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EX-23.1 - EX-23.1 - Independence Bancshares, Inc. | ex23-1.htm |
As filed with the Securities and Exchange Commission
on June 20, 2013.
Registration No. 333-186476
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3 TO
FORM S-1
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
INDEPENDENCE BANCSHARES, INC.
(Exact name of registrant as specified in its
charter)
South
Carolina |
6021 |
20-1734180 |
||||||||
(State
or jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
500 East Washington Street
Greenville, South Carolina 29601
(864) 672-1776
(Address, including zip code, and telephone number, including area code, of principal executive offices)
Greenville, South Carolina 29601
(864) 672-1776
(Address, including zip code, and telephone number, including area code, of principal executive offices)
Gordon A. Baird
Chief Executive Officer
Independence Bancshares, Inc.
500 East Washington Street
Greenville, South Carolina 29601
(864) 672-1776
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Chief Executive Officer
Independence Bancshares, Inc.
500 East Washington Street
Greenville, South Carolina 29601
(864) 672-1776
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies of all communications, including copies of all
communications
sent to agent for service, should be sent to:
Neil E. Grayson
Benjamin A. Barnhill
Michael F. Johnson
Nelson Mullins Riley & Scarborough LLP
104 South Main Street, Suite 900
Greenville, South Carolina 29601
(864) 250-2235
sent to agent for service, should be sent to:
Neil E. Grayson
Benjamin A. Barnhill
Michael F. Johnson
Nelson Mullins Riley & Scarborough LLP
104 South Main Street, Suite 900
Greenville, South Carolina 29601
(864) 250-2235
Approximate date of commencement
of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
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. o
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective
amendment filed pursuant to Rule 462(c) 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. o
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. o
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange
Act.
Large accelerated
filer o |
Accelerated filer o |
|||||
Non-accelerated
filer o (Do not check if a smaller reporting company) |
Smaller reporting company [X] |
CALCULATION OF REGISTRATION FEE
Title of each Class of Securities to be Registered |
|
Amount to be Registered |
|
Proposed Maximum Offering Price Per Share |
|
Proposed Maximum Aggregate Offering Price(1) |
|
Amount of Registration Fee(2) |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Common Stock, $0.01 par value per share |
2,351,250 |
$0.80 |
$1,881,000 |
$256.57 |
(1) |
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a). |
(2) |
Previously paid. |
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 Section 8(a), may
determine.
The information in this preliminary 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 preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer
or sale is not permitted.
Preliminary Prospectus
Subject to Completion: dated June 20, 2013
Up to 2,351,250 Shares of Common
Stock
Independence Bancshares, Inc.
(the Company) is the holding company for Independence National Bank, a national association organized under the laws of the United States
and headquartered in Greenville, South Carolina (the Bank).
We are offering to the holders
(Shareholders) of our common stock prior to the close of the Private Placement (defined below), the opportunity to purchase up to 2,351,250
shares of our common stock, $0.01 par value per share, at a price of $0.80 per share. We are conducting the offering in connection with the recent
completion of a private placement pursuant to which we issued 17,648,750 shares of our common stock at $0.80 per share to certain accredited investors,
including members of our board of directors, for cash proceeds of approximately $14.1 million (the Private Placement). We are now providing
our Shareholders with an opportunity to invest in the Company at the same offering price of $0.80 per share that we offered to the investors in the
Private Placement. A minimum investment of $1,000 is required to purchase shares in the offering, which requirement we may waive in our sole
discretion. This is not a rights offering, and we reserve the right to accept or reject subscriptions from any Shareholders in whole or in part for any
reason.
We currently anticipate that if
our Shareholders oversubscribe for the offering we will allocate shares of our common stock on a pro rata basis in accordance with the
Shareholders ownership in the Company. However, we reserve the right to allocate shares of our common stock according to other methods, including
allocating shares on a first come, first served basis before the offering periods ends or any other method as we may determine to be
appropriate under the circumstances as they may exist at the time, and to accept or reject subscriptions in whole or in part in our sole discretion.
All funds received from subscriptions will be placed in a segregated non-interest bearing account at the Bank pending our acceptance of the associated
subscriptions. We will notify all subscribers within 10 business days after the earlier of the offering expiration date or the sale of all of the
shares being offered in the offering whether their subscriptions have been accepted. If the offering is not completed, or if any part of your
subscription is not accepted, your funds will be returned, without interest, as soon as practicable. We reserve the right to withdraw, cancel, modify,
or terminate the offering of the shares at any time without notice.
There is no minimum number of
shares that must be sold or minimum subscription amount required for consummation of the offering and, as a result, if you purchase shares of common
stock, you could be the only purchaser in the offering. The offering to the Shareholders will expire upon the earlier of the sale of all 2,351,250
shares of common stock or at 5:00 p.m., Eastern Standard time, on [], 2013, unless extended for up to an additional 30 days by our board of
directors, in their sole discretion (the Expiration Date). We do not intend to extend the Expiration Date. The offering will be made
directly by us. We will not use an underwriter or selling agent.
Our common stock is quoted on the
OTC Bulletin Board (the OTCBB) under the symbol IEBS. On June [], 2013, the closing price of our common stock as reported
by the OTCBB was $[] per share.
Investing in our common stock
involves risks. See Risk Factors beginning on page 11 to read about factors you should consider before you make your investment
decision.
Shareholders who do not purchase
shares of common stock in the offering may own, upon completion of the offering, a smaller proportional interest in the Company than otherwise would be
the case had they purchased shares of common stock in the offering. See Risk Factors The Offering may reduce your ownership in the
Company for more information.
Neither the Securities and
Exchange Commission (the SEC) nor any securities commission of any state or other jurisdiction has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
These securities are not
savings accounts, deposits, or other obligations of any bank and are not insured or guaranteed by the Federal Deposit Insurance Corporation (the
FDIC) or any other governmental agency.
Per Share |
Total(1) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Price to
Shareholders |
$ | 0.80 | $ | 1,881,000 | ||||||
Proceeds,
before expenses, to Independence Bancshares, Inc. |
$ | 0.80 | $ | 1,881,000 |
(1) |
Assumes the purchase 2,351,250 shares of common stock in the offering. |
It is anticipated that delivery
of the shares of common stock purchased in the offering will be made on or about [], 2013.
The date of this prospectus is [], 2013
TABLE OF CONTENTS
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iii | ||||||
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11 | ||||||
26 | ||||||
27 | ||||||
28 | ||||||
29 | ||||||
30 | ||||||
33 | ||||||
34 | ||||||
34 | ||||||
35 | ||||||
35 |
You should rely only on the
information contained or incorporated by reference in this prospectus. We have not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell shares of
common stock in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is
accurate only as of the date on the front cover of this prospectus regardless of the time of delivery of this prospectus or any sale of the common
stock. Our business, financial condition, results of operations and prospects may have changed since the date of this prospectus.
In this prospectus, we rely on
and refer to information and statistics regarding the banking industry and the banking markets in South Carolina. We obtained this market data from
publicly available information.
No action is being taken in
any jurisdiction outside the United States to permit a public offering of our shares of common stock or possession or distribution of this prospectus
in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves
about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to those
jurisdictions.
Unless the context indicates
otherwise, all references in this prospectus to we, us, and our refer to Independence Bancshares, Inc. and our
wholly owned subsidiary, Independence National Bank, except that in the discussion of our capital stock and related matters, these terms refer solely
to Independence Bancshares, Inc. and not to its subsidiary. All references to the Company refer to Independence Bancshares, Inc. only, and
all references to the Bank refer to Independence National Bank only.
ii
Certain statements made or
incorporated by reference in this prospectus are forward-looking statements within the meaning of, and subject to the protections of,
Section 27A of the Securities Act of 1933 (the Securities Act) and Section 21E of the Securities Exchange Act of 1934 (the Exchange
Act). These forward-looking statements may relate to our financial condition, results of operations, plans, objectives, future performance and
business, including, but not limited to, statements with respect to the adequacy of the allowance for loan losses, market risk and the impact of
interest rate changes, capital markets conditions, capital adequacy and liquidity and the effect of new accounting guidance on our financial condition
and results of operations. All statements contained herein or incorporated by reference in this prospectus that are not clearly historical in nature
are forward-looking, and the words anticipate, believe, continues, expect, estimate,
intend, project and similar expressions and future or conditional verbs such as would, should,
could, might, can, may, or similar expressions are generally intended to identify forward-looking
statements.
These forward-looking statements
are not guarantees of future performance and involve certain risks, uncertainties, estimates and assumptions by us that are difficult to predict.
Various factors, some of which are beyond our control, could cause actual results to differ materially from those expressed in, or implied by, such
forward-looking statements. Factors that might cause such a difference include, but are not limited to, the risks described below in the Risk
Factors section, and the following:
|
our ability to comply with our consent order, including the capital directive therein, and potential regulatory actions if we fail to comply; |
|
our ability to realize recoveries or sufficient amounts on the disposition of Bank assets, including through bulk asset sales; |
|
our ability to increase our non-interest income by, among other things, offering finance, payments and mobile banking services; |
|
general economic conditions, either nationally or regionally and especially in our primary service area, being less favorable than expected, resulting in, among other things, a deterioration in credit quality; |
|
greater than expected losses due to higher credit losses generally and specifically because losses in the sectors of our loan portfolio secured by real estate are greater than expected due to economic factors, including, but not limited to, declining real estate values, increasing interest rates, increasing unemployment, or changes in payment behavior or other factors; |
|
greater than expected losses due to higher credit losses because our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral; |
|
the amount of our loan portfolio collateralized by real estate and weakness in the real estate market; |
|
the rate of delinquencies and amount of loans charged-off; |
|
the adequacy of the level of our allowance for loan losses and the amount of loan loss provisions required in future periods; |
|
the rate of loan growth in recent years and the lack of seasoning of our loan portfolio; |
|
our ability to attract and retain key personnel; |
|
our ability to retain our existing customers, including our deposit relationships; |
|
significant increases in competitive pressure in the banking and financial services industries; |
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adverse changes in asset quality and resulting credit risk related losses and expenses; |
|
changes in the interest rate environment which could reduce anticipated or actual margins; |
|
changes in political conditions or the legislative or regulatory environment, including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act and regulations adopted thereunder, changes in federal and/or state tax laws or interpretations thereof by taxing authorities and other governmental initiatives affecting the banking and financial services industries; |
iii
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changes occurring in business conditions and inflation; |
|
increased funding costs due to market illiquidity, increased competition for funding, and/or increased regulatory requirements with regard to funding; |
|
our business continuity plans or data security systems could prove to be inadequate, resulting in a material interruption in, or disruption to, business and a negative impact on results of operations; |
|
changes in deposit flows; |
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changes in technology; |
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changes in monetary and tax policies; |
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changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board and the Financial Accounting Standards Board; |
|
loss of consumer confidence and economic disruptions resulting from terrorist activities or other military actions; and |
|
other risks and uncertainties detailed in Part I, Item 1A of our Annual Report on Form 10-K and from time to time in our filings with the SEC. |
We may not actually achieve the
plans, intentions or expectations described in our forward-looking statements and you should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially from the plans, intentions and expectations described in the forward-looking statements we
make. We have included important factors in the cautionary statements included in this prospectus, particularly in the Risk Factors
section, that we believe could cause actual results or events to differ materially from those expressed or implied by our forward-looking statements.
Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in
these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve
our objectives and plans in any specified timeframe, or at all.
You should read this prospectus
and the documents that we incorporate by reference into this prospectus and have filed as exhibits to the registration statement of which this
prospectus is a part completely and with the understanding that our actual future results may be materially different from what we expect. The
information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or
any sale of our common stock.
iv
The following summary contains
certain material information about us and this offering. Because it is a summary, it may not contain all of the information that is important to you.
Before making a decision to invest in our common stock, you should read this prospectus carefully, including the section entitled Risk
Factors, and the information incorporated by reference in this prospectus, including our audited consolidated financial statements and the
accompanying notes in our Annual Report on Form 10-K for the year ended December 31, 2012.
The Company
Independence Bancshares, Inc. is
a South Carolina corporation organized to operate as a bank holding company pursuant to the Federal Bank Holding Company Act of 1956 and the South
Carolina Banking and Branching Efficiency Act of 1996, and to own and control all of the capital stock of Independence National Bank. Independence
National Bank is a national association organized under the laws of the United States and provides banking services to consumers and small- to mid-size
businesses, principally in Greenville County, South Carolina. The Bank opened for business on May 16, 2005. As of March 31, 2013, the
Company had total assets of $126.8 million, including total loans outstanding, net of an allowance for loan losses of $1.8 million, of
$65.2 million, total deposits of $99.8 million, and total shareholders equity of $19.7 million. The Company reported a net
loss of $625,550 for the quarter ended March 31, 2013, or $0.03 per share, compared to net income of $189,023 for the quarter
ended March 31, 2012, or $0.09 per share, and a net loss of $1.5 million for the quarter ended March 31, 2011,
or $0.71 per share.
On November 14, 2011, the Bank
entered into a consent order with the Office of the Comptroller of the Currency (the OCC), which, among other things, contains a
requirement that the Bank maintain minimum capital levels that exceed the minimum regulatory capital ratios for well-capitalized banks. See
Our Consent Order beginning on page 6 to read about our consent order, including actions the Bank has taken in response to the
consent order. In addition, the Company must obtain the prior written approval of the Federal Reserve Bank of Richmond (the Federal
Reserve) before (1) declaring or paying any dividends, (2) directly or indirectly accepting dividends or any other form of payment representing a
reduction in capital from the Bank, (3) making any distributions of interest, principal or other sums on subordinated debentures or trust preferred
securities, (4) directly or indirectly, incurring, increasing or guaranteeing any debt, and (5) directly or indirectly, purchasing or redeeming any
shares of its stock. Pursuant to our plans to preserve capital, the Company has no plans to undertake any of the foregoing activities.
Our primary market is Greenville
County, which is located in the upstate region of South Carolina. The cities of Fountain Inn, Greenville, Greer, Mauldin, Simpsonville, and Travelers
Rest make up Greenville County. Our primary focus is to fulfill the financial needs of small business owners, the legal community, the medical
community, insurance agencies, and customers owning and developing income producing properties primarily in the City of Greenville and the broader
Greenville metropolitan area. Independence is primarily engaged in the business of accepting demand and time deposits and providing commercial,
consumer and mortgage loans to the public. The FDIC insures deposits in the Bank. Other services that the Bank offers include online banking,
commercial cash management, remote deposit capture, safe deposit boxes, bank official checks, travelers checks, and wire transfer
capabilities.
Our main office is located in the
city of Greenville, one block off a major transportation artery, and provides excellent visibility for the Bank. In October 2007, we opened a full
service branch on Wade Hampton Boulevard in Taylors, South Carolina. In February 2009, we opened our third full service location in Simpsonville, South
Carolina at the intersection of Highways 14 and 417. These branch offices have extended the market reach of our Bank and have increased our personal
service delivery capabilities to all of our customers. As of December 31, 2012, we had 25 full-time employees and two part-time
employees.
We intend to use the proceeds of
the offering for general corporate purposes including, without limitation, to pay expenses related to the development of future business opportunities.
Future business opportunities may include traditional community banking services as well as opportunities in consumer finance, transaction processing
services, digital payments and mobile banking. We also intend to augment our board of directors and management team with senior industry professionals
with banking, payment, credit, technology and wireless telecommunications expertise. These executives will work with our current directors and
executive officers to manage the
1
implementation of our payments and transaction services business and to provide oversight to the Bank in core operating areas.
In furtherance of the development
of our future business opportunities, we engaged Mr. Gordon A. Baird in August 2012 as a consultant to advise us with respect to the development of our
payments business. Mr. Baird is a managing member and founder of MPIB Holdings, LLC (MPIB), a company focused on digital payments, mobile
banking and consumer finance. We also discussed with Mr. Baird a proposal for the Company to acquire MPIB or its assets, with the understanding that
any proposal would be subject to the successful completion of the Private Placement and receipt of any necessary regulatory approvals. MPIB was formed
in July 2011 for the purpose of developing a business model for the processing and risk management of digital and mobile payments. The business model
includes operating plans, capital plans and pricing and risk management models as well as an ability to integrate payment services with loyalty,
advertising, social media and couponing strategies, many of which we believe did not, and currently do not, readily exist in the
market today. MPIB developed the technology strategy, vendor relationships, and marketing plans for the business, and had actively marketed the
business model to potential customers. MPIB held discussions with banking regulators, banks, and community group research firms to determine the
viability and legal requirements of its proposed business model as well as designed the technology architecture and strategy for deploying a scalable
enterprise grade transaction processing business. This included methods for integrating real-time payments with wireless capabilities as well as the
development of the related intellectual property (collectively the MPIB Property). MPIBs business model contemplated a financial
institution as an integrated component of the overall strategy. As of December 31, 2012, MPIB had minimal revenues immaterial in amount and
significance and an accumulated deficit of approximately $1 million.
In August 2012, in
conjunction with our negotiations with Mr. Baird described above, we also discussed with MPIB, on an arms-length basis, a general
framework for the acquisition of MPIB (or the assets thereof). The framework included conducting due diligence and the acknowledgement that much of the
technology and related MPIB Property was not, in our opinion, readily available in the market and was not being offered to the Company by any
unaffiliated third parties. The framework consisted of negotiating towards an acquisition price that would not exceed $7 million and earn-out payments
that would not exceed 7% of the revenue generated by any digital payments business over a seven-year period as well as a condition that any acquisition
or price would be conditioned on a future capital raise, following the Private Placement and this follow-on offering. The Company anticipates retaining
an independent advisor to conduct an independent appraisal as part of any acquisition. In addition, the Board appointed a committee of disinterested
directors to negotiate and finalize any ultimate terms. We are also negotiating a license to use the MPIB Property and other
assets on an interim basis, for no additional fees. MPIB has not been granted any form of intellectual property protection relating to the MPIB
Property from the U.S. Patent and Trademark Office or other government entity that grants intellectual property protections and is exploring its
alternatives regarding the type of protection to pursue regarding such property.
On December 31, 2012, the Company
hired Mr. Baird as its Chief Executive Officer and appointed him to its board of directors. On March 27, 2013, following receipt of regulatory
non-objections, the Company entered into an employment agreement with Mr. Baird, under which he agreed to serve as Chief Executive Officer of the
Company for a term of two years. Under this agreement, Mr. Bairds employment will be automatically extended for additional one-year terms unless
the Company delivers a notice of termination at least three months prior to the end of the term. Mr. Baird is entitled to an annual base salary of
$360,000 per year, and the board of directors of the Company (or an appropriate committee thereof) will review Mr. Bairds base salary at least
annually for upward adjustment based on its evaluation of Mr. Bairds performance. In addition, Mr. Baird is eligible to receive an annual bonus
of up to 200% of his annual base salary, with a target annual bonus of 100% of his annual base salary, if the Bank achieves certain performance levels.
He is also eligible to participate in any long-term equity incentive program and is eligible for the grant of stock options, restricted stock and other
awards thereunder or under any similar plan adopted by the Company. As of May 16, 2013, Mr. Baird has received stock options to purchase 1,500,000
shares of our common stock at an exercise price of $.80 per share. Mr. Bairds employment agreement also provides that during his employment and
for a period of 12 months following termination, he may not (a) solicit customers of the Bank (other than for any transaction and financial technology
services businesses), or (b) solicit employees of the Company for employment with a competing business. Mr. Baird is not entitled to any severance
payments upon termination of his employment. Aside from the above, there are presently no definitive agreements, arrangements or understandings between
the Company and Mr. Baird or MPIB. To the extent material
2
definitive agreements are executed with Mr. Baird or MPIB, the Company will disclose material events consistent with SEC rules and regulations.
The Board believes Mr. Baird and
the acquisition of MPIB will be essential to the development of the Companys proposed new business opportunities. Mr. Baird has had an extensive
career in banking and financial services, as well as in building new financial services businesses. Mr. Baird began his career in 1990 at John Hancock
Real Estate Finance and continued it at State Street Bank and Trust Company and Citigroup Global Markets, Inc. Mr. Baird also served as an operating
advisor to Thomas H. Lee Partners from January 2011 until December 31, 2012. Mr. Baird also serves as the chairman of the audit committee and as a
board member of the Macquarie Global Infrastructure Total Return Fund, a NYSE-listed investment company. Mr. Baird is a chartered financial analyst, a
member of the New York Security Analyst Society, and a graduate of Emory University. As discussed above, Mr. Baird founded MPIB in 2011 to focus on
digital payments, mobile banking and consumer finance. Mr. Baird currently serves as the managing member of MPIB and beneficially owns approximately
90.5% of the outstanding equity interests in MPIB. As a managing member of MPIB, Mr. Baird was the companys primary executive and was responsible
for oversight and execution of the day-to-day operations of MPIB.
On April 23, 2013, following the
receipt of non-objection from the Federal Reserve, Alvin G. Hageman was appointed to the board of directors of the Company. Mr. Hageman is also a
managing member of MPIB. Previously, Mr. Hageman served as co-chief investment officer and partner of Paramax Capital Group, LLC, a private capital,
advisory and asset finance company focused exclusively on the financial services sector. Prior to that role, he spent 25 years at Citigroup, managing
multiple Citigroup regional offices and ultimately co-heading the Global Securitization, Asset-backed and Mortgage Group and overseeing 300
professional employees located in New York, London, Tokyo, and Hong Kong. Mr. Hageman has extensive experience with all asset-backed sectors, including
credit cards, auto loans, student loans, equipment loans and leases, and foreign and domestic trade receivables.
On May 16, 2013 following our
annual shareholders meeting, our board appointed Robert B. Willumstad as the new chairman of the board of directors of the Company. Mr.
Willumstad has over 35 years of experience in the banking and financial services industry, and he presently serves as a partner with Brysam Global
Partners, a specialty private equity firm that focuses in financial services, which he co-founded in 2005. Mr. Willumstad also previously served as the
chairman, and briefly as chief executive officer, of American International Group, Inc. until 2008. Prior to that, he held positions as president and
chief operating officer, as well as a director, at Citigroup. Mr. Willumstad also served for over 20 years with Chemical Bank in various capacities of
operations, retail banking and computer systems.
In addition, Keith Stock was
elected to our board of directors at our 2013 annual shareholders meeting. Mr. Stock is a managing director and head of Financial Institutions
Investment Banking for C&Co/PrinceRidge, LLC, an investment banking company, a position he has held since November 2012. In addition, since
February 2011, he has served as senior executive advisor with The Brookside Group, a private investment group, and senior managing director of First
Financial Investors, Inc., a private investment firm focused on the financial services sector. From 2004 until May 2008, Mr. Stock served as president
of MasterCard Advisors, LLC, a unit of MasterCard Worldwide, where he was a member of the MasterCard Operating Committee and Management Council. Prior
to joining MasterCard, Mr. Stock served as chairman and chief executive officer of St. Louis Bank, FSB, chairman of Treasury Bank Ltd., and as a
director of Severn Bancorp, Inc. John B. Helmers has also been proposed as a director of the Company, pending regulatory approval. Mr. Helmers is
currently principal and chief investment officer of Swiftwater Capital Management, LP, which he founded in 2004, and its associated company LFC
Partners, LLC, which he founded in 2011. These entities manage equity-based, macro, and commodity investment portfolios. From 2004 through 2007, Mr.
Helmers actively managed the Swiftwater Capital portfolio, and in 2008, he joined Citadel Investment Group to manage a macro investment portfolio until
early 2010, when he returned to Swiftwater Capital. From 1992 through 1997, Mr. Helmers ran the Goldman Sachs Commodity Index (GSCI) business as a vice
president in the J. Aron division of Goldman Sachs.
There are presently no
agreements, arrangements or understandings between the Company and any of Messrs. Hageman, Willumstad, Stock or Helmers.
We anticipate adding other
individuals to our management team, including a chief operations officer and one or more senior technology professionals, to support both the payments
business and our traditional banking business.
3
Messrs. Baird, Willumstad, Hageman, Stock and Helmers participated in the Private Placement at the same offering price of $0.80 per share and on the same terms that we offered to the other investors in the Private Placement. They invested $325,000, $1,000,000, $925,000, $100,000 and $500,000, respectively. At our 2013 annual shareholders meeting on May 16, 2013, these five individuals, none of which served as a director prior to December 31, 2012, were elected as directors along with Messrs. Hipp and McLean, who have served as directors since 2005 and 2009, respectively. However, Mr. Helmers election to the board is subject to regulatory approval, which is still pending.
We intend to use a portion of the
proceeds from our recently completed Private Placement and from this offering to explore transaction services opportunities, using our national bank
charter, our management team, and our competitive focus. However, the Bank must obtain OCC approval to expand its business model and there can be no
assurances that the Bank will receive OCC approval or be successful in implementing the steps necessary to expand its business. Regardless of whether
we expand our business model, we will continue serving as a full-service traditional community bank, fulfilling the financial needs of individuals and
small business owners in our existing market area. We will continue to provide traditional checking and savings products and commercial, consumer and
mortgage loans to the general public, as well as ATM and online banking services, commercial cash management, remote deposit capture, safe deposit
boxes, bank official checks, travelers checks, and wire transfer capabilities.
In addition, in February 2013 we
adopted a new equity incentive plan, the Independence Bancshares, Inc. 2013 Equity Incentive Plan (the 2013 Incentive Plan), to replace the
Independence Bancshares, Inc. 2005 Stock Incentive Plan (the 2005 Incentive Plan). The 2013 Incentive Plan reserves 2,466,720 shares of
common stock of the Company for the issuance of equity compensation awards, including stock options, to our executive officers, other employees, and
directors and includes an evergreen provision that provides that the number of shares of common stock available for issuance under the 2013 Incentive
Plan automatically increases each time the Company issues additional shares of common stock so that the number of shares available for issuance under
the 2013 Incentive Plan (plus any shares reserved under the 2005 Incentive Plan) continues to equal 20% of the Companys total outstanding shares,
assuming all shares under the 2005 Incentive Plan and the 2013 Incentive Plan are exercised. The 2013 Incentive Plan is an omnibus plan and therefore
also provides for the issuance of other equity compensation, including restricted stock and stock appreciation rights, to our employees and directors.
We anticipate that we will grant awards for virtually all of these shares to our executive officers, other employees, and directors over the 12 to 24
month period following this offering.
The Offering
Reasons for the Offering.
We would like to provide our Shareholders prior to the close of the Private Placement with the opportunity to invest in our common stock on the same
terms and conditions as those provided to our investors in the Private Placement. On December 31, 2012, we consummated the Private Placement of our
common stock pursuant to which we issued 17,648,750 shares of our common stock at $0.80 per share to certain accredited investors, including members of
our board of directors, for cash proceeds of approximately $14.1 million. We incurred offering expenses of $1.5 million.
Terms of the Offering. We
are offering to holders of our common stock prior to the close of the Private Placement the opportunity to purchase up to 2,351,250 shares of our
common stock at a price of $0.80 per share. A minimum investment of $1,000 is required to purchase shares in the offering, which requirement we may
waive in our sole discretion. This is not a rights offering, and we reserve the right to accept or reject subscriptions from any Shareholders in whole
or in part for any reason. We reserve the right to permit Shareholders to purchase shares in the offering in another persons name, provided it is
done solely for estate planning purposes. We reserve the right, in our sole discretion, to not offer the shares in those states where existing
shareholders or prospective purchasers reside, where compliance with the states securities laws would require that we register the shares for
issuance under the states securities laws or where, in our sole discretion, compliance with those laws would be burdensome or otherwise would not
be in our, or our shareholders, best interests.
We currently anticipate that if
our Shareholders oversubscribe for the offering we will allocate shares of our common stock on a pro rata basis in accordance with the
Shareholders ownership in the Company. However, we reserve the right to allocate shares of our common stock according to other methods, including
allocating shares on a first come, first served basis or any other method as we may determine to be appropriate under the circumstances as
they may exist at the time. All funds received from subscriptions will be placed in a segregated
4
non-interest bearing account at the Bank pending our acceptance of the associated subscriptions. We reserve the right, in our sole discretion, to accept or reject any subscription in whole or in part on or before the expiration date of this offering. We will notify all subscribers within 10 business days after the earlier of the offering expiration date or the sale of all of the shares being offered in the offering whether their subscriptions have been accepted. If the offering is not completed, or if any part of your subscription is not accepted, your funds will be returned, without interest, as soon as practicable. We reserve the right to withdraw, cancel, modify, or terminate the offering of the shares at any time without notice.
There is no minimum number of
shares that must be sold or minimum subscription amount required for consummation of the offering. As a result, if you purchase shares of common stock
in the offering you could be the only purchaser in the offering. The offering to the Shareholders will expire upon the earlier of the sale of all
2,351,250 shares of common stock or at 5:00 p.m., Eastern Standard time, on [], 2013, unless extended for up to an additional 30 days by our
board of directors, in their sole discretion. We do not intend to extend the Expiration Date. The offering will be made directly by us. We will not use
an underwriter or a selling agent.
Determination of the Offering
Price. The $0.80 price of the shares offered in the Private Placement and this offering was determined by us based on a variety of factors,
including:
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the results of negotiations with investors in the Private Placement; |
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our current performance; |
|
the earnings per share and the per share book value of our common shares; |
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the trading history of our common shares; |
|
our operating history and prospects for future earnings; |
|
discussions with advisors; |
|
the prospects of the banking industry in which we compete; |
|
the general condition of the securities markets, both currently and at the time of the Private Placement; and |
|
the prices of equity securities and equity equivalent securities of comparable companies. |
Current market price was not the
most significant factor in the boards price setting determination because our shares are thinly traded and trades can artificially influence our
share price in any one day. Instead, one of the most significant of the above factors was our negotiations with investors in the Private Placement.
These were arms-length negotiations with independent, third parties that we believe provided definitive evidence of what a willing buyer is prepared to
pay for our shares based on that buyers evaluation of the Company.
Impact on Regulatory
Capital. The consent order contains a requirement that the Bank maintain minimum capital levels that exceed the minimum regulatory capital ratios
for well-capitalized banks. The minimum capital ratios for a bank are generally 8% for total capital, 4% for Tier 1 capital and 4% for
leverage. To be eligible to be classified as well-capitalized, a bank must generally maintain a total capital ratio of 10% or more, a Tier
1 capital ratio of 6% or more, and a leverage ratio of 5% or more. The consent order required the Bank to achieve Tier 1 capital at least equal to 9%
of adjusted total average assets, Tier 1 risk based capital at least equal to 10%, and total risk based capital at least equal to 12% of risk-weighted
assets by March 31, 2012. The Bank did not achieve these higher capital requirements by March 31, 2012. However, as a result of the Companys
contribution of capital from the net proceeds of the Private Placement, the Banks capital levels exceeded the minimum amounts specified in the
consent order as of December 31, 2012. The Company made an additional contribution of capital on March 31, 2013, and as of that date, the Banks
total capital, Tier 1 capital, and leverage ratios were 14.7%, 13.4%, and 9.1%, respectively. Following this offering, the Banks capital ratios
will not change unless capital is contributed from the Company to the Bank. Currently, the Company does not have definitive plans to contribute
additional capital to the Bank. See Capitalization beginning on page 27 for more information.
How to Participate. If you
were a shareholder prior to the close of the Private Placement, you may participate in this offering by properly completing and signing the
subscription agreement accompanying this prospectus,
5
including the Form W-9, and returning the subscription agreement to us with payment in the amount of $0.80 times the number of shares you wish to purchase.
If you are a beneficial owner of
shares that are registered in the name of a broker, dealer, custodian bank, or other nominee, you may participate in this offering by instructing your
broker, dealer, custodian bank, or other nominee to exercise your subscription agreement on your behalf and deliver the subscription agreement, along
with payment for the shares you wish to purchase, to us. Nominees, such as brokers, dealers, custodian banks, trustees or depositories for securities,
who hold shares for the account of others, should notify the respective beneficial owners of the shares as soon as possible to ascertain the beneficial
owners intentions with respect to participating in this offering. If the beneficial owner so instructs, the nominee should exercise the
subscription agreement on behalf of the beneficial owner and arrange for proper payment as described below.
Your subscription agreement,
together with payment in full of the subscription price, must be received by us by 5:00 p.m., Eastern Standard time, on [], 2013. Payment for the
subscription price may be made (i) by check payable to the order of Independence Bancshares, Inc. or (ii) by wire transfer to
Independence Bancshares, Inc., [], with reference to the shareholders name, in the amount of $0.80 times the number of shares
you wish to purchase. Subscription agreements and payment (if by check) should be mailed to:
Independence Bancshares, Inc.
Attn: Martha L. Long
500 East Washington Street
Greenville, South Carolina 29601
Attn: Martha L. Long
500 East Washington Street
Greenville, South Carolina 29601
You are solely responsible for
timely completing delivery to us of your subscription agreement and payment. We urge you to allow sufficient time for delivery of your subscription
agreement.
If we accept your subscription,
upon receipt of proper payment and a completed and duly executed subscription agreement, you will receive a certificate representing the number of
shares purchased and accepted by us, which will be validly issued, fully paid, and nonassessable. Certificates will be mailed as soon as reasonably
possible following consummation of the offering.
Our Consent Order
Like many other financial
institutions across the United States and in South Carolina, our operations have been adversely affected by the weak economic environment of the past
few years. On November 14, 2011, the Bank entered into the consent order with the OCC. A summary of the requirements of the consent order and the
Banks efforts in complying with the consent order is as follows:
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Article I requires the board to maintain a compliance committee to oversee the Banks efforts to comply with the consent order. The committee is required to meet monthly and to oversee, track, and report the Banks progress on a monthly basis to the OCC. Since November 2011, the compliance committee has met monthly to review written progress reports provided by management and then reported to the board the status of actions needed to achieve full compliance with each article of the Consent Order. These reports are forwarded to the OCC on a monthly basis. Therefore, we believe the Bank is currently in compliance with this article of the consent order. |
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Article II required the board to reassess whether the Bank has competent and effective board oversight and management in place, on a full-time basis, to carry out the boards policies and to ensure compliance with the consent order and applicable laws and regulations, as well as to oversee the day-to-day operations of the Bank. An independent assessment of the board and management was conducted by an outside consultant and submitted to the OCC in January 2012. Although the assessment concluded that the existing board and management possess the skills and expertise necessary to comply with the consent order and to operate the Bank in a safe and sound manner, the assessment included several recommendations for the board and management. We believe the Bank is currently in compliance with this article of the consent order because the Bank completed the independent assessment and is implementing the recommendations. |
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Article III required the board to develop a written analysis of its decision to sell, merge, or liquidate the Bank, or to remain independent. In the event the board decided to remain independent, this article required |
6
the development and adoption of a three-year written strategic plan. The board completed this written analysis and submitted it to the OCC in February 2012, stating that it would seek a merger partner but would also continue to pursue other alternatives, including raising capital. On August 30, 2012, the board submitted a revised capital plan to the OCC, stating that the Company was seeking to raise $15 million through a private placement offering of common stock. On September 20, 2012, the OCC accepted this plan as an alternative to the required plan to sell or merge the Bank or to implement a voluntary liquidation. We have completed all the requirements of this article, but we are not considered to be in compliance until all articles are in compliance. |
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Article IV requires the Bank to achieve and maintain Tier 1 capital at least equal to 9% of adjusted total average assets, Tier 1 risk based capital at least equal to 10% or risk-weighted assets, and total risk based capital at least equal to 12% of risk-weighted assets by March 31, 2012, and to develop a revised capital plan. Because we did not reach the required minimum capital levels by March 31, 2012, the OCC required the Bank to submit a disposition plan that details the boards proposal to sell, merge, or liquidate the Bank. We submitted the disposition plan on August 30, 2012, and on September 20, 2012, the OCC stated that it did not object to our efforts to raise capital in this manner (the OCC noted that its letter was not an approval of our new business plan or a promise to release the Bank from the consent order). With funds from the Private Placement, the Company was able to make a capital contribution of $2.25 million to the Bank. As a result, the Banks capital levels are now above the minimum amounts specified in the consent order. However, we will not be considered to be in compliance with this article until the Bank returns to sustained core earnings. |
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Article V requires the board to revise, adopt, and implement a profit plan, including a realistic and comprehensive budget, to improve and sustain earnings. The board submitted its original profit plan to the OCC on February 24, 2012, and has since revised and submitted a new profit plan to the OCC. However, we will not be considered to be in compliance with this article until the Bank returns to sustained core earnings. |
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Article VI requires the development of a comprehensive liquidity risk management program that assesses the Banks current and projected funding needs and ensures that sufficient funds or access to funds exists. The board submitted its revised comprehensive liquidity risk management program, including example monitoring reports and revised policies, to the OCC on February 24, 2012. Based upon subsequent communications from the OCC, the Bank believes it is currently in compliance with this requirement of the consent order. |
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Article VII requires (i) the Bank to take immediate and continuing action to reduce the level of credit risk within the Bank and to protect its interest in criticized assets, (ii) the board to adopt, implement, and ensure adherence to a written program designed to eliminate the basis of criticism for criticized assets, (iii) the board to submit written progress reports to the OCC, and (iv) the Bank to extend credit, directly or indirectly, to criticized borrowers with aggregate loans that exceed $300,000 only if it is in the best interests of the Bank. The Bank has completed all requirements under this article, except for the reduction of classified assets. Therefore, the OCC has deemed the Bank not in compliance with this article until the adversely classified index is lowered. The board and management have developed a written program to lower the Banks adversely classified index to an acceptable level following the closing of this offering. |
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Article VIII requires the board to develop, implement, and thereafter ensure Bank adherence to an updated written program to improve the Banks loan portfolio management, calls for improved systems relative to, among others, sound credit analysis, proper classification, and satisfactory collateral documentation, and specifically requires the Bank to have systems that provide for effective ongoing monitoring of the loan portfolio. The Board submitted its revised comprehensive loan portfolio management program, including example monitoring reports and revised policies, to the OCC on February 24, 2012. Based upon subsequent communications from the OCC, the Bank believes it is currently in compliance with this article of the consent order. |
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Article IX requires the board to review and revise as necessary, adopt, implement, and thereafter adhere to a written asset diversification program consistent with applicable OCC guidance. The Board submitted |
7
its revised asset diversification program, including example monitoring reports and revised policies, to the OCC on February 24, 2012. Based upon subsequent communications from the OCC, the Bank believes it is currently in compliance with this article of the consent order. |
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Article X requires the board to obtain current and satisfactory credit information on all loans lacking such information, including loans listed in the previous report of examination or identified by any loan review, and to ensure that proper collateral documentation is maintained on all loans. This article also prohibits the Bank from granting, extending, renewing, or modifying any loan without certifying that satisfactory credit information and collateral valuation information has been received. The Bank believes it has taken all requisite action to comply with this provision and is not aware of any violations of this provision of the consent order. |
We intend to take all actions
necessary to enable the Bank to comply with the requirements of the consent order, and as of the date hereof, we believe we have submitted all
documentation required to the OCC. We believe we are currently in compliance with the requirements of the consent order, except for the provisions
addressing asset quality and consequently, the impact that asset quality has on capital, strategic planning, and profitability. We are working to
improve the quality of the Banks balance sheet by reducing our adversely classified index. This reduction can be achieved by enforcing our
contractual rights under respective loan documents, the repossession and sale of related collateral, improving market conditions of the collateral or
borrower status, the transfer of assets to the Company, or single or bulk asset sales of our classified assets. We intend to work with the OCC to
determine how much of our adversely classified portfolio we may dispose of and when the disposition should be made to permit the Bank to be in
compliance with this requirement and, ultimately, released from the consent order. However, the determination of our compliance will be made by the
OCC, and there can be no assurance that the OCC will determine that we are in compliance with the provisions of the consent order as described above.
Failure to meet the requirements of the consent order could result in additional enforcement remedies, including civil money penalties and/or sanctions
as the OCC considers appropriate, which could have a material impact on our financial condition. In addition, the OCC may amend the consent order based
on the results of their ongoing examinations of the Bank.
Aside from the initial capital
contribution to the Bank, we have not designated a specific amount of net proceeds from the Private Placement for any particular purpose. At present,
we intend to use the net proceeds of the Private Placement and the offering for general corporate purposes, including but not limited to pay expenses
related to the development of future business opportunities. Future business opportunities are intended to include both traditional community banking
services as well as opportunities in consumer finance, transaction processing services, digital payments and mobile banking. However, under our consent
order, the Bank must obtain OCC approval to expand its existing business model and there can be no assurances that the Bank will receive OCC approval
or be successful in implementing the steps necessary to expand its business model.
Corporate Information
Our principal executive offices
are located at 500 East Washington Street, Greenville, South Carolina 29601, and our telephone number is (864) 672-1776. Our website is
www.independencenb.com. No additional information on our website is deemed to be part of or incorporated by reference into this prospectus. We have
included our website address in this prospectus solely as an inactive textual reference.
Risk Factors
Before investing, you should
carefully consider the information set forth under Risk Factors, beginning on page 11 for a discussion of the risks related to an
investment in our common stock.
8
Summary of the Terms of the Offering
Common stock
offered by us |
2,351,250 shares offered to our Shareholders prior to the close of the Private Placement. |
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Offering price
|
$0.80
per share. |
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Common stock
outstanding after the offering |
22,085,010 shares, assuming all 2,351,250 shares of common stock offered to Shareholders are purchased. Unless otherwise indicated, information contained in this prospectus regarding the number of shares of our common stock outstanding after this offering does not include: |
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337,500 shares of common stock issuable upon exercise of outstanding warrants issued to the Banks organizers in 2005,
with an exercise price of $10.00 per share and an expiration date of May 16, 2015; |
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3,123,505 shares of common stock underlying outstanding stock options with a weighted average exercise price of $1.10 per
share, 553,505 of which are vested; and |
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Up to 2,397,748 shares of common stock which have been reserved for issuance under our 2005 Incentive Plan or our 2013
Incentive Plan upon completion of this offering, assuming the Company issues all 2,351,250 shares of common stock in this offering. |
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Minimum
subscription |
A
minimum investment of $1,000 is required to purchase shares in the offering. We may waive this requirement, in our sole discretion. |
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Conditions of the
offering |
Completion of the offering is not conditioned upon our receiving a minimum total offering amount, and there are no escrow arrangements with
respect to this offering. All funds received from subscriptions will be placed in a segregated non-interest bearing account at the Bank pending our
acceptance of the associated subscriptions. Accordingly, subscription funds that we receive and accept will be available for our immediate use. Once we
accept a subscription, it cannot be withdrawn without our consent. If we reject a subscription in whole or in part, the rejected portion of the
subscription funds will be promptly returned to the subscriber, without interest. |
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We
reserve the right, in our sole discretion, to accept or reject any subscription in whole or in part on or before the expiration date of this offering.
We reserve the right, in our sole discretion, to not offer the shares in those states where existing shareholders or prospective purchasers reside,
where compliance with the states securities laws would require that we register the shares for issuance under the states securities laws or
where, in our sole discretion, |
9
compliance with those laws would be burdensome or otherwise would not be in our, or our shareholders, best interests. We reserve the
right to withdraw, cancel, modify, or terminate the offering of the shares at any time without notice. |
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Net proceeds
|
We
anticipate that the net proceeds from the offering of our common stock will be $1.83 million assuming we sell all 2,351,250 shares. We anticipate
expenses of approximately $55,000. |
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Use of proceeds
|
We
intend to use the proceeds of the offering for general corporate purposes, including but not limited to paying expenses related to the development of
future business opportunities. Future business opportunities are intended to include both traditional community banking services as well as
opportunities in consumer finance, digital payments, transaction services and mobile banking. However, the Bank must obtain OCC approval to expand its
business model and there can be no assurances that the Bank will receive OCC approval or be successful in implementing the steps necessary to expand
its business model. See Use of Proceeds on page 26. |
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Dividends on
common stock |
We
are currently prohibited from declaring or paying any dividends without the prior written approval of the Federal Reserve Bank of Richmond. We do not
anticipate paying dividends for the foreseeable future. See Market for Our Common Stock and Dividend Policy on page
29. |
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Market for common
stock |
Our
common stock is not listed on any national securities exchange. Our common stock is quoted on the OTCBB under the symbol IEBS. The average
daily trading volume for our common shares is less than larger financial institutions. Due to its relatively small trading volume, it may be difficult
for holders to resell their shares at prices they find attractive, or at all. See Market for Our Common Stock and Dividend Policy on
page 29. |
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Risk factors
|
You
should read the Risk Factors beginning on page 11, as well as other cautionary statements throughout or incorporated by reference in
this prospectus, before investing in shares of our common stock. |
10
An investment in our common
stock involves risks. In evaluating an investment in our common stock, you should consider carefully the risks described below, which discuss the most
significant factors that affect an investment in our common stock, together with the other information included or incorporated by reference in this
prospectus, including the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2012, and the risks we have
highlighted in other sections of this prospectus. If any of the events described in the following risk factors actually occurs, or if additional risks
and uncertainties not presently known to us or that we currently deem immaterial, materialize, then our business, results of operations and financial
condition could be materially adversely affected. If this were to happen, the value of our common stock could decline, and if you invest in our common
stock, you could lose all or part of your investment.
The discussion below
highlights some important risks we have identified related to our business and operations and an investment in shares of our common stock, but these
should not be assumed to be the only factors that could affect our future performance and condition, financial and otherwise. We do not have a policy
of updating or revising forward-looking statements except as otherwise required by law, and silence by management over time should not be construed to
mean that actual events are occurring as estimated in such forward-looking statements.
Risks Related to the Companys
Business
Our failure to comply with provisions of our consent order with the OCC could subject us to further enforcement action and reputational
damage.
On November 14, 2011, the Bank
entered into a consent order with the OCC, which, among other things, contains a requirement that the Bank maintain minimum capital levels that exceed
the minimum regulatory capital ratios for well-capitalized banks. The minimum capital ratios for a bank are generally 8% for total capital,
4% for Tier 1 capital and 4% for leverage. To be eligible to be classified as well-capitalized, a bank must generally maintain a total
capital ratio of 10% or more, a Tier 1 capital ratio of 6% or more, and a leverage ratio of 5% or more. The consent order required the Bank to achieve
Tier 1 capital at least equal to 9% of adjusted total average assets, Tier 1 risk based capital at least equal to 10%, and total risk based capital at
least equal to 12% of risk-weighted assets by March 31, 2012. The Bank did not achieve these higher capital requirements by March 31, 2012, and as a
result, the OCC deemed the Bank not to be in compliance with a majority of the Articles in the consent order, all of which were dependent on the Bank
achieving these higher capital requirements. On December, 31, 2012, in connection with the closing of the Private Placement, the Company made a capital
contribution of $2.25 million to the Bank, and on March 31, 2013, the Company contributed an additional $750,000. As a result, the Banks capital
levels are now above the higher minimum capital levels specified in the consent order, and the Bank is in compliance with a majority of the Articles in
the consent order. However, as we are still subject to the consent order, the OCC has the authority to subject us to further enforcement remedies,
including civil money penalties and/or sanctions the OCC considers appropriate. Further, as long as the higher minimum capital levels imposed by the
consent order remain in place, the Bank will not be deemed well-capitalized regardless of its capital levels. As of March 31, 2013, the
Bank was considered adequately capitalized.
If we fail to comply with the
terms of the consent order, the OCC has the authority to subject us to a cease and desist order with more restrictive terms, to impose civil money
penalties on us and our directors and officers, and, under certain circumstances, to remove directors and officers from their positions with the Bank,
which could have a material adverse effect on our business.
We may be required to raise additional capital in the
future but that capital may not be available when it is needed.
We are required by regulatory
authorities to maintain certain levels of capital considered adequate to support our operations. Our ability to raise additional capital, when needed,
will depend in part on conditions in the capital markets at that time, which are outside our control. Accordingly, we cannot assure you of our ability
to raise additional capital, if needed, on terms acceptable to us. If we cannot raise additional capital when needed, our ability to meet the higher
minimum capital ratios in the consent order could be materially impaired.
11
If we do not generate positive cash flow and
earnings, there will be an adverse effect on our future results of operations.
For the quarters ended March 31,
2013 and 2012, we incurred a net loss of $625,550 and net income of $189,023, respectively. In light of the current economic environment, significant
additional provisions for loan losses may be necessary to supplement the allowance for loan losses in the future. As a result, we may incur significant
additional credit costs in 2013, which could adversely impact our financial condition, results of operations, and the value of our common
stock.
If our nonperforming assets increase, our earnings
will be adversely affected.
At March 31, 2013, our
nonperforming assets (which consist of nonaccrual loans and other real estate owned) totaled $8.5 million, or 6.7% of total assets. At December 31,
2012, our nonperforming assets were $9.2 million, or 7.4% of total assets. Our nonperforming assets adversely affect our net income in various
ways:
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We do not record interest income on nonaccrual loans or real estate owned. |
|
We must provide for probable loan losses through a current period charge to the provision for loan losses. |
|
Noninterest expense increases when we must write down the value of properties in our other real estate owned portfolio to reflect changing market values. |
|
There are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance, and maintenance fees related to other real estate owned. |
|
The resolution of nonperforming assets requires the active involvement of management, which can distract them from more profitable activity. |
If additional borrowers become
delinquent and do not pay their loans and we are unable to successfully manage our nonperforming assets, our losses and troubled assets could increase
significantly, which could have a material adverse effect on our results of operations.
If we are unable to generate additional noninterest
income, it could have a material adverse effect on our business.
In order to thrive in a
competitive community banking market, we will need to generate additional sources of noninterest income. For the quarters ended March 31, 2013 and
2012, we generated noninterest income of $39,413 and $62,682, respectively. Our largest component of noninterest income is residential loan origination
fees. Due to the changes in mortgage loan underwriting and compensation regulations, as well as customer demand, there can be no assurance that the
Bank will continue to generate additional residential loan origination fees.
We intend to use the net proceeds
of the offering to, among other things, enhance our ability to generate additional noninterest income, including through offering consumer finance,
payments and mobile banking services. We also expect to offer other products and services, which may include secured credit cards, general purpose
reloadable prepaid cards, loyalty cards, and services. To the extent we propose to offer these services through the Bank, under our consent order, the
Bank must obtain OCC approval to expand its existing business model, and there can be no assurances that the Bank will receive OCC approval or be
successful in implementing the steps necessary to expand its business model. If we are unable to generate additional noninterest income by expanding
our business model or through other means, it could have a material adverse effect on our business.
We have sustained losses from a decline in credit
quality and may see further losses.
Our ability to generate earnings
is significantly affected by our ability to properly originate, underwrite and service loans. We have sustained losses primarily because borrowers,
guarantors or related parties have failed to perform in accordance with the terms of their loans and we failed to detect or respond to deterioration in
asset quality in a timely manner. We could sustain additional losses for these reasons. Further problems with credit quality or asset quality could
cause our interest income and net interest margin to further decrease, which could adversely affect our business, financial condition and results of
operations. We have recently identified credit deficiencies with respect to certain loans in our loan portfolio that are primarily related to the
downturn in the real estate industry. As a result of the decline in the value of commercial real estate, the value of these loans has declined
substantially.
12
In response to this determination, and to address the risks inherent within our loan portfolio, we increased our loan loss reserve throughout 2010 and 2011 to a total loan loss reserve of $2.1 million, or 2.74% of gross loans, at December 31, 2011. Throughout 2012 and through March 31, 2013, we have consistently applied our formulaic methodology in calculating the reserve, and because charge offs are beginning to drop, our reserve is gradually matching the experience factors. At March 31, 2013, and December 31, 2012, our loan loss reserve was $1.8 million, or 2.67% of gross loans, and $1.9 million, or 2.64% of gross loans, respectively. Although credit quality indicators generally have showed signs of stabilization in 2012 and the first quarter of 2013, further deterioration in the South Carolina real estate market as a whole or individual deterioration in the financial condition of our borrowers may cause management to adjust its opinion of the level of credit quality in our loan portfolio. Such a determination may lead to an additional increase in our provisions for loan losses, which could also adversely affect our business, financial condition, and results of operations.
Negative developments in the financial industry and
credit markets, and the impact of new legislation in response to these developments, may negatively affect our operations.
Negative developments that began
in the latter half of 2007 and that have continued through 2012 in the global credit and securitization markets have resulted in unprecedented
volatility and disruption in the financial markets and a general economic downturn. As a result, bank regulatory agencies have been active in
responding to concerns and trends identified in examinations, including by issuing a historically high number of formal enforcement orders over the
past three years. In addition, significant new federal laws and regulations relating to financial institutions have been adopted, including, without
limitation, the American Recovery and Reinvestment Act, and the Dodd-Frank Act. Negative developments in the financial industry and the domestic and
international credit markets, and the impact of new legislation and bank examination practices in response to those developments, may negatively impact
our operations by restricting our business operations, including our ability to originate or sell loans, and adversely impact our financial
performance. We can provide no assurance regarding the manner in which any new laws and regulations will affect us.
A significant portion of our loan portfolio is
secured by real estate, and events that negatively impact the real estate market hurt our business.
As of March 31, 2013,
approximately 84% of our loans had real estate as a primary or secondary component of collateral. The real estate collateral in each case provides an
alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. A continued
weakening of the real estate market in our primary market area has resulted in an increase in the number of borrowers who have defaulted on their loans
and a reduction in the value of the collateral securing their loans, which in turn has adversely affected our profitability and asset quality. If we
are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, our earnings and capital
could be adversely affected. Acts of nature, including hurricanes, tornados, earthquakes, fires and floods, which may cause uninsured damage and other
loss of value to real estate that secures these loans, may also negatively impact our financial condition.
Our decisions regarding credit risk and reserves for
loan losses may materially and adversely affect our business.
Making loans and other extensions
of credit is an essential element of our business. Although we seek to mitigate risks inherent in lending by adhering to specific underwriting
practices, our loans and other extensions of credit may not be repaid. The risk of nonpayment is affected by a number of factors,
including:
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the duration of the credit; |
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credit risks of a particular customer; |
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changes in economic and industry conditions; and |
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in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral. |
We attempt to maintain an
appropriate allowance for loan losses to provide for potential losses in our loan portfolio. We periodically determine the amount of the allowance
based on consideration of several factors, including:
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an ongoing review of the quality, mix, and size of our overall loan portfolio; |
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historical loan loss experience; |
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evaluation of economic conditions; |
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regular reviews of loan delinquencies; and |
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the amount and quality of collateral, including guarantees, securing the loans. |
The determination of the
appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of
current credit risks and future trends, all of which may undergo material changes. Continuing deterioration in economic conditions affecting borrowers,
new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may
require an increase in the allowance for loan losses. In addition, regulatory agencies periodically review our allowance for loan losses and may
require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of
management. In addition, if charge-offs in future periods exceed the allowance for loan losses, we will need additional provisions to increase the
allowance for loan losses. Any increases in the allowance for loan losses will result in a decrease in net income and, possibly, capital, and may have
a material adverse effect on our financial condition and results of operations.
While we generally underwrite the
loans in our portfolio in accordance with our own internal underwriting guidelines and regulatory supervisory guidelines, in certain circumstances we
have made loans which exceed either our internal underwriting guidelines, supervisory guidelines, or both. We are permitted to hold loans that exceed
supervisory guidelines up to 100% of our regulatory capital. We have made loans that exceed our internal guidelines to a limited number of our
customers who have significant liquid assets, net worth, and amounts on deposit with the Bank. As of March 31, 2013, approximately $3.5 million of our
loans, or 29.5% of our Banks regulatory capital, had loan-to-value ratios that exceeded regulatory supervisory guidelines. In addition,
supervisory limits on commercial loan-to-value exceptions are generally set at 30% of our Banks capital. At March 31, 2013, $2.1 million of our
commercial loans, or 18.2% of our Banks regulatory capital, exceeded the supervisory loan-to-value ratio. The number of loans in our portfolio
with loan-to-value ratios in excess of supervisory guidelines, our internal guidelines, or both could increase the risk of delinquencies and defaults
in our portfolio.
Continuation of the economic downturn could reduce
our customer base, our level of deposits, and demand for financial products such as loans.
Our success significantly depends
upon the growth in population, income levels, deposits, and housing starts in our markets. The current economic downturn has negatively affected the
markets in which we operate and, in turn, the quality of our loan portfolio. If the communities in which we operate do not grow or if prevailing
economic conditions locally or nationally remain unfavorable, our business may not succeed. A continuation of the economic downturn or prolonged
recession would likely result in the continued deterioration of the quality of our loan portfolio and reduce our level of deposits, which in turn would
hurt our business. Interest received on loans represented approximately 87% of our interest income for the quarter ended March 31, 2013. If the
economic downturn continues or a prolonged economic recession occurs in the economy as a whole, borrowers will be less likely to repay their loans as
scheduled. Moreover, in many cases the value of real estate or other collateral that secures our loans has been adversely affected by the economic
conditions and could continue to be negatively affected. Unlike many larger institutions, we are not able to spread the risks of unfavorable local
economic conditions across a large number of diversified economies. A continued economic downturn could, therefore, result in losses that materially
and adversely affect our business.
Changes in economic conditions, in particular an
economic slowdown in South Carolina, could materially and negatively affect our business.
Our business is directly impacted
by factors such as economic, political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in
government monetary and fiscal policies and inflation, all of which are beyond our control. Any further deterioration in economic conditions, whether
caused by national or local concerns, in particular any further economic slowdown in South Carolina, could result in the following consequences, any of
which could hurt our business materially: loan delinquencies may increase; problem assets and foreclosures may increase; demand for our products and
services may decrease; low cost or noninterest bearing deposits may decrease; and collateral for loans made by us, especially real estate, may decline
in value,
14
in turn reducing customers borrowing power, and reducing the value of assets and collateral associated with our existing loans. The State of South Carolina and certain local governments in our market area continue to face fiscal challenges upon which the long-term impact on the States or the local economy cannot be predicted.
Our small- to medium-sized business target markets
may have fewer financial resources to weather a downturn in the economy.
We target the banking and
financial services needs of small- and medium-sized businesses. These businesses generally have fewer financial resources in terms of capital borrowing
capacity than larger entities. If general economic conditions continue to negatively impact these businesses in the markets in which we operate, our
business, financial condition, and results of operation may be adversely affected.
Lack of seasoning of our loan portfolio may increase
the risk of credit defaults in the future.
Due to our short operating
history, all of the loans in our loan portfolio and our lending relationships are of relatively recent origin. In general, loans do not begin to show
signs of credit deterioration or default until they have been outstanding for some period of time, a process we refer to as seasoning. As a
result, a portfolio of older loans will usually behave more predictably than a newer portfolio. Because our loan portfolio is relatively new, the
current level of delinquencies and defaults may not be representative of the level that will prevail when the portfolio becomes more seasoned, which
may be higher than current levels. If delinquencies and defaults increase, we may be required to increase our provision for loan losses, which would
adversely affect our results of operations and financial condition.
We depend on the accuracy and completeness of
information about customers and counterparties, and our financial condition could be adversely affected if we have been provided misleading
information.
In deciding whether to extend
credit or to enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers
and counterparties, including financial statements and other financial information, which we do not independently verify. We also may rely on
representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on
reports of independent auditors. For example, in deciding whether to extend credit to customers, we may assume that a customers audited financial
statements conform with generally accepted accounting principles (GAAP) and present fairly, in all material respects, the financial
condition, results of operations and cash flows of the customer. Our financial condition and results of operations could be negatively impacted to the
extent we rely on financial statements that do not comply with GAAP or are materially misleading.
Changes in interest rates affect our interest
margins, which can adversely affect our profitability.
Our results of operations are
affected by credit policies of monetary authorities, particularly the Federal Reserve. Our profitability depends to a significant extent on our net
interest income, which is the difference between interest income on interest-earning assets, such as loans and investments, and interest expense on
interest-bearing liabilities, such as deposits and borrowings. Interest rates are highly sensitive to many factors beyond our control, including
general economic conditions and policies of various governmental and regulatory agencies. Changes in monetary policy, including changes in interest
rates, could influence not only the interest we receive on loans and securities and the interest paid on deposit and borrowings, but those changes
could also affect our ability to originate loans and obtain deposits. Our net interest income will be adversely affected if market interest rates
change such that the interest paid on deposits and borrowings increases faster than interest earned on loans and investments.
We may not be able to adequately anticipate and
respond to changes in market interest rates.
We may be unable to anticipate
changes in market interest rates, which are affected by many factors beyond our control including, but not limited to, inflation, recession,
unemployment, money supply, monetary policy, and other changes that affect financial markets both domestic and foreign. Our net interest income is
affected not only by the level and direction of interest rates, but also by the shape of the yield curve and relationships between interest sensitive
instruments and key driver rates, as well as balance sheet growth, customer loan and deposit preferences, and the timing of changes in these variables.
In the event rates increase, our interest costs on liabilities may increase more rapidly than our income on interest earning assets, resulting in a
deterioration of net interest margins. As such,
15
fluctuations in interest rates could have significant adverse effects on our financial condition and results of operations.
In addition, our mortgage
operations provide a portion of our noninterest income. We generate mortgage revenues primarily from gains on the sale of residential mortgage loans
pursuant to programs currently offered by Fannie Mae, Ginnie Mae or Freddie Mac. In a rising or higher interest rate environment, our originations of
mortgage loans may decrease, resulting in fewer loans that are available to be sold to investors, which would decrease mortgage revenues in noninterest
income. In addition, our results of operations are affected by the amount of noninterest expenses associated with mortgage activities, such as salaries
and employee benefits, other loan expense, and other costs. During periods of reduced loan demand, our results of operations may be adversely affected
to the extent that we are unable to reduce expenses commensurate with the decline in loan originations.
Competition with other financial institutions may
have an adverse effect on our ability to retain and grow our client base, which could have a negative effect on our financial condition or results of
operations.
The banking and financial
services industry is very competitive and includes services offered from other banks, savings and loan associations, credit unions, mortgage companies,
other lenders, and institutions offering uninsured investment alternatives. Legal and regulatory developments have made it easier for new and sometimes
unregulated competitors to compete with us. The financial services industry has been and is experiencing an ongoing trend towards consolidation in
which fewer large national and regional banks and other financial institutions are replacing many smaller and more local banks. These larger banks and
other financial institutions hold a large accumulation of assets and have significantly greater resources and a wider geographic presence or greater
accessibility. In some instances, these large entities operate without the traditional brick and mortar facilities that restrict the entities
geographic presence. Some competitors have more aggressive marketing campaigns and better brand recognition, and are able to offer more services, more
favorable pricing or greater customer convenience than the Bank. In addition, competition has increased from new banks and other financial services
providers that target our existing or potential customers. As consolidation continues among large banks, we expect other small institutions to try to
compete in the markets we serve. This competition could reduce our net income by decreasing the number and size of the loans that we originate and the
interest rates we charge on these loans. Additionally, these competitors may offer higher interest rates, which could decrease the deposits we attract
or require us to increase rates to retain existing deposits or attract new deposits.
Increased deposit competition could adversely affect
our ability to generate the funds necessary for lending operations, which could result in an increase in our cost of funds.
The financial services industry
could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities
firms and insurance companies can merge as part of a financial holding company, which can offer virtually any type of financial service, including
banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Technological developments have enabled competitors,
including some non-depository institutions, to compete more effectively in local markets and have expanded the range of financial products, services
and capital available to our target customers. If we are unable to implement, maintain and use such technologies effectively, we may not be able to
offer products or achieve cost-efficiencies necessary to compete in the industry. In addition, some of these competitors have fewer regulatory
constraints and lower cost structures.
Liquidity needs could adversely affect our results of
operations and financial condition.
Our primary funding sources are
cash on hand, customer deposits and loan repayments. Deposit levels may be affected by a number of factors, including rates paid by competitors,
general interest rate levels, returns available to customers on alternative investments and general economic conditions. Scheduled loan repayments are
a relatively stable source of funds; however, they are subject to the ability of borrowers to repay the loans. The ability of borrowers to repay loans
can be adversely affected by a number of factors outside of our control, including changes in economic conditions, adverse trends or events affecting
business industry groups, reductions in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and
international instability. Accordingly, we may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or
otherwise fund operations. These sources may include borrowings from the Federal Home Loan Bank or Federal Reserve Bank, federal funds lines of credit
from correspondent banks and brokered deposits, to the extent
16
allowable by regulatory authorities. While we believe that these sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity demands, particularly if we were to experience atypical deposit withdrawal demands, increased loan demand or if regulatory decisions should limit access to available funding sources such as brokered deposits. We may be required to slow or discontinue loan growth, capital expenditures or other investments or liquidate assets should those sources not be adequate.
Higher FDIC deposit insurance premiums and
assessments could adversely impact our financial condition.
Our deposits are insured up to
applicable limits by the Deposit Insurance Fund of the FDIC and are subject to deposit insurance assessments to maintain deposit insurance. As an
FDIC-insured institution, we are required to pay quarterly deposit insurance premium assessments to the FDIC. Although we cannot predict what the
insurance assessment rates will be in the future, either a deterioration in our risk-based capital ratios or adjustments to the base assessment rates
could have a material adverse impact on our business, financial condition, results of operations, and cash flows.
We may be adversely affected by the soundness of
other financial institutions.
Financial services institutions
are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and
counterparties, and routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and
dealers, investment banks, and other institutional customers. Many of these transactions expose us to credit risk in the event of a default by a
counterparty or customer. In addition, our credit risk may be exacerbated when the collateral held by the Bank cannot be realized upon or is liquidated
at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Bank. Any such losses could have a material adverse
effect on our financial condition and results of operations.
Negative public opinion could damage our reputation
and adversely impact earnings.
Reputation risk, or the risk to
our business, earnings and capital from negative public opinion, is inherent in our operations. Negative public opinion can result from our actual or
alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions, and from actions taken by government
regulators and community organizations in response to those activities. Negative public opinion can adversely affect our ability to keep and attract
clients and employees and can expose us to litigation and regulatory action and adversely impact our results of operations. Although we take steps to
minimize reputation risk in dealing with our clients and communities, this risk will always be present given the nature of our
business.
Our operational or security systems may experience an
interruption or breach in security.
We rely heavily on communications
and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or
disruptions in our customer relationship management, deposit, loan, and other systems. While we have policies and procedures designed to prevent or
limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures,
interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures,
interruptions or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to
additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on
our financial condition and results of operations.
Our controls and procedures may fail or be
circumvented.
We regularly review and update
our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well
designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the
system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures
could have a material adverse effect on our business, results of operations and financial condition.
17
Risks Related to Our Mobile Payments
Business
We may face regulatory restrictions in expanding our business model.
We intend to expand our business
model to include both traditional community banking services as well as opportunities in consumer finance, transaction processing services, digital
payments and mobile banking. However, the Bank must obtain OCC approval to expand its business model and there can be no assurances that the Bank will
receive OCC approval. Even if the Bank receives OCC approval to expand its business model, there can be no assurances that the Bank will be successful
in implementing the steps necessary to expand its business model. Revenues, if any, from the expanded business model may occur materially later than
initial expenses required for implementation of the expanded business model. As a result, the Company may incur material operating losses during the
development of the expanded business model, and these expenses may not be recouped if we are unsuccessful in implementing the expanded business model.
In addition, we will remain subject to supervision by the OCC, and this supervision could affect our ability to expand our business model. For example,
if it believes we are growing too quickly or without sufficient internal controls, the OCC could effectively impose a limit on the expansion of our
business model if it were to conclude we lack appropriate risk management practices and other adequate assessment procedures.
The market for mobile payments may not develop as we
expect.
Although we believe that mobile
payments may be a large market opportunity with potential for growth over the next five years, there can be no assurances that this industry will
develop in the manner that we anticipate or, if it does, that the revenue opportunity will be significant. We will be operating from an unproven
business model, and there can be no assurances that any or all of our strategies will be successful.
We may not succeed in executing key contracts that we
will need to expand our business model.
We are currently negotiating an
arms-length agreement with MPIB under which we would obtain the right to acquire MPIB or its assets, including its intellectual property,
customer agreements and relationships. Any such acquisition would be subject to our obtaining any required regulatory approvals. There can be no
assurances that we will be able to negotiate an agreement with MPIB on terms that we find acceptable or that the agreement will receive any necessary
regulatory approval. Without this agreement, our ability to expand our business in transaction processing services, digital payments and mobile banking
would be significantly diminished. We also plan to enter into agreements with customers and other key vendors. We will need these agreements to
implement our new business model, but there are no assurances that we will reach satisfactory agreements with these parties.
We may not be able to attract and retain qualified
personnel.
We anticipate that the success of
implementing our expanded business model will be largely dependent upon our additions of new executive management team members, including Gordon A.
Baird, who was recently appointed as the Companys Chief Executive Officer and as a director. We will also need to attract other senior industry
professionals with extensive banking, payment, credit, technology and wireless telecommunications expertise to join our board of directors and
executive management team, and we may lack the capital or other resources necessary to recruit these professionals. If we fail to attract and retain
these industry professionals, we may not be able to expand our business model to include consumer finance, payments and mobile banking services, which
could have a material adverse effect on our business, financial condition, and results of operations. Moreover, even if we are able to grow and expand
our management team by attracting these industry professionals, the resources required to retain these employees may adversely affect our operating
margins.
We may not be able to manage our growth, which may
adversely affect our results of operations and financial condition.
Although we intend to develop our
new business model in a controlled and measured manner, even modest success will nevertheless result in a significant increase in our size. There is a
risk we will not be successful in expanding our business model at acceptable risk levels and upon acceptable terms or in managing the costs and
implementation risks associated with the expanded business model.
18
We will need to raise additional capital in order to
implement the expanded business model and that capital may not be available on favorable terms, if at all.
We intend to use the proceeds of
the offering for general corporate purposes, including but not limited to pay expenses related to the development of future business opportunities.
Future business opportunities are intended to include both traditional community banking services as well as opportunities in consumer finance,
transaction processing services, digital payments and mobile banking. However, we will need a substantial amount of additional capital in order to
actually implement our new business model and to support our growth and operations. Our ability to raise additional capital in the future will depend
on a number of factors, including conditions in the capital markets, which are outside of our control. There is a risk we will not be able to raise
capital when needed or on favorable terms. If we cannot raise additional capital when needed, we will not be able to implement our new business model,
and we will also be subject to increased regulatory supervision and the imposition of restrictions on our growth and business. These restrictions could
result in increases in operating expenses and reductions in revenues that could have a material adverse effect on our financial condition and results
of operations. If we do succeed in raising additional capital, these issuances would dilute ownership interests of the investors in the offering and
could dilute the per share book value of our common stock. New investors may also have rights, preferences and privileges senior to our common stock,
which may adversely impact our current shareholders.
We intend to outsource some of our essential services
to third-party providers who may terminate their agreements with us, resulting in interruptions to our banking operations.
If we expand our business to
include mobile payment solutions, we expect that we will obtain essential technological and customer services support for the systems we use from
third-party providers. We also outsource our check processing, check imaging, electronic bill payment, statement rendering, internal audit and other
services to third-party vendors. Our agreements with each service provider are generally cancelable without cause by either party upon specified notice
periods. If one of our third-party service providers terminates its agreement with us and we are unable to replace it with another service provider,
our operations may be interrupted. If an interruption were to continue for a significant period of time, our earnings could decrease, we could
experience losses, and we could lose customers.
We will need to adequately protect our brand and the
intellectual property rights related to our products and services and avoid infringing on the property rights of others.
Our brand will be important to
our business, and we intend to use trademark restrictions and other means to protect it. Our business would be harmed if we were unable to protect our
brand against infringement and its value was to decrease as a result.
We will rely on a combination of
patent, trademark and copyright laws, trade secret protection and confidentiality and license agreements to protect the intellectual property rights
related to our products and services. We may unknowingly violate the intellectual property or other proprietary rights of others, and thus may be
subject to claims by third parties. If so, we may be required to devote significant time and resources to defending against these claims or to
protecting or enforcing our own rights. Some of our intellectual property rights may not be protected by intellectual property laws, particularly in
foreign jurisdictions. The loss of our intellectual property or the inability to secure or enforce our intellectual property rights or to defend
successfully against an infringement action could harm our business, results of operations, financial condition and prospects.
An acquisition of MPIB or its assets may not generate
the results we anticipate.
We are currently negotiating an
arms-length agreement with MPIB under which we would obtain the right to acquire MPIB or its assets, including its intellectual property,
customer agreements and relationships, in return for an upfront fee and certain earnout payments, the terms of which are still being negotiated. If we
receive regulatory approval and purchase MPIB or its assets, we believe that MPIBs business model, intellectual property, customer agreements and
relationships will help the Bank successfully expand its business in transaction processing services, digital payments and mobile banking. However,
there can be no assurances that MPIB will help us successfully expand our business model or generate any revenues to the Bank. In addition, revenues
generated from the purchase of MPIB, if any, may occur materially later than initial expenses from the purchase of MPIB. As a result,
the
19
Company may incur material operating losses from the purchase of MPIB, and these expenses may not be recouped if we are unsuccessful in implementing the expanded business model.
Our Chief Executive Officer is also the principal
executive of MPIB and, as such, there may be a conflict of interest in connection with our proposed acquisition of MPIB or its
assets.
Mr. Baird, as our Chief Executive
Officer, is the primary decision maker with regard to the day-to-day operations of the Company. Mr. Baird is also the managing member of MPIB, and we
are currently in negotiations with MPIB to acquire an option to purchase MPIB or substantially all of its assets. In conjunction with its affiliated
transaction policy, the Board appointed a committee of disinterested directors to engage in negotiations on behalf of the Company with Mr. Baird and
MPIB. Mr. Baird has not negotiated on behalf of the Company with MPIB, and MPIB has engaged its own legal counsel. Nevertheless, insofar as Mr. Baird
is Chief Executive Officer of the Company, there is a risk of a conflict of interest arising between the duties of Mr. Baird in his role as our Chief
Executive Officer and his own personal financial and business interests as the managing member of MPIB. His personal interests may not, during the
ordinary course of business, coincide with the interests of the Company and our shareholders and, in the absence of the effective segregation of such
duties, there is a risk of a conflict of interest. Shareholders should consider this potential conflict of interest in connection with any investment
decision.
Our business is subject to laws and regulations
regarding privacy, data protection, and other matters. Many of these could result in claims, changes to our business practices, increased cost of
operations, or otherwise harm our business.
We are subject to a variety of
laws and regulations in the United States that involve matters central to our business, including user privacy, electronic contracts and other
communications, consumer protection, taxation, and online payment services. These U.S. federal and state laws and regulations, which can be enforced by
private parties or government entities, are constantly evolving and can be subject to significant change. In addition, the application and
interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate. For
example, the interpretation of some laws and regulations that govern mobile payments is unsettled and developments in this area could affect the manner
in which we market and sell our products and services. These existing and proposed laws and regulations can be costly to comply with and can delay or
impede the development of new products, result in negative publicity, increase our operating costs, require significant management time and attention,
and subject us to inquiries or investigations, claims or other remedies, including fines or demands that we modify or cease existing business
practices.
If our security is breached, our business could be
disrupted, our operating results could be harmed, and customers could be deterred from using our products and services.
Our business relies on the secure
electronic transmission, storage, and hosting of sensitive information, including financial information and other sensitive information relating to our
customers. As a result, we face the risk of a deliberate or unintentional incident involving unauthorized access to our computer systems that could
result in misappropriation or loss of assets or sensitive information, data corruption, or other disruption of business operations. In light of this
risk, we have devoted significant resources to protecting and maintaining the confidentiality of our information, including implementing security and
privacy programs and controls, training our workforce, and implementing new technology. We have no guarantee that these programs and controls will be
adequate to prevent all possible security threats. We believe that any compromise of our electronic systems, including the unauthorized access, use, or
disclosure of sensitive information or a significant disruption of our computing assets and networks, would adversely affect our reputation and our
ability to fulfill contractual obligations, and would require us to devote significant financial and other resources to mitigate such problems, and
could increase our future cyber security costs. Moreover, unauthorized access, use, or disclosure of such sensitive information could result in
contractual or other liability. In addition, any real or perceived compromise of our security or disclosure of sensitive information may result in lost
revenues by deterring customers from using or purchasing our products and services in the future or prompting them to use competing service
providers.
20
Risks Related to the Legal and Regulatory
Environment
We are subject to extensive regulation that could limit or restrict our activities, have an adverse impact on our operations, and impose
financial requirements or limitations on the conduct of our business.
We are subject to Federal Reserve
regulation. The Bank is subject to extensive regulation, supervision, and examination by our primary federal regulators, the OCC and the FDIC, the
regulating authority that insures customer deposits. Also, as a member of the FHLB, the Bank must comply with applicable regulations of the Federal
Housing Finance Board and the FHLB. Regulation by these agencies is intended primarily for the protection of our depositors and the Deposit Insurance
Fund and not for the benefit of our shareholders. The Banks activities are also regulated under consumer protection laws applicable to our
lending, deposit, and other activities. A substantial claim against the Bank under these laws could have a material adverse effect on our results of
operations.
Further, changes in laws,
regulations and regulatory practices affecting the financial services industry could subject us to additional costs, limit the types of financial
services and products we may offer or increase the ability of non-banks to offer competing financial services and products, among other things. Failure
to comply with laws, regulations or policies could also result in heightened regulatory scrutiny and in sanctions by regulatory agencies (such as a
memorandum of understanding, a written supervisory agreement or a cease and desist order), civil money penalties and/or reputation damage. Any of these
consequences could restrict our ability to expand our business or could require us to raise additional capital or sell assets on terms that are not
advantageous to us or our shareholders and could have a material adverse effect on our business, financial condition and results of operations. While
we have policies and procedures designed to prevent any such violations, such violations may nevertheless occur despite our best
efforts.
Financial reform legislation enacted by the U.S.
Congress and further changes in regulation to which we are exposed will result in additional new laws and regulations that are expected to increase our
costs of operations.
The Dodd-Frank Act has and will
continue to significantly change bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial
institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations and
to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and
regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for months or years.
The Dodd-Frank Act also created
the Consumer Financial Protection Bureau and gives it broad rule-making authority for a wide range of consumer protection laws that apply to all banks
and savings institutions, including the authority to prohibit unfair, deceptive or abusive acts and practices. Additionally, the Bureau of
Consumer Financial Protection has examination and enforcement authority over all banks and savings institutions with more than $10 billion in
assets.
Proposals for further regulation
of the financial services industry are continually being introduced in the U.S. Congress. The agencies regulating the financial services industry also
periodically adopt changes to their regulations. It is possible that additional legislative proposals may be adopted or regulatory changes may be made
that would have an adverse effect on our business. In addition, it is expected that such regulatory changes will increase our operating and compliance
costs. We can provide no assurance regarding the manner in which any new laws and regulations will affect us.
The short-term and long-term impact of the changing
regulatory capital requirements and anticipated new capital rules is uncertain.
On September 12, 2010, the Group
of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced an agreement to a strengthened set
of capital requirements for internationally active banking organizations in the U.S. and around the world, known as Basel III. Basel III calls for
increases in the requirements for minimum common equity, minimum Tier 1 capital and minimum total capital for certain systemically important financial
institutions, to be phased in over time until fully phased in by January 1, 2019. Any regulations adopted for systemically significant institutions may
also be applied to or otherwise impact other financial institutions such as the Company or the Bank.
21
Various provisions of the
Dodd-Frank Act increase the capital requirements of bank holding companies, such as the Company, and non-bank financial companies that are supervised
by the Federal Reserve Board. The leverage and risk-based capital ratios of these entities may not be lower than the leverage and risk-based capital
ratios for insured depository institutions. While the Basel III changes and other regulatory capital requirements will likely result in generally
higher regulatory capital standards, it is difficult at this time to predict how any new standards will ultimately be applied to the Company and the
Bank.
In addition, in the current
economic and regulatory environment, regulators of banks and bank holding companies have become more likely to impose capital requirements on bank
holding companies and banks that are more stringent than those required by applicable existing regulations.
The application of more stringent
capital requirements for the Company and the Bank could, among other things, result in lower returns on invested capital, require the issuance of
additional capital, and result in regulatory actions if we were to be unable to comply with such requirements.
Risks Related to the Offering and our Common
Stock
An investment in the Company involves a high degree of risk.
An investment in the Company is
speculative and involves a high degree of risk, including the loss of your entire investment in the Company. There is no guaranteed rate of return on
your investment, and there is no assurance that you will be able to resell your shares for the amount you paid for them or for any other amount. You
should not invest in the Company unless you can afford to lose your entire investment.
We are not making any recommendations related to the
offering, and you must make your own determination of whether the subscription price is a fair price.
The board of directors is not
making any recommendation regarding the purchase of our shares. The current market price of our shares is affected by many factors and may increase or
decrease subsequent to the offering. You will need to evaluate the value of the shares being offered and the risks inherent in investing, and
individually determine if you should purchase our shares.
The future price of our common shares may be less
than the $0.80 purchase price per share in the offering.
If you purchase common stock in
the offering, you may not be able to sell them later at or above the $0.80 purchase price in the offering. The actual market price of our common stock
could be subject to wide fluctuations in response to numerous factors, some of which are beyond our control. These factors include, among other things,
actual or anticipated variations in our costs of doing business, operating results and cash flow, the nature and content of our earnings releases and
our competitors earnings releases, changes in financial estimates by securities analysts, business conditions in our markets and the general
state of the securities markets and the market for other financial stocks, changes in capital markets that affect the perceived availability of capital
to companies in our industry, governmental legislation or regulation, currency and exchange rate fluctuations, as well as general economic and market
conditions, such as downturns in our economy and recessions.
Once you invest in the offering,
you may not revoke your purchase. If you purchase shares of our common stock and, afterwards, the public trading market price decreases below the
subscription price, you will have committed to buying common shares at a price above the prevailing market price and could have an immediate unrealized
loss. We cannot assure you that the market price of our common shares will not decline after you purchase our shares. Moreover, we cannot assure you
that following your purchase you will be able to sell your common shares at a price equal to or greater than the subscription price, or at
all.
The offering may reduce your ownership in the
Company.
If you choose not to purchase
shares in the offering, your ownership interest in the Company will be diluted as a result of the offering. Assuming that we sell the maximum number of
shares in the offering to our existing shareholders, your ownership interest may decline by up to 10.6%.
22
Although we have no definitive plans, proposals,
or arrangements for future capital raises, we may issue additional shares of common stock in connection with future capital raises, which may
reduce certain shareholders ownership in the Company.
At our 2013 annual shareholder
meeting our shareholders approved an increase in the number of authorized shares of common stock from 100 million shares to 300 million shares. At
March 31, 2013, we had 19,733,760 shares of common stock outstanding. Our board of directors generally has the authority, without action by or the vote
of the shareholders, to issue all or part of any authorized but unissued shares of common stock for any corporate purpose, including the sale of
additional common stock, future acquisitions of the properties or securities of other companies, and issuances of stock pursuant to employee benefit
plans, as well as stock dividends, stock splits and other general corporate purposes. We may need to raise additional capital in the future to
develop our payment systems business, purchase MPIB Property, or otherwise expand our operations. Any issuance of additional shares of common
stock, or securities convertible into shares of common stock, will dilute the percentage ownership interest of our shareholders and may dilute the book
value per share of their common stock.
We may also issue additional shares of common stock
to our executive officers, other employees, and directors as equity compensation, which may reduce certain shareholders ownership in the
Company.
On February 27, 2013, we adopted
the 2013 Incentive Plan and we amended the 2005 Incentive Plan to cap the number of shares issuable thereunder. The 2013 Incentive Plan reserves
2,466,720 shares for the issuance of equity compensation awards, including stock options, to our executive officers, other employees, and directors and
includes an evergreen provision that provides that the number of shares of common stock available for issuance under the 2013 Incentive Plan
automatically increases each time the Company issues additional shares of common stock so that the number of shares available for issuance under the
2013 Incentive Plan (plus any shares reserved under the 2005 Incentive Plan) continues to equal 20% of the Companys total outstanding shares,
assuming that all shares under the 2005 Incentive Plan and the 2013 Incentive Plan are exercised. The 2013 Incentive Plan is an omnibus plan and
therefore also provides for the issuance of other equity compensation, including restricted stock and stock appreciation rights, to our employees and
directors. We anticipate that we will grant awards for virtually all of these shares to our executive officers, other employees, and directors over the
next 12 to 24 months.
Our officers, directors, and several other large
shareholders own a significant percentage of our common stock, allowing further control over our business and corporate
affairs.
As of May 31, 2013, our officers,
directors, or their affiliates beneficially owned an aggregate of approximately 6.8 million shares, or 32.6%, and two other large shareholders owned
approximately 3.1 million shares, or 16%, of our outstanding common stock. John Helmers, who has received sufficient votes to be elected as a director,
will not begin serving as a director until receipt of regulatory approval. Mr. Helmers owns 3% of our outstanding common stock. Also, Messrs. Baird,
Willumstad serve as our chief executive officer and chairman, respectively and with Mr. Hageman hold three of our seven board seats while beneficially
owning 17.0% of our outstanding common stock. In addition, we may sell shares of our common stock to our officers, directors, or their affiliates in
this offering. We also anticipate granting up to an additional 2,466,720 shares of equity awards to our officers and directors over the next 12 to 24
months, which would further increase their percentage of beneficial ownership of the Company to up to 39.7% of our outstanding common stock, assuming
all such shares were vested, which is not the Companys current intentions. As a result, in addition to their Company oversight roles, our
directors, as well as our other large shareholders, including our officers, will be able to exercise significant influence on our business as
shareholders, including influence over election of our board of directors and the authorization of other corporate actions, including acquisitions,
requiring shareholder approval. This could prevent shareholders from receiving a premium for their shares if one were offered by a potential acquirer.
In deciding on how to vote on certain proposals, our shareholders should be aware that these significant shareholders may have interests that are
different from, or in addition to, the interests of our other shareholders.
If you do not act promptly and follow the
subscription instructions, your purchase of shares in the offering will be rejected.
Shareholders who desire to
purchase common shares in the offering must act promptly to ensure that all required forms and payments are actually received by us, and all payments
clear, prior to the expiration of the offering. Unless the requirement is waived by us, a minimum investment of $1,000 is required to purchase
shares
23
in the offering. If you are a beneficial owner of shares, you must act promptly to ensure that your broker, dealer, custodian bank or other nominee acts for you and that all required forms and payments are actually received by us prior to the expiration of the offering. We are not responsible if your broker, dealer, custodian bank or nominee fails to ensure that all required forms and payments are actually received, and all payments clear, prior to the expiration of the offering. If you fail to complete and sign the required subscription forms, send an incorrect payment amount or otherwise fail to follow the subscription procedures that apply to your purchase or your payment does not clear prior to the expiration of the offering, we may, depending on the circumstances, reject your subscription or accept it only to the extent of any payment that has been received and has cleared. We do not undertake to contact you concerning, or attempt to correct, an incomplete or incorrect subscription form. We have the sole discretion to determine whether your purchase properly and timely follows the subscription procedures.
Your subscription is
irrevocable.
An offer to purchase shares in
this offering is irrevocable. Your investment decision is made at the time you submit your subscription, and any funds delivered in connection with
your subscription will not be returned to you for any reason, including as a result of a material adverse event affecting us or the economy in general,
unless this offering is cancelled in its entirety or if we reject your subscription, and in the event of rejection, only the portion of the funds that
represent the portion of the subscription rejected will be returned to you without interest or deduction.
An investor acquiring a 5% or greater interest in our
common stock could be required to obtain regulatory approval for its investment.
Any investor which will own 5% or
more of our common stock following the offering could be required to provide information to the Federal Reserve Board prior to making its investment
and could be required to enter into passivity commitments or, if it will own 10% or more of our common stock following the offering, to seek approval
from the Federal Reserve for its investment under the Change in Bank Control Act or the Bank Holding Company Act.
We are a holding company and depend on our Bank for
dividends, distributions and other payments.
Substantially all of our
activities are conducted through the Bank, and, consequently, as the parent company of the Bank, we receive substantially all of our revenue as
dividends from the Bank. The Bank is currently prohibited from paying dividends to the Company without prior approval from the OCC. In addition, the
Company is currently prohibited from paying any dividends without the prior approval of the Federal Reserve Bank of Richmond. There can be no
assurances such approvals would be granted or with regard to how long these restrictions will remain in place. In the future, any declaration and
payment of cash dividends will be subject to the boards evaluation of the Companys operating results, financial condition, future growth
plans, general business and economic conditions, and tax and other relevant considerations. The payment of cash dividends by the Company in the future
will also be subject to certain other legal and regulatory limitations (including the requirement that the Companys capital be maintained at
certain minimum levels) and ongoing review by the Companys banking regulators.
We may raise additional capital, which could
adversely affect the market price of our common stock.
We are not restricted from
issuing additional shares of common stock or securities that are convertible into or exchangeable for, or that represent the right to receive, common
stock, or from issuing additional shares of common stock. We frequently evaluate opportunities to access the capital markets, taking into account our
regulatory capital ratios, financial condition, and other relevant considerations. Subject to market conditions, we may take further actions to raise
additional capital. Such actions could include, among other things, the issuance of additional shares of common stock or preferred stock in public or
private transactions in order to increase our capital levels above the requirements for a well capitalized institution established by the
federal bank regulatory agencies as well as other regulatory targets. These issuances would dilute ownership interests of our shareholders and could
dilute the per share book value of our common stock. In addition, new investors could have rights, preferences, and privileges senior to our common
stock, which may also adversely impact our current shareholders.
24
There is no public market for our
shares.
There is currently no established
market for our common stock, and we have no current plans to list our stock on NASDAQ or any other exchange. For these reasons, we do not expect a
liquid market for our common stock to develop for several years, if at all.
The Companys securities are not FDIC
insured.
The Companys securities,
including the shares of common stock being offered hereby, are not savings or deposit accounts or other obligations of the Company and are not insured
by the Deposit Insurance Fund, the FDIC, or any other governmental agency. These securities are subject to investment risk, including the possible loss
of the entire investment.
25
Assuming we sell all 2,351,250
shares of common stock in the offering, we estimate that the net proceeds, after deducting related expenses, will be approximately $1.83 million.
Because there is no minimum number of shares that must be sold in the offering, we can provide no assurance regarding the amount of capital we will
actually raise in the offering. We expect to use the net proceeds from the offering for general corporate purposes, including to pay expenses related
to future business opportunities. Future business opportunities are intended to include both traditional community banking services as well as
opportunities in consumer finance, transaction processing services, digital payments and mobile banking. We would anticipate implementing most of these
new opportunities through the Bank rather than the Company. However, under our consent order the Bank must obtain OCC approval to expand its existing
business model and there can be no assurances that the Bank will receive OCC approval or be successful in implementing the steps necessary to expand
its business model.
26
The following table sets forth
our capitalization and certain capital ratios as of March 31, 2013, on an actual basis and on an as adjusted basis to reflect the sale of (i) 587,813
shares (25% participation), (ii) 1,175,625 shares (50% participation), and (iii) 2,351,250 shares (100% participation) of our common stock in the
offering. Net proceeds in each of the offerings set forth below assume an offering price of $0.80 per share and offering expenses of approximately
$55,000. There is no minimum number of shares that must be sold in the offering in order to accept subscriptions and close the offering, and thus we
may sell less than 2,351,250 shares in this offering.
The following data should be read
together with our consolidated financial statements and the related notes included in our Quarterly Report on Form 10-Q for the quarter ended March 31,
2013 and incorporated by reference into this prospectus.
March 31, 2013 |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Actual |
As adjusted assuming 25% participation |
As adjusted assuming 50% participation |
As adjusted assuming 100% participation |
||||||||||||||||
(dollars in thousands) | |||||||||||||||||||
Shareholders Equity:(1) |
|||||||||||||||||||
Common stock,
par value $0.01 per share; 100,000,000 shares authorized; 19,733,760 shares issued and outstanding at March 31, 2013 |
$ | 35,584,370 | $ | 203,216 | $ | 209,094 | $ | 220,851 | |||||||||||
Additional
paid-in capital |
33,781,883 | 34,191,255 | 34,655,627 | 35,584,370 | |||||||||||||||
Accumulated
other comprehensive income |
(221,873 | ) | (221,873 | ) | (221,873 | ) | (221,873 | ) | |||||||||||
Accumulated
deficit |
(14,017,298 | ) | (14,017,298 | ) | (14,017,298 | ) | (14,017,298 | ) | |||||||||||
Total
shareholders equity |
$ | 19,740,050 | $ | 20,155,300 | $ | 20,625,550 | $ | 21,566,051 | |||||||||||
Capital
Ratios: |
|||||||||||||||||||
Equity to
assets ratio (average year-to-date equity to average year-to-date assets)(2) |
16.01 | % | 16.29 | % | 16.60 | % | 17.21 | % | |||||||||||
Leverage
ratio |
16.04 | % | 16.32 | % | 16.63 | % | 17.25 | % | |||||||||||
Tier 1
risk-based capital ratio |
24.76 | % | 25.25 | % | 25.80 | % | 26.90 | % | |||||||||||
Total
risk-based capital ratio |
26.02 | % | 26.51 | % | 27.06 | % | 28.16 | % |
(1) |
As of March 31, 2013, there were 19,733,760 shares of common stock outstanding, and we had (i) 337,500 shares of common stock subject to the issuance of outstanding warrants with an exercise price of $10.00 per share and an expiration date of May 16, 2015, and (ii) 1,998,505 shares of common stock subject to the issuance of outstanding options with a weighted-average exercise price of $1.26 per share. |
(2) |
Averages are calculated as if the private placement transaction was consummated at the beginning of the period for which averages are being computed. |
27
Voting Power
As a result of the Private
Placement, in which we issued 17,648,750 shares of common stock, our common shareholders as of December 30, 2012 were diluted from owning 100% of the
voting power of the Company to owning 10.6% of the voting power of the Company as of December 31, 2012. Assuming our common shareholders as of December
30, 2012 were to purchase all 2,351,250 shares (100% participation) of our common stock in the offering, they will own 20.1% of the voting power of the
Company.
Book Value per Share
As a result of the Private
Placement, our common shareholders as of December 30, 2012 experienced a decrease in book value per share of common stock of $2.75, as illustrated in
the table below:
Offering
price per share of common stock |
$ | 0.80 | ||||
Book value
per share of common stock as of December 31, 2012, prior to giving effect to the Private Placement |
$ | 3.79 | ||||
Decrease in
book value per share of common stock attributable to issuance of shares of common stock in Private Placement |
$ | 2.75 | ||||
Book value
per share of common stock as of December 31, 2012, after giving effect to the Private Placement |
$ | 1.04 |
During the quarter ended March
31, 2013, our book value per share decreased from $1.04 to $1.00. Assuming our common shareholders as of December 30, 2012 were to purchase all
2,351,250 shares (100% participation) of our common stock in the offering, our common shareholders will experience an decrease in book value per share
of common stock of $0.02, as illustrated in the table below:
Offering
price per share of common stock |
$ | 0.80 | ||||
Book value
per share of common stock as of March 31, 2013 |
$ | 1.00 | ||||
Decrease in
as adjusted book value per share of common stock to investors in this offering |
$ | 0.02 | ||||
As adjusted
book value per share of common stock as of March 31, 2013, after giving effect to this offering |
$ | 0.98 |
28
Our common stock is currently
quoted on the OTCBB under the symbol IEBS, and we have a sponsoring broker-dealer to match buy and sell orders for our common stock.
Although we are quoted on the OTCBB, the trading markets on the OTCBB lack the depth, liquidity, and orderliness necessary to maintain a liquid market.
The OTCBB prices are quotations, which reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual
transactions. We have no current plans to seek listing on any stock exchange, and we do not expect to qualify for listing on NASDAQ or any other
exchange for at least several years.
Because there is currently no
established public trading market in our common stock, and trading and quotations of our common stock have been limited and sporadic, we may not be
aware of all prices at which our common stock has been traded. We have not determined whether the trades of which we are aware were the result of
arms-length negotiations between the parties. Based on information available to us from a limited number of sellers and purchasers of common
stock who have engaged in privately negotiated transactions of which we are aware, there were approximately 111,500 shares traded in the first quarter
of 2013 ranging from $0.40 to $1.45. These trades occurred throughout the quarter.
As of May 31, 2013, there were
19,733,760 shares of common stock outstanding held by approximately 580 shareholders of record. We issued 2,085,010 shares of common stock at $10.00
per share in our initial public offering, which was completed in May 2005. On December 31, 2012, we consummated the Private Placement pursuant to which
we issued 17,648,750 shares of our common stock at $0.80 per share for an aggregate purchase price of approximately $14.1 million.
We have not declared or paid any
cash dividends on our common stock since our inception. For the foreseeable future, we do not intend to declare cash dividends. We intend to retain
earnings to grow our business and strengthen our capital base. Our ability to pay dividends depends on the ability of the Bank to pay dividends to us.
As a national bank, the Bank may only pay dividends out of its net profits, after deducting expenses, including losses and bad debts. In addition, the
Bank is prohibited from declaring a dividend on its shares of common stock until its surplus equals its stated capital, unless there has been
transferred to surplus no less than one-tenth of the Banks net profits of the preceding two consecutive half-year periods (in the case of an
annual dividend). The approval of the OCC will be required if the total of all dividends declared in any calendar year by the Bank exceeds the
Banks net profits to date for that year combined with its retained net profits for the preceding two years less any required transfers to
surplus. The OCC also has the authority under federal law to enjoin a national bank from engaging in what in its opinion constitutes an unsafe or
unsound practice in conducting its business, including the payment of a dividend under certain circumstances. Further, under the terms of the consent
order, we were required to present a dividend policy to the OCC that permits the declaration of a dividend only when the Bank is in compliance with its
approved capital plan, with the aforementioned restrictions, and upon receipt of no supervisory objection by the OCC. Currently, the Company also has
to obtain the prior written approval of the Federal Reserve Bank of Richmond before declaring or paying any dividends.
29
General
The Companys Articles of
Incorporation authorize the issuance of capital stock consisting of 100,000,000 shares of common stock, par value $0.01 per share, and 10,000,000
shares of preferred stock, par value $0.01 per share. As of May 31, 2013, we had issued and outstanding 19,733,760 shares of common stock held by 580
shareholders of record, and no shares of our preferred stock were issued and outstanding.
The description of our capital
stock below is qualified in its entirety by reference to our Articles of Incorporation.
Common Stock
General. Each share
of common stock has the same relative rights as, and is identical in all respects to, each other share of common stock.
Voting Rights. Each
share of common stock will entitle the holder thereof to one vote on all matters upon which shareholders have the right to vote. There are no
cumulative voting rights.
In general, except as otherwise
provided in our Articles of Incorporation, (i) amendments to our Articles of Incorporation must be approved by two-thirds of the votes entitled to be
cast, regardless of voting group, and in addition by two-thirds of the votes entitled to be cast within each voting group entitled to vote separately
thereon; and (ii) the dissolution of the Company must be approved by two-thirds of the votes entitled to be cast thereon.
Dividends. Holders
of shares of common stock are entitled to receive dividends when and as declared by the board of directors out of funds legally available therefore.
Our ability to pay dividends will be dependent on our earnings and financial condition and subject to certain restrictions imposed by state and federal
laws.
No Preemptive or Conversion
Rights. Holders of shares of our common stock do not have preemptive rights to purchase additional shares of our common stock and have no
conversion or redemption rights.
Calls and
Assessments. All of the issued and outstanding shares of our common stock are nonassessable and noncallable.
Liquidation Rights.
In the event of our liquidation, dissolution, or winding up, the holders of shares of our common stock shall be entitled to receive, in cash or in
kind, our assets available for distribution remaining after payment or provision for payment of our debts and liabilities and distributions or
provision for distributions to holders of any preferred stock that may be issued and outstanding having preference over common shares.
Certain Ownership
Restrictions. The Company is a bank holding company. A holder of common stock (or group of holders acting in concert) that (i) directly or
indirectly owns, controls or has the power to vote more than 5% of the total voting power of the Company, (ii) directly or indirectly owns, controls or
has the power to vote 10% or more of any class of voting securities of the Company, (iii) directly or indirectly owns, controls or has the power to
vote 25% or more of the total equity of the Company, or (iv) is otherwise deemed to control the Company under applicable regulatory
standards may be subject to important restrictions, such as prior regulatory notice or approval requirements.
Preferred Stock
Our board of directors, without
shareholder approval, is empowered to authorize the issuance, in one or more series, of shares of preferred stock at such times, for such purposes and
for such consideration as it may deem advisable. The board of directors is also authorized to fix before the issuance thereof the designation, voting,
conversion, preference and other relative rights, qualifications and limitations of any such series of preferred stock. Accordingly, our board of
directors, without shareholder approval, may authorize the issuance of one or more series of preferred stock with voting and conversion rights which
could adversely affect the voting power of the holders of common stock and, under certain circumstances, discourage an attempt by others to gain
control of the Company.
The creation and issuance of any
additional series of preferred stock, and the relative rights, designations and preferences of such series, if and when established, will depend on,
among other things, our future capital needs,
30
then existing market conditions and other factors that, in the judgment of our board of directors, might warrant the issuance of preferred stock.
Certain Protective Provisions
General. Our
Articles of Incorporation and bylaws, as well as the South Carolina Business Corporation Act, contain certain provisions designed to enhance the
ability of our board of directors to deal with attempts to acquire control of us. These provisions may be deemed to have an anti-takeover effect and
may discourage takeover attempts which have not been approved by the board of directors (including takeovers which certain shareholders may deem to be
in their best interest). To the extent that such takeover attempts are discouraged, temporary fluctuations in the market price of common stock
resulting from actual or rumored takeover attempts may be inhibited. These provisions also could discourage or make more difficult a merger, tender
offer or proxy contest, even though such transaction may be favorable to the interests of shareholders, and could potentially adversely affect the
market price of our common stock.
The following briefly summarizes
protective provisions that are contained in our Articles of Incorporation and bylaws and which are provided by the South Carolina Business Corporation
Act. This summary is necessarily general and is not intended to be a complete description of all the features and consequences of those provisions and
is qualified in its entirety by reference to our Articles of Incorporation and bylaws and the statutory provisions contained in the South Carolina
Business Corporation Act.
Authorized but Unissued
Stock. The authorized but unissued shares of common stock and preferred stock will be available for future issuance without shareholder
approval. These additional shares may be used for a variety of corporate purposes, including future private or public offering to raise additional
capital, corporate acquisitions, and employee benefit plans. The existence of authorized but unissued and unreserved shares of common stock and
preferred stock may enable the board of directors to issue shares to persons friendly to current management, which could render more difficult or
discourage any attempt to obtain control of us by means such as a proxy contest, tender offer, or merger, and thereby protect the continuity of the
Companys management.
Number and Qualifications
of Directors. The articles and bylaws provide that the number of directors shall be fixed from time to time by resolution of the directors of
the Company, but may not consist of fewer than five nor more than 25 members. The bylaws also provide that no individual who is or becomes a Business
Competitor (as defined below) or who is or becomes affiliated with, employed by, or a representative of any individual, corporation, or other entity
which the board of directors, after having such matter formally brought to its attention, determines to be in competition with us or any of our
subsidiaries (any such individual, corporation, or other entity being a Business Competitor) shall be eligible to serve as a director if
the board of directors determines that it would not be in our best interests for such individual to serve as a director. Any financial institution
having branches or affiliates within Greenville County, South Carolina, is presumed to be a Business Competitor unless the board of directors
determines otherwise.
Advance Notice Requirements
for Shareholder Proposals. Our bylaws establish advance notice procedures with regard to shareholder proposals. These procedures provide that
the shareholder generally must submit information regarding the proposal, together with the proposal, to our corporate secretary at least 30 days and
not more than 60 days in advance of the annual meeting. Shareholders submitting proposals for inclusion in our proxy statement must comply with the
proxy rules under the Exchange Act. We may reject a shareholder proposal that is not made in accordance with such procedures.
Certain Nomination
Requirements. Pursuant to our bylaws, we have established certain nomination requirements for an individual to be elected as a director of the
Company at any annual or special meeting of the shareholders, including that the nominating party provide us within a specified time prior to the
meeting (i) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (ii) a
representation that the shareholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to
be made by the shareholder; (iv) such other information regarding each nominee proposed by such shareholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the SEC, had the nominee been nominated, or intended to be nominated, by the board of directors;
and (v) the consent
31
of each nominee to serve as a director of the Company if so elected. The chairman of any shareholders meeting may, for good cause shown, waive the operation of these provisions. These provisions could reduce the likelihood that a third party would nominate and elect individuals to serve on our board of directors.
Business Combinations with
Interested Shareholders. The South Carolina business combinations statute provides that a 10% or greater shareholder of a resident domestic
corporation cannot engage in a business combination (as defined in the statute) with such corporation for a period of two years following
the date on which the 10% shareholder became such, unless the business combination or the acquisition of shares is approved by a majority of the
disinterested members of such corporations board of directors before the 10% shareholders share acquisition date. This statute further
provides that at no time (even after the two-year period subsequent to such share acquisition date) may the 10% shareholder engage in a business
combination with the relevant corporation unless certain approvals of the board of directors or disinterested shareholders are obtained or unless the
consideration given in the combination meets certain minimum standards set forth in the statute. The law is very broad in its scope and is designed to
inhibit unfriendly acquisitions. A corporation may opt out of this statute pursuant to a provision in its articles of incorporation. Our Articles of
Incorporation do not contain such a provision.
Factors to be Considered in
Certain Transactions. Our Articles of Incorporation grant the board of directors the discretion, when considering whether a proposed merger or
similar transaction is in the best interests of the Company and our shareholders, to take into account the interests of the employees, customers,
suppliers, creditors, and other constituencies of the Company and its subsidiaries, the communities and geographical areas in which the Company and its
subsidiaries operate or are located, and all other factors such directors consider pertinent, to the extent permitted by South Carolina
law.
32
We will sell shares directly to
the Shareholders through our executive officers and directors, each of whom performs substantial duties on our behalf other than in connection with
this offering. We believe these officers and directors will not be deemed to be brokers or dealers under the Exchange Act due to Rule 3a4-1. None of
these executive officers or directors will be separately compensated either directly or indirectly for his or her services in connection with this
offering. We will, however, pay all of the expenses incident to the offering and sale of our shares. We will not compensate any brokers or sales agents
in connection with this offering.
We are offering the shares to our
existing shareholders who are residing in those states in which this offering is being made. This offering will terminate upon the earlier of the sale
of all 2,351,250 shares of common stock or at 5:00 p.m., Eastern Standard time, on [], 2013, unless we terminate it earlier or extend it up to an
additional 30 days in our sole discretion.
We currently anticipate that, if
our existing shareholders oversubscribe the offering, we will allocate shares of our common stock on a pro rata basis in accordance with the existing
shareholders ownership in our Company. However, we reserve the right to allocate shares of our common stock according to other methods, including
allocating shares on a first come, first served basis or any other method as we may determine to be appropriate under the circumstances as
they may exist at the time, and to accept or reject subscriptions in whole or in part in our sole discretion. Once made, a subscription cannot be
withdrawn by a subscriber without our consent. All funds received from subscriptions will be placed in a segregated non-interest bearing account at the
Bank pending our acceptance of the associated subscriptions. We reserve the right, in our sole discretion, to accept or reject any subscription in
whole or in part on or before the expiration date of this offering. We will notify all subscribers within 10 business days after the earlier of the
final expiration date or the sale of all of the shares being offered in this offering whether their subscriptions have been accepted. If the offering
is not completed, or if any part of your subscription is not accepted, your funds will be returned, without interest, as soon as
practicable.
We reserve the right, in our sole
discretion, to accept or reject any subscription in whole or in part on or before the expiration date of this offering. We also reserve the right to
permit Shareholders to purchase shares in the offering in another persons name, provided it is done solely for estate planning purposes. We
reserve the right, in our sole discretion, to not offer the shares in those states where existing shareholders or prospective purchasers reside, where
compliance with the states securities laws would require that we register the shares for issuance under the states securities laws or
where, in our sole discretion, compliance with those laws would be burdensome or otherwise would not be in our, or our shareholders, best
interests.
We will have the sole right to
accept offers to purchase shares and may reject any proposed purchase of shares in whole or in part. We reserve the right to withdraw, cancel, modify,
or terminate the offering of the shares at any time without notice. For more information on the distribution of our shares, see Prospectus
Summary The Offering beginning on page 4 of this prospectus.
33
The validity of the issuance of
the shares of common stock offered hereby will be passed upon for us by Nelson Mullins Riley & Scarborough LLP, Greenville, South
Carolina.
Our consolidated balance sheets
as of December 31, 2012 and December 31, 2011 and the related consolidated statements of operations, changes in shareholders equity, and cash
flows for the years then ended appearing in our Annual Report on Form 10-K for the year ended December 31, 2012 have been incorporated by reference
herein in reliance upon the report of Elliott Davis, LLC, independent registered public accounting firm, incorporated by reference herein, and upon the
authority of that firm as experts in accounting and auditing.
34
We have filed with the SEC a
registration statement for the securities on Form S-1 under the Securities Act. This prospectus, which forms part of the registration statement, does
not contain all the information contained in the registration statement. Whenever a reference is made in this prospectus to any of our contracts or
other documents, the reference may not be complete and, for a copy of the contract or document, you should refer to the exhibits that are part of the
registration statement.
You may inspect and copy the
registration statement at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549 upon payment of certain
prescribed fees. You may obtain information on the operation of the SECs public reference facilities by calling the SEC at 1-800-SEC-0330. You
may also access the registration statement electronically through the SECs Electronic Data Gathering, Analysis and Retrieval, or EDGAR, system at
the SECs website located at http://www.sec.gov.
The SEC allows us to incorporate
by reference the information we file with it, which means that we can disclose important information to you by referring you to those documents filed
separately with the SEC. The information we incorporate by reference is an important part of this prospectus. We incorporate by reference the documents
listed below, except to the extent that any information contained in those documents is deemed furnished in accordance with SEC rules. The
documents we incorporate by reference, all of which we have previously filed with the SEC, include:
|
Our Quarterly Report on Form 10-Q for the three months ended March 31, 2013, filed with the SEC on May 13, 2013; |
|
Our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 28, 2013; |
|
Our Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 8, 2013; and |
|
Our Current Reports on Form 8-K, filed with the SEC on January 7, 2013, March 5, 2013, April 1, 2013, April 29, 2013, May 13, 2013, May 17, 2013, and May 21, 2013. |
A description of our capital
stock can be found herein under Description of Capital Stock.
Any statement contained in a
document that is incorporated by reference will be modified or superseded for all purposes to the extent that a statement contained in this prospectus
modifies or is contrary to that previous statement. Any statement so modified or superseded will not be deemed a part of this prospectus except as so
modified or superseded.
We will provide a copy of any and
all of the information that is incorporated by reference in this prospectus to any person, including a beneficial owner, to whom a prospectus is
delivered, without charge, upon written or oral request. Written requests for copies should be directed to Attn: Martha L. Long, Independence
Bancshares, Inc., 500 East Washington Street, Greenville, South Carolina, 29601. Telephone requests for copies should be directed to Martha L. Long at
(864) 672-1776.
We maintain an Internet website
at www. independencenb.com where the incorporated reports listed above can be accessed. Neither this website nor the information on this website is
included or incorporated in, or is a part of, this prospectus.
35
2,351,250 Shares
Common Stock
PROSPECTUS
The date of this prospectus is [], 2013
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution.
The following table sets forth
all expenses to be paid by the registrant in connection with this offering. All amounts shown are estimates except for the SEC registration
fee.
SEC
Registration Fees |
$ | 257.00 | ||||
Blue Sky Fees
|
5,000.00 | * | ||||
Accounting
Fees and Expenses |
5,000.00 | * | ||||
Legal Fees
and Expenses |
40,000.00 | * | ||||
Miscellaneous
|
5,000.00 | * | ||||
Total |
$ | 55,257.00 |
* |
Estimates |
Item 14. Indemnification of Directors and
Officers.
Under our Bylaws, each of our
directors has the right to be indemnified by us to the maximum extent permitted by law against (i) reasonable expenses incurred in connection with any
threatened, pending or completed civil, criminal, administrative, investigative or arbitrative action, suit or proceeding seeking to hold the director
liable by reason of his or her actions in such capacity and (ii) reasonable payments made by the director in satisfaction of any judgment, money
decree, fine, penalty or settlement for which he or she became liable in such action, suit or proceeding. This right to indemnification includes the
right to the advancement of reasonable expenses by us, to the maximum extent permitted by law. Under our Bylaws, each of our officers who are not
directors is entitled to the same indemnification rights, including the right to the advancement of reasonable expenses, which are provided to our
directors.
Pursuant to the Business
Corporation Act, a South Carolina corporation has the power to indemnify its directors and officers provided that they act in good faith and reasonably
believe that their conduct was lawful and in the corporate interest (or not opposed thereto), as set forth in the Business Corporation Act. Under the
Business Corporation Act, unless limited by its articles of incorporation, a corporation must indemnify a director or officer who is wholly successful,
on the merits or otherwise, in the defense of any proceeding to which he or she was a party because he or she is or was a director or officer, against
reasonable expenses incurred by the director or officer in connection with the proceeding. Our Articles of Incorporation do not contain any such
limitations. The Business Corporation Act permits a corporation to pay for or reimburse reasonable expenses in advance of final disposition of an
action, suit or proceeding only upon (i) the directors certification that he or she acted in good faith and in the corporate interest (or not
opposed thereto), (ii) the director furnishing a written undertaking to repay the advance if it is ultimately determined that he or she did not meet
this standard of conduct, and (iii) a determination is made that the facts then known to those making the determination would not preclude
indemnification under the Business Corporation Act.
Under our Articles of
Incorporation, no director will be liable to us or our shareholders for monetary damages for breach of his or her fiduciary duty as a director, to the
maximum extent permitted by law.
The Business Corporation Act also
empowers a corporation to provide insurance for directors and officers against liability arising out of their positions, even though the insurance
coverage may be broader than the corporations power to indemnify. We maintain directors and officers liability insurance for the
benefit of our directors and officers.
II-1
Item 15. Recent Sales of Unregistered
Securities.
On December 31, 2012, we issued
17,648,750 shares of common stock to certain accredited investors, including members of the Companys board of directors, for cash proceeds of
approximately $14.1 million, at a price of $0.80 per share. In connection with the Private Placement, the Company paid Hovde Securities, LLC, a FINRA
registered broker-dealer, a sales commission of approximately $532,000. The issuance of the shares of common stock in the Private Placement was not
registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration
afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act.
Item 16. Exhibits and Financial
Statement Schedules.
(a) |
Exhibits. |
The exhibits to the registration
statement are listed in the Exhibit Index attached hereto and incorporated by reference herein.
(b) |
Financial Statements Schedules. |
The financial statement schedules
have been provided in the consolidated financial statements or notes thereto, which are incorporated herein by reference to the Registrants
Annual Report on Form 10-K filed with the SEC on March 28, 2013.
Item 17. Undertakings.
The registrant hereby
undertakes:
(a) |
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
(i) |
to include any prospectus required by Section 10(a)(3) of the Securities Act; |
(ii) |
to reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement; and |
(iii) |
to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
(b) |
That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
(c) |
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
(d) |
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: |
(i) |
each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and |
II-2
(ii) |
each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date. |
(e) |
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
(i) |
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
(ii) |
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
(iii) |
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
(iv) |
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
(f) |
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other that the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit of proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. |
II-3
SIGNATURES
Pursuant to the requirements of
the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Greenville, State of South Carolina, on June 20, 2013.
INDEPENDENCE BANCSHARES, INC. (Registrant) |
|||||||||||
By: |
/s/ Gordon A. Baird |
||||||||||
Gordon A. Baird Chief Executive Officer |
Pursuant to the requirements of
the Securities Act of 1933 this Amendment No. 3 to Registration Statement has been signed by the following persons in the capacities indicated
below on the 20th day of June, 2013.
Signature |
Title |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
/s/ Gordon A. Baird |
Chief Executive Officer and Director |
||||||||||
Gordon A.
Baird |
(Principal Executive Officer) |
||||||||||
/s/ Martha L. Long |
Chief Financial Officer of the Bank |
||||||||||
Martha L.
Long |
(Principal Financial and Accounting Officer) |
||||||||||
/s/ Robert B. Willumstad* |
Director |
||||||||||
Robert B.
Willumstad |
Chairman of the Board |
||||||||||
/s/ Alvin G. Hageman* |
Director |
||||||||||
Alvin G.
Hageman |
|||||||||||
/s/ H. Neel Hipp, Jr.* |
Director |
||||||||||
H. Neel Hipp,
Jr. |
|||||||||||
/s/ A. Alexander McLean, III* |
Director |
||||||||||
A. Alexander
McLean, III |
|||||||||||
/s/ Keith Stock* |
Director |
||||||||||
Keith
Stock |
*By: |
Gordon A. Baird Power of Attorney |
II-4
EXHIBIT INDEX
Exhibit No. |
Description of Exhibit |
|||||
3.1 |
Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Companys Form SB-2, File No. 333-121485, filed on December
21, 2004). |
|||||
3.2 |
Articles of Amendment to the Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Companys Current Report on Form
8-K filed on August 15, 2011). |
|||||
3.3 |
Amended and Restated Bylaws dated March 5, 2012 (incorporated by reference to Exhibit 3.2 of the Companys Annual Report on Form 10-K for
the fiscal year ended December 31, 2011). |
|||||
4.1 |
Form
of certificate of common stock (incorporated by reference to Exhibit 4.2 of the Companys Form SB-2, File No. 333-121485). |
|||||
5.1 |
Legal
Opinion of Nelson Mullins Riley & Scarborough LLP.** |
|||||
10.1 |
Amended and Restated Employment Agreement between Independence Bancshares, Inc. and Lawrence R. Miller dated December 10, 2008 (incorporated
by reference to Exhibit 10.11 of the Companys Form 10-K for the fiscal year ended December 31, 2008).* |
|||||
10.2 |
Form
of Stock Warrant Agreement (incorporated by reference to Exhibit 10.4 of the Companys Form SB-2, File No. 333-121485).* |
|||||
10.3 |
Independence Bancshares, Inc. 2005 Stock Incentive Plan and Form of Option Agreement (incorporated by reference to Exhibit 10.1 of the
Companys Form 10-QSB for the period ended June 30, 2005). * |
|||||
10.4 |
Stock
Warrant Agreement between Lawrence R. Miller and the Company dated May 16, 2005 (incorporated by reference to Exhibit 10.2 of the Companys Form
10-QSB for the period ended June 30, 2005).* |
|||||
10.5 |
Amendment No. 1 to the Independence Bancshares, Inc. 2005 Stock Incentive Plan (incorporated by reference to the Companys Form 10-Q for
the period ended September 30, 2008).* |
|||||
10.6 |
Consent Order by and between Independence National Bank and the Comptroller of the Currency dated November 14, 2011 (incorporated by reference
to Exhibit 10.1 of the Companys Current Report on Form 8-K filed on November 18, 2011). |
|||||
10.7 |
Form
of Subscription Agreement dated as of December 31, 2012 (incorporated by reference to Exhibit 10.1 of the Companys Current Report on Form 8-K
filed on January 7, 2013). |
|||||
10.8 |
Form
of Registration Rights Agreement dated as of December 31, 2012 (incorporated by reference to Exhibit 10.2 of the Companys Current Report on Form
8-K filed on January 7, 2013). |
|||||
10.9 |
Amendment to the Amended and Restated Employment Agreement between Independence Bancshares, Inc. and Lawrence R. Miller (incorporated by
reference to Exhibit 10.3 of the Companys Current Report on Form 8-K filed on January 7, 2013).* |
|||||
10.10 |
Amendment No. 2 to the Independence Bancshares, Inc. 2005 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the
Companys Current Report on Form 8-K filed on March 5, 2013).* |
|||||
10.11 |
Independence Bancshares, Inc. 2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 of the Companys Current Report on
Form 8-K filed on March 5, 2013).* |
|||||
10.12 |
Form
of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.3 of the Companys Current Report on Form 8-K filed on March 5,
2013).* |
|||||
10.13 |
Form
of Stock Option Award Agreement (incorporated by reference to Exhibit 10.4 of the Companys Current Report on Form 8-K filed on March 5,
2013).* |
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10.14 |
Employment Agreement between Independence Bancshares, Inc. and Gordon A. Baird dated March 27, 2013 (incorporated by reference to Exhibit 10.1
of the Companys Form 8-K filed on April 1, 2013).* |
|||||
21.1 |
Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 of the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2012). |
|||||
23.1 |
Consent of Elliott Davis, LLC. |
|||||
23.2 |
Consent of Nelson Mullins Riley & Scarborough LLP (included in Exhibit 5.1).** |
|||||
23.3 |
Consent of Alvin G. Hageman.** |
|||||
23.4 |
Consent of John B. Helmers.** |
|||||
23.5 |
Consent of Keith Stock.** |
|||||
23.6 |
Consent of Robert B. Willumstad.** |
|||||
24.1 |
Power
of Attorney. ** |
|||||
99.1 |
Form
of Subscription Agreement.** |
|||||
99.2 |
Form
of Notice to Shareholders other than Nominees.** |
|||||
99.3 |
Form
of Notice to Shareholders who are Acting as Nominees.** |
* |
Management contract or compensatory plan or arrangement. |
** |
Previously filed. |
II-6