register 355,160
shares of Bancshares common stock which may be issued in the Merger and to the
reference to this firm under the caption "Legal Opinions" in the prospectus
comprising part of such Registration Statement.
Sincerely yours,
/s/ Husch & Eppenberger, LLC
----------------------------
HUSCH & EPPENBERGER, LLC
GAP/wm
<PAGE> 251
APPENDIX C
362.730. DISSENTING STOCKHOLDER MAY RECEIVE REASONABLE VALUE OF HIS STOCK-
LIMITATION, PETITION, HEARING, APPOINTMENT OF APPRAISERS
1. If any merger or consolidation takes effect under the provisions of sections
362.610 to 362,810, then the holder of any stock, with or without voting rights,
of any corporation which is a party to the agreement not voting in favor of the
agreement to merge or consolidate at the stockholders' meeting aforesaid shall
be entitled to receive from the receiving corporation, in case of a merger or
from the consolidated corporation in case of a consolidation, the reasonable
value of his stock at the time of the merger or consolidation, which value shall
be determined in the following manner:
(1) Within sixty days after the taking effect of the merger or
consolidation, the dissenting stockholder may apply to the circuit
court of the county wherein the principal place of business of the
receiving corporation, in case of a merger, or the consolidated
corporation, in case of a consolidation, is located, by petition for
the appointment of appraisers to value his stock;
(2) At any time during the above named sixty days any other dissenting
stockholder or stockholders, in any corporation which is a party to the
agreement, may file his or their petition in the court wherein the
proceeding is pending for the determination of the value of their
respective shares of stock affected by the merger or consolidation;
(3) Any stockholder who does not become a party to such proceeding
within the time herein prescribed shall be conclusively presumed to
have assented to the merger or consolidation and shall be bound thereby
as fully and as firmly as if he had voted therefor.
2. Within five days after the expiration of the period of sixty days, the court
wherein the proceeding is pending shall issue an order in which it shall fix the
time and place of the hearing under the petition or petitions then pending,
which shall not be more than twenty days after the issuance of the order. The
court shall cause to be served upon each party, or his attorney of record, at
last ten days before the hearing, a copy of the order fixing the time and place
of hearing. The hearing shall be before the court, and at the hearing the court
shall cause all petitions filed in the cause to be consolidated, and if the
court finds that each of the parties to the proceedings has been notified of the
time and place of hearing at least ten days before the hearing, then the court
shall appoint three disinterested householders of the county in which the
proceeding is pending, not related to either of the parties to the proceeding,
as appraisers to ascertain and determine the value of the shares of stock of the
dissenting stockholders, and upon the appointment, the court shall fix the time
and place of the first meeting of the appraisers; each of the appraisers shall
qualify by taking and subscribing an oath that he will faithfully and
impartially discharge the duties imposed upon him and will render a true
appraisement of the value of the stock of the dissenting stockholders in the
proceeding. Should any appraiser fail to qualify or serve, the court shall, by
an order duly entered, fill such vacancy.
<PAGE> 252
SAC RIVER VALLEY BANK
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned shareholder of Sac River Valley Bank (the "Bank") hereby
appoints _________, or, if no proxy is designated, Garry L. Robinson with power
of substitution, as proxy to cast all votes which the undersigned shareholder is
entitled to cast at the Special meeting of shareholders (the "special Meeting")
to be held on Tuesday, November 10, 1998 at 9:00 a.m., local time, at the
offices of the Bank, 14 Public Square, Stockton, Missouri, and at any
adjournments thereof, upon the following matters. The undersigned shareholder
hereby revokes any proxy or proxies heretofore given.
This proxy will be voted as directed by the undersigned shareholder.
UNLESS CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 AND
IN ACCORDANCE WITH THE DETERMINATION OF A MAJORITY OF THE BOARD OF DIRECTORS AS
TO OTHER MATTERS. The undersigned shareholder may revoke this proxy at any time
before it is voted by delivering to the President of the Bank either a written
revocation of the proxy or a duly executed proxy bearing a later date, or by
appearing at the Special Meeting and voting in person. The undersigned
shareholder hereby acknowledges receipt of the Notice of Special Meeting and
Proxy Statement.
1. Approval of Agreement and Plan of Merger between Liberty Bancshares,
Inc., Liberty Bank and Sac River Valley Bank.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In their discretion, the proxy's are authorized to vote upon such
other business as may properly come before the meeting, or any adjournments
thereof.
If you receive more than one proxy card, please sign and return ALL
cards in the accompanying envelope.
Date: __________________________________________________
________________________________________________________
Signature of Shareholder or Authorized Representative
Please date and sign exactly as name appears hereon. Each executor,
administrator, trustee, guardian, attorney-in-fact and other fiduciary should
sign and indicate his or her full title. Only one signature is required in the
case of stock ownership in the name of two or more persons, but all should sign
if possible.
<PAGE> 253
ELECTION NOTICE
I own ________ shares of Sac River Valley Bank common stock, par value $30
per share (the "Sac River Common Stock").
I elect to receive the following consideration in exchange for my shares of
Sac River Common Stock, in addition to the $485.70 per share of Sac River Common
Stock that will be paid to each holder of Sac River Common Stock in the merger
between Sac River Valley Bank and Liberty Bank (the "Merger"). (YOU MAY CHOSE A
OR B OR A COMBINATION OF A AND B, BUT YOU MUST MAKE AN ELECTION FOR ALL SHARES
OF SAC RIVER COMMON STOCK HELD BY YOU).
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
SAC RIVER COMMON STOCK IN EXCHANGE FOR
---------------------- ---------------
<S> <C>
A. ______ SHARES 35.516 SHARES OF LIBERTY BANCSHARES COMMON STOCK PER SHARE OF SAC
RIVER COMMON STOCK
B. ______ SHARES $1,050 PER SHARE OF SAC RIVER COMMON STOCK
</TABLE>
I understand that I will only receive consideration for my shares of Sac
River Common Stock if the Merger is approved by the shareholders of Sac River
Valley Bank at the Special Meeting called for that purpose on November 10, 1998
and all other conditions of the Merger as explained in the Proxy
Statement-Prospectus are met.
I understand that I can change my election at any time before the
commencement of the vote on the Merger at the Special Meeting on November 10,
1998 or during any adjournment of the Special Meeting by delivering a new
Election Notice by mail or in person to Sac River Valley Bank.
I understand that if I vote in favor of the Merger at the Special Meeting
but do not return this Election Notice to Sac River Valley Bank before the vote
on the Merger at the Special Meeting and the Merger is approved by the
shareholders, my shares of Sac River Common Stock will be exchanged for Liberty
Bancshares common stock. If I vote against the Merger or do not vote my shares
of Sac River Common Stock will be exchanged for cash.
___________________________
Printed Name of Shareholder
___________________________
Signature of Shareholder
PLEASE RETURN YOUR COMPLETED ELECTION NOTICE TO SAC RIVER VALLEY BANK IN PERSON
OR IN THE ENCLOSED RETURN ENVELOPE BEFORE NOVEMBER 10, 1998.
