<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1999
REGISTRATION NO. 333-78113
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RIVA BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6712 58-2398959
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
13004 STARBUCK ROAD
ST. LOUIS, MISSOURI 63141
(314) 514-8491
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RICHARD C. JENSEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RIVA BANCSHARES, INC.
13004 STARBUCK ROAD
ST. LOUIS, MISSOURI 63141
(314) 514-8491
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
ROBERT C. SCHWARTZ STEVEN R. FINLEY
SMITH, GAMBRELL & RUSSELL, LLP GIBSON, DUNN & CRUTCHER LLP
PROMENADE II, SUITE 3100 200 PARK AVENUE
1230 PEACHTREE STREET, N.E. NEW YORK, NEW YORK 10166-0193
ATLANTA, GEORGIA 30309 (212) 351-4000
(404) 815-3758 (212) 351-4035 (FAX)
(404) 685-7058 (FAX)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED JULY 30, 1999
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
3,000,000 SHARES
(RIVA BANK LOGO)
RIVA BANCSHARES, INC.
COMMON STOCK
$ PER SHARE
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This is an initial public offering of common stock of Riva Bancshares, Inc. This
is a firm commitment underwriting.
There is currently no public market for the shares. We expect that the price to
the public in the offering will be between $10.00 and $12.00. The market price
of the shares after the offering may be higher or lower than the offering price.
Of the 3,000,000 shares we are offering, up to will be purchased by
an underwriter that is a foreign broker-dealer for sales outside of the United
States.
We have applied to include the common stock on the Nasdaq National Market under
the symbol "RIVA."
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 10.
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PER SHARE TOTAL
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<S> <C> <C>
Price to the public........................ $ $
Underwriting discount......................
Proceeds to Riva Bancshares................
</TABLE>
Riva Bancshares has granted an over-allotment option to the underwriters. Under
this option, the underwriters may elect to purchase a maximum of 450,000
additional shares from Riva Bancshares within 30 days following the date of this
prospectus to cover over-allotments.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
YOU SHOULD NOTE THAT THESE SECURITIES ARE NOT BANK ACCOUNTS OR DEPOSITS AND ARE
NOT FEDERALLY INSURED BY THE FDIC OR ANY OTHER STATE OR FEDERAL AGENCY.
CIBC WORLD MARKETS
JOHNSON RESEARCH & CAPITAL
INCORPORATED
KELTON INTERNATIONAL LIMITED
The date of this prospectus is , 1999.
<PAGE> 3
RIVA BANCSHARES, INC.
IDENTIFIED MARKETS
(RIVA BANCSHARES, INC. IDENTIFIED MARKETS MAP)
We have targeted St. Louis, Kansas City, Columbia, Jefferson City and
Springfield as our initial markets. Upon the acquisition of Premier Bank, we
will have established management teams in St. Louis, Jefferson City, and
Columbia and banking centers in Columbia and Jefferson City. Immediately
following the offering, we intend to open a banking center in St. Louis.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 4
Risk Factors................................................ 10
Forward-looking Statements.................................. 16
Use of Proceeds............................................. 16
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Pro Forma Financial Data.................................... 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 49
Supervision and Regulation.................................. 58
Management.................................................. 63
Certain Transactions........................................ 69
Principal Shareholders...................................... 70
Description of Capital Stock................................ 71
Shares Eligible for Future Sale............................. 74
Underwriting................................................ 76
Legal Matters............................................... 77
Experts..................................................... 77
Where You Can Find More Information......................... 77
Index to Financial Statements............................... F-1
</TABLE>
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Unless otherwise stated, all information contained in this prospectus assumes no
exercise of the over-allotment option granted to the underwriters.
The underwriters are offering the shares subject to various conditions and may
reject all or part of any order. The shares should be ready for delivery on or
about , 1999.
3
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained in other parts of this prospectus.
Because it is a summary, it does not contain all of the information that you
should consider before investing in our common stock. You should read the entire
prospectus carefully.
RIVA BANCSHARES, INC.
OUR BUSINESS
We formed Riva Bancshares, Inc. to create a multi-market bank serving business
customers who are dissatisfied with the impersonal service delivered by
super-regional and national banks. Our strategy is to capitalize on the
opportunities created by widespread consolidation in the banking industry. We
believe we have a significant opportunity to attract and maintain targeted
banking customers within our identified markets. We will offer a broad range of
banking products and services to small and medium-sized businesses, selected
real estate developers and the principals of these businesses. To execute our
strategy, we have assembled a team of five senior executives who have previously
worked together and, as a group, have more than 85 years of in-market banking
experience.
We will capitalize on our management team's lending expertise by emphasizing
commercial/industrial, construction and commercial real estate loans. In
addition, we intend to provide highly personalized and value-added private
banking services, Internet banking and asset management products for business
owners, entrepreneurs, and other professional and executive customers. To
accelerate the implementation of our business plan, we have agreed to acquire
Premier Bank, an independent state-chartered bank with assets of approximately
$67 million and banking centers in Jefferson City and Columbia, Missouri. Upon
completion of the merger, Premier Bank will be renamed Riva Bank.
OUR MARKET OPPORTUNITY
We believe that an opportunity exists as a result of the consolidation in the
banking industry. We believe this consolidation has created an attractive market
segment between the national and super-regional banks, on the one hand, and
community banks on the other hand. Larger financial institutions do not
generally provide the personalized service expected or demanded by many small to
medium-sized businesses and their principals. Smaller community banks lack the
capital strength to provide larger credit facilities and the customer base to
support the delivery of technologically advanced services. Upon completion of
the offering, we will have a lending capacity in excess of $5 million per
borrower. Our executive management team recognized this market opportunity and
elected to leave established careers in the financial services industry to join
with our chief executive officer in executing our business strategy. We have
selected Missouri for our initial activities because of our management team's
extensive experience in this market, local customer relationships, and the
state's favorable economic and demographic environment. We have targeted St.
Louis, Kansas City, Columbia, Jefferson City and Springfield as our initial
markets. Upon the acquisition of Premier Bank, we will have established
management teams in St. Louis, Jefferson City and Columbia and banking centers
in Columbia and Jefferson City. Immediately following the offering, we intend to
open a banking center in St. Louis.
We consider the Missouri economy and its attendant population and deposit growth
conducive to executing our strategy. Missouri has two prominent metropolitan
areas and is experiencing growth in its secondary cities. As of June 30, 1998,
bank deposits totaled approximately $73 billion and the state-wide population
exceeded 5.4 million. In addition, Missouri is adjacent to eight states, which
will facilitate our expansion into additional banking markets.
Missouri has been greatly affected by bank consolidation as out-of-state
financial institutions have entered the state by acquiring Missouri-based banks.
According to the FDIC, as of December 31, 1987, 596 depository institutions were
located in Missouri. By December 31, 1998, there were a total of 383
4
<PAGE> 6
depository institutions in Missouri, representing a decline of approximately 36%
over the referenced period. Several prominent financial institutions including
Boatmen's National Bank, Mark Twain Bank, Roosevelt Bank, Community Federal, and
United Postal Savings, have been acquired by affiliates of NationsBank, N.A. or
Mercantile Bank, N.A. As further evidence of the consolidation, Mercantile
Bancorporation, Inc., the largest independent banking organization headquartered
in Missouri, recently announced that it had entered into an agreement to be
acquired by Firstar Corp., a super-regional bank holding company based in
Milwaukee, Wisconsin.
THE ACQUISITION OF PREMIER BANK
To accelerate the implementation of our business plan, we agreed, in May 1999,
to acquire Premier Bancshares, Inc. and its wholly-owned subsidiary, Premier
Bank. Premier Bank offers us an existing charter as well as banking centers in
two of our five initially-targeted markets. Premier Bank is currently operating
its business in a manner similar to our business plan, targeting small and
medium-sized businesses and providing a high level of service. Premier Bank has
grown its loan portfolio principally through real estate lending. As of June 30,
1999, Premier Bank had total assets of approximately $67 million. While real
estate loans represent a significant concentration of Premier Bank's loans, we
intend to broaden the focus of our loan portfolio. We will use the acquisition
of Premier Bank as a platform to expand our operations by building upon Premier
Bank's existing infrastructure, core processing and outsourcing relationships.
As the completion of the initial public offering is dependent upon the closing
of the acquisition, the acquisition of Premier Bank will close immediately prior
to the closing of the offering. The purchase price for Premier Bank will be $9
million in shares of our common stock, valued at the public offering price. The
number of shares to be issued in the acquisition will vary depending on the
initial public offering price.
EXPERIENCED EXECUTIVE MANAGEMENT TEAM
Our executive management team includes individuals who have significant
experience serving our target markets. Richard C. Jensen, the President and
Chief Executive Officer of Riva Bancshares, has over 30 years of banking
experience, including 25 years in the St. Louis market. Prior to founding Riva
Bancshares, Mr. Jensen served as President of NationsBank St. Louis, formerly
Boatmen's National Bank of St. Louis, which as of June 30, 1998 had
approximately $5.3 billion in total deposits and 71 branches in the St. Louis
market area. We have hired Allan D. Ivie, IV to serve as the President of the
St. Louis market and John S. Rouse as our Chief Credit Officer. We have also
hired Sanford B. Scott as the Senior Vice President of Commercial Real Estate
and Daniel R. Sills as our Chief Financial Officer. All of these senior officers
have worked with Mr. Jensen at either Boatmen's or NationsBank, and the entire
group possesses over 85 years of banking experience in the Missouri markets.
This management team shares the same credit culture, is committed to the highest
level of customer service and responsiveness, and has substantial experience in
serving small and medium-sized businesses in Missouri. In addition, we will
continue to have the resources of current Premier Bank management, including
Bruce W. Wiley, the President of Premier Bank, who will serve as a director and
President of the Columbia and Jefferson City markets. As we expand into new
markets, we will attract local management teams who have significant banking
experience and strong community contacts for local business development.
OUR BANKING MODEL
Our banking model provides for each of our banking centers to have a high degree
of local autonomy in decision-making and lending authority. We will maintain
strict credit policies and procedures at the holding company level, and will
consolidate administrative functions at our company headquarters in St. Louis.
Our business strategy envisions that each banking center will operate as if it
were an independent community bank providing responsive, personalized service.
We will compensate management based on the performance of their banking centers
as well as our overall financial, operating and market performance. As we enter
new markets, we will undertake a marketing campaign using an officer calling
program and community-based promotions. Each market area will be supported by a
local board of directors, which will be provided with financial incentives to
assist in developing banking relationships throughout the community.
5
<PAGE> 7
OUR ADVANTAGE
We believe that we are well positioned to capitalize on the market opportunity
created by the consolidation in the banking industry because of the following:
- Larger Loans than Local Community Banks. Our capital structure will allow
us to make significantly larger loans than smaller community banks.
- Experienced Management Team. Our bank presidents and loan officers have
significant banking experience which has allowed them to develop valuable
customer relationships within our target markets.
- Local Decision-Making. Our management structure is organized to retain
local decision-making authority so that our officers will be able to provide
our customers with expedited loan decisions.
- Multi-Market Banking Franchise. We intend to expand into other markets
similar to our identified markets primarily through establishing new
branches of Riva Bank. We will also regularly evaluate potential
acquisitions of financial institutions in Missouri, as well as markets in
the adjacent states, that would complement or expand our business.
- Personalized Service. Our staff is committed to providing the type of
personalized service not generally available at larger financial
institutions.
- Competitive Technology. Our capital resources will allow us to acquire
technology solutions currently offered by the major national vendors through
strategic alliances and outsourcing arrangements.
OUR BUSINESS STRATEGY
We will implement our strategy by:
- Targeting small and medium-sized business customers who demand high levels
of personalized attention and customer service;
- Establishing a banking center in St. Louis, expanding into Kansas City and
Springfield, while continuing to enhance our current operations in Columbia
and Jefferson City;
- Staffing banking centers with community-minded and responsive management
teams that will have significant local decision-making authority;
- Operating with a few strategically located offices supported by outsourced
core processing and back room operations to increase efficiencies;
- Enhancing private banking relationships by offering a broad spectrum of
products and services, including securities brokerage services and
investment management services; and
- Offering our customers the convenience and advantages of Internet banking
while targeting businesses that have been identified as Internet users to
leverage our banking centers.
6
<PAGE> 8
THE OFFERING
<TABLE>
<S> <C>
Common stock offered....................... 3,000,000 shares(1)
Common stock to be issued in the Premier
Bank acquisition......................... 818,182 shares(2)
Common stock to be outstanding after the
offering and the Premier Bank
acquisition.............................. 3,828,182 shares(3)
Use of proceeds............................ To provide additional capital to Premier
Bank, redeem our outstanding preferred
stock, fund expansion and for other
general corporate purposes.
Proposed Nasdaq National Market symbol..... "RIVA"
</TABLE>
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(1) Does not include 450,000 shares which may be issued if the underwriters
decide to exercise their over-allotment option.
(2) Based on an assumed initial public offering price of $11.00 per share.
(3) Includes 10,000 shares of our common stock outstanding prior to the
offering. Does not include:
- 500,000 shares of common stock reserved for issuance under our stock
option plan, of which options to purchase 329,475 shares will be granted
on the offering date;
- warrants to purchase 115,798 shares which were issued to founders of Riva
Bancshares;
- warrants to purchase 100,000 shares which were issued to investors in a
June 1998 private placement; and
- warrants to purchase 350,000 shares to be issued to the Premier
shareholders in connection with the merger.
All of these outstanding options and warrants are exercisable at the initial
public offering price, except for 210,000 warrants to be granted to Premier
shareholders, which are exercisable at 120% of the initial public offering
price.
Our temporary offices are located at 13004 Starbuck Road, St. Louis, Missouri
63141 and our telephone number is (314) 514-8491. We are currently in the
process of negotiating for permanent office space in the St. Louis metropolitan
area.
7
<PAGE> 9
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth the summary of selected consolidated financial
data of Premier Bancshares and Riva Bancshares for the periods indicated.
Premier Bancshares' selected consolidated financial data as of December 31, 1997
and 1998 and for each of the years ended December 31, 1996, 1997, and 1998 are
derived from Premier Bancshares' consolidated financial statements, which have
been audited by KPMG LLP, independent auditors. Riva Bancshares' selected
financial data as of December 31, 1998 and for the period from May 1, 1998 (date
of inception) to December 31, 1998 are derived from Riva Bancshares' financial
statements, which have been audited by KPMG LLP, independent auditors. These
selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Riva Bancshares' financial statements and notes and Premier
Bancshares' consolidated financial statements and notes, and financial and other
information included in other parts of this prospectus.
<TABLE>
<CAPTION>
PREMIER BANCSHARES RIVA BANCSHARES
--------------------------------------------------------- -------------------------------
SIX MONTHS PERIOD FROM
PERIOD FROM YEARS ENDED ENDED MAY 1, 1998 SIX MONTHS
APRIL 1- DECEMBER 31, JUNE 30, (DATE OF ENDED
DECEMBER 31, ------------------------ --------------- INCEPTION) TO JUNE 30,
1995 1996 1997 1998 1998 1999 DECEMBER 31, 1998 1999
------------ ------ ------ ------ ------ ------ ----------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT:
Interest income........... $ 515 $1,430 $2,175 $3,440 $1,431 $2,297 $ 21 $ 11
Interest expense.......... 302 883 1,309 2,090 884 1,350 -- --
------- ------ ------ ------ ------ ------ ------- -------
Net interest income....... 213 547 866 1,350 547 947 21 11
Provision for loan
losses.................. 64 80 112 292 74 105 -- --
------- ------ ------ ------ ------ ------ ------- -------
Net interest income after
provision for loan
losses.................. 149 467 754 1,058 473 842 21 11
Noninterest income........ 12 47 90 169 76 87 -- --
Noninterest expense....... 324 627 736 1,196 553 858 143 259
------- ------ ------ ------ ------ ------ ------- -------
Income (loss) before
income tax expense...... (163) (113) 108 31 (4) 71 (122) (248)
Income tax expense........ -- -- 11 9 -- 31 -- --
------- ------ ------ ------ ------ ------ ------- -------
Net income (loss)......... $ (163) $ (113) $ 97 $ 22 $ (4) $ 40 $ (122) $ (248)
======= ====== ====== ====== ====== ====== ======= =======
Basic and dilutive
earnings (loss) per
share................... $ (4.65) $(3.54) $ 2.99 $ 0.55 $(0.11) $ 0.96 $(12.18) $(24.83)
======= ====== ====== ====== ====== ====== ======= =======
PERFORMANCE RATIOS:
Net interest margin(1).... 7.13% 3.05% 3.32% 3.23% 2.95% 3.28%
Efficiency ratio(2)....... 140.00 122.02 87.25 97.48 88.83 82.95
Average shareholders'
equity to average
assets.................. 29.53 16.04 10.88 9.24 9.53 7.11
Return on average
assets.................. (2.04) (0.58) 0.34 0.05 (0.02) 0.13
Return on average
shareholders' equity.... (6.91) (3.60) 3.15 0.53 (0.23) 1.82
</TABLE>
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(1) Computed by dividing net interest income by average earning assets.
(2) Computed by dividing noninterest expense by the sum of net interest income
and noninterest income.
8
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<TABLE>
<CAPTION>
PREMIER BANCSHARES RIVA BANCSHARES
----------------------------------------------------- ---------------------------------
AT DECEMBER 31,
------------------------------------- AT AT AT
1995 1996 1997 1998 JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1999
------- ------- ------- ------- ------------- ----------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Investment securities.......... $ 5,398 $ 6,256 $ 5,418 $ 6,478 $ 9,397 $ -- $ --
Loans, net..................... 6,264 15,206 23,342 41,171 49,164 -- --
Earning assets................. 13,808 23,543 31,060 53,170 61,342 712 146
Total assets................... 15,082 25,652 33,717 57,756 66,692 884 864
Noninterest-bearing deposits... 341 2,576 1,478 2,817 3,014 -- --
Total deposits................. 11,507 22,268 28,353 48,816 57,329 -- --
Federal Home Loan Bank
advances..................... -- -- 940 3,445 3,782 -- --
Note payable................... 300 300 1,050 750 925 -- --
Shareholders' equity........... $ 3,191 $ 3,016 $ 3,222 $ 4,438 $ 4,335 $877 $629
======= ======= ======= ======= ======= ==== ====
ASSET QUALITY RATIOS:
Allowance for loan losses to
total loans.................. 1.00% 0.78% 0.89% 1.05% 1.01%
Non-performing loans to total
loans........................ -- -- 0.69 0.23 0.37
Net charge-offs to average
loans........................ -- 0.22 0.12 0.20 0.10
CAPITAL RATIOS:
Shareholders' equity to
assets....................... 21.16% 11.76% 9.56% 7.68% 6.50%
Total capital to risk-weighted
assets....................... 38.75 18.63 18.17 11.62 9.79
Tier 1 capital to risk-weighted
assets....................... 38.00 17.92 17.06 10.57 8.80
Tier 1 capital to average
assets....................... 22.46 12.97 10.05 7.87 6.87
</TABLE>
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the risks below and other information in this prospectus
before deciding to invest in our common stock. If any of the following risks
actually occur, our business, financial condition or results of operations could
be materially and adversely affected. In this event, the trading price of our
common stock could decline, and you may lose all or part of your investment.
RIVA BANCSHARES HAS NO OPERATING HISTORY UPON WHICH TO BASE AN ESTIMATE OF OUR
FUTURE PERFORMANCE
We have no operating history on which to base any estimate of future
performance. We incorporated Riva Bancshares on May 1, 1998 and have not engaged
in any banking operations. Our prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stages of development. We are at risk of not successfully addressing the
following:
- expansion into our identified markets;
- building our customer base;
- developing and retaining customer loyalty;
- responding to competitive developments;
- attracting, retaining and motivating qualified management and employees;
- maintaining efficient operations through outsourcing of back office
operations; and
- upgrading our technologies, products and services.
IF WE FAIL TO MANAGE GROWTH AS WE PURSUE OUR EXPANSION STRATEGY, IT COULD
NEGATIVELY AFFECT OUR OPERATIONS
Failure to manage our growth effectively or failure to attract and retain
qualified personnel could have a material adverse effect on our business, future
prospects, financial condition or results of operations, and could adversely
affect our ability to successfully implement our business strategy.
We intend to pursue an aggressive growth strategy and our results of operations
will be affected by our ability to:
- identify suitable markets;
- build our customer base;
- maintain credit quality;
- attract sufficient deposits to fund our anticipated loan growth;
- attract qualified bank management in each of our targeted markets;
- negotiate agreements with acceptable terms for the acquisition of existing
banks; and
- maintain adequate regulatory capital.
WE WILL HAVE BROAD DISCRETION IN USING THE PROCEEDS OF THE OFFERING
We will have broad discretion in the application of the net proceeds of this
offering. The timing and specific application of the net proceeds will remain in
the sole discretion of our management. Upon completion of the offering, we
intend to contribute approximately $20 million of the net proceeds to the
capital of Riva Bank to enable Riva Bank to increase the size of its loan
portfolio and to allow Riva Bank to make larger loans as a result of its
increased regulatory lending limit, and to use approximately $1 million to
redeem the outstanding Series A Preferred Stock. The remainder of the net
proceeds will be applied in the future as needed to implement our business plan,
including the opening of a banking center in the St. Louis market. We intend to
accomplish our expansion primarily through the opening of additional banking
centers in our identified markets, but our expansion in our target markets could
include one or more acquisitions of existing financial institutions. You will
not have the opportunity to evaluate the
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<PAGE> 12
economic, financial and other relevant information which will be utilized by us
in determining the application of such proceeds.
OUR SUCCESS LARGELY DEPENDS UPON THE SKILL AND EXPERIENCE OF OUR SENIOR
MANAGEMENT TEAM
The success of our operations will depend upon the services of Richard C.
Jensen, our President and Chief Executive Officer, as well as other senior
officers and managers. The loss of any of these individuals could have a
material adverse effect on our business, future prospects, financial condition
or results of operations. We do not have key man life insurance with respect to
any of our officers. Our future success also depends on our ability to identify,
attract and retain qualified senior officers and other employees in our
identified markets.
WE WILL BE VERY DEPENDENT ON THIRD PARTY SUPPLIERS
We are dependent on third parties to provide a number of our core processing
functions. Our financial condition may suffer if the third parties we depend on
for outsourcing our back office operations, data processing and other products
and services either increase the cost of their services or fail to maintain the
operational integrity of their networks. As a result, the failure of the systems
of any of our third party providers could adversely affect our business
operations and financial condition.
OUR RESULTS OF OPERATIONS WILL BE SIGNIFICANTLY AFFECTED BY THE ABILITY OF OUR
BORROWERS TO REPAY THEIR LOANS
Lending money is an essential part of the banking business. However, borrowers
do not always repay their loans. The risk of non-payment is affected by:
- credit risks of a particular borrower;
- changes in economic and industry conditions;
- the duration of the loan; and
- in the case of a collateralized loan, uncertainties as to the future value
of the collateral.
Generally, commercial/industrial, construction and commercial real estate loans
present a greater risk of non-payment by a borrower than other types of loans.
Our focus on making these types of loans, especially our concentration in
commercial real estate loans, will make us more susceptible to the risk of non-
payment than other banks with a more diversified loan portfolio.
OUR FINANCIAL CONDITION AND OTHER RESULTS OF OPERATIONS WOULD BE ADVERSELY
AFFECTED IF OUR ALLOWANCE FOR LOAN LOSSES IS NOT SUFFICIENT TO ABSORB ACTUAL
LOSSES
There is no precise method of predicting loan losses. We can give no assurance
that our allowance for loan losses will be sufficient to absorb actual loan
losses. Excess loan losses could have a material adverse effect on our financial
condition and results of operations. We will attempt to maintain an appropriate
allowance for loan losses to provide for potential losses in our loan portfolio.
We will periodically determine the amount of the allowance for loan losses based
upon consideration of several factors, including:
- an ongoing review of the quality, mix and size of the overall loan
portfolio;
- historical loan loss experience;
- evaluation of non-performing loans;
- assessment of economic conditions and their effects on the existing
portfolio; and
- the amount and quality of collateral, including guarantees, securing loans.
OUR FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED BY OUR INABILITY TO ATTRACT
SUFFICIENT DEPOSITS TO FUND OUR ANTICIPATED LOAN GROWTH
We anticipate that we will need to attract significant levels of deposits to
fund our anticipated loan growth. Our ability to attract and maintain such
deposit levels will depend on our ability to attract new deposit
11
<PAGE> 13
customers. To the extent that funds generated by our deposit customers are
insufficient to fund our loan growth, we may need to raise additional funds
through public or private financings. We can give no assurance that we would be
able to obtain these funds on terms that are favorable to us.
WE MAY NOT BE ABLE TO EXPAND THROUGH BRANCHING OR FIND SUITABLE ACQUISITION
CANDIDATES
We can give no assurance that we will be able to expand our existing market
presence or successfully enter new markets. In entering new markets, we may
encounter competitors with greater financial and operational resources. In our
attempt to establish new branches of Riva Bank, we may be unable to find
attractive locations, negotiate favorable lease terms, attract customers and may
encounter additional problems experienced by new branches.
Although we intend to expand primarily through selective branch openings, we
intend to evaluate potential acquisitions that would complement or expand our
business. In doing so, we expect to compete with other potential bidders, many
of which may have greater financial resources than we have. Failure to find
suitable acquisition candidates or expand our market presence would adversely
affect our ability to successfully implement our business strategy.
EVEN IF WE ARE ABLE TO FIND SUITABLE ACQUISITION CANDIDATES, WE MAY NOT BE ABLE
TO INTEGRATE ACQUISITIONS WITH OUR EXISTING OPERATIONS
The process of opening new bank locations and evaluating, negotiating and
integrating acquisition transactions will divert management time and resources.
We can give no assurance that we will be able to integrate successfully or
operate profitably any newly-established banking center or acquired financial
institution. We may experience disruption and incur unexpected expenses in
integrating these acquisitions. Failure to successfully integrate these
acquisitions could negatively affect our operations.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO OBTAIN REGULATORY
APPROVALS IN A TIMELY MANNER
The establishment of branches or the acquisitions of banks in our identified
markets and other market areas will be subject to our receiving the necessary
regulatory approvals. Premier Bank has applied for approval to open a branch in
the St. Louis market. Failure to obtain this approval as well as future
regulatory approvals in a timely manner could have a material adverse effect on
our business, future prospects, financial condition or results of operations.
WE COULD BE ADVERSELY AFFECTED BY CHANGES IN THE LAW, ESPECIALLY CHANGES
DEREGULATING THE BANKING INDUSTRY
We will operate in a highly regulated environment and will be subject to
supervision and regulation by several governmental regulatory agencies,
including the Federal Reserve Board, the FDIC, and the Missouri Division of
Finance. These regulations are generally intended to provide protection for
depositors and customers rather than for the benefit of investors. We will be
subject to changes in federal and state law, regulations, governmental policies,
income tax laws and accounting principles. Deregulation could adversely affect
the banking industry as a whole, including our operations. The effects of these
changes could adversely affect our future operations.
INTEREST RATE VOLATILITY COULD SIGNIFICANTLY HARM OUR BUSINESS
Our results of operations will be materially affected by the monetary and fiscal
policies of the federal government and the regulatory policies of governmental
authorities. Our profitability will be dependent to a large extent on our net
interest income, which is the difference between our income on interest-earning
assets, such as loans, and our expense on interest-bearing liabilities, such as
deposits. A change in market interest rates could adversely affect our earnings.
Consequently, we will be particularly sensitive to interest rate fluctuations.
As we plan to hold most of the loans we originate internally, we will face a
greater risk of rapid changes in interest rates than banks which sell their
loans in secondary markets.
12
<PAGE> 14
WE WILL BE COMPETING WITH MANY LARGER FINANCIAL INSTITUTIONS WHICH HAVE FAR
GREATER FINANCIAL RESOURCES THAN WE HAVE
Competition among financial institutions in the state of Missouri and our
identified markets is intense. We will compete with other bank holding
companies, state and national commercial banks, savings and loan associations,
consumer finance companies, credit unions, securities brokerages, insurance
companies, mortgage banking companies, money market mutual funds, asset-based
non-bank lenders and other financial institutions. Many of these competitors
have greater financial resources and lending limits, larger branch networks, and
are able to offer a broader range of products and services than we can. Failure
to compete effectively for deposit, loan and other banking customers in our
identified markets could have a material adverse effect on our business, future
prospects, financial condition or results of operations.
IF A MARKET FOR OUR COMMON STOCK DOES NOT DEVELOP, YOU MAY NOT BE ABLE TO SELL
YOUR SHARES AS QUICKLY AS YOU MAY LIKE
There is no established public market for our common stock. We can not
guarantee:
- that any market for our common stock will develop;
- that any market for our common stock that develops will be liquid;
- that you will be able to sell the common stock you buy in this offering; or
- that you will be able to sell the common stock you buy in this offering at
any particular price.
Although we expect to have our common stock approved for quotation on The Nasdaq
National Market, an active trading market may not develop or continue after this
offering.
FUTURE SALES OF OUR COMMON STOCK COULD DEPRESS THE PRICE OF OUR COMMON STOCK
Sales of a substantial number of shares of common stock in the public market
following this offering, or the perception that sales could occur, could
adversely affect the market price for our common stock. After the offering, we
will have approximately 3,828,182 shares of common stock outstanding (assuming
no exercise of the underwriters' over-allotment option and assuming that 818,182
shares will be issued in the merger). In addition, we have a stock option plan
under which we have reserved options to purchase 500,000 shares of our common
stock as well as outstanding warrants to purchase 565,798 shares of common
stock. Of the 3,828,182 shares which will be outstanding after the offering, the
3,000,000 shares being sold in this offering will be eligible for sale in the
open market without restriction, except for shares purchased by "affiliates" of
Riva Bancshares. 10,000 shares of common stock will be "restricted securities"
as that term is defined in Rule 144 of the Securities Act of 1933 and will
become eligible for sale pursuant to Rule 144 approximately 90 days after the
closing of the merger. Upon completion of the merger, our officers and directors
will hold an aggregate of approximately 375,000 shares of common stock and have
agreed not to sell any of their shares for 180 days following the closing of the
offering without the prior written consent of the underwriters. Following the
expiration of this 180-day lock-up period, these shares will be eligible for
sale in the public market subject to compliance with certain volume limitations
and other conditions of Rule 144. The market price of the common stock could be
materially adversely affected by the sale or availability for sale of shares now
held by our existing shareholders or of shares which may be issued under our
stock option plan.
FUTURE SALES OF OUR COMMON STOCK BY SHAREHOLDERS OF PREMIER BANCSHARES COULD
DEPRESS THE PRICE OF OUR COMMON STOCK
Sales of a substantial number of shares of our common stock by shareholders of
Premier Bancshares following the offering could adversely affect the market
price for our common stock. Assuming an initial public offering price of $11.00
per share, in connection with the acquisition of Premier, approximately 818,182
shares of our common stock will be issued to shareholders of Premier Bancshares
which will be approximately 21% of the outstanding shares after the offering.
Under the terms of the merger agreement, these 818,182 shares may be sold in
increasing amounts during the 120-day period following the offering.
13
<PAGE> 15
After this 120-day period, all Premier Bancshares' shareholders, except
affiliates, will be able to sell their shares without restriction.
In addition, the directors and executive officers of Premier have agreed not to
sell any of their shares for 180 days following the offering. Following the
expiration of this 180-day lock period, these shares will be eligible for sale
in the public market subject to compliance with certain volume limitations and
other conditions of Rule 145 of the Securities Act of 1933.
OUR SUCCESS WILL BE DEPENDENT UPON ECONOMIC CONDITIONS IN MISSOURI AND THE
SURROUNDING STATES
Our success will significantly depend upon economic conditions in Missouri and
the markets in which we will operate. A prolonged economic downturn or recession
in Missouri or in any of our identified markets, could cause our non-performing
assets to increase, which would cause operating losses, impaired liquidity and
the erosion of capital. Such an economic dislocation or recession could result
from a variety of causes, including a prolonged downturn in various industries
upon which these markets depend, or natural disasters such as floods, tornadoes
or earthquakes. Future adverse changes in the Missouri economy or the local
economies of our identified markets could have a material adverse effect on our
business, future prospects, financial condition or results of operations.
WE DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK FOR THE FORESEEABLE FUTURE
We intend to retain any earnings to enhance Riva Bank's capital structure for
the foreseeable future. As a holding company, Riva Bancshares will have no
significant independent sources of revenue. The principal source of funds to pay
dividends on our common stock, to service indebtedness and to fund operations
will be cash dividends and other payments that we receive from Riva Bank.
Accordingly, any dividends paid to our shareholders will depend on Riva Bank's
earnings, capital requirements, financial conditions and other factors
considered relevant by our board of directors.
WE WILL BE RESTRICTED IN OUR ABILITY TO PAY DIVIDENDS TO OUR SHAREHOLDERS
Premier Bank, which is a Missouri state-chartered bank, is restricted in its
ability to pay dividends under state banking laws and regulations. As of June
30, 1999, Premier Bank was unable to pay cash dividends on its common stock
without regulatory approval. In addition, sound banking practices require the
maintenance of adequate levels of capital. Federal regulatory authorities have
adopted standards for the maintenance of capital of banks, and adherence to such
standards may further limit the ability of banks to pay dividends. Therefore,
any money which is used to provide additional capital for Riva Bank after the
acquisition will be difficult for the holding company to recapture for its own
purposes.
OUR ABILITY TO EFFECTIVELY TARGET THE INTERNET BANKING MARKET WILL LARGELY
DEPEND ON OUR ABILITY TO IMPLEMENT THESE SERVICES AND REMAIN COMPETITIVE WITH
OTHER BANKS OFFERING SUCH SERVICES
The success of our Internet banking products and services will depend in large
part on our ability to implement and maintain the appropriate technology. This
includes finding a competitive provider of these services as well as our ability
to remain competitive with banks that are already using the Internet. If we are
unable to implement and maintain the appropriate technology efficiently, it
could affect our results of operations and our ability to compete with financial
institutions. In addition, as we will specifically target those businesses which
will be more likely to use the Internet for their banking needs, the success of
our Internet banking focus will be linked to the overall success of the
Internet.
IT IS POSSIBLE THAT OUR COMPUTER SYSTEMS, OR THOSE OF OUR DATA PROCESSING
VENDOR, WILL FAIL TO OPERATE PROPERLY BEGINNING JANUARY 1, 2000
As the year 2000 approaches, an important business issue has emerged regarding
existing application software programs and operating systems. Many existing
application software and operating products were designed to accommodate only a
two-digit year. For example, "99" is stored on the system to represent 1999. As
a result, any computer programs or equipment that are date dependent may
recognize a date
14
<PAGE> 16
using "00" as the year 1900 rather than 2000. The business of many of our
customers may be negatively affected by the Year 2000 issue, and any financial
difficulties incurred by our customers in connection with the century change
could negatively affect such customer's ability to repay loans. External
factors, including electric and telephone service, are beyond our control and
the failure of such systems could have a material adverse effect on us, our
customers and third parties on whom we will rely for our day-to-day operations.
Premier Bank uses Computer Services Incorporated, a third-party vendor, to
provide its primary banking applications, including core processing systems. In
the event that Premier, CSI or its other significant vendors or loan customers
do not successfully and timely achieve Year 2000 compliance, our business,
future prospects, financial condition or results of operations could be
materially adversely affected.
THE MARKET PRICE OF OUR COMMON STOCK AFTER THE OFFERING MAY BE INFLUENCED BY A
NUMBER OF FACTORS WHICH ARE BEYOND OUR CONTROL
If a market develops for our common stock after this offering, the price for the
common stock will be determined in the market and may be influenced by a number
of factors beyond our control. These factors include:
- depth and liquidity of the market;
- investor perceptions of our company;
- changes in conditions or trends in the banking industry or in the industries
of our significant customers;
- publicly traded comparable companies; and
- general economic and political conditions.
OUR RESULTS MAY FLUCTUATE FROM QUARTER TO QUARTER WHICH MAY AFFECT THE PRICE OF
OUR COMMON STOCK
The trading price of our common stock could be subject to significant
fluctuations in response to quarterly variations in our actual or anticipated
operating results, changes in general market conditions and other factors. In
particular, our quarterly revenues will be difficult to forecast and our
expected expense levels are based in part on our expansion strategy in
anticipation of loan growth and revenues generated from the new banking centers.
If our revenue levels are below expectations, we may be unable or unwilling to
reduce expenses proportionately and our operating results would likely be
adversely affected. Therefore, prior to the full implementation of our business
strategy, we believe that period to period comparisons of our results may not be
as meaningful as those of a company with a history of operations and should not
be relied upon as indications of future performance. It is possible that in
future quarters our operating results will be below the expectations of public
market analysts and investors. If this happens, the market price of our common
stock would likely be negatively affected. In recent years, significant price
and volume fluctuations have occurred in the stock prices of companies that
often have been unrelated or disproportionate to their operating performance. We
can give no assurance that the market price of our common stock will not decline
below the public offering price.
OUR CERTIFICATE OF INCORPORATION CONTAINS PROVISIONS WHICH COULD SERVE TO DETER
OR PREVENT TAKE-OVER ATTEMPTS BY A POTENTIAL PURCHASER OF SHARES OF OUR COMMON
STOCK WHO WOULD BE WILLING TO PAY A PREMIUM OVER MARKET PRICE
Our Certificate of Incorporation contains provisions which give the board of
directors the ability to deter or prevent a merger with a third party, even if
the owners of a majority of the common stock were to favor such a transaction.
Our Certificate of Incorporation also authorizes the board of directors to issue
a series of preferred stock without shareholder action. The issuance of
preferred stock could discourage a third party from attempting to acquire, or
make it more difficult for a third party to acquire, a controlling interest in
our company, and could adversely affect the voting power or other rights of
holders of the common stock. In addition, our Certificate of Incorporation
establishes a staggered board of directors, which means that only one-third of
the members of our board of directors is elected each year and each
15
<PAGE> 17
director serves for a term of three years. These provisions make it more
difficult for a third party to achieve a change in control in our company
without approval of the board of directors. As a result,
you may be deprived of opportunities to sell some or all of your shares at
prices that represent a premium over market prices.
AS AN INVESTOR IN THE OFFERING, YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION
Purchasers in the offering will experience immediate and substantial dilution in
the net tangible book value of the common stock from the initial public offering
price. Without taking into account any changes in net tangible book value after
June 30, 1999, other than to give effect to the issuance of an estimated 818,182
shares in the merger and the sale of 3,000,000 shares of common stock in this
offering, based upon an initial public offering price of $11.00 per share (the
mid-point of the estimated range) and after deducting the underwriting discount
and the estimated offering expenses, our net tangible book value at June 30,
1999 would have been approximately $34.2 million or $8.92 per share. This
represents an immediate increase in net tangible book value of $45.92 per share
to the existing shareholders and an immediate dilution in the net tangible book
value of $2.08 to investors purchasing shares in the offering.
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking information.
These statements are found in the sections entitled "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Dividend Policy," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." They
include information concerning:
- growth and acquisition strategy;
- liquidity and capital expenditures;
- use of proceeds of the offering;
- financing plans;
- industry trends; and
- payment of dividends.
You can identify these statements by use of terms such as "expect," "believe,"
"goal," "plan," "intend," "estimate," "may," and "will" or similar words. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors, including those described in the "Risk Factors" section and other
parts of this prospectus, that could cause our actual results to differ
materially from those anticipated in these forward-looking statements.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 3,000,000 shares of
common stock will be approximately $30.2 million. If the underwriters fully
exercise the over-allotment option, the net proceeds of the shares sold by Riva
Bancshares will be approximately $34.8 million. "Net proceeds" is what we expect
to receive after paying the underwriting discount and offering expenses. For the
purpose of estimating net proceeds, we are assuming that the public offering
price will be $11.00 per share.
16
<PAGE> 18
Of the net proceeds we receive in this offering, we anticipate using
approximately $20 million to provide Premier Bank with additional capital which
will enable Premier Bank to increase the size of its loan portfolio and allow
Premier Bank to make larger loans as a result of its increased regulatory
lending limit. The additional $20 million in capital will provide Riva Bank with
the additional financial resources to initially fund our banking operations and
to attract additional management to staff our new banking offices as we expand
into our identified markets.
Of the remaining net proceeds for which we have identified uses, we anticipate
using:
- $999,000 to redeem the outstanding 99,900 shares of Series A Preferred
Stock; and
- $90,000 to pay a finder's fee to an affiliate in connection with the
acquisition of Premier Bank.
The remaining net proceeds will be retained at the holding company level to fund
our expansion primarily through branching, including the opening of a banking
center in the St. Louis market, and the acquisition of existing banks in
Missouri and the adjacent states and for other general corporate purposes.
Pending these uses, we will invest the net proceeds of the offering in
short-term, interest-bearing investment-grade securities, certificates of
deposits or guaranteed obligations of the United States.
Our Series A Preferred Stock was issued in June 1998 to a group of European
investors to provide capital primarily to support our start-up costs. Our
directors and officers and their affiliates do not own any shares of the Series
A Preferred Stock. We intend to redeem the Series A Preferred Stock at a
redemption price of $10.00 per share after this offering. In addition, we intend
to pay a $90,000 finder's fee to T. Stephen Johnson & Associates, Inc., an
affiliate of ours, in connection with the acquisition of Premier. The finder's
fee represents one percent of the purchase price of Premier.
Other than the acquisition of Premier, we have no understandings or agreements
with respect to any acquisition.
DIVIDEND POLICY
We have not declared or distributed any dividends to our shareholders since we
incorporated. Our board of directors intends, for the foreseeable future, to
follow a policy of retaining any earnings to provide funds to operate and expand
our businesses. Therefore, it is not likely that any cash dividends on the
common stock will be declared for the foreseeable future.
Because Riva Bancshares' principal operations will be conducted through Riva
Bank, if we decide to pay dividends, Riva Bancshares will generate cash to pay
dividends primarily through dividends paid to the holding company from Riva
Bank. Accordingly, any dividends paid to our shareholders will depend on Riva
Bank's earnings, capital requirements, financial condition and other factors
considered relevant by our board of directors. Premier Bank, which is a Missouri
state-chartered bank, is currently restricted in its ability to pay dividends
under state banking laws and regulations. As of June 30, 1999, Premier Bank was
unable to pay cash dividends on its common stock without regulatory approval.
Under Missouri law, a Missouri state bank may not pay dividends from its
capital. All dividends must be paid out of undivided profits, after deducting
expenses and losses. A Missouri state bank whose surplus account for each
dividend period does not equal at least 40% of the amount of its capital is
required to transfer to its surplus account 10% of its net income for such
dividend period. Retained earnings in excess of any such required transfer to
surplus are available for dividends. In addition, sound banking practices
require the maintenance of adequate levels of capital. Federal regulatory
authorities have adopted standards for the maintenance of capital of banks, and
adherence to such standards may further limit the ability of banks to pay
dividends.
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<PAGE> 19
CAPITALIZATION
The following table shows:
- the capitalization of Riva Bancshares as of June 30, 1999;
- the capitalization of Riva Bancshares on a pro forma basis to reflect the
issuance of an estimated 818,182 shares in connection with the acquisition
of Premier (at an assumed initial public offering price of $11.00 per
share); and
- the capitalization of Riva Bancshares on a pro forma basis, as adjusted to
reflect the issuance of an estimated 818,182 shares in connection with the
acquisition of Premier, the sale of 3,000,000 shares of common stock in this
offering (at an assumed initial public offering price of $11.00 per share),
the repurchase of 99,900 shares of preferred stock at a redemption price of
$10.00 per share.
The following table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," Riva Bancshares'
financial statements and notes and Premier's consolidated financial statements
and notes and financial and other information included in other parts of this
prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
FOR ACQUISITION OF FOR ACQUISITION
RIVA BANCSHARES PREMIER AND OFFERING
--------------- ------------------ ---------------
(in thousands)
<S> <C> <C> <C>
Shareholders' equity:
Preferred stock, $.01 par value per share;
1,000,000 shares authorized; 99,900, 99,900
and 0 shares issued and outstanding........ $ 999 $ 999 $ --
Common stock, $.01 par value per share;
20,000,000 shares authorized; 10,000,
828,182 and 3,828,182 shares issued and
outstanding(1)............................. -- 8 38
Additional paid-in capital.................... -- 4,327 34,487
Warrants to acquire 215,798 shares of common
stock at the initial public offering
price...................................... -- 108 108
Retained earnings (accumulated deficit)....... (370) (151) (151)
Accumulated other comprehensive loss.......... -- (109) (109)
------- ------ -------
Total shareholders' equity................. $ 629 $5,182 $34,373
======= ====== =======
</TABLE>
- ---------------------------
(1) Excludes 500,000 shares reserved for issuance under our stock option plan
and 355,798 shares issuable upon the exercise of the warrants, all of which
are exercisable at the initial public offering price and 210,000 shares
issuable upon the exercise of warrants, which are exercisable at 120% of the
initial public offering price.
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<PAGE> 20
DILUTION
Riva Bancshares' net tangible book value at June 30, 1999 was approximately
$(370,000) or $(37.00) per share of common stock. Net tangible book value per
share represents the amount of our total assets less intangible assets and total
liabilities, divided by the total number of shares of common stock outstanding.
After giving effect to:
- the sale of 3,000,000 shares of common stock in this offering at an assumed
initial public offering price of $11.00 per share and the use of proceeds
from the offering; and
- the issuance of an estimated 818,182 shares in connection with the
acquisition of Premier
our pro forma net tangible book value at June 30, 1999 would have been $34.2
million or $8.92 per share of common stock. This represents an immediate
increase in such pro forma net tangible book value of $45.92 per share to our
existing shareholders, an immediate increase in the pro forma net tangible book
value of $3.62 per share to shareholders of Premier Bancshares and an immediate
dilution in the pro forma net tangible book value of $2.08 per share to
investors purchasing shares of common stock in the offering.
The following table illustrates the resulting per share dilution to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1).......... $11.00
Net tangible book value per share at June 30, 1999........ $(37.00)
Increase per share attributable to Premier Bancshares'
shareholders........................................... 41.79
Increase per share attributable to new investors(2)....... 4.13
-------
Pro forma net tangible book value per share after the
offering.................................................. 8.92
------
Dilution per share to new investors(3)...................... $ 2.08
======
</TABLE>
- ---------------------------
(1) Before deducting the underwriting discount and estimated offering expenses
payable by us.
(2) After deducting the underwriting discount and estimated offering expenses
payable by us.
(3) Excludes 500,000 shares of common stock reserved for issuance under our
stock option plan and 215,798 shares issuable upon exercise of the warrants.
The following table summarizes, on a pro forma basis as of June 30, 1999, the
number of shares of common stock purchased from Riva Bancshares and the total
consideration paid, and the average per share consideration paid to Riva
Bancshares by existing shareholders, shareholders of Premier Bancshares and by
new investors purchasing the shares of common stock in this offering, assuming
an initial public offering price of $11.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............. 10,000 0.26% $ -- --% $ 0.01
Premier Bancshares'
shareholders.................... 818,182 21.37 4,335,101 11.61 5.30
New investors..................... 3,000,000 78.37 33,000,000 88.39 11.00
--------- ------ ----------- ------
Total........................ 3,828,182 100.00% $37,335,101 100.00%
========= ====== =========== ======
</TABLE>
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<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected consolidated financial data of Premier
Bancshares and Riva Bancshares for the periods indicated. Premier Bancshares'
selected consolidated financial data as of December 31, 1997 and 1998 and for
each of the years ended December 31, 1996, 1997 and 1998 are derived from
Premier Bancshares' consolidated financial statements, which have been audited
by KPMG LLP, independent auditors. Riva Bancshares' selected financial data as
of December 31, 1998 and for the period from May 1, 1998 (date of inception) to
December 31, 1998 are derived from Riva Bancshares' financial statements, which
have been audited by KPMG LLP, independent auditors. These selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," Riva Bancshares'
financial statements and notes, Premier Bancshares' consolidated financial
statements and notes, and financial and other information included in other
parts of this prospectus.
<TABLE>
<CAPTION>
PREMIER BANCSHARES
-----------------------------------------------------------
PERIOD FROM SIX MONTHS ENDED
APRIL 1 - YEARS ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------ -----------------
1995 1996 1997 1998 1998 1999
------------ ------ ------ ------ ------- -------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
SUMMARY INCOME
STATEMENT:
Interest income...... $ 515 $1,430 $2,175 $3,440 $1,431 $2,297
Interest expense..... 302 883 1,309 2,090 884 1,350
------ ------ ------ ------ ------ ------
Net interest
income............. 213 547 866 1,350 547 947
Provision for loan
losses............. 64 80 112 292 74 105
------ ------ ------ ------ ------ ------
Net interest income
after provision for
loan losses........ 149 467 754 1,058 473 842
Noninterest income... 12 47 90 169 76 87
Noninterest
expense............ 324 627 736 1,196 553 858
------ ------ ------ ------ ------ ------
Income (loss) before
income tax
expense............ (163) (113) 108 31 (4) 71
Income tax expense... -- -- 11 9 -- 31
------ ------ ------ ------ ------ ------
Net income (loss).... $ (163) $ (113) $ 97 $ 22 $ (4) $ 40
====== ====== ====== ====== ====== ======
Basic and dilutive
earnings (loss) per
share.............. $(4.65) $(3.54) $ 2.99 $ 0.55 $(0.11) $ 0.96
====== ====== ====== ====== ====== ======
PERFORMANCE RATIOS:
Net interest
margin(1).......... 7.13% 3.05% 3.32% 3.23% 2.95% 3.28%
Efficiency
ratio(2)........... 140.00 122.02 87.25 97.48 88.83 82.95
Average shareholders'
equity to average
assets............. 29.53 16.04 10.88 9.24 9.53 7.11
Return on average
assets............. (2.04) (0.58) 0.34 0.05 (0.02) 0.13
Return on average
shareholders'
equity............. (6.91) (3.60) 3.15 0.53 (0.23) 1.82
<CAPTION>
RIVA BANCSHARES
--------------------------------------------
PERIOD FROM
MAY 1, 1998 SIX MONTHS
(DATE OF INCEPTION) TO ENDED
DECEMBER 31, 1998 JUNE 30, 1999
---------------------------- -------------
(dollars in thousands, except per share data)
<S> <C> <C>
SUMMARY INCOME
STATEMENT:
Interest income...... $ 21 $ 11
Interest expense..... -- --
------- -------
Net interest
income............. 21 11
Provision for loan
losses............. -- --
------- -------
Net interest income
after provision for
loan losses........ 21 11
Noninterest income... -- --
Noninterest
expense............ 143 259
------- -------
Income (loss) before
income tax
expense............ (122) (248)
Income tax expense... -- --
------- -------
Net income (loss).... $ (122) $ (248)
======= =======
Basic and dilutive
earnings (loss) per
share.............. $(12.18) $(24.83)
======= =======
PERFORMANCE RATIOS:
Net interest
margin(1)..........
Efficiency
ratio(2)...........
Average shareholders'
equity to average
assets.............
Return on average
assets.............
Return on average
shareholders'
equity.............
</TABLE>
- ---------------------------
(1) Computed by dividing net interest income by average earning assets.
(2) Computed by dividing noninterest expense by the sum of net interest income
and noninterest income.
20
<PAGE> 22
<TABLE>
<CAPTION>
PREMIER BANCSHARES RIVA BANCSHARES
----------------------------------------------------- ---------------------------------
AT DECEMBER 31,
------------------------------------- AT AT AT
1995 1996 1997 1998 JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1999
------- ------- ------- ------- ------------- ----------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY BALANCE SHEET DATA:
Investment securities......... $ 5,398 $ 6,256 $ 5,418 $ 6,478 $ 9,397 $ -- $ --
Loans, net.................... 6,264 15,206 23,342 41,171 49,164 -- --
Earning assets................ 13,808 23,543 31,060 53,170 61,342 712 146
Total assets.................. 15,082 25,652 33,717 57,756 66,692 884 864
Noninterest-bearing
deposits.................... 341 2,576 1,478 2,817 3,014 -- --
Total deposits................ 11,507 22,268 28,353 48,816 57,329 -- --
Federal Home Loan Bank
advances.................... -- -- 940 3,445 3,782 -- --
Note payable.................. 300 300 1,050 750 925 -- --
Shareholders' equity.......... $ 3,191 $ 3,016 $ 3,222 $ 4,438 $ 4,335 $877 $629
======= ======= ======= ======= ======= ==== ====
ASSET QUALITY RATIOS:
Allowance for loan losses to
total loans................. 1.00% 0.78% 0.89% 1.05% 1.01%
Non-performing loans to total
loans....................... -- -- 0.69 0.23 0.37
Net charge-offs to average
loans....................... -- 0.22 0.12 0.20 0.10
CAPITAL RATIOS:
Shareholders' equity to
assets...................... 21.16% 11.76% 9.56% 7.68% 6.50%
Total capital to risk-weighted
assets...................... 38.75 18.63 18.17 11.62 9.79
Tier 1 capital to
risk-weighted assets........ 38.00 17.92 17.06 10.57 8.80
Tier 1 capital to average
assets...................... 22.46 12.97 10.05 7.87 6.87
</TABLE>
21
<PAGE> 23
PRO FORMA FINANCIAL DATA
The unaudited pro forma summary income statement data set forth below assumes
that Riva Bancshares was formed on January 1, 1998 and gives effect to the
acquisition of Premier Bancshares as if the acquisition had occurred on January
1, 1998 and was accounted for as a reverse acquisition. The unaudited pro forma
summary balance sheet data set forth below assumes that Riva Bancshares was
formed on the date indicated. The pro forma financial data set forth below does
not include the effects of this offering. The pro forma financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," Riva Bancshares' financial statements and
notes, Premier Bancshares' consolidated financial statements and notes, and
financial and other information included elsewhere in this prospectus. The pro
forma results are not necessarily indicative of the results that would have been
achieved had the acquisition of Premier Bank occurred on January 1, 1998, or of
future operations.
<TABLE>
<CAPTION>
RIVA PREMIER RIVA
BANCSHARES BANCSHARES BANCSHARES
------------------- ------------ -------------
PERIOD FROM
MAY 1, 1998
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, PRO FORMA PRO FORMA
DECEMBER 31, 1998 1998 ADJUSTMENTS(1) CONSOLIDATED
------------------- ------------ -------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
SUMMARY INCOME
STATEMENT DATA:
Interest income..... $ 21 $ 3,440 $ -- $ 3,461
Interest expense.... -- 2,090 -- 2,090
------- ------- ----- -------
Net interest
income............ 21 1,350 -- 1,371
Provision for loan
losses............ -- 292 -- 292
------- ------- ----- -------
Net interest income
after provision
for loan losses... 21 1,058 -- 1,079
Noninterest
income............ -- 169 -- 169
Noninterest
expense........... 143 1,196 323 1,662
------- ------- ----- -------
Income (loss) before
income tax
expense........... (122) 31 (323) (414)
Income tax
expense........... -- 9 -- 9
------- ------- ----- -------
Net income (loss)... $ (122) $ 22 $(323) $ (423)
======= ======= ===== =======
Basic and dilutive
earnings (loss)
per share......... $(12.18) $ 0.55 $ (0.51)(2)
======= ======= =======
SUMMARY BALANCE SHEET
DATA:
Investment
securities........ $ -- $ 6,478 $ -- $ 6,478
Loans, net.......... -- 41,171 -- 41,171
Earning assets...... 712 53,170 -- 53,882
Intangible asset.... -- -- 588 588
Total assets........ 884 57,756 588 59,228
Noninterest-bearing
deposits.......... -- 2,817 -- 2,817
Total deposits...... -- 48,816 -- 48,816
Federal Home Loan
Bank advances..... -- 3,445 -- 3,445
Note payable........ -- 750 -- 750
Shareholders'
equity............ 877 4,438 588 5,903
<CAPTION>
RIVA PREMIER
BANCSHARES BANCSHARES RIVA BANCSHARES
-------------- -------------- ---------------
SIX MONTHS SIX MONTHS
ENDED ENDED PRO FORMA PRO FORMA
JUNE 30, 1999 JUNE 30, 1999 ADJUSTMENTS(1) CONSOLIDATED
-------------- -------------- -------------- ---------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
SUMMARY INCOME
STATEMENT DATA:
Interest income..... $ 11 $ 2,297 $ -- $ 2,308
Interest expense.... -- 1,350 -- 1,350
------- ------- ----- -------
Net interest
income............ 11 947 -- 958
Provision for loan
losses............ -- 105 -- 105
------- ------- ----- -------
Net interest income
after provision
for loan losses... 11 842 -- 853
Noninterest
income............ -- 87 -- 87
Noninterest
expense........... 259 858 136 1,253
------- ------- ----- -------
Income (loss) before
income tax
expense........... (248) 71 (136) (313)
Income tax
expense........... -- 31 -- 31
------- ------- ----- -------
Net income (loss)... $ (248) $ 40 $(136) $ (344)
======= ======= ===== =======
Basic and dilutive
earnings (loss)
per share......... $(24.83) $ 0.96 $ (0.42)(2)
======= ======= =======
SUMMARY BALANCE SHEET
DATA:
Investment
securities........ $ -- $ 9,397 $ -- $ 9,397
Loans, net.......... -- 49,164 -- 49,164
Earning assets...... 146 61,342 -- 61,488
Intangible asset.... -- -- 588 588
Total assets........ 864 66,692 588 68,144
Noninterest-bearing
deposits.......... -- 3,014 -- 3,014
Total deposits...... -- 57,329 -- 57,329
Federal Home Loan
Bank advances..... -- 3,782 -- 3,782
Note payable........ -- 925 -- 925
Shareholders'
equity............ 629 4,335 588 5,552
</TABLE>
22
<PAGE> 24
- ---------------------------
(1) In connection with the acquisition of Riva Bancshares by Premier, goodwill
of $587,905 is reflected in the pro forma financial statements. Goodwill has
been established based upon the excess of the purchase price of $217,799
over the fair value of net liabilities assumed of $370,106 (giving effect to
the assumed redemption of the outstanding Series A Preferred Stock). The
goodwill is being amortized on an accelerated basis over 3 years, the term
of the employment contracts of the key members of Riva Bancshares
management. The purchase price of Riva Bancshares is computed as follows:
- The 100,000 warrants sold to certain investors have been valued at an
aggregate price of $50,000 or $0.50 per warrant, as determined by an
independent appraisal.
- $167,799 relates to the sale of 475,000 shares of common stock and the
granting of 115,798 warrants to the founders of Riva Bancshares. Common
stock has been measured as the difference between the estimated fair value
of $11.00 per share and the sale price of $0.01 per share, as adjusted for
the 465,000 shares of common stock repurchased. The warrants have been
valued at an aggregate price of $57,899, or $0.50 per warrant, as
determined by an independent appraisal.
(2) Pro forma earnings (loss) per share have been computed based on an estimated
828,182 shares of common stock outstanding, which includes 818,182 shares of
common stock to be issued to the shareholders of Premier in connection with
the merger and 10,000 shares of common stock of Riva Bancshares which are
currently outstanding.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RIVA BANCSHARES, INC.
Riva Bancshares was incorporated on May 1, 1998 to acquire or establish a bank
in Missouri. Prior to the acquisition of Premier, Riva Bancshares will have no
operating activities. The acquisition of Premier will be closed immediately
prior to the closing of the offering. Upon completion of the merger, Premier's
shareholders will own greater than 50% of the outstanding common stock of Riva
Bancshares, excluding the issuance of the shares in connection with the
offering. Accordingly, the merger will be accounted for as if Premier had
acquired Riva Bancshares, the consolidated financial statements of Premier will
become the historical consolidated financial statements of Riva Bancshares.
Riva Bancshares has funded its start-up and organization costs through the sale
of units, consisting of common stock, preferred stock and warrants to purchase
shares of common stock. Riva Bancshares operated as a development company and
had no operating revenue during 1998. Costs incurred by Riva Bancshares during
1998 primarily related to costs associated with its formation, the development
of its business plan and identification of a potential merger candidate. At
December 31, 1998, the assets of Riva Bancshares consisted solely of the
remaining proceeds from the sale of units. Accordingly, Management's Discussion
and Analysis of Financial Condition and Results of Operations of Riva Bancshares
at December 31, 1998 and for the period then ended is not included in this
prospectus.
PREMIER BANCSHARES, INC.
Management believes that the acquisition of Premier will enable Riva Bancshares
to implement its strategy in the Jefferson City, Columbia and St. Louis market
areas and provide a platform for further expansion into other identified
markets. The purpose of the following discussion is to focus on significant
changes in the results of operations and the financial condition of Premier
during the three years ended December 31, 1996, 1997 and 1998. This discussion
and analysis is intended to supplement information contained in the accompanying
consolidated financial statements and the selected financial data and other
financial information presented elsewhere in this prospectus.
SUMMARY
In April, 1998, Premier opened a branch in Columbia, Missouri. Due primarily to
the one-time start-up costs related to this opening, the increased general
expenses associated with operating an additional branch, and additional
provision for loan losses resulting from the growth in Premier's loan portfolio,
Premier's net income for 1998 decreased $75,000, or 76.9%, to $22,000 from
$97,000 in 1997, an increase of $210,000 from the 1996 net loss of $113,000.
Basic and dilutive earnings (loss) per share were $0.55 for 1998, $2.99 for 1997
and $(3.54) in 1996. 1996 was the first full year of operations for Premier.
Losses or reduced earnings are typical for banks during start-up periods. The
basic and dilutive earnings (loss) per share amounts are based upon Premier's
historical weighted average number of shares outstanding and do not reflect any
pro forma adjustments relating to the offering or the exchange of shares upon
consummation of the merger.
The decrease in net income from 1997 to 1998 was primarily attributable to
increased noninterest expense and provision for loan losses, partially offset by
increased net interest income and noninterest income. Noninterest expense
increased $460,000, or 62.6%, from $736,000 in 1997 to $1.2 million in 1998. The
provision for loan losses increased $180,000, or 159.8%, from $112,000 in 1997
to $292,000 in 1998. Net interest income increased $484,000 to $1.4 million in
1998 from $866,000 in 1997. Noninterest income increased $79,000, or 88.7%, to
$169,000 in 1998 from $90,000 in 1997.
Total assets at December 31, 1998 were $57.8 million, an increase of $24.0
million, or 71.3%, over total assets of $33.7 million at December 31, 1997.
Loans, net increased 76.4% to $41.2 million at
24
<PAGE> 26
December 31, 1998, from $23.3 million at December 31, 1997. Total deposits
increased 72.7% to $48.8 million at December 31, 1998 from $28.4 million at
December 31, 1997.
Shareholders' equity increased to $4.4 million at December 31, 1998 from $3.2
million at December 31, 1997. This increase was attributable to the proceeds
from the issuance of 9,231 additional shares of common stock totaling $1.2
million, retained net income of $22,000, and an increase in accumulated other
comprehensive income resulting from unrealized gains on debt and marketable
equity securities available-for-sale of $26,000, partially offset by the
purchase of 240 shares of treasury stock for $32,000.
The operating performance of Premier is reflected in the calculations of net
income as a percentage of average total assets ("Return on Average Assets") and
net income as a percentage of average shareholders' equity ("Return on Average
Equity"). During 1998, the Return on Average Assets and Return on Average Equity
were 0.05% and 0.53%, respectively, compared to 0.34% and 3.15%, respectively,
during 1997. Premier's ratio of total shareholders' equity to total assets
decreased to 7.68% at December 31, 1998 from 9.55% at December 31, 1997.
25
<PAGE> 27
RESULTS OF OPERATIONS
Net Interest Income
The following table sets forth, for the periods indicated, information related
to Premier's average balance sheet, its yields on average earning assets and its
average rates on interest-bearing liabilities. Such yields and rates are derived
by dividing income or expense by the average balance of the corresponding assets
or liabilities. Average balances have been derived from the daily balances
throughout the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1996 1997 1998
--------------------------- --------------------------- ---------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- -------- ------ ------- -------- ------ ------- -------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans(1)................. $10,856 $1,008 9.29% $19,212 $1,750 9.11% $31,734 $2,850 8.98%
Securities and interest-
bearing deposits(2).... 5,857 359 6.13 5,670 356 6.29 6,474 408 6.29
Federal funds sold....... 1,225 63 5.12 1,245 69 5.52 3,621 182 5.03
------- ------ ------- ------ ------- ------
Total earning assets... 17,938 1,430 7.97 26,127 2,175 8.33 41,829 3,440 8.22
Cash and due from banks.... 375 571 1,111
Premises and equipment,
net...................... 1,168 1,382 1,895
Other assets............... 204 383 811
Allowance for loan
losses................... (93) (157) (290)
------- ------- -------
Total assets........... $19,592 $28,306 $45,356
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
NOW...................... $ 429 $ 13 3.05% $ 654 $ 20 3.07% $ 828 $ 22 2.69%
Money market deposits.... 1,534 67 4.38 2,339 104 4.43 3,762 149 3.96
Savings deposits......... 1,681 87 5.16 4,615 243 5.26 8,572 402 4.68
Certificates of
deposit................ 11,677 688 5.89 15,382 886 5.76 22,797 1,312 5.75
FHLB advances............ -- -- -- 404 22 5.42 2,134 133 6.21
Note payable............. 300 28 9.25 425 34 7.99 838 72 8.65
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities.......... 15,621 883 5.65 23,819 1,309 5.50 38,931 2,090 5.37
------- ------ ------- ------ ------- ------
Noninterest-bearing demand
deposits................. 721 1,253 1,982
Other liabilities.......... 108 155 251
Shareholders' equity....... 3,142 3,079 4,192
------- ------- -------
Total liabilities and
shareholders'
equity............... $19,592 $28,306 $45,356
======= ======= =======
Net interest income........ $ 547 $ 866 $1,350
====== ====== ======
Net interest spread........ 2.32% 2.83% 2.85%
Net interest margin........ 3.05% 3.32% 3.23%
</TABLE>
- ---------------------------
(1) Nonaccrual loans are included in the average loan amounts outstanding.
Interest on nonaccrual loans is recorded when received.
(2) The yield on securities is computed based upon the average balance of
securities at amortized cost and does not reflect the unrealized gains or
losses on such securities.
Net interest income is the principal component of a financial institution's
income stream and represents the difference or spread between interest and
certain fee income generated from earning assets and the interest expense paid
on deposits and other borrowed funds. Fluctuations in interest rates, as well as
26
<PAGE> 28
volume and mix changes in earning assets and interest-bearing liabilities, can
materially impact net interest income. Premier had no investments in tax-exempt
securities during 1996, 1997 and 1998. Accordingly, no adjustment is necessary
to facilitate comparisons on a taxable equivalent basis.
Net interest income increased $484,000 to $1.4 million in 1998 from $866,000 in
1997. This increase in net interest income can be attributed to the growth in
average earning assets, partially offset by the growth in interest-bearing
deposits, Federal Home Loan Bank advances and the note payable. The trend in net
interest income is commonly evaluated using net interest margin and net interest
spread. The net interest margin, or net yield on average earning assets, is
computed by dividing fully taxable equivalent net interest income by average
earning assets. The net interest margin decreased 9 basis points to 3.23% in
1998 on average earning assets of $41.8 million from 3.32% in 1997 on average
earning assets of $26.1 million. This change is primarily due to a 11 basis
point decrease in the average yield on earning assets to 8.22% in 1998 from
8.33% in 1997, partially offset by a 13 basis point decrease in the average rate
paid on interest-bearing liabilities to 5.37% in 1998 from 5.50% in 1997. The
decreased yield on earning assets was primarily the result of lower market rates
on loans, which decreased from 9.11% in 1997 to 8.98% in 1998. The decrease in
the cost of interest-bearing liabilities is attributable to a decrease in rates
on all interest-bearing deposit categories, partially offset by an increase in
the average rates paid on Federal Home Loan Bank advances and the note payable.
Net interest income increased $319,000 to $866,000 in 1997 from $547,000 in
1996. This increase in net interest income is attributable to the growth in and
yield on average earning assets and the decrease in the average rate paid on
interest-bearing liabilities, partially offset by the growth in interest-bearing
liabilities. Net interest margin increased 27 basis points to 3.32% in 1997 on
average earning assets of $26.1 million from 3.05% in 1996 on average earning
assets of $17.9 million. The increased yield on earning assets was primarily the
result of the growth in average loans from $10.9 million in 1996 to $19.2
million in 1997, partially offset by a decrease in the average rate earned on
loans from 9.29% in 1996 to 9.11% in 1997. The decrease in the cost of
interest-bearing liabilities is attributable to a decrease in the average rates
paid on certificates deposits and the note payable.
The net interest spread increased two basis points to 2.85% in 1998 from the
1997 net interest spread of 2.83% as the cost of interest-bearing liabilities
decreased 13 basis points, which was substantially offset by the decrease in
yield on average earning assets of 11 basis points. The net interest spread
measures the absolute difference between the yield on average earning assets and
the rate paid on average interest-bearing sources of funds. The net interest
spread eliminates the impact of noninterest-bearing funds and gives a direct
perspective on the effect of market interest rate movements. This measurement
allows management to evaluate the variance in market rates and adjust rates or
terms as needed to maximize spreads.
The net interest spread increased 51 basis points to 2.83% in 1997 from a net
interest spread of 2.32% in 1996. The increase resulted from an increase in the
yield on average earning assets of 36 basis points and a 15 basis point decrease
in the cost of average interest-bearing liabilities.
During recent years, the net interest margins and net interest spreads have been
under pressure, due in part to intense competition for funds with non-bank
institutions and changing regulatory supervision for some financial
intermediaries. This pressure on interest rate margins and spreads was
experienced by the banking industry nationwide.
To counter potential declines in the net interest margin and the interest rate
risk inherent in the balance sheet, Premier adjusts the rates and terms of its
interest-bearing liabilities in response to general market rate changes and the
competitive environment. Premier monitors the amounts of Federal funds sold
throughout the year, investing excess funds to maintain appropriate liquidity in
higher yielding investments such as short-term U. S. government and agency
securities. Premier will continue to manage its consolidated balance sheet and
its interest rate risk based on changing market interest rate conditions.
27
<PAGE> 29
Rate/Volume Analysis of Net Interest Income
The table below presents the changes in interest income and interest expense
attributable to volume and rate changes. The effect of a change in average
balance has been determined by applying the average rate in the initial year to
the change in average balance between the two years. The effect of change in
rate has been determined by applying the average balance in the initial year to
the change in the average rate between the two years. The net change
attributable to the combined impact of the volume and rate has been allocated to
both components in proportion to the relationship of the absolute dollar amounts
of the change in each.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1998
COMPARED WITH COMPARED WITH
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------------------ ----------------------------
INCREASE (DECREASE) DUE TO: INCREASE (DECREASE) DUE TO:
--------------------------- ---------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------- ----- ------ ------ ---- ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Earned On:
Loans............................. $762 $(20) $742 $1,125 $(25) $1,100
Securities and interest bearing
deposits........................ (12) 9 (3) 52 -- 52
Federal funds sold................ 1 5 6 120 (7) 113
---- ---- ---- ------ ---- ------
Total earning assets............ 751 (6) 745 1,297 (32) 1,265
---- ---- ---- ------ ---- ------
Interest Paid On:
NOW deposits...................... 7 -- 7 5 (3) 2
Money market deposits............. 36 1 37 57 (12) 45
Savings deposits.................. 154 2 156 188 (29) 159
Certificates of deposit........... 213 (15) 198 428 (2) 426
Federal Home Loan Bank advances... 22 -- 22 111 -- 111
Note payable...................... 10 (4) 6 35 3 38
---- ---- ---- ------ ---- ------
Total interest-bearing
liabilities................... 442 (16) 426 824 (43) 781
---- ---- ---- ------ ---- ------
Net interest income............. $309 $ 10 $319 $ 473 $ 11 $ 484
==== ==== ==== ====== ==== ======
</TABLE>
Provision for Loan Losses
The provision for loan losses is the expense of providing an allowance or
reserve for inherent losses on loans. The amount of the provision for each
period is dependent upon many factors, including loan growth, net charge-offs,
changes in the composition of the loan portfolio, delinquencies, management's
assessment of loan portfolio quality, the value of loan collateral and general
business and economic conditions.
The provision for loan losses charged to operations was $292,000 in 1998
compared to $112,000 in 1997. Net loans charged-off increased to $63,000 in 1998
as compared to $22,000 in 1997. Of the $63,000 in net charge-offs in 1998,
$61,000 was attributable to two real estate loans. Additionally, the balance of
loans outstanding increased 76.7% at December 31, 1998 as compared to December
31, 1997, while the allowance for loan losses increased 109.0%. At December 31,
1998 the allowance for loan losses represented 1.05% of total loans as compared
to 0.89% at December 31, 1997.
The provision for loan losses charged to operations was $112,000 in 1997
compared to $80,000 in 1996. Management's analysis of the allowance for loan
losses during 1997 and 1996 indicated no material changes in the quality of the
loan portfolio, economic outlook or other factors generally considered by
management. Accordingly, the increase in provision for loan losses for 1997 and
1996 was generally due to increases in the amount of loans outstanding.
28
<PAGE> 30
Noninterest Income
The following table presents an analysis of the noninterest income for the
periods indicated with respect to each major category of noninterest income:
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1996 1997 1998 1996-1997 1997-1998
------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Service charges on deposits............ $18,889 $34,930 $ 58,958 84.9% 68.8%
Loss on sale of securities, net........ -- (210) -- -- --
Other noninterest income............... 28,383 54,584 109,559 92.3 100.7
------- ------- --------
Total............................. $47,272 $89,304 $168,517 88.9% 88.7%
======= ======= ========
</TABLE>
Noninterest income consists of revenues generated from a broad range of
financial services, products and activities, including service charges on
deposits and other activities.
Noninterest income increased 88.7% to $169,000 in 1998 from $90,000 in 1997.
This increase resulted from the increase in service charges on deposits of
$24,000, or 68.8%, to $59,000 in 1998 from $35,000 in 1997 due to increased
deposit volume. Other noninterest income, which includes various recurring
noninterest income items such as gain on sale of loans, credit life insurance
income, safe deposit box fees and ATM fees, increased $55,000, or 100.7%, to
$110,000 in 1998 from $55,000 in 1997. The increase related primarily to the
increase in gain on sale of loans from $26,000 in 1997 to $70,000 in 1998,
resulting from the increase in the number of residential mortgage loans sold in
the secondary market.
Noninterest income increased 88.9% to $90,000 in 1997 from $47,000 in 1996. This
increase resulted primarily from higher service charges on deposits and an
increase in other income. Deposit volume growth increased service charges on
deposits by $16,000, or 84.9%, to $35,000 in 1997 from $19,000 in 1996. Other
income increased $26,000, or 92.3%, to $55,000 in 1997 from $28,000 in 1996.
Included in other income is gain on sales of loans, which increased 52.9% from
$17,000 in 1996 to $26,000 in 1997.
Noninterest Expense
The following table presents an analysis of the noninterest expense for the
periods indicated with respect to each major category of noninterest expense:
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1996 1997 1998 1996-1997 1997-1998
-------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits..... $298,307 $354,371 $ 598,308 18.8% 68.8%
Occupancy and equipment expense.... 82,030 118,965 188,108 45.0 58.1
Other noninterest expense.......... 247,024 262,315 409,498 6.2 56.1
-------- -------- ----------
Total.................... $627,361 $735,651 $1,195,914 17.3% 62.6%
======== ======== ==========
</TABLE>
Noninterest expense increased 62.6% to $1.2 million in 1998 from $736,000 in
1997 primarily as a result of the costs associated with the opening of the
Columbia branch in April 1998 and the continued growth in the operations in
Jefferson City. Management attributes this increase to an increase in personnel
costs, occupancy and equipment expense, and other operating expenses. Salaries
and employee benefits increased 68.8% to $598,000 in 1998 from $354,000 in 1997.
This increase is attributable to an increase in the number of full-time
equivalent employees from 11 in 1997 to 17 in 1998 reflecting the increase in
business as a result of the opening of the Columbia branch in April 1998, in
addition to normal increases in salaries. Occupancy and equipment expense
increased 58.1% to $188,000 in 1998 from $119,000 in 1997, primarily as a result
of opening of the new branch in Columbia. The increase in other noninterest
expense is attributable primarily to amounts associated with the operation and
promotion of the new Columbia branch, continued growth in the operations of the
Jefferson City location and an increase of $29,000 in directors' fees. Prior to
1998, due to the start-up nature of Premier, directors fees paid were nominal.
29
<PAGE> 31
Noninterest expense increased to $736,000 in 1997 from $627,000 in 1996.
Increases in personnel costs and occupancy expense were the primary factors for
the increase. Salaries and employee benefits expense increased 18.8% to $354,000
in 1997 from $298,000 in 1996. This increase resulted from an increase in the
number of full-time equivalent employees from seven in 1996 to 11 in 1997,
reflecting the increase in business during the second full year of operations,
in addition to normal increases in salaries. Occupancy and equipment expense
increased 45.0% to $119,000 in 1997 from $82,000 in 1996 due to 1997 including a
full year of depreciation on the Jefferson City location, which opened in 1996.
Other noninterest expenses increased 6.2% to $262,000 in 1997 from $247,000 in
1996. The increase in other noninterest expense is attributable primarily to
growth in the operations of the Jefferson City location.
Income Tax Expense
Income tax expense decreased to $9,000 in 1998 from $11,000 in 1997, reflecting
an effective tax rate of 27.6% for 1998, compared to an effective tax rate of
9.9% for 1997. The increase in the effective tax rate is due to a smaller
decrease in the valuation allowance for deferred tax assets of $6,000 in 1998
compared to $39,000 in 1997. A deferred tax asset valuation allowance is
established if it is more likely than not that all or a portion of the deferred
tax assets will not be realized. The deferred tax valuation allowance was
$57,000 and $63,000 at December 31, 1998 and 1997, respectively.
Certain income and expense items are recognized in different periods for
financial reporting purposes and for income tax return purposes. Deferred income
tax assets and liabilities reflect the differences between the values of certain
assets and liabilities for financial reporting purposes and for income tax
purposes, computed at the current tax rates. Deferred income tax expense is
computed as the change in Premier's deferred tax assets, net of deferred tax
liabilities and the valuation allowance. Premier's deferred income tax assets
consist principally of the financial statement reporting amount of the provision
for loan losses in excess of the amount reported for income tax purposes.
Net Income
Net income decreased 76.9% to $22,000 in 1998 from $97,000 in 1997. The decrease
in net income from 1997 to 1998 was primarily attributable to increased
noninterest expense, related primarily to the opening of the Columbia branch,
increased provision for loan losses, related to growth in the loan portfolio,
partially offset by increased net interest income and noninterest income. Basic
and dilutive earnings per share decreased to $0.55 in 1998 from $2.99 in 1997.
Return on Average Assets decreased 29 basis points to 0.05% in 1998 from 0.34%
in 1997. Return on Average Equity decreased 262 basis points to 0.53% in 1998
from 3.15% in 1997.
Net income for 1997 increased $210,000 from the 1996 net loss of $113,000 to net
income in 1997 of $97,000. The increase in net income for 1997 was attributable
to an increase in net interest income and an increase in noninterest income,
which were partially offset by an increase in noninterest expense and in income
tax expense. Basic and dilutive earnings (loss) per share was $2.99 for 1997 and
$(3.54) in 1996. Return on Average Assets increased 92 basis points to 0.34% in
1997 from (0.58%) in 1996. Return on Average Equity increased 675 basis points
to 3.15% in 1997 from (3.60%) in 1996.
FINANCIAL CONDITION
Earning Assets
Average earning assets increased 60.1% to $41.8 million in 1998 from $26.1
million in 1997. During 1998, loans represented 75.9%, securities and interest
bearing deposits comprised 15.5% and Federal funds sold comprised 8.6% of
average earning assets. In 1997, loans comprised 73.5%, securities and interest
bearing deposits comprised 21.7% and Federal funds sold comprised 4.8% of
average earning assets. The variance in the mix of earning assets is primarily
attributable to continued growth of the loan portfolio. Premier manages its
securities portfolio to minimize interest rate fluctuation risk and to provide
liquidity.
30
<PAGE> 32
In 1998, growth in earning assets was funded primarily through an increase in
all deposit categories, Federal Home Loan Bank advances, the note payable and
shareholders' equity.
Loan Portfolio
Premier's total loans outstanding increased 76.7% to $41.6 million at December
31, 1998 from $23.6 million at December 31, 1997. Loan growth for 1998 was
funded primarily through the growth in deposits. The growth in the loan
portfolio primarily was a result of an increase in real estate loans of $15.1
million, or 78.3%, from December 31, 1997 to December 31, 1998. Average total
loans in 1998 were $31.7 million compared to $19.2 million in 1997. Premier
engages in a full complement of lending activities, including commercial, real
estate, installment and residential mortgage loans held for sale.
The following table presents various categories of loans contained in Premier's
loan portfolio for the periods indicated, the total amount of all loans for such
periods, and the percentage of total loans represented by each category for such
periods:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1997 1998
------------------------ ------------------------
BALANCE % OF TOTAL BALANCE % OF TOTAL
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
TYPE OF LOAN
Commercial.............................. $ 2,905,207 12.3% $ 5,292,128 12.7%
Real estate............................. 19,329,657 82.1 34,465,883 82.8
Installment and others.................. 1,317,437 5.6 1,618,363 3.9
Loans held for sale..................... -- -- 233,165 0.6
----------- ----- ----------- -----
Total loans........................ $23,552,301 100.0% 41,609,539 100.0%
===== =====
Allowance for loan losses............... (210,000) (438,841)
----------- -----------
Loans, net......................... $23,342,301 $41,170,698
=========== ===========
</TABLE>
Commercial. This category of loans includes loans made to individual,
partnership or corporate borrowers, and obtained for a variety of business
purposes. At December 31, 1998, commercial loans represented 12.7% of
outstanding loan balances, compared to 12.3% at December 31, 1997.
Real Estate. Real estate loans consist of loans secured by owner-occupied
commercial properties, income producing properties and construction and land
development, as well as first and second mortgage loans on residential
properties. At December 31, 1998, real estate loans represented 82.8% of
outstanding loan balances, compared to 82.1% at December 31, 1997.
Installment and Others. Premier's installment loans consist primarily of loans
to individuals for personal, family and household purposes, education and other
personal expenditures. At December 31, 1998, installment and others represented
3.9% of outstanding loan balances, compared to 5.6% at December 31, 1997.
Loans Held For Sale. This category represents residential real estate loans in
the process of being sold to the secondary market. At December 31, 1998, loans
held for sale represented 0.6% of outstanding loan balances.
Premier's only area of credit concentration is commercial and commercial real
estate loans. Premier has not invested in loans to finance highly leveraged
transactions, such as leveraged buy-out transactions, as defined by the Federal
Reserve Board and other regulatory agencies. In addition, Premier had no foreign
loans or loans to lesser developed countries as of December 31, 1998.
While risk of loss in Premier's loan portfolio is primarily tied to the credit
quality of the borrowers, risk of loss may also increase due to factors beyond
Premier's control, such as local, regional and/or national economic downturns.
General conditions in the real estate market may also impact the relative risk
in
31
<PAGE> 33
Premier's real estate portfolio. Of Premier's target areas of lending
activities, commercial loans are generally considered to have greater risk than
real estate loans or installment loans.
From time to time, management of Premier has originated certain loans which,
because they exceeded Premier's legal lending limit, were sold to other banks.
As a result of the offering, Premier expects to have an increased lending limit.
Accordingly, Premier may, at its discretion, repurchase certain loan
participations, thereby increasing earning assets. Loan participation agreements
allow Premier to repurchase loans at the outstanding principal balance plus
accrued interest, if any, at Premier's discretion.
Premier also purchases participations from other banks. When Premier purchases
these participations, such loans are subjected to Premier's underwriting
standards as if Premier originated the loan. Accordingly, management of Premier
does not believe that loan participations purchased from other banks pose any
greater risk of loss than loans that Premier originates.
The repayment of loans in the loan portfolio as they mature is a source of
liquidity for Premier. The following table sets forth the maturity of Premier's
loan portfolio within specified intervals as of December 31, 1998:
<TABLE>
<CAPTION>
AFTER ONE DUE AFTER
DUE IN ONE THROUGH FIVE
YEAR OR LESS FIVE YEARS YEARS TOTAL
------------ ---------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C>
Commercial.................................... $ 1,378 $ 2,020 $1,894 $ 5,292
Real Estate................................... 15,148 16,978 2,340 34,466
Installment and others........................ 642 845 132 1,619
Loans held for sale........................... -- -- 233 233
------- ------- ------ -------
$17,168 $19,843 $4,599 $41,610
======= ======= ====== =======
</TABLE>
The following table presents the maturity distribution as of December 31, 1998
for loans with predetermined fixed interest rates and floating interest rates by
various maturity periods:
<TABLE>
<CAPTION>
AFTER ONE
DUE IN ONE THROUGH DUE AFTER FIVE
YEAR OR LESS FIVE YEARS YEARS TOTAL
------------ ----------------- -------------- -------
(in thousands)
<S> <C> <C> <C> <C>
Interest Category
Predetermined fixed interest rate... $ 4,324 $ 8,928 $2,246 $15,498
Floating interest rate.............. 19,045 6,745 322 26,112
------- ------- ------ -------
Total............................ $23,369 $15,673 $2,568 $41,610
======= ======= ====== =======
</TABLE>
Asset Quality and Nonperforming Assets
At December 31, 1998 nonaccrual loans totaled $94,000, as compared to nonaccrual
loans of $161,000 at December 31, 1997. At December 31, 1998, no loans were past
due 90 days or more. At December 31, 1997, one loan totaling $315,000 was
contractually past due by 90 days or more as to principal and interest payments
and continued to accrue interest. At December 31, 1998 and 1997 there were no
loans classified as "troubled debt restructurings" as that term is defined in
Statement of Financial Accounting Standards No. 15.
At December 31, 1998 and 1997, there were $899,000 and $436,000, respectively,
of loans in addition to those disclosed above that were internally classified as
substandard which (a) represented or resulted from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity, or capital resources, or (b) represented credits about which
management is aware of any information which causes management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms. There are no loans other than those disclosed above where known
32
<PAGE> 34
information about possible credit problems of borrowers causes management to
have serious doubts as to the ability of such borrowers to comply with loan
repayment terms.
Premier has policies, procedures and underwriting guidelines intended to assist
in maintaining the overall quality of its loan portfolio. Premier monitors its
delinquency levels for any adverse trends. Non-performing assets consist of
loans on nonaccrual status, real estate and other assets acquired in partial or
full satisfaction of loan obligations and loans that are past due 90 days or
more.
Premier's policy generally is to place a loan on nonaccrual status when it is
contractually past due 90 days or more as to payment of principal or interest. A
loan may be placed on nonaccrual status at an earlier date when concerns exist
as to the ultimate collections of principal or interest. At the time a loan is
placed on nonaccrual status, interest previously accrued but not collected is
reversed and charged against current earnings. Recognition of any interest after
a loan has been placed on nonaccrual is accounted for on a cash basis. Loans
that are contractually past due 90 days or more which are well secured or
guaranteed by financially responsible third parties and are in the process of
collection generally are not placed on nonaccrual status.
Allowance for Loan Losses and Net Charge-Offs
The allowance for loan losses represents management's estimate of an amount
adequate to provide for potential losses inherent in the loan portfolio. In its
evaluation of the allowance and its adequacy, management considers loan growth,
changes in the composition of the loan portfolio, the loan charge-off
experience, the amount of past due and nonperforming loans, current economic
conditions, underlying collateral values securing loans and other factors. While
it is Premier's policy to charge-off in the current period the loans in which a
loss is considered probable, there are additional risks of future losses that
cannot be quantified precisely or attributed to particular loans or classes of
loans. Because these risks include the state of the economy, management's
judgment as to the adequacy of the allowance is necessarily approximate and
imprecise.
An analysis of Premier's loss experience is furnished in the following table for
the periods indicated, as well as a detail of the allowance for loan losses:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1998
--------- ---------
<S> <C> <C>
Balance at beginning of period.............................. $120,000 $210,000
Charge-offs
Commercial................................................ (5,807) (1,427)
Real estate............................................... (10,000) (61,159)
Installment and others.................................... (6,833) (2,057)
Loans held for sale....................................... -- --
-------- --------
Total charge-offs...................................... (22,641) (64,643)
Recoveries:
Commercial................................................ -- --
Real estate............................................... -- 1,750
Installment and others.................................... 362 --
Loans held for sale....................................... -- --
-------- --------
Total recoveries....................................... 362 1,750
-------- --------
Net charge-offs............................................. (22,279) (62,893)
Provision for loan losses................................... 112,279 291,734
-------- --------
Balance at end of period.................................... $210,000 $438,841
======== ========
Net charge-offs as a percentage of average loans............ 0.12% 0.20%
Allowance for loan losses as a percentage of total loans.... 0.89 1.05
</TABLE>
33
<PAGE> 35
Net charge-offs were $63,000 or 0.20% of average loans outstanding in 1998 as
compared to $22,000 or 0.12% of average loans outstanding in 1997. The allowance
for loan losses increased 109.0% to $439,000 or 1.05% of loans outstanding at
December 31, 1998 from $210,000 or 0.89% of loans outstanding at December 31,
1997. The allowance for loan losses as a multiple of net loans charged off was
6.98 for the year ended December 31, 1998.
Net charge-offs decreased to $22,000 in 1997, representing 0.12% of average
loans outstanding, from $24,000 in 1996 or 0.22% of average loans outstanding.
The allowance for loan losses increased to $210,000 or 0.89% of loans
outstanding at December 31, 1997, from $120,000 or 0.78% of loans outstanding at
December 31, 1996.
In assessing the adequacy of the allowance for loan losses, management relies
predominantly on its ongoing review of the loan portfolio, which is undertaken
to ascertain whether there are probable losses which must be charged off and to
assess the risk characteristics of the portfolio as a whole. This review
encompasses the judgment of management, utilizing internal loan rating
standards, guidelines provided by the banking regulatory authorities governing
Premier, and their loan portfolio reviews as part of the bank examination
process
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS 114") was issued in May 1993. SFAS 114 requires
that impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or the fair value of
the collateral if the loan is collateral dependent. Premier adopted SFAS 114
during 1995, its year of formation. At December 31, 1998, Premier held impaired
loans of $94,000 for which specific allocations of $24,000 have been established
within the allowance for loan losses, based upon the fair value of the
collateral. At December 31, 1997, Premier held impaired loans of $161,000 for
which specific allocations of $28,000 have been established within the allowance
for loan losses, based upon the fair value of the collateral. Forgone interest
on impaired loans totaled $7,000 for both 1998 and 1997. For the periods
indicated, the allowance for loan losses was allocated to the various loan
categories as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1997 1998
------------------------ ------------------------
CATEGORY AS A CATEGORY AS A
AMOUNT % OF TOTAL AMOUNT % OF TOTAL
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Commercial................................. $ 14,526 12.3% $ 26,461 12.7%
Real estate................................ 188,887 82.1 298,885 82.8
Installment and others..................... 6,587 5.6 8,092 3.9
Loans held for sale........................ -- -- -- 0.6
Unallocated................................ -- -- 105,403 --
-------- ----- -------- -----
Total................................. $210,000 100.0% $438,841 100.0%
======== ===== ======== =====
</TABLE>
In considering the adequacy of Premier's allowance for loan losses, management
has focused on the fact that as of December 31, 1998, 12.7% of outstanding loans
are in the category of commercial loans and 82.8% are in real estate loans.
Commercial loans are generally considered by management to have greater risk
than other categories of loans in Premier's loan portfolio. Generally, such
loans are secured by accounts receivable, marketable securities, deposit
accounts, equipment and other fixed assets, which reduces the risk of loss
inherently present in commercial loans. Real estate loans secured by commercial
real estate inherently have a higher risk due to depreciation of the facilities,
limited purposes of the facilities and the effect of general economic
conditions. Premier attempts to limit this risk by generally lending no more
than 80% of the appraised value of the property held as collateral. A portion of
the real estate portfolio represents residential real estate mortgages where the
amount of the original loan generally does not exceed 85% of the appraised value
of the collateral. These loans are considered by management to be well secured
with a low risk of loss. At December 31, 1998, the majority of Premier's
installment and other loans were secured by collateral primarily consisting of
automobiles, boats and other personal property.
34
<PAGE> 36
Premier's primary regulator, the Missouri Division of Finance, conducts periodic
examinations of the loan portfolio. Upon completion, the Missouri Division of
Finance presents its report of examination to Premier's board of directors and
management of Premier. Procedures are also performed related to the loan
portfolio in conjunction with the year-end audit by Premier's independent
accountants. Procedures performed include analyses of historical performance,
the level of nonconforming and rated loans, loan volume and activity, review of
loan files and consideration of economic conditions and other pertinent
information. Findings are communicated verbally to Premier's management.
Information provided from the above two independent sources, together with
information provided by the management of Premier and other information known to
members of Premier's board of directors, is utilized by Premier's board of
directors to monitor the loan portfolio and the allowance for loan losses.
Specifically, Premier's board of directors attempts to identify risks inherent
in the loan portfolio (e.g., problem loans, potential problem loans and loans to
be charged off), assess the overall quality and collectibility of the loan
portfolio, and determine amounts of the allowance for loan losses and the
provision for loan losses to be reported based on the results of their review.
Investment Portfolio
Total debt and marketable equity securities available-for-sale increased 19.6%
to $6.5 million at December 31, 1998 from $5.4 million at December 31, 1997. At
December 31, 1998, debt and marketable equity securities available-for-sale
totaled $6.4 million, with an unrealized gain of $34,000, net of tax effect. At
December 31, 1997, debt and marketable equity securities available-for-sale
totaled $5.4 million, with an unrealized gain of $8,000, net of tax effect.
Average debt and marketable equity securities as a percentage of average earning
assets decreased to 15.5% in 1998 from 21.7% in 1997.
Premier invests primarily in direct obligations of the United States,
obligations guaranteed as to principal and interest by the United States and
obligations of agencies of the United States. In addition, Premier enters into
Federal funds transactions with its principal correspondent banks, and acts as a
net seller of such funds. The sale of Federal funds amounts to a short-term loan
from Premier to another bank.
Proceeds from maturities of debt and marketable equity securities
available-for-sale increased 38.1% to $3.5 million in 1998 from $2.6 million in
1997. No debt and marketable equity securities available-for-sale were sold
during 1998. In 1997, debt and marketable equity securities available-for-sale
of $553,000 were sold with a resulting loss on sales of $210. Such proceeds are
generally used to reinvest in additional debt and marketable equity securities
available-for-sale.
Other investments primarily represent Federal Home Loan Bank stock that is
required for Premier to be a member of and to conduct business with such
institution. Dividends on such investment are determined by the institutions and
are payable quarterly. Other investments increased 121.3% to $176,000 at
December 31, 1998 from $80,000 at December 31, 1997. Other investments are
carried at cost, as such investments do not have readily determinable fair
values.
During 1998 and 1997, Premier did not invest in collateralized mortgage
obligations ("CMOs"). In addition, at December 31, 1998, the debt and marketable
equity securities available-for-sale portfolio did not include any U.S.
government agency investments that are defined as derivatives or structured
notes.
The following table presents, for the periods indicated, the carrying amount of
Premier's debt and marketable equity securities available-for-sale, including
mortgage-backed securities.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------
1997 1998
----------------------- -----------------------
BALANCE % OF TOTAL BALANCE % OF TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury securities.................... $ 765,583 14.1% $ 512,810 7.9%
U.S. government corporations and agencies... 3,757,744 69.4 4,893,647 75.6
Obligations of state and political
subdivisions............................. 361,096 6.7 370,159 5.7
Mortgage-backed securities.................. 453,827 8.4 525,429 8.1
---------- ----- ---------- -----
Total debt securities.................... $5,338,250 98.6% $6,302,045 97.3%
---------- ----- ---------- -----
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------
1997 1998
----------------------- -----------------------
BALANCE % OF TOTAL BALANCE % OF TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Equity securities:
Federal Home Loan Bank stock................ $ 77,000 1.4% $ 173,400 2.7%
Other....................................... 2,500 -- 2,500 --
---------- ----- ---------- -----
Total equity securities.................. $ 79,500 1.4% $ 175,900 2.7%
---------- ----- ---------- -----
Total.................................... $5,417,750 100.0% $6,477,945 100.0%
========== ===== ========== =====
</TABLE>
At December 31, 1998, $525,000 or 8.1% of the debt and marketable equity
securities available-for-sale portfolio consisted of mortgage-backed securities
compared to $454,000 or 8.4% at December 31, 1997. Premier has segregated its
debt and marketable equity securities portfolio into securities held-to-maturity
and available-for-sale. Debt and marketable equity securities held-to-maturity
are those securities for which management has both the ability and intent to
hold to maturity and are carried at amortized cost. At December 31, 1998 and
1997, no debt and marketable equity securities were classified as held-to-
maturity. Debt and marketable equity securities available-for-sale are
securities identified by management as securities which may be sold prior to
maturity in response to various factors including liquidity needs, capital
compliance, changes in interest rates or portfolio risk management. The
available-for-sale debt and marketable equity securities provide interest income
and serve as a source of liquidity for Premier.
These securities are carried at fair value, with unrealized gains and losses,
net of tax effect, reported as accumulated other comprehensive income, a
separate component of shareholders' equity.
Debt and marketable equity securities available-for-sale with a carrying value
of approximately $1.4 million and $1.5 million at December 31, 1998 and 1997,
respectively, were pledged to secure public funds and for other purposes as
required or permitted by law.
The maturities and weighted average yields of the debt and marketable equity
securities available-for-sale portfolio at December 31, 1998 are presented in
the following table using primarily the stated maturities, excluding the effects
of prepayments.
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE WEIGHTED
ONE YEAR THROUGH THROUGH AFTER TEN AVERAGE
OR LESS FIVE YEARS TEN YEARS YEARS YIELD(1)
-------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities........... $251,560 $ -- $ 261,250 $ -- 6.24%
U.S. Government corporations and
agencies......................... 501,713 1,352,199 2,784,428 255,307 6.10%
Obligations of states and political
subdivisions..................... -- 370,159 -- -- 6.17%
Mortgage-backed securities......... -- 368,724 156,705 -- 5.96%
-------- ---------- ---------- --------
Total debt securities(2)........... $753,273 $2,091,082 $3,202,383 $255,307 6.10%
======== ========== ========== --------
Weighted average yield............. 6.25% 6.02% 6.20% 5.13%
======== ========== ========== ========
</TABLE>
- ---------------------------
(1) Premier has not invested in any tax-exempt obligations.
(2) As of December 31, 1998, except for the U.S. Government and its agencies,
there was not any issuer within the investment portfolio who represented 10%
or more of the shareholders' equity.
Deposits
Premier's average deposits increased 56.5%, or $13.7 million, to $37.9 million
during 1998 from $24.2 million during 1997. This growth primarily relates to the
Columbia branch opened in April 1998 and the continued growth of the Jefferson
City branch, and resulted in a 52.8% increase in average noninterest-bearing
demand deposits, a 26.6% increase in average NOW accounts, a 60.8% increase in
average money
36
<PAGE> 38
market accounts, an 85.8% increase in average savings accounts and a 48.2%
increase in average certificates of deposit.
Average noninterest-bearing deposits increased 58.2% to $2.0 million in 1998
from $1.3 million in 1997. As a percentage of average total deposits, these
deposits remained constant at 5.2% in 1998 and 1997. Noninterest-bearing
deposits increased 90.6% to $2.8 million at December 31, 1998, from $1.5 million
at December 31, 1997.
Average NOW accounts increased 26.6% to $828,000 in 1998 from $654,000 in 1997.
As a percentage of average total deposits, these deposits decreased to 2.2% of
average total deposits in 1998 as compared to 2.7% in 1997. NOW accounts
increased 72.6% to $1.2 million at December 31, 1998, from $709,000 at December
31, 1997.
Average money market accounts increased 60.8% to $3.8 million in 1998 from $2.3
million in 1997. As a percentage of average total deposits, these deposits
increased to 9.9% of average total deposits in 1998 as compared to 9.6% in 1997.
Money market accounts increased 111.2% to $4.9 million at December 31, 1998,
from $2.3 million at December 31, 1997.
Average savings accounts increased 85.8% to $8.6 million in 1998 from $4.6
million in 1997. As a percentage of average total deposits, these deposits
increase to 22.6% of average total deposits in 1998 as compared to 19.0% in
1997. Savings accounts increased 104.4% to $12.5 million at December 31, 1998,
from $6.1 million at December 31, 1997.
Average certificates of deposit increased 48.2% to $22.8 million in 1998 from
$15.4 million in 1997. As a percentage of average total deposits, these deposits
decreased to 60.1% of average total deposits in 1998 as compared to 63.5% in
1997. Certificates of deposit increased 54.6% to $27.5 million at December 31,
1998, from $17.8 million at December 31, 1997.
The following table presents, for the periods indicated, the average amount of
and average rate paid on each of the following deposit categories:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1998
--------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
DEPOSIT CATEGORY
Noninterest-bearing demand................... $ 1,253,307 --% $ 1,982,363 --%
NOW.......................................... 654,229 3.07 828,494 2.69
Money market deposits........................ 2,339,249 4.43 3,761,926 3.96
Savings deposits............................. 4,614,491 5.26 8,572,118 4.68
Certificates of deposit...................... 15,382,207 5.76 22,796,540 5.75
----------- -----------
Total................................... $24,243,483 5.16% $37,941,441 4.96%
=========== ===========
</TABLE>
37
<PAGE> 39
Certificates of deposit will continue to be a major source of funding for
Premier. However, there is no specific emphasis placed on time deposits of
$100,000 and over. During l998, aggregate average balances of time deposits of
$100,000 and over comprised 4.4% of average total deposits. The average rate on
certificates of deposit of $100,000 or more decreased to 5.40% at December 31,
1998, compared to 5.72% at December 31, 1997. The following table indicates
amounts outstanding of certificates of deposit of $100,000 or more and
respective maturities:
<TABLE>
<CAPTION>
1997 1998
---------------- -----------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------ ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
3 months or less..................................... $1,499 5.53% $ 3,662 5.25%
3-6 months........................................... 1,436 5.69 2,454 5.58
6-12 months.......................................... 1,880 5.80 3,854 5.36
Over 12 months....................................... 1,469 5.85 1,226 5.65
------ -------
Total........................................... $6,284 5.72% $11,196 5.40%
====== ==== ======= ====
</TABLE>
Federal Home Loan Bank Advances and Note Payable
Average Federal Home Loan Bank advances increased to $2.1 million in 1998 from
$404,000 in 1997. Premier is a member of the Federal Home Loan Bank of Des
Moines. At December 31, 1998, Premier had a borrowing capacity from the Federal
Home Loan Bank of $4.9 million. The balance of Federal Home Loan Bank advances
outstanding was $3.4 million and $940,000 at December 31, 1998 and 1997,
respectively. At December 31, 1998, $250,000 of the Federal Home Loan Bank
advance balance had a weighted average interest rate of 6.18% and was due to
mature in one year or less, while the remaining $3.2 million, with a weighted
average interest rate of 5.70%, is due to mature after five years. At December
31, 1998, $2.2 million of the Federal Home Loan Bank advances were used to
"match fund" loans made by Premier to borrowers at interest rates ranging from
2.14% to 2.75% over the rate paid on the Federal Home Loan Bank advance. Terms
of the Federal Home Loan Bank advances generally match term loans to the
borrower. Thus, by match funding long-term loans with long-term advances,
Premier can reduce certain interest rate risks. The remaining $1.2 million in
Federal Home Loan Bank advances were for general funding purposes, and are not
specifically matched to any of Premier's loans or securities. Federal Home Loan
Bank advances are secured under a blanket agreement which assigns all Federal
Home Loan Bank stock and one-to-four family mortgage loans equal to 130% of the
outstanding advance balance. The maximum amount of borrowings available pursuant
to Federal Home Loan Bank advances at any month end for 1996, 1997, and 1998 was
$0, $1,500,000, and $3,461,000, respectively.
The average balance of the note payable increased 97.1% to $838,000 in 1998 as
compared to $425,000 in 1997. The outstanding balance of the note payable was
$750,000 and $1,050,000 at December 31, 1998 and 1997, respectively. The note
payable is a term loan with an unaffiliated financial institution that bears
interest at the prime rate (7.75% at December 31, 1998), is due on November 15,
1999 and is secured by 35,020 common shares of Premier Bank stock. The maximum
amount of borrowings available under the note payable at any month end for 1996,
1997, and 1998 was $300,000, $1,050,000, and $1,050,000, respectively.
Capital Resources
Shareholders' equity increased 37.8% to $4.4 million at December 31, 1998 from
$3.2 million at December 31, 1997. This increase was attributable to the
proceeds from the issuance of 9,231 additional shares of common stock totaling
$1.2 million, retained net income of $22,000, and an increase in accumulated
other comprehensive income resulting from unrealized gains on debt and
marketable equity securities available for sale of $26,000, partially offset by
the purchase of 240 shares of treasury stock for $32,000.
38
<PAGE> 40
Average shareholders' equity as a percentage of total average assets is one
measure used to determine capital strength. The ratio of average shareholders'
equity to average assets decreased to 9.24% in 1998 from 10.88% in 1997 and
16.04% in 1996 due to the continued growth of Premier Bank. The actual and
minimum required capital amounts and ratios for Premier Bank at December 31,
1997 and 1998 are as follows:
<TABLE>
<CAPTION>
REGULATORY CAPITAL CALCULATION
-------------------------------------
1997 1998
----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Tier 1 risk based:
Actual............................................ $ 4,215 22.40% $ 5,074 12.19%
Minimum required.................................. 753 4.00 1,665 4.00
------- ----- ------- -----
Excess above minimum.............................. $ 3,462 18.40% $ 3,409 8.19%
======= ===== ======= =====
Total risk-based:
Actual............................................ $ 4,425 23.51% $ 5,513 13.24%
Minimum required.................................. 1,505 8.00 3,330 8.00
------- ----- ------- -----
Excess above minimum.............................. $ 2,920 15.51% $ 2,183 5.24%
======= ===== ======= =====
Leverage:
Actual............................................ $ 4,215 13.20% $ 5,074 9.09%
Minimum required.................................. 958 3.00 1,675 3.00
------- ----- ------- -----
Excess above minimum.............................. $ 3,257 10.20% $ 3,399 6.09%
======= ===== ======= =====
Total risked weighted assets................... $18,818 $41,729
======= =======
Total average assets........................... $31,925 $55,848
======= =======
</TABLE>
The various federal bank regulators, including the Federal Reserve and the FDIC,
have risk-based capital requirements for assessing bank capital adequacy. These
standards define capital and establish minimum capital standards in relation to
assets and off-balance sheet exposures, as adjusted for credit risks. Capital is
classified into two tiers. For banks, Tier 1 or "core" capital consists of
common shareholders' equity, qualifying noncumulative perpetual preferred stock
and minority interests in the common equity accounts of consolidated
subsidiaries, reduced by goodwill, other intangible assets and certain
investments in other corporations ("Tier 1 Capital"). Tier 2 Capital consists of
Tier 1 Capital, as well as a limited amount of the allowance for loan losses,
certain hybrid capital instruments (such as mandatory convertible debt),
subordinated and perpetual debt and non-qualifying perpetual preferred stock
("Tier 2 Capital").
At December 31, 1994, a risk-based capital measure and a minimum ratio standard
was fully phased in, with a minimum total capital ratio of 8.00% and Tier 1
Capital equal to at least 50% of total capital. The Federal Reserve also has a
minimum leverage ratio of Tier 1 Capital to total assets of 3.00%. The 3.00%
Tier 1 Capital to total assets ratio constitutes the leverage standard for bank
holding companies and Bank Insurance Fund-insured state chartered non-member
banks, and is used in conjunction with the risk-based ratio in determining the
overall capital adequacy of banking organizations. The FDIC has similar capital
requirements for BIF-insured state chartered non-member banks.
The Federal Reserve and the FDIC have emphasized that the foregoing standards
are supervisory minimums and that an institution would be permitted to maintain
such minimum levels of capital only if it were rated a composite "one" under the
regulatory rating systems for bank holding companies and banks. All other bank
holding companies are required to maintain a leverage ratio of 3.00% plus at
least 1.00% to 2.00% of additional capital. These rules further provide that
banking organizations experiencing internal growth or making acquisitions will
be expected to maintain capital positions substantially above the minimum
supervisory levels and comparable to peer group averages, without significant
reliance on intangible assets. The Federal Reserve continues to consider a
"tangible Tier 1 leverage ratio" in evaluation proposals for expansion or new
activities. The tangible Tier 1 leverage ratio is the ratio of a banking
organization's Tier 1 Capital less all intangibles, to total average assets less
all intangibles.
39
<PAGE> 41
Premier Bank's Tier 1 (to risk-weighted assets) capital ratio decreased to
12.19% at December 31, 1998 from 22.40% at December 31, 1997. Premier Bank's
total risk based capital ratio decreased to 13.24% at December 31, 1998 from
23.51% at December 31, 1997. Premier Bank's capital ratios decreased due to the
continued leveraging of existing capital through growth in the loan portfolio.
These ratios exceed the minimum capital adequacy guidelines imposed by
regulatory authorities on banks and bank-holding companies, which are 4.00% for
Tier 1 capital and 8.00% for total risk based capital. The ratios also exceed
the minimum guidelines imposed by the same regulatory authorities to be
considered "well-capitalized," which are 6.00% of Tier 1 capital and 10.00% for
total risk based capital.
Premier does not have any commitments that it believes would reduce Premier
Bank's capital to levels inconsistent with the regulatory definition of a "well
capitalized" financial institution.
Interest Rate Sensitivity and Liquidity Management
Liquidity is the ability of a company to convert assets into cash or cash
equivalents without significant loss and to raise additional funds by increasing
liabilities. Liquidity management involves maintaining Premier's ability to meet
the day-to-day cash flow requirements of its customers, whether they are
depositors wishing to withdraw funds or borrowers requiring funds to meet their
credit needs.
The primary function of asset/liability management is not only to assure
adequate liquidity in order for Premier to meet the needs of its customer base,
but to maintain an appropriate balance between interest-sensitive assets and
interest-sensitive liabilities so that Premier can profitably deploy its assets.
Both assets and liabilities are considered sources of liquidity funding and both
are, therefore, monitored on a daily basis.
Interest rate sensitivity is a function of the repricing characteristics of
Premier's portfolio of assets and liabilities. These repricing characteristics
are the time frames within which the interest-earnings assets and
interest-bearing liabilities are subject to change in interest rates either at
replacement, repricing or maturity during the life of the instruments. Interest
rate sensitivity management focuses on repricing relationships of assets and
liabilities during periods of changes in market interest rates. Interest rate
sensitivity is managed with a view to maintaining a mix of assets and
liabilities that respond to changes in interest rates within an acceptable time
frame, thereby managing the effect of interest rate movements on net interest
income. Interest rate sensitivity is measured as the difference between the
volume of assets and liabilities that are subject to repricing at various time
horizons. The differences are interest sensitivity gaps: less than one month,
one to three months, four to 12 months, one to five years, over five years and
on a cumulative basis.
40
<PAGE> 42
The following table shows interest sensitivity gaps for these different
intervals as of December 31, 1998.
<TABLE>
<CAPTION>
ONE ONE- FOUR- OVER NON-
MONTH THREE TWELVE ONE-FIVE FIVE- INTEREST
OR LESS MONTHS MONTHS YEARS YEARS SENSITIVE TOTAL
------- ------- -------- -------- ------ --------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Securities and
interest-bearing
deposits.......... $ 435 $ 1,388 $ 2,798 $ 2,057 $ 35 $ 176 $ 6,889
Federal funds sold... 5,111 -- -- -- -- -- 5,111
Loans................ 13,927 2,375 7,067 15,673 2,315 253 41,610
------- ------- -------- ------- ------ ------- -------
Total earning
assets.......... $19,473 $ 3,763 $ 9,865 $17,730 $2,350 $ 429 $53,610
======= ======= ======== ======= ====== ======= =======
LIABILITIES
Interest-bearing
liabilities:
NOW deposits......... $ 1,225 -- -- -- -- -- $ 1,225
Money market
deposits.......... 4,858 -- -- -- -- -- 4,856
Savings deposits..... 12,454 -- -- -- -- -- 12,454
Certificates of
deposit $100,000
or more........... 741 2,921 6,308 1,226 -- -- 11,196
Certificates of
deposits less than
$100,000.......... 2,739 4,144 7,574 1,811 -- -- 16,268
Federal Home Loan
Bank advances..... -- -- 250 -- 3,195 -- 3,445
Note payable......... -- -- 750 -- -- -- 750
------- ------- -------- ------- ------ ------- -------
Total interest-
bearing
liabilities..... $22,015 $ 7,065 $ 14,882 $ 3,037 $3,195 -- $50,194
Non-interest bearing
demand deposits...... -- -- -- -- -- $ 2,817 2,817
------- ------- -------- ------- ------ ------- -------
Total
liabilities..... $22,015 $ 7,065 $ 14,882 $ 3,037 $3,195 $ 2,817 $53,011
======= ======= ======== ======= ====== ======= =======
Interest sensitivity
gap:
Amount............... $(2,542) $(3,302) $ (5,017) $14,693 $ (845) $(2,388)
======= ======= ======== ======= ====== =======
Cumulative amount.... $(2,542) $(5,844) $(10,861) $ 3,832 $2,987 $ 599
Percent of total
earning assets.... (4.74)% (6.16)% (9.36)% 27.41% (1.58)% (4.45)%
Cumulative percent of
total earning
assets............ (4.74)% (10.90)% (20.26)% 7.15% 5.57%
Ratio of rate sensitive
assets to rate
sensitive
liabilities.......... 0.88 0.53 0.66 5.84 0.74
Cumulative ratio of
rate sensitive assets
to rate sensitive
liabilities.......... 0.88 0.80 0.75 1.08 1.06
</TABLE>
In the current interest rate environment, the liquidity and maturity structure
of Premier's assets and liabilities are important to the maintenance of
acceptable performance levels. A decreasing rate environment negatively impacts
earnings as Premier's rate-sensitive assets generally reprice faster than its
rate-sensitive liabilities. Conversely, in an increasing rate environment,
earnings are positively impacted. This asset/liability mismatch in pricing is
referred to as gap ratio and is measured as rate sensitive assets divided by
rate sensitive liabilities for a defined time period. A gap ratio of 1.00 means
that assets and liabilities are perfectly matched as to repricing. Management
has specified gap ratio guidelines for a one-
41
<PAGE> 43
year time horizon of between 0.80 and 1.20. At December 31, 1998, Premier had
gap ratios of approximately 0.80 for the next three month time period and 0.75
for the one year period ending December 31, 1999. Thus, over the next twelve
months, rate-sensitive assets will reprice slightly faster than rate-sensitive
liabilities.
The allocations used for the interest rate sensitivity report above were based
on the maturity schedules for the loans and deposits and the duration schedules
for the investment securities. All interest-bearing demand deposits and savings
deposits were allocated to the one month or less category. Changes in the mix of
earning assets or supporting liabilities can either increase or decrease the net
interest margin without affecting interest rate sensitivity. In addition, the
net interest spread between an asset and its supporting liability can vary
significantly while the timing of repricing for both the asset and the liability
remain the same, thus impacting net interest income. This is referred to as
basis risk and, generally, relates to the possibility that the repricing
characteristics of short-term assets tied to Premier's prime lending rate are
different from those of short-term funding sources such as certificates of
deposit.
Varying interest rate environments can create unexpected changes in prepayment
levels of assets and liabilities, which are not reflected in the interest
sensitivity analysis report. Prepayments may have significant effects on
Premier's net interest margin. Because of these factors and in a static test,
interest sensitivity gap reports may not provide a complete assessment of
Premier's exposure to changes in interest rates. Management utilizes
computerized interest rate simulation analysis to determine Premier's interest
rate sensitivity. The table above indicates Premier is in a liability sensitive
gap position for the first year, then moves into a matched position through the
five-year period. Overall, due to the factors cited, current simulation results
indicate a relatively low sensitivity to parallel shifts in interest rates. A
liability sensitive bank will generally benefit from a falling interest rate
environment as the cost of interest-bearing liabilities falls faster than the
yields on interest-bearing assets, thus creating a widening of the net interest
margin. Conversely, an asset sensitive bank will benefit from a rising interest
rate environment as the yields on earning assets rise faster than the costs of
interest-bearing liabilities. Management also evaluates economic conditions, the
pattern of market interest rates and competition to determine the appropriate
mix and repricing characteristics of assets and liabilities required to produce
a targeted net interest margin. In addition to the gap analysis, management uses
rate shock simulation to measure the rate sensitivity of its investment
portfolio. Rate shock simulation is a modeling technique used to estimate the
impact of changes in rates on the market value of Premier's investment
portfolio. Premier measures its interest rate risk by estimating the changes in
the market value resulting from instantaneous and sustained parallel shifts in
interest rates of plus or minus 300 basis points. Premier's most recent rate
shock simulation analysis which was performed as of December 31, 1998, indicates
that a 300 basis points increase in rates would cause a decrease in market value
of investment securities of $640,000. Conversely, a 300 basis points decrease in
rates would cause an increase in market value of investment securities of
$219,000.
While this simulation is a useful measure of Premier's sensitivity to changing
rates, it is not a forecast of the future results and is based on many
assumptions that, if changed, could cause a different outcome. In addition, a
change in U.S. Treasury rates in the designated amounts accompanied by a change
in the shape of the Treasury yield curve would cause significantly different
changes to net interest income than indicated above.
Generally, Premier's commercial and commercial real estate loans are indexed to
the prime rate. A portion of Premier's investment in mortgage-backed securities
is indexed to U.S. Treasury rates. Accordingly, any changes in these indices
will have a direct impact on Premier's interest income. The majority of
Premier's savings deposits are based on competitive interest rates in the
market. Certificates of deposit are generally priced based upon current market
conditions that include changes in the overall interest rate environment and
pricing of such deposits by competitors. Other interest-bearing deposits are not
priced against any particular index, but rather, reflect changes in the overall
interest rate environment. The Federal funds sold rate and other borrowed funds
are indexed to U.S. Treasury rates. Premier adjusts the rates and terms of its
loans and interest-bearing liabilities in response to changes in the interest
rate environment.
42
<PAGE> 44
Premier does not currently engage in trading activities or use derivative
instruments to manage interest rate risk. December 31, 1998, debt securities
available-for-sale with a carrying value of $2.8 million are scheduled to mature
within the next five years. Of this amount, $753,000 is scheduled to mature
within one year. Premier's main source of liquidity is Federal funds sold.
Average Federal funds sold were $3.6 million in 1998, or 8.8% of average earning
assets, compared to $1.2 million in 1997, or 4.8% of average earning assets.
Federal funds sold totaled $5.1 million at December 31, 1998, or 9.6% of earning
assets, compared to $1.8 million at December 31, 1997, or 5.8% of earning
assets.
At December 31, 1998, loans with a carrying value of approximately $39.0 million
are scheduled to mature or reprice within the next five years. Of this amount,
$23.4 million is scheduled to mature or reprice within one year. At December 31,
1998, certificates of deposit with a carrying value of approximately $26.5
million are scheduled to mature within the next three years. Of this amount,
$20.9 million is scheduled to mature within one year.
Premier's average loan-to-deposit ratio was 83.64% during 1998 and 79.25% during
1997. Management attempts to manage Premier's loan-to-deposit ratio on an
average basis, as opposed to on a daily basis.
Premier has short-term funding available through its membership in the Federal
Home Loan Bank. Further, the Federal Home Loan Bank membership provides the
availability of participation in loan programs with varying maturities and
terms. At December 31, 1998, Premier had availability of borrowing up to an
additional $4.9 million from the Federal Home Loan Bank under a line of credit.
There are no known trends, demands, commitments, events or uncertainties that
will result in or that are reasonably likely to result in liquidity increasing
or decreasing in any material way.
It is not anticipated that Riva Bancshares will find it necessary to raise
additional funds to meet expenditures required to operate the business of Riva
Bancshares and Riva Bank over the next twelve months. All anticipated material
expenditures for such period have been identified and provided for out of the
proceeds of the offering.
43
<PAGE> 45
SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Total assets at June 30, 1999 were $66.7 million, an increase of $8.9 million,
or 15.4%, over total assets of $57.8 million at December 31, 1998. Premier's net
income for the first six months of 1999 was $40,000, an increase of $44,000 from
the net loss for the first six months of 1998 of $4,000. Basic and dilutive
income (loss) per share was ($0.11) and $0.96 for the first six months of 1998
and 1999, respectively. The increase in net income from the first six months of
1998 to the first six months of 1999 was primarily attributable to increased net
interest income, partially offset by increased noninterest expense. Net interest
income increased $400,000, or 73.2%, from $547,000 for the first six months of
1998 to $947,000 for the first six months of 1999. Noninterest expense increased
$305,000, or 55.0%, from $553,000 for the first six months of 1998 to $858,000
for the first six months of 1999.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income increased $400,000, or 73.2%, from $547,000 for the first
six months of 1998 to $947,000 for the first six months of 1999. Interest income
increased $866,000, or 60.6%, from $1,431,000 for the first six months of 1998
to $2,297,000 for the first six months of 1999, while average earning assets
increased $20,661,000, or 55.7%, during the same time period. Interest expense
increased $466,000, or 52.8%, from $884,000 for the first six months of 1998 to
$1,350,000 for the first six months of 1999, while average earning liabilities
increased $19,774,000, or 46.8%, during the same time period. The primary reason
for the increase in the net interest income during the first six months of 1998
as compared to the first six months of 1999 was an increase in average earning
assets.
Provision for Loan Losses
The provision for loan losses charged to operations was $74,000 and $105,000 for
the first six months of 1998 and 1999, respectively. The allowance for loan
losses as a percentage of total loans was 0.89%, 1.05%, and 1.01% at June 30,
1998, December 31, 1998, and June 30, 1999, respectively. The increase in the
provision for loan losses was generally due to increases in loans outstanding.
Noninterest Income
Noninterest income increased $11,000, or 14.5%, from $76,000 for the first six
months of 1998 to $87,000 for the first six months of 1999.
Noninterest Expense
Noninterest expense increased $305,000, or 55.0%, from $553,000 for the first
six months of 1998 to $858,000 for the first six months of 1999. Salaries and
employee benefits increased $114,000, or 41.4%, occupancy and equipment expense
increased $71,000, or 97.2%, and other noninterest expense increased $120,000,
or 58.4%, during the same time period. The increases were primarily a result of
Premier's continued growth in Jefferson City, Missouri and expansion in
Columbia, Missouri in April 1998.
Income Tax Expense
While no income tax expense was recorded for the first six months of 1998,
income tax expense was $31,000 for the first six months of 1999.
Net Income
Net income (loss) increased $44,000 from ($4,000) for the first six months of
1998 to $40,000 for the first six months of 1999. The increase was a result of
an increase in net interest income of $400,000 and an increase in noninterest
income of $11,000, offset by an increase in noninterest expense of $305,000, an
increase in the provision for loan losses of $31,000, and an increase in income
tax expense of $31,000. Basic and dilutive income (loss) per share was ($0.11)
and $0.96 for the first six months of 1998 and 1999, respectively. Return on
average assets increased 15 basis points from (0.02%) for the first six months
of 1998 to 0.13% for the first six months of 1999. Return on average equity
increased 205 basis points from (0.23%) for the first six months of 1998 to
1.82% for the first six months of 1999.
44
<PAGE> 46
FINANCIAL CONDITION
Earning Assets
Premier increased average earning assets by $20,661,000, or 55.6%, from
$37,095,000 for the first six months of 1998 to $57,756,000 for the first six
months of 1999. This increase is primarily as a result of an increase in average
loans of $20,141,000, or 76.8%, during the same time period.
Loan Portfolio
Premier's total loans outstanding increased $8,054,000, or 19.4%, from December
31, 1998 to June 30, 1999. Loan growth for the first six months of 1999 was
funded primarily through the growth in interest-bearing deposits. The increase
in loans was a result of Premier's continued growth in Jefferson City, Missouri
and expansion in Columbia, Missouri in April 1998.
Asset Quality and Nonperforming Assets
At June 30, 1999, Premier had no nonaccrual loans, while the December 31, 1998
balance totaled $94,000. At June 30, 1999, four loans totaling $9,000 were
contractually past due by 90 days or more as to principal and interest payments
and continued to accrue interest. At June 30, 1999, there were no loans
classified as "troubled debt restructurings" as that term is defined in
Statement of Financial Accounting Standards No. 15.
Allowance for Loan Losses and Net Charge-Offs
Net charge-offs for the first six months of 1998 was $2,000 while net
charge-offs for the first six months of 1999 was $45,000. The allowance for loan
losses to total loans increased from 0.89% at June 30, 1998 and 1.05% at
December 31, 1998 to 1.01% at June 30, 1999.
Investment Portfolio
Total debt and marketable equity securities available-for-sale increased
$2,919,000, or 45.1%, from $6,478,000 at December 31, 1998 to $9,397,000 at June
30, 1999.
Deposits
Total deposits increased $8,513,000, or 17.4%, from $48,816,000 at December 31,
1998 to $57,329,000 at June 30, 1999. During the first six months of 1999, a
targeted effort by Premier resulted in growth of the certificates of deposit
balance of $9,020,000, or 35.3%, from December 31, 1998 to June 30, 1999.
Federal Home Loan Bank Advances and Note Payable
Total Federal Home Loan Bank Advances increased $337,000, or 9.8%, and the note
payable increased $175,000, or 23.3%, from December 31, 1998 to June 30, 1999.
Capital Resources
Shareholders' equity decreased $103,000, or 2.3%, from December 31, 1998 to June
30, 1999. This decrease was attributable to a decrease in accumulated other
comprehensive income (loss) resulting from unrealized losses on debt and
marketable equity securities available-for-sale of $143,000, offset by net
income of $40,000. The ratio of shareholders' equity to assets decreased from
7.68% at December 31, 1998 to 6.50% at June 30, 1999 as a result of an increase
in total assets and a decrease in shareholders' equity.
45
<PAGE> 47
YEAR 2000 READINESS
Riva Bancshares will utilize and will be dependent upon data processing systems
and software to conduct its business. The approach of the Year 2000 presents a
problem in that many computer programs have been written using two digits rather
than four to define the applicable year. Computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the Year 2000. For example, computer systems may compute payment, interest,
delinquency or other figures important to the operations of Riva Bancshares
based on the wrong date. This could result in internal system failure or
miscalculation, and also creates risk for Riva Bancshares from third parties
with whom we deal on financial transactions.
Following the acquisition of Premier Bank, Riva Bancshares will use Premier
Bank's existing computer and data processing systems and will be dependent upon
these systems for its own operations. Premier Bank is utilizing CSI, a
third-party vendor, to provide its primary banking applications, including core
processing systems. In addition, Premier Bank also uses CSI's software for
certain ancillary computer applications. Premier has received periodic and other
status reports from CSI with respect to CSI's Year 2000 readiness. CSI also
maintains a secure website for its customers regarding CSI's Year 2000 readiness
efforts. Premier has also reviewed the confidential FDIC examination report of
the Year 2000 Phase II Assessment of CSI conducted by the FDIC on October 19,
1998. On the basis of these materials, Premier has determined that CSI meets all
applicable industry standards for Year 2000 readiness.
The FDIC has issued guidelines for insured financial institutions with respect
to Year 2000 compliance. Premier Bank has developed a Year 2000 action plan
based in part on the guidelines and timetables issued by the FDIC. Premier
Bank's action plan focuses on four primary areas: (1) information systems, (2)
embedded systems located at Premier Bank's offices and within its off-site ATM
machines, (3) third party and customer relationships, and (4) contingency
planning. Premier Bank has designated a Year 2000 compliance team, headed by its
Vice President/Cashier, who reports to the board of directors.
Information Systems. Premier Bank has identified all mission critical
information ("IT") systems and has developed a schedule for testing and
remediation of such systems. Testing of key computer hardware has been
completed, and Premier Bank has also completed mission critical hardware
modification or replacement. Premier Bank has completed its inventory of mission
critical software and is in the process of contacting software vendors for
certification of Year 2000 compliance. Testing of internal mission critical
systems was completed and no problems were identified.
Embedded Systems. Premier Bank has performed a comprehensive inventory of its
embedded systems, such as micro-controllers used to operate security systems,
and has completed its inventory of mission critical non-IT systems. Premier Bank
has contacted manufacturers and vendors of those components utilized in
operations to determine whether such components are Year 2000 compliant. Premier
Bank has remediated or replaced, as applicable, any non-compliant components and
has completed this process for its mission critical systems.
Third Party and Customer Relationships. Premier Bank has contacted its
suppliers and vendors to determine the potential impact of such third parties'
failure to remediate their own Year 2000 issues. These third parties include
other financial institutions, office supply vendors and telephone, electric and
other utility companies. Premier Bank is encouraging its counterparties and
customers to conduct their own Year 2000 assessment and take appropriate steps
to become Year 2000 compliant.
Premier Bank outsources its principal data processing activities to CSI, and
Premier Bank is actively communicating with and monitoring the progress of CSI
to assess the impact of Year 2000 issues on CSI and its ability to provide data
processing services. Premier Bank will consider new business relationships with
alternate providers of products and services if necessary. Additionally, Premier
Bank has initiated communications with its larger and commercial borrowers to
assess the potential impact of Year 2000 on them and their ability to remain
current on loan repayments.
Contingency Plans. As part of Premier Bank's normal business practice, it
maintains contingency plans to follow in the event of emergency situations, some
of which could arise from Year 2000-related problems.
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Premier Bank has formulated a detailed Year 2000 contingency plan, which
assesses several possible scenarios to which Premier Bank may be required to
react. Premier Bank's formal Year 2000 contingency plan was completed in the
first quarter of 1999.
Financial Implications. Management of Premier Bank currently does not expect
the amounts required to be expensed to resolve Year 2000 issues to have a
material effect on its financial position or results of operations. Premier Bank
currently estimates that the costs of assessing, testing and remediation of Year
2000 issues totaled approximately $6,500 in 1998 and are expected to total
approximately $9,000 in 1999. The anticipated costs associated with Premier
Bank's Year 2000 compliance program do not include time and costs that may be
incurred as a result of any potential failure of third parties to become Year
2000 compliant or costs to implement Premier Bank's contingency plans.
Potential Risks. The Year 2000 issue presents a number of risks to the business
and financial condition of Premier Bank. External factors, which include but are
not limited to electric and telephone service, are beyond the control of Premier
Bank and the failure of such systems could have a material adverse effect on
Premier Bank, its customers and third parties on whom Premier Bank relies for
its day-to-day operations. The business of many of Premier Bank's customers may
be negatively affected by the Year 2000 issue, and any financial difficulties
incurred by Premier Bank's customers in connection with the century change could
negatively affect such customer's ability to repay loans to Premier Bank. The
failure of Premier Bank's computer system or applications or those operated by
customers or third parties could have a material adverse effect on Premier
Bank's results of operations and financial condition. In addition, as the Year
2000 approaches, Premier Bank may be required to keep higher levels of
noninterest earning assets due to its need to keep extra cash reserves
available.
The foregoing are forward-looking statements reflecting management's current
assessment and estimates with respect to Premier Bank's Year 2000 compliance
efforts and the impact of Year 2000 issues on Premier Bank's business and
operations. Various factors could cause actual plans and results to differ
materially from those contemplated by such assessments, estimates and
forward-looking statements, many of which are beyond the control of Premier
Bank. Some of these factors include, but are not limited to, representations by
Premier Bank's vendors and counterparties, technological advances, economic
considerations and consumer perceptions. Premier Bank's Year 2000 compliance
program is an ongoing process involving continual evaluation and may be subject
to change in response to new developments.
ACCOUNTING PRONOUNCEMENTS
In June, 1997 the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130") which
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. Premier adopted SFAS 130 on January 1,
1998. SFAS 130 is a disclosure requirement and had no impact on Premier's
consolidated financial position and results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information ("SFAS
131") which establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim reports issued to stockholders. SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997. As Premier operates as
a single segment, it has no reporting requirements under SFAS 131.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133")
which establishes standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS 133 requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB
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Statement No. 133, which defers the effective date of SFAS from fiscal years
beginning after June 15, 1999 to fiscal years beginning after June 15, 2000.
Earlier application of SFAS 133, as amended, is encouraged but the pronouncement
should not be applied retroactively to financial statements of prior periods.
Premier is currently evaluating the requirements and impact of SFAS 133, as
amended, but as Premier has not invested in any investments that are defined as
derivatives, SFAS 133, as amended, is expected to have no impact on its
consolidated financial position or results of operations.
EFFECTS OF INFLATION AND CHANGING PRICES
Inflation generally increases the cost of funds and operating overhead, and to
the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. In addition, inflation affects
financial institutions through increased cost of goods and services purchased,
the cost of salaries and benefits, occupancy expense, and similar items.
Inflation and related increases in interest rates generally decrease the market
value of investments and loans held and may adversely effect liquidity,
earnings, and shareholders' equity. Mortgage originations and refinancings tend
to slow as interest rates increase, and can reduce Premier's earnings from such
activities and the income from the sale of residential mortgage loans in the
secondary market.
MONETARY POLICIES
The results of operations of Riva Bancshares and Riva Bank will be affected by
credit policies of monetary authorities, particularly the Federal Reserve Board.
The instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks may pay on
time and savings deposits. In view of changing conditions in the national
economy and in the money markets, as well as the effect of action by monetary
and fiscal authorities, including the Federal Reserve Board, no prediction can
be made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of Riva Bancshares or Riva Bank.
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BUSINESS
GENERAL
We were incorporated on May 1, 1998 to create a multi-market banking franchise
focusing on small to medium-sized business customers, selected real estate
developers and the principals of these businesses who have become dissatisfied
with the impersonal service delivered by super-regional and national banks. We
formed Riva Bancshares with the intent of acquiring an existing financial
institution which would provide a platform for expansion throughout Missouri.
Immediately prior to the closing of the offering, Riva Bancshares will acquire
Premier Bancshares, Inc., a Missouri bank holding company for Premier Bank, an
independent state-chartered commercial bank, as its entry into the Jefferson
City and Columbia, Missouri market areas. Upon completion of the merger, Premier
Bank will be renamed Riva Bank.
Our strategy is to capitalize on the opportunities created by widespread
consolidation in the banking industry. We believe that this consolidation has
compromised customer relationships as the larger regional financial institutions
increasingly focus on larger corporate customers, standardized loan and deposit
products and other services. More specifically, many financial institutions have
centralized their loan approval practices for small businesses, leaving less
responsibility and authority with the traditional loan officer. By virtue of
their banking experience in Missouri, management believes that the most frequent
customer complaints are based on a lack of personalized service and turnover in
lending personnel, which limits the customer's ability to develop a relationship
with his or her banker. As a result of these factors, we believe there currently
exists a significant opportunity to attract and maintain customers who are
dissatisfied with their banks. We also believe we can attract experienced
management personnel within our identified markets.
To implement our business plan, we have assembled a senior management team with
over 85 years of banking experience in our identified markets. Our management
team is headed by Richard C. Jensen, who has over 25 years of banking experience
in the St. Louis market. Prior to founding the company, Mr. Jensen served as
President of NationsBank St. Louis, formerly Boatmen's National Bank of St.
Louis which, as of June 1998, had approximately $5.3 billion in total deposits
and over 71 branches in the St. Louis market. We believe that the combination of
Mr. Jensen's 25 years of experience in the Missouri banking industry, his
extensive network of contacts throughout the state and his management skills
will provide the leadership necessary for Riva Bancshares to implement its
business strategy. In addition, all members of the senior management team have
worked with Mr. Jensen at either Boatmen's National Bank or NationsBank. As a
group, the senior management team has over 85 years of banking experience in the
Missouri markets. The senior management team shares the same credit culture and
will be responsible for maintaining strict credit policies and procedures as
well as managing administrative functions at the company headquarters in St.
Louis. This management team has gained prominence in servicing small and
medium-sized businesses and their principals throughout Missouri, which should
allow them to continue to provide quality service for these types of customers.
We expect that the familiarity of the senior management team with each other, as
well as with the various Missouri communities, will also provide a strong
foundation for implementing our business plan. In addition, we will have the
resources of management of Premier Bank and their existing relationships in the
Columbia and Jefferson City markets.
We intend to open a banking center in the St. Louis market following the
completion of the offering. Future business plans include further expansion in
the Jefferson City and Columbia markets and entry into the markets of Kansas
City and Springfield. We expect to establish banking centers in each new market
area, primarily through the opening of new branches of Riva Bank. We will also,
however, evaluate opportunities for acquisitions of financial institutions in
Missouri as well as markets in the adjacent states that would complement or
expand our business. Within each of our targeted markets, we expect to offer a
broad range of banking products and services by focusing primarily on small and
medium-sized businesses and their principals. Although we will offer a variety
of loan products, we expect to emphasize commercial/industrial and construction
and commercial real estate lending. We will also promote private banking
services and asset management products for our professional and executive
customers.
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We will have a community banking approach that emphasizes responsive and
personalized service to our customers. Our expansion strategy includes
attracting strong local management teams who have significant banking
experience, strong community contacts and strong business development potential
in our identified markets. Once local management teams are assembled, we intend
to establish banking centers in each of the identified markets. We currently
have management teams in place in the St. Louis, Columbia and Jefferson City
markets. Each management team will operate one or more banking centers within
its particular market area, will have a high degree of local decision-making and
lending authority and will operate in a manner that provides responsive,
personalized services similar to an independent community bank. In addition,
local management will be compensated based on the performance of their
respective banking centers and the overall financial and market performance of
the bank. We expect that upon our entry into a new market area, we will
undertake a marketing campaign using an officer calling program and
community-based promotions. Each market area will be supported by a local board
of directors, which will be provided with financial incentives to assist in the
development of banking relationships throughout the community.
Riva Bancshares will provide a variety of centralized support services to each
of the banking centers, including:
- accounting and back office support operations;
- investment portfolio management;
- credit administration and review;
- human resources;
- administration;
- training; and
- strategic planning.
Core processing, check clearing and other similar functions will be outsourced
to third-party vendors. As a result, we believe that these operating strategies
will enable us to achieve cost efficiencies, to maintain consistency in policies
and procedures, and to allow the local management teams to concentrate on
developing and enhancing customer relationships.
ACQUISITION OF PREMIER BANCSHARES, INC.
Based upon a business plan developed by T. Stephen Johnson & Associates, Inc., a
financial services consulting firm ("TSJ&A"), TSJ&A and Richard C. Jensen, the
President and Chief Executive Officer of Riva Bancshares, developed the concept
for Riva Bancshares. Riva Bancshares is a Delaware corporation which was
organized on May 1, 1998 to implement this concept. Mr. Jensen and TSJ&A
evaluated potential bank acquisition candidates in various Missouri markets and
identified Premier as an independent financial institution capable of providing
a platform to implement its business strategy. On May 6, 1999, Riva Bancshares
signed a merger agreement with Premier Bancshares, Inc. and agreed to acquire
all of the outstanding capital stock of Premier in exchange for shares of Riva
Bancshares common stock. The acquisition of Premier Bank provides us with an
existing charter so that we may immediately commence banking operations upon
completion of the merger in two of our five initially-targeted markets. We
intend to use the acquisition of Premier Bank as a platform to expand our
operations by building upon Premier Bank's existing infrastructure, core
processing and outsourcing relationships.
As a result of the merger, the shareholders of Premier Bancshares will receive,
for each share of common stock that they own, the number of shares of Riva
Bancshares common stock equal to the quotient obtained by dividing $215.136 by
the initial public offering price. In addition, the shareholders of Premier
Bancshares will receive warrants to purchase 350,000 shares of Riva Bancshares
common stock. Of these warrants, 140,000 will be exercisable at the initial
public offering price and 210,000 will be exercisable at 120% of the initial
public offering price. These warrants will be exercisable for a period of ten
years from the date of issuance.
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Other than the acquisition of Premier, we have no understandings or agreements
with respect to any acquisition.
STRATEGY OF RIVA BANCSHARES
General
Our business strategy is to create a banking franchise that captures market
share among small and medium-sized businesses, their principals and other
professionals and executives in geographic markets that are familiar to
management. We will implement this strategy by:
- Targeting small and medium-sized business customers who demand high levels
of personalized attention and customer service;
- Establishing a banking center in St. Louis, expanding into Kansas City and
Springfield, while continuing to enhance our current operations in Columbia
and Jefferson City;
- Staffing banking centers with community-minded and responsive management
teams that will have significant local decision-making authority;
- Operating with a few strategically located offices supported by outsourced
core processing and back room operations to increase efficiencies;
- Enhancing private banking relationships by offering a broad spectrum of
products and services, including securities brokerage services and
investment management services; and
- Offering our customers the convenience and advantages offered by Internet
banking while targeting businesses that have been identified as Internet
users to leverage our banking centers.
Our Banking Model
Upon completion of the acquisition of Premier, we will have banking centers in
two of our five initially-targeted markets. We intend to establish a banking
center within each of our identified markets primarily through the branching of
Riva Bank. We may, however, accomplish our expansion strategy by acquiring
existing banks within an identified market if an opportunity for such an
acquisition becomes available. Although each banking center will legally be a
branch of Riva Bank, our business strategy envisions that banking centers
located within each market will operate as if they were independent community
banks.
Local Management Teams. Prior to expanding into a new market area, we will
identify an individual who will serve as the president of that particular market
area, as well as those individuals who will serve on the local board of
directors. Each local president will be primarily responsible for actively
recruiting and assembling a management team, including lending officers, from
the local market area. We believe that a management team familiar with the needs
of its community will provide high quality personalized service to its
customers. The local management team will have a significant amount of
decision-making and lending authority and will be accessible to its customers.
As a result of the consolidation trend in the state of Missouri, we believe
there are significant opportunities to attract experienced bank managers who
would be available to join an institution promoting a community banking concept.
Local Boards of Directors. Each banking center will have a local board of
directors which will be comprised of prominent members of the community,
including business leaders and professionals. These local directors will act as
ambassadors of Riva Bancshares within the community and will be expected to
promote the business development of each banking center.
We will encourage both the members of our local boards of directors as well as
our lending officers to be active in the civic, charitable and social
organizations in their communities. It is anticipated that members of the local
management team will hold leadership positions in a number of community
organizations.
We expect that upon our entry into a new market area, we will undertake a
marketing campaign utilizing an officer calling program, and community-based
promotions and media advertising. Such campaigns will emphasize each banking
center's responsiveness, local management team and special focus on personalized
service.
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The initial banking center established in an identified market will have the
following banking personnel: a President, a Senior Lender, an Associate Lending
Officer, a Credit Analyst, a Branch/Operations Manager and an appropriate number
of financial service managers and tellers.
Lending Officers with Local Decision-Making Authority. It is expected that the
lending officers will be primarily responsible for the sales and marketing
efforts of the banking centers. We will emphasize relationship banking whereby
each customer will be assigned to a specific officer, with other local officers
serving as backup or in supporting roles. We intend to hire the appropriate
number of lending officers necessary to facilitate the development of strong
customer relationships. Our lending officers will be supported by our
organization's ability to make significantly larger loans than smaller community
banks.
We intend to offer salaries to the lending officers that are competitive with
other financial institutions in each market area. Local management will be
compensated based on the performance of their particular banking centers as well
as the overall financial and market performance of the bank. Lending officers
will be compensated based on an annual base salary plus an incentive payment
structure that will be based upon the achievement of certain loan quality and
production goals. Those goals will be evaluated on an annual basis. We believe
that such a compensation structure will provide greater motivation for
participating officers.
It is anticipated that the banking centers will be strategically located in
areas in each market where the local management team determines that there is
the greatest potential to reach the maximum number of small and medium-sized
businesses. It is expected that these banking centers will develop in the areas
surrounding office complexes and other commercial areas. Such determinations
will depend upon the customer demographics of a particular market area and the
accessibility of a particular location to its customers. We expect to lease our
facilities to avoid investing significant amounts of capital in property and
facilities.
Customers
We believe that the recent bank consolidation within the state of Missouri
provides a community-oriented bank significant opportunities to build a
successful, locally-oriented franchise. We further believe that many of the
larger financial institutions do not emphasize a high level of personalized
service to small and medium-sized businesses and their principals. We intend to
focus our marketing efforts on attracting small and medium-sized businesses and
individuals including: service companies, manufacturing companies, commercial
real estate developers, entrepreneurs and professionals, such as physicians and
attorneys. Because we intend to focus on small and medium-sized businesses, we
believe that the majority of our loan portfolio will be in the commercial area
with an emphasis placed on commercial/industrial, construction and commercial
real estate loans secured by real estate, accounts receivable, inventory, and
property, plant and equipment.
Although we expect to concentrate our lending efforts on commercial businesses,
we also anticipate that we will attract a significant amount of consumer
business. We expect that many of our retail customers will be the principals of
our small and medium-sized business customers. These customers will comprise our
private banking clients, for whom Riva Bank is expected to provide investment
management services, asset management services and securities brokerage
services. We intend to offer these services through strategic alliances with
third-party vendors. We intend to emphasize "relationship banking" in order that
each customer will identify and establish a comfort level with the bank officers
within a banking center. We intend to develop our retail business with
individuals who appreciate a high level of personal service, contact with their
lending officer and responsive decision-making. We expect that most of our
business will be developed through our lending officers and local boards of
directors and by pursuing an aggressive strategy of calling on customers
throughout the market area.
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Products and Services
We intend to offer and Premier Bank currently offers a broad array of
traditional banking products and services to our customers.
Loans. We intend to offer a wide range of commercial and consumer loans as
follows:
- Commercial/Industrial. We expect that our commercial lending will
consist primarily of loans for the financing of accounts receivable,
inventory and property, plant and equipment. We also expect to offer
Small Business Administration guaranteed loans. In making these loans,
we intend to manage our credit risk by actively monitoring such measures
as advance rate, cash flow, collateral value and other appropriate
credit factors.
- Commercial Construction. We expect to provide loans for the construction
and development of real estate which would be secured by commercial
properties. These loans generally command higher rates and fees
commensurate with the risk warranted in the construction lending field.
The risk in construction lending is dependent upon the performance of
the builder in building the project to the plans and specifications of
the borrower and the bank's ability to administer and control all phases
of the construction disbursements. Upon completion of the construction
period, this type of loan is typically converted to a permanent loan.
- Commercial Real Estate. We anticipate that we will also offer commercial
real estate loans to developers of both commercial and residential
properties. In making these loans, we intend to manage credit risk by
actively monitoring such measures as advance rate, cash flow, collateral
value and other appropriate credit factors.
- Residential Mortgage. We expect that our real estate loans will consist
of residential first and second mortgage loans and residential
construction loans. We expect that we will make mortgage loans with a
variety of terms, including fixed and floating to variable rates and a
variety of maturities. These loans will be made consistent with our
appraisal policy and real estate lending policy which will detail
maximum loan-to-value ratios and maturities. We expect that these loan-
to-value ratios will be sufficient to compensate for fluctuations in the
real estate market to minimize the risk of loss. We believe that many of
our mortgage loans that conform with secondary market criteria will be
sold in the secondary markets.
- Consumer Loans. We expect that our consumer loans will include lines of
credit and term loans secured by second mortgages on the residences of
borrowers for home improvements, education and other personal
expenditures. The remaining consumer loans will consist of installment
loans to individuals for personal, family and household purposes. In
evaluating these loans, we will require our lending officers to review
the borrower's level and stability of income, past credit history and
the impact of these factors on the ability of the borrower to repay the
loan in a timely manner. In addition, we will require that our banking
centers maintain an appropriate margin between the loan amount and
collateral value. We expect that many of our consumer loans will be made
to the principals of the small and medium-sized businesses for whom we
provide banking services.
Private Banking Services. We also expect to provide other fee generating
services for the principals of our business customers. We intend to offer
services such as securities brokerage and investment services, portfolio and
asset management services, insurance products and will consider other
permissible activities. We also expect to offer investment products and cash
management products.
Internet Banking. We believe that there is a strong need within our market
niche for Internet banking. These services, which would be provided through a
third party, would allow customers to access their bank accounts on a
seven-day-a-week, 24-hour-a-day basis from any personal computer, wherever
located, by means of a secure web browser. This technology gives Internet
banking an advantage over PC-based home banking, which utilizes PC-based
software, requires repeated downloading and limits the user to a specific PC. We
believe that Internet banking will encourage our customers to maintain their
total banking
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relationships with us. We also anticipate using the Internet for direct e-mail
solicitation to small and medium-sized businesses we have identified as current
Internet users. We will market the convenience and advantages of Internet
banking, including on-line bill paying, money transfer and cash management. We
believe that Internet banking will leverage our strategically located banking
centers by attracting customers from within Missouri and adjacent market areas.
We are negotiating with several Internet banking providers about implementing
these services upon completion of the merger and the offering.
Deposits. We intend to offer a broad range of interest-bearing and
noninterest-bearing deposit accounts, including commercial and retail checking
accounts, money market accounts, individual retirement accounts, regular
interest-bearing savings accounts and certificates of deposit with a range of
maturity date options. We anticipate that the primary sources of deposits will
be small and medium-sized businesses and individuals within an identified
market. In each identified market, senior management will have the authority to
set rates within specified parameters in order to remain competitive with other
financial institutions located in the same market. All deposits will be insured
by the FDIC up to the maximum amount permitted by law. In addition, we expect to
implement a service charge fee schedule which will be competitive with other
financial institutions in a community banking center's market area, covering
such matters as maintenance fees on checking accounts, per item processing fees
on checking accounts, returned check charges and other similar fees.
Specialized Consumer Services. We intend to offer specialized products and
services to our customers, such as travelers checks, safe deposit services,
credit cards and consumer lines of credit. Premier Bank currently offers all of
these services and provides credit cards to its customers through a third party.
Courier Services. We expect to offer courier services to our business
customers. Courier services will be provided through a third party, which will
permit us to provide the convenience and personalized service our customers
require by scheduling pick-ups of deposits.
Automatic Teller Machines ("ATMs"). We expect to establish a limited ATM
network and we intend to make other financial institutions' ATMs available to
our customers.
Market Expansion
Riva Bancshares intends to expand into the attractive and growing communities in
the state of Missouri. Once it has assembled a local management team and local
board of directors for a particular market area, Riva Bancshares intends to
establish one or more banking centers in that market. Upon the completion of the
acquisition of Premier Bank, we will have established banking centers in the
Jefferson City and Columbia market areas. Jefferson City is the capital of
Missouri and Columbia is the site of the main campus of the University of
Missouri. In addition, we have assembled a management team in St. Louis and,
immediately following the offering, will open a banking center in the St. Louis
market. The other markets into which we presently intend to expand are Kansas
City and Springfield. We have identified these markets as providing the most
favorable opportunities for growth and intend to establish banking centers
within these markets as soon as practicable. As opportunities arise, we will
also consider expansion into other selected banking markets in the states
adjacent to Missouri.
The consolidation within the banking industry is evidenced by the following
statistics. According to the FDIC, as of December 31, 1987, 596 depository
institutions were located in Missouri. By December 31, 1998, there were a total
of 383 depository institutions in Missouri, representing a decline of
approximately 36% over the ten-year period. Management attributes this decline
to consolidation resulting from the liberalization of interstate banking and
branching laws allowing the entry into, and expansion in, Missouri by numerous
large banks. The result of this consolidation has been a significant reduction
in the number of community-oriented financial institutions focusing on
personalized service to small and medium-sized business customers. We believe
that our strategy, which incorporates a community banking concept, is better
suited to provide a high level of service to small and medium-sized businesses
than larger financial institutions.
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We believe that the state of Missouri in general and the identified markets
within Missouri in particular represent an attractive opportunity to build a
multi-market banking franchise. Missouri has a current population of
approximately 5.4 million making it the fifteenth most populous state in the
country. Missouri has experienced growth in the amount of commercial and
consumer deposits.
Certain demographic and deposit information with respect to each of the
identified markets is discussed below.
St. Louis Market. The St. Louis market area includes the city of St. Louis and
the surrounding counties in both Missouri and Illinois. St. Louis' population
increased from approximately 2.49 million in 1990 to approximately 2.56 million
in 1998, representing an increase of approximately 2.7% over that period
compared to the national increase of 8.31% for the same period. The population
is projected to increase to approximately 2.62 million by 2003. Over the period
from 1990 to 1998, average household income in the St. Louis market has
increased 38.9% compared to the national increase of 38.2% for the same period.
As of June 30, 1998, there were 124 financial institutions represented in St.
Louis with aggregate deposits of $36.1 billion. Deposits in St. Louis increased
$7.6 billion from June 30, 1993 through June 30, 1998, at an annual growth rate
of 4.84% for that period.
Kansas City Market. The Kansas City market area includes the city of Kansas
City as well as surrounding counties in Missouri and Kansas. Kansas City's
population increased from approximately 1.58 million in 1990 to approximately
1.72 million in 1998, representing an increase of approximately 8.6% over that
period compared to the national increase of 8.3% for the same period. The
population is projected to increase to approximately 1.79 million by 2003. Over
the period from 1990 to 1998, average household income in the Kansas City market
increased 42.2% compared to the national increase of 38.2% for the same period.
As of June 30, 1998, there were 136 financial institutions represented in the
Kansas City market with aggregate deposits of $24.2 billion. Deposits in the
Kansas City market increased $4.4 billion from June 30, 1993 through June 30,
1998, at an average annual growth rate of 4.10% for that period.
Springfield Market. The Springfield market area includes the city of
Springfield, as well as the counties of Christian, Greene and Webster.
Springfield's population increased from approximately 264,000 in 1990 to
approximately 305,000 in 1998, representing an increase of approximately 15.5%
over that period compared to the national increase of 8.3% for the same period.
The population is projected to increase to approximately 322,000 by 2003. Over
the period from 1990 to 1998, average household income in the Springfield market
increased 51.3% compared to the national increase of 38.2% for the same period.
As of June 30, 1998, there were 34 financial institutions represented in the
Springfield market with aggregate deposits of $3.9 billion. Deposits in the
Springfield market increased $1.1 billion from June 30, 1993 through June 30,
1998, at an average annual growth rate of 6.85% for that period.
Columbia Market. The Columbia market area includes the city of Columbia, as
well as Boone county. Columbia's population increased from approximately 112,000
in 1990 to approximately 130,000 in 1998, representing an increase of
approximately 15.2% over that period compared to the national increase of 8.3%
for the same period. The population is projected to increase to approximately
138,000 by the year 2003. Over the period from 1990 to 1998, average household
income in the Columbia market increased 52.2% compared to the national increase
of 38.2% for the same period. As of June 30, 1998, there were 12 financial
institutions represented in the Columbia market with aggregate deposits of $1.4
billion. Deposits in the Columbia market increased $300 million from June 30,
1993 through June 30, 1998, at an average annual growth rate of 4.94% for that
period.
Jefferson City Market. The Jefferson City market area includes Jefferson City
and Cole County. Jefferson City's population increased from approximately 35,500
in 1990 to approximately 36,200 in 1998, representing an increase of
approximately 2.0% over that period compared to the national increase of 8.3%
for the same period. The population is projected to increase to approximately
36,800 by 2003. Over the period from 1990 to 1998, average household income in
the Jefferson City market increased 51.1% compared to the national increase of
38.2% for the same period. As of June 30, 1998, there were 16 financial
institutions represented in the Jefferson City market with aggregate deposits of
$1.4 billion.
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Deposits in the Jefferson City market increased $350 million from June 30, 1993
through June 30, 1998, at an average annual growth rate of 5.92% for that
period.
OPERATIONS OF RIVA BANCSHARES
Riva Bancshares will remain in the development stage until the completion of the
acquisition of Premier Bank and the offering. Riva Bancshares' corporate offices
will be located in the St. Louis metropolitan area. Riva Bancshares presently
has six full-time employees.
At the holding company level, Riva Bancshares will provide a variety of support
services for each of the banking centers. These services will include back
office operations, investment portfolio management, credit administration and
review, human resources, training and strategic planning. Riva Bancshares has
hired a Chief Financial Officer, a Chief Credit Officer, and a Senior Vice
President of Commercial Real Estate and the President of the St. Louis market.
Riva Bancshares intends to use Premier Bank's facilities and outsourcing
arrangements for its data processing, operational and back office support
activities. The banking centers will utilize the operational support provided by
Premier Bank to perform account processing, loan accounting, loan support,
network administration and other functions. Premier Bank has developed extensive
procedures for many aspects of its operations, including operating procedures
manuals and compliance procedures. Specific operating procedures for the banking
centers will be developed from the procedures that are currently utilized by
Premier Bank. We believe that Premier Bank's existing operations and support
management are capable of providing continuing operational support for all of
the banking centers.
Outsourcing
We believe that by outsourcing a major portion of our back office operations, we
can realize greater efficiencies and economies of scale. In addition, various
products and services, especially technology-related services, can be offered
through third-party vendors at a substantially lower cost than the costs of
developing these products internally.
Premier Bank is utilizing Computer Services Incorporated to provide its core
data processing and certain customer products. In addition to account level
processing for loans and deposits, Premier Bank also utilizes CSI for computer
network support, proof of deposit processing, on-line support, telephone banking
services, cash management, automated clearing house services and consulting
services.
Credit Administration
We will oversee all credit policy operations at the holding company level while
still granting local lending authority to management in each local market. Our
Chief Credit Officer will be primarily responsible for maintaining a quality
loan portfolio and developing a strong credit culture throughout the entire
organization. The Chief Credit Officer will be responsible for developing and
updating the credit policy and procedures for the organization. In addition, he
will work closely with each lending officer at the banking centers to ensure
that the business being solicited is of the quality and structure that fits our
desired risk profile. Credit quality will be controlled through uniform
compliance to credit policy. Our risk-decision process will be actively managed
in a disciplined fashion to maintain an acceptable risk profile.
Our credit approval process will consist of specific authorities granted to the
lending officers. Loans exceeding a particular lending officer's level of
authority will be reviewed and considered for approval by the next level of
authority. The Chief Credit Officer has ultimate credit decision-making
authority, subject to review by the Chief Executive Officer and our board of
directors. Risk management will require active involvement with our customers
and active management of our portfolio. The Chief Credit Officer will review our
credit policy with the local management teams at least annually but more
frequently if necessary. The results of these reviews will then be presented to
our board of directors. The purpose of these reviews will be to attempt to
ensure that the credit policy remains compatible with our short and
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long-term business strategies. The Chief Credit Officer will also generally
require all individuals charged with risk management to reaffirm their
familiarity with the credit policy annually.
OPERATIONS OF PREMIER BANCSHARES, INC.
Premier Bancshares, Inc. was incorporated in 1994 as a Missouri corporation.
Premier Bank commenced operations on May 15, 1995, as a full service,
state-chartered commercial bank in Jefferson City, Missouri. Premier Bank opened
its branch office in Columbia in April, 1998. Premier Bank owns both of its
facilities. Premier Bank has received regulatory approval to open an additional
branch in a leased facility in Jefferson City which is expected to open in the
first quarter of 2000.
Premier Bank will apply for a branch location in the St. Louis metropolitan area
which would open following the completion of the offering and the merger.
Premier Bank is currently providing many of the products and services which Riva
Bancshares expects to offer. Premier Bank offers a variety of loan products,
including commercial loans, real estate loans, home equity loans,
consumer/installment loans, SBA loans and offers credit cards through a third
party. Premier Bank also offers a broad range of interest-bearing and
noninterest-bearing deposit accounts, including commercial and retail checking
accounts, money market accounts, individual retirement accounts, regular
interest-bearing savings accounts and certificates of deposit. In addition,
Premier Bank provides such consumer services as U.S. Savings Bonds, travelers
checks, cashiers checks, safe deposit boxes, bank-by-mail services, direct
deposit and telephone banking. Premier Bank is also offering limited investment
services, such as securities brokerage, through a third party provider.
Premier Bank engages in a broad array of lending activities, including
commercial/industrial, SBA guaranteed loans, consumer and real estate loans. As
of June 30, 1999, Premier Bank had a legal lending limit for loans of
approximately $1.0 million per borrower.
ASSET/LIABILITY MANAGEMENT
Our objective is to manage assets and liabilities to provide a satisfactory
level of consistent operating profitability. Our Chief Financial Officer is
primarily responsible for monitoring policies and procedures that are designed
to maintain an acceptable composition of the asset/liability mix while adhering
to prudent banking practices. Our management philosophy is to support asset
growth primarily through growth of core deposits. We intend to continue to
invest the largest portion of earning assets in commercial industrial and
construction and commercial real estate loans.
Currently, Premier Bank's asset/liability mix is monitored on a daily basis,
with monthly reports presented to Premier Bank's board of directors. The
objective of this policy is to control interest-sensitive assets and liabilities
so as to minimize the impact of substantial movements in interest rates on
Premier Bank's earnings.
COMPETITION
Competition among financial institutions in the state of Missouri and the
markets in which Premier Bank currently operates and into which we may expand is
intense. We will compete with other bank holding companies, state and national
commercial banks, savings and loan associations, consumer finance companies,
credit unions, securities brokerages, insurance companies, mortgage banking
companies, money market mutual funds, asset-based non-bank lenders and other
financial institutions. Many of these competitors have substantially greater
resources and lending limits, larger branch networks and are able to offer a
broader range of products and services than we will be able to offer.
Various legislative actions in recent years have led to increased competition
among financial institutions. With the enactment of the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 and other laws and regulations
affecting interstate bank expansion, financial institutions located outside of
the state of Missouri may now more easily enter our targeted markets. In
addition, recent legislative and regulatory changes and technological advances
have enabled customers to conduct banking activities
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without regard to geographic barriers through computer and telephone-based
banking and similar services. There can be no assurance that the United States
Congress or the Missouri Legislature or the applicable bank regulatory agencies
will not enact legislation or promulgate rules that may further increase
competitive pressures on Riva Bancshares. Our failure to compete effectively for
deposit, loan and other banking customers in its market areas could have a
material adverse effect on our business, future prospects, financial condition
or results of operations.
DATA PROCESSING
Premier Bank currently has an agreement with CSI to provide its core processing
and certain customer products. We believe that CSI will be able to provide
technologically advanced data processing and customer service-related processing
at a competitive price to support Riva Bancshares' future growth. We believe
that CSI's services are adequate for our business expansion plans.
FACILITIES
Our temporary offices are located at 13004 Starbuck Road, St. Louis, Missouri
63141. We are currently negotiating for office space in the St. Louis
metropolitan area.
Premier Bank's main offices, which contain approximately 7,500 square feet, are
located at 815 West Stadium Boulevard, Jefferson City, Missouri. Premier Bank
also operates a branch office, which contains approximately 5,000 square feet of
office space at 15 South Fifth Street, Columbia, Missouri 65201. Premier Bank
has received regulatory approval and has entered into an agreement to lease
approximately 1,800 square feet for an additional branch facility in Jefferson
City. This branch is expected to open in the first quarter of 2000.
EMPLOYEES
We presently have six full-time employees. We will hire additional employees as
needed to support our growth.
Premier Bank presently has 20 full-time employees and one part-time employee,
including 10 officers. Premier Bank will hire additional employees as needed,
including additional tellers and financial service representatives.
LEGAL PROCEEDINGS
From time to time, Riva Bancshares may be involved in litigation relating to
claims arising out of operations in the normal course of business. As of the
date of this prospectus, neither Riva Bancshares nor Premier Bank is engaged in
any legal proceedings that are expected, individually or in the aggregate, to
have a material effect on Riva Bancshares or Premier Bank.
SUPERVISION AND REGULATION
GENERAL
We will operate in a highly regulated environment, and our business activities
will be supervised by a number of federal regulatory agencies, including the
Federal Reserve Board, the FDIC and the Missouri Division of Finance.
Riva Bancshares will be regulated by the Federal Reserve Board under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"), which requires every
bank holding company to obtain the prior approval of the Federal Reserve Board
before acquiring more than five percent of the voting shares of any bank or all
or substantially all of the assets of a bank, or before merging or consolidating
with another bank holding company. The Federal Reserve Board (pursuant to
regulation and published policy statements) has maintained that a bank holding
company must serve as a source of financial strength to its
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subsidiary banks. In adhering to the Federal Reserve Board policy, Riva
Bancshares may be required to provide financial support to its subsidiary bank
at a time when, absent such Federal Reserve Board policy, Riva Bancshares would
not deem it advisable to provide such assistance.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
which became effective in November 1994, the restrictions on interstate
acquisitions of banks by bank holding companies were repealed as of September
29, 1995, such that Riva Bancshares and any other bank holding company located
in Missouri is able to acquire a bank located in any other state, and a bank
holding company located outside Missouri can acquire any Missouri-based bank, in
either case subject to certain deposit percentage and other restrictions. The
legislation provides that unless an individual state has elected to prohibit
out-of-state banks from operating interstate branches within its territory,
adequately capitalized and managed bank holding companies will be able to
consolidate their multi-state bank operations into a single bank subsidiary and
to open new branches on an interstate basis. The opening of new branches by an
out-of-state bank would be permitted only if it is expressly permitted by the
laws of the host state. Missouri does not permit the opening of new branches by
an out-of-state bank. Therefore, the only method by which an out-of-state bank
or bank holding company may enter Missouri is through an acquisition. The
authority of a bank to establish and operate branches within a state will
continue to be subject to applicable state branching laws.
A bank holding company is generally prohibited from acquiring control of any
company which is not a bank and from engaging in any business other than the
business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to be
so closely related to banking as to be incident thereto and thus permissible for
bank holding companies. Effective April 21, 1997, the Federal Reserve Board
revised and expanded the list of permissible non-banking activities, which now
includes the following activities:
- extending credit and servicing loans;
- acting as an investment or financial advisor;
- leasing personal and real property or acting as a broker;
- providing management and employee benefits consulting and career counseling
services to nonaffiliated banks and nonbank depository institutions;
- operating nonbank depository institutions;
- performing trust company functions;
- providing agency transactional services, including securities brokerage
services, riskless principal transactions, private placement services, and
acting as a futures commission merchant;
- providing data processing and data transmission services;
- acting as an insurance agent or underwriter with respect to certain limited
types of insurance;
- performing real estate appraisals;
- arranging commercial real estate equity financing;
- providing check-guaranty, collection agency and credit bureau services;
- engaging in asset management, servicing and collection activities;
- providing real estate settlement services;
- acquiring certain debt which is in default;
- underwriting and dealing in obligations of the United States, the states and
their political subdivisions;
- engaging as a principal in foreign exchange trading and dealing in precious
metals;
- providing other support services such as courier services and the printing
and selling of checks; and
- investing in programs designed to promote community welfare.
In determining whether an activity is so closely related to banking as to be
permissible for bank holding companies, the Federal Reserve Board is required to
consider whether the performance of such activities
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by a bank holding company or its subsidiaries can reasonably be expected to
produce benefits to the public such as greater convenience, increased
competition and gains in efficiency that outweigh the possible adverse effects
such as undue concentration of resources, decreased or unfair competition,
conflicts of interest and unsound banking practices. Generally, bank holding
companies are required to obtain the prior approval of the Federal Reserve Board
to engage in any new activity not previously approved by the Federal Reserve
Board.
Riva Bancshares will also be regulated by the Missouri Division of Finance under
Missouri law, which requires that a bank holding company may not obtain control
of any bank if as a result of the acquisition, the total deposits in such bank
together with the total deposits of all banks located in the state of Missouri
controlled by the bank holding company would exceed 13% of the total deposits of
all depository financial institutions in the state, including banks, thrifts and
credit unions. In computing the total deposits in all banks controlled by the
bank holding company and the bank which the holding company seeks to acquire,
certificates of deposit in the face amount of $100,000 or more, deposits from
sources outside the United States and deposits of banks other than banks
controlled by the bank holding company are to be deducted.
Riva Bank, as a subsidiary of Riva Bancshares, will be subject to restrictions
under federal law in dealing with Riva Bancshares and other affiliates, if any.
These restrictions apply to extensions of credit to an affiliate, investments in
the securities of an affiliate and the purchase of assets from an affiliate.
Upon completion of the acquisition, Riva Bank will be the primary subsidiary of
Riva Bancshares. Premier Bank is a Missouri state-chartered bank and, as such,
its primary bank regulatory authorities are the Missouri Division of Finance and
the FDIC. Banks organized under state law which are members of the Federal
Reserve System are regulated and examined primarily by the Federal Reserve Board
and state banking authorities, while banks organized under state law which are
not members of the Federal Reserve System are regulated and examined primarily
by the FDIC and state banking authorities. Premier Bank is a state-chartered
bank which is not a member of the Federal Reserve System. Regulation by the
federal and state banking authorities is designed to protect depositors rather
than shareholders.
CAPITAL ADEQUACY REQUIREMENTS
Both Riva Bancshares and Riva Bank will be subject to regulatory capital
requirements imposed by the Federal Reserve Board and the FDIC. The Federal
Reserve Board and the FDIC have issued risk-based capital guidelines for bank
holding companies and banks which make regulatory capital requirements more
sensitive to differences in risk profiles of various banking organizations. The
capital adequacy guidelines issued by the Federal Reserve Board are applied to
bank holding companies on a consolidated basis. The FDIC's risk capital
guidelines apply directly to state chartered nonmember banks regardless of
whether they are subsidiaries of a bank holding company. Both agencies'
requirements (which are substantially similar), provide that banking
organizations must have capital equivalent to eight percent of weighted risk
assets. The risk weights assigned to assets are based primarily on credit risks.
Both the Federal Reserve Board and the FDIC have also implemented new minimum
capital leverage ratios to be used in tandem with the risk-based guidelines in
assessing the overall capital adequacy of banks and bank holding companies.
Under these rules, banking institutions are required to maintain a ratio of
three percent "Tier 1" capital to total assets (net of goodwill). Tier 1 capital
includes common shareholders equity, noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, less
certain intangible assets.
The FDIC's guidelines provide that intangible assets are generally deducted from
Tier 1 capital in calculating a bank's risk-based capital ratio. However,
certain intangible assets which meet specified criteria ("qualifying
intangibles") such as mortgage servicing rights are retained as a part of Tier 1
capital. The FDIC currently maintains that only mortgage servicing rights and
purchased credit card relationships meet the criteria to be considered
qualifying intangibles. The FDIC's guidelines formerly provided that the amount
of such qualifying intangibles that may be included in Tier 1 capital was
strictly limited to a maximum of 25% of total Tier 1 capital. The FDIC has
amended its guidelines to increase the limitation
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on such qualifying intangibles from 25% to 50% of Tier 1 capital and further to
permit the inclusion of purchased credit card relationships as a qualifying
intangible asset.
Both the risk-based capital guidelines and the leverage ratio are minimum
requirements, applicable only to top-rated banking institutions. Institutions
operating at or near these levels are expected to have well-diversified risk,
high asset quality, high liquidity, good earnings and in general, have to be
considered strong banking organizations rated composite 1 under the CAMELS
rating system for banks. Institutions with lower ratings and institutions with
high levels of risk or experiencing or anticipating significant growth would be
expected to maintain ratios 100 to 200 basis points above the stated minimums.
The Federal Reserve Board and the FDIC have adopted regulations revising their
risk-based capital guidelines to ensure that the guidelines take adequate
account of interest rate risk. Interest rate risk is the adverse effect that
changes in market interest rates may have on a bank's financial condition and is
inherent to the business of banking. Under the new regulations, when evaluating
a bank's capital adequacy, the agency's capital standards now explicitly include
a bank's exposure to declines in the economic value of its capital due to
changes in interest rates. The exposure of a bank's economic value generally
represents the change in the present value of its assets, less the change in the
value of its liabilities, plus the change in the value of its interest rate
off-balance sheet contracts. Concurrently, the agencies issued a joint policy
statement, effective June 26, 1996, to provide guidance on sound practices for
managing interest rate risk. In the policy statement, the agencies emphasize the
necessity of adequate oversight by a bank's board of directors and senior
management and of a comprehensive risk management process. The policy statement
also describes the critical factors affecting the agencies' evaluations of a
bank's interest rate risk when making a determination of capital adequacy. The
agencies' risk assessment approach used to evaluate a bank's capital adequacy
for interest rate risk relies on a combination of quantitative and qualitative
factors. Banks that are found to have high levels of exposure and/or weak
management practices will be directed by the agencies to take corrective action.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), enacted on December 19, 1991, provides for the development of a
regulatory monitoring system requiring prompt corrective action on the part of
banking regulators with regard to certain classes of undercapitalized
institutions. While the FDICIA does not change any of the minimum capital
requirements, it directs each of the federal banking agencies to issue
regulations putting the monitoring plan into effect. The FDICIA creates five
"capital categories" ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized") which are defined in the FDICIA and which will be used to
determine the severity of corrective action the appropriate regulator may take
in the event an institution reaches a given level of undercapitalization. For
example, an institution which becomes "undercapitalized" must submit a capital
restoration plan to the appropriate regulator outlining the steps it will take
to become adequately capitalized. Upon approving the plan, the regulator will
monitor the institution's compliance. Before a capital restoration plan will be
approved, any entity controlling a bank (i.e., holding companies) must guarantee
compliance with the plan until the institution has been adequately capitalized
for four consecutive calendar quarters. The liability of the holding company is
limited to the lesser of five percent of the institution's total assets or the
amount which is necessary to bring the institution into compliance with all
capital standards. In addition, "undercapitalized" institutions will be
restricted from paying management fees, dividends and other capital
distributions, will be subject to certain asset growth restrictions and will be
required to obtain prior approval from the appropriate regulator to open new
branches or expand into new lines of business.
As an institution's capital levels decline, the extent of action to be taken by
the appropriate regulator increases, restricting the types of transactions in
which the institution may engage and ultimately providing for the appointment of
a receiver for certain institutions deemed to be critically undercapitalized.
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In order to comply with the FDICIA, the Federal Reserve Board and the FDIC have
adopted regulations defining operational and managerial standards relating to
internal controls, loan documentation, credit underwriting criteria, interest
rate exposure, asset growth, and compensation, fees and benefits.
In response to the directive issued under the FDICIA, the regulators have
established regulations which, among other things, prescribe the capital
thresholds for each of the five capital categories established by the FDICIA.
The following table reflects the capital thresholds:
<TABLE>
<CAPTION>
TOTAL RISK - TIER 1 RISK - TIER 1
BASED CAPITAL BASED CAPITAL LEVERAGE
RATIO RATIO RATIO
------------- ------------- --------
<S> <C> <C> <C>
Well Capitalized(1).................................. >=10% >= 6% >=5%
Adequately Capitalized(1)............................ >=8 >=4 >=4(2)
Undercapitalized(4).................................. <8 <4 <4(3)
Significantly Undercapitalized(4).................... <6 <3 <3
Critically Undercapitalized.......................... -- -- >=2(5)
</TABLE>
- ---------------------------
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(3) < 3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(4) An institution falls into this category if it is below the specified capital
level for any of the three capital measures.
(5) Ratio of tangible equity to total assets.
REPORTING REQUIREMENTS
As a state-chartered bank, most of Premier Bank's operations are regulated and
examined by the Missouri Division of Finance and the FDIC, including reserves
for loan losses and other contingencies, loans, investments, borrowings,
deposits, mergers, issuances of securities, payments of dividends, interest
rates payable on deposits, interest rates or fees chargeable on loans,
establishment of branches, consolidation or corporate reorganization, and
maintenance of books and records. Although Premier is not required by the
Missouri Division of Finance to conduct an annual external audit of its
financial affairs, if Premier has an audit report prepared, it is required to
file such reports with the Missouri Division of Finance within 15 days after the
receipt of any such report. Premier is also subject to Missouri banking and
usury laws restricting the amount of interest which it may charge in making
loans or other extensions of credit.
As a bank holding company, Riva Bancshares will be required to file with the
Federal Reserve Board an annual report of its operations at the end of each
fiscal year and such additional information as the Federal Reserve Board may
require pursuant to the BHC Act. The Federal Reserve Board may also make
examinations of Riva Bancshares and each of its subsidiaries.
The scope of regulation and permissible activities of Riva Bancshares and Riva
Bank is subject to change by future federal and state legislation. In addition,
regulators may require higher capital levels on a case-by-case basis based on
such factors as the risk characteristics or management of a particular
institution. Riva Bancshares and Premier are not aware of any attributes of
their operating plan that would cause regulators to impose higher requirements.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning Riva Bancshares' executive
officers and directors upon completion of the offering and of the merger.
<TABLE>
<CAPTION>
NAME AGE POSITION(1)
- ---- --- -------------------------------------------
<S> <C> <C>
Richard C. Jensen.......................... 54 Chairman of the Board, President, Chief
Executive Officer and Class I Director
Allan D. Ivie, IV.......................... 38 President of the St. Louis Market
John S. Rouse.............................. 50 Chief Credit Officer
Sanford B. Scott........................... 38 Senior Vice President of Commercial Real
Estate
Daniel R. Sills............................ 40 Chief Financial Officer
Bruce W. Wiley............................. 42 President of the Mid-Missouri Market and
Class III Director(2)
Alan C. Henderson.......................... 53 Class I Director
Gerald G. Kaufman.......................... 52 Class I Director and Vice President(3)
Lewis A. Levey............................. 57 Class II Director
Jacob W. Reby.............................. 51 Class II Director(2)
Harold B. Remley........................... 56 Class III Director(2)
Andrew M. Rosen............................ 48 Class II Director
Patricia D. Whitaker....................... 54 Class II Director
Charles R. Willibrand...................... 72 Class III Director(2)
</TABLE>
- ---------------------------
(1) Upon amendment to its Certificate of Incorporation, the Board of Directors
of Riva Bancshares will be divided into three classes, designated Class I,
Class II and Class III.
(2) Messrs. Reby, Remley, Wiley and Willibrand will serve as directors of Riva
Bancshares upon completion of the merger and the offering.
(3) Upon completion of the offering, Mr. Kaufman will resign from his position
as Vice President of Riva Bancshares but will continue as a director of Riva
Bancshares.
Each of the following directors and executive officers, with the exception of
Mr. Jensen, Mr. Kaufman, Mr. Wiley, Mr. Reby, Mr. Remley and Mr. Willibrand have
been with Riva Bancshares since May 1999.
Richard C. Jensen has served as Chairman of the Board, President, Chief
Executive Officer and a director of Riva Bancshares since July 1998. Mr. Jensen
served as the President of Royal Banks of Missouri from March 1998 to May 1998.
Since 1980, Mr. Jensen served in various positions at NationsBank, N.A. -- St.
Louis, formerly Boatmen's National Bank of St. Louis, most recently as President
since 1997. At NationsBank, Mr. Jensen was responsible for NationsBank's General
Bank, which included over 60 branches in St. Louis, small business, middle
market lending and professional and executive banking. Mr. Jensen has over 25
years of banking experience in Missouri.
Allan D. Ivie, IV has served as the President of the St. Louis market since May
1999. Mr. Ivie served in various positions with NationsBank/Boatmen's National
Bank of St. Louis since 1988, most recently as Senior Vice President of the
Private Client Group where he was primarily responsible for implementing the
Private Client Group after NationsBank's acquisition of Boatmen's. From 1995 to
1997, Mr. Ivie served as Vice President and Director of Private Banking. Mr.
Ivie has over 14 years of banking experience in Missouri.
John S. Rouse has served as Chief Credit Officer of Riva Bancshares since May
1999. Mr. Rouse served in various positions with NationsBank, N.A. and Boatman's
National Bank of St. Louis since 1979. From
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1990 to 1995, Mr. Rouse served as Vice President and Manager of Loan
Originations in the Structured Finance Group and from 1995 to 1997, Mr. Rouse
served as Vice President in the St. Louis Corporate Group with Boatmen's. Since
1997, Mr. Rouse has been the Senior Vice President/Senior Lender in the Private
Client Group with NationsBank where he was responsible for providing credit
approval and administering the loan portfolio for the Private Client Group with
commitments of more than $750 million. Mr. Rouse has over 20 years of banking
experience in Missouri.
Sanford B. Scott has served as Senior Vice President of Commercial Real Estate
of Riva Bancshares since May 1999. Prior to joining Riva Bancshares, Mr. Scott
served in various positions with Nations Bank since 1988, most recently as
Manager and Senior Commercial Mortgage Originator for the Midwest. Prior to this
position, Mr. Scott was manager of the Commercial Real Estate Division for the
Central Region of Boatmen's National Bank of St. Louis, where he managed a $200
million commercial mortgage and construction loan portfolio. From 1985 to 1988,
Mr. Scott served in various positions with Mark Twain Banks, N.A. Mr. Scott has
over 14 years of banking experience in Missouri.
Daniel R. Sills has served as Chief Financial Officer of Riva Bancshares since
May 1999. Prior to joining Riva Bancshares, Mr. Sills worked in the financial
institutions consulting group as a certified public accountant with KPMG LLP in
St. Louis since 1997. From 1993 to 1997, Mr. Sills served in various positions
at Boatmen's Bancshares (now NationsBank) including Chief Financial Officer of
Boatmen's Credit Card Bank and Boatmen's Merchant Processing Company. From 1989
to 1993, Mr. Sills was with KPMG LLP in St. Louis where he was responsible for
conducting consulting engagements for a wide range of financial institution
clients.
Bruce W. Wiley is currently President and Chief Executive Officer of Premier
Bancshares, Inc. and Premier Bank. In 1994, Mr. Wiley and other investors
founded Premier. Upon completion of the merger and the offering, Mr. Wiley will
continue with Premier Bank as President of the Mid-Missouri market and a
director and Vice President of Riva Bancshares. Mr. Wiley has over six years of
banking experience in Missouri.
Alan C. Henderson has served as the President, Chief Executive Officer and as a
director of RehabCare Group, Inc., a publicly traded company since June 1998.
From 1990 to 1998, Mr. Henderson served as Executive Vice President and Chief
Financial Officer of RehabCare Group, Inc. Mr. Henderson is also a director of
General American Capital Corporation, a registered investment company and a
member of the Health Services Board of Mercantile Bank, N.A.
Gerald G. Kaufman has served as a director and Vice President of Riva Bancshares
since its inception. Since 1997, Mr. Kaufman has served as the President of T.
Stephen Johnson & Associates, Inc. an investment banking firm located in
Atlanta, Georgia. Prior to his service with TSJ&A, Mr. Kaufman was President of
Bretton Woods Group, a management consulting and investment banking firm. From
1980 to 1991, Mr. Kaufman served as the Managing Director for Bank Earnings
International, one of the nation's largest bank consulting firms. Mr. Kaufman
began his banking career with Citizens and Southern National Bank, Atlanta,
Georgia in 1973 as a Vice President in Bank Operations and the International
Banking Division.
Lewis A. Levey is a private investor engaged in real estate management and
development and real estate consulting. Mr. Levey was a founding partner and
Vice Chairman of Paragon Group, Inc., a fully integrated, self-managed real
estate investment trust operating a multi-billion dollar investment portfolio in
18 states from 1994 to 1997 until it merged with Camden Property Trust, a real
estate investment trust whose shares are listed on the New York Stock Exchange.
Since 1997, Mr. Levey has served as Trust Manager and a Director of Camden
Property Trust. Mr. Levey is a member of various industry organizations
including the Urban Land Institute and a former member of the Board of Directors
of the National Multi-Housing Council. Mr. Levey also serves on the Board of
Directors of Grand Center, Inc., the St. Louis Psychoanalytic Institute and
other civic, educational and charitable groups.
Jacob W. Reby is a member of the law firm of Lewis, Rice & Fingersh, L.C. in St.
Louis, Missouri specializing in corporate, real estate and banking law since
1991. Prior to 1991, Mr. Reby was a partner with the law firm of Popkin & Stern
in St. Louis, Missouri. Mr. Reby has co-authored several publications, including
Acquiring or Selling the Closely Held Business and Banking and Lending
Institution Forms.
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Mr. Reby serves on the board of directors of various charitable organizations,
including the AMC Cancer Research Center Foundation, the Saint Louis Art Fair
and the Clayton Child Center.
Harold B. Remley is currently a director of Premier Bancshares and Premier Bank
and upon completion of the merger will serve as a Class III Director of Riva
Bancshares. Mr. Remley is the owner of Remley's Insurance, Inc. which has been
engaged in the general insurance agency business in Jefferson City, Missouri
since 1968. Mr. Remley is also the President of R.R.R. Real Estate, Inc., a
family-owned business engaged in the rental of various real estate properties
located in Jefferson City.
Andrew M. Rosen is currently the Senior Vice President and Treasurer of Brown
Group, Inc., one of the largest shoe retailers in the country. Mr. Rosen has
been with Brown Group since 1974. Mr. Rosen has served as past President of the
Financial Executives Institute and the Washington University Business School
Alumni Executive Committee. Mr. Rosen also serves on the boards of Junior
Achievement of Mississippi Valley Inc. and the Harris Stowe College Advisory
Board.
Patricia D. Whitaker is the President and Chief Executive Officer of Interior
Space Inc., an interior design firm. Ms. Whitaker serves on the boards of the
Hawthorn Foundation, the March of Dimes, the YMCA, the St. Louis Arts and
Education Council, McKendree College and the St. Louis Forum.
Charles R. Willibrand is currently the Chairman of the board of directors of
Premier Bancshares and Premier Bank and upon completion of the merger will serve
as a Class III Director of Riva Bancshares. From 1964 to 1992, Mr. Willibrand
was President and Chief Executive Officer of Play-Mor Trailers, Inc. in
Westphalia, Missouri and he serves as a consultant for that business. Mr.
Willibrand is also the President of Mid-America Distributing Co., a wholesaler
of recreational vehicles' parts and accessories. In addition, Mr. Willibrand has
owned and operated Willibrand's Tire & Service in Westphalia, Missouri since
1951.
BOARD OF DIRECTORS
Upon completion of the merger and the offering, the number of directors of Riva
Bancshares will be fixed at ten. The By-Laws provide for the board of directors
to consist of not less than two, nor more than 25 persons, with the precise
number to be determined from time to time by the board of directors. Upon
amendment to the Certificate of Incorporation, the directors will be divided
into three classes, designated Class I, Class II and Class III. Each class
consists, as nearly as may be possible, of one-third of the total number of
directors. The term of Riva Bancshares' initial Class I Directors will expire at
the first annual meeting of shareholders to be held in 2000; the term of Riva
Bancshares' initial Class II Directors will expire at the second annual meeting
of shareholders to be held in 2001; and the term of Riva Bancshares' initial
Class III Directors will expire at the third annual meeting of shareholders to
be held in 2002. At each annual meeting of shareholders, successors to the class
of directors whose term expires at the annual meeting will be elected for a
three-year term. If the number of directors is changed, an increase or decrease
will be apportioned among the classes so as to maintain the number of directors
in each class as equally as possible. Any additional director of any class
elected to fill a vacancy resulting from an increase in such class will hold
office for a term that will expire at the next annual meeting, but in no event
will a decrease in the number of directors shorten the term of any incumbent
director. Any director elected to fill a vacancy due to resignation, removal or
death will have the same remaining term as that of his predecessor. In the case
of the removal of a director from office, the resulting vacancy on the board of
directors will be filled by the vote of a majority of the outstanding shares of
common stock. Any other vacancy on the board of directors will be filled by a
majority vote of the remaining directors then in office or by action of the
shareholders. Any director may be removed, with or without cause, at any regular
or special meeting of shareholders called for that purpose. The effect of the
classified board of directors is to make it more difficult for a person, entity
or group to effect a change in control of Riva Bancshares through the
acquisition of a large block of Riva Bancshares' voting stock. The executive
officers of Riva Bancshares serve at the pleasure of the board of directors.
Pursuant to the merger agreement, each of the Premier directors will be elected
as Class III directors and will serve for a term of three years and until their
successors have been elected and qualified. During the
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initial term of the Class III directors, if a vacancy is created as a result of
the resignation, removal or death of one of the Class III directors, the
remaining Premier directors will be able to nominate such director's
replacement. In addition, the existing Premier directors will have the ability
to nominate the Class III directors at the next two elections of Class III
directors.
The board of directors will have an Executive Committee, an Audit Committee and
a Compensation Committee. The Executive Committee will exercise the authority of
the board of directors in accordance with the company's By-Laws between regular
meetings of the board of directors. The Audit Committee will review and make
recommendations to the board of directors on Riva Bancshares' audit procedures
and independent auditors' report to management and will recommend to the board
of directors the appointment of the independent auditors for Riva Bancshares.
The Compensation Committee will review and make recommendations to the board of
directors with respect to the compensation of officers of Riva Bancshares and
will assist the board in the administration of Riva Bancshares' stock option
plan.
EXECUTIVE COMPENSATION
The following table provides certain summary information for the fiscal year
ended December 31, 1998 concerning compensation paid or accrued by Riva
Bancshares to or on behalf of its Chief Executive Officer. No other executive
officer of Riva Bancshares had total annual salary and bonus which exceeded
$100,000 during the last fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
-------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------- -----------------------------------
NUMBER
RESTRICTED OF
STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS AWARDED COMPENSATION
--------------------------- ---- -------- ----- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Jensen
Chairman, President and Chief
Executive Officer................. 1998 $114,583 $-- 10,000(1) -- $--
</TABLE>
- ---------------------------
(1) In August 1998, Riva Bancshares issued 250,000 shares of common stock to Mr.
Jensen at a price of $.01 per share. On April 29, 1999. Riva Bancshares
repurchased 144,727 of these shares at a price of $.01 per share. Prior to
the initial public offering, Riva Bancshares intends to repurchase an
additional 95,273 of these shares at a price of $.01 per share.
EMPLOYMENT AGREEMENTS
Riva Bancshares and Richard C. Jensen have entered into an employment agreement
which provides that Mr. Jensen will serve as the President and Chief Executive
Officer of Riva Bancshares and as President and Chief Executive Officer of Riva
Bank upon completion of the merger and the offering. Mr. Jensen also serves as a
member of the board of directors and will serve on Riva Bank's board of
directors after the closing of the merger. Mr. Jensen's employment agreement has
a three-year term and provides for a minimum annual base salary of $250,000.
Upon completion of the offering, Mr. Jensen will receive a payment of $150,000.
In addition, the Board will grant options to Mr. Jensen to purchase up to
125,000 shares of common stock at the initial public offering price of the
common stock sold in the offering. This option will be exercisable for a period
of ten years.
After the closing of the offering, in the event of a "change in control" of Riva
Bancshares (as defined in the employment agreement), Mr. Jensen will be entitled
to give written notice to Riva Bancshares of termination of the employment
agreement and to receive a cash payment equal to approximately 300% of the
compensation received by Mr. Jensen in the one-year period immediately preceding
the change in control. In addition, if Mr. Jensen elects to terminate the
employment agreement pursuant to a change in control, Mr. Jensen will further be
entitled to, in lieu of options, an amount in cash or common stock equal to the
excess of the fair market value of the common stock as of the date of closing of
the transaction effecting the change of control over the per share exercise
price of the options held by Mr. Jensen, times the number of shares of common
stock subject to such options.
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If the board of directors determines that Riva Bancshares is unable to close the
offering, then the employment agreement may be terminated by the board of
directors at any time during the term of the employment agreement without notice
with the condition that Mr. Jensen will be entitled to liquidated damages in the
amount of $250,000. If Mr. Jensen is terminated for cause (as that term is
defined in the employment agreement), the employment agreement may be terminated
by the board of directors without notice and without further obligation than for
salary already earned. Upon 30 days' written notice to Mr. Jensen, Riva
Bancshares may terminate the employment agreement without cause with the
condition that Mr. Jensen will be entitled to the same compensation as he would
have been entitled to receive in the event of a change of control of Riva
Bancshares. Likewise, Mr. Jensen may, upon thirty days' written notice to Riva
Bancshares, terminate the employment agreement without cause. In the event of
termination by Mr. Jensen, Riva Bancshares will have no further obligation other
than for salary earned and Riva Bancshares will be entitled to enforcement of
the non-compete and non-solicitation provisions. After the closing of the
offering, in the event of Mr. Jensen's death, Riva Bancshares will pay to Mr.
Jensen's designated beneficiary an amount equal to Mr. Jensen's base salary
through the end of the month in which Mr. Jensen's death occurred. The
employment agreement also contains a non-compete provision which provides that
if Mr. Jensen terminates his employment agreement, he will not for a period of
12 months, without the prior written consent of Riva Bancshares, either directly
or indirectly, serve as an executive officer of any bank, bank holding company
or other financial institution within St. Louis County, Missouri. The employment
agreement further obligates Mr. Jensen to protect the confidentiality of Riva
Bancshares' information following termination of his employment.
Riva Bancshares has also entered into employment agreements with its executive
officers, including Mr. Ivie, Mr. Rouse, Mr. Scott, and Mr. Sills. All of these
employment agreements provide for a three year term. These employment agreements
provide for annual base salaries to be paid in the following amounts: Mr. Ivie
($125,000), Mr. Rouse ($130,000), Mr. Scott ($120,000), and Mr. Sills
($125,000). The employment agreements also provide for the grant of options to
purchase shares at the initial public offering price which are exercisable for a
term of 10 years. Messrs. Ivie, Scott, and Rouse will receive options to
purchase up to 30,000 shares and Mr. Sills will receive options to purchase up
to 20,000 shares. Otherwise, these agreements contain similar provisions to
those contained in Mr. Jensen's employment agreement.
Riva Bancshares has entered into an employment agreement with Bruce W. Wiley,
the President of Premier Bank. Mr. Wiley's agreement provides for a five year
term commencing at the closing of the offering. Mr. Wiley's employment agreement
provides for an annual base salary of $150,000 and the grant of options to
purchase up to 70,000 shares of Riva Bancshares common stock at the initial
public offering price. Of these options, 30,000 options will be granted under
Riva Bancshares' stock option plan on the same terms as options issued to other
members of senior management and will vest over a period of three years. The
remaining 40,000 options will be granted on the same terms as those warrants
which were issued to certain founders of Riva Bancshares in April 1999 and will
be exercisable for 10 years. In addition, Mr. Wiley's employment agreement
provides that he will serve as a director of Riva Bancshares and his title
following the merger and the offering will be President of the Middle Missouri
Market area. In the event of a "change in control" of Riva Bancshares (as
defined in the employment agreement), Mr. Wiley may elect to give written notice
to Riva Bancshares of termination of the agreement and to receive a cash payment
equal to approximately 300% of the compensation received by him in the one year
period immediately preceding the change in control. Mr. Wiley's employment
agreement also contains certain non-compete and non-solicitation provisions
which are similar to those described in the employment agreement of Mr. Jensen
discussed above.
STOCK OPTION PLAN
On April 29, 1999, the board of directors adopted the 1999 Stock Option Plan
(the "1999 Plan") to promote Riva Bancshares' growth and financial success.
Options may be granted under the 1999 Plan to Riva Bancshares' directors,
officers and employees, as well as certain consultants and advisors. The 1999
Plan contemplates the grant of nonqualified stock options and incentive stock
options as defined in
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Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The
1999 Plan is not qualified under Section 401(a) of the Code and is not subject
to the provisions of the Employee Retirement Income Security Act of 1974, as
amended. The 1999 Plan provides for option grants to purchase up to an aggregate
of 500,000 shares of common stock, subject to adjustment under certain
circumstances (the "Option Shares"). The 1999 Plan will expire upon the earlier
to occur of: (1) the date on which all Option Shares have been issued upon
exercise of options under the 1999 Plan; or (2) the tenth anniversary of the
1999 Plan's effective date. The 1999 Plan will be administered by the board of
directors or by a committee appointed by the board and consisting of least two
non-employee board members.
The exercise price of options granted under the 1999 Plan will be determined by
the board of directors, but will in no event be less than 100% of the market
price of the common stock on the grant date. However, nonqualified stock options
may be granted at an exercise price of no less than 75% of the market price of
the common stock on the date of grant. Vested options under the 1999 Plan may be
exercised in whole or in part, but in no event later than 10 years from the
grant date. If an optionee during his or her lifetime ceases to be an officer,
director, employee, consultant or advisor of Riva Bancshares or any subsidiary
of Riva Bancshares for any reason other than his or her death or total
disability, any option or unexercised portion thereof which is exercisable on
the date the optionee ceases employment will expire 90 days following the date
the optionee ceases to be an officer, director or employee of Riva Bancshares or
of a subsidiary of Riva Bancshares, but in no event after the term provided in
the optionee's option agreement. If an optionee dies or becomes totally disabled
while he or she is an officer, director or employee of Riva Bancshares or of a
subsidiary of Riva Bancshares, the option may be exercised by a legatee or
legatees of the optionee under his or her last will or by his or her personal
representative or representatives at any time within one year following his or
her death or total disability, but in no event after the term provided in his or
her option agreement. Options granted under the 1999 Plan will only be
assignable or transferable by the optionee by will or the laws of descent and
distribution. During the optionee's lifetime, options are only exercisable by
him or her. The board of directors may at any time terminate, modify or amend
the 1999 Plan in any respect, except that without shareholder approval the board
of directors may not:
- increase the number of Option Shares,
- extend the period during which options may be granted or exercised,
- change the class of 1999 Plan participants, or
- otherwise materially modify the requirements as to eligibility for
participation in the 1999 Plan.
In no event will the termination, modification or amendment of the 1999 Plan,
without the written consent of an optionee, affect his or her rights under an
option or right previously granted to him or her. The 1999 Plan must be approved
by Riva Bancshares' shareholders within 12 months from the adoption of the 1999
Plan by the board of directors.
No stock options were granted during the fiscal year ended December 31, 1998.
Upon completion of the offering, Riva Bancshares will grant options to purchase
an aggregate of 329,475 shares to certain of its officers and directors.
COMPENSATION OF DIRECTORS
Directors of Riva Bancshares will not receive any compensation based on their
attendance at board meetings until Riva Bank becomes cumulatively profitable.
Upon consummation of the offering, directors of Riva Bancshares will be entitled
to receive stock option awards under the 1999 Plan. The members of the local
boards of directors will receive compensation in a format to be determined by
the board of directors of Riva Bank. Such compensation may be incentive-based
and include cash and options to purchase common stock. Under the terms of the
merger agreement, if, during the four years following the merger, any options
are granted to the former directors of Premier Bank, then we have agreed to
issue a proportionate amount of options to the remaining former shareholders of
Premier Bank.
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CERTAIN TRANSACTIONS
TSJ&A has provided consulting services during the organization and formation of
Riva Bancshares. Gerald G. Kaufman, a director and Vice President of Riva
Bancshares, is President of TSJ&A. Specific responsibilities undertaken by TSJ&A
include assisting management of Riva Bancshares in formulating Riva Bancshares'
business plan, conducting a feasibility analysis, drafting proposed
administrative and operational procedures, and preparing the necessary
regulatory filings for approval of the formation of Riva Bancshares and the
acquisition of Premier Bank. As compensation for its services, TSJ&A is being
paid a monthly fee of $25,000 until the closing of the offering and the merger.
In addition, TSJ&A will receive a finder's fee in connection with the
acquisition of Premier of $90,000 (one percent of the aggregate purchase price),
which finder's fee will be paid from the proceeds of the offering.
Once Premier Bank becomes a wholly-owned subsidiary of Riva Bancshares, Premier
Bank will be renamed Riva Bank. Riva Bank may extend loans from time to time to
certain of Riva Bancshares' directors, their associates and members of the
immediate families of the directors and executive officers of Riva Bancshares.
These loans will be made in the ordinary course of business on substantially the
same terms, including interest rates, collateral and repayment terms, as those
prevailing at the time for comparable transactions with persons not affiliated
with Riva Bancshares or Riva Bank, and will not involve more than the normal
risk of collectibility or present other unfavorable features.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of shares of the common stock as of July 29, 1999, and as adjusted to
reflect the sale of the shares offered hereby and the shares offered in
connection with the merger, with respect to (1) each director of Riva
Bancshares; (2) each person, including any "group" as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, who is known by Riva
Bancshares to own beneficially more than five percent of the outstanding shares
of the common stock and (3) all directors and executive officers of Riva
Bancshares as a group. Unless otherwise indicated, each shareholder has sole
voting and investment power with respect to the indicated shares.
<TABLE>
<CAPTION>
OWNERSHIP
OWNERSHIP PRIOR AFTER THE MERGER
TO THE OFFERING AND THE OFFERING
-------------------- -----------------------
NAME OF BENEFICIAL OWNER SHARES(1) PERCENT SHARES(1) PERCENT(2)
------------------------ --------- ------- --------- ----------
<S> <C> <C> <C> <C>
Richard C. Jensen................................... 10,000 100.0% 135,000(3) 3.2%
Allan D. Ivie, IV................................... -- * -- *
John S. Rouse....................................... -- * -- *
Sanford B. Scott.................................... -- * -- *
Daniel R. Sills..................................... -- * -- *
Alan C. Henderson................................... -- * -- *
Gerald G. Kaufman................................... -- * 14,475(4) *
Bruce W. Wiley...................................... -- * 113,733(5) 2.9%
Lewis A. Levey...................................... -- * -- *
Jacob W. Reby....................................... -- * -- *
Harold B. Remley.................................... -- * 84,548(6) 2.1%
Andrew M. Rosen..................................... -- * -- *
Patricia D. Whitaker................................ -- * -- *
Charles R. Willibrand............................... -- * 84,548(7) 2.1%
All executive officers and directors as a group (14
persons).......................................... 10,000 100.0% 432,304(8) 10.6%
</TABLE>
- ---------------------------
* Less than 1%.
(1) Pursuant to the rules of the Commission, the determinations of "beneficial
ownership" of common stock are based upon Rule 13d-3 under the Exchange
Act, which provides that shares will be deemed to be "beneficially owned"
where a person has, either solely or in conjunction with others, the power
to vote or to direct the voting of shares and/or the power to dispose, or
to direct the disposition of, shares or where a person has the right to
acquire any such power within 60 days after the date such "beneficial
ownership" is determined. Shares of common stock that a beneficial owner
has the right to acquire within 60 days pursuant to the exercise of stock
options or warrants are deemed to be outstanding for the purpose of
computing the percentage ownership of such owner but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) The percentages are based upon the aggregate number of shares of common
stock issued and outstanding as of July 29, 1999, as adjusted to reflect
the 3,000,000 shares issuable pursuant to the offering (assuming no
exercise of the underwriters' over-allotment option), the 818,182 shares
issuable pursuant to the merger (assuming an $11.00 initial public offering
price of the common stock in the offering, the mid-point of the estimated
range) and the shares to be repurchased at a price of $.01 per share.
(3) Includes 125,000 shares issuable upon the exercise of immediately
exercisable options to be granted simultaneously with the closing of the
offering and excludes the shares to be repurchased at a price of $.01 per
share. Mr. Jensen's business address is 13004 Starbuck Road, St. Louis,
Missouri 63141.
(4) Includes 14,475 shares issuable upon the exercise of immediately
exercisable options to be granted simultaneously with the closing of the
offering.
(5) Includes 55,060 shares issuable upon the exercise of immediately
exercisable warrants to be granted simultaneously with the closing of the
offering and 58,673 shares issuable upon conversion and exchange of shares
of Premier's common stock pursuant to the merger.
(6) Includes 25,875 shares issuable upon exercise of immediately exercisable
warrants and 58,673 shares issuable upon conversion and exchange of shares
of Premier's common stock pursuant to the merger.
(7) Includes 25,875 shares issuable upon exercise of immediately exercisable
warrants and 58,673 shares issuable upon conversion and exchange of shares
of Premier's common stock pursuant to the merger.
(8) Includes 246,285 shares issuable upon the exercise of immediately
exercisable options and warrants to be granted upon completion of the
offering.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Riva Bancshares is authorized to issue 20,000,000 shares of common stock, $.01
par value per share, and 1,000,000 shares of preferred stock, $.01 par value per
share, of which 100,000 shares of preferred stock have been designated as the
Series A Preferred Stock. As of the date hereof, 10,000 shares of common stock
and 99,900 shares of Series A Preferred Stock are issued and outstanding, held
by 1 and 12 shareholder(s) of record, respectively.
The following summary of the common stock and preferred stock is qualified in
its entirety by reference to the Certificate of Incorporation, the By-Laws, and
the Delaware General Corporation Law, as amended ("Delaware Law").
COMMON STOCK
Subject to such preferential rights as may be granted by the board of directors
in connection with any issuances of preferred stock, holders of shares of common
stock are entitled to receive such dividends as may be declared by the board of
directors in its discretion from funds legally available for that purpose. At
this time, the board of directors intends to retain all earnings to support
anticipated growth in the current operations of Riva Bancshares and to finance
future expansion. Additional restrictions on the payment of cash dividends may
be imposed in connection with future issuances of preferred stock and
indebtedness by Riva Bancshares. Further declarations and payments of cash
dividends, if any, will also be determined in light of then-current conditions,
including Riva Bancshares' earnings, operations, capital requirements,
liquidity, financial condition, restrictions in financing agreements and other
factors deemed relevant by the board of directors. Upon the liquidation,
dissolution or winding up of Riva Bancshares, after payment of creditors, the
remaining net assets of Riva Bancshares will be distributed pro rata to the
holders of common stock, subject to any liquidation preference of the holders of
preferred stock. There are no preemptive rights, conversion rights, or
redemption or sinking fund provisions with respect to the shares of common
stock. All of the outstanding shares of common stock are, and the shares to be
outstanding upon completion of the offering will be, duly and validly authorized
and issued, fully paid and nonassessable.
Holders of common stock are entitled to one vote per share of common stock held
of record on all such matters submitted to a vote of the shareholders. Holders
of common stock do not have cumulative voting rights. As a result, the holders
of a majority of the outstanding shares of common stock voting for the election
of directors can elect all the directors, and, in such event, the holders of the
remaining shares of common stock will not be able to elect any persons to the
board of directors.
PREFERRED STOCK
The board of directors may, without approval of Riva Bancshares' shareholders,
from time to time authorize the issuance of preferred stock in one or more
series for such consideration and, within certain limits, with such relative
rights, preferences and limitations as the board of directors may determine. The
relative rights, preferences and limitations that the board of directors has the
authority to determine as to any such series of preferred stock include, among
other things, dividend rights, voting rights, conversion rights, redemption
rights and liquidation preferences. Because the board of directors has the power
to establish the relative rights, preferences and limitations of each series of
preferred stock, it may afford to the holders of any such series, preferences
and rights senior to the rights of the holders of shares of common stock.
Although the board of directors has no present intention to do so, it could
cause the issuance of preferred stock which could discourage an acquisition
attempt or other transactions that some, or a majority of, the shareholders
might believe to be in their best interests, or in which the shareholders might
receive a premium for their shares of common stock over the market price of such
shares.
Riva Bancshares presently has 99,900 shares of preferred stock outstanding,
designated as the Series A Preferred Stock. The terms of the Series A Preferred
Stock provide that no dividends or other distributions
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shall be declared or payable on the Series A Preferred Stock. The terms of the
Series A Preferred Stock provide for a liquidation preference in the event of a
winding up, liquidation or dissolution of First Premier in the amount of $10.00
per share for an aggregate liquidation preference of $999,000. Except as may be
required by law, the holders of the Series A Preferred Stock do not have any
voting rights. The terms of the Series A Preferred Stock may be redeemed, at the
option of Riva Bancshares, at a price of $10.00 per share. Riva Bancshares
intends to redeem the outstanding shares of Series A Preferred Stock with the
proceeds of the offering.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
Supermajority Voting Requirements. Under Delaware Law, the shareholders have
the power to adopt, amend or repeal bylaws; however, the certificate of
incorporation may confer such power upon the board of directors, although in
doing so it may not divest the shareholders of their power to adopt, amend or
repeal the bylaws. Riva Bancshares' Certificate of Incorporation (the
"Certificate") provides that the board of directors is authorized to make,
repeal, alter, amend and rescind Riva Bancshares' By-Laws. The Certificate also
contains a supermajority (75%) voting requirement for amendments to the By-Laws
by the shareholders.
In addition to the supermajority vote required to amend the By-Laws, the
Certificate provides in Article X that the following provisions of the
Certificate may be amended or repealed only by the affirmative vote of the
holders of not less than 75% of the then outstanding common stock of Riva
Bancshares: (i) Article IX, which limits or eliminates the monetary liability of
directors for a breach of their fiduciary duty in certain circumstances; (ii)
Article VI, which provides that elections of directors need not be by written
ballot unless the By-Laws so provide; (iii) Article VII, which allows the board
of directors to amend or repeal any provision of the By-Laws and requires the
affirmative vote of 75% of the shareholders for the shareholders to adopt,
amend, alter or repeal the By-Laws; and (iv) Article VIII, which eliminates the
ability of shareholders to take action by written consent. Delaware Law provides
generally that a corporation's certificate of incorporation may be amended by a
vote of shareholders holding a majority of the outstanding stock. Where the
certificate of incorporation requires a supermajority vote with respect to a
particular matter, however, the same supermajority vote is required to amend
such supermajority voting requirement of the certificate of incorporation.
Therefore, both Delaware Law and the Certificate provide that in order to amend
or repeal the provisions in the Certificate which require the affirmative vote
of the holders of not less than 75% of the then outstanding common stock, the
same 75% vote will be necessary to amend such provisions.
These supermajority voting provisions could render more difficult or discourage
a merger, tender offer, proxy contest or the assumption of control of Riva
Bancshares by a large stockholder or group of shareholders. To the extent that
these provisions enable the board of directors to resist a takeover or change in
control of Riva Bancshares, it could make it more difficult to remove the
existing board of directors and management.
Certain Business Combinations. In the past several years, a number of states
have adopted special laws designed to make certain kinds of "unfriendly"
corporate takeovers, or other transactions involving a corporation and one or
more of its significant shareholders, more difficult. Under Section 203 of the
Delaware Law ("Section 203") certain "business combinations" with "interested
stockholders" of Delaware corporations are subject to a three-year moratorium
unless specified conditions are met.
Section 203 prohibits certain mergers, consolidations, sales of assets and other
transactions with an "interested stockholder" (generally a 15% stockholder or
group of stockholders) for three years following the date the stockholder became
an interested stockholder. This prohibition on business combinations is subject
to certain exceptions, the most significant of which are that the prohibition
does not apply if: (1) the business combination or transaction in which the
stockholder becomes an interested stockholder is approved by the corporation's
board of directors prior to the stockholder becoming an interested stockholder;
(2) the business combination is with an interested stockholder who became an
interested stockholder in a transaction whereby he acquired 85% of the
corporation's voting stock, excluding shares
72
<PAGE> 74
held by directors who are also officers and certain employee stock plans; or (3)
the business combination is approved by the corporation's board of directors and
authorized at a meeting by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder.
Section 203 only applies to Delaware corporations which have a class of voting
stock that is listed on a national securities exchange, authorized for quotation
on the Nasdaq National Market, or held of record by more than 2,000
shareholders. Because Riva Bancshares' common stock will be listed on the Nasdaq
National Market, it is anticipated that Section 203 will be applicable to Riva
Bancshares. A Delaware corporation may elect not to be governed by Section 203
by including a provision to that effect in its certificate of incorporation or
bylaws. The Certificate does not contain any such provision and, accordingly,
the Company believes Section 203 will apply to it.
Riva Bancshares expects that Section 203 will have the effect of encouraging any
potential acquiror to negotiate with the board of directors. Section 203 also
might have the effect of limiting the ability of a potential acquiror to engage
in certain tactics (such as "two-tier pricing") that can result in dissimilar
treatment of a corporation's shareholders. At the time Section 203 was adopted
by the Delaware Legislature, a number of corporations had been subject to tender
offers for, or other acquisitions of, more than 15% but less than 85% of their
outstanding stock. In many cases, such purchases were followed by business
combinations in which the purchaser either paid a lower price for the remaining
outstanding shares than the price it paid in acquiring its original interest in
the corporation, or paid a less desirable form of consideration. Federal
securities laws and regulations applicable to business combinations govern the
disclosure required to be made to minority shareholders in order to consummate
such a transaction, but do not assure shareholders that the terms of the
business combination will be fair to them or that they can effectively prevent
its consummation. Moreover, the statutory right of the remaining shareholders of
the corporation to dissent in connection with certain business combinations and
receive the "fair value" of their shares in cash may involve significant expense
to such dissenting shareholders and may not be meaningful in all cases. Such an
appraisal standard as applied under Delaware Law does not take into account any
appreciation of the stock's market value due to anticipation of the business
combination and may not recognize that the market value of the shares may be
adversely influenced by the interested person's controlling stock ownership. In
addition, in the case of some business combinations, such as a sale of assets or
a reclassification or recapitalization of a corporation's capital stock, the
statutory right of dissent is not available at all. Section 203 was intended to
partially close these "gaps" in federal and state law and to prevent certain of
the potential inequities of business combinations.
Shareholders should note, however, that the application of Section 203 to Riva
Bancshares will confer upon the board of directors the power to reject a
proposed business combination in certain circumstances, even though a potential
acquiror may be offering a substantial premium for Riva Bancshares' shares over
the then-current market price. Section 203 should also discourage certain
potential acquirors unwilling to comply with its provisions.
INDEMNIFICATION
This provision of the Certificate of Incorporation will limit the remedies
available to a shareholder who is dissatisfied with a decision of the board of
directors protected by this provision, and such shareholder's only remedy in
that circumstance may be to bring a suit to prevent the action of the board of
directors. In many situations, this remedy may not be effective, including
instances when shareholders are not aware of a transaction or an event prior to
action of the board of directors in respect of such transaction or event.
TRANSFER AGENT AND REGISTRAR
United Missouri Bank, N.A. Kansas City, Missouri will be the Transfer Agent and
Registrar for the common stock.
73
<PAGE> 75
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering and the merger, Riva Bancshares will have
3,828,182 shares of common stock outstanding (assuming no exercise of the
underwriters' over-allotment option and assuming the issuance of 818,182 shares
in the merger), outstanding options to purchase 329,475 shares of common stock
and outstanding warrants to purchase 565,798 shares of common stock. Of these
shares, the 3,000,000 shares in this offering will be eligible for sale in the
open market without restriction (except for any such shares purchased by or
issued to "affiliates" of Riva Bancshares). The 818,182 shares to be issued in
the merger to shareholders of Premier Bancshares who are not affiliates may be
sold in increasing amounts during the 120-day period following the offering
based on the terms of the merger agreement. The remaining 10,000 shares of
common stock will be "restricted securities" as that term is defined in Rule 144
("Rule 144") promulgated under the Securities Act of 1933, as amended (the
"Securities Act") and will become eligible for sale under Rule 144 approximately
90 days after the closing of the merger. Such shares must be held for one year
from the date of acquisition before they may be resold pursuant to Rule 144,
unless the resale of such shares is made pursuant to an effective registration
statement under the Securities Act or another exemption from registration is
available.
Generally, Rule 144 provides that beginning 90 days after the date of this
prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned "restricted" securities for a least one year, including a
person who may be deemed an "affiliate" of Riva Bancshares, as the term
"affiliate" is defined under the Securities Act, is entitled to sell in
"broker's transactions" or in transactions directly with a "market marker,"
within any three-month period, a number of shares that does not exceed the
greater of one percent of the then outstanding shares of common stock or the
average weekly trading volume of the common stock on any national securities
exchange and/or over-the-counter market during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain notice requirements
and the availability of current public information about Riva Bancshares. A
person (or persons whose shares are aggregated) who is not deemed an "affiliate"
of Riva Bancshares would be entitled to sell such shares under Rule 144 without
regard to the volume, public information, manner of sale or notice provisions
and limitations described above, once a period of at least two years had elapsed
since the later of the date the shares were acquired from Riva Bancshares or one
of its affiliates.
Upon completion of the offering, options to purchase 329,475 shares of common
stock will be granted to certain officers and directors of Riva Bancshares
pursuant to its stock option plan. After the offering, Riva Bancshares intends
to file a registration statement on Form S-8 under the Securities Act to
register the shares of common stock issuable upon exercise of such options.
Accordingly, such shares will be freely tradeable by holders who are not
affiliates of Riva Bancshares and, subject to the volume and manner of sale
limitations of Rule 144, by holders who are affiliates of Riva Bancshares.
Riva Bancshares' officers and directors and certain of its existing shareholders
have agreed, for a period of 180 days from the date of this prospectus, not to
sell or otherwise dispose, directly or indirectly, of any shares without prior
written consent of the underwriters. Upon completion of the acquisition of
Premier and the offering, our officers and directors will beneficially own an
aggregate of approximately 375,000 shares. These restricted shares of common
stock will be eligible for sale pursuant to Rule 144 in the public market 365
days from the date of their purchase from Riva Bancshares.
Premier Bancshares and its directors have agreed, for a period of 180 days after
the effective date of this registration statement, not to sell or otherwise
transfer any shares of common stock owned by such director or officer. Following
the expiration of the 180-day lock-up period, these shares will be eligible for
sale in the open market subject to certain volume limitations and other
conditions of Rule 145 of the Securities Act.
74
<PAGE> 76
Pursuant to the terms of the merger agreement, Premier's shareholders, except
for those shareholders who serve as directors and/or officers of Premier, will
not sell or otherwise transfer any shares of common stock which they own, except
as permitted in the schedule set forth below:
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF SHARES PERMITTED
TIME TABLE FOR SALE BY EACH PREMIER SHAREHOLDER
- ---------- ----------------------------------------
<S> <C>
From the date of pricing the offering through the
date of closing the offering................... No sales are permitted
From 1 to 30 days after closing.................. 10%
From 31 to 60 after closing...................... 20%
From 61 to 90 days after closing................. 40%
From 91 to 120 days after closing................ 60%
From 121 days and thereafter..................... 100%
</TABLE>
Warrants to purchase 100,000 shares of common stock were granted to certain
European investors in June 1998. The exercise price for these warrants will be
the initial public offering price of the common stock, and the warrants will be
exercisable for a seven-year period beginning on the date that the offering is
completed. Warrants to purchase 115,798 shares were granted to certain founders
of the company. These warrants are exercisable at the initial public offering
price for a 10-year period beginning on the date that the offering is completed.
The shares underlying these warrants will be "restricted securities," within the
meaning of Rule 144 and must be held for one year following the date of exercise
before they may be resold pursuant to Rule 144, unless the resale of such shares
is made pursuant to an effective registration statement under the Securities Act
or an exemption from registration is available. Finally, upon completion of the
offering, warrants to purchase an aggregate of 350,000 shares will be granted to
shareholders of Premier Bancshares. Of the warrants to be granted to the
shareholders of Premier Bancshares, 140,000 will be exercisable at an exercise
price equal to the initial public offering price and 210,000 will be exercisable
at 120% of the initial public offering price. The warrants issued to the Premier
shareholders, except for those issued to affiliates, and the underlying shares,
may be resold without restriction.
Prior to the offering, there has been no public market for the common stock of
Riva Bancshares, and no prediction can be made as to the effect, if any, that
future sales of shares or the availability of shares for sale will have on the
market price for common stock prevailing from time to time. Sales of substantial
amounts of common stock in the public market, or the perception of the
availability of shares for sale, could adversely affect the prevailing market of
the common stock and could impair Riva Bancshares' ability to raise capital
through the sale of its equity securities.
75
<PAGE> 77
UNDERWRITING
Riva Bancshares entered into an underwriting agreement with the underwriters
named below. CIBC World Markets Corp., Johnson Research & Capital Incorporated
and Kelton International Limited are acting as representatives of the
underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
CIBC World Markets Corp.....................................
Johnson Research & Capital Incorporated.....................
Kelton International Limited................................
---------
Total.................................................. 3,000,000
=========
</TABLE>
This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased. Pursuant to the underwriting agreement, if an underwriter defaults in
its commitment to purchase shares, the commitments of non-defaulting
underwriters may be increased or the underwriting agreement may be terminated,
depending on the circumstances.
The representatives have advised us that the underwriters propose to offer the
shares directly to the public at the public offering price that appears on the
cover page of this prospectus. In addition, the representatives may offer some
of the shares to certain securities dealers at such price less a concession of
$ per share. The underwriters may also allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the shares are released for sale to the public, the
representatives may change the offering price and other selling terms at various
times.
We have granted the underwriters an over-allotment option. This option, which is
exercisable for up to 45 days after the date of this prospectus, permits the
underwriters to purchase a maximum of 450,000 additional shares. If the
underwriters exercise all or part of this option, they will purchase shares
covered by the option at the initial public offering price that appears on the
cover page of this prospectus, less the underwriting discount. If this option is
exercised in full, the total price to public will be $ and the total
proceeds to us will be $ . The underwriters have severally agreed that,
to the extent the over-allotment option is exercised, they will each purchase a
number of additional shares proportionate to each underwriter's initial amount
reflected in the foregoing table.
We will pay all of the expenses of the offering, excluding the underwriting
discount, which we estimate will be approximately $500,000.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
Mr. Robin C. Kelton serves as Chairman of the Board of Directors of Kelton
International Limited, an underwriter and one of the representatives. Mr. Kelton
has received warrants to purchase 14,475 shares of common stock with an exercise
price equal to the initial offering price of the common stock. In addition,
Kelton International Limited received a fee of $75,000 for its services as
placement agent in connection with the issuance of units consisting of shares of
common stock, preferred stock and warrants to purchase shares of common stock to
certain European investors in a private placement on June 19, 1998. Kelton
International Limited (i) is a foreign broker-dealer with a principal place of
business in the United Kingdom, (ii) is not registered with the SEC as a
broker-dealer, (iii) is not a member of the National Association of Securities
Dealers, Inc., (iv) will agree not to sell any of the shares of common stock
76
<PAGE> 78
offered hereby within the United States, its territories or its possessions, or
to nationals or residents of the United States, except for certain underwriting
syndicate sales, and (v) will agree to comply with certain rules of NASD
Regulation, Inc. as if it were a member of the NASD. Kelton International
Limited was organized and first registered as a broker-dealer within the past
four years. Prior to the organization of Kelton International Limited, its
principals and officers were actively involved in investment banking activities
with other broker-dealers.
Affiliates of Riva Bancshares and Premier Bancshares have agreed to a 180-day
"lock-up" with respect to approximately 375,000 shares of common stock. This
means that, subject to certain exceptions, for a period of 180 days following
the date of this prospectus, Riva Bancshares and such persons may not offer,
sell, pledge or otherwise dispose of Riva Bancshares common stock without the
prior written consent of the representatives.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before distribution of the shares is
completed. However, the underwriters may engage in the following activities in
accordance with the rules:
- Stabilizing transactions -- The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of shares, so
long as stabilizing bids do not exceed a specified maximum.
- Over-allotments and syndicate covering transactions -- The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in syndicate
covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option.
LEGAL MATTERS
Certain legal matters in connection with the offering are being passed upon for
Riva Bancshares by Smith, Gambrell & Russell, LLP, Suite 3100, 1230 Peachtree
Street, N.E., Atlanta, Georgia 30309, counsel to Riva Bancshares. Certain legal
matters in connection with the offering are being passed upon for the
underwriters by Gibson, Dunn & Crutcher LLP, 200 Park Avenue, New York, New York
10166.
EXPERTS
The financial statements of Riva Bancshares and the consolidated financial
statements of Premier included in this prospectus have been audited by KPMG LLP,
independent auditors, as stated in their reports appearing in this prospectus
and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Riva Bancshares has filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission in connection with this offering. In
addition, upon completion of the offering, Riva Bancshares will be required to
file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
the registration statement and any other documents filed by Riva Bancshares at
the Securities and Exchange Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the Public Reference
Room. Riva Bancshares' Securities and Exchange Commission filings are also
available to the public at the Securities and Exchange Commission's internet
site at "http://www.sec.gov."
This prospectus is part of the registration statement and does not contain all
of the information included in the registration statement. Whenever a reference
is made in this prospectus to any contract or other
77
<PAGE> 79
document of Riva Bancshares, the reference may not be complete and you should
refer to the exhibits that are a part of the registration statement for a copy
of the contract or document.
After the offering, Riva Bancshares expects to provide annual reports to its
shareholders that include financial information examined and reported on by Riva
Bancshares' independent public accountants.
78
<PAGE> 80
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
FINANCIAL STATEMENTS FOR RIVA BANCSHARES, INC.
Independent Auditors' Report.............................. F-2
Balance Sheet as of December 31, 1998..................... F-3
Statement of Operations for the period from May 1, 1998
(date of inception) through December 31, 1998.......... F-4
Statement of Shareholders' Equity for the period from May
1, 1998 (date of inception) through December 31,
1998................................................... F-5
Statement of Cash Flows for the period from May 1, 1998
(date of inception) through December 31, 1998.......... F-6
Notes to Financial Statements............................. F-7
Balance Sheet as of June 30, 1999 (Unaudited)............. F-12
Statement of Operations for the period from May 1, 1998
(date of inception) through June 30, 1998 and the Six
Months Ended June 30, 1999 (Unaudited)................. F-13
Statement of Shareholders' Equity for the Six Months Ended
June 30, 1999 (Unaudited).............................. F-14
Statement of Cash Flows for the period from May 1, 1998
(date of inception) through June 30, 1998 and the Six
Months Ended June 30, 1999 (Unaudited)................. F-15
Note to Unaudited Financial Statements.................... F-16
FINANCIAL STATEMENTS FOR PREMIER BANCSHARES, INC.
Independent Auditors' Report.............................. F-17
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-18
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998....................... F-19
Consolidated Statements of Shareholders' Equity and
Comprehensive Income for the Years Ended December 31,
1996, 1997 and 1998.................................... F-20
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998....................... F-21
Notes to Consolidated Financial Statements................ F-22
Consolidated Balance Sheet as of June 30, 1999
(Unaudited)............................................ F-36
Consolidated Statements of Operations for the Six Months
Ended June 30, 1998 and 1999 (Unaudited)............... F-37
Consolidated Statements of Shareholders' Equity and
Comprehensive Income for the Six Months Ended June 30,
1999 (Unaudited)....................................... F-38
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1999 (Unaudited)............... F-39
Note to Unaudited Consolidated Financial Statements....... F-40
</TABLE>
F-1
<PAGE> 81
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Riva Bancshares, Inc.:
We have audited the accompanying balance sheet of Riva Bancshares, Inc., a
development stage corporation (the Company), as of December 31, 1998 and the
related statements of operations, shareholders' equity, and cash flows for the
period May 1, 1998 (date of inception) through December 31, 1998. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1998 and the results of its operations and its cash flows for the period May 1,
1998 (date of inception) through December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
St. Louis, Missouri
April 8, 1999, except for note 5 for
which the date is July 29, 1999
F-2
<PAGE> 82
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $ 711,515
Other Assets................................................ 172,598
-----------
Total assets........................................... $ 884,113
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued payroll taxes....................................... $ 1,158
Obligation to repurchase common stock....................... 5,650
-----------
Total liabilities...................................... 6,808
-----------
Shareholders' equity:
Series A preferred stock; $0.01 par value; 1,000,000
shares authorized; 99,900 shares issued and
outstanding; redemption price of $10.00................ 999,000
Common stock; $0.01 par value; 20,000,000 shares
authorized; 575,000 shares issued and outstanding...... 5,750
Common stock to be repurchased (565,000 shares at $0.01
per share)............................................. (5,650)
-----------
Common stock outstanding after repurchase.............. 100
-----------
Deficit accumulated during development stage.............. (121,795)
-----------
Total shareholders' equity............................. 877,305
-----------
Total liabilities and shareholders' equity............. $ 884,113
===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 83
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MAY 1, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998
<TABLE>
<S> <C>
Income:
Interest income........................................... $ 20,508
Other income.............................................. 52
-----------
Total income...................................... 20,560
-----------
Expenses:
Salary and benefits....................................... 120,761
Other..................................................... 21,594
-----------
Total expenses......................................... 142,355
-----------
Net loss............................................... $ (121,795)
===========
Basic and diluted loss per share............................ $ (12.18)
===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 84
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM MAY 1, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEFICIT
SERIES A ACCUMULATED
PREFERRED STOCK COMMON STOCK DURING
------------------- ----------------- DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT STAGE TOTAL
-------- -------- -------- ------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of units........................... 99,900 $999,000 100,000 $1,000 -- 1,000,000
Issuance of common stock.................... -- -- 475,000 4,750 -- 4,750
Common stock to be repurchased.............. -- -- (565,000) (5,650) -- (5,650)
Net loss.................................... -- -- -- -- (121,795) (121,795)
------ -------- -------- ------ ---------- ----------
Balance, December 31, 1998.................. 99,900 $999,000 10,000 $ 100 (121,795) 877,305
====== ======== ======== ====== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 85
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MAY 1, 1998 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $ (121,795)
Adjustments to reconcile net loss to net cash used in
operating activities:
Increase in other assets............................... (172,598)
Increase in accrued payroll taxes...................... 1,158
Net cash used in operating activities................ (293,235)
Cash flows from financing activities -- proceeds from the
issuance of units and common stock........................ 1,004,750
-----------
Net increase in cash................................. 711,515
Cash, beginning of period................................... --
-----------
Cash, end of period......................................... $ 711,515
===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 86
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Missouri Holdings, Inc. was incorporated on May 1, 1998 for the purpose of
becoming a bank holding company. The name of the corporation was subsequently
changed to Riva Bancshares, Inc. (the Company). The Company is in the
development stage and will remain in the development stage until the
consummation of an acquisition or merger with a banking organization.
Operations through December 31, 1998 relate primarily to expenditures for
incorporating and organizing the Company.
Basis of Presentation
The accompanying financial statements have been prepared on the accrual basis of
accounting in conformity with generally accepted accounting principles. The
presentation of financial statements in accordance 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.
Organizational Costs
The Company has elected to early adopt the provisions of SOP 98-5, Reporting on
the Costs of Start-Up Activities, which requires that start-up costs (including
organizational costs) be expensed as incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Loss Per Share
As the Company has no dilutive instruments, basic loss per share and dilutive
loss per share are equal. Basic loss per share is computed by dividing net loss
by 10,000, the weighted average number of common shares outstanding during the
period after giving effect to the obligation to repurchase 565,000 shares.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
Stock Options
The Company applies the measurement provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for
stock options and accordingly, recognizes no compensation expense as the
exercise price of stock options equals the market price of the underlying
F-7
<PAGE> 87
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stock at grant date. Pro forma information regarding net income and earnings per
share is required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation related to stock option grants. At
December 31, 1998, the Company had granted no stock options.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income (SFAS 130), which was issued in June 1997, establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. SFAS 130 requires that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements, and requires an enterprise to (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS 130 is effective for fiscal years beginning after
December 15, 1997. The Company has no other comprehensive income for the period
from May 1, 1998 (date of inception) through December 31, 1998.
(2) RELATED PARTY TRANSACTIONS
In 1998, the Company entered into an agreement with T. Stephen Johnson &
Associates to provide consulting services during the development stage of the
Company. The president of T. Stephen Johnson & Associates is a director of the
Company. The consulting agreement provides for a monthly payment of $25,000
until the closing of the offering and a finder's fee for the successful
completion of a bank acquisition equal to 1% of the aggregate purchase price,
plus reimbursement of expenses. Fees paid to T. Stephen Johnson & Associates for
the period from May 1, 1998 (date of inception) through December 31, 1998
amounted to $126,540.
(3) SHAREHOLDERS' EQUITY
Sale of Units
In June 1998, the Company sold 100 units to accredited European investors at the
price of $10,000 per unit plus a distribution fee of $750 per unit paid by the
purchaser to Kelton International Limited. Each unit was comprised of (a) 999
shares of Series A preferred stock, (b) 1,000 shares of common stock, and (c)
warrants to purchase 1,000 shares of common stock at the initial public offering
price for a period of ten years following the initial public offering.
The net proceeds from the sale of units is being used to provide funding for the
operations of the Company during the development stage.
The Series A preferred stock, which the Company contemplates redeeming with a
portion of the proceeds of the initial public offering, is non-voting and, at
the option of the Company, is redeemable at a cash redemption price of $10 per
share.
In July 1999, based on discussions with the underwriters for the initial public
offering, the Company agreed to repurchase the 100,000 shares of common stock
issued to European investors at $0.01 per share.
F-8
<PAGE> 88
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Sale of Founders Shares
In August 1998, the Company sold 475,000 shares of common stock to investors as
founders shares at $0.01 per share. Such investors include the President and
Chief Executive Officer of the Company, certain directors of the Company, T.
Stephen Johnson, and other employees of T. Stephen Johnson & Associates. In
April 1999, based on discussions with the underwriters for the initial public
offering, the Company agreed to repurchase 275,000 founders shares at $0.01 per
share and issue 115,798 warrants to certain non-employee investors. In July
1999, the Company agreed to repurchase 290,000 additional founders shares at
$0.01 per share.
(4) INCOME TAXES
For the period May 1, 1998 through December 31, 1998 no income tax expense or
benefit has been recognized. The primary reconciling difference between the
income tax benefit and the amount of benefit that would be expected by the
result of applying the federal statutory rate of 34% to the loss before income
taxes for the period from May 1, 1998 (date of inception) through December 31,
1998 is as follows:
<TABLE>
<S> <C>
Expected federal income tax benefit......................... $ (41,410)
Establishment of valuation allowance........................ 41,410
-----------
Income tax expense..................................... $ --
===========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at December 31, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets - net operating loss carryforward....... 41,410
Less valuation allowance.................................. 41,410
-----------
Net deferred tax asset................................. $ --
===========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers projected
future taxable income and tax planning strategies in making this assessment.
Management does not believe it is more likely than not the Company will realize
the benefits of these deductible differences. Accordingly, a valuation allowance
has been established for the deferred tax asset.
At December 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $140,000, which is available to
offset future federal taxable income, if any, through 2013.
(5) SUBSEQUENT EVENTS
Acquisition Activity
On May 6, 1999, the Company entered into a definitive agreement with Premier
Bancshares, Inc. (Premier), the bank holding company for Premier Bank, located
in Jefferson City, Missouri. At December 31, 1998, Premier had consolidated
total assets of $57.8 million, loans of $41.2 million, deposits
F-9
<PAGE> 89
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of $48.8 million, and shareholders' equity of $4.4 million. The definitive
agreement was amended on July 22 and July 29, 1999. Under the amended agreement,
the shareholders of Premier will exchange their shares of common stock, in a
tax-free reorganization, for $9.0 million of newly issued shares of common stock
of the Company (valued at the initial public offering price of the common stock
of the Company). The transaction, which requires the approval of bank regulatory
authorities and the shareholders of the Company and Premier, is expected to
close in the third quarter of 1999.
Employment Agreements
The Company and Richard C. Jensen entered into an employment agreement which
provides that Mr. Jensen will serve as the President and Chief Executive Officer
of the Company and as President and Chief Executive Officer of Premier Bank upon
completion of the merger and the initial public offering. Mr. Jensen also serves
as a member of the board of directors of the Company and will serve on Premier
Bank's board of directors after the closing of the initial public offering. Mr.
Jensen's employment agreement has a three-year term and provides for a minimum
annual base salary of $250,000. Upon completion of the initial public offering,
Mr. Jensen will receive a payment of $150,000. In addition, the Board will issue
an option to Mr. Jensen to purchase up to 125,000 shares of common stock at the
initial public offering price of the common stock. This option will be
exercisable for a period of ten years. After the closing of the initial public
offering, in the event of a "change in control" of the Company (as defined in
his employment agreement), Mr. Jensen will be entitled to give written notice to
the Company of termination of the employment agreement and to receive a cash
payment equal to approximately 300% of the compensation received by Mr. Jensen
in the one-year period immediately preceding the change in control. In addition,
if Mr. Jensen elects to terminate the employment agreement pursuant to a change
in control, Mr. Jensen will further be entitled to, in lieu of shares of common
stock issuable upon the exercise of options, an amount in cash or common stock
equal to the excess of the fair market value of the common stock as of the date
of closing of the transaction effecting the change in control over the per share
exercise price of the options held by Mr. Jensen, times the number of shares of
common stock subject to such options. In the event that the board of directors
determines in its sole discretion that the Company is unable to close the
initial public offering, then the employment agreement may be terminated by the
board of directors at any time during the term of the employment agreement
without notice, with the condition that Mr. Jensen will be entitled to
liquidated damages in the amount of $250,000.
In connection with the agreement to acquire Premier Bancshares, Inc., the
Company has agreed entered into an employment agreement with Bruce W. Wiley, the
current President of Premier Bank. Mr. Wiley's employment agreement provides for
a five-year term commencing at the closing of the initial public offering. Mr.
Wiley's employment agreement provides for an annual base salary of $150,000 and
the grant of an option to purchase up to 70,000 shares of Company common stock
at the initial public offering price. 30,000 options will be granted under the
Company's stock option plan on the same terms as options issued to other members
of senior management and will vest over a period of three years. The remaining
40,000 options will be granted on the same terms as those warrants which were
issued to certain founders of the Company in April 1998 and will also be
exercisable for 10 years. In addition, Mr. Wiley's employment agreement provides
that he will serve as a director of the Company and his title following the
merger and the initial public offering will be President of the Mid-Missouri
Market. In the event of a "change in control" of the Company (as defined in his
employment agreement), Mr. Wiley's employment agreement provides that he may
elect to give written notice to the Company of termination of his employment
agreement and to receive a cash payment equal to approximately 300% of the
compensation received by him in the one-year period immediately preceding the
change in control.
F-10
<PAGE> 90
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company has also entered into employment agreements with four
additional executive officers. All of these employment agreements provide for a
three-year term. These employment agreements provide for annual base salaries
and the grant of options to purchase up to an aggregate of 110,000 shares at the
initial public offering price. These options will be exercisable for a period of
ten years.
Stock Option Plan
On April 29, 1999, the board of directors adopted the 1999 Stock Option Plan
(the 1999 Plan) to promote the Company's growth and financial success. Options
may be granted under the 1999 Plan to the Company's directors, officers, and
employees, as well as certain consultants and advisors. The 1999 Plan
contemplates the grant of nonqualified stock options and incentive stock
options. The 1999 Plan provides for option grants to purchase up to an aggregate
of 500,000 shares of common stock, subject to adjustment under certain
circumstances (the Option Shares). The 1999 Plan will expire upon the earlier to
occur of: (a) the date on which all Option Shares have been issued upon exercise
of options under the 1999 Plan; or (b) the tenth anniversary of the 1999 Plan's
effective date. The 1999 Plan will be administered by the board of directors or
by a committee appointed by the board and consisting of at least two
non-employee board members.
The exercise price of incentive stock options granted under the 1999 Plan will
be determined by the board of directors, but will in no event be less than 100%
of the market price of one share of common stock on the option grant date.
Nonqualified stock options under the 1999 Plan may be granted at an exercise
price of no less than 75% of the market price of the common stock on the date of
the grant. Vested options under the 1999 Plan may be exercised in whole or in
part, but in no event later than 10 years from the grant date. The board of
directors may at any time terminate, modify, or amend the 1999 Plan in any
respect, except that without shareholder approval the board of directors may
not:
- - Increase the number of Option Shares,
- - Extend the period during which options may be granted or exercised,
- - Change the class of 1999 Plan participants, or
- - Otherwise materially modify the requirements as to eligibility for
participation in the 1999 Plan.
In no event will the termination, modification, or amendment of the 1999 Plan,
without the written consent of an optionee, affect his or her rights under an
option or right previously granted him or her. The 1999 Plan must be approved by
the Company's shareholders within twelve months from the adoption of the 1999
Plan by the board of directors.
F-11
<PAGE> 91
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $ 145,746
Other assets................................................ 718,215
---------
Total assets........................................... $ 863,961
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued payroll taxes....................................... $ 3,550
Obligation to repurchase common stock....................... 2,900
Accrued expenses............................................ 228,518
---------
Total liabilities...................................... 234,968
---------
Shareholders' equity:
Series A preferred stock; $0.01 par value; 1,000,000
shares authorized; 99,900 shares issued and
outstanding; redemption price of $10.00................ 999,000
Common stock; $0.01 par value; 20,000,000 shares
authorized; 300,000 shares issued and outstanding...... 3,000
Common stock to be repurchased (290,000 shares at $0.01
per share)............................................. (2,900)
---------
Common stock outstanding after repurchase.............. 100
---------
Deficit accumulated during development stage.............. (370,107)
---------
Total shareholders' equity............................. 628,993
---------
Total liabilities and shareholders' equity............. $ 863,961
=========
</TABLE>
See accompanying note to unaudited financial statements.
F-12
<PAGE> 92
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 1, 1998 (DATE OF INCEPTION) THROUGH JUNE 30, 1998 AND THE SIX
MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM SIX
MAY 1, 1998 MONTHS
(DATE OF INCEPTION) ENDED
THROUGH JUNE 30, JUNE 30,
1998 1999
------------------- ---------
<S> <C> <C>
Income:
Interest income........................................... $ -- $ 10,381
Other income.............................................. -- 179
-------- ---------
Total income...................................... -- 10,560
-------- ---------
Expenses:
Salary and benefits....................................... -- 227,963
Other..................................................... -- 30,909
-------- ---------
Total expenses......................................... -- 258,872
-------- ---------
Net loss............................................... $ -- $(248,312)
======== =========
Basic and diluted loss per share............................ $ -- $ (24.83)
======== =========
</TABLE>
See accompanying note to unaudited financial statements.
F-13
<PAGE> 93
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
SERIES A ACCUMULATED
PREFERRED STOCK COMMON STOCK DURING
------------------- --------------- DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT STAGE TOTAL
-------- -------- ------ ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998..................... 99,900 $999,000 10,000 $100 (121,795) $877,305
Net loss....................................... -- -- -- -- (248,312) (248,312)
------ -------- ------ ---- -------- --------
Balance, June 30, 1999......................... 99,900 $999,000 10,000 $100 (370,107) $628,993
====== ======== ====== ==== ======== ========
</TABLE>
See accompanying note to unaudited financial statements.
F-14
<PAGE> 94
RIVA BANCSHARES, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF CASH FLOWS
FOR THE PERIOD MAY 1, 1998 (DATE OF INCEPTION) THROUGH JUNE 30, 1998 AND THE SIX
MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM SIX
MAY 1, 1998 MONTHS
(DATE OF INCEPTION) ENDED
THROUGH JUNE 30, JUNE 30,
1998 1999
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ -- $(248,312)
Adjustments to reconcile net loss to net cash used in
operating activities:
Increase in other assets............................... -- (317,099)
Increase in accrued payroll taxes...................... -- 2,392
---------- ---------
Net cash used in operating activities................ -- (563,019)
Cash provided by (used in) financing activities:
Proceeds from the issuance of units....................... 1,000,000 --
Repurchase of common stock................................ -- (2,750)
---------- ---------
Net cash provided by (used in) financing
activities........................................ 1,000,000 (2,750)
---------- ---------
Net increase (decrease) in cash........................ 1,000,000 (565,769)
Cash, beginning of period................................... -- 711,515
---------- ---------
Cash, end of period......................................... $1,000,000 $ 145,746
========== =========
</TABLE>
See accompanying note to unaudited financial statements.
F-15
<PAGE> 95
RIVA BANCSHARES, INC.
(A DEVELOPMENTAL STAGE CORPORATION)
NOTE TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE A BASIS OF PRESENTATION
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included.
F-16
<PAGE> 96
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Premier Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of Premier
Bancshares, Inc. and subsidiary (the Company) as of December 31, 1997 and 1998,
and the related consolidated statements of operations, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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
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 Premier Bancshares,
Inc. and subsidiary as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
St. Louis, Missouri
February 12, 1999, except for note 17
for which the date is July 29, 1999
F-17
<PAGE> 97
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 514,002 1,156,049
Interest-bearing deposits................................... 497,540 410,774
Federal funds sold.......................................... 1,802,000 5,111,000
----------- ----------
Cash and cash equivalents.............................. 2,813,542 6,677,823
Debt and marketable equity securities available-for-sale, at
fair value................................................ 5,417,750 6,477,945
Loans, net.................................................. 23,342,301 41,170,698
Premises and equipment, net................................. 1,393,233 2,543,762
Accrued interest receivable................................. 268,335 348,624
Other assets................................................ 481,681 536,976
----------- ----------
Total assets........................................... $33,716,842 57,755,828
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing....................................... $ 1,478,183 2,817,137
Interest-bearing.......................................... 26,874,744 45,998,685
----------- ----------
Total deposits......................................... 28,352,927 48,815,822
Federal Home Loan Bank advances............................. 940,000 3,445,153
Note payable................................................ 1,050,000 750,000
Accrued interest payable.................................... 115,715 207,529
Other liabilities........................................... 36,616 99,163
----------- ----------
Total liabilities...................................... 30,495,258 53,317,667
----------- ----------
Commitments and contingencies
Shareholders' equity:
Common stock, $1 par value, 100,000 shares authorized,
32,843 and 41,834 shares issued and outstanding in 1997
and 1998, respectively................................. 32,843 41,834
Surplus................................................... 3,394,172 4,553,421
Accumulated deficit....................................... (213,383) (191,030)
Accumulated other comprehensive income.................... 7,952 33,936
----------- ----------
Total shareholders' equity............................. 3,221,584 4,438,161
----------- ----------
Total liabilities and shareholders' equity............. $33,716,842 57,755,828
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 98
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
---------- --------- ---------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans................................ $1,008,332 1,750,020 2,849,946
Interest and dividends on debt and marketable equity
securities............................................. 359,220 356,490 407,387
Interest on federal funds sold............................ 62,763 68,702 182,177
---------- --------- ---------
Total interest income.................................. 1,430,315 2,175,212 3,439,510
---------- --------- ---------
Interest expense:
Interest on deposits...................................... 855,131 1,253,198 1,884,612
Interest on Federal Home Loan Bank advances............... -- 21,905 132,748
Interest on note payable.................................. 27,744 33,975 72,140
---------- --------- ---------
Total interest expense................................. 882,875 1,309,078 2,089,500
---------- --------- ---------
Net interest income.................................... 547,440 866,134 1,350,010
Provision for loan losses................................... 80,582 112,279 291,734
---------- --------- ---------
Net interest income after provision for loan losses.... 466,858 753,855 1,058,276
---------- --------- ---------
Noninterest income:
Service charges on deposits............................... 18,889 34,930 58,958
Loss on sale of securities, net........................... -- (210) --
Gain on sale of loans, net................................ 16,922 26,270 70,055
Other noninterest income.................................. 11,461 28,314 39,504
---------- --------- ---------
Total noninterest income............................... 47,272 89,304 168,517
---------- --------- ---------
Noninterest expense:
Salaries and employee benefits............................ 298,307 354,371 598,308
Occupancy and equipment expense........................... 82,030 118,965 188,108
Other noninterest expense................................. 247,024 262,315 409,498
---------- --------- ---------
Total noninterest expense.............................. 627,361 735,651 1,195,914
---------- --------- ---------
Income (loss) before income tax expense................ (113,231) 107,508 30,879
Income tax expense.......................................... -- 10,613 8,526
---------- --------- ---------
Net income (loss)...................................... $ (113,231) 96,895 22,353
========== ========= =========
Basic and diluted earnings (loss) per share................. $ (3.54) 2.99 0.55
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 99
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ACCU- COMPRE- TOTAL
---------------- TREASURY MULATED HENSIVE SHAREHOLDERS'
SHARES AMOUNT SURPLUS STOCK DEFICIT INCOME EQUITY
------ ------- --------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995..... 35,020 $35,020 3,605,580 (307,530) (189,517) 47,633 3,191,186
Retirement of treasury stock..... (3,000) (3,000) (304,530) 307,530 -- -- --
Transfer from accumulated deficit
to surplus..................... -- -- 7,530 -- (7,530) -- --
Comprehensive income:
Net loss....................... -- -- -- -- (113,231) -- (113,231)
Other comprehensive income --
change in unrealized gain
(loss) on securities
available-for-sale, net of
tax.......................... -- -- -- -- -- (61,756) (61,756)
---------
Total comprehensive income... (174,987)
------ ------- --------- -------- -------- ------- ---------
Balance at December 31, 1996..... 32,020 32,020 3,308,580 -- (310,278) (14,123) 3,016,199
Issuance of common stock......... 823 823 85,592 -- -- -- 86,415
Comprehensive income:
Net income..................... -- -- -- -- 96,895 -- 96,895
Other comprehensive income --
change in unrealized gain
(loss) on securities
available-for-sale, net of
tax and reclassification
amount....................... -- -- -- -- -- 22,075 22,075
---------
Total comprehensive income... 118,970
------ ------- --------- -------- -------- ------- ---------
Balance at December 31, 1997..... 32,843 32,843 3,394,172 -- (213,383) 7,952 3,221,584
Issuance of common stock......... 9,231 9,231 1,190,799 -- -- -- 1,200,030
Purchase of treasury stock....... -- -- -- (31,790) -- -- (31,790)
Retirement of treasury stock..... (240) (240) (31,550) 31,790 -- -- --
Comprehensive income:
Net income..................... -- -- -- -- 22,353 -- 22,353
Other comprehensive income --
change in unrealized gain
(loss) on securities
available-for-sale, net of
tax.......................... -- -- -- -- -- 25,984 25,984
---------
Total comprehensive income... 48,337
------ ------- --------- -------- -------- ------- ---------
Balance at December 31, 1998..... 41,834 $41,834 4,553,421 -- (191,030) 33,936 4,438,161
====== ======= ========= ======== ======== ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE> 100
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (113,231) $ 96,895 $ 22,353
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 59,405 73,823 115,188
Provision for loan losses............................... 80,582 112,279 291,734
Loss on sale of securities.............................. -- 210 --
Gain on sale of loans, net.............................. (16,922) (26,270) (70,055)
Increase in accrued interest receivable................. (15,438) (83,205) (80,289)
Increase in accrued interest payable.................... 25,100 29,768 91,814
Increase in other assets................................ (3,459) (459,880) (55,295)
Other, net.............................................. (9,877) 43,701 49,161
Originations of loans held for sale....................... (1,705,300) (2,060,385) (6,194,486)
Proceed from sales of loans held for sale................. 1,722,222 2,086,655 6,041,376
------------ ----------- ------------
Net cash provided by (used in) operating activities... 23,082 (186,409) 211,501
------------ ----------- ------------
Cash flows from investing activities:
Proceeds from sales of debt and marketable equity
securities available-for-sale........................... -- 553,120 --
Proceeds from maturities and principal payments on debt
and marketable equity securities available-for-sale..... 1,726,054 2,564,969 3,542,196
Purchases of debt and marketable equity securities
available-for-sale...................................... (2,693,239) (2,260,555) (4,575,742)
Net increase in loans..................................... (9,022,096) (8,249,077) (17,896,966)
Purchases of premises and equipment, net.................. (709,899) (67,658) (1,252,996)
------------ ----------- ------------
Net cash used in investing activities................. (10,699,180) (7,459,201) (20,183,508)
------------ ----------- ------------
Cash flows from financing activities:
Net increase in deposits.................................. 10,761,404 6,084,663 20,462,895
Federal Home Loan Bank advances........................... -- 1,940,000 2,805,000
Principal payments on Federal Home Loan Bank advances..... -- (1,000,000) (299,847)
Proceeds from note payable................................ -- 1,050,000 --
Repayment of note payable................................. -- (300,000) (300,000)
Purchase of treasury stock................................ -- -- (31,790)
Proceeds from sale of common stock........................ -- 86,415 1,200,030
------------ ----------- ------------
Net cash provided by financing activities............. 10,761,404 7,861,078 23,836,288
------------ ----------- ------------
Net increase in cash and cash equivalents............. 85,306 215,468 3,864,281
Cash and cash equivalents at beginning of year.............. 2,512,768 2,598,074 2,813,542
------------ ----------- ------------
Cash and cash equivalents at end of year.................... $ 2,598,074 $ 2,813,542 $ 6,677,823
============ =========== ============
Supplemental information -- interest paid................... $ 857,775 $ 1,279,310 $ 1,997,686
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 101
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997, AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Premier Bancshares, Inc. provides a full range of banking services to corporate
and individual customers throughout Jefferson City and Columbia, Missouri,
through its wholly owned subsidiary, Premier Bank (the Bank). Premier
Bancshares, Inc. and the Bank (the Company), which operate as a single business
segment, are subject to competition from other financial and nonfinancial
institutions providing financial products in these Missouri markets.
Additionally, the Company is subject to the regulations of certain federal and
state agencies and undergoes periodic examinations by those regulatory agencies.
The accounting and reporting policies of the Company conform, in all material
respects, to generally accepted accounting principles within the banking
industry.
The more significant of the Company's accounting policies are set forth below:
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions, including the determination of the allowance for
loan losses, that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results differ from those
estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Premier
Bancshares, Inc. and the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash, due from banks, interest-bearing deposits, and
federal funds sold.
Investment Securities
At the time of purchase for the periods covered, all debt and equity
securities were classified as available-for-sale. Unrealized gains and
losses, net of tax, are excluded from earnings and reported as accumulated
other comprehensive income, a separate component of shareholders' equity,
until realized. A decline in the market value of any security below cost
that is deemed other than temporary results in a charge to earnings and the
establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the lives of the
respective securities as an adjustment to yield using the interest method.
Dividend and interest income is recognized when earned. Realized gains and
losses are included in earnings and are derived using the specific-
identification method for determining the cost of securities sold.
The Bank, as a member of the Federal Home Loan Bank System administered by
the Federal Housing Finance Board, is required to maintain an investment in
the capital stock of the Federal Home Loan Bank (FHLB) in an amount equal
to the greater of 1% of the Bank's total mortgage-related assets at the
beginning of each year, 0.3% of the Bank's total assets at the beginning of
each
F-22
<PAGE> 102
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
year, or 5% of advances from the FHLB to the Bank. This investment is
recorded at cost which represents redemption value.
Loans
Interest on loans is credited to income based upon the principal amount
outstanding. The recognition of interest income is discontinued when, in
management's judgment, the interest will not be collectible in accordance
with the contractual terms of the loan agreement or when either principal
or interest is past due over 90 days. Subsequent payments received on such
loans are applied to principal if there is any doubt as to the
collectibility of such principal; otherwise, such receipts are recorded as
interest income. Loans are returned to accrual status when management
believes full collectibility of principal and interest is expected.
A loan is considered impaired when it is probable the Company will be
unable to collect all amounts due -- both principal and
interest -- according to the contractual terms of the loan agreement. When
measuring impairment, the expected future cash flows of an impaired loan
are discounted at the loan's effective interest rate. Alternatively,
impairment is measured by reference to an observable market price, if one
exists, or the fair value of the collateral for a collateral-dependent
loan. Regardless of the historical measurement method used, the Company
measures impairment based on the fair value of the collateral when
foreclosure is probable. Additionally, impairment of a restructured loan is
measured by discounting the total expected future cash flows at the loan's
effective rate of interest as stated in the original loan agreement. The
Company uses its nonaccrual policy for recognizing interest income on
impaired loans.
The Company originates certain loans which are sold in the secondary
mortgage market. These long-term, fixed-rate loans are sold on a
note-by-note basis. Immediately upon locking in an interest rate, the
Company enters into an agreement to sell the mortgage loan without
recourse. The Company allocates the entire cost of loans originated to the
mortgage loans, as the Company does not retain servicing. These loans held
for sale are included in loans, net in the consolidated balance sheets.
The allowance for loan losses is available to absorb loan charge-offs. The
allowance is increased by provisions charged to expense and reduced by loan
charge-offs less recoveries. The provision charged to expense is that
amount which management believes is sufficient to bring the balance of the
allowance for loan losses to a level adequate to absorb potential loan
losses, based on their knowledge and evaluation of the current loan
portfolio and the current economic environment in which the borrowers of
the Bank operate.
Management believes the allowance for loan losses is adequate to absorb
losses in the loan portfolio. While management uses available information
to recognize loan losses, future additions to the allowance may be
necessary based on changes in economic conditions and changes in the
financial condition of borrowers. Additionally, regulatory agencies, as an
integral part of the examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to increase
its allowance for loan losses based on their judgments and interpretations
about information available to them at the time of their examinations.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets, which is 50 years for buildings, and
range from 3 to 10 years for furniture, fixtures, and equipment. Property
additions and betterments are capitalized, while maintenance and repairs
which do not extend the useful life of the asset are expensed as incurred.
F-23
<PAGE> 103
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Premier Bancshares, Inc. and the Bank file consolidated income tax returns.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period which includes the enactment date.
Treasury Stock
The purchase of the Company's common stock is recorded at cost. Upon
subsequent reissuance or retirement, the treasury stock account is reduced
by the average cost basis of such common stock.
Earnings (Loss) Per Share
As the Company has no dilutive instruments, basic earnings (loss) per share
and dilutive earnings (loss) per share are equal. Basic earnings (loss) per
share is computed by dividing net income (loss) by 32,020, 32,375, and
40,443, the weighted average number of common shares outstanding during
1996, 1997, and 1998, respectively.
Financial Instruments
Financial instruments are defined as cash, evidence of an ownership
interest in any entity, or a contract that both imposes on one entity a
contractual obligation to deliver cash or another financial instrument to a
second entity, and conveys to that second entity a contractual right to
receive cash or another financial instrument from the first entity.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flow
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured as the amount by
which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, during 1998. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements, and requires an
enterprise to (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
The
F-24
<PAGE> 104
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company reports comprehensive income in the consolidated statements of
shareholders' equity and comprehensive income. The adoption of SFAS No. 130
did not have an effect on the financial position or results of operations
of the Company.
(2) REGULATORY RESTRICTIONS AND CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
federal and state banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines, the Bank must
meet specific capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification of the Bank are
subject to qualitative judgments by the regulators about components,
risk-weightings, and other factors. As of December 31, 1997 and 1998, without
prior approval of the regulatory banking authorities, the Bank was unable to pay
cash dividends on its common stock.
Quantitative measures established by regulations to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital to risk-weighted assets, and of
Tier I capital to adjusted average assets. Management believes, as of December
31, 1998, the Bank meets all capital and adequacy requirements to which it is
subject.
The Bank is also subject to the regulatory framework for prompt corrective
action. The Bank's most recent notification from the Federal Deposit Insurance
Corporation, dated November 30, 1998, categorized it 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 to adjusted average assets ratios as set forth in the following
table. There are no obligations or events since November 30, 1998 that
management believes have changed the Bank's category.
The actual and required capital amounts and ratios for the Bank as of December
31, 1997 and 1998 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
REQUIREMENTS TO
CAPITAL BE CLASSIFIED AS
ACTUAL REQUIREMENTS WELL CAPITALIZED
-------------- -------------- ----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
1997:
Total capital (to risk-weighted
assets).............................. $4,425 23.51% $1,505 8.00% $1,882 10.00%
Tier I capital (to risk-weighted
assets).............................. 4,215 22.40 753 4.00 1,129 6.00
Tier I capital (to average assets)...... 4,215 13.20 958 3.00 1,596 5.00
====== ===== ====== ==== ====== =====
</TABLE>
<TABLE>
<CAPTION>
REQUIREMENTS TO
CAPITAL BE CLASSIFIED AS
ACTUAL REQUIREMENTS WELL CAPITALIZED
-------------- -------------- ----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
1998:
Total capital (to risk-weighted
assets).............................. $5,513 13.24% $3,330 8.00% $4,163 10.00%
Tier I capital (to risk-weighted
assets).............................. 5,074 12.19 1,665 4.00 2,498 6.00
Tier I capital (to average assets)...... 5,074 9.09 1,675 3.00 2,792 5.00
====== ===== ====== ==== ====== =====
</TABLE>
F-25
<PAGE> 105
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) DEBT AND MARKETABLE EQUITY SECURITIES
The amortized cost and fair values of debt and marketable equity securities
available-for-sale at December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury securities....................... $ 759,840 5,743 -- 765,583
U.S. Government corporations and agencies...... 3,753,039 8,394 (3,689) 3,757,744
Obligations of state and political
subdivisions................................ 358,748 3,286 (938) 361,096
Mortgage-backed securities..................... 454,575 2,671 (3,419) 453,827
---------- ------ ------ ---------
5,326,202 20,094 (8,046) 5,338,250
---------- ------ ------ ---------
Marketable equity securities:
Federal Home Loan Bank stock................... 77,000 -- -- 77,000
Other.......................................... 2,500 -- -- 2,500
---------- ------ ------ ---------
79,500 -- -- 79,500
---------- ------ ------ ---------
$5,405,702 20,094 (8,046) 5,417,750
========== ====== ====== =========
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury securities..................... $ 506,230 6,580 -- 512,810
U.S. Government corporations and agencies.... 4,860,592 35,828 (2,773) 4,893,647
Obligations of state and political
subdivisions.............................. 359,279 10,880 -- 370,159
Mortgage-backed securities................... 524,525 3,355 (2,451) 525,429
---------- ------ ------ ---------
6,250,626 56,643 (5,224) 6,302,045
---------- ------ ------ ---------
Marketable equity securities:
Federal Home Loan Bank stock................. 173,400 -- -- 173,400
Other........................................ 2,500 -- -- 2,500
---------- ------ ------ ---------
175,900 -- -- 175,900
---------- ------ ------ ---------
$6,426,526 56,643 (5,224) 6,477,945
========== ====== ====== =========
</TABLE>
F-26
<PAGE> 106
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and fair values of debt securities available-for-sale at
December 31, 1997 and 1998, by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities because borrowers have the
right to repay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
1997 1998
----------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less...................... $ 499,372 499,807 750,225 753,273
Due after one year through five years........ 3,765,535 3,770,534 2,231,764 2,091,082
Due after five years through ten years....... 1,061,295 1,067,909 3,010,558 3,202,383
Due after ten years.......................... -- -- 258,079 255,307
---------- --------- --------- ---------
$5,326,202 5,338,250 6,250,626 6,302,045
========== ========= ========= =========
</TABLE>
Debt and marketable equity securities with carrying values aggregating
$1,464,302 and $1,369,034 at December 31, 1997 and 1998, respectively, were
pledged to secure public funds and for other purposes as required or permitted
by law.
(4) LOANS
The composition of the loan portfolio at December 31, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
Commercial.................................................. $ 2,905,207 5,292,128
Real estate................................................. 19,329,657 34,465,883
Installment and others...................................... 1,317,437 1,618,363
Loans held for sale......................................... -- 233,165
----------- ----------
23,552,301 41,609,539
Allowance for loan losses................................... (210,000) (438,841)
----------- ----------
Loans, net............................................. $23,342,301 41,170,698
=========== ==========
</TABLE>
The Bank grants commercial, residential mortgage, and installment loans to
customers primarily in their service area of Jefferson City and Columbia,
Missouri. The Company has a diversified loan portfolio, with no particular
concentration of credit in any one economic sector in this service area;
however, a substantial portion of the portfolio is concentrated in and secured
by real estate. The ability of the Company's borrowers to honor their
contractual obligations is dependent upon the local economies and their effect
on the real estate market.
Following is a summary of activity for the year ended December 31, 1998, of
loans to executive officers and directors or to entities in which such
individuals had beneficial interest as shareholders, officers, or directors.
Such loans were made in the normal course of business on substantially the same
terms, including interest rates and collateral, as those prevailing at the same
time for comparable transactions with other persons, and did not involve more
than the normal risk of collectibility.
<TABLE>
<S> <C>
Balance at December 31, 1997................................ $273,332
New loans................................................... 886,100
Payments received........................................... (654,098)
--------
Balance at December 31, 1998................................ $505,334
========
</TABLE>
F-27
<PAGE> 107
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions in the allowance for loan losses for the years ended December 31,
1996, 1997, and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- -------
<S> <C> <C> <C>
Balance at January 1........................................ $ 63,430 120,000 210,000
Provision charged to expense................................ 80,582 112,279 291,734
Loans charged-off........................................... (24,012) (22,641) (64,643)
Recoveries of loans previously charged-off.................. -- 362 1,750
-------- ------- -------
Balance at December 31...................................... $120,000 210,000 438,841
======== ======= =======
</TABLE>
A summary of impaired loans at December 31, 1997 and 1998 follows:
<TABLE>
<CAPTION>
1997 1998
-------- ------
<S> <C> <C>
Nonaccrual loans............................................ $161,234 94,072
Impaired loans continuing to accrue interest................ -- --
-------- ------
Total impaired loans................................... $161,234 94,072
======== ======
Allowance for losses on impaired loans...................... $ 27,532 24,072
Impaired loans with no related allowance for loan losses.... -- --
======== ======
</TABLE>
The average balance of impaired loans during 1997 and 1998 was $82,690 and
$158,233, respectively.
There were no nonaccrual or impaired loans as of and for the year ended December
31, 1996. A summary of interest income on nonaccrual and other impaired loans
for 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
IMPAIRED LOANS
NONACCRUAL CONTINUING TO
LOANS ACCRUE INTEREST TOTAL
---------- --------------- -----
<S> <C> <C> <C>
1997:
Income recognized........................................ $ -- -- --
Interest income had interest accrued..................... 7,399 -- 7,399
====== ===== =====
1998:
Income recognized........................................ $ -- -- --
Interest income had interest accrued..................... 7,650 -- 7,650
====== ===== =====
</TABLE>
(5) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Land........................................................ $ 400,000 650,000
Buildings................................................... 872,839 1,552,925
Furniture, fixtures, and equipment.......................... 236,578 545,114
---------- ---------
1,509,417 2,748,039
Less accumulated depreciation............................... 116,184 204,277
---------- ---------
$1,393,233 2,543,762
========== =========
</TABLE>
Amounts charged to occupancy expense for depreciation aggregated $43,769,
$60,193, and $102,467 for the years ended December 31, 1996, 1997, and 1998,
respectively.
F-28
<PAGE> 108
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, the Bank had entered into an operating lease for a
facility which begins in February 2000 and expires in 2005. Minimum future lease
payments required are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999...................................................... $ --
2000...................................................... 24,475
2001...................................................... 26,700
2002...................................................... 26,700
2003...................................................... 26,700
2004 and thereafter....................................... 28,925
--------
$133,500
========
</TABLE>
(6) INTEREST-BEARING DEPOSITS
A summary of interest-bearing deposits at December 31, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
NOW and money market demand accounts........................ $ 3,008,584 6,080,659
Savings..................................................... 6,091,624 12,454,092
Other time deposits:
Less than $100,000........................................ 11,490,200 16,267,823
$100,000 and over......................................... 6,284,336 11,196,111
----------- ----------
$26,874,744 45,998,685
=========== ==========
</TABLE>
Interest expense on deposits for the years ended December 31, 1996, 1997, and
1998 is summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
NOW and money market demand accounts...................... $ 80,291 123,663 171,269
Savings................................................... 86,675 242,812 401,601
Other time deposits....................................... 688,165 886,723 1,311,742
-------- --------- ---------
$855,131 1,253,198 1,884,612
======== ========= =========
</TABLE>
The maturities of other time deposits at December 31, 1998 are show below.
Expected maturities may differ from contractual maturities because depositors
may redeem deposits early.
<TABLE>
<S> <C>
Due in three months or less................................. $ 7,032,398
Due in greater than three months through one year........... 13,901,527
Due in greater than one year through three years............ 5,550,580
Due in greater than three years............................. 979,429
-----------
$27,463,934
===========
</TABLE>
F-29
<PAGE> 109
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) FEDERAL HOME LOAN BANK ADVANCES
At December 31, 1998 and 1997, the Bank has fixed rate advances outstanding with
the Federal Home Loan Bank of Des Moines, with stated maturities as follows:
<TABLE>
<CAPTION>
1997 1998
------------------- ---------------------
WEIGHTED WEIGHTED
INTEREST 1998 INTEREST
AMOUNT RATE AMOUNT RATE
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Due in one year or less..................... $500,000 6.02% $ 250,000 6.18%
Due after five years........................ 440,000 6.43 3,195,153 5.70
-------- ==== ---------- ====
$940,000 $3,445,153
======== ==========
</TABLE>
The Bank maintains an $8.3 million line of credit with the FHLB and had
availability under that line of $4.9 million at December 31, 1998.
FHLB advances are secured under a blanket agreement which assigns all FHLB stock
and one-to-four family mortgage loans equal to 130% of the outstanding advance
balance.
(8) NOTE PAYABLE
The note payable at December 31, 1998 is a term loan between the Company and an
unaffiliated financial institution which bears interest at the prime rate (7.75%
at December 31, 1998), is due on November 15, 1999, and is secured by 35,020
common shares of the Bank.
(9) OTHER COMPREHENSIVE INCOME
The Company's other comprehensive income included the following components:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------ ------
<S> <C> <C> <C>
Net realized and unrealized gain (loss) on securities
available-for-sale, net of tax......................... $(61,756) 22,214 25,984
Less adjustment for net securities loss realized in net
income, net of tax..................................... -- (139) --
-------- ------ ------
$(61,756) 22,075 25,984
======== ====== ======
</TABLE>
(10) INCOME TAXES
The components of income tax expense for the years ended December 31, 1996,
1997, and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- ------
<S> <C> <C> <C>
Current expense:
Federal............................................... $ -- 8,926 --
State................................................. -- 1,687 8,526
Increase(decrease)in the beginning of the year balance
of the valuation allowance for deferred tax
assets............................................. 42,895 (39,038) (6,416)
Deferred -- federal..................................... (42,895) 39,038 6,416
-------- ------- ------
$ -- 10,613 8,526
======== ======= ======
</TABLE>
F-30
<PAGE> 110
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of expected income tax expense to federal income tax expense,
computed by applying the federal statutory rate of 34% to income (loss) before
income tax expense for the years ended December 31, 1996, 1997, and 1998 to
reported income tax expense, is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate......... $(38,499) $ 36,553 $ 10,499
Increase (decrease) in income taxes resulting from:
State income tax, net of federal income tax
benefit........................................... -- 1,113 5,627
Officer's life insurance -- book to tax treatment.... -- 861 (4,222)
Change in the beginning of the year balance of the
valuation allowance for deferred tax assets
allocated to income tax expense................... 42,895 (39,038) (6,416)
Other, net........................................... (4,396) 11,124 3,038
-------- -------- --------
Income tax expense................................ $ -- $ 10,613 $ 8,526
======== ======== ========
</TABLE>
The tax effect of temporary differences which give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1997 and
1998 are presented below:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Book provision for loan loss in excess of tax............. $ 54,143 $126,213
Deferred compensation..................................... 849 3,818
Available-for-sale securities market valuation............ 4,096 17,483
Organizational costs...................................... 10,258 5,862
Net operating loss carryforward........................... 71,545 16,503
-------- --------
Gross deferred tax assets.............................. 140,891 169,879
Less valuation allowance.................................. (63,311) (56,895)
-------- --------
Net deferred tax assets, net........................... 77,580 112,984
-------- --------
Deferred tax liabilities:
Premises and equipment, basis............................. (25,791) (51,299)
Accrual to cash conversion for book to tax accounting
methods................................................ (44,638) (41,717)
Other..................................................... (3,055) (2,486)
-------- --------
Total gross deferred tax liabilities................... (73,484) (95,502)
-------- --------
Net deferred tax assets................................ $ 4,096 $ 17,482
======== ========
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards (NOLs) of
approximately $50,000. Their utilization is subject to annual limitations. The
NOLs for the Company at December 31, 1998 expire during 2009 through 2011.
The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. A valuation allowance is provided on deferred tax assets
when it is more likely than not that some portion of the assets will not be
realized. The valuation allowance for deferred tax assets as of December 31,
1996 was $102,349. The net change in the total valuation allowance for the years
ended December 31, 1997 and 1998 was a decrease of $39,038 and $6,416,
respectively.
F-31
<PAGE> 111
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) EMPLOYEE BENEFITS
During 1997, the Company adopted a SIMPLE IRA for all employees meeting certain
eligibility requirements. An eligible employee may make a salary reduction
election, expressed as a percentage of compensation, not to exceed $6,000 for
any calendar year. The Company makes contributions to the plan equal to the
employees' salary reduction contributions up to a limit of 3% of the employee's
compensation for the calendar year subject to certain provisions which could
reduce such contributions. All contributions are fully vested and
nonforfeitable; there are no withdrawal restrictions, and no cost or penalty for
transfer to another IRA. Employer matching contributions to the plan totaled
$4,232 and $8,239 in 1997 and 1998, respectively.
In 1997, the Company's Board entered into a Director Deferred Fee Agreement
(Agreement) with five of the six Directors and one Company officer; the
Agreement provides the participants with the opportunity to defer fees and to
accumulate assets for retirement. The Board has determined that it is in the
best interest of the Company to recover the cost of the benefit obligations by
purchasing life insurance. These life insurance policies are owned by the
Company and are designed to insure against the contingent liability associated
with the premature death of any of the Directors. The Company did not make any
contributions related to the Agreement during 1998. The current surrender value
of the life insurance policies, included in other assets in the consolidated
balance sheets, totaled $452,468 and $473,621 at December 31, 1997 and 1998,
respectively. The accrued benefit obligations totaled $2,496 and $11,232 at
December 31, 1997 and 1998, respectively, and is included in other liabilities
in the consolidated balance sheets.
(12) OTHER NONINTEREST EXPENSE
Other noninterest expense for the years ended December 31, 1996, 1997, and 1998
are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Data processing........................................ $ 25,599 $ 49,911 $ 61,502
Professional services.................................. 42,206 26,826 44,927
Directors' fees........................................ 5,300 8,650 38,000
Advertising............................................ 45,376 25,484 51,706
Postage and supplies................................... 22,670 20,075 50,231
Other.................................................. 105,873 131,369 163,132
-------- -------- --------
$247,024 $262,315 $409,498
======== ======== ========
</TABLE>
(13) COMMITMENTS AND CONTINGENCIES
During the normal course of business, various legal claims have arisen which, in
the opinion of management, will not result in any material liability to the
Company.
(14) DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
The Bank issues financial instruments with off-balance sheet risk in the normal
course of the business of meeting the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments may involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the consolidated balance sheets.
The contractual amounts of these instruments reflect the extent of involvement
the Bank has in such particular classes of financial instruments.
F-32
<PAGE> 112
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for commitments to extend credit and standby letters of
credit is represented by the contractual amount of such instruments. The Bank
uses the same credit policies in making commitments and conditional obligations
as they do for on-balance-sheet financial instruments included in the
consolidated balance sheets. Following is a summary of off-balance-sheet
financial instruments at December 31, 1997 and 1998, respectively:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Financial instruments whose contractual amounts represent:
Commitments to extend credit.............................. $3,940,969 6,937,356
Standby letters of credit................................. 53,985 53,148
---------- ----------
Total off-balance-sheet financial instruments.......... $3,994,954 6,990,504
========== ==========
</TABLE>
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. At December 31, 1998, $1,461,268 represent fixed rate
loan commitments. Since certain of the commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the borrower. Collateral held varies, but is generally residential or
income-producing commercial property, inventory, accounts receivable, or
equipment.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
(15) PARENT COMPANY FINANCIAL INFORMATION
Condensed balance sheets as of December 31, 1997 and 1998 and the related
condensed schedules of operations and cash flows for the years ended December
31, 1996, 1997, and 1998 of the Company (parent company only) are as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Assets:
Cash...................................................... $ 39,903 39,879
Investment in Bank........................................ 4,227,653 5,107,802
Other assets.............................................. 17,297 47,917
---------- ---------
Total assets........................................... $4,284,853 5,195,598
========== =========
Liabilities:
Note payable.............................................. $1,050,000 750,000
Other liabilities......................................... 13,269 7,437
---------- ---------
Total liabilities...................................... 1,063,269 757,437
Total shareholders' equity.................................. 3,221,584 4,438,161
---------- ---------
Total liabilities and shareholders' equity............. $4,284,853 5,195,598
========== =========
</TABLE>
F-33
<PAGE> 113
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED SCHEDULES OF OPERATIONS
<TABLE>
<CAPTION>
1996 1997 1998
--------- ------- --------
<S> <C> <C> <C>
Revenue.................................................... $ -- -- --
Expenses:
Interest expense......................................... 27,744 33,975 72,140
Other operating expenses................................. 29,100 15,485 44,388
--------- ------- --------
Total expenses........................................ 56,844 49,460 116,528
--------- ------- --------
Loss before income tax expense (benefit) and equity in
undistributed income (loss) of Bank................. (56,844) (49,460) (116,528)
Income tax expense (benefit)............................... -- -- --
--------- ------- --------
Loss before equity in undistributed income (loss) of
Bank................................................ (56,844) (49,460) (116,528)
Equity in undistributed income (loss) of Bank.............. (56,387) 146,355 138,881
--------- ------- --------
Net income (loss)..................................... $(113,231) 96,895 22,353
========= ======= ========
</TABLE>
CONDENSED SCHEDULES OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(113,231) 96,895 22,353
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Equity in undistributed (income) loss of Bank....... 56,387 (146,355) (138,881)
Other, net.......................................... 6,450 143 (1,736)
--------- --------- ---------
Net cash used in operating activities............. (50,394) (49,317) (118,264)
--------- --------- ---------
Cash flows from investing activities -- capital
contribution to Bank................................... -- (750,000) (750,000)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from note payable............................. -- 1,050,000 --
Repayment of note payable.............................. -- (300,000) (300,000)
Purchase of treasury stock............................. -- -- (31,790)
Proceeds from sale of common stock..................... -- 86,415 1,200,030
--------- --------- ---------
Net cash provided by financing activities......... -- 836,415 868,240
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.................................... (50,394) 37,098 (24)
Cash and cash equivalents at beginning of year........... 53,199 2,805 39,903
--------- --------- ---------
Cash and cash equivalents at end of year................. $ 2,805 39,903 39,879
========= ========= =========
</TABLE>
(16) RESTRICTIVE STOCK AGREEMENT
Effective December 1994, all persons who purchase shares of common stock in the
offer and sale of shares of the Company were required to enter into the
Restrictive Stock Agreement which provides that all parties give the Company and
its shareholders a right of first refusal to purchase their shares of common
stock should they decide to transfer them to unrelated third parties (including
involuntary transfers). The purchase price for such shares is the lower of the
book value of the shares of common stock to be transferred or the amount of a
legitimate third party offer; provided that book value shall be increased by (i)
20% if the purchase occurs between January 1, 1997 and December 31, 1997 and
(ii) 25% if the purchase occurs on or after January 1, 1998. Additionally, the
parties to the Restrictive Stock Agreement
F-34
<PAGE> 114
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
may choose to vote to value shares of common stock at a price that is different
than book value, by the affirmative vote of 80% of the shares of common stock
subject to the Restrictive Stock Agreement. Also, under this Restrictive Stock
Agreement, the Company must buy shares of common stock owned by employees who
cease to be employed by the Company. On December 4, 1998, the Restrictive Stock
Agreement was amended to explicitly state that its provisions would not apply to
the pending potential transaction with First Premier Financial Corporation.
(17) ACQUISITION ACTIVITY
On May 6, 1999, the Company entered into a definitive agreement with Riva
Bancshares, Inc. (Riva Bancshares). The definitive agreement was amended on July
22 and July 29, 1999. Under the amended agreement, the shareholders of the
Company will exchange their shares in a tax free reorganization for $9 million
of newly issued shares of common stock of Riva Bancshares, valued at the initial
public offering price of Riva Bancshares' common stock. The transaction is
subject to the receipt of regulatory approval and the approval of the
shareholders of the Company and Riva Bancshares and is expected to close in the
third quarter of 1999. The transaction is contingent upon a number of factors,
including the successful initial public offering of Riva Bancshares' common
stock.
F-35
<PAGE> 115
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1999
-----------
<S> <C>
ASSETS
Cash and due from banks..................................... $ 1,439,432
Interest-bearing deposits................................... 410,774
Federal funds sold.......................................... 2,370,000
-----------
Cash and cash equivalents.............................. 4,220,206
Debt and marketable equity securities available-for-sale, at
fair value................................................ 9,397,026
Loans, net.................................................. 49,163,775
Premises and equipment, net................................. 2,510,978
Accrued interest receivable................................. 462,252
Other assets................................................ 938,116
-----------
Total assets........................................... $66,692,353
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing....................................... $ 3,014,492
Interest-bearing.......................................... 54,314,848
-----------
Total deposits......................................... 57,329,340
Federal Home Loan Bank advances............................. 3,782,227
Note payable................................................ 925,000
Accrued interest payable.................................... 240,368
Other liabilities........................................... 80,317
-----------
Total liabilities...................................... 62,357,252
-----------
Commitments and contingencies
Shareholders' equity:
Common stock, $1 par value, 100,000 shares authorized,
41,834 shares issued and outstanding................... 41,834
Surplus................................................... 4,553,421
Accumulated deficit....................................... (150,779)
Accumulated other comprehensive loss...................... (109,375)
-----------
Total shareholders' equity............................. 4,335,101
-----------
Total liabilities and shareholders' equity............. $66,692,353
===========
</TABLE>
See accompanying note to unaudited consolidated financial statements.
F-36
<PAGE> 116
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans................................ $1,173,686 $1,982,720
Interest and dividends on debt and marketable equity
securities............................................. 188,964 241,872
Interest on federal funds sold............................ 67,867 72,833
---------- ----------
Total interest income.................................. 1,430,517 2,297,425
---------- ----------
Interest expense:
Interest on deposits...................................... 802,739 1,212,635
Interest on Federal Home Loan Bank advances............... 40,079 105,850
Interest on note payable.................................. 40,730 31,524
---------- ----------
Total interest expense................................. 883,548 1,350,009
---------- ----------
Net interest income.................................... 546,969 947,416
Provision for loan losses................................... 74,057 105,000
---------- ----------
Net interest income after provision for loan losses.... 472,912 842,416
---------- ----------
Noninterest income:
Service charges on deposits............................... 24,971 26,999
Gain on sale of loans, net................................ 32,923 24,431
Other noninterest income.................................. 18,184 35,372
---------- ----------
Total noninterest income............................... 76,078 86,802
---------- ----------
Noninterest expense:
Salaries and employee benefits............................ 275,143 388,918
Occupancy and equipment expense........................... 72,971 143,933
Other noninterest expense................................. 205,314 325,116
---------- ----------
Total noninterest expense.............................. 553,428 857,967
---------- ----------
Income (loss) before income tax expense................ (4,438) 71,251
Income tax expense.......................................... -- 31,000
---------- ----------
Net income (loss)...................................... $ (4,438) $ 40,251
========== ==========
Basic and diluted income (loss) per share................... $ (0.11) $ 0.96
========== ==========
</TABLE>
See accompanying note to unaudited consolidated financial statements.
F-37
<PAGE> 117
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ACCU- COMPRE- TOTAL
---------------- MULATED HENSIVE SHAREHOLDERS'
SHARES AMOUNT SURPLUS DEFICIT LOSS EQUITY
------ ------- ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998............ 41,834 $41,834 $4,553,421 $(191,030) $ 33,936 $4,438,161
Comprehensive income:
Net income............................ -- -- -- 40,251 -- 40,251
Other comprehensive loss -- change in
unrealized gain (loss) on securities
available-for-sale, net of tax...... -- -- -- -- (143,311) (143,311)
----------
Total comprehensive income (loss)... (103,060)
------ ------- ---------- --------- --------- ----------
Balance at June 30, 1999................ 41,834 $41,834 $4,553,421 $(150,779) $(109,375) $4,335,101
====== ======= ========== ========= ========= ==========
</TABLE>
See accompanying note to unaudited consolidated financial statements.
F-38
<PAGE> 118
PREMIER BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (4,438) $ 40,251
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 41,391 92,413
Provision for loan losses.............................. 74,057 105,000
Gain on sale of loans, net............................. (32,923) (24,431)
Increase in accrued interest receivable................ (45,905) (113,628)
Increase in accrued interest payable................... 57,638 32,839
Increase in other assets............................... (44,440) (401,140)
Other, net............................................. 30,073 54,910
------------ ------------
Net cash provided by (used in) operating
activities..................................... 75,453 (213,786)
------------ ------------
Cash flows from investing activities:
Proceeds from maturities and principal payments on debt
and marketable equity securities available-for-sale.... 1,539,241 1,950,685
Purchases of debt and marketable equity securities
available-for-sale..................................... (2,974,966) (5,095,848)
Net increase in loans..................................... (8,027,198) (8,073,646)
Purchases of premises and equipment, net.................. (540,327) (65,486)
Proceeds from sale of premises and equipment, net......... -- 14,872
------------ ------------
Net cash used in investing activities............. (10,003,250) (11,269,423)
------------ ------------
Cash flows from financing activities:
Net increase in deposits.................................. 10,377,917 8,513,518
Federal Home Loan Bank advances........................... 2,100,000 640,000
Principal payments on Federal Home Loan Bank advances..... (258,868) (302,926)
Proceeds from note payable................................ -- 175,000
Repayment of note payable................................. (300,000) --
Proceeds from sale of common stock........................ 1,200,030 --
------------ ------------
Net cash provided by financing activities......... 13,119,079 9,025,592
------------ ------------
Net increase (decrease) in cash and cash
equivalents.................................... 3,191,282 (2,457,617)
Cash and cash equivalents at beginning of period............ 2,813,542 6,677,823
------------ ------------
Cash and cash equivalents at end of period.................. $ 6,004,824 $ 4,220,206
============ ============
Supplemental information -- interest paid................... $ 825,910 $ 1,317,161
============ ============
</TABLE>
See accompanying note to unaudited consolidated financial statements.
F-39
<PAGE> 119
PREMIER BANCSHARES, INC. AND SUBSIDIARY
NOTE TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE A BASIS OF PRESENTATION
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included.
F-40
<PAGE> 120
- --------------------------------------------------------------------------------
(RIVA BANK LOGO)
RIVA BANCSHARES, INC.
3,000,000 SHARES
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
, 1999
CIBC WORLD MARKETS
JOHNSON RESEARCH & CAPITAL
INCORPORATED
KELTON INTERNATIONAL LIMITED
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 121
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered, other than the underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 9,591
NASD Filing Fees............................................ 4,640
Printing and Engraving Expenses............................. 100,000*
Legal Fees and Expenses..................................... 200,000*
Accounting Fees and Expenses................................ 125,000*
Miscellaneous............................................... 60,769*
--------
Total.................................................. $500,000
========
</TABLE>
- ---------------------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and By-Laws require Riva Bancshares to
indemnify the directors and officers of Riva Bancshares to the fullest extent
permitted by law. In addition, as permitted by Delaware Law, the Certificate of
Incorporation and By-Laws provide that no director of Riva Bancshares shall be
personally liable to Riva Bancshares or its shareholders for monetary damages
for breach of duty of care or other duty as a director if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of Riva Bancshares and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. This
provision, however, shall not eliminate or limit the liability of a director:
- for any breach of the director's duty of loyalty to the corporation or its
shareholders,
- for act or omissions not in good faith or which involve intentional
misconduct or knowing violation of law,
- under Section 174 of Delaware Law, involving the payment of unlawful
dividends, stock repurchases or redemptions, or
- for any transaction from which the director derived an improper personal
benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On June 19, 1998, Riva Bancshares sold 100 equity units ("Units"), whereby each
Unit was comprised of 1,000 shares of common stock, 999 shares of the Series A
Preferred Stock, and a warrant to purchase 1,000 shares of common stock. The
Units were sold to 12 foreign investors at a purchase price of $10,000 per Unit,
for a total consideration of $1,000,000. The Units were sold with the assistance
of Kelton International, Ltd. The fees paid to Kelton International, Ltd.
($75,000 total) were paid by the foreign investors directly to Kelton
International, Ltd., over and above the purchase price of the Units. The Units
were issued in reliance upon an exemption from the registration requirements of
the Securities Act, pursuant to the provisions of Rule 506 promulgated
thereunder. Prior to the initial public offering, Riva Bancshares intends to
repurchase the 100,000 shares of common stock at a price of $.01 per share.
On August 17, 1998, Riva Bancshares sold 475,000 shares of common stock to
certain founding officers and directors of Riva Bancshares for a purchase price
of $.01 per share. These shares were issued in reliance upon an exemption from
the registration requirements of the Securities Act, pursuant to the provisions
of Rule 506 promulgated thereunder. On April 29, 1999, Riva Bancshares
repurchased 275,000 of these shares, at a price of $.01 per share and
subsequently canceled these shares. Prior to the initial public offering, Riva
Bancshares intends to repurchase an additional 190,000 of these shares at a
price of $.01 per share. In consideration for their agreement to allow Riva
Bancshares to repurchase their shares,
II-1
<PAGE> 122
Riva Bancshares granted warrants to purchase up to 115,798 shares to these
shareholders. The warrants have a term of ten years and are exercisable at the
initial public offering price.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <C>
1 -- Form of Underwriting Agreement*
2.1 -- Agreement and Plan of Merger, dated as of May 6, 1999 by and
between Riva Bancshares, Inc. and Premier Bancshares, Inc.*
2.2 -- Amendment No. 1 to Agreement and Plan of Merger, dated July
22, 1999.*
2.3 -- Amended and Restated Agreement and Plan of Merger, dated
July 29, 1999.*
3.1 -- Certificate of Incorporation of Riva Bancshares.*
3.1.1 -- Certificate of Designations, Preferences and Rights of
Series A Preferred Stock of Riva Bancshares.*
3.1.2 -- Certificate of Amendment No. 1 to the Certificate of
Incorporation of Riva Bancshares.*
3.1.3 -- Certificate of Amendment No. 2 to the Certificate of
Incorporation of Riva Bancshares.*
3.1.4 -- Form of Amended and Restated Certificate of Incorporation of
Riva Bancshares.*
3.2 -- By-Laws of Riva Bancshares, as amended.*
3.2.1 -- Amended and Restated By-Laws of Riva Bancshares.*
4.1 -- Specimen Common Stock Certificate.*
4.2 -- See Exhibits 3.1 and 3.2 for provisions of the Certificate
of Incorporation, as amended, and By-Laws of Riva Bancshares
defining rights of the holders of the common stock of Riva
Bancshares.
5 -- Opinion of Smith, Gambrell & Russell, LLP.*
10.1 -- Employment Agreement dated July 16, 1998 between Riva
Bancshares and Richard C. Jensen*
10.1.1 -- Amendment No. 1 to Employment Agreement between Riva
Bancshares and Richard C. Jensen dated June 3, 1999.*
10.2 -- Form of Employment Agreement between Riva Bancshares and
Riva Bancshares's executive officers.*
10.3 -- Riva Bancshares' 1999 Stock Option Plan.*
10.4 -- Data Processing Agreement between Premier Bank and Computer
Services, Inc.*
23.1 -- Consent of Smith, Gambrell & Russell, LLP (contained in
their opinion at Exhibit 5).
23.2(a) -- Consent of KPMG LLP with respect to the financial statements
of Riva Bancshares.
23.2(b) -- Consent of KPMG LLP with respect to the consolidated
financial statements of Premier.
24 -- Power of Attorney (included in original signature page to
this Registration Statement).
99.1 -- Consent of Persons to be named as Directors of Riva
Bancshares*
</TABLE>
- ---------------------------
* Previously filed.
II-2
<PAGE> 123
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(f) To provide to the underwriter at the closing specified in the underwriting
agreements certificates in such denominations and registered in such names as
required by the underwriters to permit prompt delivery to each purchaser.
II-3
<PAGE> 124
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form S-1 and has authorized this Amendment No. 3
to be signed on its behalf by the undersigned, in the City of St. Louis, State
of Missouri, on the 2nd day of August, 1999.
RIVA BANCSHARES, INC.
By: /s/ RICHARD C. JENSEN
------------------------------------
Richard C. Jensen
Chairman, President and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 3 was signed by the following persons in the capacities and on the
dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD C. JENSEN Chairman of the Board, August 2, 1999
- ----------------------------------------------------- President and Chief Executive
Richard C. Jensen Officer (Principal Executive
Officer) and Director
/s/ DANIEL R. SILLS Secretary, Treasurer and Chief August 2, 1999
- ----------------------------------------------------- Financial Officer (Principal
Daniel R. Sills Financial and Accounting
Officer)
/s/ ALAN C. HENDERSON Director August 2, 1999
- -----------------------------------------------------
Alan C. Henderson
* Director August 2, 1999
- -----------------------------------------------------
Gerald G. Kaufman
/s/ LEWIS A. LEVEY Director August 2, 1999
- -----------------------------------------------------
Lewis A. Levey
* Director August 2, 1999
- -----------------------------------------------------
Andrew M. Rosen
* Director August 2, 1999
- -----------------------------------------------------
Patricia D. Whitaker
</TABLE>
*By: /s/ RICHARD C. JENSEN
---------------------------------
Richard C. Jensen
Attorney-in-fact
II-4
<PAGE> 125
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <C>
1 -- Form of Underwriting Agreement*
2.1 -- Agreement and Plan of Merger, dated as of May 6, 1999 by and
between Riva Bancshares Financial Corporation and Premier
Bancshares.*
2.2 -- Amendment No. 1 to Agreement and Plan of Merger, dated July
22, 1999.*
2.3 -- Amended and Restated Agreement and Plan of Merger, dated
July 29, 1999.*
3.1 -- Certificate of Incorporation of Riva Bancshares.*
3.1.1 -- Certificate of Designations, Preferences and Rights of
Series A Preferred Stock of Riva Bancshares.*
3.1.2 -- Certificate of Amendment No. 1 to the Certificate of
Incorporation of Riva Bancshares.*
3.1.3 -- Certificate of Amendment No. 2 to the Certificate of
Incorporation of Riva Bancshares.*
3.1.4 -- Form of Amended and Restated Certificate of Incorporation of
Riva Bancshares.*
3.2 -- By-Laws of Riva Bancshares, as amended.*
3.2.1 -- Amended and Restated By-Laws of Riva Bancshares.*
4.1 -- Specimen Common Stock Certificate.*
4.2 -- See Exhibits 3.1 and 3.2 for provisions of the Certificate
of Incorporation, as amended, and By-Laws of Riva Bancshares
defining rights of the holders of the common stock of Riva
Bancshares.
5 -- Opinion of Smith, Gambrell & Russell, LLP.*
10.1 -- Employment Agreement dated July 16, 1998 between Riva
Bancshares and Richard C. Jensen*
10.1.1 -- Amendment No. 1 to Employment Agreement between Riva
Bancshares and Richard C. Jensen dated June 3, 1999.*
10.2 -- Form of Employment Agreement between Riva Bancshares and
Riva Bancshares's executive officers.*
10.3 -- Riva Bancshares' 1999 Stock Option Plan.*
10.4 -- Data Processing Agreement between Premier Bank and Computer
Services, Inc.*
23.1 -- Consent of Smith, Gambrell & Russell, LLP (contained in
their opinion at Exhibit 5).
23.2(a) -- Consent of KPMG LLP with respect to the financial statements
of Riva Bancshares.
23.2(b) -- Consent of KPMG LLP with respect to the consolidated
financial statements of Premier.
24 -- Power of Attorney (included in original signature page to
this Registration Statement).
99.1 -- Consent of Persons to be Named as Directors of Riva
Bancshares.*
</TABLE>
- ---------------------------
* Previously filed.
<PAGE> 1
EXHIBIT 23.2a
Independent Auditors' Consent
The Board of Directors
Riva Bancshares, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading, "Summary Selected Consolidated Financial Data,"
"Selected Consolidated Financial Data", and "Experts" in the prospectus.
/s/ KPMG LLP
St. Louis, Missouri
August 2, 1999
<PAGE> 1
EXHIBIT 23.2b
Independent Auditors' Consent
The Board of Directors
Premier Bancshares, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Summary Selected Consolidated Financial Data,"
"Selected Consolidated Financial Data" and "Experts" in the prospectus.
/s/ KPMG LLP
St. Louis, Missouri
August 2, 1999
