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The Bank Holdings 8-K 2007

Documents found in this filing:

  1. 8-K/A
  2. Ex-23.1
  3. Ex-23.1

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported):  November 6, 2006

The Bank Holdings

(Exact name of registrant as specified in its charter)

Nevada

 

000-50645

 

90-0071778

(State or other jurisdiction

 

(Commission

 

(I.R.S. Employer

of incorporation)

 

File Number)

 

Identification No.)

 

 

 

 

 

9990 Double R. Blvd., Reno, Nevada

 

 

 

89521

(Address of principal executive offices)

 

 

 

(Zip Code)

 

Registrant’s telephone number, including area code:  775.853.8600

Not Applicable

Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 




Item 2.01 Completion of Acquisition or Disposition of Assets.

As previously reported by The Bank Holdings in its 8-K filed as of November 6, 2006, The Bank Holdings acquired NNB Holdings and its subsidiary bank, Northern Nevada Bank through a purchase and merger transaction. The disclosure contained in such 8-K is incorporated herein by reference. The financial statements of NNB Holdings and the required pro forma financial information were not included in the original 8-K, but are contained herein under Item 9.01.

Item 9.01 Financial Statements and Exhibits.

(a) Audited financial statements of NNB Holdings for the year ended December 31, 2005, as required by this item are incorporated by reference from the S-4/A Number 333-136212 filed August 14, 2006 and interim financial statements for the nine months ended September 30, 2006 are included in this report commencing at F-1 below.

(b) Pro Forma financial information is included in this report commencing at page F-13 below.

(d) Exhibits:

23.1 Consent of McGladrey & Pullen, LLP

2




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

The Bank Holdings

 

 

 

 

 

January 19, 2007

 

By:

/s/ Jack B. Buchold

 

 

 

 

 

 

 

Name: Jack B. Buchold

 

 

 

Title: Chief Financial Officer

 

3




NNB Holdings Inc. and Subsidiary

Consolidated Balance Sheets

September 30, 2006 and December 31, 2005 (unaudited)

 

 

September 30, 2006

 

December 31, 2005

 

 

 

(dollars in thousands)

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

4,542

 

$

3,839

 

Federal funds sold

 

13,850

 

 

Cash and cash equivalents

 

18,392

 

3,839

 

 

 

 

 

 

 

Interest bearing deposits at other financial institutions

 

2,772

 

4,059

 

Investment in Federal Home Loan Bank (FHLB) and Pacific Coast Bankers Bank (PCBB) stock

 

625

 

511

 

Securities available for sale

 

5,964

 

113

 

Securities held to maturity

 

 

6,035

 

Loans, net of allowance for loan losses of $1,565 for 2006 and $1,440 for 2005

 

119,708

 

125,046

 

Premises and equipment, net

 

4,481

 

3,261

 

Accrued interest receivable

 

624

 

622

 

Deferred tax assets

 

431

 

431

 

Bank owned life insurance

 

3,365

 

3,285

 

Other assets

 

310

 

305

 

Total assets

 

$

156,672

 

$

147,507

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Deposits:

 

 

 

 

 

Non-interest bearing demand

 

$

16,005

 

$

15,434

 

Interest bearing:

 

 

 

 

 

Demand

 

28,172

 

19,349

 

Savings

 

5,527

 

4,940

 

Time, $100,000 or more

 

35,518

 

38,957

 

Other time

 

43,699

 

41,865

 

Total deposits

 

128,921

 

120,545

 

 

 

 

 

 

 

Accrued interest payable and other liabilities

 

498

 

408

 

Federal funds purchased

 

 

1,315

 

Junior subordinated debt

 

5,155

 

5,155

 

Other borrowed funds

 

8,500

 

8,500

 

Total liabilities

 

143,074

 

135,923

 

Commitments and Contingencies (Note 4)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

Common stock

 

48

 

44

 

Additional paid-in-capital

 

9,546

 

8,737

 

Retained earnings

 

4,108

 

2,804

 

Accumulated other comprehensive loss

 

(104

)

(1

)

Total stockholders’ equity

 

13,598

 

11,584

 

Total liabilities and stockholders’ equity

 

$

156,672

 

$

147,507

 

 

See notes to unaudited consolidated financial statements

F-1




NNB Holdings Inc. and Subsidiary

Consolidated Statements of Income and Comprehensive Income

For the nine months ended September 30, 2006 and 2005 (Unaudited)

 

 

 

2006

 

2005

 

 

 

(dollars in thousands, except per share information)

 

Interest and dividend income:

 

 

 

 

 

Loans

 

$

8,018

 

$

6,073

 

Securities

 

157

 

152

 

Federal funds sold and other

 

362

 

260

 

Total interest and dividend income

 

8,537

 

6,485

 

 

 

 

 

 

 

Interest expense on:

 

 

 

 

 

Deposits

 

2,873

 

1,850

 

Other

 

501

 

203

 

 

 

3,374

 

2,053

 

 

 

 

 

 

 

Net interest income

 

5,163

 

4,432

 

 

 

 

 

 

 

Provision for loan losses

 

220

 

275

 

Net interest income after provision for loan losses

 

4,943

 

4,157

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

Service charges on deposit accounts and other

 

174

 

97

 

Income from bank owned life insurance

 

81

 

 

 

 

255

 

97

 

Other expenses:

 

 

 

 

 

Salaries and employee benefits

 

1,784

 

1,517

 

Occupancy

 

424

 

330

 

Data processing and service charges

 

154

 

173

 

Advertising, public relations and business development

 

168

 

188

 

Professional fees

 

432

 

217

 

Other

 

279

 

259

 

 

 

3,241

 

2,684

 

 

 

 

 

 

 

Income before income taxes

 

1,957

 

1,570

 

Income tax expense

 

653

 

536

 

 

 

 

 

 

 

Net income

 

$

1,304

 

$

1,034

 

 

 

 

 

 

 

Comprehensive income

 

$

1,201

 

$

1,033

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic

 

$

1.46

 

$

1.18

 

Diluted

 

$

1.38

 

$

1.14

 

 

See notes to unaudited consolidated financial statements

F-2




NNB Holdings Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the nine months ended September 30, 2006 and 2005 (Unaudited)

 

 

2006

 

2005

 

 

 

(dollars in thousands)

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

 

$

1,304

 

$

1,034

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation of premises and equipment

 

219

 

229

 

Provision for loan losses

 

220

 

275

 

Other operating activities

 

84

 

(23

)

Net cash provided by operating activities

 

1,827

 

1,515

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

Net (increase) decrease in loans

 

5,118

 

(30,347

)

Purchase of premises and equipment

 

(1,439

)

(301

)

Net increase (decrease) in interest bearing deposits at other financial institutions

 

1,287

 

(494

)

Purchase of bank owned life insurance

 

 

(3,250

)

Other investing activities

 

(114

)

(1,521

)

Net cash provided by (used in) investing activities

 

4,852

 

(35,913

)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Net increase (decrease) in deposits

 

8,376

 

17,521

 

Increase (decrease) in federal funds purchased and borrowings

 

(1,315

)

2,000

 

Proceeds from junior subordinated debt

 

 

5,155

 

Exercise of stock options, including $3 relating to tax benefit resulting from the disqualifying dispositions of common stock in 2006

 

813

 

22

 

Net cash provided by financing activities

 

7,874

 

24,698

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

14,553

 

(9,700

)

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

3,839

 

12,262

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

18,392

 

$

2,562

 

 

See notes to unaudited consolidated financial statements

F-3




NNB Holdings Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

Note 1.          Nature of Business and Summary of Significant Accounting Policies

Nature of business

NNB Holdings, Inc. (NNB) is a Nevada corporation established as a bank holding company.  Northern Nevada Bank (the Bank), a Nevada state chartered bank, is a wholly owned subsidiary of NNB.  The Bank provides a full range of banking services to commercial and consumer customers through two branches located in the Reno and Carson City, Nevada areas.  The Bank’s business is concentrated in Northern Nevada and is subject to the general economic conditions of this area.

The accounting and reporting policies of NNB conform to accounting principles generally accepted in the United States of America and general industry practices.  NNB and the Bank are collectively referred to herein as the Company.

A summary of the Company’s significant accounting policies is as follows:

Use of estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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.  A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses.

Interim financial information

The accompanying unaudited consolidated financial statements as of September 30, 2006 and 2005 have been prepared in condensed format, and therefore do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The information furnished in these interim statements reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for each respective period presented.  Such adjustments are of a normal recurring nature.  The results of operation in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year.  Condensed financial information as of December 31, 2005 has been presented next to the interim consolidated balance sheet for informational purposes.

A statement of stockholders’ equity is not included as part of these interim financial statements since there have been no material changes in the capital structure of the Company during the nine month period-ended September 30, 2006, other than the exercise of 77,876 stock options which increased stockholders’ equity by approximately $810,000.

Stock options

The Company has adopted the Employee Stock Option Plan under which options to acquire common stock of the Company may be granted to employees, officers or directors at the discretion of the Board of Directors.  This plan allows for the granting of 123,500 stock options.  At September 30, 2006, there were 2,000 stock options available under this plan.

F-4




The Company has adopted the Director Nonqualified Stock Option Plan under which options to acquire common stock of the Company may be granted to directors at the discretion of the Board of Directors.  This plan allows for the granting of 16,350 stock options.  At September 30, 2006, there were 946 options available to grant under this plan.

Effective January 1, 2006 (the adoption date), the Company adopted the provisions of FASB Statement of Financial Accounting Standard (SFAS) No. 123 (revised 2004), or SFAS 123R, Share-Based Payment , requiring the measurement and recognition of all share-based compensation under the fair value method.  The Company has adopted SFAS 123R using the prospective method for options granted prior to adoption of SFAS 123(R).  Under the Company’s transition method, SFAS 123R applies to new awards and to awards that were outstanding on the adoption date that are subsequently modified, repurchased or cancelled.  The Company has not granted any stock options since the adoption date of January 1, 2006.  Accordingly, the Company has not recorded any stock option expense for the period ended September 30, 2006.

Prior to the adoption of SFAS 123R, the Company accounted for stock option grants using the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based compensation was reflected in net income, as all options are required by the Plans to be granted with an exercise price equal to the estimated fair value of the underlying common stock on the date of grant. Prior period financial statements have not been adjusted to reflect fair value of share-based compensation expense under SFAS 123R.

Also prior to the adoption of SFAS 123R, the Company applied the disclosure provisions of SFAS 123, Accounting for Stock-Based Compensation . SFAS 123 required the disclosure of the pro forma impact on net income and earnings per share if the value of the options were calculated at fair value. SFAS 123 permitted private companies to calculate the fair value of stock options using the minimum value method while public companies were required to use a fair value model. The Company used the minimum value method to calculate the fair value of stock options.

A summary of option activity under the Employee Stock Option Plan and the Director Nonqualified Stock Option Plan for the nine months ended September 30, 2006, and changes during the period then ended is presented below:

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

 

 

Exercise

 

 

 

Shares

 

Price

 

Outstanding options, beginning of period

 

118,026

 

$

11.37

 

Granted

 

 

 

Exercised

 

77,876

 

10.40

 

Forfeited

 

2,000

 

13.90

 

Outstanding options, end of period

 

38,150

 

$

13.22

 

 

 

 

 

 

 

Options exercisable, end of period

 

13,969

 

$

10.44

 

 

F-5




The weighted average remaining contractual term of outstanding options as of September 30, 2006 was 2.2 years, with an aggregate intrinsic value of approximately $880,000. The weighted average remaining contractual term of options exercisable at September 30, 2006 was 4.7 years, with an aggregate intrinsic value of approximately $360,000.

The total intrinsic value of options exercised during the nine months ending September 30, 2006 was approximately $2,000,000.  The intrinsic value as of September 30, 2006 was computed using the approximate merger consideration of approximately $36 per share (See note 5).

No stock options were granted during the nine months ended September 30, 2005.  A summary of the status of the Company’s nonvested shares as of September 30, 2006, and changes during the period ended September 30, 2006, is presented below:

 

Shares

 

Weighted 
Average Exercise 
Price

 

Nonvested balance, beginning of year

 

32,581

 

$

13.85

 

Granted

 

 

 

Vested

 

6,400

 

10.48

 

Forfeited

 

2,000

 

13.90

 

 

 

 

 

 

 

Nonvested balance, end of period

 

24,181

 

$

14.10

 

 

F-6




The following table illustrates the effect on net income and earnings per share had the Company applied the fair value recognition method of SFAS 123 for the nine months ended September 30:

 

 

2006

 

2005

 

 

 

(dollars in thousands, except per share data)

 

Net income:

 

 

 

 

 

As reported

 

$

1,304

 

$

1,034

 

Deduct total stock-based employee compensation expense determined under minimum value based method for all awards, net of related tax effects for non-qualified stock options

 

(43

)

(79

)

Proforma

 

$

1,261

 

$

955

 

 

 

 

 

 

 

Basic earnings per share - As reported

 

$

1.46

 

$

1.18

 

Basic earnings per share - Pro forma

 

$

1.41

 

$

1.09

 

 

 

 

 

 

 

Diluted earnings per share - As reported

 

$

1.38

 

$

1.14

 

Diluted earnings per share - Pro forma

 

$

1.33

 

$

1.05

 

 

Prior to the adoption of SFAS 123R, all tax benefits resulting from the exercise of stock options were presented as operating cash inflows in the consolidated statements of cash flows, in accordance with the provisions of the Emerging Issues Task Force (EITF) Issue No. 00-15, Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option . SFAS 123R requires the benefit of tax deductions in excess of the compensation cost recognized for those options to be classified as financing cash inflows rather than operating cash inflows, on a prospective basis.  The Company has recorded approximately $3,000 of tax benefits associated with a disqualifying disposition of common stock during the nine months ended September 30, 2006 in financing activities on the consolidated statement of cash flows.

F-7




Note 2.          Earnings per Share

Basic earnings per share (EPS) represents income available to common stockholders divided by the weighted average number of common shares outstanding during the period.  Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment that would result from assumed issuance.  Potential common shares that may be issued by the Company relate solely to outstanding options, and are determined using the treasury stock method.

For the nine months ended September 30, 2006 and 2005 (Unaudited)

 

 

2006

 

2005

 

 

 

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

Net income as reported

 

$

1,304

 

$

1,034

 

 

 

 

 

 

 

Average number of common shares outstanding

 

891,800

 

874,203

 

Effect of dilutive options

 

55,908

 

34,876

 

 

 

 

 

 

 

Average number of common shares outstanding used to calculate diluted earnings per common share

 

947,708

 

909,079

 

 

 

 

 

 

 

Basic EPS

 

$

1.46

 

$

1.18

 

Diluted EPS

 

$

1.38

 

$

1.14

 

 

F-8




Note 3.          Loans

The composition of the Company’s loan portfolio is as follows:

 

 

September 30,

 

December 31,

 

 

 

2006

 

2005

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

Commercial and industrial

 

$

16,685

 

$

16,338

 

Real estate:

 

 

 

 

 

Commercial

 

82,539

 

86,291

 

Construction and land development

 

21,506

 

22,026

 

Residential

 

667

 

1,958

 

Consumer

 

300

 

374

 

 

 

121,697

 

126,987

 

Less:

 

 

 

 

 

Allowance for loan losses

 

(1,565

)

(1,440

)

Net deferred loan fees

 

(424

)

(501

)

 

 

$

119,708

 

$

125,046

 

 

There were approximately $97,000 of charge-offs and $2,000 of recoveries for the nine months ended September 30, 2006.  There were no charge-offs or recoveries during the nine months ended September 30, 2005.  The Bank has approximately $581,000 of impaired loans as of September 30, 2006.  These loans have specific allowance for loan losses of $215,000 as of September 30, 2006.

Note 4.          Commitments and Contingencies

Financial instruments with off-balance-sheet risk

The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and standby letters of credit.  They involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the balance sheets.

The Company’s exposure to credit loss in the event of nonperformance by the other parties to the financial instruments for these commitments is represented by the contractual amounts of those instruments.  The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

F-9




A summary of the contract amount of the Company’s exposure to off-balance-sheet risk is as follows:

 

September 30,

 

December 31,

 

 

 

2006

 

2005

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

Commitments to extend credit

 

$

19,528

 

$

35,373

 

 

 

 

 

 

 

Standby letters of credit

 

$

610

 

$

103

 

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Company evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party.  Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  Those 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.  Collateral held varies as specified above and is required as the Company deems necessary.

Financial instruments with concentration of credit risk and Concentration by geographic location

The Company makes commercial, commercial real estate, raw land, residential real estate and consumer loans to customers primarily in Northern Nevada.  At September 30, 2006, real estate loans accounted for approximately 86% of the total loans.  Substantially all of these loans are secured by first liens with an initial loan to value ratio of generally not more than 75%.  The Company’s policy for requiring collateral is to obtain collateral whenever it is available or desirable, depending upon the degree of risk the Company is willing to take.  The Company’s loans are expected to be repaid from cash flow or from proceeds from the sale of selected assets of the borrowers.

F-10




Note 5.          Subsequent Events

On May 17, 2006, the Company entered into a definitive agreement to merge into another bank holding company for approximately $36 million in cash and common stock.  The transaction closed on November 6, 2006.

On November 1, 2006, the Company sold the entire securities portfolio.  Due to this transaction, all securities were reclassified to available for sale and adjusted to fair value at September 30, 2006.  A loss of approximately $104,000 was reported as other comprehensive loss in the September 30, 2006 financial statements.

Prior to merger on November 6, 2006, a majority of the outstanding stock options (see note 1) were cash settled by the Company as provided for in the definitive agreement.

F-11




TABLE OF CONTENTS

Item 2.01 Completion of Acquisition or Disposition of Assets

Item 9.01 Financial Statements and Exhibits

Exhibits

F-12




UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

These pro forma combined figures are arithmetical combinations of NNB Holdings’ and The Bank Holdings’ separate financial results modified to reflect certain merger related adjustments. These presentations include an unaudited pro forma balance sheet as of September 30, 2006 prepared under the assumptions that (i) the transaction is accounted for using the purchase method of accounting, (ii) 75% of NNB Holdings’ common stock is exchanged for The Bank Holdings’ stock with the remaining 25% of NNB Holdings’ common stock exchanged for cash and (iii) the average closing price of The Bank Holdings’s stock is $19.34 resulting in value to NNB Holdings’s shareholders of $36.22 per share. For purposes of illustration, the pro forma combined figures have been calculated using an implied exchange ratio of 1.87 shares of The Bank Holdings’ common stock for each share of NNB Holdings common stock. Unaudited pro forma combined statements of income are also presented for the nine months ended September 30, 2006 and the twelve months ended December 31, 2005. The unaudited pro forma balance sheet assumes the merger took place on September 30, 2006. The unaudited pro forma combined statements of income give effect to the merger as if it had occurred  as of the beginning of the period. Certain assumptions associated with these statements are shown as footnotes to these pro forma financial statements.

The unaudited pro forma condensed combined financial statements are presented for information only and one should not assume that the combined company would have achieved the proforma combined results if they had actually been combined on the date or at the beginning of the periods presented.

We anticipate that the merger will provide the combined company with financial benefits that include reduced operating expenses. The unaudited pro forma combined financial statements, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, do not reflect the benefits of expected cost savings nor opportunities to to earn additional revenue, neither do they reflect business integration costs which The Bank Holdings expects to achieve and, accordingly, do not attempt to predict or suggest future results.

F-13




Unaudited Pro Forma Combined
Statement of Financial Conditions
As of September 30, 2006

 

 

 

The Bank

 

NNB

 

Pro Forma

 

Pro Forma

 

 

 

Holdings

 

Holdings

 

Adjustments

 

Combined

 

 

 

(dollars in thousands, except per share value)

 

ASSETS:

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

23,611

 

$

4,542

 

$

(11,350

)(a)

16,803

 

Federal funds sold

 

4,505

 

13,850

 

 

 

18,355

 

Cash and cash equivalents

 

28,116

 

18,392

 

 

 

46,508

 

 

 

 

 

 

 

 

 

 

 

Interset bearing deposits at other financial institutions

 

 

 

2,772

 

 

 

2,772

 

Investment in Federal Home Loan Bank (FHLB) and

 

 

 

 

 

 

 

0

 

Pacific Coast Bankers Bank (PCBB) stock

 

 

 

625

 

 

 

625

 

Securities available for sale, at fair value

 

18,304

 

5,964

 

 

 

24,268

 

Securities held to maturity, at amortized cost

 

77,864

 

 

 

 

 

77,864

 

Securities, trading market value

 

3,952

 

 

 

 

 

3,952

 

Other equity securities, at cost

 

3,608

 

 

 

 

 

3,608

 

Loans, gross

 

310,716

 

121,273

 

 

 

431,989

 

Allowance for loan losses

 

(3,251

)

(1,565

)

 

 

-4,816

 

Deferred loan fees, net

 

(566

)

 

 

 

 

-566

 

Loans, net

 

306,899

 

119,708

 

 

 

426,607

 

 

 

 

 

 

 

 

 

 

 

Premises and equipment, net

 

3,004

 

4,481

 

353

(i)

7,838

 

Bank owned life insurance

 

8,379

 

3,365

 

 

 

11,744

 

Goodwill

 

5,820

 

 

 

23,580

(b)

29,400

 

Core deposits intangible (CDI)

 

 

 

 

 

1,402

(b)

1,402

 

Other assets

 

5,389

 

1,365

 

 

 

6,754

 

TOTAL ASSETS

 

$

461,335

 

$

156,672

 

13,985

 

631,992

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

Noninterest bearing demand

 

$

49,523

 

$

16,005

 

 

 

65,528

 

Interest bearing demand

 

5,972

 

28,172

 

 

 

34,144

 

Savings

 

124,558

 

5,527

 

 

 

130,085

 

Money Market

 

81,477

 

 

 

 

 

81,477

 

IRA’s

 

1,090

 

 

 

 

 

1,090

 

Time deposits < $100,000

 

53,617

 

43,699

 

 

 

97,316

 

Time deposits > $100,000

 

35,765

 

35,518

 

 

 

71,283

 

Total deposits

 

352,002

 

128,921

 

 

 

480,923

 

Short term borrowed funds

 

37,500

 

 

 

 

37,500

 

Short term notes payable

 

265

 

 

 

 

 

265

 

Long term notes payable

 

265

 

8,500

 

 

 

8,765

 

Junior subordinated debt

 

15,464

 

5,155

 

 

 

20,619

 

Minority shareholder interest in subsidiaries

 

1,268

 

 

 

 

 

1,268

 

Accrued interest payable and other liabilities

 

9,082

 

498

 

 

 

9,580

 

Total Liabilities

 

415,846

 

143,074

 

 

 

558,920

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

Preferred stock, $.01 par value, 20,000,000 shares authorized; no shares issued or outstanding

 

 

 

 

 

Common stock

 

40

 

48

 

-48

(c)

 

 

 

 

 

 

 

 

14

 

54

 

Additional paid-in capital

 

45,733

 

9,546

 

-9,546

(c)

45,733

 

 

 

 

 

 

 

27,569

(d)

27,569

 

Accumulated deficit/retained earnings

 

(26

)

4,108

 

-4,108

(c)

-26

 

Accumulated other comprehensive (loss)

 

(258

)

(104

)

104

(c)

-258

 

Total stockholders’ equity

 

45,489

 

13,598

 

13,985

 

73,072

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

461,335

 

$

156,672

 

$

13,985

 

631,992

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-14




Unaudited Pro Forma Combined
Statement of Operations
For the Nine Months Ended September 30, 2006

 

 

The Bank

 

NNB

 

Pro Forma

 

Pro Forma

 

 

 

Holdings

 

Holdings

 

Adjustments

 

Combined

 

 

 

(dollars in thousands, except per share value)

 

Interest and dividend income:

 

 

 

 

 

 

 

 

 

Federal funds sold and other

 

$

669

 

$

362

 

$

(433

)(e)

$

598

 

Debt securities, taxable

 

2,653

 

157

 

 

 

2,810

 

Debt securities, non-taxable

 

184

 

 

 

 

 

184

 

Dividends

 

111

 

 

 

 

 

111

 

Loans, including fees

 

17,219

 

8,018

 

 

 

25,237

 

Total interest and dividend income

 

20,836

 

8,537

 

(433

)

28,940

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

8,793

 

2,873

 

 

 

11,666

 

Other borrowed funds, notes payable and debt

 

1,403

 

501

 

 

 

1,904

 

Total interest expense

 

10,196

 

3,374

 

 

13,570

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

10,640

 

5,163

 

(433

)

15,370

 

 

 

 

 

 

 

 

 

0

 

Provision for loan losses

 

596

 

220

 

 

 

816

 

Net interest income, after provision for loan losses

 

10,044

 

4,943

 

(433

)

14,554

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

164

 

174

 

 

 

338

 

Other service charges, commissions and fees

 

104

 

 

 

 

 

104

 

Pre-underwriting fees

 

9

 

 

 

 

 

9

 

Income on bank owned life insurance

 

195

 

81

 

 

 

276

 

Exchange fee income

 

289

 

 

 

 

 

289

 

Unrealized gains/(losses) on trading securities, net

 

231

 

 

 

 

 

231

 

Realized gains/(losses) on sale of fixed assets, net

 

2

 

 

 

 

 

2

 

Realized gains/(losses) on sale of investments, net

 

11

 

 

 

 

 

11

 

Total noninterest income

 

1,005

 

255

 

 

1,260

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

5,227

 

1,784

 

 

 

7,011

 

Occupancy and equipment

 

1,388

 

424

 

 

 

1,812

 

Data processing

 

634

 

154

 

 

 

788

 

Deposit servicing costs

 

227

 

168

 

 

 

395

 

Accounting, and legal

 

397

 

 

 

 

 

397

 

Other professional services

 

384

 

432

 

 

 

816

 

Telephone and data communications

 

151

 

 

 

 

 

151

 

Other

 

1,072

 

279

 

168

(f)

1,519

 

Total noninterest expense

 

9,480

 

3,241

 

168

 

12,889

 

 

 

 

 

 

 

 

 

 

 

Net income/(loss) before income tax provision and minority shareholder allocation

 

1,569

 

1,957

 

(601

)

2,925

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

422

 

653

 

(81

)(g)

994

 

 

 

 

 

 

 

 

 

 

 

Gain/loss attributable to minority shareholders

 

(32

)

 

 

 

 

(32

)

 

 

 

 

 

 

 

 

 

 

NET INCOME/(LOSS)

 

1,179

 

1,304

 

(520

)

1,963

 

 

 

 

 

 

 

 

 

 

 

Net earnings/(loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

0.34

 

1.46

 

 

(h)

$

0.40

 

Diluted

 

0.32

 

1.38

 

 

(h)

$

0.39

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding for basic earnings per share

 

3,444,544

 

891,800

 

 

 

4,870,760

 

Average shares outstanding for diluted earnings per share

 

3,631,373

 

947,708

 

 

 

5,076,540

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-15




Unaudited Pro Forma Combined
Statement of Operations
For the Twelve Months ended December 31, 2005

 

 

The Bank

 

NNB

 

Pro Forma

 

Pro Forma

 

 

 

Holdings

 

Holdings

 

Adjustments

 

Combined

 

 

 

 

 

 

 

(dollars in thousands, except per share value)

 

Interest and dividend income:

 

 

 

 

 

 

 

 

 

Federal funds sold and other

 

$

248

 

$

161

 

$

(577

)(e)

$

(168

)

Debt securities, taxable

 

2,362

 

204

 

 

 

2,566

 

Debt securities, non-taxable

 

 

 

 

 

 

0

 

Dividends

 

83

 

167

 

 

 

250

 

Loans, including fees

 

14,473

 

8,648

 

 

 

23,121

 

Total interest and dividend income

 

17,166

 

9,180

 

(577

)

25,769

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

6,677

 

2,635

 

 

 

9,312

 

Other borrowed funds, notes payable and debt

 

667

 

385

 

 

 

1,052

 

Total interest expense

 

7,344

 

3,020

 

 

10,364

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

9,822

 

6,160

 

(577

)

15,405

 

 

 

 

 

 

 

 

 

0

 

Provision for loan losses

 

1,069

 

414

 

 

 

1,483

 

Net interest income, after provision for loan losses

 

8,753

 

5,746

 

(577

)

13,922

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

206

 

163

 

 

 

369

 

Other service charges, commissions and fees

 

165

 

 

 

 

 

165

 

Pre-underwriting fees

 

25

 

 

 

 

 

25

 

Income on bank owned life insurance

 

313

 

35

 

 

 

348

 

Exchange fee income

 

 

 

 

 

 

0

 

Unrealized gains/(losses) on trading securities, net

 

47

 

 

 

 

 

47

 

Realized gains/(losses) on sale of fixed assets, net

 

4

 

 

 

 

 

4

 

Realized gains/(losses) on sale of investments, net

 

12

 

 

 

 

 

12

 

Total noninterest income

 

772

 

198

 

 

970

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

4,222

 

2,031

 

 

 

6,253

 

Occupancy and equipment

 

1,532

 

445

 

 

 

1,977

 

Data processing

 

733

 

239

 

 

 

972

 

Deposit servicing costs

 

259

 

 

 

 

259

 

Accounting, and legal

 

515

 

253

 

 

 

768

 

Other professional services

 

468

 

 

 

 

468

 

Telephone and data communications

 

170

 

 

 

 

 

170

 

Other

 

924

 

635

 

224

(f)

1,783

 

Total noninterest expense

 

8,823

 

3,603

 

224

 

12,202

 

 

 

 

 

 

 

 

 

 

 

Net income/(loss) before income tax provision and minority shareholder allocation

 

702

 

2,341

 

(801

)

2,242

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

(710

)

790

 

(272)

(g)

(192)

 

 

 

 

 

 

 

 

 

 

 

Gain/loss attributable to minority shareholders

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

NET INCOME/(LOSS)

 

$

1,412

 

$

1,551

 

$

(529

)

2,434

 

 

 

 

 

 

 

 

 

 

 

Net earnings/(loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.47

 

$

1.77

 

 

(h)

$

0.55

 

Diluted

 

$

0.43

 

$

1.71

 

 

(h)

$

0.51

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding for basic earnings per share

 

2,974,104

 

874,948

 

 

 

4,435,384

 

Average shares outstanding for diluted earnings per share

 

3,279,863

 

909,738

 

 

 

4,741,143

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-16




NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

September 30, 2006 and December 31, 2005
(Amounts in thousands, except per ashare data)

Note 1 — Basis of Presentation

The merger will be accounted for using the purchase method of accounting.

Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” requires the purchase method of accounting for business combinations. SFAS No. 142, “Goodwill and Other Intangible Assets” establishes standards for goodwill acquired in a business combination and sets forth methods to periodically evaluate goodwill for impairment at least annually. The purchase method of accounting for business combinations requires that the assets acquired and the liabilities assumed are recorded at their respective estimated fair market values as of the closing date. The excess of the total acquisition cost over the sum of the assigned fair values of the tangible and identifiable intangible assets acquired, less liabilites assumed, should be recorded as goodwill and evaluated for impairment at least annually thereafter. Financial statements of The Bank Holdings issued after the consummation of the merger are required to reflect those values, as well as the results of operations of the combined company beginning after the closing date of the merger. Financial statements of The Bank Holdings issued prior to the consummation of the merger will not be restated to reflect NNB Holdings’ historical financial condition or results of operations..

The unaudited pro forma combined statements of income for the nine months ended September 30, 2006 and for the year ended December 31, 2005 give effect to the merger as if the merger had occurred on January 1, 2006, and 2005, respectively.

The unaudited pro forma combined balance sheet as of September 30, 2006 gives effect to the merger as if the merger had occurred at September 30, 2006.

The unaudited pro forma financial data is based on prelimuinary estimates and various assumptions that The Bank Holdings management believe are reasonable in these circumstances. The unaudited pro forma adjustments reflect transaction related items only and are based on currently available information. Purchase price allocations and related amortization, accretion and depreciation periods will be based on final appraisals, evaluations, and estimates of fair values. As a result, actual asset and liability values established and related operating results, including actual amortization and accretion, could differ materially from those reflected in the unaudited pro forma combined financial statements. No estimate of business integration costs or anticipated costs savings, potential revenue enhancements or synergies that The Bank Holdings may expect to realize in connection with the merger have been reflected in the unaudited pro forma combined financial statements. The unaudited pro forma combined financial statements do not reflect the impact of conforming NNB Holdings accounting policies to those of The Bank Holdings, as the impact, if any, has not yet been determined.

Note 2 — Merger Consideration

Under the terms of the merger agreement and based on the “average closing price” of  $19.34, The Bank Holdings issued 1,426,216 shares of common stock and an aggregate of $11 million in cash for the 968,256 outstanding shares of NNB Holdings common stock  and 115,026 existing options held by NNB Holdings management and directors. Based on the actual exchange ratio of 1.87 shares of The Bank Holdings stock, the transaction was comprised of 75% stock and 25% cash and will qualify as a tax deferred reorganization. Based on the average closing price of  $19.34 of of The Bank Holdings common stock, the total fair value of the merger consideration was approximately $36 million, as set forth in Note 3, below.

 Note 3 — Purchase Price and Acquisition Costs

The Bank Holdings has estimated the relative fair value of NNB Holdings net assets in order to determine a preliminary allocation of the purchase price to the net assets to be acquired. For purposes of the accompanying unaudited pro forma condensed combined financial statements, the excess of the purchase price over the book value of net assets to be acquired has been estimated as follows:

 

F-17




 

Estimated fair value of 1,426,208 shares of The Bank Holdings stock issued:

 

$

27,583

 

75

%

Cash

 

$

7,500

 

25

%

 

 

 

 

 

 

Total merger consideration

 

$

35,083

 

 

 

 

 

 

 

 

 

Estimated The Bank Holdings acquisition costs (1):

 

 

 

 

 

Merger related compensation and severance

 

$

3,500

 

 

 

Other merger related expenses

 

$

50

 

 

 

Professional services

 

$

300

 

 

 

 

 

 

 

 

 

Total acquisition costs

 

$

3,850

 

 

 

 

 

 

 

 

 

Estimated total purchase price

 

$

38,933

 

 

 

Less book value of Northern Nevada Holdings net assets to be acquired

 

$

13,598

 

 

 

 

 

 

 

 

 

Preliminary excess of purchase price over book value of net assets to be acquired

 

$

25,335

 

 

 


(1)          “Estimated NNB Holdings acquisition costs” do not include any merger related expenses incurred by NNB Holdings.

The pro forma purchase price calculation shown above is subject to change between September 30, 2006 and the closing date of the merger as a result of the following items:

(a) the actual acquisition costs incurred by The Bank Holdings, and

(b) final appraisals, evaluations and estimates of fair value.

The appraisal and purchase price allocation are expected to be finalized within one year after completion of the merger.

The Bank Holdings anticipates, based on preliminary plans and estimates, that approximately $350,000 in costs will be incurred in connection with the merger and will be included as part of the purchase price of the merger, as set forth above.

In addition to the above transaction costs, The Bank Holdings expects to incur data systems and personnel integration costs of approximately $350,000 before taxes (approximately $231,000 after taxes). These estimated costs are primarily comprised of information technology upgrades and conversions costs, related personnel overtime costs, and branch technology improvements. These amounts are not reflected in the proforma combined statements of operations. Such costs will be included in The Bank Holdings reported results of operations subsequent ot the closing date of the merger.

F-18




 

Note 4 – Pro Forma Adjustments

(a)          To reflect the cash portion of the purchase price and estimated transaction and merger related costs of approximately $11.0 million and approximately $350,000 respectively, as set forth in Note 3 above.

(b)         To reflect the goodwill and core gross deposit intangible to be recognized as a result of the merger, of $23.6 million and $1.5 million, respectively.

(c)          To reflect the elimination of NNB Holdings equity components.

(d)         To reflect the (1) fair value of approximately 968,256 shares of NNB Holdings common stock which exchanges into 1,388,889 shares of The Bank Holdings and (2) 48,966 shares issued in exchange for the exercise of options, as well as 11,639 stock options converted at the exchange ratio of 1.87 based on a price of $19.34 (the average closing price, further described on page 46 of the Joint Proxy Statement-Prospectus dated as of August 15, 2006) less the weighted average exercise price of $13.22 per share.

(e)          To reflect the estimated reduction in interest income, assuming federal funds sold at a 5.25% annual rate were utilized for the cash portion of the merger consideration and acquisition costs.

(f)            To reflect the amortization of the core deposit intangible in other operating expense amortized using the straight line method assuming an estimated life of approximately seven (7) years.

(g)         To reflect the  impact of income taxes associated with these proforma adjustments to operating results at a 34% combined effective tax rate.

(h)         Pro forma basic earnings per share were calculated using The Bank Holdings historical shares outstanding for the periods presented and the expected number of shares outstanding after the issuance 1,426,216 shares of The Bank Holdings common stock as well as the 18,951 net shares given to option holders.

(i)             To reflect the  fair value adjustment to premises and equipment for approximately $353,000.

F-19



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