AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY , 1996.
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ABC BANCORP
(EXACT NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)
GEORGIA 6022 58-1456434
(PRIMARY STANDARD (I.R.S. EMPLOYER I.D. NO.)
(STATE OR OTHER INDUSTRIAL
JURISDICTIONOF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
310 FIRST STREET, S.E.
MOULTRIE, GEORGIA 31768
(912) 890-1111
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(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KENNETH J. HUNNICUTT, PRESIDENT
310 FIRST STREET, S.E.
MOULTRIE, GEORGIA 31768
(912) 890-1111
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
STEVEN E. FOX, ESQ. ROBERT T. MOLINET, ESQ.
ROGERS & HARDIN SMITH, GAMBRELL & RUSSELL
229 PEACHTREE STREET, N.E. SUITE 1800
2700 CAIN TOWER 3343 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30303 ATLANTA, GEORGIA 30326-1010
(404) 522-4700 (404) 264-2620
----------------
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Approximate date of commencement of proposed sale to the public: Upon consummation of the merger described herein and after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_]
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED(1) REGISTERED(2) PER UNIT OFFERING PRICE(3) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
Common Stock $1.00 par
Value.................. 736,277 $15.00 $11,044,148 $3,808.33
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
ABC BANCORP
CROSS REFERENCE SHEET
ITEM
NUMBER CAPTION HEADING IN PROSPECTUS
------ ------- ---------------------
D. Voting and Management Informa-
tion
18. Information if Proxies, Documents Incorporated by Reference;
Consents or Authorizations Summary; Special Meeting Information;
Are to be Solicited Proposed Merger; Comparative Rights of
Shareholders
19. Information if Proxies, *
Consents or Authorizations
Are Not to be Solicited,
or in an Exchange Offer
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FIRST NATIONAL FINANCIAL CORPORATION
2627 DAWSON ROAD
ALBANY, GEORGIA 31707
, 1996
To the Shareholders of
First National Financial Corporation:
You are cordially invited to attend a Special Meeting of Shareholders of First National Financial Corporation ("First National") to be held at the main office lobby of First National Bank of South Georgia, 2627 Dawson Road, Albany, Georgia on , , 1996, at .m. (the "Special Meeting"). At the Special Meeting, you will be asked to consider and vote upon an Agreement and Plan of Merger (the "Merger Agreement") dated as of April 15, 1996, which provides for the merger (the "Merger") of First National with and into ABC Bancorp ("ABC"). A copy of the Merger Agreement is attached to the accompanying Proxy Statement/Prospectus as Appendix A.
Upon consummation of the Merger, each share (other than shares with respect
to which statutory dissenters' rights have been perfected) of the common stock
of First National outstanding immediately prior thereto (the "First National
Shares") will be converted into the right to receive that number of shares of
the common stock, $1.00 par value per share, of ABC ("ABC Common Stock")
having a value equal to (i) (A) 2.265 times the lesser of (1) 0.08 times the
total assets of First National, based on the average of the total assets of
First National as of the close of business for each of the 60 calendar days
immediately preceding the closing date (the "Closing Date") of the Merger (the
"Average Total Assets") or (2) the Total Equity of First National (as defined
herein), plus (B) 1.0 times the amount, if any, by which the Total Equity of
First National exceeds 0.08 times the Average Total Assets, (ii) plus the
aggregate exercise price of all options and warrants to purchase First
National Shares (whether or not any such option or warrant is then
exercisable) outstanding immediately prior to the effective time (the
"Effective Time") of the Merger (collectively, the "Options and Warrants"),
(iii) divided by (A) the aggregate number of First National Shares outstanding
immediately prior to the Effective Time, plus (B) the aggregate number of
First National Shares issuable upon the exercise of all Options and Warrants
(the "Merger Consideration"). Cash will be paid in lieu of issuing fractional
shares of ABC Common Stock. For purposes of the Merger, "Total Equity" means
First National's total stockholders' equity calculated under generally
accepted accounting principles, consistently applied, as of the close of
business on the day immediately preceding the Closing Date.
Also accompanying this letter are a Notice of Special Meeting and form of Proxy for voting your First National Shares. Please sign, date and return to First National as soon as possible the form of Proxy in the enclosed self- addressed, stamped envelope. Before executing and returning the Proxy, you should carefully read the accompanying Proxy Statement/Prospectus. It is important that your First National Shares be voted whether or not you attend the Special Meeting. If you attend the Special Meeting, you may vote in person if you wish, even though you previously returned your Proxy.
First National's Board of Directors has fixed the close of business on , 1996 as the record date for the Special Meeting. Accordingly, only shareholders of record on that date will be entitled to notice of, and to vote at, the Special Meeting or any adjournments or postponements thereof. Approval of the Merger requires the affirmative vote of holders of a majority of the outstanding First National Shares as of the record date. Holders of 136,800 First National Shares, representing approximately 27.6% of the shares entitled to vote, have delivered to ABC irrevocable proxies pursuant to which ABC intends to vote such shares in favor of the Merger. Accordingly, the affirmative vote, in person or by proxy, of holders of not less than an additional 110,905 First National Shares will be sufficient to approve the Merger.
The Board of Directors of First National believes that the proposed Merger, on the terms and conditions set forth in the accompanying Proxy Statement/Prospectus, is in the best interests of First National and its shareholders and, therefore, unanimously recommends that you vote in favor of the Merger and the Merger Agreement.
We look forward to your attendance at the Special Meeting.
If you have any questions, please feel free to contact the undersigned at
(912) 888-5600.
Very truly yours,
Raymond B. Phillips, President
FIRST NATIONAL FINANCIAL CORPORATION
2627 DAWSON ROAD
ALBANY, GEORGIA 31707
TELEPHONE: (912) 888-5600
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1996
To the Shareholders of First National Financial Corporation:
Notice is hereby given that a Special Meeting of Shareholders (the "Special Meeting") of First National Financial Corporation ("First National") will be held at the main office lobby of First National Bank of South Georgia, 2627 Dawson Road, Albany, Georgia on , 1996, at .m., local time, for the following purposes:
1. To consider and vote upon the Agreement and Plan of Merger dated as of April 15, 1996, between First National and ABC Bancorp ("ABC") in the form set forth in Appendix A to the accompanying Proxy Statement/Prospectus (the "Merger Agreement") and the transactions contemplated thereby, including the merger of First National with and into ABC (the "Merger"); and
2. To transact such other business as may properly come before the Special Meeting and any adjournments or postponements thereof.
First National's Board of Directors has fixed the close of business on , 1996, as the record date for the determination of shareholders entitled to notice of and to vote at the Special Meeting and at any adjournment or postponement thereof.
Any shareholder of First National shall have the right to dissent from the Merger and receive payment in cash of the "fair value" for his or her shares of First National Common Stock upon compliance with the procedures set forth in Article 13 of the Georgia Business Corporation Code, a copy of which is attached as Appendix B to the accompanying Proxy Statement/Prospectus. A vote against the Merger will not, in and of itself, satisfy the requirements of Article 13.
FIRST NATIONAL'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AND THE MERGER AGREEMENT.
By Order of the Board of Directors
Raymond B. Phillips, President
Albany, Georgia
, 1996
SHAREHOLDERS ARE URGED TO DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF A SHAREHOLDER RECEIVES MORE THAN ONE PROXY BECAUSE HE OR SHE OWNS SHARES REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY SHOULD BE COMPLETED AND RETURNED. YOUR COOPERATION WILL BE APPRECIATED. YOUR PROXY WILL BE VOTED WITH RESPECT TO THE MATTERS IDENTIFIED THEREON IN ACCORDANCE WITH ANY SPECIFICATIONS ON THE PROXY AND, IF NO SPECIFICATION IS MADE, YOUR PROXY WILL BE VOTED FOR APPROVAL OF THE MERGER AND THE MERGER AGREEMENT.
PROSPECTUS OF PROXY STATEMENT OF
ABC BANCORP FIRST NATIONAL FINANCIAL CORPORATION
FIRST NATIONAL FINANCIAL CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
, 1996
This Proxy Statement/Prospectus is being furnished to shareholders of record at , 1996 of First National Financial Corporation ("First National") in connection with the solicitation of proxies by First National for use at the Special Meeting of Shareholders of First National to be held at the main office lobby of First National Bank of South Georgia, 2627 Dawson Road, Albany, Georgia, on , 1996, at .m. local time, and at any postponements or adjournments thereof (the "Special Meeting"). This Proxy Statement/Prospectus and the form of proxy are being first mailed on or about , 1996.
At the Special Meeting, First National's shareholders will be asked to
approve the Agreement and Plan of Merger (the "Merger Agreement"), dated as of
April 15, 1996, between First National and ABC Bancorp ("ABC"), and the
transactions contemplated thereby, including the merger of First National with
and into ABC (the "Merger" or the "Merger Proposal"). A copy of the Merger
Agreement is attached to this Proxy Statement/Prospectus as Appendix A. Upon
consummation of the Merger, each share (other than shares with respect to
which statutory dissenters' rights have been perfected) of common stock of
First National outstanding immediately prior thereto (the "First National
Shares") will be converted into the right to receive that number of shares of
the common stock, $1.00 par value per share, of ABC ("ABC Common Stock")
having a value equal to (i) (A) 2.265 times the lesser of (1) 0.08 times the
total assets of First National based on the average of the total assets of
First National as of the close of business for each of the 60 calendar days
immediately preceding the closing date (the "Closing Date") of the Merger (the
"Average Total Assets") or (2) the Total Equity of First National (as defined
herein), plus (B) 1.0 times the amount, if any, by which the Total Equity of
First National exceeds 0.08 times the Average Total Assets, (ii) plus the
aggregate exercise price of all options and warrants to purchase First
National Shares (whether or not any such option or warrant is then
exercisable) outstanding immediately prior to the effective time (the
"Effective Time") of the Merger (collectively, the "Options and Warrants"),
(iii) divided by (A) the aggregate number of First National Shares outstanding
immediately prior to the Effective Time, plus (B) the aggregate number of
First National Shares issuable upon the exercise of all Options and Warrants
(the "Merger Consideration"). Cash will be paid in lieu of issuing fractional
shares of ABC Common Stock. For purposes of the Merger, "Total Equity" means
First National's total stockholders' equity calculated under generally
accepted accounting principles, consistently applied, as of the close of
business on the day immediately preceding the Closing Date. For a more
complete description of the Merger Agreement and the terms of the Merger, see
"PROPOSED MERGER."
Approval of the Merger requires the affirmative vote of the holders of a majority of the outstanding First National Shares and entitled to vote at the Special Meeting. Holders of 136,800 First National Shares, representing approximately 27.6% of the shares entitled to vote, have delivered to ABC irrevocable proxies pursuant to which ABC intends to vote such shares in favor of the Merger. Accordingly, the affirmative vote, in person or by proxy, of holders of not less than an additional 110,905 First National Shares will be sufficient to approve the Merger. Any shareholder of First National shall have the right to dissent from the Merger and receive payment in cash of the "fair value" for his or her First National Shares upon compliance with the procedures set forth in Article 13 of the Georgia Business Corporation Code, a copy of which is attached to this Proxy Statement/Prospectus as Appendix B. A vote against the Merger will not, in and of itself, satisfy the requirements of Article 13. See "PROPOSED MERGER--Rights of Dissenting Shareholders."
This Proxy Statement/Prospectus constitutes the Proxy Statement of First National and the Prospectus of ABC covering the shares of its Common Stock to be issued pursuant to the Merger Proposal. This Proxy Statement/Prospectus does not cover any resales of ABC Common Stock to be received by the shareholders of First National upon consummation of the Merger, and no person is authorized to make use of this Proxy Statement/Prospectus in connection with any such resale.
The outstanding shares of ABC Common Stock are, and the shares offered hereby will be, approved for quotation on the Nasdaq National Market. The closing sale price of ABC Common Stock, as reported on the Nasdaq National Market on , 1996, was $ per share.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. SHAREHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER FEDERAL OR STATE GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is , 1996.
TABLE OF CONTENTS
PAGE
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AVAILABLE INFORMATION AND SOURCES OF INFORMATION...........................
DOCUMENTS INCORPORATED BY REFERENCE........................................
SUMMARY....................................................................
The Parties..............................................................
The Special Meeting......................................................
Financial Terms of the Merger............................................
Reasons for the Proposed Merger..........................................
Interests of Certain Persons in the Merger...............................
Recommendation of the Board of Directors of First National...............
Dissenters' Rights.......................................................
Certain Federal Income Tax Consequences..................................
Conditions; Amendments; Termination......................................
Comparative Shareholders' Rights.........................................
Recent or Proposed Transactions..........................................
Comparison of Certain Unaudited Per Share Data...........................
Selected Consolidated Financial Data.....................................
Summary Pro Forma Financial Data.........................................
Market Value of Securities and Dividends.................................
SPECIAL MEETING INFORMATION................................................
Purpose of Special Meeting...............................................
Date, Time and Place.....................................................
Record Date..............................................................
Vote Required............................................................
Proxies..................................................................
PROPOSED MERGER............................................................
Background of the Merger.................................................
Recommendations of the Boards of Directors; Reasons for the Merger.......
Opinion of First National Financial Advisor..............................
Description of Merger....................................................
Merger Consideration.....................................................
Payment of Cash in Lieu of Fractional Shares.............................
Surrender of Certificates................................................
Effective Date of Merger.................................................
Interests of Management in the Merger....................................
Rights of Dissenting Shareholders........................................
Certain Federal Income Tax Consequences of the Merger....................
Regulatory Approvals.....................................................
Business Pending the Merger..............................................
Other Provisions of the Agreement........................................
Operations of the Bank After the Merger..................................
Accounting Treatment.....................................................
Resale of ABC Common Stock...............................................
DESCRIPTION OF ABC BANCORP.................................................
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PAGE
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ABC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...................................................
General................................................................
Results of Operations For Years Ended December 31, 1995, 1994 and
1993..................................................................
Results of Operations for Three Months Ended March 31, 1996 and 1995...
Average Balances and Net Income Analysis...............................
Rate and Volume Analysis...............................................
Noninterest Income.....................................................
Noninterest Expense....................................................
Asset/Liability Management.............................................
Maturities and Sensitivity of Loans to Changes in Interest Rates.......
Loan Portfolio.........................................................
Nonperforming Loans....................................................
Summary of Loan Loss Experience........................................
Allocation of Allowance for Loan Losses................................
Investment Portfolio...................................................
Types of Investments...................................................
Deposits...............................................................
Return on Assets and Shareholders' Equity..............................
Liquidity and Capital Resources........................................
Commitments and Lines of Credit........................................
Impact of Inflation....................................................
DESCRIPTION OF ABC COMMON STOCK..........................................
General................................................................
Common Stock...........................................................
Preferred Stock........................................................
Limitations on Directors' Liability....................................
Certain Antitakeover Provisions of ABC's Articles of Incorporation.....
Transfer Agent.........................................................
CERTAIN REGULATORY CONSIDERATIONS RELATING TO ABC........................
General................................................................
Payment of Dividends and Other Restrictions............................
Capital Adequacy.......................................................
Support of Subsidiary Banks............................................
FDIC Insurance Assessments.............................................
Recent Legislative and Regulatory Action...............................
Monetary Policy........................................................
Future Requirements....................................................
COMPARATIVE RIGHTS OF SHAREHOLDERS.......................................
Liquidity and Marketability............................................
Management.............................................................
Special Meetings.......................................................
Anti-Takeover Provisions...............................................
DESCRIPTION OF FIRST NATIONAL FINANCIAL CORPORATION......................
Business...............................................................
Employees..............................................................
Properties.............................................................
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PAGE
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Litigation............................................................
Management............................................................
Security Ownership of Management and Principal Shareholders...........
Certain Regulatory Considerations Relating to First National..........
FIRST NATIONAL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................................
General...............................................................
Results of Operations For Three Months Ended March 31, 1996 and 1995..
Results of Operations For Years Ended December 31, 1995 and 1994......
Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential......................................
Rate/Volume Analysis of Net Interest Income...........................
Noninterest Income....................................................
Noninterest Expense...................................................
Asset/Liability Management............................................
Maturities and Sensitivity of Loans to Changes in Interest Rates......
Loan Portfolio........................................................
Nonperforming Assets..................................................
Summary of Loan Loss Experience.......................................
Investment Portfolio..................................................
Types of Investments..................................................
Deposits..............................................................
Return on Assets and Shareholders' Equity.............................
Liquidity and Capital Resources.......................................
Impact of Inflation...................................................
First National Shares.................................................
OTHER MATTERS...........................................................
EXPERTS.................................................................
LEGAL OPINIONS..........................................................
INDEX TO FINANCIAL INFORMATION..........................................
APPENDICES:
Appendix A: Agreement and Plan of Merger
Appendix B: Dissenters' Rights Under Article 13 of the Georgia Busi-
ness Corporation Code
Appendix C: Opinion of First National Financial Advisor
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AVAILABLE INFORMATION AND SOURCES OF INFORMATION
ABC has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement (the "Registration Statement") on Form S-4 under the Securities Act of 1933, as amended (the "1933 Act"), covering the shares of ABC Common Stock to be issued in connection with the Merger. This Proxy Statement/Prospectus also constitutes the Prospectus of ABC filed as part of the Registration Statement. This Proxy Statement/Prospectus does not contain all of the information set forth in the Registration Statement. The Registration Statement and the exhibits thereto can be inspected and copied at the Commission's public reference room, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the Commission's regional offices located at: CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material also can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Each of ABC and First National is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") and, in accordance therewith, files proxy statements, annual and quarterly reports and other information with the Commission. The proxy statements, reports and other information filed by each of ABC and First National with the Commission may be inspected and copied, at prescribed rates, at the public reference facilities maintained by the Commission at the addresses set forth above.
ALL INFORMATION CONCERNING ABC CONTAINED HEREIN HAS BEEN FURNISHED BY ABC, AND ALL INFORMATION CONCERNING FIRST NATIONAL CONTAINED HEREIN HAS BEEN FURNISHED BY FIRST NATIONAL. REFERENCES TO ABC AND FIRST NATIONAL IN THIS PROXY STATEMENT/PROSPECTUS MEAN THE RESPECTIVE CORPORATIONS AND THEIR CONSOLIDATED SUBSIDIARIES, EXCEPT AS THE CONTEXT MAY OTHERWISE INDICATE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL ANY SECURITIES COVERED BY THIS PROXY STATEMENT/PROSPECTUS IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER. NEITHER THE DELIVERY HEREOF NOR ANY DISTRIBUTION OF SECURITIES BY ABC MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
DOCUMENTS INCORPORATED BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE RELATING TO ABC AND FIRST NATIONAL WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (EXCLUDING UNINCORPORATED EXHIBITS) ARE AVAILABLE, WITHOUT CHARGE, UPON ORAL OR WRITTEN REQUEST BY ANY PERSON (INCLUDING ANY BENEFICIAL OWNER) TO WHOM THIS PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED, IN THE CASE OF DOCUMENTS RELATING TO ABC, FROM ABC BANCORP, 310 FIRST STREET, S.E., P. O. BOX 1500, MOULTRIE, GEORGIA 31768, ATTN: SARA R. HALL, TELEPHONE NO. (912) 890-1111, AND IN THE CASE OF DOCUMENTS RELATING TO FIRST NATIONAL, FROM FIRST NATIONAL FINANCIAL CORPORATION, 2627 DAWSON ROAD, ALBANY, GEORGIA 31707, ATTN: RAYMOND B. PHILLIPS, TELEPHONE NO. (912) 888-5600. IN ORDER TO INSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1996.
The following documents of ABC (Commission File No. 0-16181) are hereby incorporated by reference:
1. ABC's Annual Report on Form 10-K for the year ended December 31, 1995;
2. ABC's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996; and
3. ABC's Current Report on Form 8-K dated June 21, 1996.
The following documents of First National (Commission File No. 0-20130) are hereby incorporated by reference:
1. First National's Annual Report on Form 10-KSB for the year ended December 31, 1995; and
2. First National's Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996.
Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Proxy Statement/Prospectus to the extent that a statement contained in this Proxy Statement/Prospectus, or in any other subsequently filed document which is also incorporated herein by reference, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed to constitute a part of this Proxy Statement/Prospectus except as so modified or superseded. The information relating to ABC and First National contained in this Proxy Statement/Prospectus should be read together with the information in the documents incorporated herein by reference.
SUMMARY
This summary is necessarily general and abbreviated and has been prepared to assist First National shareholders in their review of this Proxy Statement/Prospectus. The summary is not intended to be a complete explanation of the matters covered in this Proxy Statement/Prospectus and is qualified in all respects by reference to the more detailed information contained in, or incorporated by reference into, this Proxy Statement/Prospectus, including the Appendices hereto. Shareholders are urged to read carefully this Proxy Statement/Prospectus and each of the Appendices hereto.
THE PARTIES
ABC Bancorp. ABC is a bank holding company organized under the laws of the State of Georgia and registered with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") pursuant to the Bank Holding Company Act of 1956, as amended (the "BHCA"). ABC, through its subsidiaries, is engaged in the commercial banking business. Its primary source of earnings is derived from income generated by the ownership and operation of its five wholly-owned subsidiary banks: American Banking Company located in Moultrie, Georgia; The Bank of Quitman located in Quitman, Georgia; Bank of Thomas County located in Thomasville, Georgia; The Citizens Bank of Tifton located in Tifton, Georgia; Cairo Banking Company located in Cairo, Georgia; and Southland Bank (acquired on June 21, 1996) located in Dothan, Alabama. As of March 31, 1996, ABC, on a consolidated basis, had total assets of $335.6 million, total loans of $223.3 million, total deposits of $293.4 million and stockholders' equity of $34.6 million. ABC's net income for 1995 was $4.3 million, or $1.29 per share; its net income for the three months ended March 31, 1996 was $1.2 million, or $0.37 per share. ABC's principal executive offices are located at 310 First Street, S.E., P.O. Box 1500, Moultrie, Georgia 31766; its telephone number at that address is (912) 890-1111.
First National Financial Corporation. First National is a bank holding company organized under the laws of the State of Georgia and registered with the Federal Reserve Board pursuant to the BHCA. First National owns all of the outstanding common stock of First National Bank of South Georgia located in Albany, Georgia ("the Bank"), a national bank which provides general banking services in and around the Albany, Georgia area. As of March 31, 1996, First National, on a consolidated basis, had total assets of $53.9 million, total loans of $35.5 million, total deposits of $47.9 million and stockholders' equity of $5.6 million. First National's net income for 1995 was $611,510, or $1.13 per share; its net income for the three months ended March 31, 1996 was $132,877, or $0.25 per share. First National's principal executive offices are located at 2627 Dawson Road, Albany, Georgia 31707; its telephone number at that address is (912) 888-5600.
THE SPECIAL MEETING
Date of Meeting, Time and Place. The Special Meeting will be held , 1996, at : .m. at the main office lobby of the Bank, 2627 Dawson Road, Albany, Georgia.
Record Date. All shareholders of record of First National as of the close of business on , 1996 (the "Record Date") will be entitled to notice of and to vote at the Special Meeting.
Purpose of Special Meeting. The purpose of the Special Meeting is to consider and vote upon the Merger Agreement between First National and ABC and the transactions contemplated thereby, including the Merger of First National with and into ABC on the terms described in this Proxy Statement/Prospectus. A copy of the Merger Agreement is attached to this Proxy Statement/Prospectus as Appendix A.
Required Shareholder Vote. Approval of the Merger requires the affirmative vote of the holders of a majority of the outstanding First National Shares and entitled to vote at the Special Meeting. Holders of 136,800 First National Shares, representing approximately 27.6% of the shares entitled to vote, have delivered to ABC irrevocable proxies pursuant to which ABC intends to vote such shares in favor of the Merger. Accordingly, the
affirmative vote, in person or by proxy, of holders of not less than an additional 110,905 First National Shares will be sufficient to approve the Merger. See "VOTE REQUIRED" and "SPECIAL MEETING INFORMATION."
FINANCIAL TERMS OF THE MERGER
Structure. Under the Merger Agreement, First National will be merged with and into ABC. ABC will be the surviving corporation in the Merger. As a result of the Merger, the separate corporate existence of First National will cease, and the Bank will become a wholly-owned subsidiary of ABC.
Merger Consideration. Upon consummation of the Merger, each First National Share outstanding immediately prior thereto (other than shares with respect to which statutory dissenters' rights have been perfected) will be converted into the right to receive that number of shares of ABC Common Stock having a value equal to (i) (A) 2.265 times the lesser of (1) 0.08 times the total assets of First National based on the average of the total assets of First National as of the close of business for each of the 60 calendar days immediately preceding the closing date (the "Closing Date") of the Merger (the "Average Total Assets"), or (2) the Total Equity of First National, plus (B) 1.0 times the amount, if any, by which the Total Equity (as defined herein) of First National exceeds 0.08 times the Average Total Assets, (ii) plus the aggregate exercise price of all options and warrants to purchase First National Shares (whether or not such option or warrant is then exercisable) outstanding immediately prior to the effective time (the "Effective Time") of the Merger (collectively, the "Options and Warrants"), (iii) divided by (A) the aggregate number of First National Shares outstanding immediately prior to the Effective Time, plus (B) the aggregate number of First National Shares issuable upon the exercise of all Options and Warrants (the "Merger Consideration"). See "PROPOSED MERGER--Merger Consideration." Cash will be paid in lieu of issuing fractional shares of ABC Common Stock. See "PROPOSED MERGER--Payment of Cash in Lieu of Fractional Shares." For purposes of the Merger, "Total Equity" means First National's total stockholders' equity calculated under generally accepted accounting principles, consistently applied, as of the close of business on the day immediately preceding the Closing Date.
By way of illustration only, the following is an example of the Merger Consideration into which each First National Share would be converted upon consummation of the Merger based on First National's unaudited balance sheet as of March 31, 1996 included elsewhere herein. This example assumes that Average Total Assets of First National equal the year-to-date average total assets of First National at March 31, 1996. The actual Merger Consideration will be subject to a number of variables, including the actual Average Total Assets, and may be higher or lower than the amount shown in this example. In the event that the Merger Consideration as calculated at the consummation of the Merger is less than the amount set forth in the example below by 10% or more (i.e., if the actual Merger Consideration is less than $17.17), ABC and First National will amend or supplement this Proxy Statement/Prospectus to provide a revised example of the calculation of the Merger Consideration and will afford First National shareholders the opportunity to revoke previously granted proxies.
If immediately prior to the Effective Time (i) the aggregate number of First National Shares outstanding is 495,409, (ii) the aggregate number of First National Shares issuable upon the exercise of all Options and Warrants is 169,670, (iii) the Average Total Assests is $52,957,000, (iv) the Total Equity is $5,593,000, and (v) the aggregate exercise price of all Options and Warrants is $1,735,228, then each First National Share outstanding immediately prior to the Effective Time (other than shares with respect to which statutory dissenters' rights have been perfected) will be converted into the right to receive that number of shares of ABC Common Stock having a value equal to $19.08, determined as follows:
Average Total Assets........................................ $52,957,000
Multiple.................................................... X 0.08
-----------
$ 4,236,560
===========
Total Equity................................................ $ 5,593,000
===========
2.265 times lesser of (1) 0.08 times Average Total Assets,
or (2) Total Equity
(2.265 X $4,236,560)....................................... $ 9,595,808
plus amount by which Total Equity exceeds 0.08 times Average
Total Assets ($5,593,000-$4,236,560)....................... $ 1,356,440
-----------
$10,952,248
plus aggregate exercise price of Options and Warrants....... $ 1,735,228
-----------
$12,687,476
divided by aggregate number of First National Shares plus
number of First National Shares issuable upon exercise of
all Options and Warrants (495,409 + 169,670)............... 665,079
-----------
Merger Consideration........................................ $ 19.08
===========
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Number of Shares of ABC Common Stock. The number of shares of ABC Common Stock into which a First National Share will be converted (other than shares with respect to which statutory dissenters' rights have been perfected) will be determined by dividing the Merger Consideration by the value of a share of ABC Common Stock calculated in accordance with the Merger Agreement (the "Base Period Trading Price"). Thus, a First National shareholder would receive, for his or her First National Shares exchangeable for ABC Common Stock, that number of shares of ABC Common Stock equal to the Merger Consideration times the number of First National Shares to be exchanged for ABC Common Stock, divided by the Base Period Trading Price, with cash being paid in lieu of fractional shares of ABC Common Stock. For this purpose, the "Base Period Trading Price" means the average of the daily high and low sales prices of a share of ABC Common Stock as reported on the Nasdaq National Market for the 20 consecutive trading days immediately preceding the five consecutive calendar days immediately preceding the Effective Time; provided that for purposes of this calculation, the Base Period Trading Price is deemed to equal (i) $16.00 in the event the Base Period Trading Price is greater than $16.00 or (ii) $12.00 in the event that the Base Period Trading Price is less than $12.00.
By way of illustration only, the following is an example of the number of shares of ABC Common Stock that would be issued to a hypothetical holder of 100 First National Shares in connection with the Merger. This example is based on a Base Period Trading Price of $16.00, which would be the Base Period Trading Price under the terms of the Merger Agreement in the event that the average of the daily high and low sales prices of a share of ABC Common Stock as reported on the Nasdaq National Market for the 20 consecutive trading days immediately preceding the five consecutive calendar days immediately preceding the Effective Time is $16.00 or higher. On July , 1996, the daily high sales price of ABC Common Stock as reported on the Nasdaq National Market was $ per share and the daily low sales price was $ per share. The actual number of shares of ABC Common Stock issuable to a First National shareholder is subject to certain variables, including the actual Base Period Trading Price and the number of First National Shares held by such shareholder, and may be higher or lower than the number of shares shown in this example.
If immediately prior to the Effective Time (i) the Merger Consideration for each First National Share is assumed to be $19.08 (as in the example above), and (ii) the Base Period Trading Price is $16.00, then a First National shareholder who owns 100 First National Shares would receive 119 shares of ABC Common Stock (plus $4.00 cash in lieu of a fractional share) determined as follows:
Merger Consideration................................................ $ 19.08
times number of Shares.............................................. 100
-------
Subtotal............................................................ $ 1,908
divided by the Base Period Trading Price............................ $ 16.00
-------
Number of Shares of ABC Common Stock................................ 119.25
=======
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REASONS FOR THE PROPOSED MERGER
The Board of Directors of First National has determined that the proposed Merger is in First National's best interest and the best interests of its shareholders, customers, employees and community. In particular, the Board determined that the proposed Merger will provide the Bank with increased financial resources and the technical expertise available from ABC and its bank subsidiaries. In addition, shareholders will benefit from ownership of a larger financial institution whose common stock is traded on the Nasdaq National Market.
First National has received an opinion from T. Stephen Johnson & Associates, Inc., an investment banking and financial services firm located in Atlanta, Georgia, regarding the fairness of the Merger to the First National shareholders from a financial point of view, which opinion is attached to this Proxy Statement/Prospectus as Appendix C. See "PROPOSED MERGER--Opinion of First National Financial Advisor." The terms of the Merger have been reviewed and unanimously approved by First National's Board of Directors.
ABC's Board of Directors has concluded that the Merger would be in the best interests of ABC's shareholders and the employees, depositors and other customers of ABC's subsidiaries, and is consistent with ABC's acquisition strategy of developing a network of local banks in southern Georgia. ABC's Board believes that the additional banking and other resources that will be available to First National as a result of the Merger will enhance First National's service to its customers. See "PROPOSED MERGER--Reasons for the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Raymond B. Phillips, the Chairman of the Board, President and Chief Executive Officer of First National, and the other directors of First National have each agreed to enter into noncompetition agreements with ABC effective as of the Closing Date. In consideration for the execution of his noncompetition agreement, Mr. Phillips will receive on the Effective Date the sum of $25,000 and title to a 1995 Chevrolet S10 Blazer owned by the Bank and currently driven by Mr. Phillips. ABC has also agreed to cause each officer and employee of the Bank to be eligible to participate in ABC's employee benefit plans and to provide generally to employees of the Bank fringe benefits (including health and welfare plans, vacation benefits and severance benefits) on terms and conditions no less favorable than those provided to other employees of ABC's other bank subsidiaries. In addition, all options and warrants held by employees and directors of First National as of the Effective Time will be cancelled and will be converted into the right to receive a portion of the Merger Consideration. See "PROPOSED MERGER--Interests of Management in the Merger."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF FIRST NATIONAL
First National's Board of Directors has unanimously approved the Merger Agreement and has agreed to support the Merger. The Board believes that the terms of the Merger Proposal are in the best interests of First National's shareholders and unanimously recommends to First National shareholders that they vote in favor of the Merger and the Merger Proposal. See "PROPOSED MERGER--Recommendations of the Boards of Directors."
DISSENTERS' RIGHTS
In accordance with the Georgia Business Corporation Code (the "GBCC"), holders of First National Shares will be entitled to dissenters' rights in connection with the Merger. The Merger Agreement provides, however, that if holders of more than 7.5% of the issued and outstanding First National Shares timely file with First National a written notice stating that such holders intend to demand payment for their First National Shares, then ABC may elect not to consummate the Merger. See "PROPOSED MERGER--Other Provisions of the Agreement." HOLDERS OF FIRST NATIONAL SHARES WHO WISH TO EXERCISE THEIR DISSENTERS' RIGHTS MUST SEND WRITTEN NOTICE OF THEIR INTENT TO DEMAND PAYMENT FOR THEIR FIRST NATIONAL SHARES BEFORE THE SHAREHOLDERS OF FIRST NATIONAL VOTE ON THE MERGER PROPOSAL AT THE SPECIAL MEETING ON , 1996. Such written notice should be sent to the attention of Raymond B. Phillips, President, First National Financial Corporation, 2627 Dawson Road, Albany, Georgia 31707. See "PROPOSED MERGER--Dissenters' Rights" and the text of Article 13 of the GBCC attached as Appendix B to this Proxy Statement/Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger, if and when consummated in accordance with the Merger Agreement, will constitute a tax-free reorganization. First National shareholders will recognize no gain or loss on the exchange of First National Shares, except with respect to cash received in lieu of fractional shares. The foregoing summary is based upon an opinion to First National provided by Rogers & Hardin, counsel to ABC. Such opinion is not binding on the Internal Revenue Service (the "Service"), and no advance ruling has been sought or obtained from any federal, state, local or other taxing authority, including the Service. All First National shareholders should consult their own tax advisors as to the specific tax consequences to them of the Merger. See "PROPOSED MERGER--Certain Federal Income Tax Consequences of the Merger."
CONDITIONS; AMENDMENTS; TERMINATION
Consummation of the Merger is contingent upon the approval of the Merger Proposal by First National shareholders and certain regulatory authorities, including the Federal Reserve Board (the "FRB") and the Georgia Department of Banking and Finance (the "DBF"), and is subject to numerous other conditions. See "PROPOSED MERGER--Other Provisions of the Agreement--Additional Conditions to the Merger."
The Merger Agreement may be amended at any time by mutual agreement of the Boards of Directors of ABC and First National; provided that after the approval of First National shareholders has been obtained, the Merger Agreement may not be amended or supplemented in any manner which will result in a decrease in the consideration paid for First National Shares or which will otherwise materially adversely affect the rights of First National's shareholders. The Merger Agreement may also be terminated and the Merger abandoned, notwithstanding prior shareholder approval, by mutual agreement of First National and ABC or by either of them in the event of failure to satisfy the conditions to the Merger prior to November 1, 1996, or if either party shall have breached any material representation or warranty contained in the Merger Agreement and such breach has not been cured within 30 days of notice thereof to the breaching party. See "PROPOSED MERGER--Other Provisions of the Agreement--Waivers; Amendments; Terminations."
COMPARATIVE SHAREHOLDERS' RIGHTS
The rights of shareholders of ABC and shareholders of First National differ in a number of respects. For a description of the relative rights of such shareholders, see "COMPARATIVE RIGHTS OF SHAREHOLDERS."
RECENT OR PROPOSED TRANSACTIONS
Southland Merger. On June 21, 1996, Southland Bancorporation ("Southland"), an Alabama corporation and the sole shareholder of Southland Bank, an Alabama- chartered state bank located in Dothan, Alabama was merged with and into ABC (the "Southland Merger"), with Southland Bank thereupon becoming a wholly-owned subsidiary of ABC. In connection with the Southland Merger, the Southland shareholders received a combination of cash and shares of ABC Common Stock in the aggregate amount of approximately $12 million. The description of the Southland Merger Agreement is qualified in its entirety by reference to the Agreement and Plan of Merger, dated as of December 18, 1995, by and between ABC and Southland, as amended, a copy of which has been filed as an exhibit to the Registration Statement of which this Proxy Statement/Prospectus is a part.
Central Merger. ABC has announced a proposed merger with Central Bankshares, Inc. ("Central"), a Georgia corporation and the sole shareholder of Central Bank & Trust, a Georgia chartered state bank located in Cordele, Georgia. Pursuant to an Agreement and Plan of Merger by and between ABC and Central, dated as of December 29, 1995 (the "Central Merger Agreement"), Central will be merged with and into ABC (the "Central Merger"), with Central Bank & Trust thereupon becoming a wholly-owned subsidiary of ABC. In connection with the Central Merger, the Central shareholders will receive shares of ABC Common Stock having an aggregate value equal to 2.0 times the lesser of (1) 8.0% of the total assets of Central based on the average of the total assets of Central as of the close of business for each of the 60 calendar days immediately preceding the consummation of the Central Merger or (2) the total equity of Central, plus the amount, if any, by which the total equity of Central exceeds 8.0% of its total assets based on the average of the total assets of Central as of the close of business for each of the 60 calendar days immediately preceding the consummation of the Central Merger. As of March 31, 1996, Central had total assets of approximately $50.1 million and total equity of approximately $4.3 million. The description of the Central Merger Agreement is qualified in its entirety by reference to a copy thereof which has been filed as an exhibit to the Registration Statement of which this Proxy Statement/Prospectus is a part.
The consummation of the Central Merger is subject to the satisfaction of a number of conditions, including the receipt of the requisite shareholder approval by the Central shareholders.
It is currently anticipated that the Central Merger will be consummated prior to the consummation of the Merger. However, the actual timing of the consummation of the Central Merger is dependent on a number of factors, including the requisite shareholder approval. There can be no assurance as to whether or when the Central Merger will be consummated.
The Merger and the Central Merger, if consummated, will result in the issuance of a substantial number of new shares of ABC Common Stock which could have a dilutive effect on the earnings per share of ABC, Southland, Central and First National on a combined basis. For information regarding the effect of the Merger, the Southland Merger and the Central Merger (collectively, the "ABC Mergers") on ABC, see "Unaudited Pro Forma Condensed Consolidated Financial Data."
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following tables present selected historical, pro forma combined, and equivalent First National per share data for (i) ABC and First National, (ii) ABC on a pro forma basis, as if the Central Merger had been effective on the dates indicated, and First National, (iii) ABC on a pro forma basis, as if the Southland Merger had been effective on the dates indicated, and First National, and (iv) ABC on a pro forma basis, as if the Central Merger and the Southland Merger had been effective on the dates indicated, and First National. The information is based on the historical financial statements of ABC, Central, Southland and First National. The pro forma data do not purport to be indicative of the results of future operations or the actual results that would have occurred had the ABC Mergers been consummated at the beginnings of the periods presented. The pro forma data give effect to the ABC Mergers and are based on numerous assumptions and estimates. If the Merger is consummated as anticipated, it will be accounted for as a pooling of interests. It is anticipated that the Central Merger will be accounted for as a pooling of interests and the Southland Merger will be accounted for as a purchase transaction. The information presented below should be read in conjunction with, and is qualified in its entirety by, the separate consolidated financial statements, including applicable notes, of ABC and First National, and the Unaudited Pro Forma Condensed Consolidated Financial Data, and notes thereto, appearing elsewhere herein.
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------------------
EQUIVALENT
FIRST NATIONAL
FIRST PRO FORMA AMOUNT PER
ABC NATIONAL COMBINED(1) SHARE(2)
-------------- ------------ ------------ ---------------
Net income per common
share.................. $ 0.37 $ 0.25 $ 0.34 $ 0.47
Dividends per common
share.................. 0.10 -- 0.08 0.12
Book value per common
share.................. 10.23 11.29 9.87 13.75
EQUIVALENT
FIRST NATIONAL
ABC/CENTRAL FIRST PRO FORMA AMOUNT PER
PRO FORMA(3) NATIONAL COMBINED(1) SHARE(2)
-------------- ------------ ------------ ---------------
Net income per common
share.................. $ 0.36 $ 0.25 $ 0.34 $ 0.47
Dividends per common
share.................. 0.09 -- 0.07 0.10
Book value per common
share.................. 10.05 11.29 9.75 13.59
EQUIVALENT
FIRST NATIONAL
ABC/SOUTHLAND FIRST PRO FORMA AMOUNT PER
PRO FORMA(4) NATIONAL COMBINED(1) SHARE(2)
-------------- ------------ ------------ ---------------
Net income per common
share.................. $ 0.38 $ 0.25 $ 0.35 $ 0.49
Dividends per common
share.................. 0.09 -- 0.08 0.11
Book value per common
share.................. 10.75 11.29 10.34 14.41
EQUIVALENT
ABC/CENTRAL/ FIRST NATIONAL
SOUTHLAND FIRST PRO FORMA AMOUNT PER
PRO FORMA(5) NATIONAL COMBINED(1) SHARE(2)
-------------- ------------ ------------ ---------------
Net income per common
share.................. $ 0.38 $ 0.25 $ 0.35 $ 0.49
Dividends per common
share.................. 0.08 -- 0.07 0.10
Book value per common
share.................. 10.53 11.29 10.19 14.20
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AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------------
EQUIVALENT
FIRST NATIONAL
FIRST PRO FORMA AMOUNT PER
ABC NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
Net income per common share... $ 1.29 $1.12 $1.22 $ 1.70
Dividends per common share.... 0.35 -- 0.29 0.40
Book value per common share... 10.04 11.07 9.69 13.50
EQUIVALENT
ABC/ FIRST NATIONAL
CENTRAL FIRST PRO FORMA AMOUNT PER
PRO FORMA(3) NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
Net income per common share... $ 1.26 $1.12 $1.20 $ 1.67
Dividends per common share.... 0.33 -- 0.28 0.39
Book value per common share... 9.86 11.07 9.57 13.33
EQUIVALENT
ABC/ FIRST NATIONAL
SOUTHLAND FIRST PRO FORMA AMOUNT PER
PRO FORMA(4) NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
Net income per common share... $ 1.26 $1.12 $1.21 $ 1.69
Dividends per common share.... 0.31 -- 0.26 0.37
Book value per common share... 10.52 11.07 10.13 14.11
ABC/ EQUIVALENT
CENTRAL/ FIRST NATIONAL
SOUTHLAND FIRST PRO FORMA AMOUNT PER
PRO FORMA(5) NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
Net income per common share... $ 1.24 $1.12 $1.19 $ 1.66
Dividends per common share.... 0.30 -- 0.26 0.36
Book value per common share... 10.30 11.07 9.97 13.89
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AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------------------
EQUIVALENT
FIRST NATIONAL
FIRST PRO FORMA AMOUNT PER
ABC NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
Net income per common share... $1.05 $0.57 $0.94 $1.31
Dividends per common share.... 0.29 -- 0.24 0.34
EQUIVALENT
FIRST NATIONAL
ABC/CENTRAL FIRST PRO FORMA AMOUNT PER
PRO FORMA(3) NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
Net income per common share... $1.03 $0.57 $0.94 $1.31
Dividends per common share.... 0.26 -- 0.21 0.30
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1993
------------------------------------------------
EQUIVALENT
FIRST NATIONAL
FIRST PRO FORMA AMOUNT PER
ABC NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
Net income per common share... $1.04 $0.49 $0.89 $1.24
Dividends per common share.... 0.29 -- 0.21 0.29
EQUIVALENT
FIRST NATIONAL
ABC/CENTRAL FIRST PRO FORMA AMOUNT PER
PRO FORMA(5) NATIONAL COMBINED(1) SHARE(2)
------------ -------- ----------- --------------
Net income per common share... $0.98 $0.49 $0.86 $1.20
Dividends per common share.... 0.22 -- 0.17 0.24
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SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected historical financial data of ABC and First National for each of the last five years and selected unaudited historical financial data for the three months ended March 31, 1996 and 1995. The selected historical financial data of each of ABC and First National have been derived from and should be read in conjunction with the annual audited consolidated financial statements of ABC and First National, as the case may be, including the notes thereto, and the unaudited three months consolidated financial statements of ABC and First National, as the case may be, including the notes thereto, which are included elsewhere in this Proxy Statement/Prospectus. The ABC Income Statement Data and Per Share Data for the three months ended March 31, 1996 and 1995 and the balance sheet data at March 31, 1996 include, in the opinion of ABC's management, all adjustments necessary to present fairly the information for such periods. Such adjustments consist only of normal recurring adjustments. The First National Income Statement Data and Per Share Data for the three months ended March 31, 1996 and 1995 and the Balance Sheet Data at March 31, 1996 include, in the opinion of First National's management, all adjustments necessary to present fairly the information for such periods. Such adjustments consist only of normal recurring adjustments. The data presented is not necessarily indicative of results to be expected in the future.
ABC BANCORP AND SUBSIDIARIES
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
SELECTED BALANCE SHEET
DATA:
Total assets........... $335,589 $293,942 $341,505 $292,799 $268,616 $259,386 $180,548
Total loans............ 223,305 195,387 214,251 192,124 161,747 150,945 100,648
Total deposits......... 293,385 256,534 300,988 256,869 238,225 234,470 158,543
Investment securities.. 56,916 46,215 50,260 46,505 45,937 35,161 30,272
Stockholders' equity... 34,575 31,251 33,935 30,450 19,959 19,405 18,654
SELECTED INCOME
STATEMENT DATA:
Interest income........ $ 7,051 $ 6,157 $ 26,703 $ 21,328 $ 19,697 $ 15,668 $ 15,861
Interest expense....... 2,941 2,348 10,673 7,828 7,732 6,692 8,457
-------- -------- -------- -------- -------- -------- --------
Net interest income.... 4,110 3,809 16,030 13,500 11,965 8,976 7,404
Provision for loan
losses................ 180 180 848 638 1,191 1,129 451
Other income........... 927 886 3,276 3,025 2,867 2,097 1,781
Other expenses......... 3,017 3,000 12,228 11,547 10,535 8,030 6,677
-------- -------- -------- -------- -------- -------- --------
Income before tax...... 1,840 1,515 6,230 4,340 3,106 1,914 2,057
Income tax expense..... 605 487 1,889 1,240 814 429 487
-------- -------- -------- -------- -------- -------- --------
Net income before
cumulative effect of
accounting change..... 1,235 1,028 4,341 3,100 2,292 1,485 1,570
Cumulative effect of
change in method of
accounting for income
taxes................. -- -- -- -- 346 -- --
-------- -------- -------- -------- -------- -------- --------
Net income............. $ 1,235 $ 1,028 $ 4,341 $ 3,100 $ 2,638 $ 1,485 $ 1,570
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA:
Net income before
cumulative effect..... $ -- $ -- $ 1.29 $ 1.05 $ .91 $ 0.58 $ 0.61
Net income............. 0.37 0.31 1.29 1.05 1.04 0.58 0.61
Book value............. 10.23 9.32 10.04 9.10 8.49 7.64 7.05
Tangible book value.... 9.64 8.65 9.43 8.41 7.39 6.54 5.84
Dividends.............. 0.10 0.08 0.35 0.29 0.29 0.29 0.26
PROFITABILITY RATIOS:
Net income to average
total assets.......... 1.50% 1.42% 1.43% 1.15% 1.03% 0.78% 0.92%
Net income to average
stockholders' equity.. 14.56 13.23 13.44 13.99 13.6 8.0 8.8
Net interest margin.... 5.26 5.58 5.94 5.62 5.34 5.49 5.14
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ABC BANCORP AND SUBSIDIARIES
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------- ----------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ---- ---- ---- ---- ----
LOAN QUALITY RATIOS:
Net charge-offs to total loans.. 0.01% (0.08)% 0.16% 0.25% 1.02% 0.91% 0.24%
Reserve for loan losses to total
loans and OREO................. 1.98 2.03 1.99 1.96 2.20 2.64 1.25
Nonperforming assets to total
loans and OREO................. 1.88 2.25 1.08 2.04 2.66 4.66 1.26
Reserve for loan losses to
nonperforming loans............ 119 101 184 96 104 65 117
Reserve for loan losses to total
nonperforming assets........... 105 90 184 93 83 57 99
LIQUIDITY RATIOS:
Loans to total deposits......... 76 76 71 75 68 64 63
Loans to average earning
assets......................... 71 72 78 78 70 89 67
Noninterest-bearing deposits to
total deposits................. 15 17 19 19 16 15 16
CAPITAL ADEQUACY RATIOS:
Common stockholders' equity to
total assets................... 10.3% 10.6% 9.9% 10.4% 7.4% 7.5% 10.3%
Total stockholders' equity to
total assets................... 10.3 10.6 9.9 10.4 7.4 7.5 10.3
Dividend payout ratio........... 27 26 27 29 25 50 43
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FIRST NATIONAL FINANCIAL CORPORATION AND SUBSIDIARY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- ----------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
SELECTED BALANCE SHEET
DATA:
Total assets........... 53,864 45,993 $53,651 $46,490 $42,689 $30,776 $15,568
Total loans............ 35,015 31,230 32,969 28,652 23,294 18,454 8,297
Total deposits......... 47,863 40,388 46,758 46,599 37,773 26,258 11,151
Investment securities.. 11,332 11,057 11,400 12,890 11,897 6,898 4,053
Stockholders' equity... 5,593 4,732 5,487 4,421 4,486 4,248 4,312
SELECTED INCOME
STATEMENT DATA:
Interest income........ 1,071 938 4,045 3,162 2,511 1,727 552
Interest expense....... 538 393 1,893 1,438 1,178 788 253
------- ------- ------- ------- ------- ------- -------
Net interest income.... 533 545 2,152 1,724 1,333 939 299
Provision for loan
losses................ 50 25 185 120 128 152 101
Other income........... 123 85 524 355 289 164 49
Other expenses......... 397 391 1,573 1,420 1,256 1,015 721
------- ------- ------- ------- ------- ------- -------
SELECTED BALANCE SHEET
DATA:
Income before tax...... 209 214 918 539 238 (64) (474)
Income tax expense..... 76 81 306 223 -- -- --
------- ------- ------- ------- ------- ------- -------
Net income before
cumulative effect..... 133 133 612 316 238 (64) (474)
------- ------- ------- ------- ------- ------- -------
Net income............. 133 133 $ 612 $ 316 $ 238 $ (64) $ (474)
======= ======= ======= ======= ======= ======= =======
PER SHARE DATA:
Net income (Fully
Diluted).............. .25 .25 $ 1.12 $ 0.57 $ 0.49 $ (.13) $ (1.04)
Book value............. 11.29 9.65 11.07 9.07 9.20 8.72 8.85
Tangible book value.... 11.28 9.60 11.06 9.00 9.11 8.57 8.66
Dividends.............. -- -- -- -- -- -- --
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FIRST NATIONAL FINANCIAL CORPORATION AND SUBSIDIARY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------- -------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ----- ----- ----- ----- ------ ------
PROFITABILITY RATIOS:
Net income to average
total assets.......... 1.01 1.15 1.25% 0.71% 0.65% (0.27)% (3.8)%
Net income to average
stockholders' equity.. 9.56 11.73 12.3 7.1 5.4 (1.50) (10.7)
Net interest margin.... 4.37 5.13 4.75 4.21 3.96 4.55 4.36
LOAN QUALITY RATIOS:
Net charge-offs to
total loans........... (.03)% -- 0.62% -- (.18)% (.03)% --
Reserve for loan losses
to total loans and
OREO.................. 1.33 1.49% 1.32 1.55 1.41 1.32 1.20
Nonperforming assets to
total loans and OREO.. .82 -- .001 N/A N/A N/A .05
Reserve for loan losses
to nonperforming
loans................. N/A N/A 19.3 N/A N/A N/A 25.3
Reserve for loan losses
to total nonperforming
assets................ 1.62 N/A 1.25 N/A N/A N/A 25.3
LIQUIDITY RATIOS:
Loans to total
deposits.............. 73.16 % 77.33% 70.51% 68.88% 61.67% 70.28% 74.4%
Loans to average
earning assets........ 71.48 70.22 72.76 69.91 69.11 89.40 89.5
Noninterest-bearing
deposits to total
deposits.............. 14.02 12.31 15.77 13.53 13.78 11.84 18.5
SELECTED BALANCED SHEET
DATA:
CAPITAL ADEQUACY RATIOS:
Common stockholders'
equity to total
assets................ 10.38 % 10.29% 10.23% 9.51% 10.51% 13.8% 27.7%
Total stockholders'
equity to total
assets................ 10.38 10.29 10.23 9.51 10.51 13.8 27.7
Dividend payout ratio.. -- -- -- -- -- -- --
|
SUMMARY PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data give effect, as appropriate, to the Merger, the Central Merger and the Southland Merger as of the dates and for the periods indicated and pursuant to the accounting bases described below. The unaudited pro forma financial data are presented for information purposes only and are not necessarily indicative of the combined financial position or results of operations which actually would have occurred if the transactions had been consummated at the date and for the periods indicated or which may be obtained in the future. The information should be read in conjunction with the unaudited pro forma financial information appearing elsewhere in this Prospectus/Proxy Statement.
Selected Pro Forma Combined Data for ABC and First National. The following unaudited pro forma combined data give effect to the acquisition of First National by ABC as of March 31, 1996 and for the three-month period ended March 31, 1996 and as of December 31, 1995 and for each of the years ended December 31, 1995, 1994 and 1993, assuming such acquisition is accounted for as a pooling of interests.
AS OF MARCH 31, AS OF DECEMBER 31,
1996 1995
--------------- ------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
BALANCE SHEET DATA:
Total assets............................... $389,453 $395,156
Cash....................................... 18,973 26,086
Federal funds sold......................... 24,635 45,475
Securities................................. 68,248 61,660
Loans, net................................. 253,892 242,948
Total deposits............................. 341,248 347,746
Stockholders' equity....................... 40,168 39,422
Book value per common share................ 9.87 9.69
|
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------------------
1996 1995 1994 1993
--------------------------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Total Interest income.... $ 8,122 $ 30,748 $ 24,490 $ 22,207
Total Interest expense... 3,479 12,566 9,266 8,909
---------- ----------- ----------- -----------
Net interest income.... 4,643 18,182 15,224 13,298
Provision for loan
losses.................. 230 1,033 758 1,319
---------- ----------- ----------- -----------
Net interest income
after provision for
loan losses........... 4,413 17,149 14,466 11,979
Total noninterest
income.................. 1,050 3,800 3,380 3,156
Total noninterest
expense................. 3,414 13,801 12,967 11,791
Income tax expense....... 681 2,195 1,463 814
---------- ----------- ----------- -----------
Income from continuing
operations before
cumulative effect..... 1,368 4,953 3,416 2,530
Cumulative effect of
accounting change....... -- -- -- 346
---------- ----------- ----------- -----------
Income from continuing
operations............ $ 1,368 $ 4,953 $ 3,416 $ 2,876
========== =========== =========== ===========
Income from continuing
operations per share.. $ 0.34 $ 1.22 $ 0.94 $ 0.89
========== =========== =========== ===========
|
Selected Pro Forma Combined Data for ABC/Central and First National. The following unaudited pro forma combined data as of and for the three months ended March 31, 1996 and as of December 31, 1995 and for each of the years ended December 31, 1995, 1994 and 1993, give effect to the acquisition of Central by ABC, assuming such acquisition is accounted for as a pooling of interests, and the acquisition of First National by ABC/Central, assuming such acquisition is accounted for as a pooling of interests, as if all such transactions had been consummated on March 31, 1996, or December 31, 1995, in the case of the data included under "Balance Sheet Data," and at the beginning of each period presented for "Income Statement Data."
AS OF MARCH 31, 1996 AS OF DECEMBER 31, 1995
--------------------- ------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET DATA:
Total assets.......... $ 439,557 $ 446,309
Cash.................. 21,115 28,351
Federal funds sold.... 24,635 47,485
Securities............ 79,110 72,486
Loans, net............ 288,880 275,847
Total deposits........ 385,972 393,957
Stockholders' equity.. 44,468 43,629
Book value per common
share................ 9.75 9.57
|
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------------------
1996 1995 1994 1993
--------------------------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Total Interest income.... $ 9,235 $ 34,889 $ 27,743 $ 25,325
Total Interest expense... 4,019 14,526 10,514 10,116
---------- ----------- ----------- -----------
Net interest income..... 5,216 20,363 17,229 15,209
Provision for loan
losses.................. 230 1,173 938 1,512
---------- ----------- ----------- -----------
Net interest income
after provision for
loan losses........... 4,986 19,190 16,291 13,697
Total noninterest
income.................. 1,230 4,397 4,047 3,767
Total nonintereset
expense................. 3,890 15,675 14,762 13,634
Income tax expense....... 786 2,460 1,703 979
---------- ----------- ----------- -----------
Income from continuing
operations before
cumulative effect..... 1,540 5,452 3,873 2,851
Cumulative effect of
accounting change....... -- -- -- 346
---------- ----------- ----------- -----------
Income from continuing
operations............ $ 1,540 $ 5,452 $ 3,873 $ 3,197
========== =========== =========== ===========
Income from continuing
operations per share.. $ 0.34 $ 1.20 $ 0.94 $ 0.86
========== =========== =========== ===========
|
Selected Pro Forma Combined Data for ABC/Southland and First National. The following unaudited pro forma combined data as of March 31, 1996 and for the three months ended March 31, 1996 and as of December 31, 1995 and for each of the years ended December 31, 1995, 1994 and 1993, give effect to the acquisition of Southland by ABC assuming the Southland Merger was accounted for as a purchase transaction, and the acquisition of First National by ABC/Southland, assuming such acquisition was accounted for as a pooling of interests. The data with respect to the Southland Merger assume that the transaction was consummated at March 31, 1996 or December 31, 1995 for "Balance Sheet Data" and at the beginning of the period ended March 31, 1996 or December 31, 1995 for "Income Statement Data". The data with respect to the ABC/First National Merger assume that the transaction was consummated at March 31, 1996 or December 31, 1995 for "Balance Sheet Data" and at the beginning of each period presented for "Income Statement Data."
AS OF MARCH 31, AS OF DECEMBER 31,
1996 1995
--------------- ------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
BALANCE SHEET DATA:
Total assets............................... $496,382 $495,445
Cash....................................... 21,640 30,931
Federal funds sold......................... 18,842 39,904
Securities................................. 93,428 82,591
Loans, net................................. 328,772 313,090
Total deposits............................. 429,013 432,574
Borrowings................................. 12,108 8,525
Stockholders' equity....................... 46,197 45,220
Book value per common share................ 10.34 10.13
|
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------
1996 1995 1994 1993
------------ ------- ------- -------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Total Interest income................... $10,498 $39,462 $24,490 $22,207
Total Interest expense.................. 4,685 17,341 9,266 8,909
------- ------- ------- -------
Net interest income................... 5,813 22,121 15,224 13,298
Provision for loan losses............... 230 1,105 758 1,319
------- ------- ------- -------
Net interest income after provision
for loan losses...................... 5,583 21,016 14,466 11,979
Total noninterest income................ 1,449 5,382 3,380 3,156
Total noninterest expense............... 4,592 18,311 12,967 11,791
Income tax expense...................... 867 2,730 1,463 814
------- ------- ------- -------
Income from continuing operations
before cumulative effect............. 1,573 5,357 3,416 2,530
Cumulative effect of accounting change.. -- -- -- 346
------- ------- ------- -------
Income from continuing operations..... $ 1,573 $ 5,357 $ 3,416 $ 2,876
======= ======= ======= =======
Income from continuing operations per
share................................ $ 0.35 $ 1.21 $ 0.94 $ 0.89
======= ======= ======= =======
|
Selected Pro Forma Combined Data for ABC/Central/Southland and First National. The following unaudited pro forma combined data as of March 31, 1996 and for the three months ended March 31, 1996 and as of December 31, 1995 and for each of the years ended December 31, 1995, 1994 and 1993, give effect to the acquisition of Central by ABC, assuming such acquisition is accounted for as a pooling of interests, and the acquisition of Southland by ABC, assuming the Southland Merger was accounted for as a purchase transaction, and the acquisition of First National by ABC/Central/Southland, assuming such acquisition was accounted for as a pooling of interests. The data with respect to the Southland Merger assume that the transaction was consummated at March 31, 1996 or December 31, 1995 for "Balance Sheet Data" and at the beginning of the period ended March 31, 1996 or December 31, 1995 for "Income Statement Data". The data with respect to the pooling transactions assume that the transactions were consummated at March 31, 1996 or December 31, 1995 for "Balance Sheet Data" and at the beginning of each period presented for "Income Statement Data."
AS OF MARCH 31, AS OF DECEMBER 31,
1996 1995
--------------- ------------------
DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
BALANCE SHEET DATA:
Total assets............................... $546,486 $546,598
Cash....................................... 23,782 33,196
Federal funds sold......................... 18,842 41,914
Securities................................. 104,290 93,417
Loans, net................................. 363,760 345,989
Total deposits............................. 473,837 478,785
Borrowings................................. 12,008 8,525
Stockholders' equity....................... 50,497 49,427
Book value per common share................ 10.19 9.97
|
THREE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------------------
1996 1995 1994 1993
------------------------ ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Total Interest income....... $ 11,611 $ 43,603 $ 27,743 $ 25,325
Total Interest expense...... 5,225 19,301 10,514 10,116
----------- ----------- ----------- -----------
Net interest income....... 6,386 24,302 17,229 15,209
Provision for loan losses... 230 1,245 938 1,512
----------- ----------- ----------- -----------
Net interest income after
provision for loan
losses................... 6,156 23,057 16,291 13,697
Total noninterest income.... 1,629 5,979 4,047 3,767
Total noninterest expense... 5,068 20,185 14,762 13,634
Income tax expense.......... 972 2,995 1,703 979
----------- ----------- ----------- -----------
Income from continuing
operations before
cumulative effect........ 1,745 5,856 3,873 2,851
Cumulative effect of
accounting change.......... -- -- -- 346
----------- ----------- ----------- -----------
Income from continuing
operations............... $ 1,745 $ 5,856 $ 3,873 $ 3,197
=========== =========== =========== ===========
Income from continuing
operations per share..... $ 0.35 $ 1.19 $ 0.94 $ 0.86
=========== =========== =========== ===========
|
MARKET VALUE OF SECURITIES AND DIVIDENDS
ABC. ABC Common Stock is listed and traded on the Nasdaq National Market under the symbol "ABCB". On April 15, 1996, the last day preceding the public announcement of the Merger, the closing sale price for ABC Common Stock was $ per share. On , 1996, the closing sale price for ABC Common Stock was $ per share.
The following table sets forth the quarterly range of high and low closing sale prices per share of ABC Common Stock from January 1, 1994 through July , 1996, as reported on the Nasdaq National Market, together with the amounts of cash dividends per share declared by ABC during each such quarter. For a discussion of ABC's policies concerning the declaration of dividends and regulatory restrictions on such declaration, see "DESCRIPTION OF ABC COMMON STOCK--General."
PRICES OF
COMMON STOCK
---------------
HIGH LOW CASH DIVIDENDS
------ ------- --------------
1996
Third Quarter (through July , 1996)........... $ -- $ -- N/A
Second Quarter................................. $18.75 $ 14.00 $.10
First Quarter.................................. $15.00 $ 14.00 $.10
1995
Fourth Quarter................................. $14.75 $13.50 $.10
Third Quarter.................................. $14.50 $11.375 $.10
Second Quarter................................. $11.625 $9.50 $.075
First Quarter.................................. $10.125 $9.00 $.075
1994
Fourth Quarter................................. $13.75 $ 12.00 $.0714
Third Quarter.................................. $14.00 $ 12.75 $.0714
Second Quarter................................. $13.75 $ 12.25 $.0714
First Quarter(1)............................... N/A N/A $.0714
|
ABC Common Stock was held by approximately 797 shareholders of record as of March 31, 1996.
First National. There is no established public trading market for First National Shares. There are, however, occasional transactions in First National Shares as a result of private negotiations. Management of First National does not maintain a record of the sales prices of trades of First National Shares.
First National has never paid dividends on First National Shares, nor does First National have any current plans to initiate the payment of dividends. The Merger Agreement prohibits the payment of dividends to First National's shareholders pending the Merger. See "PROPOSED MERGER--Business Pending the Merger."
First National Shares were held by approximately 575 shareholders of record as of March 15, 1996.
SPECIAL MEETING INFORMATION
PURPOSE OF SPECIAL MEETING
The purpose of the Special Meeting is to enable First National shareholders to consider and vote upon the Merger Proposal. First National's Board of Directors is not presently aware of any other matter which may come before the Special Meeting.
DATE, TIME AND PLACE
The Board of Directors is soliciting proxies ("Proxies") from holders of First National Shares for use at the Special Meeting to be held , 1996, at . m., at the main office lobby of the Bank, 2627 Dawson Road, Albany, Georgia.
RECORD DATE
Only shareholders of record as of the close of business on , 1996 (the "Record Date") will be entitled to notice of and to vote and give Proxies for purposes of voting at the Special Meeting. At the close of business on the Record Date, there were 495,409 First National Shares issued and outstanding. Each First National Share has one vote on the Merger Proposal.
VOTE REQUIRED
The affirmative vote of the holders of a majority of First National Shares outstanding on the Record Date is required to approve and adopt the Merger Agreement. Abstentions will, therefore, have the effect of votes against the Merger Agreement. Proxies marked "AGAINST" will not be voted in favor of any postponements or adjournments for the purpose of soliciting additional proxies. Holders of 136,800 First National Shares, representing approximately 27.6% of the shares entitled to vote, have delivered to ABC irrevocable proxies pursuant to which ABC intends to vote such shares in favor of the Merger. Accordingly, the affirmative vote, in person or by proxy, of holders of not less than an additional 110,905 First National Shares will be sufficient to approve the Merger. No vote of the shareholders of ABC is required in connection with the Merger. No directors or executive officers of ABC own any First National Shares.
PROXIES
The accompanying Proxy is solicited by the Board of Directors of First National. The Board of Directors requests that First National shareholders mark, sign and date the accompanying Proxy and promptly return it to First National in the enclosed envelope. If a Proxy is properly executed and returned prior to the Special Meeting, it will be voted as indicated thereon or, if no voting instructions are indicated thereon, such Proxy will be voted in favor of the Merger Proposal. Although the Board of Directors knows of no additional matters to be presented at the Special Meeting as of the date of this Proxy Statement/Prospectus, the persons named in such Proxy, or their substitutes, will have authority in their discretion to vote on any such matters as may come before the Special Meeting.
It is currently expected that, on the scheduled date of the Special Meeting, votes will be taken and the polls closed on the Merger Proposal. It is possible, however, that there could be proposals for one or more adjournments of the Special Meeting in order to permit further solicitation of proxies with respect to approval of the Merger. The affirmative vote of a majority of the shares voted on the question shall be necessary for approval of any such adjournment proposal. An instruction to vote a Proxy for approval of the Merger will also be deemed to constitute authority to vote at the discretion of the holder of the Proxy upon any such adjournment proposal. An instruction to vote a Proxy against approval of the Merger will be deemed to constitute an instruction to the holder of the Proxy to vote against any such adjournment proposal.
Any shareholder giving a Proxy has the right to revoke it at any time before it is exercised. Therefore, execution of the Proxy will not affect the shareholder's right to vote in person if he or she attends the Special
Meeting. Revocation may be made before the Special Meeting by written notice sent to Raymond B. Phillips, President, First National Financial Corporation, 2627 Dawson Road, Albany, Georgia 31707, by executing a subsequently dated Proxy, or by attending the Special Meeting and voting in person.
First National will bear the cost of soliciting Proxies. Solicitation will be made by mail, as well as by telephone or in person by certain directors, officers and employees of First National (who will receive no additional compensation for doing so). First National does not intend to pay compensation for soliciting Proxies nor use any specially engaged employees of First National or other paid solicitors.
PROPOSED MERGER
The following description of the material aspects of the Merger does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached as Appendix A to this Proxy Statement/Prospectus and incorporated herein by reference. All shareholders are urged to read the Merger Agreement in its entirety.
BACKGROUND OF THE MERGER
During the past several years, there has been a trend toward consolidation in the banking industry. This trend has been fueled by recent national and state legislation and has enabled participants in business combinations to benefit from the economies of scale and greater efficiencies resulting from the shared services, technology and purchasing power of the combined entities. Banks have increasingly sought suitable acquisition candidates as a means of utilizing excess capital and obtaining the benefits described above.
In the summer of 1995, the Board of Directors of First National began evaluating the future prospects for First National. Two considerations, in particular, affected the Board's decision to develop long term plans for First National. First, the fifth anniversary of the opening of the Bank was to occur in May 1996. Under Georgia law, new banks cannot be acquired until they have been in existence for at least five years. Second, the employment agreement of First National's Chairman of the Board, President and Chief Executive Officer, Raymond B. Phillips, was set to expire in May 1996. Mr. Phillips had indicated to the Board his desire to retire once his successor had been identified and hired. The convergence of these two factors led to the Board's decision to analyze whether to develop a long term plan for remaining independent and to hire a new President and Chief Executive Officer to replace Mr. Phillips, or to sell First National to another financial institution.
During the fourth quarter of 1995, First National's management was contacted by several financial institutions that expressed an interest in acquiring First National. Discussions with these institutions generally concerned the range of price which they would be willing to pay for First National, subject to normal due diligence, and the form of consideration to be received by First National's shareholders in any such transaction.
On November 8, 1995, First National received an acquisition proposal from PAB Bancshares, Inc., a bank holding company based in Valdosta, Georgia ("PAB"). Under the terms of the PAB proposal, each outstanding share of common stock of First National would be converted into shares of outstanding stock of PAB. Based on the proposed exchange ratio and the estimated value of PAB stock at the time, the PAB proposal was valued by First National at approximately $18.00 per share.
Management of First National evaluated the PAB proposal and, given the relatively illiquid nature of the trading market for PAB's common stock, decided not to accept the PAB offer at the present time. Rather, management determined to solicit indications of interest from other potential acquirors.
In December 1995, First National entered into discussions with SunTrust Banks, Inc., a bank holding company based in Atlanta, Georgia ("SunTrust"). On December 18, 1995, SunTrust delivered to First National a proposed term sheet outlining the proposed acquisition of First National by SunTrust at a price of $18.50 per
share. On January 5, 1996, First National and SunTrust entered into a confidentiality agreement and SunTrust commenced its due diligence investigation, in anticipation of the negotiation and preparation of a definitive acquisition agreement. As a result of its due diligence investigation, SunTrust identified certain loans which SunTrust believed had characteristics that could have a negative impact on the price SunTrust was willing to pay for First National. During the months of February and March 1995, representatives of First National and SunTrust met periodically to discuss and evaluate such loans. As a result of this process, SunTrust notified First National that it had reduced its offer from $18.50 per share to $17.50 per share. On March 18, 1996, representatives First National and SunTrust agreed on a price of $17.75 per share and, on March 18, 1996, the Board of Directors of First National authorized management to proceed with the negotiation and preparation of definitive acquisition agreement at the $17.75 per share price.
On March 18, 1996, the Board also approved the engagement of T. Stephen Johnson & Associates, Inc. ("TSJ&A"), to render a fairness opinion with respect to the consideration proposed to be paid by SunTrust. First National selected TSJ&A because of the firm's reputation and knowledge of the Georgia community bank market and experience with community bank mergers in Georgia, as well as its broad breadth of bank regulatory experience. There has been no material relationship between TSJ&A and its affiliates and First National or its affiliates which existed for the past two years or is mutually understood to be contemplated, except as discussed herein. See "--Opinion of First National Financial Advisor."
As First National and SunTrust were finalizing the terms of a definitive acquisition agreement, First National received an unsolicited acquisition proposal on April 3, 1996 from ABC. The ABC proposal provided for the acquisition of First National in exchange for ABC common stock in a transaction valued at between $19.00 to $20.00 per First National Share.
At a meeting of the Board of Directors of First National held on April 8, 1996, the Board evaluated the SunTrust and ABC acquisition proposals. Given that the ABC proposal represented a price per share for First National's common stock that was higher than that being offered by SunTrust, the Board decided to defer a decision on the SunTrust proposal so that the ABC proposal could be more fully evaluated and negotiated.
On April 9, 1996, ABC entered into a confidentiality agreement and commenced its due diligence investigation of First National. During the period from April 9 to April 14, representatives of ABC and First National negotiated and prepared a definitive acquisition agreement. In the meantime, SunTrust established a deadline of noon on April 15 for First National to accept its proposal or it would be withdrawn.
At a meeting of the Board of Directors of First National held on the morning of April 15, 1996, the Board evaluated the ABC and SunTrust proposals, giving consideration to, among other things, the price to be paid for each share of common stock of First National, the form of consideration to be paid, the structure of the combination, the financial condition of each purchaser and the future prospects for the combined entity. Although First National had advised SunTrust of the existence of a higher offer, SunTrust declined to increase its bid. With the assistance of TSJ&A, the Directors thoroughly analyzed both acquisition proposals. Based on this analysis the Board of Directors determined the ABC proposal to be in the best interests of First National and its shareholders. Although TSJ&A analyzed the proposed terms of the ABC and SunTrust proposals from a financial point of view, it did not recommend the amount of consideration to be paid. Immediately following the Board meeting on April 15, a definitive merger agreement was executed by First National and ABC.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS; REASONS FOR THE MERGER
First National. On April 15, 1996, the Board of Directors of First National unanimously approved the adoption of the Merger Agreement, and the Board of Directors of First National recommends that shareholders vote FOR approval and adoption of the Merger Agreement and consummation of the transactions contemplated thereby.
In determining to approve the Merger Agreement and recommend that First National's shareholders approve and adopt the Merger Agreement, the First National Board considered and based their opinion as to the fairness of the transactions contemplated by the Merger Agreement on the following factors:
(i) The possible alternatives to a sale or merger of First National, including the prospects of continuing as an independent entity, the range of values to the shareholders of such alternatives, and the timing and likelihood of actually achieving those values. The Board compared First National's continuing as an independent entity to combining with ABC, particularly as to shareholder value. The Board considered the benefits that could reasonably be expected to accrue to its shareholders from the Merger, including the premium offered over First National's then-current stock price or stock price unaffected by acquisition speculation and the likelihood of a higher stock price for ABC's Common Stock than would be achieved by First National operating on an independent basis unaffected by acquisition speculation.
(ii) The financial advice of TSJ&A and the opinion of TSJ&A that the Merger Consideration is fair, from a financial point of view, to First National's shareholders. The opinion of TSJ&A is set forth in Appendix C to this Proxy Statement/Prospectus.
(iii) The successful experience and favorable reputation of ABC's executive management, together with ABC's business, operations, earnings and financial condition on a historical and prospective basis.
(iv) The impact generally of the Merger on the various constituencies served by First National, including its employees and customers.
(v) The non-financial terms and structure of the Merger; in particular, the fact that the Merger qualifies as a tax-free reorganization to First National's shareholders.
(vi) The possibility of liquidity of an investment in ABC Common Stock. ABC has undertaken the obligation to include on the Nasdaq National Market all shares of its common stock to be issued to First National's shareholders upon consummation of the Merger, which, will provide First National's shareholders greater liquidity in their investment than existed prior to the Merger.
(vii) The likelihood of the Merger being approved by the appropriate regulatory authorities.
(viii) The current and prospective economic environment, competitive constraints and regulatory burdens facing financial institutions, including First National.
Each of the above factors supports, directly or indirectly, the determination of the Board of Directors of First National as to the fairness of the Merger. The First National Board did not quantify or otherwise attempt to assign relative weights to the specific factors considered in reaching its determination; however, the First National Board placed a special emphasis on the consideration payable in the Merger and the receipt of a favorable opinion from its financial advisor. See "--Opinion of First National Financial Advisor."
THE BOARD OF DIRECTORS OF FIRST NATIONAL UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY.
ABC. ABC's Board of Directors has also concluded that the Merger would be in the best interests of ABC's shareholders and the employees, depositors and other customers of ABC's subsidiaries. In particular, ABC's Board concluded that the Merger would be consistent with ABC's acquisition strategy described above and would extend ABC's current market base with a well-managed organization. ABC's Board also believes that the additional banking and other resources that will be available to First National as a result of the Merger will enhance First National's service to its customers.
OPINION OF FIRST NATIONAL FINANCIAL ADVISOR
T. Stephen Johnson & Associates, Inc. ("TSJ&A") is an investment banking and financial services firm located in Atlanta, Georgia. As part of its investment banking business, TSJ&A regularly engages in the review of the fairness of bank acquisition transactions from a financial perspective and in the valuation of banks and
other businesses and their securities in connection with mergers, acquisitions and other transactions. No instructions were given or limitations imposed by the First National Board of Directors upon TSJ&A regarding the scope of its investigation or the procedures it followed in rendering its opinion. In consideration for its services, First National has paid TSJ&A a fee of $7,500, plus $2,160 for consulting services provided on an hourly basis.
TSJ&A has rendered its opinion (the "Fairness Opinion") to the Board of Directors of First National that the Merger consideration is fair to First National shareholders from a financial point of view. A copy of the Fairness Opinion, which sets forth certain assumptions made, matters considered and limitations on the review undertaken, is attached as Appendix C to this Proxy Statement/Prospectus and should be read in its entirety. The summary of the Fairness Opinion set forth herein is qualified in its entirety by reference to the text of the Fairness Opinion.
In arriving at its Fairness Opinion, TSJ&A reviewed certain publicly available business and financial information relating to First National and ABC; considered certain financial and stock market data of First National and ABC, compared that data with similar data for certain other publicly-held banks and bank holding companies in the southeastern United States and considered the financial terms of certain other recent comparable community bank acquisition transactions in three southeastern states; and considered such other information, financial studies, analyses and investigations and financial, economic and market criteria that it deemed relevant. In connection with its review, TSJ&A did not independently verify the foregoing information and relied on such information as being complete and accurate in all material respects. Financial forecasts prepared by First National management and submitted to TSJ&A were based on assumptions believed by TSJ&A to be reasonable and to reflect currently available information; however, TSJ&A did not independently verify such information. TSJ&A did not make an independent evaluation or appraisal of the assets of First National or ABC.
In connection with rendering the Fairness Opinion, TSJ&A performed a variety of financial analyses, including those summarized below. The summary set forth below does not purport to be a complete description of the analyses performed by TSJ&A in this regard. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description. Accordingly, notwithstanding the separate factors summarized below, TSJ&A believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, could create an incomplete view of the evaluation process underlying its opinion. In performing its analyses, TSJ&A made numerous assumptions with respect to industry performance, business and economic conditions and other matters, many of which are beyond First National's or ABC's control. The analyses performed by TSJ&A are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. No company or transaction considered as a comparison in the analyses is identical to First National, ABC or the Merger. Accordingly, an analysis of the results of such comparisons is not mathematical; rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of companies and other factors that could affect the public trading value of the companies involved in such comparisons. In addition, the analyses performed do not purport to be appraisals or reflect the process by which or the prices at which businesses actually may be sold or the prices at which any securities may trade at the present time or at any time in the future.
Merger Analysis. The Merger Consideration is dependent upon First National's total assets and total equity. As of December 31, 1995, First National's total assets and total equity were $53.7 million and $5.5 million, respectively. As of April 30, 1996, First National's total assets and total equity were $57.85 million and $5.7 million, respectively. TSJ&A used April 30, 1996 figures for purposes of its analysis. Assuming these figures, the Merger Consideration would total $11.6 million with a per share value to the shareholders of First National of $19.99, representing 2.027 times First National's estimated book value and 18.90 times actual 1995 earnings.
The number of shares of ABC Common Stock into which a First National Share will be converted is based on the average of the daily high and low sales prices of a share of ABC Common Stock as reported on the
Nasdaq National Market for the 20 consecutive trading days immediately preceding the five consecutive calendar days immediately preceding the Effective Time, subject to certain limitations. See "Proposed Merger--Merger Consideration." At May 20, 1996, the closing sales price of a share of ABC Common Stock on the Nasdaq National Market was $14.75.
Comparable Transactions Analysis. TSJ&A reviewed the Merger as of April 30, 1996, for the purpose of determining purchase premiums which could be used in comparing the Merger with other announced transactions. TSJ&A reviewed the purchase premiums paid in 52 transactions that were announced between July 1, 1995 and May 10, 1996 involving selling institutions headquartered in the states of Alabama, Florida and Georgia. Of these transactions, 10 involved selling institutions that have been determined to be comparable to First National. The merger consideration in each transaction was common stock. The purchase premiums in the Merger rank within the range of purchase premiums paid in the comparable transactions. On average, the ten comparable transactions reported an announced deal price to book value of 1.937 times and an announced deal price to earnings of 16.84 times.
DESCRIPTION OF MERGER
Upon consummation of the transactions contemplated under the Merger Agreement, First National will be merged with and into ABC. ABC will be the surviving corporation after the Merger, and the articles of incorporation and the bylaws of ABC will remain in effect as they were immediately prior to the Merger. After the Merger, the Bank will be a wholly-owned subsidiary of ABC, and the separate corporate identity of First National will cease to exist. Upon consummation of the Merger, ABC intends to add one representative to the Board of Directors of the Bank. See "Operations of the Bank After the Merger."
MERGER CONSIDERATION
Conversion of First National Shares. Upon consummation of the Merger, each First National Share outstanding immediately prior thereto (other than shares with respect to which statutory dissenters' rights have been perfected) will be converted into the right to receive that number of shares of ABC Common Stock having a value equal to (i) (A) 2.265 times the lesser of (1) 0.08 times the Average Total Assets, or (2) the Total Equity of First National, plus (B) 1.0 times the amount, if any, by which the Total Equity of First National exceeds 0.08 times the Average Total Assets, (ii) plus the aggregate exercise price of all Options and Warrants, (iii) divided by (A) the aggregate number of First National Shares outstanding immediately prior to the Effective Time, plus (B) the aggregate number of First National Shares issuable upon the exercise of all Options and Warrants (the "Merger Consideration"). Cash will be paid in lieu of issuing fractional shares of ABC Common Stock. The Merger Consideration was determined by arm's length negotiations between the parties, taking into account the per share earnings, book value, and market value of First National Shares, as well as the premiums paid for other financial institutions in recent acquisitions in Georgia.
The number of shares of ABC Common Stock into which a First National Share may be converted will be determined by dividing the Merger Consideration by the Base Period Trading Price. Thus, a First National Shareholder who does not dissent would receive, for his or her First National Shares exchangeable for ABC Common Stock, a number of shares of ABC Common Stock equal to the Merger Consideration times the number of First National Shares to be exchanged for ABC Common Stock, divided by the Base Period Trading Price (the "Per Share Merger Consideration"), with cash being paid in lieu of fractional shares of ABC Common Stock. See "SUMMARY--Financial Terms of the Merger."
First National Options and Warrants. As of May 31, 1996, employees and directors of First National held Options and Warrants to purchase an aggregate of 169,670 First National Shares. Pursuant to the Merger Agreement, each outstanding Option and Warrant is to be cancelled upon consummation of the Merger and converted into whole shares of ABC Common Stock, plus cash in lieu of any fractional shares, in an amount
equal to (i) the aggregate number of First National Shares (the "Underlying Shares") issuable upon the exercise of each such Option or Warrant immediately prior to the Effective Time (whether or not any such Option or Warrant is then exercisable), (ii) multiplied by the difference between (A) the Per Share Merger Consideration and (B) the exercise price for each Underlying Share subject to such Option or Warrant, (iii) divided by the Base Period Trading Price.
PAYMENT OF CASH IN LIEU OF FRACTIONAL SHARES
No fractional shares of ABC Common Stock will be issued in the Merger. Each First National shareholder who would otherwise have been entitled to receive a fraction of a share of ABC Common Stock will receive, in lieu thereof, cash in an amount equal to the Base Period Trading Price multiplied by the fraction of share of ABC Common Stock to which such First National shareholder would otherwise be entitled.
SURRENDER OF CERTIFICATES
If the Merger is approved, a Letter of Transmittal for use in surrendering certificates representing First National Shares ("Old Certificates") in exchange for certificates representing shares of ABC Common Stock will be mailed to First National shareholders as soon as practicable after the Effective Date. The Letter of Transmittal will contain instructions with respect to the surrender of Old Certificates and the distribution of certificates representing ABC Common Stock and cash, if any.
If any certificates for shares of ABC Common Stock are to be issued in a name other than that for which an Old Certificate surrendered or exchanged is issued, the Old Certificate so surrendered must be properly endorsed and otherwise in proper form for transfer, and the person requesting the exchange must affix any requisite stock transfer tax stamps to the Old Certificate surrendered, provide funds for their purchase, or establish to the satisfaction of the Exchange Agent that such taxes are not payable.
Unless and until Old Certificates (or evidence that the Old Certificates have been lost, stolen or destroyed, accompanied by such security or indemnity as shall be requested by First National) are presented to the Exchange Agent, the holder thereof shall not be entitled to any consideration to be paid in the Merger or to any dividends payable on ABC Common Stock. To the extent permitted by law, former First National shareholders will be entitled to vote after the Effective Date at any meeting of ABC shareholders the number of shares of ABC Common Stock into which their respective First National Shares are converted, regardless of whether they have exchanged certificates representing their First National Shares for certificates representing ABC Common Stock. On or after the Effective Date, upon surrender of his or her Old Certificates (or evidence that the Old Certificates have been lost, stolen or destroyed, accompanied by such security or indemnity as is requested by First National) to the Exchange Agent, the holder thereof will be paid the consideration to which the holder is entitled under the Merger Agreement, including any dividends which theretofore became payable on any shares of ABC Common Stock to which the holder is entitled. In no event will any holder of First National Shares exchanged in the Merger be entitled to receive any interest on any amounts held by the Exchange Agent or ABC.
After the consummation of the Merger, there will be no transfers on the stock transfer books of First National or ABC of any First National Shares. If, after the consummation of the Merger, Old Certificates are properly presented to ABC, they will be cancelled and exchanged for the consideration specified in the Merger Agreement, subject to applicable law and to the extent that ABC has not paid any amounts to a public official pursuant to applicable abandoned property laws. SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL RECEIPT OF THE LETTER OF TRANSMITTAL.
EFFECTIVE DATE OF MERGER
As used in this Proxy Statement/Prospectus, "Effective Date" means the date on which ABC files an appropriate certificate of merger in the office of the Georgia Secretary of State, or such other date as specified in such certificate of merger. The Effective Date cannot occur before completion of all conditions under the Merger
Agreement, or authorized waiver thereof. See "--Other Provisions of the Merger
Agreement." The Merger Agreement provides that the parties shall use their
reasonable efforts to cause the Effective Date to occur on (a) the last
business day of the month in which occurs the last to occur of (i) the
effective date of any required consent (including regulatory consents) and
(ii) the date on which First National's shareholders approve the Merger
Agreement; or (b) such later time as the parties may mutually agree. It is
currently anticipated that the Effective Date will occur on, or as soon as
practicable after, , 1996. If the Merger has not occurred by November 1,
1996, unless such date is otherwise extended by agreement of the parties,
either First National or ABC has the right to terminate the Merger Agreement
in its entirety without penalty.
INTERESTS OF MANAGEMENT IN THE MERGER
Raymond B. Phillips, the Chairman of the Board, President and Chief Executive Officer of First National, and the other directors of First National have each agreed to enter into noncompetition agreements with ABC effective as of the Closing Date. In consideration for the execution of his noncompetition agreement, Mr. Phillips will receive on the Effective Date the sum of $25,000 and title to a 1995 Chevrolet S10 Blazer owned by the Bank and currently driven by Mr. Phillips.
Following the Merger, ABC intends to provide generally to officers and employees of the Bank fringe benefits (including health and welfare plans, vacation benefits and severance benefits) on terms and conditions no less favorable than those provided to officers and employees of ABC's other bank subsidiaries from time to time. ABC will also cause each officer and employee of the Bank to be eligible to participate in ABC's SEP/IRA Retirement Plan (the "SEP Plan") according to the terms thereof. For purposes of the eligibility and vesting provisions under ABC's pension plan, officers and employees of the Bank shall receive credit for years of service at the Bank. Under the SEP Plan, officers or employees of the Bank who have been employed by the Bank during three of the five calendar years preceding the Effective Date are eligible to participate in the SEP Plan.
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of First National Shares are entitled to dissenters' rights under Article 13 of the GBCC ("Article 13"). As described below, such rights allow First National shareholders to dissent from the Merger and to obtain instead payment of "fair value" for their First National Shares. A person having a beneficial interest in First National Shares held of record in the name of another person, such as a trustee, guardian, custodian, broker or nominee, must act promptly to cause the record holder to follow the steps summarized below properly and in a timely manner to perfect whatever dissenters' rights the beneficial owner may have.
The following discussion is not a complete statement of the law pertaining to dissenters' rights under the GBCC and is qualified in its entirety by the full text of Article 13 which is reprinted in its entirety as Appendix B to this Proxy Statement/Prospectus. All references in Article 13 and in this summary to a "shareholder" are to the record holder of First National Shares as to which dissenters' rights are asserted, if any.
A First National shareholder wishing to exercise dissenters' rights must deliver to First National before the vote on the Merger Agreement a written notice of such shareholder's intent ("Notice of Intent") to demand payment for such shareholder's First National Shares. In addition, such shareholder must not vote in favor of approval of the Merger Agreement. A vote against approval of the Merger Agreement will not, in and of itself, constitute a written demand for dissenters' rights satisfying the requirements of Article 13.
Under Article 13, First National must provide written notification ("Dissenters' Notice") to each dissenting shareholder within ten days after the consummation of the Merger (i) stating where the demand for payment (the "Payment Demand") must be sent and where and when certificates for certificated shares must be deposited and (ii) setting a date by which First National must receive the Payment Demand, which date (the "Payment Demand Date") may not be fewer than 30 nor more than 60 days after the date on which the Dissenters' Notice is delivered. A shareholder in receipt of a Dissenters' Notice must deliver a Payment Demand and deposit such shareholder's certificates on or prior to the Payment Demand Date in accordance with the terms of the
Dissenters' Notice. Within ten days after receipt of the Payment Demand or within ten days after consummation of the Merger, whichever is later, First National must make a written offer to each dissenting shareholder who has filed a Payment Demand to pay an amount estimated to be the "fair value" of the shares plus accrued interest. If the dissenting shareholder accepts First National's offer by written notice to First National within 30 days of First National's offer, payment must be made within 60 days after the offer was made or consummation of the Merger, whichever occurs later.
A dissenting shareholder may notify First National, in writing, of such shareholder's own estimate of the "fair value" of his or her shares, and demand payment thereof, provided that such notice is delivered within 30 days after First National's offer. In addition, if First National does not offer payment within the time period set forth in the preceding paragraph, a dissenting shareholder may demand delivery of certain financial information regarding First National (which First National must provide within ten days after receipt of such demand) and may, at any time within three years of the consummation of the Merger, notify First National of such shareholder's own estimate of the fair value of such shareholder's shares, and demand payment thereof.
If a Payment Demand remains unsettled, then First National, within 60 days after receipt of the Payment Demand, must bring an action in a court of competent jurisdiction in the county contemplated by Section 14-2-1330(b) of the GBCC requesting that the "fair value" of the shares be determined together with accrued interest. If First National fails to bring such action within such 60-day period, First National will be required to pay each dissenter whose demand remains unsettled the amount demanded by such dissenting shareholder.
The costs and expenses of any such action shall be determined by the court and shall be assessed against First National. Notwithstanding the foregoing, all or any part of such costs and expenses may be apportioned and assigned as the court may deem equitable against any and all of the dissenting shareholders who are party to the action and to whom First National shall have made an offer to pay for the shares, if the court finds that such shareholder acted arbitrarily, vexatiously or not in good faith in making a Payment Demand. Such expenses may include reasonable compensation and expenses of appraisers appointed by the court and fees and expenses of counsel and experts employed by First National. If the court finds that First National failed to comply with the requirements of Article 13, the court may award to any shareholder who is a party to the proceeding such sum as the court may determine to be reasonable compensation to any attorneys or experts employed by the shareholder in the action.
Only a shareholder of record is entitled to assert dissenters' rights for First National Shares registered in that holder's name. The demand for dissenters' rights should be exercised by or on behalf of the holder of record fully and correctly, as his or her name appears on his stock certificates. If First National Shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand should be made in that capacity, and if First National Shares are owned of record by more than one person, such as a joint tenancy or tenants in common, the demand should be executed by or on behalf of all joint owners. An authorized agent, including one or more joint owners, may execute a demand for appraisal on behalf of a holder of record, provided the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, the agent is acting for such owner or owners.
If any holder of First National Shares who demands dissenters' rights with respect to his or her shares fails to perfect, or effectively withdraws or loses, his or her right to dissent, he or she will no longer have the right to receive the "fair value" of his or her shares. Rather, such a shareholder will only be entitled to receive the Merger Consideration described above. A First National Shareholder will fail to perfect, or effectively withdraw or lose, his or her right to dissent if he or she fails to deliver a Notice of Intent to First National prior to the vote on the Merger Agreement, fails to vote against approval of the Merger Agreement or abstain with respect to the Merger Agreement, fails to file a Payment Demand with First National or delivers to First National a written withdrawal of his or her Payment Demand.
Failure to follow the steps required by Article 13 for perfecting dissenters' rights will result in the loss of such rights. Consequently, any First National shareholder of First National who desires to exercise his or her dissenters' rights is urged to consult his or her legal advisor before attempting to exercise such rights.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Tax Opinion. The following discussion of certain Federal income tax consequences of the Merger is based upon an opinion received from Rogers & Hardin, counsel for ABC. Such opinion is not binding upon the Internal Revenue Service (the "Service"), and no advance ruling has been sought or obtained from any federal, state, local or other taxing authority, including the Service. Insofar as the opinion of Rogers & Hardin is directed to the tax treatment of First National shareholders, it does not purport to apply to all First National shareholders. Certain First National shareholders may be in special circumstances which are not addressed in such opinion. The opinion also considers only Federal income taxes and does not take into account the application of other Federal taxes or state or local taxes. In addition, the opinion does not address any tax consequences of the Merger with respect to any Options or Warrants. FOR THESE REASONS, FIRST NATIONAL SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AT THEIR OWN EXPENSE AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER.
Such opinion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), the applicable regulations promulgated or proposed thereunder, current rulings of the Service and judicial decisions as in effect on the date of such opinion, all of which are subject to modification or challenge at any time and perhaps with retroactive effect.
Tax-free Reorganization. The Merger, if and when consummated in accordance with the Merger Agreement, will constitute a tax-free reorganization for Federal income tax purposes within the meaning of Section 368(a)(1)(A) of the Code.
Exchange of First National Shares Solely for ABC Common Stock. A First National shareholder who receives solely shares of ABC Common Stock pursuant to the Merger in exchange for First National Shares will recognize no gain or loss, except with respect to cash, if any, received in lieu of a fractional share of ABC Common Stock for such First National Shares. See "Cash in Lieu of Fractional Shares of ABC Common Stock" below. The aggregate basis of the shares of ABC Common Stock actually received by such First National shareholder in exchange for First National Shares will be the same as the tax basis of the First National Shares surrendered in exchange therefor, as reduced by the ratable portion of such basis allocated to any fractional share interest to which he or she may have been entitled. The holding period of the ABC Common Stock received by such a shareholder will include the holding period of the First National Shares surrendered in the exchange, provided the First National Shares were held as a capital asset as of the Effective Date.
Cash in Lieu of Fractional Shares of ABC Common Stock. The payment of cash to First National shareholders in exchange for First National Shares in lieu of fractional shares of ABC Common Stock will be treated as if such fractional shares were distributed as part of the exchange and then redeemed by ABC, and the payment received by First National shareholders will be treated as having been received as a distribution in full payment in exchange for such fractional shares of ABC Common Stock. The resulting gain or loss will be capital gain or loss (assuming the ABC Common Stock is a capital asset in the First National shareholder's hands), which will be long term in nature if the First National Shares exchanged therefor have been held (or are deemed to have been held) more than one year.
Backup Withholding. Absent an applicable exemption, the Exchange Agent must withhold 31% of the cash consideration to which any First National shareholder is entitled in the Merger unless the shareholder provides his or her tax identification number and certifies, under penalties of perjury, that such number is correct. Accordingly, if requested by the Exchange Agent, each First National shareholder should complete an IRS Form W-9 or substitute form to provide the information and certification necessary to avoid this "backup withholding."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER WILL VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF EACH FIRST NATIONAL SHAREHOLDER AND OTHER FACTORS, EACH FIRST NATIONAL SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE MERGER (INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX LAWS).
REGULATORY APPROVALS
The Merger was approved by the Federal Reserve Board under the BHCA on , 1996 and by the Georgia Department of Banking and Finance on , 1996. The Merger may not be consummated for 15 days after approval by the Federal Reserve Board, during which time an action may be brought by the United States Department of Justice challenging the Merger on antitrust grounds.
BUSINESS PENDING THE MERGER
The Merger Agreement provides, among other limitations, that, pending consummation of the Merger, First National will operate in the ordinary course, will use its best efforts to preserve its businesses and business organizations intact, comply with all applicable laws and make no material changes in its customary business practices.
OTHER PROVISIONS OF THE AGREEMENT
Representations and Warranties. The Merger Agreement contains representations and warranties by the parties regarding, among other things, their respective organization, authorization to enter into the Agreement, capitalization, pending and threatened litigation, contractual obligations, compliance with applicable laws and regulations, financial statements and filings with regulatory agencies. These representations and warranties will not survive consummation of the Merger.
Additional Conditions to the Merger. The obligations of First National and ABC to consummate the Merger are subject to the following additional conditions, among others: approval and adoption of the Merger Agreement and the Merger by the requisite vote of First National shareholders as solicited by this Proxy Statement/Prospectus; absence of any order, judgment or decree of any court or any government agency having jurisdiction over First National or over ABC restraining or prohibiting the consummation of the Merger; the inclusion of the ABC Common Stock to be issued in the Merger in the Nasdaq National Market; and the effectiveness of the Registration Statement of which this Proxy Statement/Prospectus is a part and the absence of a stop order suspending such effectiveness. In addition, the obligation of ABC to consummate the Merger is further subject to the satisfaction or waiver of a number of conditions, including the continued truth and accuracy in all material respects of the representations or warranties made by First National in the Merger Agreement; First National's performance of all of its obligations under the Merger Agreement; ABC's receipt of an opinion of counsel to First National with respect to certain corporate matters; ABC's receipt of a letter from First National's independent accountants with respect to the financial information of First National contained herein; the execution of noncompetition agreements by and between ABC and Raymond B. Phillips and each of the other directors of First National in substantially the forms attached as Exhibits 4 and 4A, respectively, to the Merger Agreement; First National not having received Notices of Intent from holders of more than 7.5% of the issued and outstanding First National Shares; ABC's receipt of an opinion of Mauldin & Jenkins regarding the pooling of interest accounting treatment of the Merger; and ABC's receipt of letter agreements from each holder of outstanding Warrants and Options in substantially the forms attached as Exhibits 5 and 6, respectively, to the Merger Agreement. First National's obligation to consummate the Merger is also subject to the satisfaction or waiver of a number of conditions, including the continued truth and accuracy in all material respects of the representations or warranties made by ABC set forth in the Merger Agreement; ABC's performance of all of its obligations under the Merger Agreement; and First National's receipt of an opinion of counsel to ABC with respect to certain corporate matters.
Waivers; Amendments; Terminations. Any term or condition of the Merger
Agreement may be waived by the party entitled to the benefits thereof, and the
Agreement may be amended or supplemented at any time by written agreement of
the parties, except that after the Merger is approved by First National
shareholders, no such amendment or supplement may result in a decrease in the
consideration for First National Shares or otherwise materially adversely
affect the rights of First National shareholders without their approval. The
Merger Agreement provides that it may be terminated (a) by the mutual consent
of both parties; (b) by either party in the event of a material breach by the
other party of any representation or warranty contained in the Merger
Agreement which cannot be or has not been cured within 30 days after the
giving of notice of such breach to such party; (c) by either party in the
event that any consent or regulatory approval necessary to consummate the
Merger has been denied by final nonappealable action of such authority or if
any action taken by such authority is not appealed with the limit for such
appeal or if First National's shareholders fail to approve the Merger and the
Merger Agreement; (d) at any time after November 1, 1996, by either party in
the event the Merger has not been consummated on or before such date; (e) by
either party if it becomes clear that certain conditions precedent to such
party's obligations cannot be satisfied on or prior to November 1, 1996; or
(f) by First National upon the payment of the termination fee discussed below
in connection with its acceptance of a superior proposal.
Expenses of the Merger. First National and ABC each will bear their respective costs and expenses incurred in connection with the Merger, including the fees, expenses and disbursements of their respective counsel and auditors and one-half of the printing expenses and filing fees in connection with this Proxy Statement/Prospectus, whether or not the Merger is consummated. Notwithstanding the foregoing, in the event that the Merger Agreement is terminated by First National pursuant to Section 9.1(g) of the Merger Agreement upon execution of a definitive agreement with a third party or in the event that, prior the termination of the Merger Agreement, First National receives a takeover proposal and, within one year of such termination, enters into, approves, recommends or takes action with respect to a merger, consolidation or other business combination with any other person, then First National shall pay to ABC the sum of ABC's expenses, plus the sum of $200,000.
OPERATIONS OF THE BANK AFTER THE MERGER
After the Merger is consummated, ABC intends to seek regulatory approval to add Kenneth J. Hunnicutt, the President and Chief Executive Officer of ABC, to the Board of Directors of the Bank. With the exception of replacing the Bank's President, Raymond B. Philips, who intends to retire upon consummation of the Merger, the parties intend that, after the Effective Date, the operations of the Bank initially will continue unchanged. There can be no assurance, however, that the operations of the Bank will continue unchanged indefinitely and, as the sole shareholder of the Bank, ABC will be entitled to remove or not reelect such officers or directors of the Bank and to make any other changes in its business or operation in the future as ABC may deem necessary or appropriate, subject to certain prior regulatory approval. ABC has agreed to provide generally to officers and employees of the Bank comparable employee benefits that ABC provides to officers and employees of its other banking subsidiaries from time to time. See "--Interest of Certain Persons in the Merger."
After the Effective Date, ABC anticipates that there will be a close liaison and a high level of cooperation among all of ABC's subsidiaries resulting in an improved ability to meet the needs of the communities served by the Bank and ABC's other subsidiary banks.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "pooling of interests" transaction.
RESALE OF ABC COMMON STOCK
All shares of ABC Common Stock received by First National shareholders in the Merger will be freely transferable, except that shares of ABC Common Stock received by persons who are deemed to be "affiliates" (as such term is defined under the 1933 Act) of First National prior to the Merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under the 1933 Act (or Rule 144 in the case of such persons who become affiliates of ABC) or as otherwise permitted under the 1933 Act. Persons who may be deemed to be affiliates of ABC or First National generally include individuals or entities that control, are controlled by, or are under common control with, such party and may include certain officers and directors of such party as well as principal shareholders of such party. The Merger Agreement requires First National to use reasonable efforts to deliver or cause to be delivered to ABC a letter agreement from each First National affiliate to the effect that such person will not offer or sell or otherwise dispose of any of the shares of ABC Common Stock issued to such person in or pursuant to the Merger in violation of the 1933 Act or the rules and regulations promulgated by the Commission thereunder.
DESCRIPTION OF ABC BANCORP
ABC is a bank holding company organized under the laws of the State of Georgia and registered with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") pursuant to the Bank Holding Company Act of 1956, as amended (the "BHCA"). ABC, through its subsidiaries, is engaged in the commercial banking business. Its primary source of earnings is derived from income generated by the ownership and operation of its five wholly-owned subsidiary banks (the "Subsidiary Banks"): American Banking Company located in Moultrie, Georgia; The Bank of Quitman located in Quitman, Georgia; Bank of Thomas County located in Thomasville, Georgia; The Citizens Bank of Tifton located in Tifton, Georgia; Cairo Banking Company located in Cairo, Georgia; and Southland Bank (acquired on June 21, 1996) located in Dothan, Alabama. As of March 31, 1996, ABC, on a consolidated basis, had total assets of $335.6 million, total loans of $223.3 million, total deposits of $243.4 million and stockholders' equity of $34.6 million. ABC's net income for 1995 was $4.3 million, or $1.29 per share; its net income for the three months ended March 31, 1996 was $1.2 million, or $0.37 per share. ABC's principal executive offices are located at 310 First Street, S.E., P.O. Box 1500, Moultrie, Georgia 31768, and its telephone number is (912) 890-1111.
On June 21, 1996, Southland Bancorporation ("Southland"), a bank holding company registered under the BHCA and operating Southland Bank with five branches in southeastern Alabama, merged with and into ABC. See "SUMMARY-- Recent or Proposed Transactions."
ABC has also entered into an Agreement and Plan of Merger with Central Bankshares, Inc. ("Central"), dated as of December 29, 1995, pursuant to which Central would merge with and into ABC (the "Central Merger"). Central is a bank holding company registered under the BHCA and operates Central Bank & Trust with two branches in Cordele, Georgia. See "SUMMARY--Recent or Proposed Transactions."
The ABC Mergers, if consummated, will result in the issuance of a substantial number of new shares of ABC Common Stock which could have a dilutive effect on the earnings per share of ABC, Southland, Central and First National on a combined basis. For information regarding the effect of the ABC Mergers on ABC, see "Unaudited Pro Forma Condensed Consolidated Financial Data."
Additional information concerning ABC is contained in documents incorporated
in this Proxy Statement/Prospectus by reference. These documents are available
without charge upon written request to Sara R. Hall, ABC Bancorp, 310 First
Street, S.E., P. O. Box 1500, Moultrie, Georgia 31768, telephone no.
(912) 890-1111. In order to assure timely delivery of these documents, any
request should be made by , 1996.
ABC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
ABC's principal asset is its ownership of the Subsidiary Banks. Accordingly, ABC's results of operations are primarily dependent upon the results of operations of the Subsidiary Banks. The Subsidiary Banks conduct a commercial banking business which consists of attracting deposits from the general public and applying those funds to the origination of commercial, consumer and real estate loans (including commercial loans collateralized by real estate). The Subsidiary Banks' profitability depends primarily on net interest income, which is the difference between interest income generated from interest- earning assets (i.e., loans and investments) less the interest expense incurred on interest-bearing liabilities (i.e., customer deposits and borrowed funds). Net interest income is affected by the relative amounts of interest- earning assets and interest-bearing liabilities, and the interest rate paid and earned on these balances. Net interest income is dependent upon the Subsidiary Banks' interest rate spread, which is the difference between the average yield earned on its interest-earning assets and the average rate paid on its interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate interest income. The interest rate spread is impacted by interest rates, deposit flows and loan demand. Additionally, and to a lesser extent, the profitability of the Subsidiary Banks is affected by such factors as the level of non-interest income and expenses, the provision for loan losses and the effective tax rate. Non-interest income consists primarily of loan and other fees and income from the sale of loans and investment securities. Non- interest expenses consist of compensation and benefits, occupancy-related expenses, deposit insurance premiums paid to the FDIC and other operating expenses.
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
ABC's results of operations are determined by its ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest expense. Since interest rates are determined by market forces and economic conditions beyond the control of ABC, the ability to generate net interest income is dependent upon the ability of the Subsidiary Banks to obtain an adequate spread between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities. Thus, the key performance measure for net interest income is the interest margin or net yield, which is taxable-equivalent net interest income divided by average earning assets.
The primary component of consolidated earnings is net interest income, or the difference between interest income on interest-earning assets and interest paid on interest-bearing liabilities. The net interest margin is net interest income expressed as a percentage of average interest-earning assets. Interest- earning assets consist of loans, investment securities and Federal funds sold. Interest-bearing liabilities consist of deposits, of which approximately 17% are noninterest-bearing. A portion of interest income is earned on tax-exempt investments, such as state and municipal bonds. In an effort to state this tax-exempt income and its resultant yields on a basis comparable to all other taxable investments, an adjustment is made to analyze this income on a taxable-equivalent basis.
The net interest margin increased by 32 basis points or 5.69% to 5.94% in 1995 as compared to 5.62% in 1994. This increase in net interest margin was achieved by an increase of 103 basis points on average yield earned on interest-earning assets accompanied by an increase of 94 basis points in average rate paid on interest-bearing liabilities. Net interest income on a taxable-equivalent basis was $16,314,000 in 1995 as compared to $13,814,000 in 1994, representing an increase of 18.10%. Net interest income on a taxable- equivalent basis was $13,814,000 in 1994 as compared to $12,273,000 in 1993, representing an increase of 12.56%. Net interest margin increased by 5.24% to 5.62% in 1994 from 5.34% in 1993 because average interest-earning assets increased by 5.34% in 1994 as compared to 1993.
Average interest-earning assets increased by $28,559,000 or 11.62% to $274,428,000 in 1995 from $245,869,000 in 1994. Average loans increased by $24,341,000; average investments increased by $2,516,000; and average Federal funds sold increased by $1,702,000. The increase in average interest-earning assets was funded by an increase in average deposits of $22,869,000 or 9.52% to $263,046,000 in 1995 from $240,177,000 in 1994. By comparison, average interest-earning assets increased by $15,912,000 or 6.92% to $245,869,000 in
1994 from $229,957,000 in 1993. During 1994, average deposits increased by $9,424,000 or 4.08%, to $240,177,000 from $230,753,000 in 1993. Approximately 17% of the average deposits were noninterest-bearing deposits in 1995 as compared to 16% noninterest-bearing deposits in 1994.
The allowance for loan losses represents a reserve for potential losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on nonaccruing, past due and other loans that management believes require attention.
The provision for loan losses is a charge to earnings in the current period to replenish the allowance and maintain it at a level management has determined to be adequate. The provision for loan losses charged to earnings amounted to $848,000 in 1995, $638,000 in 1994 and $1,191,000 in 1993. The increase in the provision for loan losses in 1995 of $210,000 or 32.92%, as compared with 1994, was accompanied by an increase of 11.52% in total loans in 1995 and an increase in the allowance for loan losses of 13.71%. Net charge- offs represented 39.27% of the provision for loan losses in 1995 as compared to 70.85% in 1994. The decrease in loan charge-offs in 1995 resulted from an improvement in the quality of the collateral held as security on loans and the ability of the creditors to service their debt. The loan charge-offs for 1995 represented .16% of average loans outstanding during the year as compared to .25% for 1994. At December 31, 1995, the allowance for loan losses was 1.99% of total loans outstanding as compared by an allowance for loan losses of 1.96% of total loans outstanding at December 31, 1994. The determination of the allowance rests upon management's judgment about factors affecting loan quality and assumptions about the local and national economy. Management considers the year-end allowance for loan losses adequate to cover potential losses in the loan portfolio.
Average total assets increased $34,700,000 or 12.92% to $303,190,000 in 1995 as compared to $268,490,000 in 1994. The increase in average total assets was accompanied by an increase in average deposits of $22,869,000 or 9.52%. Average total assets increased $11,843,000 or 4.61% to $268,490,000 in 1994 as compared to $256,647,000 in 1993 and was accompanied by an increase in average total deposits of $9,424,000 or 4.08% to $240,177,000 in 1994 from $230,753,000 in 1993.
ABC has provided a valuation reserve of $228,000 against a deferred tax asset of $286,000 recorded on the books of a subsidiary bank. The deferred tax asset relates to a purchased tax net operating loss carryforward for which utilization is limited to specified amounts in future years and can only be used to offset taxable income of the subsidiary bank in future years.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 1996 AND 1995
The net interest margin decreased 33 basis points or 5.81% to 5.35% for the three months ended March 31, 1996 as compared to 5.68% for the three months ended March 31, 1995. This decrease in net interest margin was the result of an increase of 43 basis points in average rate paid on interest-bearing liabilities. Net interest income on a taxable-equivalent basis increased 7.79% to $4,179,000 for the three months ended March 31, 1996 as compared to $3,877,000 for the three months ended March 31, 1995. The increase in net interest income was attributable to an increase of 12.66% in average loans to $212,844,888 for the three months ended March 31, 1996 from $188,930,000 for the three months ended March 31, 1995.
The provision for loan losses remained constant at $180,000 for the three months ended March 31, 1996 and 1995. During the three months ended March 31, 1996, ABC recorded net loan charge-offs of $24,000 as compared to net loan recoveries on charged-off loans of $32,000 for the three months ended March 31, 1995.
Net income increased $207,000 or 20.14% to $1,235,000 for the three months ended March 31, 1996 as compared to $1,028,000 for the three months ended March 31, 1995. This increase in net income was attributable primarily to the increase in net interest income. Noninterest expense net of noninterest income decreased $25,000 to $2,090,000 for the three months ended March 31, 1996 as compared to $2,115,000 for the three months ended March 31, 1995.
Total assets increased $41,647,000 or 14.17% to $335,589,000 at March 31, 1996 as compared to total assets of $293,942,000 at March 31, 1995. Total loans increased $27,918,000 or 14.29% to $223,305,000 at March 31, 1996 from $195,387,000 at March 31, 1995. Total deposits increased $36,851,000 or 14.36% to $293,385,000 from $256,534,000 at March 31, 1995.
AVERAGE BALANCES AND NET INCOME ANALYSIS
The following table sets forth the amount of ABC's interest income or interest expense for each category of interest-earning assets and interest- bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net yield on average interest-earning assets. Federally tax-exempt income is presented on a taxable equivalent basis assuming a 34% Federal tax rate.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1995 1994 1993
-------------------------- -------------------------- --------------------------
AVERAGE AVERAGE AVERAGE
INTEREST YIELD/ INTEREST YIELD/ INTEREST YIELD/
AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE AVERAGE INCOME/ RATE
BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
ASSETS
Interest-earning assets:
Loans, net of unearned
interest.............. $205,023 $22,647 11.05% $180,682 $18,017 9.97% $159,976 $16,278 10.18%
Investment securities:
Taxable................ 38,781 2,271 5.86% 35,099 1,928 5.49% 32,581 1,997 6.08%
Tax-exempt............. 9,595 835 8.70% 10,761 924 8.59% 9,265 905 9.77%
Federal funds sold..... 21,029 1,234 5.87% 19,327 773 4.00% 27,865 825 2.96%
-------- ------- -------- ------- -------- -------
Total interest-earning
assets............... 274,428 26,987 9.83% 245,869 21,642 8.80% 229,957 20,005 8.70%
Noninterest-earning
assets:
Cash................... $ 15,741 $ 16,132 $ 16,035
Allowance for loan
losses ............... (4,072) (3,951) (2,950)
Unrealized gain on
available for sale
securities............ 61
Other assets........... 17,032 10,440 13,605
Total noninterest
earning assets....... 28,762 22,621 26,690
-------- -------- --------
Total assets.......... $303,190 $268,490 $256,647
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Savings and interest-
bearing demand
deposits.............. $ 81,137 $ 2,484 3.06% $ 88,482 $ 2,539 2.87% $ 87,867 $ 2,686 3.06%
Time deposits.......... 138,036 7,887 5.71% 112,730 5,064 4.49% 108,288 4,808 4.44%
Other short-term
borrowings............ 5,308 302 5.69% 2,557 68 2.66%
Debt................... -- -- 1,931 157 8.13% 3,654 238 6.51%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities.......... 224,481 10,673 4.75% 205,700 7,828 3.81% 199,809 7,732 3.87%
Noninterest-bearing
liabilities and stock-
holders' equity:
Demand deposits........ 43,873 38,965 34,598
Other liabilities...... 2,533 1,659 2,915
Stockholders' equity... 32,303 22,166 19,325
Total noninterest-
bearing liabilities
and stockholders'
equity............... 78,709 62,790 56,838
-------- -------- --------
Total liabilities and
stockholders'
equity............... $303,190 $268,490 $256,647
======== ======== ========
Interest rate spread.... 5.08% 4.99% 4.83%
===== ==== =====
Net interest income..... $16,314 $13,814 $12,273
======= ======= =======
Net interest margin..... 5.94% 5.62% 5.34%
===== ==== =====
|
RATE AND VOLUME ANALYSIS
The following table reflects the changes in net interest income resulting from changes in interest rates and from asset and liability volume. Federally tax-exempt interest is presented on a taxable-equivalent basis assuming a 34% Federal tax rate. The change in interest attributable to rate has been determined by applying the change in rate between years to average balances outstanding in the later year. The change in interest due to volume has been determined by applying the rate from the earlier year to the change in average balances outstanding between years. Thus, changes that are not solely due to volume have been consistently attributed to rate.
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 VS. 1994 1994 VS. 1993
--------------------------- ---------------------------
CHANGES DUE TO CHANGES DUE TO
INCREASE ---------------- INCREASE ----------------
(DECREASE) RATE VOLUME (DECREASE) RATE VOLUME
---------- ------- -------- ---------- ------ --------
(DOLLARS IN THOUSANDS)
Increase (decrease) in:
Income from earning
assets:
Interest and fees on
loans.............. $4,630 $ 2,203 $ 2,427 $1,739 $ (368) $ 2,107
Interest on securi-
ties:
Taxable........... 343 141 202 (60) (206) 137
Tax-exempt........ (89) 11 (100) 19 (127) 146
Interest on Federal
funds.............. 461 393 68 (52) 201 (253)
------ ------- ------- ------ ------ -------
Total interest
income......... $5,345 $ 2,748 $ 2,597 $1,637 $ (500) $ 2,137
------ ------- ------- ------ ------ -------
Expense from interest-
bearing liabilities:
Interest on savings
and interest-bearing
demand............... $ (55) $ 156 $ (211) $ (147) $ (166) $ 19
Interest on time de-
posits............... 2,823 1,686 1,137 256 59 197
Interest on short-term
deposits............. 234 161 73 68 -- 68
Interest on debt...... (157) -- (157) 81 31 (112)
------ ------- ------- ------ ------ -------
Total interest
expense........ $2,845 $ 2,003 $ 842 $ 96 $ (76) $ 172
------ ------- ------- ------ ------ -------
Net interest in-
come........... $2,500 $ 745 $ 1,755 $1,541 $ (424) $ 1,965
====== ======= ======= ====== ====== =======
|
NONINTEREST INCOME
The most significant increase in noninterest income was an increase in service charges on deposit accounts of $139,000 in 1995 over 1994, representing an increase of 5.66%. This increase in service charges was achieved by an increase in average deposits of $22,869,000 during 1995 as compared to 1994. Total other income increased $158,000 or 5.51% in 1994, which was attributable to an increase of $157,000 in service charges on deposits. Following is a comparison of noninterest income for 1995, 1994 and 1993.
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
(DOLLARS IN THOUSANDS)
Service charges on deposit accounts................. $ 2,595 $ 2,456 $ 2,299
Other service charges, commissions and fees......... 301 224 230
Other income........................................ 380 345 338
------- ------- -------
$ 3,276 $ 3,025 $ 2,867
======= ======= =======
|
NONINTEREST EXPENSE
Salaries and employee benefits increased $499,000 or 8.74% in 1995 over 1994. Salaries increased $297,000; bonuses increased $74,000; and employee benefits increased $127,000. The increase in employee benefits was attributable to an increase of $54,000 or 10.82% in retirement benefits as compared to 1994. Deposit insurance
premiums decreased $258,000 or 46.15% in 1995 as a result of the decrease in assessments by the Federal Insurance Deposit Corporation which became effective in early 1995. The most significant increase in noninterest expense in 1994 as compared to 1993 was an increase of $158,000 or 54.48% in data processing fees which was attributable to a major data processing conversion completed in the first quarter of 1994. Following is an analysis of noninterest expense for 1995, 1994 and 1993.
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
(DOLLARS IN THOUSANDS)
Salaries and employee benefits...................... $ 6,210 $ 5,711 $ 5,238
Occupancy and equipment expense..................... 1,830 1,754 1,567
Deposit insurance premiums.......................... 301 559 551
Data Processing fees................................ 372 448 290
Other expense....................................... 3,515 3,075 2,889
------- ------- -------
$12,228 $11,547 $10,535
======= ======= =======
|
ASSET/LIABILITY MANAGEMENT
A principal objective of ABC's asset/liability management strategy is to minimize its exposure to changes in interest rates by matching the maturity and repricing horizons of interest-earning assets and interest-bearing liabilities. This strategy is overseen in part through the direction of ABC's Asset and Liability Committee (the "ALCO Committee") which establishes policies and monitors results to control interest rate sensitivity.
As part of ABC's interest rate risk management policy, the ALCO Committee examines the extent to which its assets and liabilities are "interest rate- sensitive" and monitors its interest rate-sensitivity "gap." An asset or liability is considered to be interest rate-sensitive if it will reprice or mature within the time period analyzed, usually one year or less. The interest rate-sensitivity gap is the difference between the interest-earning assets and interest-bearing liabilities scheduled to mature or reprice within such time period. A gap is considered positive when the amount of interest rate- sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate-sensitive liabilities exceeds the interest rate-sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to adversely affect net interest income. If ABC's assets and liabilities were equally flexible and moved concurrently, the impact of any increase or decrease in interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate indicator of how net interest income will be affected by changes in interest rates. Accordingly, the ALCO Committee also evaluates how the repayment of particular assets and liabilities is impacted by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may not react identically to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market interest rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as "interest rate caps") which limit changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the interest-rate gap. The ability of many borrowers to service their debts also may decrease in the event of an interest-rate increase.
The following table sets forth the distribution of the repricing of ABC's earning assets and interest-bearing liabilities as of December 31, 1995, the interest rate sensitivity gap (i.e., interest rate sensitive assets less interest rate sensitive liabilities), the cumulative interest rate sensitivity gap ratio (i.e., interest rate sensitive assets divided by interest rate sensitivity liabilities) and the cumulative sensitivity gap ratio. The table also sets forth the time periods in which earning assets and liabilities will mature or may reprice in accordance with their contractual terms. However, the table does not necessarily indicate the impact of general interest rate movements on the net interest margin since the repricing of various categories of assets and liabilities is subject to competitive pressures and the needs of ABC's customers. In addition, various assets and liabilities indicated as repricing within the same period may in fact reprice at different times within such period and at different rates.
AT DECEMBER 31, 1995
MATURING OR REPRICING WITHIN
---------------------------------------------------------
ZERO TO THREE THREE MONTHS ONE TO FIVE OVER FIVE
MONTHS TO ONE YEAR YEARS YEARS TOTAL
------------- ------------ ----------- --------- --------
(DOLLARS IN THOUSANDS)
Earning assets:
Federal funds sold.... $ 41,025 $ -- $ -- $ -- $ 41,025
Investment securi-
ties................. 2,135 10,683 29,355 8,087 50,260
Loans................. 87,283 20,548 84,858 21,562 214,251
-------- -------- -------- ------- --------
130,443 31,231 114,213 29,649 305,536
-------- -------- -------- ------- --------
Interest-bearing liabil-
ities:
Interest-bearing de-
mand deposits(1)..... -- 17,638 54,195 -- 71,833
Savings(1)............ -- -- 22,318 -- 22,318
Certificates less than
$100,000............. 22,344 52,575 35,715 -- 110,634
Certificates $100,000
and over............. 15,541 15,040 7,192 -- 37,773
Other short-term
borrowings........... 3,487 -- -- -- 3,487
-------- -------- -------- ------- --------
41,372 85,253 119,420 -- 246,045
-------- -------- -------- ------- --------
Interest rate sensitiv-
ity gap................ $ 89,071 $(54,022) $ (5,207) $29,649 $ 59,491
======== ======== ======== ======= ========
Cumulative interest rate
sensitivity gap........ $ 89,071 $ 35,049 $ 29,842 $59,491
======== ======== ======== =======
Interest rate sensitiv-
ity gap ratio.......... 3.15 0.37 0.96 N/A
======== ======== ======== =======
Cumulative interest rate
sensitivity gap ratio.. 3.15 1.28 1.12 1.24
======== ======== ======== =======
|
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
ABC's loan portfolio, as of December 31, 1995, was made up primarily of short-term fixed rate loans or variable rate loans. The average contractual life on installment loans is approximately three years, while mortgages are generally variable over one to five-year periods. Total loans as of December 31, 1995 are shown in the following table according to the following maturity classifications: (i) one year or less; (ii) after one year through five years; and (iii) after five years.
DECEMBER 31, 1995
----------------------
(DOLLARS IN THOUSANDS)
Maturity:
One year or less.................................. $107,831
After one year through five years................. 84,858
After five years.................................. 21,562
--------
$214,251
========
|
The following table summarizes loans at December 31, 1995 with the due dates after one year which (i) have predetermined interest rates and (ii) have floating or adjustable interest rates.
DECEMBER 31, 1995
----------------------
(DOLLARS IN THOUSANDS)
Predetermined interest rates........................ $106,420
Floating or adjustable interest rates............... --
--------
$106,420
========
|
Records were not available to present the above information in each category listed in the first paragraph above and could not be reconstructed without undue burden.
LOAN PORTFOLIO
Management believes that ABC's loan portfolio is adequately diversified. The loan portfolio contains no foreign or energy-related loans or significant concentrations in any one industry, with the exception of agricultural loans, which constituted approximately 26% of ABC's loan portfolio as of December 31, 1995. As of December 31, 1995, the ten largest loans of ABC accounted for approximately 12% of ABC's total loans. As of December 31, 1995, ABC had outstanding loan commitments of $39 million. The amounts of loans outstanding at the indicated dates is shown in the following table according to type of loan.
DECEMBER 31,
MARCH 31, --------------------------------------------
1996 1995 1994 1993 1992 1991
--------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Commercial and industri-
al..................... $ 24,829 $ 23,733 $ 23,531 $ 20,849 $ 19,650 $ 11,379
Agricultural............ 16,867 15,124 17,079 9,767 10,789 8,109
Real estate--construc-
tion................... 1,762 1,836 1,828 3,387 2,130 1,421
Real estate--mortgage,
farmland............... 43,255 40,053 34,887 29,489 24,922 14,129
Real estate--mortgage,
commercial............. 42,447 41,438 35,242 27,402 22,284 12,506
Real estate--mortgage,
residential............ 54,522 52,377 44,064 41,902 43,500 31,343
Consumer installment
loans.................. 38,857 38,973 34,213 27,231 25,979 19,007
Other................... 766 717 1,280 1,720 1,691 2,754
-------- -------- -------- -------- -------- --------
223,305 214,251 192,124 161,747 150,945 100,648
Less reserve for possi-
ble loan losses........ 4,428 4,272 3,757 3,571 4,013 1,257
-------- -------- -------- -------- -------- --------
Total loans........... $218,877 $209,979 $188,367 $158,176 $146,932 $ 99,391
======== ======== ======== ======== ======== ========
|
NONPERFORMING LOANS
A loan is placed on non-accrual status when, in management's judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued in prior years and is subsequently determined to have doubtful collectibility is charged to the allowance for possible loan losses. Interest on loans that are classified as non-accrual is recognized when received. Past due loans are loans whose principal or interest is past due 90 days or more. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the original contractual terms.
DECEMBER 31,
MARCH 31, ----------------------------------
1996 1995 1994 1993 1992 1991
--------- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
Loans accounted for on a
nonaccrual basis................ $3,718 $2,259 $3,460 $3,119 $5,605 $ 511
Installment loans and term loans
contractually past due ninety
days or more as to interest or
principal payments and still
accruing........................ 12 27 103 316 595 563
Loans, the terms of which have
been renegotiated to provide a
reduction or deferral of
interest or principal because of
deterioration in the financial
position of the borrower........ -- -- 358 -- -- --
Loans now current about which
there are serious doubts as to
the ability of the borrower to
comply with present loan
repayment terms................. -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total.......................... $3,730 $2,286 $3,921 $3,435 $6,200 $1,074
====== ====== ====== ====== ====== ======
|
As of March 31, 1996 and December 31, 1995, 1994, 1993, 1992 and 1991, total nonperforming loans were approximately 1.67%, 1.07%, 2.04%, 2.67%, 4.68% and 1.26%, respectively, of total loans outstanding at such dates.
In the opinion of management, any loans classified by regulatory authorities
as substandard or special mention that have not been disclosed above do not
(i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity
or capital resources, nor (ii) represent material credits about which
management is aware of any information which causes management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms. Any loans classified by regulatory authorities as loss have been
charged off.
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for possible loan losses is created by direct charges to operations. Losses on loans are charged against the allowance in the period in which such loans, in management's opinion, become uncollectible. Recoveries during the period are credited to this allowance. The factors that influence management's judgment in determining the amount charged to operating expense are past loan experience, composition of the loan portfolio, evaluation of possible future losses, current economic conditions and other relevant factors. ABC's allowance for loan losses was approximately $4.3 million at December 31, 1995, representing 2.01% of year-end total loans outstanding and OREO, compared with approximately $3.8 million at December 31, 1994, which represented 1.98% of year-end total loans outstanding and OREO.
The allowance for loan losses is reviewed quarterly based on management's evaluation of current risk characteristics of the loan portfolio, as well as the impact of prevailing and expected economic business conditions. Management considers the allowance for loan losses adequate to cover possible loan losses on each outstanding loan with particular emphasis on any problem loans.
The following table presents an analysis of ABC's loan loss experience for the periods indicated:
THREE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------------------------------
1996 1995 1994 1993 1992 1991
--------- -------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
Average amount of loans
outstanding............ $217,199 $205,023 $180,682 $159,976 $118,313 $98,737
======== ======== ======== ======== ======== =======
Balance of reserve for
possible loan losses at
beginning of period.... $ 4,272 $ 3,757 $ 3,571 $ 4,013 $ 1,257 $ 1,046
-------- -------- -------- -------- -------- -------
Charge offs:
Commercial, financial,
industrial and
agricultural......... (2) (96) (431) (428) (406) (214)
Real estate........... 0 (103) (144) (1,851) (698) (200)
Consumer.............. (151) (531) (396) (374) (318) (41)
Recoveries:
Commercial, financial
and agricultural..... 25 90 74 273 26 44
Real estate........... 51 127 265 554 210 166
Consumer.............. 53 180 180 193 113 5
-------- -------- -------- -------- -------- -------
Net charge-offs..... $ (24) $ (333) $ (452) $ (1,633) $ (1,073) $ (240)
-------- -------- -------- -------- -------- -------
Additions to reserve
charged to operating
expenses............... $ 180 $ 848 $ 638 $ 1,191 $ 1,129 $ 451
-------- -------- -------- -------- -------- -------
Allowance for loan
losses of acquired
subsidiary............. $ -- $ -- $ -- $ -- $ 2,700 $ --
-------- -------- -------- -------- -------- -------
Balance of reserve
for possible loan
losses............. $ 4,428 $ 4,272 $ 3,757 $ 3,571 $ 4,013 $ 1,257
======== ======== ======== ======== ======== =======
Ratio of net loan
charge-offs to average
loans.................. 0.04% 0.16% .25% 1.02% .91% .24%
======== ======== ======== ======== ======== =======
|
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The following table sets forth the breakdown of the allowance for loan losses by loan category for the periods indicated. Management believes the allowance can be allocated only on an approximate basis. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any other category.
AT DECEMBER 31,
AT MARCH 31, -------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
Commercial, financial,
industrial and
agricultural........... $ 970 19% $ 836 18% $ 919 21%
Real estate............. 1,505 63% 1,452 63% 1,425 60%
Consumer................ 870 18% 839 19% 824 19%
Unallocated............. 1,083 1,046 589
------ ---- ------ ---- ------ ----
$4,428 100% $4,272 100% $3,757 100%
====== ==== ====== ==== ====== ====
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INVESTMENT PORTFOLIO
ABC manages the mix of asset and liability maturities in an effort to control the effects of changes in the general level of interest rates of net interest income. See "--Asset/Liability Management." Except for its effect on the general level of interest rates, inflation does not have a material impact on ABC due to the rate variability and short-term maturities of its earning assets. In particular, approximately 50% of its loan portfolio is comprised of loans which mature within one year or less. Mortgage loans, primarily with five- to fifteen-year maturities, are also made on a variable rate basis with rates being adjusted every one to five years. Additionally, 25% of the investment portfolio matures within one year.
TYPES OF INVESTMENTS
The carrying value and estimated market value of investment securities are as follows:
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
Securities Available for Sale De-
cember 31, 1995:
U.S. Government and agency secu-
rities......................... $37,174 $ 285 $ (93) $37,366
Mortgage-backed securities...... 2,282 69 (8) 2,343
Other securities................ 300 -- (18) 282
------- ------ ------- -------
$39,756 $ 354 $ (119) $39,991
======= ====== ======= =======
December 31, 1994:
U.S. Government and agency secu-
rities......................... $ 1,664 $ -- $ (14) $ 1,650
Other securities................ 300 -- (40) 260
------- ------ ------- -------
$1,964 $ -- $ (54) $ 1,910
======= ====== ======= =======
Securities Held to Maturity Decem-
ber 31, 1995:
State and municipal securities.. $10,269 $ 258 $ (65) $10,462
======= ====== ======= =======
December 31, 1994:
U.S. Government and agency secu-
rities......................... $32,159 $ 19 $(1,196) $30,982
State and municipal securities.. 9,819 114 (471) 9,462
Mortgage-backed securities...... 2,617 22 (59) 2,580
------- ------ ------- -------
$44,595 $ 155 $(1,726) $43,024
======= ====== ======= =======
December 31, 1993:
U.S. Government and agency secu-
rities......................... $32,033 $ 430 $ (42) $32,421
State and municipal securities.. 11,004 469 (78) 11,395
Mortgage-backed securities...... 2,600 140 -- 2,740
Other securities................ 300 -- -- 300
------- ------ ------- -------
$45,937 $1,039 $ (120) $46,856
======= ====== ======= =======
|
The following table represents maturities and weighted average yields of investment securities held by ABC at December 31, 1995.
DECEMBER 31, 1995
------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
BUT WITHIN BUT WITHIN
WITHIN ONE YEAR FIVE YEARS TEN YEARS AFTER TEN YEARS
----------------- --------------- ----------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
--------- ------- -------- ------ --------- ------- -------- -------
(DOLLARS IN THOUSANDS)
U.S. Treasury and Other
U.S. government agen-
cies(1)............... $ 11,848 5.75% $ 28,143 6.22% $ -- -- % $ -- -- %
Obligations of states
and other political
subdivisions(1)(2).... 727 6.12 2,734 6.63 5,722 7.72 1,086 8.37
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DEPOSITS
Average amount of deposits and average rate paid thereon, classified as to noninterest-bearing demand deposits, interest-bearing demand and savings deposits and time deposits, for the periods indicated are presented below.
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994
-------------- --------------
AMOUNT RATE AMOUNT RATE
-------- ----- -------- -----
(DOLLARS IN THOUSANDS)
Noninterest-bearing demand deposits.............. $ 43,873 -- % $ 38,965 -- %
Interest-bearing demand and savings deposits..... 81,137 3.06% 88,482 2.47%
Time deposits.................................... 138,036 5.71% 112,730 4.49%
-------- --------
Total deposits................................. $263,046 $240,177
======== ========
|
ABC has a large, stable base of time deposits, with little or no dependence on volatile deposits of $100,000 or more. The time deposits are principally certificates of deposit and individual retirement accounts obtained for individual customers.
The amounts of time certificates of deposit issued in amounts of $100,000 or more as of December 31, 1995, are shown below by category, which is based on time remaining until maturity of (i) three months or less, (ii) over three through twelve months and (iii) over twelve months.
DECEMBER 31, 1995
----------------------
(DOLLARS IN THOUSANDS)
Three months or less................................ $15,541
Over three through twelve months.................... 15,040
Over twelve months.................................. 7,192
-------
Total............................................. $37,773
=======
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RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
The following table shows return on assets (net income divided by average total assets), return on equity (net income divided by average shareholders' equity), dividend payout ratio (dividends declared per share divided by net income per share) and shareholders' equity to asset ratio (average shareholders' equity divided by average total assets) for the periods indicated.
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
Return on assets............................... 1.43% 1.15% 1.03%
Return on equity............................... 13.44 13.99 13.65
Dividend payout ratio.......................... 27.13 28.57 25.96
Equity to assets ratio......................... 10.65 8.26 7.53
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LIQUIDITY AND CAPITAL RESOURCES
Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of ABC and the Subsidiary Banks to meet those needs. ABC and the Subsidiary Banks seek to meet liquidity requirements primarily through management of short-term investments (principally Federal funds sold) and monthly amortizing loans. Another source of liquidity is the repayment of maturing single payment loans. In addition, the Subsidiary Banks maintain relationships with correspondent banks which could provide funds to them on short notice, if needed.
The liquidity and capital resources of ABC and the Subsidiary Banks are monitored on a periodic basis by state and Federal regulatory authorities. At December 31, 1995, the Subsidiary Banks' short-term investments were adequate to cover any reasonably anticipated immediate need for funds. During 1995, ABC increased its capital by $125,000, representing proceeds from exercise of common stock options. It also increased its capital by retaining net earnings of $3,162,000 after payment of dividends. After recording an increase in capital of $198,000 for unrealized gains on securities, net of taxes, total capital increased during 1995 by $3,485,000. At December 31, 1995, total capital of ABC amounted to $33,935,000. ABC and the Subsidiary Banks are aware of no events or trends likely to result in a material change in their liquidity. At December 31, 1995, there were no binding outstanding commitments for capital expenditures. However, ABC anticipates that expenditures of approximately $1,500,000 will be required for expansion or relocation of properties which it plans to implement in 1996 in order to serve its customers and meet the needs of the citizens in the communities served by the Subsidiary Banks.
During the three months ended March 31, 1996, total capital increased $640,000 to $34,575,000 at March 31, 1996. This increase in capital resulted from the retention of net earnings of $897,000 (after deducting dividends to shareholders of $338,000) and a decrease of $257,000 in unrealized gains on securities available for sale, net of taxes.
In accordance with risk capital guidelines issued by the FRB, ABC is required to maintain a minimum standard of total capital to weighted risk assets of 8%. Additionally, all member banks must maintain "core" or "Tier 1" capital of at least 4% of total assets ("leverage ratio"). Member banks operating at or near the 4% capital level are expected to have well- diversified risks, including no undue interest rate risk exposure, excellent control systems, good earnings, high asset quality, and well managed on- and off-balance sheet activities; and, in general, be considered strong banking organizations with a composite 1 rating under the CAMEL rating system of banks. For all but the most highly rated banks meeting the above conditions, the minimum leverage ratio is to be 4% plus an additional 100 to 200 basis points.
The following table summarizes the regulatory capital levels of ABC at December 31, 1995.
DECEMBER 31, 1995
-----------------------------------------------
ACTUAL REQUIRED EXCESS
--------------- --------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Leverage capital............. $33,260 10.37% $12,824 4.00% $20,436 6.37%
Risk-based capital:
Core Capital............... 33,260 15.23 8,733 4.00 24,527 11.23
Total Capital.............. 36,008 16.49 17,466 8.00 18,542 8.49
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COMMITMENTS AND LINES OF CREDIT
In the ordinary course of business, the Subsidiary Banks have granted commitments to extend credit to approved customers. Generally, these commitments to extend credit have been granted on a temporary basis for seasonal or inventory requirements and have been approved by each of the Subsidiary Bank's Board of Directors. The Subsidiary Banks have also granted commitments to approved customers for standby letters of credit. These commitments are recorded in the financial statements when funds are disbursed or the financial instruments become payable. The Subsidiary Banks use the same credit policies for these off-balance sheet commitments as they do for financial instruments that are recorded in the consolidated financial statements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitment amounts expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Following is a summary of the commitments outstanding at December 31, 1995 and 1994.
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
Commitments to extend credit...................... $ 36,024 $ 22,344
Credit card commitments........................... 2,883 2,345
Standby letters of credit......................... 905 590
----------- -----------
$ 39,812 $ 25,279
=========== ===========
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IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with generally accepted accounting principles and practices within the banking industry which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation.
DESCRIPTION OF ABC COMMON STOCK
GENERAL
ABC's authorized capital stock consists of 15,000,000 shares of Common Stock, $1.00 par value per share, of which 3,379,192 shares were issued and outstanding as of March 31, 1996, and 5,000,000 shares of preferred stock, none of which are issued and outstanding. ABC has reserved 6,667 shares of ABC Common Stock for issuance pursuant to certain outstanding options to purchase such shares.
COMMON STOCK
The holders of ABC Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors and paid by ABC out of funds legally available therefor and to share ratably in the assets of ABC available for distribution after the payment of all prior claims in the event of any liquidation dissolution or winding-up of ABC. All outstanding shares of ABC Common Stock are duly authorized and validly issued, fully paid and nonassessable.
Under FRB policy, a bank holding company is expected to act as a source of financial strength to each of its subsidiary banks and to commit resources to support each such bank. Consistent with this policy, the FRB has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless the available net income of the bank holding company is sufficient to fully fund the dividends, and the prospective rate of earnings retention appears to be consistent with its capital needs, asset quality, and overall financial condition.
The ability of ABC to pay cash dividends is currently influenced, and in the future could be further influenced, by bank regulatory policies or agreements and by capital guidelines. Accordingly, the actual amount and timing of future dividends, if any, will depend on, among other things, future earnings, the financial condition of ABC and each of its Subsidiary Banks, the amount of cash on hand at the holding company level, outstanding debt obligations, if any, and the requirements imposed by regulatory authorities.
Holders of ABC Common Stock are entitled to one vote per share on all matters requiring a vote of shareholders. The ABC Common Stock does not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares of ABC Common Stock voting for the election of directors can elect 100% of the directors if they choose to do so. In such event, the holders of the remaining shares of ABC Common Stock will not be able to elect any of the directors.
PREFERRED STOCK
No shares of Preferred Stock have been issued. ABC's Board of Directors is authorized to issue the Preferred Stock in one or more series and to fix and determine, among other things, the dividend payable with respect to such shares of Preferred Stock, including whether and in what manner such dividend shall be accumulated; whether such shares shall be redeemable and, if so, the prices, terms and conditions of such redemption; the amount payable on such shares in the event of voluntary or involuntary liquidation; the nature of any purchase, retirement or sinking fund provisions; the nature of any conversion rights with respect to such shares; and the extent of the voting rights, if any, of such shares. Certain of such rights may, under certain circumstances, adversely affect the rights or interests of holders of Common Stock. In addition, the Preferred Stock may be issued under certain circumstances as a defensive device to thwart an attempted hostile takeover of ABC. See "-- Certain Antitakeover Provisions of ABC's Articles of Incorporation."
LIMITATIONS ON DIRECTORS' LIABILITY
ABC's Articles of Incorporation provide that no director of ABC shall be
liable to ABC or its shareholders for monetary damages for breach of duty of
care or other duty as a director, except for liability (i) for any
appropriation, in violation of his duties, of any business opportunity of ABC,
(ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or repurchases, or (iv) for any transaction from which the director derived an improper personal benefit. The effect of these provisions is to eliminate the rights of ABC and its shareholders (through shareholders' derivative suits on behalf of ABC) to recover monetary damages against a director for breach of fiduciary duty as a director (including breaches resulting from grossly negligent behavior), except in the situations described above. Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers and controlling persons of ABC pursuant to the foregoing, ABC has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable.
CERTAIN ANTITAKEOVER PROVISIONS OF ABC'S ARTICLES OF INCORPORATION
ABC's Articles of Incorporation were amended in 1995 to increase the number of authorized shares of Common Stock from 3,000,000 to 10,000,000 and to authorize the creation of 5,000,000 shares of "blank check" preferred stock. This amendment was approved by ABC's Board of Directors and adopted by ABC's shareholders at ABC's annual meeting held on April 18, 1995. ABC further increased the number of authorized shares of Common Stock from 10,000,000 shares to 15,000,000 shares, which increase was approved by ABC's shareholders at ABC's annual meeting held on April 16, 1996. The issuance of these shares may place ABC in a position to deter a future takeover attempt that some shareholders may favor. In the event of a proposed merger, tender offer or other attempt to gain control of ABC, it will be possible for the Board of Directors to authorize the issuance of ABC's preferred stock to impede completion of the proposed merger, tender offer or other attempt to gain control. The Board of Directors, however, did not consider the potential deterrent as a reason for establishing the number of its authorized shares.
There are 5,000,000 shares of authorized ABC preferred stock, but no such shares outstanding at this time. ABC's Articles of Incorporation give the Board the right to determine the number and terms (other than voting rights) of shares of authorized preferred stock prior to issuance thereof, without obtaining shareholder approval of such terms. The Board could thus choose to issue a series of preferred stock to impede a threatened takeover attempt or tender offer. However, ABC has no current plans to issue any shares of preferred stock. The GBCC permits a corporation's articles of incorporation to provide that its Board of Directors may determine all rights (including voting rights) of preferred stock prior to the issuance of such stock; however, ABC's Board of Directors has taken no action to date to authorize an amendment of ABC's Articles of Incorporation to permit the Board to set voting rights for the preferred stock.
TRANSFER AGENT
SunTrust Bank, Atlanta currently acts as the transfer agent for the ABC Common Stock.
CERTAIN REGULATORY CONSIDERATIONS RELATING TO ABC
GENERAL
As a bank holding company, ABC is subject to the regulation and supervision of the FRB and the DBF. The Subsidiary Banks are subject to supervision and examination by applicable state and federal banking agencies, including the FRB, FDIC and the DBF. The Subsidiary Banks are also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Subsidiary Banks. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the FRB as it attempts to control the money supply and credit availability in order to influence the economy.
The BHCA requires every bank holding company to obtain the prior approval of
the FRB before (i) it may acquire direct or indirect ownership or control of
more than 5% of the voting shares of any bank that it does not already
control; (ii) it or any of its subsidiaries, other than a bank, may acquire
all or substantially all of the assets of a bank; and (iii) it may merge or
consolidate with any other bank holding company. In addition, a bank holding
company is generally prohibited from engaging in, or acquiring, direct or
indirect control of the voting shares of any company engaged in non-banking
activities. This prohibition does not apply to activities found by the FRB, by
order or regulation, to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of the activities
that the FRB has determined by regulation or order to be closely related to
banking are: (i) making or servicing loans and certain types of leases; (ii)
performing certain data processing services; (iii) acting as fiduciary or
investment or financial advisor; (iv) providing discount brokerage services;
(v) underwriting bank eligible securities; (vi) underwriting debt and equity
securities on a limited basis through separately capitalized subsidiaries; and
(vii) making investments in corporations or projects designed primarily to
promote community welfare.
In addition, the DBF requires information with respect to the financial condition, operations, management and intercompany relationships of ABC and the Subsidiary Banks and related matters. The DBF may also require such other information as is necessary to keep itself informed as to whether the provisions of Georgia law and the regulations and orders issued thereunder by the DBF have been complied with, and the DBF may examine ABC. ABC is an "affiliate" of the Subsidiary Banks under the Federal Reserve Act, which imposes certain restrictions on (i) loans by the Subsidiary Banks to ABC; (ii) investments in the stock or securities of ABC by the Subsidiary Banks; (iii) the Subsidiary Bank's taking the stock or securities of an "affiliate" as collateral for loans by the Subsidiary Banks to a borrower; and (iv) the purchase of assets from ABC by the Subsidiary Banks. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services.
PAYMENT OF DIVIDENDS AND OTHER RESTRICTIONS
ABC is a legal entity separate and distinct from its subsidiaries. There are various legal and regulatory limitations under federal and state law on the extent to which ABC's subsidiaries can pay dividends or otherwise supply funds to ABC.
The principal source of ABC's cash revenues is dividends from its subsidiaries, and there are certain limitations under federal and Georgia law on the payment of dividends by such subsidiaries. The prior approval of the FRB or the applicable state commissioner, as the case may be, is required if the total of all dividends declared by any state member bank of the Federal Reserve System in any calendar year exceeds the bank's net profits (as defined) for that year combined with its retained net profits for the preceding two calendar years, less any required transfers to surplus or a fund for the retirement of any preferred stock. The relevant federal and state regulatory agencies also have authority to prohibit a state member bank or bank holding company, which would include ABC and the Subsidiary Banks (including the Bank) from engaging in what, in the opinion of such regulatory body, constitutes an unsafe or unsound practice in conducting its business. The payment of dividends could, depending upon the financial condition of the subsidiary, be deemed to constitute such an unsafe or unsound practice.
Under Georgia law (which would apply to any payment of dividends by the Subsidiary Banks (including the Bank) to ABC), the prior approval of the Georgia Commissioner of Banking and Finance is required before any cash dividends may be paid by a state bank if (i) total classified assets at the most recent examination of such bank exceed 80% of the equity capital (as defined, which includes the reserve for loan losses) of such bank; (ii) the aggregate amount of dividends declared or anticipated to be declared in the calendar year exceeds 50% of the net profits (as defined) for the previous calendar year; or (iii) the ratio of equity capital to adjusted total assets is less than 6%.
ABC has obtained the approval of the Comissioner of Banking and Finance allowing the Subsidiary Banks to issue aggregate cash dividends of up to $4,843,000 in connection with the ABC Mergers.
In addition, the Subsidiary Banks are subject to limitations under Section 23A of the Federal Reserve Act with respect to extensions of credit to, investments in, and certain other transactions with, ABC. Furthermore, loans and extensions of credit are also subject to various collateral requirements.
CAPITAL ADEQUACY
The FRB has adopted risk-based capital guidelines for bank holding companies. The minimum ratio of total capital ("Total Capital") to risk- weighted assets (including certain off-balance sheet items, such as standby letters of credit, is 8%). At least half of the Total Capital is to be composed of common stock, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock and a limited amount of perpetual preferred stock, less goodwill ("Tier I Capital"). The remainder may consist of subordinated debt, other preferred stock and a limited amount of loan loss reserves.
In addition, the FRB has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier I Capital to total assets, less goodwill (the "Leverage Ratio") of 3% for bank holding companies that meet certain specified criteria, including those having the highest regulatory rating. All other bank holding companies generally are required to maintain a Leverage Ratio of at least 3% plus an additional cushion of 100 to 200 basis points. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the FRB has indicated that it will consider a "tangible Tier I capital leverage ratio" (deducting all intangibles) and other indicia of capital strength in evaluating proposals for expansion or new activities.
Effective December 19, 1992, a new Section 38 to the Federal Deposit Insurance Act implemented the prompt corrective action provisions that Congress enacted as a part of the Federal Deposit Insurance Corporation Improvement Act of 1991 (the "1991 Act"). The "prompt corrective action" provisions set forth five regulatory zones in which all banks are placed largely based on their capital positions. Regulators are permitted to take increasingly harsh action as a bank's financial condition declines. Regulators are also empowered to place in receivership or require the sale of a bank to another depository institution when a bank's capital leverage ratio reaches two percent. Better capitalized institutions are generally subject to less onerous regulation and supervision than banks with lesser amounts of capital.
The FDIC has adopted regulations implementing the prompt corrective action
provisions of the 1991 Act, which place financial institutions in the
following five categories based upon capitalization ratios: (i) a "well
capitalized" institution has a total risk-based capital ratio of at least 10%,
a Tier I risk-based ratio of at least 6% and a leverage ratio of at least 5%;
(ii) an "adequately capitalized" institution has a total risk-based capital
ratio of at least 8%, a Tier I risk-based ratio of at least 4% and a leverage
ratio of at least 4%; (iii) an "undercapitalized" institution has a total
risk-based capital ratio of under 8%, a Tier I risk-based ratio of under 4% or
a leverage ratio of under 4%; (iv) a "significantly undercapitalized"
institution has a total risk-based capital ratio of under 6%, a Tier I risk-
based ratio of under 3% or a leverage ratio of under 3%; and (v) a "critically
undercapitalized" institution has a leverage ratio of 2% or less. Institutions
in any of the three undercapitalized categories would be prohibited from
declaring dividends or making capital distributions. The FDIC regulations also
establish procedures for "downgrading" an institution to a lower capital
category based on supervisory factors other than capital.
The downgrading of an institution's category is automatic in two situations:
(i) whenever an otherwise well-capitalized institution is subject to any
written capital order or directive, and (ii) where an undercapitalized
institution fails to submit or implement a capital restoration plan or has its
plan disapproved. The Federal banking agencies may treat institutions in the
well-capitalized, adequately capitalized and undercapitalized categories as if
they were in the next lower capital level based on safety and soundness
considerations relating to factors other than capital levels.
All insured institutions regardless of their level of capitalization are prohibited by the Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDIC Act") from paying any dividend or making any other kind of capital distribution or paying any management fee to any controlling person if following the
payment or distribution the institution would be undercapitalized. While the prompt corrective action provisions of the FDIC Act contain no requirements or restrictions aimed specifically at adequately capitalized institutions, other provisions of the FDIC Act and the agencies' regulations relating to deposit insurance assessments, brokered deposits and interbank liabilities treat adequately capitalized institutions less favorably than those that are well- capitalized.
Under the FDIC's regulations, all of the Subsidiary Banks are "well capitalized" institutions.
SUPPORT OF SUBSIDIARY BANKS
Under the FRB policy, ABC is expected to act as a source of financial strength to, and to commit resources to support, each of the Subsidiary Banks. This support may be required at times when, absent such FRB policy, ABC may not be inclined to provide it. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
As a result of the enactment of Section 206 of the Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") on August 9, 1989, a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC after August 9, 1989 in connection with (i) the default of a commonly controlled FDIC- insured depository institution or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution "in danger of default" is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance.
FDIC INSURANCE ASSESSMENTS
The Subsidiary Banks are subject to FDIC deposit insurance assessments for the Bank Insurance Fund (the "BIF"). Since 1989, the annual FDIC deposit insurance assessments increased from $.083 per $100 of deposits to a minimum level of $.23 per $100 of deposits, an increase of 177%. The FDIC implemented a risk-based assessment system whereby banks are assessed on a sliding scale depending on their placement in nine separate supervisory categories, from $.23 per $100 of deposits for the healthiest banks (those with the highest capital, best management and best overall condition) to as much as $.31 per $100 of deposits for the less-healthy institutions, for an average $.259 per $100 of deposits.
On August 8, 1995, the FDIC lowered the BIF premium for "healthy" banks 83% from $.23 per $100 in deposits to $.04 per $100 in deposits, while retaining the $.31 level for the riskiest banks. The average assessment rate was therefore reduced from $.232 to $.044 per $100 of deposits. The new rate took effect on September 29, 1995. On November 14, 1995, the FDIC again lowered the BIF premium for "healthy" banks from $.04 per $100 of deposits to zero for the highest rated institutions (92% of the industry). As a result, the Subsidiary Banks pay only the legally required annual minimum payment of $10,000 per year for insurance as of January 1996.
RECENT LEGISLATIVE AND REGULATORY ACTION
On April 19, 1995, the four federal bank regulatory agencies adopted revisions to the regulations promulgated pursuant to the Community Reinvestment Act (the "CRA"), which are intended to set distinct assessment standards for financial institutions. The revised regulations contain three evaluation tests: (i) a lending test which will compare the institution's market share of loans in low- and moderate-income areas to its market share of loans in its entire service area and the percentage of a bank's outstanding loans to low- and moderate- income areas or individuals; (ii) a services test which will evaluate the provisions of services that promote the availability of credit to low- and moderate-income areas; and (iii) an investment test, which will evaluate an institution's record of investments in organizations designed to foster community development, small- and minority-owned businesses and affordable housing lending, including state and local government housing or revenue bonds. The regulation is designed to reduce some paperwork requirements of the current regulations and provide regulators, institutions and community groups with a more objective and predictable manner with which to evaluate the CRA performance of financial institutions. The rule became effective on January 1, 1996, at which time evaluation under streamlined procedures were scheduled to begin for institutions with assets of less than $250 million that are owned by a holding company with total assets of less than $1 billion. Until the regulators release guidelines for examiners that interpret the rules, it is unclear what effect, if any, these regulations will have on ABC and the Subsidiary Banks. Congress and various federal agencies (including, in addition to the
bank regulatory agencies, the Department of Housing and Urban Development, the Federal Trade Commission and the Department of Justice) (collectively, the "Federal Agencies") responsible for implementing the nation's fair lending laws have been increasingly concerned that prospective home buyers and other borrowers are experiencing discrimination in their efforts to obtain loans. In recent years, the Department of Justice has filed suit against financial institutions, which it determined had discriminated, seeking fines and restitution for borrowers who allegedly suffered from discriminatory practices. Most, if not all, of these suits have been settled (some for substantial sums) without a full adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to clarify what constitutes lending discrimination and specify the factors the agencies will consider in determining if lending discrimination exists, announced a joint policy statement detailing specific discriminatory practices prohibited under the Equal Opportunity Act and the Fair Housing Act. In the policy statement, three methods of proving lending discrimination were identified: (i) overt evidence of discrimination, when a lender blatantly discriminates on a prohibited basis; (ii) evidence of disparate treatment, when a lender treats applicants differently based on a prohibited factor even where there is no showing that the treatment was motivated by prejudice or a conscious intention to discriminate against a person; and (iii) evidence of disparate impact, when a lender applies a practice uniformly to all applicants, but the practice has a discriminatory effect, even where such practices are neutral on their face and are applied equally, unless the practice can be justified on the basis of business necessity.
On September 23, 1994, President Clinton signed the Reigle Community Development and Regulatory Improvement Act of 1994 (the "Regulatory Improvement Act"). The Regulatory Improvement Act contains funding for community development projects through banks and community development financial institutions and also numerous regulatory relief provisions designed to eliminate certain duplicative regulations and paperwork requirements. On September 29, 1994, President Clinton signed the Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Federal Interstate Bill") which amended federal law to permit bank holding companies to acquire existing banks in any state effective September 29, 1995, and to permit any interstate bank holding company to merge its various bank subsidiaries into a single bank with interstate branches after May 31, 1997. States have the authority to authorize interstate branching prior to June 1, 1997, or, alternatively, to opt out of interstate branching prior to that date. The Georgia Financial Institutions Code was amended in 1994 to permit the acquisition of a Georgia bank or bank holding company by out-of-state bank holding companies beginning July 1, 1995. On September 29, 1995, the interstate banking provisions of the Georgia Financial Institutions Code were superseded by the Federal Interstate Bill.
In February 1996, Georgia adopted the "Georgia Interstate Branching Act," which permits Georgia-based banks and bank holding companies owning or acquiring banks outside of Georgia and all non-Georgia banks and bank holding companies owning or acquiring banks in Georgia to merge any lawfully acquired bank into an interstate branch network. The Georgia Interstate Branching Act also allows banks to establish de novo branch banks on a limited basis beginning July 1, 1996. Beginning July 1, 1998, the number of de novo bank branches which may be established will no longer be limited.
MONETARY POLICY
The earnings of ABC are affected by domestic and foreign economic conditions, particularly by the monetary and fiscal policies of the United States government and its agencies.
The FRB has had, and will continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to mitigate recessionary and inflationary pressures by regulating the national money supply. The techniques used by the Federal Reserve Bank include setting the reserve requirements of member banks and establishing the discount rate on member bank borrowings. The FRB also conducts open market transactions in United States government securities.
FUTURE REQUIREMENTS
Statutes and regulations are regularly introduced which contain wide-ranging proposals for altering the structures, regulations and competitive relationships of the nations's financial institutions. It cannot be predicted whether or what form any proposed statute or regulation will be adopted or the extent to which the business of ABC or any of the Subsidiary Banks may be affected by such statute or regulation.
COMPARATIVE RIGHTS OF SHAREHOLDERS
Upon consummation of the Merger, First National shareholders will become ABC shareholders whose rights will be governed by the GBCC and ABC's articles of incorporation and bylaws.
The following is a summary of the material differences of the rights of First National shareholders, on the one hand, and the ABC shareholders, on the other hand. As both First National and ABC are Georgia corporations, these differences arise primarily from provisions of the articles of incorporation and bylaws of each of First National and ABC.
The following summaries do not purport to be complete statements of the rights of First National shareholders under First National's articles of incorporation and bylaws compared with the rights of the ABC shareholders under ABC's articles of incorporation and bylaws or a complete description of the specific provisions referred to herein. The identification of specific differences is not meant to indicate that other equally or more significant differences do not exist. The summaries are qualified in their entirety by reference to the GBCC and the governing corporate instruments of each of First National and ABC.
LIQUIDITY AND MARKETABILITY
ABC Common Stock. As of March 31, 1996, all of the 3,379,192 shares of ABC Common Stock then outstanding were freely tradeable except for approximately 712,190 shares held by "affiliates" of ABC, as such term is defined in Rule 144 under the 1933 Act, which shares may only be sold pursuant to an effective registration statement under the 1933 Act or in compliance with Rule 144 or another applicable exemption from the registration requirements of the 1933 Act.
First National Common Stock. First National Shares are not listed on any national securities exchange or quoted on any interdealer quotation system. There is no established market for First National Shares, and none is expected to develop.
MANAGEMENT
ABC Board of Directors. The business and affairs of ABC are managed by or under the direction of its Board of Directors. Each director is elected annually by the ABC shareholders and may be removed and replaced, with or without cause, by a majority vote of ABC shareholders at any meeting of such holders. According to ABC's bylaws, ABC's Board of Directors shall consist of ten members, provided that the number of directors may be increased or decreased upon amendment to the bylaws by the Board of Directors. ABC's Board of Directors currently consists of ten members.
First National Board of Directors. The business and affairs of First National are managed by or under the direction of its Board of Directors. The Board of Directors of First National is divided into three classes. Each class is to consist, as nearly as possible, of one-third of the total number of First National directors. At each annual meeting of First National shareholders, successors to the class of directors whose term expired as of the annual meeting are elected for a three-year term. Each may be removed and replaced with cause by a majority vote of First National's shareholders at any meeting of such holders and each director may be removed and replaced without cause by the affirmative vote of no less than two-thirds of First National shareholders at any meeting of such shareholders. According to First National's bylaws, First National's Board of Directors shall consist of not less than five and not more than 25 members. The number of First National directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders by the affirmative vote of two-thirds of the issued and outstanding First National Shares entitled to vote in the election of directors or by the Board of Directors by the affirmative vote of two- thirds of all directors then in office. First National's Board of Directors currently consists of ten members.
SPECIAL MEETINGS
ABC Common Stock. Special meetings of the ABC shareholders may be called at any time by ABC's Chairman of the Board, Vice Chairman of the Board, President, Secretary or a majority of the directors of ABC. Special meetings of the ABC shareholders also shall be called upon the written request of the holders of 50% or more of all shares of capital stock of ABC entitled to vote in an election of directors.
First National Common Stock. Special meetings of First National's shareholders may be called at any time by the President or a majority of the Board of Directors. Special meetings of First National's shareholders also shall be called upon the written request of the holders of 25% or more of all shares of capital stock of First National entitled to vote in an election of directors.
ANTI-TAKEOVER PROVISIONS
ABC. ABC's Articles of Incorporation authorize 5,000,000 shares of preferred stock and give the Board the right to determine the number and terms (other than voting rights) of authorized preferred stock prior to the issuance thereof, without obtaining shareholder approval of such terms. The Board could thus choose to issue a series of preferred stock to impede a threatened takeover attempt or tender offer.
First National. First National's Articles of Incorporation authorize 1,000,000 shares of preferred stock and give the Board the right to determine the number and terms of shares of authorized preferred stock prior to issuance thereof, without obtaining shareholder approval of such terms. The Board could thus choose to issue a series of preferred stock to impede a threatened takeover attempt or tender offer.
First National's Articles of Incorporation require that certain covered transactions with any holder of 5% or more of First National's stock (an "Interested Person") be approved by three-fourths of the entire Board of Directors or by two-thirds of the shares of each class of voting stock of First National. Covered transactions include mergers or consolidations, sales or other dispositions of all or a substantial part of the assets of First National, and the issuance or delivery of securities of First National.
First National's Articles of Incorporation require that certain business combinations with any Interested Person be approved by a majority of the shares of each class of stock not held by such Interested Person unless such transaction involves consideration per share generally equal to the highest price paid by such Interested Person in acquiring any shares of stock of that class.
Amendments to First National's Articles of Incorporation require the approval of 75% of the shares of each class of stock of First National.
DESCRIPTION OF FIRST NATIONAL FINANCIAL CORPORATION
BUSINESS
General. First National is a bank holding company organized under the laws of the State of Georgia and registered with the FRB pursuant to the BHCA. First National owns all of the outstanding common stock of the Bank, a national banking association that provides general banking services in and around Albany, Georgia. At March 31, 1996, First National, on a consolidated basis, had total assets of approximately $53.9 million, total loans of approximately $35.5 million, total deposits of approximately $47.9 million and total stockholders' equity of approximately $5.6 million. First National's net income for 1995 was $611,510 or $1.13 per share.
The Bank is a full service commercial bank, without trust powers. The Bank offers a full range of interest bearing and non-interest bearing accounts, including commercial and retail checking accounts, money market accounts, individual retirement accounts, regular interest bearing statement savings accounts, certificates of deposit, commercial loans, real estate loans, home equity loans and consumer/installment loans. In addition, the Bank provides such consumer services as U.S. Savings Bonds, travelers checks, cashier's checks, safe deposit boxes, bank by mail services, direct deposit and automatic teller services.
For additional statistical information regarding First National, see "First National Management's Discussion and Analysis of Financial Condition and Results of Operations."
Market Area and Competition. The primary service area for the Bank encompasses approximately 80 square miles in and around Albany, Georgia. In addition, the Bank services customers outside the Bank's primary service area, but within other parts of Dougherty County. Competition among financial institutions in this area is intense. There are 19 banking offices and no offices of savings and loan associations within the primary service area of the Bank. Most of these offices are branches of or are affiliated with major bank holding companies.
The Bank is in competition with existing area financial institutions other than commercial banks and savings and loan associations, including insurance companies, consumer finance companies, brokerage houses, credit unions and other business entities which have recently been invading the traditional banking markets. Due to the growth of the Albany area, it is anticipated that additional competition will continue from new entrants to the market.
Asset/Liability Management. It is the objective of the Bank to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the framework of established cash, loan investment, borrowing and capital policies. Certain of the officers of the Bank are responsible for monitoring policies and procedures that are designed to ensure acceptable composition of the asset/liability mix, stability and leverage of all sources of funds while adhering to prudent banking practices. It is the overall philosophy of management to support asset growth primarily through growth of core deposits, which include deposits of all categories made by individuals, partnerships and corporations. Management of the Bank seeks to invest the largest portion of the Bank's assets in commercial, consumer and real estate loans.
The Bank's asset/liability mix is monitored on a daily basis. A monthly report reflecting interest-sensitive assets and interest-sensitive liabilities is prepared and presented to the Loan Investment Committee of the Bank's Board of Directors. The objective of this policy is to control interest-sensitive assets and liabilities so as to minimize the impact of substantial movements in interest rates on the Bank's earnings.
Correspondent Banking. Correspondent banking involves the providing of services by one bank to another bank which cannot provide that service for itself from an economic or practical standpoint. The Bank is required to purchase correspondent services offered by larger banks, including check collections, purchase of Federal Funds, security safekeeping, investment services, coin and currency supplies, overline and liquidity loan participations and sales of loans to or participations with correspondent banks.
The Bank may sell loan participations to correspondent banks with respect to loans which exceed the Bank's lending limit. As of December 31, 1995, eight loans with an aggregate principal balance of $2,424,000 were sold to other banks.
Data Processing. The Bank has a data processing servicing agreement with Bisys, Inc. This servicing agreement provides for the Bank to receive a full range of data processing services including an automated general ledger, deposit accounting, commercial, real estate and installment lending data processing, payroll, central information file ("CIF") and ATM processing. The data processing servicing agreement provides for the Bank to pay a monthly fee based on the type, kind and volume of data processing services provided, priced at a stipulated rate schedule.
EMPLOYEES
As of March 31, 1996, the Bank employed 22 full time and two part time persons, including nine officers. The Bank will hire additional persons as needed, including additional tellers and financial service representatives. First National has no salaried employees, although certain executive officers of the Bank hold parallel positions with First National. Management of the Bank believes that its employee relations are good. There are no collective bargaining agreements covering any of the Bank's employees.
PROPERTIES
First National operates out of a one-story commercial facility (approximately 8,750 square feet), located on the corner of Dawson Road and Westover Boulevard in Albany, Georgia, which facility houses the Bank's main office. The facility consists of a retail banking floor with six teller stations and four offices, and has a conference room, a vault, a night depository, an automatic teller machine and five drive-in windows.
LITIGATION
There are no material pending legal proceedings to which First National or the Bank is a party or of which any of their properties are subject; nor are there material proceedings known to First National to be contemplated by any governmental authority; nor are there material proceedings known to First National, pending or contemplated, in which any director, officer or affiliate or any principal security holder of First National, or any associate of any of the foregoing is a party or has an interest adverse to First National or the Bank.
MANAGEMENT
First National's directors and executive officers are as follows:
NAME POSITION WITH FIRST NATIONAL
---- ----------------------------
Willie Adams, Jr., M.D. ............. Class III Director
David J. Baranko..................... Treasurer and Chief Financial Officer
Robert V. Barkley.................... Class I Director
John L. Gay.......................... Class I Director
Waddell M. Hagins, Jr. .............. Class III Director
John M. Hemphill..................... Sr. Vice President (Bank)
Charles Alexander Kemp............... Class II Director
Glenn A. Kirbo....................... Secretary and Class I Director
W. Thomas Mitcham.................... Class III Director
R. Douglas Oliver.................... Class II Director
Raymond B. Phillips.................. Chairman of the Board, President, Chief
Executive Officer and Class II Director
W. Paul Wallace, Jr. ................ Class III Director
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Each of the above directors has served on the Board of Directors of First National since August 1989. First National has a classified Board of Directors, whereby one-third of the members are elected each year at First National's annual meeting of shareholders. Upon such election, each director of First National will serve for a term of three years. First National's officers are appointed by its Board of Directors and hold office at the will of the Board.
Willie Adams, Jr., M.D., age 55, has been a medical doctor, engaged in the practice of medicine in Albany, Georgia, since 1973. Dr. Adams serves as a director of Magazine Mutual Insurance Company.
David J. Baranko, age 40, is a certified public accountant and has served as Treasurer and Chief Financial Officer of First National and Vice President/Cashier of the Bank since April 1995. Prior to his employment by First National, Mr. Baranko served as Assistant Controller and Assistant Cashier with First State Bank & Trust of Albany, Georgia from 1987 to 1995.
Robert V. Barkley, age 50, is currently engaged in real estate development in Albany, Georgia. Prior to 1990, Mr. Barkley was President of Holman Motor Company d/b/a Toyota Albany for approximately 10 years. From 1973 to 1988, Mr. Barkley served as President of Bob Barkley Toyota, Inc. in Albany, Georgia.
John L. Gay, age 69, has been the owner and President of Gay Plumbing and Heating, Inc., a mechanical contracting firm, since 1954, and the owner and President of John L. Gay & Associates, Inc., a general contracting firm, since 1969. In addition, Mr. Gay served on the Board of Directors of Trust Company Bank of South Georgia, N.A. from 1970 to 1989.
Waddell M. Hagins, Jr., age 60, has served as Secretary and a director of Belk of Albany, Dawson and Americus, Georgia, a department store, since 1957 and as its Executive Vice President since 1983. In addition, Mr. Hagins has served as General Manager of Belk of Albany since 1968.
John M. Hemphill, age 45, has served as Senior Vice President of the Bank since May 1991. Mr. Hemphill also serves as Assistant Secretary of First National. From January 1991 to May 1991, Mr. Hemphill served as Senior Lending Consultant for Bank of Dodge County. From 1987 to 1990, he served as Vice President of First Federal Savings and Loan, Griffin, Georgia.
Charles Alexander Kemp, age 47, has been the owner and Chief Executive Officer of Health Systems Management, Inc., an administrative office for kidney dialysis clinics, since 1983. In addition, Mr. Kemp has been the owner, President and Chief Executive Officer of six dialysis clinics in Georgia, North Carolina and South Carolina over the past ten years. Mr. Kemp is also a director of South Georgia Banking Company of Omega, Georgia.
Glenn A. Kirbo, age 48, has served as Secretary of First National since August 1989 and served as Treasurer of First National from August 1989 to October 1990. In addition, he is an attorney-at-law who has been practicing law in Albany, Georgia since 1978.
W. Thomas Mitcham, age 53, has been a dentist, engaged in private practice in Albany, Georgia, since 1975.
R. Douglas Oliver, age 57, has served as President and Chief Executive Officer of SGA Associates, Inc., a communications company, since 1993. From 1963 to 1993, Mr. Oliver served as Sales Manager and General Manager of WALB- TV, an Albany, Georgia television station.
Raymond B. Phillips, age 69, has served as President and Chief Executive Officer of First National since August 1989 and of the Bank since November 1989. Mr. Phillips has also served as Chairman of the Board of the Bank since December 1989 and of First National since July 1991. He has been engaged in the organization of First National and the Bank since March 1989. From 1969 to February 1988, Mr. Phillips served as Chief Executive Officer and President of Trust Company Bank of South Georgia, N.A. In addition, he served as Chairman of the Board of Trust Company Bank of South Georgia, N.A. from 1975 to February 1988.
W. Paul Wallace, Jr., age 51, has served in various capacities with Wallace Chevrolet, Inc. since 1978, and currently serves as its President.
There are no family relationships between any director or executive officer and any other director or executive officer of First National.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of April 30, 1996 with respect to ownership of the outstanding First National Shares by (i) all persons known to First National to own beneficially more than 5% of the outstanding First National Shares, (ii) each director and executive officer of First National, and (iii) all executive officers and directors of First National as a group.
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL OUTSTANDING
BENEFICIAL OWNER OWNERSHIP(1) SHARES
---------------- ------------ -----------
Willie Adams, Jr., M.D.(2)........................... 20,000 4.0%
Robert V. Barkley(2)................................. 23,200 4.6%
John L. Gay(3)....................................... 30,000 5.9%
Waddell M. Hagins, Jr.(4)............................ 20,600 4.1%
Charles Alexander Kemp(5)............................ 25,000 4.9%
Glenn A. Kirbo(6).................................... 38,300 7.5%
W. Thomas Mitcham(7)................................. 30,000 5.9%
R. Douglas Oliver(2)................................. 20,000 4.0%
Raymond B. Phillips(8)............................... 56,370 10.4%
W. Paul Wallace, Jr.(2).............................. 20,000 4.0%
All Executive Officers and Directors as a Group (12
persons)............................................ 290,970 44.3%
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CERTAIN REGULATORY CONSIDERATIONS RELATING TO FIRST NATIONAL
General. The regulatory considerations described under the caption "CERTAIN REGULATORY CONSIDERATIONS RELATING TO ABC" apply equally to First National and the Bank.
Regulation by the Comptroller of the Currency. As a national bank, the Bank is subject to the supervision of the Comptroller of the Currency (the "Comptroller") and, to a limited extent, the FDIC and the FRB.
Loans and extensions of credit by national banks are subject to legal lending limitations. Under federal law, a national bank may grant unsecured loans and extensions of credit in an amount up to 15% of its unimpaired capital and surplus to any person. In addition, a national bank may grant loans and extensions of credit to a single person in an amount up to 10% of its unimpaired capital and surplus, provided that the transactions are fully secured by readily marketable collateral having a market value determined by reliable and continuously available price quotations. This 10% limitation is separate from, and in addition to, the 15% limitation for unsecured loans. Loans and extensions of credit may exceed the general lending limit if they qualify under one of several exceptions. Such exceptions include certain loans or extensions of credit arising from the discount of commercial or business paper, the purchase of bankers' acceptances, loans secured by documents of title, loans secured by U.S. obligations, and loans to or guaranteed by the federal government.
Both First National and the Bank are subject to regulatory capital requirements imposed by the FRB and the Comptroller. In 1989, both the FRB and the Comptroller issued new risk-based capital guidelines for bank holding companies and banks which make regulatory capital requirements more sensitive to differences in risk profiles of various banking organizations. The capital adequacy guidelines issued by the FRB are applied to bank holding companies on a consolidated basis with the banks owned by the holding company. The Comptroller's risk capital guidelines apply directly to national banks regardless of whether they are a subsidiary of a bank holding company. Both agencies' requirements (which are substantially similar), provide that banking organizations must have capital equivalent to 8% of weighted risk assets. The risk weights assigned to assets are based primarily on credit risks. Depending upon the riskiness of a particular asset, it is assigned to a risk category. For example, securities with an unconditional guarantee by the United States government are assigned to the lowest risk category. A risk weight of 50% is assigned to loans secured by owner-occupied one to four family residential mortgages. The aggregate amount of assets assigned to each risk category is multiplied by the risk weight assigned to that category to determine the weighted values, which are added together to determine total risk-weighted assets. At December 31, 1995, First National's total risk-based capital and tier-one ratios were 16.8% and 15.6%, respectively. Both the FRB and the Comptroller have also implemented new minimum capital leverage ratios to be used in tandem with the risk-based guidelines in assessing the overall capital adequacy of banks and bank holding companies. Under these rules, banking institutions are required to maintain a ratio of 3% "Tier 1" capital to total assets (net of goodwill). Tier 1 capital includes common stockholders equity, noncumulative perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries.
Both the risk-based capital guidelines and the leverage ratio are minimum requirements, applicable only to top-rated banking institutions. Institutions operating at or near these levels are expected to have well-diversified risk, excellent asset quality, high liquidity, good earnings and in general, have to be considered strong banking organizations, rated composite 1 under the CAMEL rating system for banks or the BOPEC rating system for bank holding companies. Institutions with lower ratings and institutions with high levels of risk or experiencing or anticipating significant growth are expected to maintain ratios 100 to 200 basis points above the stated minimums.
The Comptroller recently amended the risk-based capital guidelines applicable to national banks in an effort to clarify certain questions of interpretation and implementation, specifically with regard to the treatment of purchased mortgage servicing rights ("PMSRs") and other intangible assets. The Comptroller's guidelines provide that intangible assets are generally deducted from Tier 1 capital in calculating a bank's risk-based capital ratio. However, certain intangible assets which meet specified criteria ("qualifying intangibles") such as PMSRs
are retained as a part of Tier 1 capital. The Comptroller currently maintains that only PMSRs and purchased credit card relationships meet the criteria to be considered qualifying intangibles. The Comptroller's guidelines formerly provided that the amount of such qualifying intangibles that may be included in Tier 1 capital was strictly limited to a maximum of 25% of total Tier 1 capital. The Comptroller has amended its guidelines to increase the limitation of such qualifying intangibles from 25% to 50% of Tier 1 capital and further to permit the inclusion of purchased credit card relationships as a qualifying intangible asset.
In addition, the Comptroller has adopted rules which clarify treatment of asset sales with recourse not reported on a bank's balance sheet. Among assets affected are mortgages sold with recourse under Fannie Mae, Freddie Mac and Farmer Mac programs. The rules clarify that even though those transactions are treated as asset sales for bank Call Report purposes, those assets will still be subject to a capital charge under the risk-based capital guidelines.
The Comptroller, the FRB and the FDIC recently adopted final regulations revising their risk-based capital guidelines to further ensure that the guidelines take adequate account of interest rate risk. Interest rate risk is the adverse effect that changes in market interest rates may have on a bank's financial condition and is inherent to the business of banking. Under the new regulations, when evaluating a bank's capital adequacy, the agencies capital standards now explicitly include a bank's exposure to declines in the economic value of its capital due to changes in interest rates. The exposure of a bank's economic value generally represents the change in the present value of its assets, less the change in the value of its liabilities, plus the change in the value of its interest rate off-balance sheet contracts. Concurrently, the banking agencies have proposed a measurement process to identify bank's that have high interest rate risk exposures. Under the proposed measurement process, the agencies would employ a supervisory model that focuses on the sensitivity of a bank's economic value to changes in interest rate risk as well as various other quantitative factors to determine the adequacy of an individual bank's capital for interest rate risk. After gaining experience with the proposed supervisory measurement and assessment process, the agencies intend to propose further regulations to establish an explicit risk-based capital charge for interest rate risk.
As a national bank, the Bank is subject to examination and review by the Comptroller. This examination is typically completed on-site at least annually and is subject to off-site review as well. The Bank submits to the Comptroller quarterly reports of condition, as well as such additional reports as may be required by the national banking laws.
The scope of regulation and permissible activities of First National and the Bank is subject to change by future federal and state legislation.
FIRST NATIONAL MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
First National's principal asset is its ownership of the Bank. Accordingly, First National's results of operations are primarily dependent upon the results of operations of the Bank. The Bank conducts a commercial banking business which consists of attracting deposits from the general public and applying those funds to the origination of commercial, consumer and real estate loans (including commercial loans collateralized by real estate). The Bank's profitability depends primarily on net interest income, which is the difference between interest income generated from interest-earning assets (i.e., loans and investments) less the interest expense incurred on interest- bearing liabilities (i.e., customer deposits and borrowed funds). Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities, and the interest rate paid and earned on these balances. Net interest income is dependent upon the Bank's interest rate spread, which is the difference between the average yield earned on its interest-earning assets and the average rate paid on its interest-bearing liabilities. When interest-earning assets approximate or exceed interest- bearing liabilities, any
positive interest rate spread will generate interest income. The interest rate spread is impacted by interest rates, deposit flows and loan demand. Additionally, and to a lesser extent, the Bank's profitability is affected by such factors as the level of non-interest income and expenses, the provision for loan losses and the effective tax rate. Non-interest income consists primarily of loan and other fees and income from the sale of loans and investment securities. Non-interest expenses consist of compensation and benefits, occupancy-related expenses, regulatory assessments and other operating expenses.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 1996
Interest income for the three months ended March 31, 1996, was $1.07 million as compared to the 1995 amount of $938,000. This is an increase of $134,000. The primary source of additional income was interest and fees on loans. This category increased $110,000 to $866,000. The increased loan income in 1996 is the result of the larger volume of outstanding loans. Also, interest on federal funds sold increased in 1996 as a result of higher balances. Interest on this category was $46,000 as compared to the 1995 amount of $3,000. Interest expense for the first quarter of 1996 was $538,548 up from the 1995 level of $392,976. This increase is the result of a higher balance in the interest bearing accounts in 1996 over the 1995 amount. Overall, net interest income in the first quarter of 1996 was $532,739, down from the 1995 amount of $544,649. This is a decrease of $11,910 or 2.75%. This decrease is a reflection of the continuing trend in the banking industry as it must pay higher rates to attract deposits and is unable to charge higher rates to its borrowers.
During the first quarter of 1996, the provision for loan losses was $50,000 or twice the 1995 amount. The provision for loan losses represents the amount of expense management has allocated to the current period to provide for future possible loan losses. At March 31, 1996, the allowance for loan losses was $475,000 or 1.34% of gross loans. The increased expense in 1996 is a result of a larger loan portfolio and hence a larger provision is required. Management considers the current allowance to be adequate to absorb possible future losses; however, there can be no assurance that future charge-offs or changes in local economic conditions will not require additional provisions.
The decrease in net interest income and the additional expense for the provision for loan losses was more than offset by an increase in other income. Total non-interest income increased in 1996 to $123,000 from the 1995 amount of $85,000. This increase is due to increased charges on deposit accounts. This category increased almost $30,000 or 42% to $100,912. This increase is the result of a larger deposit base and is not the result of an overall increase in the prices of the actual fees charged to individual customers.
Non-interest expense for the first quarter of 1996 was $397,327 as compared to the 1995 amount of $390,705. This is a $6,600 increase or 1.69%. The only major area of increase was salaries and employee benefits. This category increased $11,000 to $213,000 from the 1995 amount of $202,000. This increase was offset in part by decreases in other expense categories.
Overall, net income for the first quarter of 1996 remained nearly unchanged from the 1995 level. First quarter earnings were $132,877 in 1996 as compared to the 1995 amount of $132,860. Earnings per share were $0.25 in 1996 and in 1995.
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1995 AND 1994
First National's results of operations are determined by its ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest expense. Since interest rates are determined by market forces and economic conditions beyond the control of First National, the ability to generate net interest income is dependent upon the Bank's ability to obtain an adequate spread between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities. Thus, the key performance measure for net interest income is the interest margin or net yield, which is taxable- equivalent net interest income divided by average earning assets.
The primary component of consolidated earnings is net interest income, or the difference between interest income on interest-earning assets and interest paid on interest-bearing liabilities. The net interest margin is net interest income expressed as a percentage of average interest-earning assets. Interest- earning assets consist of loans, investment securities and Federal funds sold. Interest-bearing liabilities consist of deposits, of which approximately 16% are noninterest-bearing, and borrowed funds.
For the years ended December 31, 1995 and 1994, net income amounted to $611,510 and $315,732 respectively. For 1995, primary and fully diluted income per share of common stock were $1.13 and $1.12, respectively, while income per share for 1994 was $.57. Note that during 1995 and 1994, the outstanding warrants and stock options were dilutive (i.e., upon exercise, they diluted earnings per share by more than 3%), thus necessitating the disclosure of primary and fully diluted income per share. Net income in 1995 increased by $295,778 primarily due to the following reasons:
(a) Average earning assets have increased from $41.0 million at December 31, 1994 to $45.3 million at December 31, 1995, representing an increase of $4.3 million, or 10.5%. Below are the various components of earning assets for the periods indicated:
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
Federal funds sold................................. $ 1,615 $ 1,284
Taxable securities................................. 11,531 13,429
Net loans.......................................... 32,166 26,272
----------- -----------
Total earning assets............................. $45,312 $40,985
=========== ===========
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(b) As a consequence of the increase in earning assets, the net interest income also increased from $1,723,539 for the year ended December 31, 1994 to $2,152,367 for the year ended December 31, 1995. Additionally, the net yield on earning assets has increased from 4.21% for the year ended December 31, 1994 to 4.75% for the year ended December 31, 1995. Below are the various components of interest income and expense, as well as their yield/costs for the periods indicated:
YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1994
-------------------- --------------------
INTEREST YIELD INTEREST YIELD
INCOME/EXPENSE COST INCOME/EXPENSE COST
-------------- ----- -------------- -----
Interest income:
Federal funds sold.......... $ 96,795 5.94% $ 49,812 3.89%
Taxable securities.......... 643,605 5.58 667,158 4.97
Loans....................... 3,304,721 10.27 2,444,673 9.31
---------- ----------
Total..................... $4,045,121 8.93 $3,161,643 7.72
========== ==========
Interest expense:
NOW and money market depos-
its........................ $ 250,184 3.08% $ 209,164 2.65
Savings Deposits............ 72,819 2.91 79,666 2.88
Time Deposits............... 1,512,865 5.67 1,148,280 4.68
Borrowings.................. 56,886 6.15 994 5.88
---------- ----------
Total..................... $1,892,754 4.95 $1,438,104 4.09
========== ==========
Net interest income........... $2,152,367 $1,723,539
========== ==========
Net yield on earning assets... 4.75% 4.21%
===== ====
|
First National's net interest income for 1995 was $2,152,367 as compared to $1,723,539 for 1994. Average yields on earning assets were 8.93% and 7.72% for the years ended December 31, 1995 and 1994, respectively. The average costs of funds for 1995 increased to 4.95% from the 1994 cost of 4.09%. The net interest yield is computed by subtracting interest expense from interest income and dividing the resulting figure by average interest-earning assets. Net interest yields for the years ended December 31, 1995 and 1994 amounted to 4.75% and 4.21%, respectively. The increase in net interest yield is primarily due to the fact that the yield on earning assets grew at a faster rate than the growth in interest expense. Net interest income for 1995 as compared to 1994, increased by $428,828. The increase is due to two factors: (i) the growth in average earning assets from $41.0 million in 1994 to $45.3 million in 1995; and (ii) a growth rate on the yield on earning assets which was greater than the growth rate of deposits and other borrowings.
For the year ended December 31, 1995, the allowance for loan losses declined from $452,470 to $433,743. The allowance for loan losses as a percent of gross loans declined from 1.55% at December 31, 1994 to 1.30% at December 31, 1995. The reason for the decline in the allowance for loan losses is attributed to the fact that the net charge-off of $203,727 exceeded the $185,000 provision for the calendar year 1995. As of December 31, 1995, management considers the allowance for loan losses to be adequate to absorb possible future losses. However, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional provisions to the allowance will not be required.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL
The following is a presentation of the average consolidated balance sheet of First National for the years ended December 31, 1995 and 1994. This presentation includes all major categories of interest-earning assets and interest-bearing liabilities.
AVERAGE CONSOLIDATED ASSETS
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
Cash and due from banks........................... $ 1,561 $ 1,347
----------- -----------
Taxable securities................................ 11,531 13,429
Federal funds sold................................ 1,615 1,284
Net loans......................................... 32,166 26,272
----------- -----------
Total earning assets............................ 45,312 40,985
----------- -----------
Other assets...................................... 2,173 2,240
----------- -----------
Total assets.................................... $ 49,046 $ 44,572
=========== ===========
|
AVERAGE CONSOLIDATED LIABILITIES AND SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
Non interest-bearing deposits.................... $ 5,469 $ 4,538
NOW and money market deposits.................... 8,108 7,887
Savings deposits................................. 2,511 2,775
Time deposits.................................... 26,695 24,523
Borrowings and federal funds purchased........... 927 17
Other liabilities................................ 342 387
----------- -----------
Total liabilities.............................. 44,052 40,127
----------- -----------
Common stock..................................... 2,457 2,437
Paid-in-capital.................................. 2,373 2,351
Retained earnings (deficit)...................... 370 (149)
Unrealized (loss) on securities.................. (206) (194)
----------- -----------
Total shareholders' equity..................... 4,994 4,445
----------- -----------
Total liabilities and shareholders' equity....... $ 49,046 $ 44,572
=========== ===========
|
The following is an analysis of the net interest earnings of First National for the year ended December 31, 1995, with respect to each major category of interest-earning asset and each major category of interest-bearing liability.
YEAR ENDED DECEMBER 31, 1995
-------------------------------
AVERAGE INTEREST AVERAGE
ASSETS AMOUNT EARNED YIELD
------ ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
Taxable securities(1)..................... $ 11,531 $ 644 5.58%
Federal funds sold........................ 1,615 96 5.94
Net loans(1)(2)........................... 32,166 3,305 10.27
---------- ---------
Total earning assets.................... $ 45,312 $ 4,045 8.93
========== =========
|
YEAR ENDED DECEMBER 31, 1995
-------------------------------
ASSETS AVERAGE INTEREST AVERAGE
LIABILITIES-- AMOUNT EARNED YIELD
------------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
NOW and money market deposits............ $ 8,108 $ 250 3.08%
Savings deposits......................... 2,511 73 2.91
Time deposits............................ 26,695 1,513 5.67
Borrowings and federal funds purchased... 927 57 6.15
---------- ---------
Total interest-bearing liabilities....... $ 38,241 $ 1,893 4.95
========== =========
|
Net interest earnings totalled $2,152,367 during the year ended December 31, 1995, for a net yield on interest-earning assets of 4.75%.
The following is an analysis of the net interest earnings of the Company for the year ended December 31, 1994, with respect to each major category of interest-earning asset and each major category of interest-bearing liability.
YEAR ENDED DECEMBER 31, 1994
----------------------------------------
AVERAGE INTEREST AVERAGE
AMOUNT EARNED YIELD
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Taxable securities............. $ 13,429(3) $ 667 $ 4.97%
Federal funds sold............. 1,284 50 3.89
Net loans...................... 26,272(1)(3) 2,445(2) 9.31
---------- ---------
Total earning assets......... $ 40,985 $ 3,162 7.72
========== =========
LIABILITIES
NOW and money market deposits.. $ 7,887 $ 209 2.65%
Savings deposits............... 2,775 80 2.88
Time deposits.................. 24,523 1,148 4.68
Borrowings..................... 17 1 5.88
---------- ---------
Total interest-bearing lia-
bilities.................... $ 35,202 $ 1,438 4.09
========== =========
|
Net interest earnings totalled $1,723,539 during the year ended December 31, 1994, for a net yield on interest-earning assets of 4.21%.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The following table shows the effect on interest income, interest expense and net interest income due to changes in average balances and rates for the years indicated. The effect of a change in average balance has been determined by multiplying the average rate in the earlier period by the difference in average balances between both time periods. The change in interest due to volume and rate has been allocated in proportion to the relationship of the absolute dollar amounts of the change in each.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 VS. 1994 1994 VS. 1993
--------------------------- ----------------------------
CHANGES DUE TO CHANGES DUE TO
---------------- ----------------
INCREASE INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
-------- ------ ---------- -------- ------- ----------
(DOLLARS IN THOUSANDS)
Interest earned on:
Taxable securities.... $ (180) $ 157 $(23) $ 218 $ (23) $195
Federal funds sold.... 15 31 46 81 51 (30)
Net loans............. 589 271 860 395 91 486
------- ------ ---- ------- ------- ----
Total interest in-
come............... 424 459 883 532 119 651
------- ------ ---- ------- ------- ----
Interest paid on:
NOW and money market
deposits............. 6 35 41 27 -- 27
Savings deposits...... (8) 1 (7) 17 (1) 16
Time deposits......... 108 257 35 235 (18) 217
Borrowings and federal
funds purchased...... 55 1 56 1 -- 1
------- ------ ---- ------- ------- ----
Total interest ex-
pense.............. 161 294 455 280 (19) 261
------- ------ ---- ------- ------- ----
Change in net interest
income................. $ 263 $ 165 $428 $ 252 $ 138 $390
======= ====== ==== ======= ======= ====
|
NONINTEREST INCOME
Noninterest income for the years ended December 31, 1995 and 1994, amounted to $523,482 and $354,835, respectively. As a percentage of average assets, noninterest income increased from .80% in 1994 to 1.07% in 1995. This increase is primarily due to gains from the sale of the guaranteed portion of SBA loans. Noninterest income as a percentage of average total assets for 1995 and 1994 amounted to 1.07% and .80%, respectively. These improved results are due primarily to fees earned on the sale of SBA loans.
The following table summarizes the major components of noninterest income for the periods therein indicated:
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
Service fees on deposit accounts................. $ 346 $ 271
(Loss) on sale of securities..................... (6) --
SBA fees and premiums............................ 117 --
Miscellaneous, other............................. 66 84
----------- -----------
Total noninterest income....................... $ 523 $ 355
=========== ===========
|
NONINTEREST EXPENSE
Noninterest expense increased from $1,419,642 during 1994 to $1,572,720 in 1995. As a percent of total average assets, noninterest expense has increased from 3.19% in 1994 to 3.21% in 1995. Below are the components of noninterest expense for the years 1995 and 1994.
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
Salaries and other personnel benefits............. $ 830 $ 715
Data processing charges........................... 72 85
Depreciation, amortization........................ 138 133
Regulatory assessment............................. 48 86
Legal and professional............................ 63 54
Other expenses.................................... 421 346
----------- -----------
Total noninterest expense....................... $ 1,572 $ 1,419
=========== ===========
|
ASSET/LIABILITY MANAGEMENT
It is the objective of the Bank to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the framework of established cash, loan investment, borrowing and capital policies. Certain of the officers of the Bank are responsible for monitoring policies and procedures that are designed to ensure acceptable composition of the asset/liability mix, stability and leverage of all sources of funds while adhering to prudent banking practices. It is the overall philosophy of management to support asset growth primarily through growth of core deposits, which include deposits of all categories made by individuals, partnerships and corporations. Management of the Bank seeks to invest the largest portion of the Bank's assets in commercial, consumer and real estate loans.
The Bank's asset/liability mix is monitored on a daily basis. A monthly report reflecting interest-sensitive assets and interest-sensitive liabilities is prepared and presented to the Loan Investment Committee of the Bank's Board of Directors. The objective of this policy is to control interest-sensitive assets and liabilities so as to minimize the impact of substantial movements in interest rates on the Bank's earnings.
Net interest income, First National's primary source of earnings, fluctuates with significant interest rate movements. To lessen the impact of these margin swings, the balance sheet should be structured so that repricing opportunities exist for both assets and liabilities in roughly equivalent amounts at approximately the same time intervals. Imbalances in these repricing opportunities at any point in time constitute interest rate sensitivity.
Interest rate sensitivity refers to the responsiveness of interest-bearing assets and liabilities to changes in market interest rates. The rate sensitive position, or gap, is the difference in the volume of rate sensitive assets and liabilities, at a given time interval. The general objective of gap management is to manage actively rate sensitive assets and liabilities so as to reduce the impact of interest rate fluctuations on the net interest margin. Management generally attempts to maintain a balance between rate sensitive assets and liabilities as the exposure period is lengthened to minimize First National's overall interest rate risks.
The asset mix of the balance sheet is continually evaluated in terms of several variables: yield, credit quality, appropriate funding sources and liquidity. To effectively manage the liability mix of the balance sheet focuses on expanding the various funding sources. The interest rate sensitivity position at year-end 1995 is presented below. Since all interest rates and yield do not adjust at the same velocity, the gap is only a general indicator of rate sensitivity.
AT DECEMBER 31, 1995
MATURING OR REPRICING WITHIN
--------------------------------------------------------------------
ZERO TO THREE THREE MONTHS ONE TO FIVE SIX MONTHS OVER FIVE
MONTHS TO ONE YEAR YEARS TO ONE YEAR YEARS TOTAL
------------- ------------ ----------- ----------- --------- -------
(DOLLARS IN THOUSANDS)
Earning assets:
Loans................. $10,921 $ 2,320 $ 2,633 $17,029 $ 500 $33,403
US Government and
agency securities.... 783 -- 1,968 8,317 332 11,400
Federal funds sold.... 4,450 -- -- -- -- 4,450
------- ------- -------- ------- ------ -------
Total earning as-
sets............... $16,154 $ 2,320 $ 4,601 $25,346 $ 832 $49,253
======= ======= ======== ======= ====== =======
Supporting sources of
funds:
Borrowings (FHLB ad-
vance)............... $ -- $ -- $ 1,000 $ -- $ -- $ 1,000
Interest-bearing
demand deposits and
savings.............. 10,728 -- -- -- -- 10,728
Certificates less than
$100,000............. 3,882 4,124 8,465 5,688 37 22,196
Certificates $100,000
and over............. 1,546 905 2,658 1,351 -- 6,460
------- ------- -------- ------- ------ -------
Total interest-
bearing
liabilities........ $16,156 $ 5,029 $ 12,123 $ 7,039 $ 37 $40,384
======= ======= ======== ======= ====== =======
Interest rate
sensitivity gap........ (2) (2,709) (7,522) 18,307 795 8,869
Cumulative interest rate
sensitivity gap........ (2) (2,711) (10,233) 8,074 8,869 8,869
Interest rate
sensitivity gap ratio.. 1.0 .46 .38 3.60 22.49 1.22
Cumulative interest rate
sensitivity gap ratio.. 1.0 .87 .69 1.20 1.22 1.22
|
As evidenced by the table above, First National is liability sensitive from zero to one year and asset sensitive thereafter. In a declining interest rate environment, a liability sensitive position (a gap ratio of less than 1.0) is generally more advantageous since liabilities are repriced sooner than assets. Conversely, in a rising interest rate environment, an asset sensitive position (a gap ratio over 1.0) is generally more advantageous, as earning assets are repriced sooner than liabilities. With respect to First National, an increase in interest rate will result in lower earnings for the first year and higher earnings thereafter. Conversely, a decline in interest rate will increase income for the first year and reduce it for the period after one year. This, however, assumes that all other factors affecting income remain constant.
As First National continues to grow, management will continuously structure its rate sensitivity position to best hedge against rapidly rising or falling interest rates. The Bank's Asset/Liability Committee meets on a quarterly basis and develops management's strategy for the upcoming period. Such strategy includes anticipations of future interest rate movements. Interest rate risk will, nonetheless, fall within previously adopted policy parameters to contain any risk.
MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The following is an analysis of maturities of loans as of December 31, 1995.
DECEMBER 31, 1995
--------------------------------------
DUE IN DUE IN
ONE YEAR ONE TO DUE AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
Commercial, financial and agricultur-
al.................................... $ 8,434 $1,700 $1,379 $11,513
Real estate--construction.............. 1,992 -- -- 1,992
------- ------ ------ -------
Total................................ $10,426 $1,700 $1,379 $13,505
======= ====== ====== =======
|
In First National's experience, some receivables will be paid prior to contractual maturity and others will be converted, extended or renewed. Therefore, the tabulation of contractual payments should not be regarded as a forecast of future cash collections.
The following is an analysis of sensitivities of loans to changes in interest rates as of December 31, 1995. The figures exclude installment and other personal loans.
DECEMBER 31, 1995
--------------------------------------
DUE IN DUE IN
ONE YEAR ONE TO DUE AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
Fixed rate loans......................... $ 5,389 $1,344 $ -- $ 6,733
Variable rate loans...................... 5,037 356 1,379 6,772
------- ------ ------ -------
Total.................................. $10,426 $1,700 $1,379 $13,505
======= ====== ====== =======
|
LOAN PORTFOLIO
The Bank engages in a full complement of lending activities, including commercial, consumer/installment and real estate loans.
Commercial lending is directed principally towards businesses whose demands for funds fall within the Bank's legal lending limits and which are potential deposit customers of the Bank. These loans include loans obtained for a variety of business purposes, and are made to individual, partnership, or corporate borrowers. The Bank places particular emphasis on loans to small and medium sized businesses.
The Bank's consumer loans consist primarily of installment loans to individuals for personal, family and household purposes, including automobile loans and pre-approved lines of credit to individuals. this category of loans includes lines of credit and term loans secured by second mortgages on residences for a variety of purposes, including home improvements, education and other personal expenditures.
The Bank's real estate loans consist of residential and commercial first and second mortgage loans.
The following table presents various categories of loans contained in the Bank's loan portfolio as of December 31, 1995 and 1994 and the total amount of all loans for such periods.
AS OF DECEMBER 31, 1995
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
Domestic:
Commercial, financial and agricultural........ $ 11,513 $ 9,829
Real estate--construction..................... 1,992 1,475
Real estate--mortgage......................... 12,016 13,031
Installment and other loans to individuals.... 7,882 4,770
----------- -----------
Subtotal.................................... 33,403 29,105
----------- -----------
Allowance for loan losses..................... (434) (452)
----------- -----------
Total (net of allowance)........................ $ 32,969 $ 28,653
=========== ===========
|
NONPERFORMING ASSETS
As of December 31, 1995, there are no loans classified for regulatory purposes as doubtful, substandard or special mention that have not been disclosed in the above table, which: (i) represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources; or (ii) represent material credits about which management possesses knowledge, causing them to doubt receipt of payment in accordance with present loan repayment terms.
At December 31, 1995, First National had three loans with aggregate balances of $658,000 for which the borrowers are experiencing financial difficulties. Although these loans are not currently overdue, they are subject to constant management attention and their classification is reviewed on a quarterly basis.
Loans are classified as non-accruing when the probability of collection of either principal or interest becomes doubtful. The balance classified as non- accruing represents the net realizable value of the account, which is the most realistic estimate of the amount First National expects to collect in final settlement. If the account balance exceeds the estimated net realizable value, the excess is written-off at the time this determination is made.
At December 31, 1995, all loans were accruing interest. with the exception of the three loans discussed above, there are no other loans which are not herein disclosed about which management possesses knowledge, causing them to doubt receipt of payment in accordance with present loan repayment terms.
The following table presents information regarding nonaccrual, past due and restructured loans as of December 31, 1995 and 1994:
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
Loans accounted for on a nonaccrual basis
Number:.......................................... 0 0
Amount:.......................................... $ -- $ --
Accruing loans which are contractually past due 90
days or more as to principal and interest
payments:
Number:.......................................... 1 0
Amount:.......................................... $ 23 $ --
Loans defined as "troubled debt restructurings":
Number:.......................................... 0 0
Amount:.......................................... $ -- $ --
|
SUMMARY OF LOAN LOSS EXPERIENCE
In considering the adequacy of First National's allowance for possible loan losses, management has focused on the fact that as of December 31, 1995 34.5% of outstanding loans are in the category of commercial and construction loans. Management generally considers commercial loans to have a greater risk than other categories of loans in First National's loan portfolio. At December 31, 1995, 75.0% of these commercial and construction loans, however, were made on a secured basis. The related collateral consists primarily of improved commercial real estate and equipment. Thus, management believes that the secured condition of the preponderant portion of its commercial loan portfolio greatly reduces any risk of loss inherently present in commercial loans.
A substantial portion of First National's consumer loan portfolio is also secured. At December 31, 1995, the majority of First National's consumer loans were secured by collateral primarily consisting of automobiles, boats and second mortgages on real estate. Management believes that these loans involve less risk than other categories of loans.
Real estate mortgage loans constitute 36.0% of outstanding loans. Management does not consider these loans to have undue credit risk because these loans are generally secured and represent commercial and residential real estate mortgages for which the Bank will lend a maximum of 80% of the collateral's appraised value.
The allowance for loan losses reflects an amount which, in management's judgment, is adequate to provide for potential loan losses. Management's determination of the proper level of the allowance for loan losses is based on an ongoing analysis of the credit quality and loss potential of the portfolio, actual loan loss experience relative to the size and characteristics of the portfolio, changes in composition and risk characteristics of the portfolio and anticipated impacts of national and regional economic policies and conditions. Senior management and the Board of Directors of the Bank review the adequacy of the allowance for loan losses on a monthly basis.
An analysis of the Bank's loss experience, including a breakdown for possible loan losses, is furnished in the following table for the years ended December 31, 1995 and 1994.
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
Balance at beginning of period................... $ 452 $ 332
----------- -----------
Charge-offs:
Commercial, financial and agricultural......... 205 --
Installment and other loans to individuals..... 15 --
----------- -----------
220 --
----------- -----------
Recoveries:
Installment and other loans to individuals..... 17 --
----------- -----------
Net charge-offs.................................. (203) --
----------- -----------
Provisions charged to operations................. 185 120
----------- -----------
Balance at end of period......................... $ 434 $ 452
=========== ===========
Ratio of allowance for loan losses to total loans
outstanding during the period................... 1.30% 1.55%
=========== ===========
Ratio of net charge offs to average loans out-
standing during the period...................... .62% -- %
=========== ===========
|
At December 31, 1995 and 1994, the allowance was allocated as follows:
DECEMBER 31,
-----------------------------------------
1995 1994
-------------------- --------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ------------- ------ -------------
(DOLLARS IN THOUSANDS)
Commercial, financial and agri-
cultural........................ $167 34.5% $158 33.8%
Real estate--construction........ 34 6.0 33 5.0
Real estate--mortgage............ 125 36.0 160 44.8
Installment and other loans to
individuals..................... 100 23.5 90 16.4
Unallocated...................... 8 N/A 11 N/A
---- ----- ---- -----
Total.......................... $434 100.0% $452 100.0%
==== ===== ==== =====
|
INVESTMENT PORTFOLIO
As of December 31, 1995, investment securities comprised approximately 21.2% of First National's assets and net loans comprised approximately 61.4% of First National's assets. The Bank invests primarily in obligations of the United States or obligations guaranteed as to principal and interest by the United States. In addition, the Bank enters into Federal Funds transactions with its principal correspondent banks, and acts as a net seller of such funds. The sale of Federal Funds amounts to a short-term loan from the Bank to other banks.
TYPES OF INVESTMENTS
The following table presents, for the periods indicated, the book value of First National's investments, reported by those available-for-sale and those held-to-maturity.
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
Available for sale:
Obligations of U.S. Treasury and other U.S. agen-
cies............................................ $ 11,068 $ 11,890
Other securities................................. 332 306
----------- -----------
Total.......................................... $ 11,400 $ 12,196
=========== ===========
Held to maturity:
Obligations of U.S. Treasury and other U.S. agen-
cies............................................ $ -- $ 694
=========== ===========
|
The following table indicates, for the year ended December 31, 1995, the amount of investments due in (i) one year or less, and (ii) one to five years. The Bank had no "held to maturity" securities at December 31, 1995.
DECEMBER 31, 1995
------------------------
WEIGHTED AVERAGE
AMOUNT YIELD
------- ----------------
(DOLLARS IN THOUSANDS)
Available for sale:
Obligations of U.S. Treasury and other U.S.
agencies:
0-1 year...................................... $ 2,751 5.05%
Over 1 through 5 years........................ 8,317 5.57
Other securities:
No stated maturity.............................. 332 6.03
-------
Total............................................. $11,400 5.45
=======
|
DEPOSITS
The Bank offers a full range of interest bearing and non-interest bearing accounts, including commercial and retail checking accounts, negotiable order of withdrawal ("NOW") accounts, individual retirement accounts, regular interest-bearing savings accounts and certificates of deposit with a range of maturity date options. The sources of deposits are residents, businesses and employees of businesses within the Bank's market area. Customers are obtained through the personal solicitation of the Bank's officers and directors, direct mail solicitation and advertisements published in the local media. The Bank pays competitive interest rates on time and savings deposits up to the maximum permitted by law or regulation. In addition, the Bank has implemented a service charge fee schedule competitive with other financial institutions in the Bank's market area, covering such matters as maintenance fees on checking accounts, per item processing fees on checking accounts, returned check charges and the like.
The following table presents, for the periods indicated, the average amount of and average rate paid on each of the indicated deposit categories.
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994
------------ ------------
AMOUNT RATE AMOUNT RATE
------- ---- ------- ----
(DOLLARS IN THOUSANDS)
Noninterest-bearing demand deposits.............. $ 5,469 N/A $ 4,538 N/A
NOW and money market deposits.................... 8,108 3.08% 7,887 2.65%
Savings deposits................................. 2,511 2.91% 2,775 2.88%
Time deposits.................................... 26,695 5.67% 24,523 4.68%
------- -------
Total deposits................................. $42,783 $39,723
======= =======
|
First National has a large, stable base of time deposits, with little or no dependence on volatile deposits of $100,000 or more. The time deposits are principally certificates of deposit and individual retirement accounts obtained for individual customers.
The amounts of time certificates of deposit issued in amounts of $100,000 or more as of December 31, 1995, are shown below by category, which is based on time remaining until maturity of (i) three months or less, (ii) over three through twelve months and (iii) over twelve months.
DECEMBER 31, 1995
----------------------
(DOLLARS IN THOUSANDS)
Three months or less................................ $1,546
Three months through six months..................... 905
Over three through twelve months.................... 2,658
Over twelve months.................................. 1,351
------
Total............................................. $6,460
======
|
RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
The following table shows return on assets (net income divided by average total assets), return on equity (net income divided by average shareholders' equity), dividend payout ratio (dividends declared per share divided by net income per share) and shareholders' equity to asset ratio (average shareholders' equity divided by average total assets) for the periods indicated.
YEAR ENDED DECEMBER 31,
------------------------
1995 1994
----------- -----------
Return on assets................................ 1.25% 0.71%
Return on equity................................ 12.30 7.10
Dividend payout ratio........................... -- --
Equity to assets ratio.......................... 10.20 10.40
|
LIQUIDITY AND CAPITAL RESOURCES
Liquidity represents the ability to provide steady sources of funds for loan commitments and investment activities and to maintain sufficient funds to cover deposit withdrawals and payment of debt and operating obligations. These funds can be obtained by converting assets to cash or by attracting new deposits. First National's primary source of liquidity comes from its ability to maintain and increase deposits through the Bank. Deposits grew by $5.1 million in 1995. Below are the pertinent liquidity balances and ratios for the years ended December 31, 1995 and 1994.
DECEMBER 31,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
Cash and cash equivalents........................ $ 6,924 $ 2,556
CDS, $100,000 and over........................... 6,460 5,336
CDS, $100,000 and over to total deposits......... 13.8% 12.8%
Loan to deposit ratio............................ 70.5% 68.9%
Marketable securities to total assets............ 21.2% 27.7%
Brokered deposits................................ -- --
|
As the above balances and ratios indicate, management believes that First National's liquidity position is sound. Management is unaware of any trends, demands, commitments, events or uncertainties that will result in or are reasonably likely to result in First National's liquidity increasing or decreasing in any material way. First National is not aware of any current recommendations by the regulatory authorities which, if implemented, would have a material effect on First National's liquidity, capital resources or results of operations.
There are now two primary measures of capital adequacy for banks and bank holding companies: (i) risk-based capital guidelines; and (ii) the leverage ratio.
The risk-based capital guidelines measure the amount of a bank's required capital in relation to the degree of risk perceived in its assets and its off- balance sheet items. For example, cash and Treasury Securities are placed under a zero percent risk category while commercial loans are placed under the one hundred percent risk category. Banks are required to maintain a minimum risk-based capital ratio of 8.0%, with at least 4.0% consisting of Tier 1 capital. Under the risk-based capital guidelines, there are two "tiers" of capital. Tier 1 capital consists of common shareholders' equity, non- cumulative and cumulative (bank holding companies only), perpetual preferred stock and minority interests. Goodwill is subtracted from the total. Tier 2 capital consists of the allowance for loan losses, hybrid capital instruments, term subordinated debt and intermediate term preferred stock.
The second measure of capital adequacy relates to the leverage ratio. The OCC has established a 3.0% minimum leverage ratio requirement. Note that the leverage ratio is computed by dividing Tier 1 capital into total assets. Banks that are not rated CAMEL 1 by their primary regulator should maintain a minimum leverage ratio of 3.0% plus an additional cushion of at least 1 to 2 percent, depending upon risk profiles and other factors.
A new rule was recently adopted by the FRB, the OCC and the FDIC that adds a measure of interest rate risk to the determination of supervisory capital adequacy. In connection with this new rule, the agencies also proposed a measurement process to measure interest rate risk. Under this proposal, all items reported on the balance sheet, as well as off-balance sheet items, would be reported according to maturity, repricing dates and cash flow characteristics. A bank's reporting position would be multiplied by duration- based risk factors and weighted according to rate sensitivity. The net risk weighted position would be used in assessing capital adequacy. The objective of this complex proposal is to determine the sensitivity of a bank to various rising and declining interest rate scenarios. This proposal is under consideration by the Federal banking regulators.
The table below illustrates the Bank's and First National's regulatory capital ratios at December 31, 1995.
DECEMBER 31, 1995
--------------------
ACTUAL REQUIRED
--------- ---------
BANK
Tier 1 Capital....................................... 12.7% 4.0%
Tier 2 Capital....................................... 1.2% n/a
Total risk-based capital ratio..................... 13.9% 8.0%
Leverage ratio....................................... 8.7% 3.0%
FIRST NATIONAL--CONSOLIDATED
Tier 1 Capital....................................... 15.6% 4.0%
Tier 2 Capital....................................... 1.2% n/a
Total risk-based capital ratio..................... 16.8% 8.0%
Leverage ratio....................................... 10.2% 3.0%
|
The above ratios indicate that the capital positions of First National and the Bank are sound and that First National is well positioned for future growth.
At March 31, 1996, First National had cash and cash equivalents of $5.2 million or 9.69% of total assets. Additionally First National had $11.3 million of investment securities that could be converted to cash if necessary. These securities represent 21% of total assets. During the first quarter of 1996, there is a slight change in First National's asset mix. Net loans increased $2.046 million or 6.2%. This increase was funded primarily by a $1.35 million decrease in federal funds sold. Federal funds sold at March 31, 1996, were $3.1 million or 5.76% of total assets. This change had a positive impact on First National's earnings as loans have a higher yield than federal funds sold. During the three months ended March 31, 1996, First National also repaid the $1 million advance outstanding from the Federal Home Loan Bank. This repayment had no adverse effect on First National's liquidity and will reduce interest expense in future months. First National expects to maintain its loan growth and anticipates funding it through deposit growth. There are no trends, demands, commitments, events or uncertainties that will result in or are reasonably likely to result in a material change in First National's liquidity position.
During the three months ended March 31, 1996, net loans increased $2.046 million from the year end amount of almost $33 million to the quarter end balance of $35 million. The March 31, 1996 loans represented 65% of total assets and 73% of total deposits. This compares favorably to the December 31, 1995, loan to deposit ratio of 71%. While management expects to continue loan growth during 1996, it may not be at the current rate during the remainder of the year.
Non-interest bearing deposits decreased during the first quarter by $664,000 to just over $6.7 million. This represents 14% of total deposits. This decrease was more than offset by an increase in interest bearing deposits which increased $1.7 million to $41.2 million, or 4.5%. The primary source of increase was in time deposits with balances under $100,000. This category increased $1.2 million during the first quarter. The increase in this category of deposits indicates that First National is increasing its "core" deposits and not relying upon large customers to fund the increase in loans. At March 31, 1996, "jumbo" certificates (those having balances of over $100,000) decreased $155,000 to $6.3 million.
IMPACT OF INFLATION
The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with generally accepted accounting principles and practices within the banking industry which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation.
FIRST NATIONAL SHARES
The authorized capital stock of First National consists of 10,000,000 common shares, $5.00 par value per share, 495,409 shares of which were issued and outstanding at March 31, 1996, and 169,670 shares which were subject to options and warrants, and 1,000,000 shares of preferred stock, $5.00 par value per share, none of which were outstanding at March 15, 1996. On March 31, 1996, there were 575 holders of record of First National Shares. For information concerning the market value of such shares and dividends during the past three years, see "SUMMARY--Market Value of Securities and Dividends-- First National."
OTHER MATTERS
The Special Meeting is called for the purposes set forth in the Notice and Proxy Statement/Prospectus. The First National Board of Directors does not know of any matters for action by shareholders at such meeting other than the matters described in the Notice and Proxy Statement/Prospectus. The enclosed Proxy, however, will confer discretionary authority with respect to matters which are not known to the Board of Directors at this time and which may properly come before the Special Meeting. It is the intention of the persons named in the Proxy to vote in pursuance of the Proxy with respect to such matters in accordance with their best judgment.
EXPERTS
The consolidated financial statements of ABC as of December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994 and 1993 included in this Proxy Statement/Prospectus have been audited by Mauldin & Jenkins, independent certified public accountants, to the extent indicated in their report included herein, and are included herein in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of First National as of December 31, 1995 and 1994 and for the years ended December 31, 1995 and 1994 included in this Proxy Statement/Prospectus have been audited by Francis & Company, independent certified public accountants, to the extent indicated in their report included herein, and are included herein in reliance upon such report and upon the authority of said firm as experts in accounting and auditing. Representatives of Francis & Company are expected to be present at the Special Meeting.
The consolidated financial statements of Central as of December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994 and 1993 included in this Proxy Statement/Prospectus have been audited by Mauldin & Jenkins, independent certified public accountants, to the extent indicated in their report included herein, and are included in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Southland as of December 31, 1995 and 1994 and for each of the years in the three year period ended December 31, 1995, have been included herein and in this Proxy Statement/Prospectus in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon such report and upon the authority of such firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1995 consolidated financial statements refers to a change in the method of accounting for income taxes in 1993 to adopt the provisions of SFAS No. 109, "Accounting For Income Taxes," and refers to a change in the method of accounting for investments in debt and equity securities at January 1, 1994 to adopt the provisions of SFAS No. 115 "Accounting For Certain Investments in Debt and Equity Securities."
LEGAL OPINIONS
A legal opinion to the effect that the issuance of the shares of ABC Common Stock offered hereby has been duly authorized by ABC and that such shares, when issued in accordance with the Merger Agreement, will be duly issued and outstanding and fully paid and non-assessable, has been rendered by Rogers & Hardin. Rogers & Hardin has also rendered an opinion as to certain federal income tax consequences of the Merger.
INDEX TO FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Consolidated Financial Data:
Introductory Note...................................................... PF-i ABC Historical combined with First National Historical -- Pro Forma Condensed Balance Sheet................................... PF-1 -- Pro Forma Condensed Statements of Income............................ PF-2 -- Notes to Pro Forma Condensed Financial Statements................... PF-4 ABC Historical combined with Central Historical -- Pro Forma Condensed Balance Sheet................................... PF-5 -- Pro Forma Condensed Statements of Income............................ PF-6 -- Notes to Pro Forma Condensed Financial Statements................... PF-8 ABC/Central combined with First National Historical -- Pro Forma Condensed Balance Sheet................................... PF-9 -- Pro Forma Condensed Statements of Income............................ PF-10 -- Notes to Pro Forma Condensed Financial Statements................... PF-12 ABC Historical combined with Southland Historical -- Pro Forma Condensed Balance Sheet................................... PF-13 -- Pro Forma Condensed Statements of Income............................ PF-14 -- Notes to Pro Forma Condensed Financial Statements................... PF-15 ABC/Southland combined with First National Historical -- Pro Forma Condensed Balance Sheet................................... PF-17 -- Pro Forma Condensed Statements of Income............................ PF-18 -- Notes to Pro Forma Condensed Financial Statements................... PF-20 ABC/Central combined with Southland Historical -- Pro Forma Condensed Balance Sheet................................... PF-21 -- Pro Forma Condensed Statements of Income............................ PF-22 -- Notes to Pro Forma Condensed Financial Statements................... PF-23 ABC/Central/Southland combined with First National Historical -- Pro Forma Condensed Balance Sheet................................... PF-25 -- Pro Forma Condensed Statements of Income............................ PF-26 -- Notes to Pro Forma Condensed Financial Statements................... PF-28 ABC Bancorp Historical Financial Data: Consolidated Financial Statements--March 31, 1996 and 1995 (unaudited) -- Consolidated Balance Sheets......................................... F-1 -- Consolidated Statements of Income................................... F-2 -- Consolidated Statements of Cash Flows............................... F-3 -- Notes to Consolidated Financial Statements.......................... F-4 Consolidated Financial Statements -- Independent Auditors' Report........................................ F-5 -- Consolidated Balance Sheets--December 31, 1995 and 1994............. F-6 -- Consolidated Statements of Income--Years ended December 31, 1995, 1994 and 1993......................................................... F-7 |
-- Consolidated Statements of Stockholders' Equity--Years ended Decem-
ber 31, 1995, 1994 and 1993......................................... F-9
-- Consolidated Statements of Cash Flows--Years ended December 31,
1995, 1994 and 1993................................................... F-11
-- Notes to Consolidated Financial Statements.......................... F-13
First National Financial Corporation Historical Financial Data:
Consolidated Financial Statements--March 31, 1996 and 1995 (unaudited)
-- Consolidated Balance Sheets......................................... F-36
-- Consolidated Statements of Income................................... F-37
-- Consolidated Statements of Cash Flows............................... F-38
-- Notes to Consolidated Financial Statements.......................... F-39
Consolidated Financial Statements
-- Independent Auditors' Report........................................ F-42
-- Consolidated Balance Sheets--Years ended December 31, 1995 and
1994.................................................................. F-43
-- Consolidated Statements of Income--Years ended December 31, 1995,
1994 and 1993......................................................... F-44
-- Consolidated Statements of Changes in Shareholders' Equity--Years
ended December 31, 1995, 1994 and 1993................................ F-45
-- Consolidated Statements of Cash Flows--Years ended December 31,
1995, 1994 and 1993................................................... F-46
-- Notes to Consolidated Financial Statements.......................... F-47
Central Bankshares, Inc. Historical Financial Data:
Consolidated Financial Statements--March 31, 1996 and 1995 (unaudited)
-- Consolidated Balance Sheets......................................... F-65
-- Consolidated Statements of Income................................... F-66
-- Consolidated Statements of Cash Flows............................... F-67
-- Notes to Consolidated Financial Statements.......................... F-68
Consolidated Financial Statements
-- Independent Auditors' Report........................................ F-69
-- Consolidated Balance Sheets--Years ended December 31, 1995 and
1994.................................................................. F-70
-- Consolidated Statements of Income--Years ended December 31, 1995 and
1994.................................................................. F-71
-- Consolidated Statements of Stockholders' Equity--Years ended Decem-
ber 31, 1995 and 1994................................................. F-72
-- Consolidated Statements of Cash Flows--Years ended December 31, 1995
and 1994.............................................................. F-73
-- Notes to Consolidated Financial Statements.......................... F-75
Southland Bancorporation Historical Financial Data:
Consolidated Financial Statements
-- Consolidated Balance Sheets--March 31, 1996 and December 31, 1995
(unaudited)........................................................... F-95
-- Consolidated Statements of Earnings--Three Months ended March 31,
1996 and 1995....................................................... F-96
-- Consolidated Statements of Cash Flows--Three Months ended March 31,
1996 and 1995......................................................... F-97
-- Notes to Consolidated Financial Statements.......................... F-99
Consolidated Financial Statements
-- Independent Auditors' Report........................................ F-100
-- Consolidated Balance Sheets--December 31, 1995 and 1994............. F-101
-- Consolidated Statements of Earnings--Years ended December 31, 1995,
1994 and 1993......................................................... F-102
-- Consolidated Statements of Stockholders' Equity--Years ended Decem-
ber 31, 1995, 1994 and 1993......................................... F-105
-- Consolidated Statements of Cash Flows--Years ended December 31,
1995, 1994 and 1993................................................... F-106
-- Notes to Consolidated Financial Statements.......................... F-108
|
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March 31, 1996 has been prepared to reflect the acquisition by ABC of 100% of First National after giving effect to the adjustments described in the notes to the pro forma condensed financial statements. The acquisition will be accounted for as a pooling of interest. These statements should be read in conjunction with the other financial statements and notes thereto included in this Proxy Statement.
PRO FORMA
FIRST ADJUSTMENTS
ABC NATIONAL (NOTES A PRO FORMA
HISTORICAL HISTORICAL AND B) COMBINED
--------------------------------------- -----------
ASSETS
- ------
Cash and due from banks $ 16,855 $ 2,118 $ - $ 18,973
Federal funds sold 21,535 3,100 - 24,635
Investment securities 56,916 11,332 - 68,248
Loans, net 218,877 35,015 - 253,892
Premises and equipment 7,222 1,463 - 8,685
Investment in First National - - 5,593 (1) -
(5,593)(2)
Excess cost over fair value of assets
acquired 1,996 - - 1,996
Other assets 12,188 836 - 13,024
---------- -------- -------- ----------
$ 335,589 $ 53,864 $ - $ 389,453
========== ======== ======== ==========
LIABILITIES AND EQUITY
- ----------------------
Deposits $ 293,385 $ 47,863 $ - $ 341,248
Other liabilities 7,629 408 - 8,037
---------- -------- -------- ----------
Total liabilities 301,014 48,271 - 349,285
---------- -------- -------- ----------
EQUITY
- ------
Common stock 3,597 - 690(1) 4,287
Capital surplus 16,826 - 4,942(1) 21,768
Retained earnings 15,815 - - 15,815
Unrealized losses on securities
available for sale, net of taxes (108) - (39)(1) (147)
Treasury stock (1,555) - - (1,555)
Equity of First National - 5,593 (5,593)(2) -
---------- -------- -------- ----------
Total equity 34,575 5,593 - 40,168
---------- -------- -------- ----------
$ 335,589 $ 53,864 $ - $ 389,453
========== ======== ======== ==========
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PF-1
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma condensed statements of income have been prepared to reflect the acquisition by ABC of 100% of First National after giving effect to the adjustments described in the notes to the pro forma condensed financial statements. The acquisition will be accounted for as a pooling of interest. These statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Proxy Statement.
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
-------------------------------- -------------------------------- --------------------------------
FIRST PRO FORMA FIRST PRO FORMA FIRST PRO FORMA
ABC NATIONAL COMBINED ABC NATIONAL COMBINED ABC NATIONAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
---------- ---------- --------- ---------- ----------- -------- ---------- ---------- ---------
INTEREST INCOME $26,703 $4,045 $30,748 $21,328 $3,162 $24,490 $19,697 $2,510 $22,207
INTEREST EXPENSE 10,673 1,893 12,566 7,828 1,438 9,266 7,732 1,177 8,909
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income 16,030 2,152 18,182 13,500 1,724 15,224 11,965 1,333 13,298
PROVISION FOR LOAN LOSSES 848 185 1,033 638 120 758 1,191 128 1,319
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest
income after
provision for
loan losses 15,182 1,967 17,149 12,862 1,604 14,466 10,774 1,205 11,979
OTHER INCOME 3,276 524 3,800 3,025 355 3,380 2,867 289 3,156
OTHER EXPENSE 12,228 1,573 13,801 11,547 1,420 12,967 10,535 1,256 11,791
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
income taxes and
cumulative effect 6,230 918 7,148 4,340 539 4,879 3,106 238 3,344
INCOME TAXES 1,889 306 2,195 1,240 223 1,463 814 - 814
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
cumulative effect 4,341 612 4,953 3,100 316 3,416 2,292 238 2,530
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - - - - - - 346 - 346
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations $ 4,341 $ 612 $ 4,953 $ 3,100 $ 316 $ 3,416 $ 2,638 $ 238 $ 2,876
======= ====== ======= ======= ====== ======= ======= ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.22 $ 0.94 $ 0.89
======= ======= =======
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PF-2
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 THREE MONTHS ENDED MARCH 31, 1995
----------------------------------- -----------------------------------
FIRST PRO FORMA FIRST PRO FORMA
ABC NATIONAL COMBINED ABC NATIONAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
----------------------------------- ------------------------------------
INTEREST INCOME $7,051 $ 1,071 $8,122 $6,157 $ 938 $ 7,095
INTEREST EXPENSE 2,941 538 3,479 2,348 393 2,741
------ ------- ------ ------ ------- -------
Net interest income 4,110 533 4,643 3,809 545 4,354
PROVISION FOR LOAN LOSSES 180 50 230 180 25 205
------ ------- ------ ------ ------- -------
Net interest income
after provision for
loan losses 3,930 483 4,413 3,629 520 4,149
OTHER INCOME 927 123 1,050 886 85 971
OTHER EXPENSE 3,017 397 3,414 3,000 391 3,391
------ ------- ------ ------ ------- -------
Income from continuing
operations before
income taxes and
cumulative effect 1,840 209 2,049 1,515 214 1,729
INCOME TAXES 605 76 681 487 81 568
------ ------- ------ ------ ------- -------
Income from operations
before cumulative effect 1,235 133 1,368 1,028 133 1,161
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE - - - - - -
------ ------- ------ ------ ------- -------
Income from continuing
operations $1,235 $ 133 $1,368 $1,028 $ 133 $ 1,161
====== ======= ====== ====== ======= =======
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 0.34 $ 0.29
====== =======
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PF-3
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the transaction was consummated on March 31, 1996. The pro forma condensed statements of income have been prepared assuming the transaction was consummated on January 1, 1993, the beginning of the earliest fiscal year presented.
B. The following pro forma adjustments have been applied to give effect to the proposed transaction.
BALANCE SHEET:
(1) Issue of 690,259 shares of ABC common stock, $1 par value, in exchange for 100% of the equity of First National.
(2) Elimination of investment in First National.
STATEMENTS OF INCOME:
(3) Pro forma income per common share is based on the average number of common shares that would have been outstanding during the respective periods. There are no dilutive common stock attributes.
PF-4
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH CENTRAL BANKSHARES, INC.
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March 31, 1996 has been prepared to reflect the acquisition by ABC of 100% of Central after giving effect to the adjustments described in the notes to the pro forma condensed financial statements. The acquisition will be accounted for as a pooling of interest. These statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Proxy Statement.
PRO FORMA
ADJUSTMENTS
ABC CENTRAL (NOTES A PRO FORMA
HISTORICAL HISTORICAL AND B) COMBINED
---------- ---------- ----------- ---------
ASSETS
- ------
Cash and due from banks $ 16,855 $ 2,142 $ $ 18,997
Federal funds sold 21,535 21,535
Investment securities 56,916 10,862 67,778
Loans, net 218,877 34,988 253,865
Premises and equipment 7,222 1,074 8,296
Investment in Central 4,300 (1)
(4,300)(2)
Excess cost over fair value of assets
acquired 1,996 1,996
Other assets 12,188 1,038 13,226
-------- ------- ------- --------
$335,589 $50,104 $ $385,693
======== ======= ======= ========
LIABILITIES AND EQUITY
- ----------------------
Deposits $293,385 $44,724 $ $338,109
Other liabilities 7,629 1,080 8,709
-------- ------- ------- --------
Total liabilities 301,014 45,804 346,818
-------- ------- ------- --------
EQUITY
- ------
Common stock 3,597 491 (1) 4,088
Capital surplus 16,826 3,828 (1) 20,654
Retained earnings 15,815 15,815
Unrealized losses on securities
available for sale,
net of taxes (108) (19)(1) (127)
Treasury stock (1,555) (1,555)
Equity of Central 4,300 (4,300)(2)
-------- ------- ------- --------
Total equity 34,575 4,300 38,875
-------- ------- ------- --------
$335,589 $50,104 $ $385,693
======== ======= ======= ========
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PF-5
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH CENTRAL BANKSHARES, INC.
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma condensed statements of income have been prepared to reflect the acquisition by ABC of 100% of Central after giving effect to the adjustments described in the notes to the pro forma condensed financial statements. The acquisition will be accounted for as a pooling of interest. These statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Proxy Statement.
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
-------------------------------- -------------------------------- --------------------------------
PRO FORMA PRO FORMA PRO FORMA
ABC CENTRAL COMBINED ABC CENTRAL COMBINED ABC CENTRAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
---------- ---------- --------- ---------- ----------- -------- ---------- ---------- ---------
INTEREST INCOME $26,703 $4,141 $30,844 $21,328 $3,253 $24,581 $19,697 $3,118 $22,815
INTEREST EXPENSE 10,673 1,960 12,633 7,828 1,248 9,076 7,732 1,207 8,939
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income 16,030 2,181 18,211 13,500 2,005 15,505 11,965 1,911 13,876
PROVISION FOR LOAN LOSSES 848 140 988 638 180 818 1,191 193 1,384
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest
income after
provision for
loan losses 15,182 2,041 17,223 12,862 1,825 14,687 10,774 1,718 12,492
OTHER INCOME 3,276 597 3,873 3,025 667 3,692 2,867 611 3,478
OTHER EXPENSE 12,228 1,874 14,102 11,547 1,795 13,342 10,535 1,843 12,378
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
income taxes and
cumulative effect 6,230 764 6,994 4,340 697 5,037 3,106 486 3,592
INCOME TAXES 1,889 265 2,154 1,240 240 1,480 814 165 979
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
cumulative effect 4,341 499 4,840 3,100 457 3,557 2,292 321 2,613
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - - - - - - 346 - 346
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations $ 4,341 $ 499 $ 4,840 $ 3,100 $ 457 $ 3,557 $ 2,638 $ 321 $ 2,959
======= ====== ======= ======= ====== ======= ======= ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.26 $ 1.03 $ 0.98
======= ======= =======
|
PF-6
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH CENTRAL BANKSHARES, INC.
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 THREE MONTHS ENDED MARCH 31, 1995
----------------------------------- -----------------------------------
PRO FORMA PRO FORMA
ABC CENTRAL COMBINED ABC CENTRAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
----------------------------------- ------------------------------------
INTEREST INCOME $7,051 $ 1,113 $8,164 $6,157 $ 914 $ 7,071
INTEREST EXPENSE 2,941 540 3,481 2,348 403 2,751
------ ------- ------ ------ ------- -------
Net interest income 4,110 573 4,683 3,809 511 4,320
PROVISION FOR LOAN LOSSES 180 - 180 180 45 225
------ ------- ------ ------ ------- -------
Net interest income
after provision for
loan losses 3,930 573 4,503 3,629 466 4,095
OTHER INCOME 927 180 1,107 886 160 1,046
OTHER EXPENSE 3,017 476 3,493 3,000 476 3,476
------ ------- ------ ------ ------- -------
Income from continuing
operations before
income taxes and
cumulative effect 1,840 277 2,117 1,515 150 1,665
INCOME TAXES 605 105 710 487 57 544
------ ------- ------ ------ ------- -------
Income from operations
before cumulative effect 1,235 172 1,407 1,028 93 1,121
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE - - - - - -
------ ------- ------ ------ ------- -------
Income from continuing
operations $1,235 $ 172 $1,407 $1,028 $ 93 $ 1,121
====== ======= ====== ====== ======= =======
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 0.36 $ 0.29
====== =======
|
PF-7
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH CENTRAL BANKSHARES, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the transaction was consummated on March 31, 1996. The pro forma condensed statements of income have been prepared assuming the transaction was consummated on January 1, 1993, the beginning of the earliest fiscal year presented.
B. The following pro forma adjustments have been applied to give effect to the proposed transaction.
BALANCE SHEET:
(1) Issue of 490,619 shares of ABC common stock, $1 par value, in exchange for 100% of the equity of Central.
(2) Elimination of investment in Central.
STATEMENTS OF INCOME:
(3) Pro forma income per common share is based on the average number of common shares that would have been outstanding during the respective periods. There are no dilutive common stock attributes.
PF-8
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March 31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed acquisition of Central) of 100% of First National after giving effect to the adjustments described in the notes to the pro forma condensed financial statements. These statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Proxy Statement.
PRO FORMA
ABC FIRST ADJUSTMENTS
CENTRAL NATIONAL (NOTES A PRO FORMA
HISTORICAL HISTORICAL AND B) COMBINED
---------- ---------- ------------ -------------
ASSETS
- ------
Cash and due from banks $ 18,997 $ 2,118 $ $ 21,115
Federal funds sold 21,535 3,100 24,635
Investment securities 67,778 11,332 79,110
Loans, net 253,865 35,015 288,880
Premises and equipment 8,296 1,463 9,759
Investment in First National 5,593 (1)
(5,593) (2)
Excess cost over fair value of assets
acquired 1,996 1,996
Other assets 13,226 836 14,062
---------- ---------- ------------- ------------
$ 385,693 $ 53,864 $ $ 439,557
========== ========== ============= ============
LIABILITIES AND EQUITY
- ----------------------
Deposits $ 338,109 $ 47,863 $ $ 385,972
Other liabilities 8,709 408 9,117
---------- ---------- ------------- ------------
Total liabilities 346,818 48,271 395,089
---------- ---------- ------------- ------------
EQUITY
- ------
Common stock 4,088 690 (1) 4,778
Capital surplus 20,654 4,942 (1) 25,596
Retained earnings 15,815 15,815
Unrealized gains on securities
available for sale,
net of taxes (127) (39) (1) (166)
Treasury stock (1,555) (1,555)
Equity of First National 5,593 (5,593) (2)
---------- ---------- ------------- ------------
Total equity 38,875 5,593 44,468
---------- ---------- ------------- ------------
$ 385,693 $ 53,864 $ $ 439,557
========== ========== ============= ============
|
PF-9
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed statements of income have been prepared to reflect the acquisition by ABC (after the proposed acquisition of Central) of 100% of First National after giving effect to the adjustments described in the notes to the pro forma condensed financial statements. These statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Proxy Statement.
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
-------------------------------- -------------------------------- --------------------------------
ABC FIRST PRO FORMA ABC FIRST PRO FORMA ABC FIRST PRO FORMA
CENTRAL NATIONAL COMBINED CENTRAL NATIONAL COMBINED CENTRAL NATIONAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
---------- ---------- --------- ---------- ----------- -------- ---------- ---------- ---------
INTEREST INCOME $ 30,844 $ 4,045 $ 34,889 $ 24,581 $ 3,162 $ 27,743 $ 22,815 $ 2,510 $ 25,325
INTEREST EXPENSE 12,633 1,893 14,526 9,076 1,438 10,514 8,939 1,177 10,116
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income 18,211 2,152 20,363 15,505 1,724 17,229 13,876 1,333 15,209
PROVISION FOR LOAN LOSSES 988 185 1,173 818 120 938 1,384 128 1,512
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest
income after
provision for
loan losses 17,223 1,967 19,190 14,687 1,604 16,291 12,492 1,205 13,697
OTHER INCOME 3,873 524 4,397 3,692 355 4,047 3,478 289 3,767
OTHER EXPENSE 14,102 1,573 15,675 13,342 1,420 14,762 12,378 1,256 13,634
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
income taxes and
cumulative effect 6,994 918 7,912 5,037 539 5,576 3,592 238 3,830
INCOME TAXES 2,154 306 2,460 1,480 223 1,703 979 979
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
cumulative effect 4,840 612 5,452 3,557 316 3,873 2,613 238 2,851
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - - - - - - 346 - 346
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations $ 4,840 $ 612 $ 5,452 $ 3,557 $ 316 $ 3,873 $ 2,959 $ 238 $ 3,197
======= ====== ======= ======= ====== ======= ======= ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.20 $ 0.94 $ 0.86
======= ======= =======
|
PF-10
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 THREE MONTHS ENDED MARCH 31, 1995
----------------------------------- -----------------------------------
ABC FIRST PRO FORMA ABC FIRST PRO FORMA
CENTRAL NATIONAL COMBINED CENTRAL NATIONAL COMBINED
COMBINED HISTORICAL (NOTE A) COMBINED HISTORICAL (NOTE A)
----------------------------------- ------------------------------------
INTEREST INCOME $8,164 $ 1,071 $9,235 $7,071 $ 938 $ 8,009
INTEREST EXPENSE 3,481 538 4,019 2,751 393 3,144
------ ------- ------ ------ ------- -------
Net interest income 4,683 533 5,216 4,320 545 4,865
PROVISION FOR LOAN LOSSES 180 50 230 225 25 250
------ ------- ------ ------ ------- -------
Net interest income
after provision for
loan losses 4,503 483 4,986 4,095 520 4,615
OTHER INCOME 1,107 123 1,230 1,046 85 1,131
OTHER EXPENSE 3,493 397 3,890 3,476 391 3,867
------ ------- ------ ------ ------- -------
Income from continuing
operations before
income taxes and
cumulative effect 2,117 209 2,326 1,665 214 1,879
INCOME TAXES 710 76 786 544 81 625
------ ------- ------ ------ ------- -------
Income from operations
before cumulative effect 1,407 133 1,540 1,121 133 1,254
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE - - - - - -
------ ------- ------ ------ ------- -------
Income from continuing
operations $1,407 $ 133 $1,540 $1,121 $ 133 $ 1,254
====== ======= ====== ====== ======= =======
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 0.34 $ 0.28
====== =======
|
PF-11
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the transaction was consummated on March 31, 1996. The pro forma condensed statements of income have been prepared assuming the transaction was consummated at the beginning of the earliest period presented.
B. The following pro forma adjustments have been applied to give effect to the proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Issue of 690,259 shares of ABC common stock, $1 par value, in exchange for 100% of the equity of First National.
(2) Elimination of investment in First National.
STATEMENTS OF INCOME:
(3) Pro forma income per common share is based on the average number of common shares that would have been outstanding during the respective periods.
PF-12
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March 31, 1996 has been prepared to reflect the acquisition by ABC of 100% of Southland after giving effect to the adjustments described in the notes to the pro forma condensed financial statements. The acquisition will be accounted for as a purchase transaction. These statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Proxy Statement.
PRO FORMA
ADJUSTMENTS
ABC SOUTHLAND (NOTES A PRO FORMA
HISTORICAL HISTORICAL AND B) COMBINED
---------- ---------- --------------- -----------
ASSETS
- ----------------------------------------
Cash and due from banks $ 16,855 $ 2,667 $ $ 19,522
Federal funds sold 21,535 (5793) (1) 15,742
Investment securities 56,916 25,180 82,096
Loans, net 218,877 74,880 293,757
Premises and equipment 7,222 2,544 500 (2) 10,266
Investment in Southland 11,822 (1)
(11,822) (2)
Excess cost over fair value of assets
acquired 1,996 2,250 (2)
2,504 (2) 6,750
Other assets 12,188 2,197 14,385
---------- ---------- -------------- ------------
$ 335,589 $ 107,468 $ (539) $ 442,518
========== ========== ============== ============
LIABILITIES AND EQUITY
- ----------------------
Deposits $ 293,385 $ 87,865 $ $ 381,250
Other liabilities 7,629 1,027 8,656
Long-term debt 12,008 12,008
---------- ---------- --------------- -----------
Total liabilities 301,014 100,900 401,914
========== ========== =============== ===========
EQUITY
- ------
Common stock 3,597 396 (1) 3,993
Capital surplus 16,826 5,633 (1) 22,459
Retained earnings 15,815 15,815
Unrealized losses on securities
available for sale,
net of taxes (108) (108)
Treasury stock (1,555) (1,555)
Equity of Southland 6,568 (6,568) (2)
---------- ---------- --------------- -----------
Total equity 34,575 6,568 (539) 40,604
---------- ---------- --------------- -----------
$ 335,589 $ 107,468 $ (539) $ 442,518
========== ========== ============== ============
|
PF-13
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma condensed statements of income have been prepared to reflect the acquisition by ABC of 100% of Southland after giving effect to the adjustments described in the notes to the pro forma condensed financial statements. The acquisition will be accounted for as a purchase transaction. These statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Proxy Statement.
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------
PRO FORMA
ABC SOUTHLAND ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (NOTE B) COMBINED
---------- ---------- ----------- -----------
INTEREST INCOME $ 26,703 $ 9,033 $ 319 (4) $ 35,417
INTEREST EXPENSE 10,673 4,775 15,448
---------- ---------- ----------- -----------
Net interest income 16,030 4,258 319 19,969
Provision for loan losses 848 72 920
---------- ---------- ----------- -----------
Net interest income
after provision for
loan losses 15,182 4,186 319 19,049
OTHER INCOME 3,276 1,582 4,858
OTHER EXPENSE 12,228 4,101 409 (3) 16,738
---------- ---------- ----------- -----------
Income from continuing
operations before
income taxes 6,230 1,667 (728) 7,169
INCOME TAXES 1,889 643 (108)(5) 2,424
---------- ---------- ----------- -----------
Income from continuing $
operations 4,341 $ 1,024 $ (620) $ 4,745
=========== ========== =========== ===========
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.26
===========
THREE MONTHS ENDED MARCH 31, 1996
----------------------------------------------------
PRO FORMA
ABC SOUTHLAND ADJUSTMENTS PRO FORMA
HISTORICAL HISTORICAL (NOTE B) COMBINED
------------ ---------- ------------ -----------
INTEREST INCOME $ 7,051 $ 2,456 $ (80)(4) $ 9,427
INTEREST EXPENSE 2,941 1,206 4,147
------------ ---------- -------- -----------
Net interest income 4,110 1,250 (80) 5,280
PROVISION FOR LOAN LOSSes 180 180
------------ ---------- -------- -----------
Net interest income
after provision for
loan losses 3,930 1,250 (80) 5,100
OTHER INCOME 927 399 1,326
OTHER EXPENSE 3,017 1,076 102 (3) 4,195
------------ ---------- -------- -----------
Income from continuing
operations before
income taxes 1,840 573 (182) 2,231
INCOME TAXES 605 213 (27)(5) 791
------------ ---------- ------- -----------
Income from continuing $
operations 1,235 $ 360 $ (155) $ 1,440
============ ========== ======== ============
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 0.38
============
|
PF-14
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH SOUTHLAND BANCORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the transaction was consummated on March 31, 1996. The pro forma condensed statements of income have been prepared assuming the transaction was consummated at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the proposed transaction described in this Proxy Statement.
BALANCE SHEET:
(1) Payment of $5,793,000 in cash (representing 49% of total consideration) and issue of 396,398 of ABC common in exchange for 100% of the equity of Southland for a total consideration of $11,822,000.
(2) Elimination of investment in Southland and allocation of purchase price as follows:
(a) Write-up of land and buildings to approximate market value.
(b) $2,250,000, representing approximately 50% of the excess of purchase price over the fair value of net assets acquired, has been tentatively allocated as a premium paid for the customer deposit base. The allocation is subject to a statistical study to determine the ultimate customer deposit base premium. For purposes of the pro forma financial statements, the premium is being amortized over a period of 10 years.
(c) The remainder of the excess of purchase price over the fair value of net assets acquired amounting to $2,504,000 has been considered to be goodwill and is being amortized over a period of 15 years.
PF-15
STATEMENTS OF INCOME:
(3) Pro forma adjustments to income resulting from the allocation of the purchase price of Southland as follows:
(a) Depreciation of the write-up of buildings using the straight- line method over the estimated average remaining life of 30 years.
(b) Amortization of the customer deposit base premium using the straight-line method over a period of 10 years.
(c) Amortization of goodwill using the straight-line method over a period of 15 years.
(4) Loss of interest on Federal funds sold used to fund the acquisition using an average rate of 5.5%.
(5) Tax effect of pro forma adjustments for reduction in interest income using a tax rate of 34%.
C. The following is the effect of the purchase adjustments described in Note B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC Bancorp and Subsidiaries Combined with Southland Bancorporation.
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
------------------------ ----------- ------------ ------------ --------
1996 $17,000 $225,000 $167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
|
PF-16
ABC BANCORP AND SUBSIDIARIES
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March 31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed acquisition of Southland) of 100% of First National after giving effect to the adjustments described in the notes to the pro forma condensed financial statements. These statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Proxy Statement.
PRO FORMA
ABC FIRST ADJUSTMENTS
SOUTHLAND NATIONAL (NOTES A PRO FORMA
COMBINED HISTORICAL AND B) COMBINED
--------- ---------- ------------- -------------
ASSETS
- ------
Cash and due from banks $ 19,522 $ 2,118 $ $ 21,640
Federal funds sold 15,742 3,100 18,842
Investment securities 82,096 11,332 93,428
Loans, net 293,757 35,015 328,772
Premises and equipment 10,266 1,463 11,729
Investment in First National 5,593 (1)
(5,593) (2)
Excess cost over fair value of assets
acquired 6,750 6,750
Other assets 14,385 836 15,221
--------- ---------- ------------- -------------
$ 442,518 $ 53,864 $ $ 496,382
========= ========== ============= =============
LIABILITIES AND EQUITY
- ----------------------
Deposits $ 381,150 $ 47,863 $ $ 429,013
Other liabilities 8,656 408 9,064
Long-term debt 12,108 12,108
--------- ---------- ------------- -------------
Total liabilities 401,914 48,271 450,185
--------- ---------- ------------- -------------
EQUITY
- ------
Common stock 3,993 690 (1) 4,683
Capital surplus 22,459 4,942 (1) 27,401
Retained earnings 15,815 15,815
Unrealized losses on securities
available
for sale, net of taxes (108) (39) (1) (147)
Treasury stock (1,555) (1,555)
Equity of First National 5,593 (5,593) (2)
--------- ---------- --------------- ------------
Total equity 40,604 5,593 46,197
--------- ---------- --------------- ------------
$ 442,518 $ 53,864 $ $ 496,382
========== ========== ============== =============
|
PF-17
ABC BANCORP AND SUBSIDIARIES
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed statements of income have been prepared to reflect the acquisition by ABC (after the proposed acquisition of Southland) of 100% of First National after giving effect to the adjustments described in the notes to the pro forma condensed financial statements. These statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Proxy Statement.
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
-------------------------------- -------------------------------- --------------------------------
ABC FIRST PRO FORMA FIRST PRO FORMA FIRST PRO FORMA
SOUTHLAND NATIONAL COMBINED ABC NATIONAL COMBINED ABC NATIONAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
---------- ---------- --------- ---------- ----------- -------- ---------- ---------- ---------
INTEREST INCOME $35,417 $4,045 $39,462 $21,328 $3,162 $24,490 $19,697 $2,510 $22,207
INTEREST EXPENSE 15,448 1,893 17,341 7,828 1,438 9,266 7,732 1,177 8,909
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income 19,969 2,152 22,121 13,500 1,724 15,224 11,965 1,333 13,298
PROVISION FOR LOAN LOSSES 920 185 1,105 638 120 758 1,191 128 1,319
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest
income after
provision for
loan losses 19,049 1,967 21,016 12,862 1,604 14,466 10,774 1,205 11,979
OTHER INCOME 4,858 524 5,382 3,025 355 3,380 2,867 289 3,156
OTHER EXPENSE 16,738 1,573 18,311 11,547 1,420 12,967 10,535 1,256 11,791
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
income taxes and
cumulative effect 7,169 918 8,087 4,340 539 4,879 3,106 238 3,344
INCOME TAXES 2,424 306 2,730 1,240 223 1,463 814 - 814
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
cumulative effect 4,745 612 5,357 3,100 316 3,416 2,292 238 2,530
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - - - - - - 346 - 346
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations $ 4,745 $ 612 $ 5,357 $ 3,100 $ 316 $ 3,416 $ 2,638 $ 238 $ 2,876
======= ====== ======= ======= ====== ======= ======= ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.21 $ 0.94 $ 0.89
======= ======= =======
|
PF-18
ABC BANCORP AND SUBSIDIARIES
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 THREE MONTHS ENDED MARCH 31, 1995
----------------------------------- -----------------------------------
ABC FIRST PRO FORMA ABC FIRST PRO FORMA
SOUTHLAND NATIONAL COMBINED SOUTHLAND NATIONAL COMBINED
COMBINED HISTORICAL (NOTE A) COMBINED HISTORICAL (NOTE A)
----------------------------------- ------------------------------------
INTEREST INCOME $9,427 $ 1,071 $10,498 $8,347 $ 938 $ 9,285
INTEREST EXPENSE 4,147 538 4,685 3,428 393 3,821
------ ------- ------ ------ ------- -------
Net interest income 5,280 533 5,813 4,919 545 5,464
PROVISION FOR LOAN LOSSES 180 50 230 232 25 257
------ ------- ------ ------ ------- -------
Net interest income
after provision for
loan losses 5,100 483 5,583 4,687 520 5,207
OTHER INCOME 1,326 123 1,449 1,254 85 1,339
OTHER EXPENSE 4,195 397 4,592 4,184 391 4,575
------ ------- ------ ------ ------- -------
Income from continuing
operations before
income taxes and
cumulative effect 2,231 209 2,440 1,757 214 1,971
INCOME TAXES 791 76 867 631 81 712
------ ------- ------ ------ ------- -------
Income from operations
before cumulative effect 1,440 133 1,573 1,126 133 1,259
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE - - - - - -
------ ------- ------ ------ ------- -------
Income from continuing
operations $1,440 $ 133 $1,573 $1,126 $ 133 $ 1,259
====== ======= ====== ====== ======= =======
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 0.35 $ 0.28
====== =======
|
PF-19
ABC BANCORP AND SUBSIDIARIES
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the transaction was consummated on March 31, 1996. The pro forma condensed statement of income have been prepared assuming the transaction was consummated at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Issue of 690,259 shares of ABC common stock in exchange for 100% of the equity of First National.
(2) Elimination of investment in First National.
C. The following is the effect of the purchase adjustments described in Note B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC Bancorp and Subsidiaries Combined with Southland Bancorporation.
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
------------------------ ----------- ------------ ------------ --------
1996 $17,000 $225,000 $167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
|
No tax effects relating to the purchase adjustments have been recorded because the Company is acquiring the stock of Southland and will not be allowed any taxable deductions for the above adjustments.
PF-20
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March 31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed acquisition of Central) of 100% of Southland after giving effect to the adjustments described in the notes to the pro forma condensed financial statements. These statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Proxy Statement.
PRO FORMA
ABC ADJUSTMENTS
CENTRAL SOUTHLAND (NOTES A PRO FORMA
COMBINED HISTORICAL AND B) COMBINED
---------- ----------- ------------- -----------
ASSETS
- ------
Cash and due from banks $ 18,997 $ 2,667 $ - $ 21,664
Federal funds sold 21,535 - (5,793)(1) 15,742
Investment securities 67,778 25,180 - 92,958
Loans, net 253,865 74,880 - 328,745
Premises and equipment 8,296 2,544 500 (2) 11,340
Investment in Southland - - 11,822 (1)
(11,822)(2) -
Excess cost over fair value of assets
acquired 1,996 - 2,250 (2)
2,504 (2) 6,750
Other assets 13,226 2,197 - 15,423
-------- -------- -------- --------
$385,693 $107,468 $ (539) $492,622
======== ======== ======== ========
LIABILITIES AND EQUITY
- ----------------------
Deposits $338,109 $ 87,865 $ - $425,974
Other liabilities 8,709 1,027 - 9,736
Long-term debt - 12,008 - 12,008
-------- -------- ------- ---------
Total liabilities 346,818 100,900 - 447,718
-------- -------- ------- --------
EQUITY
- ------
Common stock 4,088 - 396 (1) 4,484
Capital surplus 20,654 - 5,633 (1) 26,287
Retained earnings 15,815 - - 15,815
Unrealized gains on securities
available for sale,
net of taxes (127) - - (127)
Treasury stock (1,555) - - (1,555)
Equity of Southland 6,568 (6,568)(2)
-------- -------- -------- --------
Total equity 38,875 6,568 (539) 44,904
-------- -------- -------- --------
$385,693 $107,468 $ (539) $492,622
======== ======== ======== ========
|
PF-21
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH SOUTHLAND BANCORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed statements of income have been prepared to reflect the acquisition by ABC (after the proposed acquisition of Central) of 100% of Southland after giving effect to the adjustments described in the notes to the pro forma condensed financial statements. These statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Proxy Statement.
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------
ABC PRO FORMA
CENTRAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
-------- ---------- ----------- ----------
INTEREST INCOME $30,844 $9,033 $ (319)(4) $39,558
INTEREST EXPENSE 12,633 4,775 17,408
------- ------ ------ -------
Net interest income 18,211 4,258 (319) 22,150
PROVISION FOR LOAN LOSSES 988 72 1,060
------- ------ ------ -------
Net interest income
after provision for
loan losses 17,223 4,186 (319) 21,090
OTHER INCOME 3,873 1,582 5,455
OTHER EXPENSE 14,102 4,101 409 (3) 18,612
------- ------ ------ -------
Income from continuing
operations before
income taxes 6,994 1,667 (728) 7,933
INCOME TAXES 2,154 643 (108)(5) 2,689
------- ------ ------ -------
Income from continuing
operations $ 4,840 $1,024 $ (620) $ 5,244
======= ======= ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.24
=======
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------
ABC PRO FORMA
CENTRAL SOUTHLAND ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE B) COMBINED
-------- ---------- ----------- ----------
INTEREST INCOME $ 8,164 $2,456 $ (80)(4) $10,540
INTEREST EXPENSE 3,481 1,206 4,687
------- ------ ------ -------
Net interest income 4,683 1,250 (80) 5,853
PROVISION FOR LOAN LOSSes 180 180
------- ------ ------ -------
Net interest income 4,503 1,250 (80) 5,673
after provision for
loan losses
OTHER INCOME 1,107 399 1,506
OTHER EXPENSE 3,493 1,076 102 (3) 4,671
------- ------ ------ -------
Income from continuing
operations before
income taxes 2,117 573 (182) 2,508
INCOME TAXES 710 213 (27)(5) 896
------- ------ ------ -------
Income from continuing
operations $ 1,407 $ 360 $ (155) 1,612
======= ====== ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 0.38
=======
|
PF-22
ABC BANCORP AND SUBSIDIARIES
AND CENTRAL BANKSHARES, INC.
COMBINED WITH SOUTHLAND BANCORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the transaction was consummated on March 31, 1996. The pro forma condensed statements of income have been prepared assuming the transa ction was consummated at the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Payment of $5,793,000 in cash (representing 49% of total consideration) and issue of 396,398 of ABC common in exchange for 100% of the equity of Southland for a total consideration of $ 11,822,000.
(2) Elimination of investment in Southland and allocation of purchase price as follows:
(a) Write-up of land and buildings to approximate market value.
(b) $2,250,000, representing approximately 50% of the excess of purchase price over the fair value of net assets acquired, has been tentatively allocated as a premium paid for the customer deposit base. The allocation is subject to a statistical study to determine the ultimate customer deposit base premium. For purposes of the pro forma financial statements, the premium is being amortized over a period of 10 years.
(c) The remainder of the excess of purchase price over the fair value of net assets acquired amounting to $2,504,000 has been considered to be goodwill and is being amortized over a period of 15 years.
PF-23
STATEMENTS OF INCOME:
(3) Pro forma adjustments to income resulting from the allocation of the purchase price of Southland as follows:
(a) Depreciation of the write-up of buildings using the straight- line method over the estimated average remaining life of 30 years.
(b) Amortization of the customer deposit base premium using the straight-line method over a period of 10 years.
(c) Amortization of goodwill using the straight-line method over a period of 15 years.
(4) Loss of interest on Federal funds sold used to fund the acquisition using an average rate of 5.5%.
(5) Tax effect of pro forma adjustments for reduction in interest income using a tax rate of 34%.
C. The following is the effect of the purchase adjustments described in Note B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC Bancorp and Subsidiaries Combined with Southland Bancorporation.
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
------------------------ ----------- ------------ ------------ --------
1996 $17,000 $225,000 $167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
|
No tax effects relating to the purchase adjustments have been recorded because the Company is acquiring the stock of Southland and will not be allowed any taxable deductions for the above adjustments.
PF-24
ABC BANCORP AND SUBSIDIARIES,
CENTRAL BANKSHARES, INC.
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of March 31, 1996 has been prepared to reflect the acquisition by ABC (after the proposed acquisitions of Central and Southland) of 100% of First National after giving effect to the adjustments described in the notes to the pro forma condensed financial statements. These statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Proxy Statement.
ABC PRO FORMA
CENTRAL FIRST ADJUSTMENTS
SOUTHLAND NATIONAL (NOTES A PRO FORMA
COMBINED HISTORICAL AND B) COMBINED
--------- ---------- ------------- ------------
ASSETS
- ------
Cash and due from banks $ 21,664 $ 2,118 $ $ 23,782
Federal funds sold 15,742 3,100 18,842
Investment securities 92,958 11,332 104,290
Loans, net 328,745 35,015 363,760
Premises and equipment 11,340 1,463 12,803
Investment in First National 5,593 (1)
(5,593) (2)
Excess cost over fair value of assets
acquired 6,750 6,750
Other assets 15,423 836 16,259
--------- ---------- ------------ -------------
$ 492,622 $ 53,864 $ $ 546,486
========= ========== ============ =============
LIABILITIES AND EQUITY
- ----------------------
Deposits $ 425,874 $ 47,863 $ $ 473,837
Other liabilities 9,736 408 10,144
Long-term debt 12,108 12,008
--------- ---------- ----------- --------------
Total liabilities 447,718 48,271 495,989
========= ========== =========== ==============
EQUITY
- ------
Common stock 4,484 690 (1) 5,174
Capital surplus 26,287 4,942 (1) 31,229
Retained earnings 15,815 15,815
Unrealized losses on securities
available for sale,
net of taxes (127) (39) (1) (166)
Treasury stock (1,555) (1,555)
Equity of First National 5,593 (5,593) (2)
--------- ---------- ------------- ------------
Total equity 44,904 5,593 50,497
--------- ---------- ------------- ------------
$ 492,622 $ 53,864 $ $ 546,486
========= ========== ============= ============
|
PF-25
ABC BANCORP AND SUBSIDIARIES,
CENTRAL BANKSHARES, INC.
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed statements of income have been prepared to reflect the acquisition by ABC (after the proposed acquisitions of Central and Southland) of 100% of First National after giving effect to the adjustments described in the notes to the pro forma condensed financial statements. These statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Proxy Statement.
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
-------------------------------- -------------------------------- --------------------------------
ABC
CENTRAL FIRST PRO FORMA ABC FIRST PRO FORMA ABC FIRST PRO FORMA
SOUTHLAND NATIONAL COMBINED CENTRAL NATIONAL COMBINED CENTRAL NATIONAL COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
---------- ---------- --------- ---------- ----------- -------- ---------- ---------- ---------
INTEREST INCOME $39,558 $4,045 $43,603 $24,581 $3,162 $27,743 $22,815 $2,510 $25,325
INTEREST EXPENSE 17,408 1,893 19,301 9,076 1,438 10,514 8,939 1,177 10,116
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income 22,150 2,152 24,302 15,505 1,724 17,229 13,876 1,333 15,209
PROVISION FOR LOAN LOSSES 1,060 185 1,245 818 120 938 1,384 128 1,512
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest
income after
provision for
loan losses 21,090 1,967 23,057 14,687 1,604 16,291 12,492 1,205 13,697
OTHER INCOME 5,455 524 5,979 3,692 355 4,047 3,478 289 3,767
OTHER EXPENSE 18,612 1,573 20,185 13,342 1,420 14,762 12,378 1,256 13,634
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
income taxes and
cumulative effect 7,933 918 8,851 5,037 539 5,576 3,592 238 3,830
INCOME TAXES 2,689 306 2,995 1,480 223 1,703 979 - 979
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
cumulative effect 5,244 612 5,856 3,557 316 3,873 2,613 238 2,851
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE - - - - - - 346 - 346
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations $ 5,244 $ 612 $ 5,856 $ 3,557 $ 316 $ 3,873 $ 2,959 $ 238 $ 3,197
======= ====== ======= ======= ====== ======= ======= ====== =======
INCOME PER SHARE FROM
CONTINUING OPERATIONS $ 1.19 $ 0.94 $ 0.86
======= ======= =======
|
PF-26
ABC BANCORP AND SUBSIDIARIES,
CENTRAL BANKSHARES, INC.
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 THREE MONTHS ENDED MARCH 31, 1995
----------------------------------- -----------------------------------
ABC ABC
CENTRAL FIRST PRO FORMA CENTRAL FIRST PRO FORMA
SOUTHLAND NATIONAL COMBINED SOUTHLAND NATIONAL COMBINED
COMBINED HISTORICAL (NOTE A) COMBINED HISTORICAL (NOTE A)
----------------------------------- ------------------------------------
INTEREST INCOME $10,540 $ 1,071 $11,611 $9,261 $ 938 $10,199
INTEREST EXPENSE 4,687 538 5,225 3,831 393 4,224
------ ------- ------ ------ ------- -------
Net interest income 5,853 533 6,386 5,430 545 5,975
PROVISION FOR LOAN LOSSES 180 50 230 277 25 302
------ ------- ------ ------ ------- -------
Net interest income
after provision for
loan losses 5,673 483 6,156 5,153 520 5,673
OTHER INCOME 1,506 123 1,629 1,414 85 1,499
OTHER EXPENSE 4,671 397 5,068 4,660 391 5,051
------ ------- ------ ------ ------- -------
Income from continuing
operations before
income taxes and
cumulative effect 2,508 209 2,717 1,907 214 2,121
INCOME TAXES 896 76 972 688 81 769
------ ------- ------ ------ ------- -------
Income from operations
before cumulative effect 1,612 133 1,745 1,219 133 1,352
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE - - - - - -
------ ------- ------ ------ ------- -------
Income from continuing
operations $1,612 $ 133 $1,745 $1,219 $ 133 $ 1,352
====== ======= ====== ====== ======= =======
INCOME PER SHARE FROM CONTINUING
OPERATIONS $ 0.35 $ 0.27
====== =======
|
PF-27
ABC BANCORP AND SUBSIDIARIES,
CENTRAL BANKSHARES, INC.
AND SOUTHLAND BANCORPORATION
COMBINED WITH FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the transaction was consummated on March 31, 1996. The pro forma condensed statements of income have been prepared assuming the transaction was consummated on January 1, 1993, the beginning of the earliest fiscal year presented.
B. The following pro forma adjustments have been applied to give effect to the proposed transactions described in this Proxy Statement.
BALANCE SHEET:
(1) Issue of 690,259 shares of ABC common stock in exchange for 100% of the equity of First National.
(2) Elimination of investment in First National.
C. The following is the effect of the purchase adjustments described in Note B(3) of Notes to the Pro Forma Condensed Financial Statements of ABC Bancorp and Subsidiaries Combined with Southland Bancorporation.
DEPRECIATION AMORTIZATION
OF WRITE-UP OF DEPOSIT AMORTIZATION
OF BANK BASE OF
YEAR ENDING DECEMBER 31, BUILDINGS PREMIUM GOODWILL TOTAL
------------------------ ----------- ------------ ------------ --------
1996 $17,000 $225,000 $167,000 $409,000
1997 17,000 225,000 167,000 409,000
1998 17,000 225,000 167,000 409,000
1999 17,000 225,000 167,000 409,000
2000 17,000 225,000 167,000 409,000
|
No tax effects relating to the purchase adjustments have been recorded because the Company is acquiring the stock of Southland and will not be allowed any taxable deductions for the above adjustments.
PF-28
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS MAR 31, 1996 DEC 31, 1995
- ------------------------------------------------- ------------ ------------
Cash and due from banks $ 16,855 $ 23,612
Securities available for sale, at fair value 46,618 39,991
Securities held to maturity, at cost 10,298 10,269
(fair value $10,479 and $10,462, respectively)
Federal funds sold 21,535 41,025
Loans 223,305 214,251
Less allowance for loan losses 4,428 4,272
-------- --------
Loans, net 218,877 209,979
-------- --------
Premises and equipment, net 7,222 6,942
Other assets 14,184 9,687
-------- --------
$335,589 $341,505
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------
Deposits
Noninterest-bearing demand $ 45,125 $ 58,430
Interest-bearing demand 74,410 71,833
Savings 24,075 22,318
Time, $100,000 and over 38,653 37,773
Other time 111,122 110,634
-------- --------
Total deposits 293,385 300,988
Securities sold under repurchase agreements and
other borrowing 529 3,487
Other time 7,100 3,095
-------- --------
Total liabilities 301,014 307,570
-------- --------
Stockholders' equity
Common stock, par value $1;
10,000,000 shares authorized,
3,597,074 shares issued 3,597 3,597
Capital surplus 16,826 16,826
Retained earnings 15,815 14,918
Unrealized gains (losses) on securities
available for sale, net of taxes (108) 149
-------- --------
36,130 35,490
Less cost of 217,882 shares acquired for
the treasury (1,555) (1,555)
-------- --------
Total stockholders' equity 34,575 33,935
-------- --------
$335,589 $341,505
======== ========
|
See Notes to Consolidated Financial Statements.
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1996 1995
---------- ----------
Interest income
Interest and fees on loans $ 5,872 $ 5,176
Interest on taxable securities 668 516
Interest on nontaxable securities 134 133
Interest on deposits in other banks 0 18
Interest on Federal funds sold 377 314
---------- ----------
7,051 6,157
---------- ----------
Interest expense
Interest on deposits 2,910 2,291
Interest on securities sold under repurchase
agreements and other borrowings 31 57
---------- ----------
2,941 2,348
---------- ----------
Net interest income 4,110 3,809
Provision for loan losses 180 180
---------- ----------
Net interest income after provision for
loan losses 3,930 3,629
---------- ----------
Other income
Service charges on deposit accounts 668 602
Other service charges, commissions and fees 233 229
Other 26 55
---------- ----------
Total other income 927 886
---------- ----------
Other expense
Salaries and employee benefits 1,670 1,519
Equipment expense 270 278
Occupancy expense 207 231
Amortization of intangible assets 79 79
Data processing fees 346 337
Directors fees 49 47
FDIC premiums 3 145
Other operating expenses 393 364
---------- ----------
Total other expenses 3,017 3,000
---------- ----------
Income before income taxes 1,840 1,515
Applicable income taxes 605 487
---------- ----------
Net income $ 1,235 $ 1,028
========== ==========
Income per common share $0.37 $0.31
========== ==========
Average shares outstanding 3,379,192 3,352,525
========== ==========
|
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,235 $ 1,028
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 227 199
Provision for loan losses 180 180
Amortization of intangible assets 79 67
Other prepaids, deferrals and accruals, net (547) (941)
--------- ---------
Total adjustments (61) (495)
--------- ---------
Net cash provided by (used in)
operating activities 1,174 533
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities held for
investment 6,145 3,928
Purchase of securities available for sale (12,561) (3,607)
Purchase of securities held for investment (500) --
(Increase) decrease in Federal funds sold 19,490 (1,663)
(Increase) decrease in loans (9,153) (3,510)
Purchase of premises and equipment (483) (217)
--------- ---------
Net cash provided by (used in) investing
activities 2,938 (5,069)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (8,613) (20)
Net increase (decrease) in repurchase agreements (2,694) (1,198)
Increase (decrease) of long-term debt -- 2,000
Dividends paid (338) (230)
--------- ---------
Net cash provided by (used in) financing
activities (11,645) 543
--------- ---------
Net increase (decrease) in cash and due from Banks ($ 7,533) ($ 3,993)
Cash and due from banks at beginning of year 24,388 20,495
--------- ---------
Cash and due from banks at end of quarter $ 16,855 $ 16,502
========= =========
|
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of ABC Bancorp and subsidiaries ("the Company") conform to generally accepted accounting principles and to general practices within the banking industry. The interim consolidated financial statements included herein are unaudited, but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All adjustments reflected in the interim financial statements are of normal, recurring nature. Such financial statements should be read in conjunction with the financial statements and notes thereto and the report of independent auditors included in the Company's Form 10-K Annual Report for the year ended December 31, 1995. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results to be expected for the full year.
NOTE 2. STOCKHOLDERS' EQUITY
As of July 17, 1995, a 4-for-3 stock split in the form of a Common Stock dividend on the outstanding shares of the Company's Common Stock became effective. Fractional shares were paid in cash. All per share information reflects retroactively this stock split.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
ABC Bancorp
Moultrie, Georgia
We have audited the accompanying consolidated balance sheets of ABC BANCORP AND SUBSIDIARIES as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ABC Bancorp and Subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective January 1, 1993, the Company changed its method of accounting for income taxes.
/s/ Mauldin & Jenkins
------------------------
Albany, Georgia
January 24, 1996
|
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
ASSETS 1995 1994
- ------ -------- --------
Cash and due from banks $ 23,612 $ 20,089
Federal funds sold 41,025 21,902
Securities available for sale,
at fair value (Note 2) 39,991 1,910
Securities held to maturity,
at cost (fair value $10,462
and $43,024) (Note 2) 10,269 44,595
Loans (Note 3) 214,251 192,124
Less allowance for loan losses 4,272 3,757
--------- ---------
Loans, net 209,979 188,367
--------- ---------
Premises and equipment, net (Note 4) 6,942 7,171
Other assets 9,687 8,765
--------- ---------
$341,505 $292,799
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits
Noninterest-bearing demand $ 58,430 $ 48,450
Interest-bearing demand 71,833 63,262
Savings 22,318 23,644
Time, $100,000 and over 37,773 27,291
Other time 110,634 94,222
-------- ---------
Total deposits 300,988 256,869
Securities sold under repurchase
agreements 1,887 2,338
Other short-term borrowings 1,600 -
Other liabilities 3,095 3,142
--------- --------
Total liabilities 307,570 262,349
--------- --------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 8)
STOCKHOLDERS' EQUITY (Note 10)
Common stock, par value $1;
10,000,000 shares authorized,
3,597,074 and 2,697,987 shares
issued, respectively 3,597 2,698
Capital surplus 16,826 17,728
Retained earnings 14,918 11,753
Unrealized gains (losses) on
securities available for sale, net
of taxes 149 (49)
-------- ---------
35,490 32,130
Less cost of shares acquired for the
treasury, 217,882 and 183,412
shares, respectively (1,555) (1,680)
--------- ---------
Total stockholders' equity 33,935 30,450
--------- ---------
$ 341,505 $292,799
========== ==========
|
See Notes to Consolidated Financial Statements.
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
1995 1994 1993
-------- -------- --------
INTEREST INCOME
Interest and fees on loans $ 22,647 $ 18,017 $ 16,278
Interest on taxable securities 2,271 1,863 1,892
Interest on nontaxable securities 551 610 597
Interest on deposits in other banks 65 105
Interest on Federal funds sold 1,234 773 825
-------- -------- --------
26,703 21,328 19,697
-------- -------- --------
INTEREST EXPENSE
Interest on deposits 10,371 7,603 7,476
Interest on securities sold
under repurchase agreements 77 68 18
Interest on other borrowings 225 157 238
-------- -------- --------
10,673 7,828 7,732
-------- -------- --------
Net interest income 16,030 13,500 11,965
PROVISION FOR LOAN LOSSES (Note 3) 848 638 1,191
-------- -------- --------
Net interest income
after provision for
loan losses 15,182 12,862 10,774
-------- -------- --------
OTHER INCOME
Service charges on deposit
accounts 2,595 2,456 2,299
Other service charges,
commissions and fees 301 224 230
Other 380 345 338
-------- -------- --------
3,276 3,025 2,867
-------- -------- --------
OTHER EXPENSES
Salaries and employee benefits
(Note 5) 6,210 5,711 5,238
Equipment expense 1,074 1,091 723
Occupancy expense 756 663 844
Amortization of intangible assets 268 268 279
Data processing fees 372 448 290
Directors fees 314 291 270
FDIC premiums 301 559 551
Other operating expenses (Note 6) 2,933 2,516 2,340
-------- -------- --------
12,228 11,547 10,535
-------- -------- --------
|
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
1995 1994 1993
-------- ------- -------
Income before income taxes
and cumulative effect of
accounting change $ 6,230 $ 4,340 $ 3,106
APPLICABLE INCOME TAXES (Note 7) 1,889 1,240 814
--------- ------- -------
Income before cumulative
effect of accounting change 4,341 3,100 2,292
CUMULATIVE EFFECT OF CHANGE IN METHOD
OF ACCOUNTING FOR INCOME TAXES - - 346
--------- --------- --------
Net income $ 4,341 $ 3,100 $ 2,638
========= ========= ========
INCOME PER COMMON SHARE:
Income before cumulative effect
of accounting change $ 1.29 $ 1.05 $ 0.91
Cumulative effect of accounting
change - - 0.13
--------- --------- --------
Net income (Note 1) $ 1.29 $ 1.05 $ 1.04
========= ========= ========
|
See Notes to Consolidated Financial Statements.
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
COMMON STOCK
-------------------- CAPITAL RETAINED
SHARES PAR VALUE SURPLUS EARNINGS
--------- --------- ------- --------
BALANCE, DECEMBER 31, 1992 1,950,487 $1,950 $10,152 $ 7,571
Net income 2,638
Cash dividends paid, $.29 per share (672)
Purchase of 143,024 shares of treasury
stock - - - -
--------- ------ ------- -------
BALANCE, DECEMBER 31, 1993 1,950,487 1,950 10,152 9,537
Net income - - - 3,100
Cash dividends declared, $.29 per share - - - (884)
Proceeds from sale of stock, net of stock
offering expense 747,500 748 7,576 -
Net change in unrealized losses on
securities available for sale, net of taxes - - - -
--------- ------ ------- -------
BALANCE, DECEMBER 31, 1994 2,697,987 2,698 17,728 11,753
Net income - - - 4,341
Cash dividends declared, $.35 per share - - - (1,176)
Four-for-three common stock split 899,087 899 (899) -
Purchase of fractional shares - - (3) -
Stock issued under stock option purchase plan - - - -
Net change in unrealized gains on
securities available for sale, net of taxes - - - -
--------- ------ ------- -------
BALANCE, DECEMBER 31, 1995 3,597,074 $3,597 $16,826 $14,918
========= ====== ======= =======
|
See Notes to Consolidated Financial Statements.
UNREALIZED
GAINS (LOSSES)
ON SECURITIES
AVAILABLE TREASURY STOCK
FOR SALE, --------------------
NET OF TAXES SHARES COST TOTAL
- -------------- -------- --------- -------
$ - 40,388 $ (268) $19,405
- - - 2,638
- - - (672)
- 143,024 (1,412) (1,412)
------- ------- ------- -------
- 183,412 (1,680) 19,959
- - - 3,100
- - - (884)
- - - 8,324
(49) - - (49)
------- ------- ------- -------
(49) 183,412 (1,680) 30,450
- - - 4,341
- - - (1,176)
- 61,137 - -
- - - (3)
- (26,667) 125 125
198 - - 198
------- ------- ------- -------
$ 149 217,882 $(1,555) $33,935
======= ======= ======= =======
|
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
1995 1994 1993
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,341 $ 3,100 $ 2,638
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 936 809 638
Amortization of intangible assets 268 268 279
Provision for loan losses 848 638 1,191
Provision for deferred taxes (160) (22) (170)
Write-downs of other real estate owned - 53 -
(Increase) decrease in interest receivable (775) (804) 100
Increase (decrease) in interest payable 190 104 (90)
Increase (decrease) in taxes payable (29) 184 76
Other prepaids, deferrals and accruals, net (653) 798 (178)
-------- -------- --------
Total adjustments 625 2,028 1,846
-------- -------- --------
Net cash provided by operating activities 4,966 5,128 4,484
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in interest-bearing deposits in banks - 1,257 100
Purchases of securities available for sale (21,690) (1,664) -
Purchases of securities held to maturity (1,654) (7,524) (24,502)
Proceeds from maturities of securities available for sale 4,086 - -
Proceeds from maturities of securities held to maturity 15,778 8,531 13,587
(Increase) decrease in Federal funds sold (19,123) 9,673 9,565
Increase in loans, net (22,460) (30,829) (12,435)
Purchase of premises and equipment (717) (2,303) (382)
Proceeds from the sale of premises and equipment 24 22 26
-------- -------- --------
Net cash used in investing activities (45,756) (22,837) (14,041)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 44,119 18,644 3,755
Increase (decrease) in repurchase agreements (451) (842) 3,117
Proceeds from other borrowings 1,600 - 1,412
Repayment of long-term debt - (4,677) (15)
Dividends paid (1,077) (645) (672)
Proceeds from stock offering, net - 8,324 -
Proceeds from exercise of stock options 125 - -
Purchase of fractional shares (3) - -
Purchase of shares of stock for the treasury - - (1,412)
-------- -------- --------
Net cash provided by financing activities 44,313 20,804 6,185
-------- -------- --------
|
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
1995 1994 1993
------- ------- -------
Net increase (decrease) in cash and due from banks $ 3,523 $ 3,095 $(3,372)
Cash and due from banks at beginning of year 20,089 16,994 20,366
------- ------- -------
Cash and due from banks at end of year $23,612 $20,089 $16,994
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $10,483 $ 7,724 $ 7,822
Income taxes $ 2,078 $ 1,078 $ 562
NONCASH TRANSACTIONS
Net change in unrealized gains (losses)
on securities available for sale $ 289 $ (54) $ -
Property transferred from premises and equipment
to other real estate owned $ - $ 103 $ -
Dividends declared $ 338 $ 239 $ -
|
See Notes to Consolidated Financial Statements.
ABC BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
ABC Bancorp, headquartered in Moultrie, Georgia, is the holding company (the "Company") for five community banks ("the Banks") located in the south Georgia cities of Moultrie, Quitman, Tifton, Cairo and Thomasville. The Banks operate 11 banking offices and two drive- through facilities within ABC Bancorp's market area. Through its Banks, ABC Bancorp operates a full service banking business and offers a broad range of retail and commercial banking services to its customers. The Company and the Banks are subject to the regulations of certain Federal and state agencies and are periodically examined by those regulatory agencies.
The accounting and reporting policies of the Company conform to generally accepted accounting principles and general practices within the financial services industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates.
The principles which significantly affect the determination of financial position, results of operations and cash flows are summarized below.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and due from banks includes cash on hand and amounts due from banks (including cash items in process of clearing). Cash flows from loans originated by the Banks, deposits, interest-bearing deposits and Federal funds purchased and sold are reported net.
The Company maintains amounts due from banks which, at times, may exceed Federally insured limits. The Company has not experienced any losses in such accounts.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SECURITIES AVAILABLE FOR SALE
Securities classified as available for sale are those debt securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company's assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are carried at fair value. Unrealized gains or losses are reported as increases or decreases in stockholders' equity, net of the related deferred tax effect. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings.
SECURITIES HELD TO MATURITY
Securities classified as held to maturity are those debt securities the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost adjusted for amortization of premium and accretion of discount, computed by the interest method over their contractual lives. The sale of a security within three months of its maturity date or after collection of at least 85 percent of the principal outstanding at the time the security was acquired is considered a maturity for purposes of classification and disclosure.
A decline in the fair value below cost of any available for sale or held to maturity security that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS AND INTEREST INCOME
Loans are stated at principal amounts outstanding less unearned income and the allowance for loan losses. Interest income on loans is credited to income based on the principal amount outstanding at the respective rate of interest except for add-on interest on certain instalment loans for which interest is recognized on the sum-of-the- months method.
Accrual of interest income is discontinued on loans when, in the opinion of management, collection of such interest income becomes doubtful. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current interest income. Accrual of interest on such loans is resumed when, in management's judgment, the collection of interest and principal becomes probable.
Fees on loans and costs incurred in origination of loans are recognized at the time the loan is placed on the books. Because loan fees are not significant and the majority of loans have maturities of one year or less, the results on operations are not materially different than the results which would be obtained by accounting for loan fees and costs in accordance with generally accepted accounting principles.
The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb estimated losses on existing loans that may become uncollectible, based on evaluation of the collectibility of loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and current economic conditions that may affect the borrower's ability to pay. Certain estimates are susceptible to change in the near term. Such estimates include the creditworthiness of significant borrowers and the collateral value of delinquent loans. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses, and may require the Company to record additions to the allowance based on their judgment about information available to them at the time of their examinations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS AND INTEREST INCOME (CONTINUED)
Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is impaired when it is probable the creditor will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Accrual of interest on an impaired loan is discontinued when management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is doubtful. Cash collections on impaired loans are credited to the loans receivable balance, and no interest income is recognized on those loans until the principal balance has been collected.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally by the straight-line method over the following estimated useful lives:
Years
-----
Buildings and improvements 15-40
Furniture and equipment 5-7
|
OTHER REAL ESTATE OWNED
Other real estate owned (OREO) represents properties acquired through foreclosure or other proceedings. OREO is held for sale and is recorded at the lower of the recorded amount of the loan or fair value of the properties less estimated costs of disposal. Any write-down to fair value at the time of transfer to OREO is charged to the allowance for loan losses. Property is evaluated regularly to ensure the recorded amount is supported by its current fair value and valuation allowances to reduce the carrying amount to fair value less estimated costs to dispose are recorded as necessary. Subsequent decreases in fair value and increases in fair value, up to the value established at foreclosure, are recognized as charges or credits to noninterest expense. OREO is reported net of allowance for losses in the Company's financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INTANGIBLE ASSETS
Intangible assets, arising from excess of purchase price over net assets acquired of purchased banks, are being amortized on the straight-line method over various periods not exceeding 25 years.
INCOME TAXES
The Company and its subsidiaries file a consolidated income tax return. Each subsidiary provides for income taxes based on its contribution to income taxes (benefits) of the consolidated group.
As of January 1, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No. 109 requires a balance sheet approach to accounting for income taxes and requires that deferred tax assets and liabilities be adjusted in the period of enactment for the effect of an enacted change in tax laws or rates. The adoption of SFAS No. 109 resulted in an income tax benefit of $345,937, which has been included in the consolidated statement of income for the year ended December 31, 1993 as a cumulative effect.
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws on the date of enactment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement No. 107 excludes certain financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Carrying amounts approximate fair values for the following instruments:
Cash and due from banks
Federal funds sold
Securities available for sale
Variable rate loans that reprice frequently
Credit card loans and equity line loans
Variable rate money market accounts
Variable rate certificates of deposit
Short-term borrowing
Accrued interest receivable
Accrued interest payable
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Quoted market prices, where available, or if not available, based on quoted market prices of comparable instruments for securities held to maturity.
Discounted cash flows using interest rates currently being offered on instruments with similar terms and with similar credit quality:
All loans except variable rate loans described above Fixed rate certificates of deposit
Commitments to extend credit and standby letters of credit are not recorded until such commitments are funded. The value of these commitments are the fees charged to enter into such agreements. These commitments do not represent a significant value to the Company until such commitments are funded. The Company has determined that such instruments do not have a distinguishable fair value and no fair value has been assigned to these instruments.
EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average number of shares outstanding. All per share data for prior years have been adjusted to reflect the four-for-three stock split effected in the form of a stock dividend to shareholders of record as of July 17, 1995.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. INVESTMENTS IN SECURITIES
Effective January 1, 1994, the Bank adopted Financial Accounting Standards Board Statement No. 115 "Accounting for Certain Investments in Debt and Equity Securities." Upon adoption, the Company transferred $300,005 of marketable equity securities from securities held to maturity to securities available for sale. The securities available for sale were marked to fair value resulting in a net unrealized loss of $11,986 which was included in stockholders' equity at $11,986.
Under special provisions adopted by the Financial Accounting Standards Board in October 1995, the Company transferred $20,188,243 from securities held to maturity to securities available for sale on December 31, 1995, resulting in a net unrealized gain of $94,743 which was included in stockholders' equity at $62,531 net of related taxes of $32,212.
The amortized cost and approximate fair values of investments in securities at December 31, 1995 and 1994 were as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
-------------------------------------------------
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1995:
U. S. GOVERNMENT AND AGENCY SECURITIES $37,174 $285 $ (93) $37,366
MORTGAGE-BACKED SECURITIES 2,282 69 (8) 2,343
OTHER SECURITIES 300 - (18) 282
------- ---- ------- -------
$39,756 $354 $ (119) $39,991
======= ==== ======= =======
December 31, 1994:
U. S. Government and agency securities $ 1,664 $ - $ (14) $ 1,650
Other securities 300 - (40) 260
------- ---- ------- -------
$ 1,964 $ - $ (54) $ 1,910
======= ==== ======= =======
SECURITIES HELD TO MATURITY
DECEMBER 31, 1995:
STATE AND MUNICIPAL SECURITIES $10,269 $258 $ (65) $10,462
======= ==== ======= =======
December 31, 1994:
U. S. Government and agency securities $32,159 $ 19 $(1,196) $30,982
State and municipal securities 9,819 114 (471) 9,462
Mortgage-backed securities 2,617 22 (59) 2,580
------- ---- ------- -------
$44,595 $155 $(1,726) $43,024
======= ==== ======= =======
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. INVESTMENTS IN SECURITIES (CONTINUED)
There were no sales of securities during 1995, 1994 or 1993.
The amortized cost and fair value of securities as of December 31, 1995 by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Therefore, these securities are not included in the maturity categories in the following maturity summary.
SECURITIES AVAILABLE FOR SALE SECURITIES HELD TO MATURITY
----------------------------- -----------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ------------- ---------
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------
Due in one year or less $11,541 $11,566 $ 727 $ 724
Due from one year to five years 25,633 25,800 2,734 2,748
Due from five to ten years - - 5,722 5,891
Due after ten years - - 1,086 1,099
Mortgage-backed securities 2,282 2,343 - -
Marketable equity securities 300 282 - -
------- ------- ------- -------
$39,756 $39,991 $10,269 $10,462
======= ======= ======= =======
|
Securities with a carrying value of $33,837,773 and $28,616,565 at December 31, 1995 and 1994, respectively, were pledged to secure public deposits and for other purposes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
DECEMBER 31,
----------------------
1995 1994
-------- --------
(DOLLARS IN THOUSANDS)
----------------------
Commercial and financial $ 23,733 $ 23,531
Agricultural 15,124 17,079
Real estate - construction 1,836 1,828
Real estate - mortgage, farmland 40,053 34,887
Real estate - mortgage, commercial 41,438 35,242
Real estate - mortgage, residential 52,377 44,064
Consumer instalment loans 38,976 34,220
-------- --------
Other 717 1,280
214,254 192,131
Unearned discount (3) (7)
Allowance for loan losses (4,272) (3,757)
-------- --------
$209,979 $188,367
======== ========
|
At December 31, 1995, executive officers and directors, and companies in which they have a 10 percent or more beneficial ownership, were indebted to the Company in the aggregate amount of $7,792,000. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan involved. Following is a summary of transactions:
DECEMBER 31,
----------------------
1995 1994
-------- --------
(DOLLARS IN THOUSANDS)
----------------------
BALANCE, BEGINNING OF YEAR $ 7,234 $ 8,506
Advances 5,030 4,670
Repayments (4,715) (4,890)
Transactions due to changes
in directors 243 (1,052)
-------- --------
BALANCE, END OF YEAR $ 7,792 $ 7,234
======== ========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Changes in the allowance for loan losses are as follows:
December 31,
------------------------
1995 1994
------- -------
(Dollars in Thousands)
------------------------
Balance, beginning of year $ 3,757 $ 3,571
Provision charged to operations 848 638
Loans charged off (730) (971)
Recoveries 397 519
-------- -------
Balance, end of year $ 4,272 $ 3,757
Information with respect to impaired loans as of and for the
year ended December 31, 1995 is as follows:
(Dollars in
Thousands)
---------
Loans receivable for which there is a related allowance for
credit losses $ 1,006
Loans receivable for which there is no related allowance for
credit losses 1,253
-------
Total impaired loans $ 2,259
=======
Allowance provided for impaired loans included in the
allowance for loan losses $ 163
=======
Average balance $ 3,089
=======
Interest income recognized $ 161
=======
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Loans on which the accrual of interest had been discontinued or reduced amounted to $3,817,699 at December 31, 1994. The reduction in interest income associated with nonaccrual and renegotiated loans for 1994 and 1993 is as follows. For 1995, nonaccrual loans have been included in the impaired loan information above.
December 31,
--------------------
1994 1993
-------- --------
(Dollars in Thousands)
----------------------
Income in accordance with original loan terms $ 324 $ 201
Income recognized 37 9
------- ------
$ 287 $ 192
======= ======
NOTE 4. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as follows:
December 31,
----------------------
1995 1994
-------- ---------
(Dollars in Thousands)
----------------------
Land $ 1,563 $ 1,564
Buildings 5,446 5,271
Equipment 5,936 6,223
Construction in progress 182 -
------- -------
13,127 13,058
Accumulated depreciation (6,185) (5,887)
======= =======
$ 6,942 $ 7,171
======= =======
|
Depreciation expense for the years ended December 31, 1995, 1994 and 1993 was $886,320, $738,562 and $462,368, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. EMPLOYEE BENEFIT PLANS
The Company and all subsidiaries have adopted simplified employee pension plans for substantially all employees. These plans are SEP-IRA defined contribution plans. Contributions to these plans charged to expense during 1995, 1994 and 1993 amounted to $540,766, $499,254 and $484,870, respectively.
NOTE 6. DEFERRED COMPENSATION PLANS
The Company and two subsidiary Banks have entered into separate deferred compensation arrangements with certain executive officers and directors. The plans call for certain amounts payable at retirement, death or disability. The estimated present value of the deferred compensation is being accrued over the remaining expected term of active employment. The Company and Banks have purchased life insurance policies which they intend to use to finance this liability. Aggregate compensation expense under the plans were $54,724, $81,295 and $83,459 for 1995, 1994 and 1993, respectively, and is included in other operating expenses.
NOTE 7. INCOME TAXES
The total income taxes in the consolidated statements of income are as follows:
December 31,
------------------------------
1995 1994 1993
------- -------- ------
(Dollars in Thousands)
------------------------------
Current $ 2,049 $ 1,262 $ 638
Deferred (160) (22) 176
------- ------- -----
$ 1,889 $ 1,240 $ 814
======= ======= =====
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. INCOME TAXES (Continued)
The Company's provision for income taxes differs from the amounts computed by applying the Federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows:
December 31,
-------------------------------------------------------------
1995 1994 1993
----------------- ------------------ ------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------- -------- -------- -------
(Dollars in Thousands)
-------------------------------------------------------------
Tax provision at statutory rate $2,118 34 % $1,475 34 % $1,056 34 %
Increase (decrease) resulting from:
Tax-exempt interest (216) (3) (246) (6) (274) (9)
Amortization of excess
cost over assets acquired 32 - 37 1 49 2
Changes in valuation allowance
for deferred taxes (72) (1) (50) (1) - -
Other 27 - 24 1 (17) (1)
------ ----- ------ ----- ------- -----
Provision for income taxes $1,889 30 % $1,240 29 % $ 814 26 %
====== ====== ====== ===== ====== =====
|
Net deferred income tax assets of $486,260 and $411,710 at December 31, 1995 and 1994, respectively, are included in other assets. The components of deferred income taxes are as follows:
December 31,
-----------------------
1995 1994
---------- ----------
(Dollars in Thousands)
-----------------------
Deferred tax assets:
Loan loss reserves $ 836 $ 640
Deferred compensation 148 138
Other real estate 18
Other 34 68
Net operating loss tax carryforward 285 310
Less valuation allowance (228) (300)
------ ------
1,075 874
------ ------
Deferred tax liabilities:
Deprecation and amortization (253) (179)
Amortization of intangible assets (250) (283)
Unrealized gain on securities available for sale (86) -
------ ------
(589) (462)
------ ------
Net deferred tax assets $ 486 $ 412
====== ======
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into off-balance-sheet financial instruments which are not reflected in the financial statements. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are included in the financial statements when funds are disbursed or the instruments become payable. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit and collateral policies for these off-balance-sheet financial instruments as it does for on-balance-sheet financial instruments. A summary of the Company's commitments is as follows:
December 31,
-----------------------------
1995 1994
---------- ----------
(Dollars in Thousands)
-----------------------------
Commitments to extend credit $ 36,024 $ 22,344
Credit card commitments 2,883 2,345
Standby letters of credit 905 590
--------- --------
$ 39,812 $ 25,279
========= ========
|
Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The credit risk involved in issuing these financial instruments is essentially the same as that involved in extending loans to customers. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the customer. Collateral held varies but may include real estate and improvements, marketable securities, accounts receivable, crops, livestock, inventory, equipment and personal property.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Credit card commitments are unsecured.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which the Company deems necessary.
In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management and counsel for the Company, any liability resulting from such proceedings would not have a material adverse effect on the Company's financial statements.
NOTE 9. CONCENTRATIONS OF CREDIT
The Banks make agricultural, agribusiness, commercial, residential and consumer loans to customers primarily in the twelve county area surrounding Moultrie in south central Georgia.
A substantial portion of the Company's customers' abilities to honor their contracts is dependent on the business economy in the geographical area served by the Banks.
Although the Company's loan portfolio is diversified, there is a
relationship in this region between the agricultural economy and
the economic performance of loans made to nonagricultural
customers. The Company's lending policies for agricultural and
nonagricultural customers require loans to be
well-collateralized and supported by cash flows. Collateral for
agricultural loans include equipment, crops, livestock and land.
Credit losses from loans related to the agricultural economy is
taken into consideration by management in determining the
allowance for loan losses.
A substantial portion of the Company's loans are secured by real estate in the Company's primary market area. In addition, a substantial portion of the real estate owned is located in those same markets. Accordingly, the ultimate collectibility of a substantial portion of the Company's loan portfolio and the recovery of a substantial portion of the carrying amount of real estate owned are susceptible to changes in market conditions in the Company's primary market area.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. CONCENTRATIONS OF CREDIT (Continued)
The Company has a concentration of funds on deposit at its primary correspondent bank at December 31, 1995, as follows:
Noninterest-bearing accounts $ 15,448,169
Federal funds sold 25,550,000
------------
$ 40,998,169
============
|
NOTE 10. STOCKHOLDERS' EQUITY
The primary source of funds available to the Parent Company is the payment of dividends by the subsidiary Banks. Banking regulations limit the amount of dividends that may be paid without prior approval of the Banks' regulatory agency. Approximately $2,381,100 are available to be paid as dividends by the Bank subsidiaries at December 31, 1995.
Banking regulations also require the Company to maintain minimum capital levels in relation to Company assets. At December 31, 1995, the Company's capital ratios were considered adequate based on regulatory minimum capital requirements. The minimum capital requirements and the actual capital ratios for the Company at December 31, 1995 are as follows:
Regulatory
Actual Requirement
-------- -----------
Leverage capital ratio 10.37 % 4.00 %
Risk based capital ratios:
Core capital 15.23 4.00
Total capital 16.49 8.00
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair value of the Company's financial instruments are as follows:
DECEMBER 31,
-------------------------------------------------------
1995 1994
-------------------------- -------------------------
CARRYING FAIR Carrying Fair
VALUE VALUE Value Value
---------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
-------------------------------------------------------
FINANCIAL ASSETS:
Cash and short-term investments $ 64,637 $ 64,637 $ 41,991 $ 41,991
======== ======== ======== ========
Investments in securities $ 50,260 $ 50,453 $ 46,505 $ 44,934
======== ======== ======== ========
Loans $214,251 $205,845 $192,124 $185,314
Allowance for loan losses (4,272) - (3,757) -
-------- -------- -------- --------
Loans, net $209,979 $205,845 $188,367 $185,314
======== ======== ======== ========
FINANCIAL LIABILITIES:
Noninterest-bearing demand $ 58,430 $ 58,430 $ 48,450 $ 48,450
Interest-bearing demand 71,833 71,833 63,262 63,262
Savings 22,318 22,318 23,644 23,644
Time deposits 148,407 150,186 121,513 121,595
-------- -------- -------- --------
Total deposits $300,988 $302,767 $256,869 $256,951
======== ======== ======== ========
Short-term borrowings $ 3,487 $ 3,487 $ 2,338 $ 2,338
======== ======== ======== ========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
1995 1994
-------- --------
ASSETS
Cash $ 1,027 $ 1,307
Interest-bearing deposits in banks 2,060 1,500
Investment in subsidiaries 27,607 24,461
Other assets 3,856 3,838
------- -------
Total assets $34,550 $31,106
======= =======
LIABILITIES
Other liabilities $ 615 $ 656
------- -------
Total liabilities 615 656
------- -------
STOCKHOLDERS' EQUITY 33,935 30,450
------- -------
Total liabilities and stockholders' equity $34,550 $31,106
======= =======
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
1995 1994 1993
------- ------- -------
Income
Dividends from subsidiaries $ 1,815 $ 1,170 $ 1,150
Interest 106 84 11
Fee and rental income 2,757 2,427 1,950
Other income 25 94 32
------- ------- -------
Total income 4,703 3,775 3,143
------- ------- -------
Expense
Interest - 111 193
Amortization and depreciation 423 436 423
Other expense 2,944 2,644 1,926
------- ------- -------
Total expense 3,367 3,191 2,542
------- ------- -------
Income before income taxes (benefits)
and equity in undistributed earnings
of subsidiaries 1,336 584 601
Income taxes (benefits) (58) (55) 147
------- ------- -------
Income before equity in undistributed
earnings of subsidiaries 1,394 639 454
Equity in undistributed earnings
of subsidiaries 2,947 2,461 2,184
------- ------- -------
Net income $ 4,341 $ 3,100 $ 2,638
======= ======= =======
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
1995 1994 1993
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,341 $ 3,100 $ 2,638
------- ------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 155 168 144
Amortization of intangible assets 268 268 279
Undistributed earnings of subsidiaries (2,947) (2,461) (2,184)
Increase in interest receivable (9) (6) -
Increase (decrease) in taxes payable (180) 30 19
Provision for deferred taxes 14 5 204
(Increase) decrease in due from
subsidiaries (55) 45 (49)
Other prepaids, deferrals and accruals, net (88) 50 (56)
------- ------- -------
Total adjustments (2,842) (1,901) (1,643)
------- ------- -------
Net cash provided by operating
activities 1,499 1,199 995
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in interest-bearing deposits in banks (560) (1,500) -
Purchases of premises and equipment (281) (243) (22)
Proceeds from sale of premises 17 - -
Contribution of capital to subsidiary bank - (1,500) -
------- ------- -------
Net cash used in investing activities (824) (3,243) (22)
------- ------- -------
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
1995 1994 1993
------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term debt $ - $ - $ 1,412
Repayment of long-term debt - (4,677) (15)
Proceeds from sale of stock, net of
stock offering expense 8,324
Proceeds from exercise of stock options 125 - -
Purchase of treasury stock - - (1,412)
Purchase of fractional shares (3) - -
Dividends paid (1,077) (645) (672)
------- ------- -------
Net cash provided by (used in)
financing activities (955) 3,002 (687)
------- ------- -------
Net increase (decrease) in cash (280) 958 286
Cash at beginning of year 1,307 349 63
------- ------- -------
Cash at end of year $ 1,027 $ 1,307 $ 349
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for interest $ - $ 111 $ 193
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. PENDING ACQUISITIONS
The Company has entered into a definitive merger agreement with Southland Bancorporation, Dothan, Alabama pursuant to which it would acquire all of the outstanding stock of Southland Bancorporation in exchange for a combination of cash and the Company's common stock. The total merger consideration will approximate $11.4 million. Total assets of Southland Bancorporation at December 31, 1995 were approximately $101 million. The merger is subject to approval by Southland Bancorporation shareholders and certain regulatory authorities and the registration of the Company's common stock to be issued in connection with the merger. As a result of the merger, Southland Bank, a wholly-owned subsidiary of Southland Bancorporation, will become a wholly-owned subsidiary of the Company. The merger will be accounted for as a purchase transaction.
The Company has also entered into a definitive merger agreement with Central Bankshares, Inc., Cordele, Georgia whereby it would acquire all of the outstanding common stock of Central Bankshares, Inc. in exchange for the Company's common stock. The total merger consideration will approximate $8.3 million. Total assets of Central Bankshares at December 31, 1995 were approximately $51 million. The merger is subject to approval by Central Bankshares, Inc. shareholders and certain regulatory authorities and the registration of the Company's common stock to be issued in connection with the merger. As a result of the merger, Central Bank & Trust, a wholly-owned subsidiary of Central Bankshares, Inc., will become a wholly-owned subsidiary of the Company. The merger will be accounted for as a pooling of interests.
FIRST NATIONAL FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER
MARCH 31, 31,
1996 1995
----------- -----------
ASSETS
Cash and due from banks............................. $ 2,118,356 $ 2,474,112
Federal funds sold.................................. 3,100,000 4,450,000
----------- -----------
Total cash and cash equivalents................... $ 5,218,356 $ 6,924,112
----------- -----------
Securities
Available for sale at fair value.................. $11,331,982 $11,399,640
Loans, net.......................................... 35,015,157 32,969,161
Property and equipment.............................. 1,463,355 1,479,509
Other assets........................................ 834,840 878,446
----------- -----------
Total Assets...................................... $53,863,690 $53,650,868
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits..................... $ 6,710,216 $ 7,374,007
Interest bearing deposits......................... 41,152,567 39,384,184
----------- -----------
Total deposits.................................. $47,862,783 $46,758,191
Other borrowings.................................... -- 1,000,000
Other liabilities................................... 407,764 405,361
----------- -----------
Total Liabilities................................. $48,270,547 $48,163,552
----------- -----------
Shareholders' Equity................................
Common stock, $5.00 par value, 10,000,000 shares
authorized,
495,409 shares issued.............................. $ 2,477,045 $ 2,477,045
Additional paid in capital.......................... 2,396,134 2,396,134
Retained earnings................................... 758,742 625,865
Unrealized (loss) on securities available for sale
(net of taxes)..................................... (38,778) (11,728)
----------- -----------
Total Shareholders' equity...................... $ 5,593,143 $ 5,487,316
----------- -----------
Total liabilities and Shareholders' equity........ $53,863,690 $53,650,868
=========== ===========
Refer to notes to financial statements
|
FIRST NATIONAL FINANCIAL CORPORATION
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,
1996 1995
---------- --------
Interest Income:
Interest and fees on loans................................ $ 866,422 $756,644
Interest on investment securities......................... 158,369 178,381
Interest on federal funds sold............................ 46,496 2,600
---------- --------
Total interest income.................................... $1,071,287 $937,625
Interest expense........................................... 538,548 392,976
---------- --------
Net interest ncome....................................... $ 532,739 $544,649
Provision for possible loan losses......................... 50,000 25,000
---------- --------
Net interest income after provision for loan losses...... $ 482,739 $519,649
---------- --------
Other income:
Service charges on deposit accounts....................... $ 100,912 $ 71,286
SRA fees and premiums..................................... 6,402 6,259
Other income.............................................. 15,704 13,470
(Loss) on sale of securities.............................. -- (5,614)
---------- --------
Total other income....................................... $ 123,018 $ 85,401
---------- --------
Other expenses:
Salaries and employee benefits............................ $ 213,049 $202,087
Equipment and occupancy expense........................... 18,378 20,375
Depreciation and amortization expense..................... 31,255 34,822
Data processing expense................................... 21,838 20,678
Advertising and business development...................... 5,860 5,526
Supplies and printing..................................... 12,549 11,636
Other operating expense................................... 94,398 95,581
---------- --------
Total other expense...................................... $ 397,327 $390,705
---------- --------
Income before taxes........................................ $ 208,430 $214,345
Income tax expense......................................... 75,553 81,485
---------- --------
Net income................................................. $ 132,877 $132,860
========== ========
Primary income per share................................... $ 0.25 $ 0.25
========== ========
Fully diluted income per share............................. $ 0.24 $ 0.25
========== ========
|
Refer to notes to financial statements
FIRST NATIONAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
1996 1995
----------- ----------
Interest Income:
Net Income........................................... $ 132,877 $ 132,860
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................... 31,255 34,822
Deferred income taxes............................... (14,109) --
Net amortization of premiums on securities.......... 5,474 5,493
Provision for possible loan losses.................. 50,000 25,000
(Increase) decrease in other assets................. 87,664 (207,769)
Increase in other liabilities....................... 2,403 196,690
----------- ----------
Net cash provided by operating activities............. $ 295,564 $ 187,096
----------- ----------
Cash flows from investing activities:
Proceeds from sale of securities..................... $ -- $1,493,438
Proceeds from maturities of securities............... 500,000 1,500,000
Purchase of securities............................... (500,000) (946,375)
(Increase) in loans.................................. (2,099,996) (2,602,502)
Purchase of premises and equipment: (9,916) (12,839)
----------- ----------
Net cash (used) in investing activities............... $(2,105,912) $ (568,278)
----------- ----------
Cash flows from financing activities:
Issuance of common stock............................. $ -- $ 31,500
(Decrease) in borrowings............................. (1,000,000) --
(Decrease) in federal funds purchased................ -- 600,000
Increase (decrease) in deposits...................... 1,104,592 (1,211,727)
----------- ----------
Net cash provided (used) by financing activities...... $ 104,592 $ (580,227)
----------- ----------
Net (decrease) in cash and cash equivalents........... $(1,705,756) $ (961,409)
Cash and cash equivalents, beginning of period........ 6,924,112 2,556,047
----------- ----------
Cash and cash equivalents, end of period.............. $ 5,218,356 $1,594,638
=========== ==========
SUPPLEMENTAL INFORMATION
Income taxes paid..................................... $ -- $ 77,331
Interest paid......................................... $ 543,917 $ 364,235
|
Refer to notes to financial statements
FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF ORGANIZATION
First National Financial Corporation, Albany, Georgia (the "Company"), was incorporated under the laws of the State of Georgia on August 3, 1989, for the purpose of becoming a bank holding company with respect to a proposed national bank, First National Bank of South Georgia (the "Bank") located in Albany, Georgia. Upon commencement of the Bank's principal operations on May 29, 1991, the Company acquired 100 percent of the Bank's voting stock by injecting $3,800,000 into the BAnk's capital accounts.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Reclassification. The consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation.
Basis of Accounting. The accounting and reporting policies of the Company conform to generally accepted accounting principles and to general practices in the banking industry. The Company uses the accrual basis of accounting by recognizing revenues when they are earned and recognizing expenses in the period incurred, without regarding the time of receipt of payment of cash.
Investment Securities. The Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investment in Debt and Equity Securities" ("SFAS 115") on January 1, 1994. SFAS 115 requires investments in equity and debt securities to be classified into three categories:
1. Held-to-maturity securities: These are securities which the Company has the ability and intent to hold until maturity. These securities are stated at cost, adjusted for amortization of premiums and the accretion of discounts.
2. Trading securities: These are securities which are bought and held principally for the purpose of selling in the near future. Trading securities are reported at fair market value, and related unrealized gains and losses are recognized in the income statement.
FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - CONTINUED
3. Available-for-sale securities: These are securities which are not classified as either held-to-maturity or as trading securities. These securities are reported at fair market value. Unrealized gains and losses are reported, net of tax, as separate components of shareholders' equity. Unrealized gains and losses are excluded from the income statement.
Loans, Interest and Fee Income on Loans. Loans are stated at the principal balance outstanding. Unearned discount, unamortized loan fees and the allowance for possible loan losses are deducted from total loans in the statement of condition. Interest income is recognized over the term of the loan based on the principal amount outstanding. Points on real estate loans are taken into income to the extent they represent the direct cost of initiating a loan. The amount in excess of direct costs is deferred and amortized over the expected life of the loan.
Loans are generally placed on non-accrual status when principal or interest becomes ninety days past due, or when payment in full is not anticipated. When a loan is placed on non-accrual status, interest accrued but not received in generally reversed against interest income. If collectibility is in doubt, cash receipts on non-accrual loans are not recorded as interest income, but are used to reduce principal.
Allowance for Possible Loan Losses. The provisions for loan losses charged to operating expense reflect the amount deemed appropriate by management to establish an adequate reserve to meet the present and foreseeable risk characteristics of the current loan portfolio. Management's judgement is based on periodic and regular evaluation of individual loans, the overall risk characteristics of the various portfolio segments, past experience with losses and prevailing and anticipated economic conditions. Loans which are determined to be uncollectible are charged against the allowance. Provisions for loan losses and recoveries on loans previously charged-off are added to the allowance.
Property and Equipment. Building, furniture and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight line method over the estimated useful lives of the related assets. Maintenance and repairs are charged to operations, while major improvements are capitalized. Upon retirement, sales or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts, and gain or loss is included in income from operations.
Income Taxes. The consolidated financial statements have been prepared on the accrual basis. When income and expenses are recognized in different periods for financial reporting purposes and for purposes of computing income taxes currently payable, deferred taxes are provided on such temporary differences.
FIRST NATIONAL FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2--CONTINUED
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), Under SFAS 109, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax return. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled.
Statement of Cash Flows. For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold. Generally, federal funds are purchased or sold for one day periods.
Earnings Per Share. The weighted average number of shares outstanding as well as of all the common stock equivalents must be considered for purposes of computing earnings per share. Note that common stock equivalents are securities that enable their holders to obtain additional shares of common stock. Options and warrants are common stock equivalents. They are used in the computation of earnings per share only if, upon exercise, they dilute earnings per share by 34 or more. To compute earnings per share, adjusted net income is divided by the sum of weighted average shares of common stock outstanding and of common stock equivalents.
Whenever the market price of a share of common stock exceeded the exercise price of any warrant or option during the calendar years 1996 and 1995, an increase equal to the number of shares which would be issuable on any such exercise of warrants and stock options was reflected as a common stock equivalent. However, the rule for the treasury stock method states that common stock equivalents may not exceed 20% of the outstanding shares. Thus, if upon exercise, excess funds were available to acquire more than the 20% limit on common stock equivalents, any excess proceeds were assumed to be invested in treasury securities and the income from those investments used to adjust net income accordingly.
Purchases for purposes of the primary earnings per share calculation were assumed to have been made at the average price of a share of common stock during the corresponding calendar year, while purchases for purposes of the fully diluted calculation were assumed to have been made at the quarter end price of a share of stock.
NOTE 3--BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the financial statements and footnotes thereto included in Form 10-KSB for the year ended December 31, 1995.
INDEPENDENT AUDITORS' REPORT
Board of Directors
First National Financial Corporation
Albany, Georgia
We have audited the accompanying consolidated balance sheets of First National Financial Corporation, Albany, Georgia (the "Company") and its subsidiary, First National Bank of South Georgia (the "Bank") as of December 31, 1995 and 1994, and the related consolidated statements of income, consolidated changes in shareholders' equity and consolidated cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. These audits include examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. These audits also include assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of First National Financial Corporation as of December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
FRANCIS & CO., CPA's
Atlanta, Georgia
February 9, 1996
FIRST NATIONAL FINANCIAL CORPORATION
ALBANY, GEORGIA
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------
1995 1994
----------- -----------
Cash and due from banks $ 2,474,112 $ 1,986,047
Federal funds sold (Note 5) 4,450,000 570,000
----------- -----------
Total cash and cash equivalents $ 6,924,112 $ 2,556,047
----------- -----------
Securities (Notes 2, 3 & 4):
Available-for-sale at fair values $11,399,640 $12,195,716
Held-to-maturity (Market value of
$686,062 at December 31, 1994) - - 694,151
Loans, net (Notes 2, 6 & 7) 32,969,161 28,652,512
Property and equipment, net (Notes 2 & 8) 1,479,509 1,534,253
Other assets 878,446 857,770
----------- -----------
Total Assets $53,650,868 $46,490,449
=========== ===========
|
Liabilities:
Deposits
Non-interest bearing deposits $ 7,374,007 $ 5,627,022
Interest bearing deposits 39,384,184 35,972,210
----------- -----------
Total deposits (Note 9) $46,758,191 $41,599,232
Other borrowings 1,000,000 - -
Other liabilities 405,361 470,576
----------- -----------
Total Liabilities $48,163,552 $42,069,808
----------- -----------
Commitments and contingencies
(Notes 11, 15 & 18)
Shareholders' Equity (Note 12):
Common stock, $5.00 par value, 10,000,000
shares authorized, 495,409 and 487,409
shares issued and outstanding
at Dec. 31, 1995 and 1994 $ 2,477,045 $ 2,437,045
Paid-in-capital 2,396,134 2,350,634
Retained earnings 625,865 14,355
Unrealized loss on
securities available for sale (11,728) (381,393)
----------- -----------
Total Shareholders' Equity $ 5,487,316 $ 4,420,641
----------- -----------
Total Liabilities
and Shareholders' Equity $53,650,868 $46,490,449
=========== ===========
|
Refer to notes to the consolidated financial statements.
FIRST NATIONAL FINANCIAL CORPORATION
ALBANY, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
----------------------------------------------
1995 1994 1993
----------- ---------- ----------
Interest income:
Interest and fees on loans $3,304,721 $2,444,673 $1,958,408
Interest on investment securities 643,605 667,158 472,301
Interest on federal funds sold 96,795 49,812 79,913
----------- ----------- ----------
Total interest income $4,045,121 $3,161,643 $2,510,622
Interest on deposits
and borrowings (Note 14) $1,892,754 $1,438,104 $1,177,363
----------- ----------- ----------
Net interest income 2,152,367 1,723,539 $1,333,259
Provision for possible loan losses $ 185,000 $ 120,000 $ 128,011
----------- ----------- ----------
Net interest income after
provision for loan losses $1,967,367 $1,603,539 $1,205,248
----------- ----------- ----------
Other income:
Service fees on deposit accounts $ 346,227 $ 270,667 $ 252,406
(Loss) on sale of securities (5,614) - - - -
SBA fees and premiums 116,792 - - - -
Miscellaneous, other 66,077 84,168 36,339
----------- ----------- ----------
Total other income $ 523,482 $ 354,835 $ 354,835
----------- ----------- ----------
Other expenses:
Salaries $ 672,658 $ 569,413 $ 471,439
Employee benefits 157,726 145,772 121,046
Supplies and printing 33,094 28,234 34,080
Depreciation and amortization 138,094 132,907 131,931
Data processing 72,345 85,593 74,624
Advertising and business development 37,551 56,367 45,554
Premises related expense 61,581 56,786 54,145
Other operating expenses (Note 13) 399,671 344,570 322,345
----------- ----------- ----------
Total Expenses $1,572,720 $1,419,642 $1,255,892
=========== =========== ==========
Income before taxes $ 918,129 $ 538,732 $ 238,101
Income tax expense (Notes 2 & 16) 306,619 223,000 0
----------- ----------- ----------
Net income $ 611,510 $ 315,732 $ 238,101
=========== =========== ==========
Primary income per share (Note 2) $ 1.13 $ .57 $ .49
=========== =========== ==========
Fully diluted income per share (Note 2) $ 1.12 $ .57 $ .49
=========== =========== ==========
|
Refer to notes to the consolidated financial statements.
FIRST NATIONAL FINANCIAL CORPORATION
ALBANY, GEORGIA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Number Paid Retained Unrealized Total
of Common in Earnings Gain on Shareholders'
Shares Stock Capital (Deficit) Securities Equity
-------- ---------- ---------- ---------- ---------- --------------
Balance, December 31, 1992 487,409 $2,437,045 $2,350,634 $(539,478) $ - - $4,248,201
------- ---------- ---------- --------- -------- ----------
Net income, 1993 - - - - - 238,101 - - 238,101
Balance, December 31, 1993 487,409 $2,437,045 $2,350,634 $(301,377) $ - - $4,486,302
------- ---------- ---------- --------- -------- ----------
Net income, 1994 - - - - - - 315,732 - - 315,732
Unrealized (loss) on securities - - - - - - - - (381,393) (381,393)
------- ---------- ---------- --------- -------- ----------
Balance, December 31, 1994 487,409 $2,437,045 $2,350,634 $ 14,355 $(381,393) $4,420,641
------- ---------- ---------- --------- -------- ----------
Net income, 1995 - - - - - - 611,510 - - 611,510
Exercise of options 8,000 40,000 45,500 - - - - 85,500
Unrealized (loss) on securities - - - - - - - - 369,665 369,665
------- ---------- ---------- --------- -------- ----------
Balance, December 31, 1995 495,409 $2,477,045 $2,396,134 $ 625,865 $ (11,728) $5,487,316
======= ========== ========== ========= ======== ==========
|
Refer to notes to the consolidated financial statements.
FIRST NATIONAL FINANCIAL CORPORATION
ALBANY, GEORGIA
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended
December 31,
-------------------------------------------
1995 1994 1993
----------- ----------- ----------
Cash flows from operating
activities:
Net Income $ 611,510 $ 315,732 $ 238,101
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 138,094 132,907 131,931
Net amortization of premiums on
securities 21,977 35,906 27,899
Provision for possible loan losses 185,000 120,000 128,011
(Increase) in other assets (41,416) (297,584) (230,049)
Increase in other liabilities (65,215) 41,189 159,632
----------- ------------ -----------
Net cash provided by operating activities $ 849,950 $ 348,150 $ 455,525
----------- ------------ -----------
Cash flows from investing activities:
Proceeds from sales of securities $ 1,493,438 - - $ - -
Proceeds from maturities of securities 1,800,000 2,800,000 2,350,000
Purchase of securities (1,455,523) (4,209,904) (7,377,309)
(Increase) in loans (4,501,649) (5,478,413) (4,967,777)
Purchase of premises and equipment (62,610) (40,952) (18,060)
----------- ------------ -----------
Net cash used in investing activities $(2,726,344) $(6,929,269) $(10,013,146)
----------- ------------ -----------
Cash flows from financing activities:
Issuance of common stock $ 85,500 $ - - $ - -
Borrowings 1,000,000 - - - -
Increase in deposits 5,158,959 3,826,384 11,514,977
----------- ------------ -----------
Net cash provided from financing activities $ 6,244,459 $ 3,826,384 $11,514,977
Net increase in cash and cash equivalents $ 4,368,065 $(2,754,735) $ 1,957,356
Cash and cash equivalents, beginning of period 2,556,047 5,310,782 3,353,426
----------- ------------ -----------
Cash and cash equivalents, end of period $ 6,924,112 $2,556,047 $ 5,310,782
============ ============ ===========
SUPPLEMENTAL INFORMATION:
Income taxes paid $ 314,331 $ 225,488 $ - -
============ ============ ===========
Interest paid $ 1,801,603 $1,446,431 $ 1,216,891
============ ============ ===========
|
Refer to notes to the consolidated financial statements.
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
NOTE 1 - SUMMARY OF ORGANIZATION
First National Financial Corporation, Albany, Georgia (the "Company"), was incorporated under the laws of the State of Georgia on August 3, 1989, for the purpose of becoming a bank holding company with respect to a proposed national bank, First National Bank of South Georgia (the "Bank") located in Albany, Georgia. Upon commencement of the Bank's principal operations on May 29, 1991, the Company acquired 100 percent of the Bank's voting stock by injecting $3,800,000 into the Bank's capital accounts.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Held-to-maturity securities: These are securities which the Company has the ability and intent to hold until maturity. These securities are stated at cost, adjusted for amortization of premiums and the accretion of discounts.
2. Trading securities: These are securities which are bought and held principally for the purpose of selling in the near future. Trading securities are reported at fair market value, and related unrealized gains and losses are recognized in the income statement.
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
3. Available-for-sale securities: These are securities which are not classified as either held-to-maturity or as trading securities. These securities are reported at fair market value. Unrealized gains and losses are reported, net of tax, as separate components of shareholders' equity. Unrealized gains and losses are excluded from the income statement.
Loans are generally placed on non-accrual status when principal or interest becomes ninety days past due, or when payment in full is not anticipated. When a loan is placed on non-accrual status, interest accrued but not received is generally reversed against interest income. If collectibility is in doubt, cash receipts on non-accrual loans are not recorded as interest income, but are used to reduce principal.
The Company adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," (SFAS 114") on January 1, 1995. Under the new standard, a loan is considered impaired, based on current information and events, if it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. The adoption of SFAS 114 resulted in no change to the allowance for credit losses at January 1, 1995.
In October, 1994, FASB issued Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure" (SFAS 118). SFAS 118 amends SFAS 114 to allow a creditor to use existing methods for recognizing interest income on an impaired loan, rather than the methods prescribed in SFAS 114.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax return. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled.
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
Whenever the market price of a share of common stock exceeded the exercise price of any warrant or option during the calendar years 1995 and 1994, an increase equal to the number of shares which would be issuable on any such exercise of warrants and stock options was reflected as a common stock equivalent. However, the rule for the treasury stock method states that common stock equivalents may not exceed 20% of the outstanding shares. Thus, if upon exercise, excess funds were available to acquire more than the 20% limit on common stock equivalents, any excess proceeds were assumed to be invested in treasury securities and the income from those investments used to adjust net income accordingly.
Purchases for purposes of the primary earnings per share calculation were assumed to have been made at the average price of a share of common stock during the corresponding calendar year, while purchases for purposes of the fully diluted calculation were assumed to have been made at the calendar year-end price of a share of stock.
1995 1994 1993
---- ---- ----
Primary earnings per share $1.13 $ .57 $ .49
===== ===== =====
Fully diluted earnings per share $1.12 $ .57 $ .49
===== ===== =====
Weighted average number of common
stock and common stock equivalents 561,123 584,891 487,409
======= ======= =======
|
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
NOTE 3 - SECURITIES AVAILABLE-FOR-SALE
The amortized costs and estimated market values of securities available- for-sale as of December 31, 1995 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------- ---------- -----------
U.S. Treasury $ 7,784,234 $43,016 $(34,525) $ 7,792,725
U.S. Agency 3,301,746 13,147 (39,408) 3,275,485
FHLB Stock 160,300 - - - - 160,300
Bankers' Bank Stock 57,130 - - - - 57,130
Fed. Reserve Stock 114,000 - - - - 114,000
----------- ------- -------- -----------
Total securities $11,417,410 $56,163 $(73,933) $11,399,640
=========== ======= ======== ===========
|
The amortized costs and estimated market values of securities available- for-sale as of December 31, 1994 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------- ---------- -----------
U.S. Treasury $ 9,414,777 $ - - $(398,525) $ 9,016,252
U.S. Agency 3,052,677 - - (179,343) 2,873,334
FHLB Stock 135,000 - - - - 135,000
Bankers' Bank Stock 57,130 - - - - 57,130
Fed. Reserve Stock 114,000 - - - - 114,000
----------- ------ --------- -----------
Total securities $12,773,584 $ - - $(577,868) $12,195,716
=========== ====== ========= ===========
|
The amortized cost and estimated market values of securities available-for- sale as of December 31, 1995, by contractual maturity, are shown below. Note that expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Estimated
As of December 31, 1995 Cost Value
- -------------------------------------- ----------- -----------
Due in one year or less $ 2,755,880 $ 2,750,900
Due after one through five years 8,330,100 8,317,310
Other securities (no maturity) 331,430 331,430
----------- -----------
Total securities, December 31, 1995 $11,417,410 $11,399,640
=========== ===========
|
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
During 1995, sales of available-for-sale securities aggregated $1,493,438. Gross losses on those sales were $5,614. During 1994, no securities were sold.
At December 31, 1995 and 1994, securities with a par value of $650,000 were pledged as collateral to secure public deposits and for other purposes as required or permitted by law.
NOTE 4 - SECURITIES HELD-TO-MATURITY
There were no securities designated as held-to-maturity as of December 31, 1995.
The amortized cost and estimated market values of securities held-to- maturity as of December 31, 1994 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------- ---------- -----------
U.S. Treasury $694,151 $ - - $(8,089) $686,062
-------- ------ ------- --------
Total securities $694,151 $ - - $(8,089) $686,062
======== ====== ======= ========
|
NOTE 5 - FEDERAL FUNDS PURCHASED OR SOLD
The Bank is required to maintain legal cash reserves computed by applying prescribed percentages to its various types of deposits. When the Bank's cash reserves are in excess of the required amount, it may lend the excess cash to other banks on a daily basis.
As of December 31, 1995 and 1994, the Company lent, in the aggregate, $4,450,000 and $570,000, respectively, through the federal funds market.
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
NOTE 6 - LOANS
The composition of loans by major loan category as of December 31, 1995 and
1994 is presented below:
Loan Category 1995 1994
- ------------- ----------- -----------
Commercial, financial & agricultural $11,512,612 $ 9,829,100
Real estate-construction 1,992,319 1,475,225
Real estate-mortgage 12,015,965 13,030,623
Installment 7,882,008 4,770,034
----------- -----------
Loans, gross $33,402,904 $29,104,982
Deduct: Allowance for loan losses 433,743 452,470
----------- -----------
Loans, net $32,969,161 $28,652,512
=========== ===========
|
At December 31, 1995 and 1994, all loans were accruing interest.
NOTE 7 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is a valuation reserve available to absorb future loan charge-offs. The allowance is increased by provisions charged to operating expense and by recoveries of loans which were previously written-off. The allowance is decreased by the aggregate loan balances which were deemed uncollectible during the year.
The activity within the allowance for loan losses account as of December 31, 1995, 1994 and 1993 is summarized as follows:
1995 1994 1993
------- ------- -------
Balance, beginning of year $ 452,470 $332,034 $247,000
Provisions charged to expense 185,000 120,000 128,011
Recoveries of amounts charged-off 16,622 670 683
Less: amount charged-off (220,349) (234) (43,660)
--------- -------- ----------
Balance, end of year $ 433,743 $452,470 $332,034
========= ======== ==========
|
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
NOTE 8 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation. Components of property and equipment included in the consolidated balance sheets at December 31, 1995 and 1994 were as follows:
December 31,
-------------------------
1995 1994
------------ -----------
Land $ 373,882 $ 373,882
---------- ----------
Land improvements, at cost $ 19,500 $ 19,500
Less: Accumulated depreciation (17,875) (13,975)
---------- ----------
Total leasehold improvements $ 1,625 $ 5,525
---------- ----------
Building $1,022,088 $1,022,088
Less: Accumulated depreciation (149,620) (116,971)
---------- ----------
Total building $ 872,468 $ 905,117
---------- ----------
Furniture and equipment, at cost $ 561,673 $ 513,559
Less: Accumulated depreciation (330,139) (263,830)
---------- ----------
Total furniture and equipment $ 231,534 $ 249,729
---------- ----------
Total property and equipment, net $1,479,509 $1,534,253
========== ==========
|
Land improvements are depreciated over 5 years, building over 31.5 years, and furniture and equipment range from 5 to 20 years. Depreciation expenses amounted to $117,354, $112,167 and $111,191 in 1995, 1994 and 1993, respectively.
NOTE 9 - DEPOSITS
Following is a detail of the deposit accounts at December 31, 1995 and
1994:
December 31,
------------------------
1995 1994
----------- -----------
Non-interest bearing deposits $ 7,374,007 $ 5,627,022
Interest bearing deposits:
NOW accounts 4,548,137 4,813,467
Money market accounts 4,026,386 3,485,525
Savings 2,153,626 3,070,080
Time, less than $100,000 22,195,571 19,266,889
Time, $100,000 and over 6,460,464 5,336,249
----------- -----------
Total deposits $46,758,191 $41,599,232
=========== ===========
|
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
NOTE 10 - OTHER BORROWINGS
At December 31, 1995, the Company had a $1.0 million outstanding advance from the Federal Home Loan Bank. The above advance carries an interest rate of 6.03% and matures July 5, 1996. The advance is secured by first liens on residential properties being carried on the Bank's books.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Please refer to Note 15 concerning a contract the Company executed with the Bank's chief executive officer. Additionally, Note 18 describes financial instruments with off-balance sheet risk.
NOTE 12 - SHAREHOLDERS' EQUITY
In December, 1989, the Company offered for sale 550,000 shares of its 10,000,000 authorized shares of common stock, $5.00 par value per share. The Company, upon commencement of principal operations on May 29, 1991, had sold and issued 487,409 shares at $10.00 per share. During 1995, options for 8,000 shares were exercised for a total amount of $85,500.
With each initial purchase of one share of Company's common stock, each of the Company's ten original directors was issued a warrant to purchase an additional share at $10.00 per share. The warrants may be exercised at any time prior to May 29, 2001. During 1991, 117,800 such warrants were issued in the aggregate to the Company's ten directors. No additional such warrants have been issued or exercised since inception.
The Company's shareholders adopted an incentive stock option plan (the "Plan") covering 200,000 shares of common stock. The Plan is administered by the Company's Board of Directors and provides for the granting of options to purchase shares of common stock to officers and other key employees. Generally, the shares optioned may be exercised no later than ten years from the date of grant and at a price not less than the fair market value of the Company's common stock on the date the options were granted. During 1995, no options were granted under the Plan. However, 8,000 options were exercised for an aggregate amount of $85,500 under the Plan. During 1994, the Board of Directors granted 10,500
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
options that can be exercised at $12.00 per share. No stock options were exercised during 1994. As of December 31, 1995, there were 27,500 stock options outstanding under the Plan.
In accordance with an employment agreement more fully discussed under Note 15, one officer was granted options to purchase 4,874 shares of the Company's common stock for each of the calendar years ended December 31, 1995 and 1994 at an average exercise price of $10.54 per share. Prior to 1994, the above officer was granted options to purchase 9,748 shares of common stock at a price of $10.00 per share. Note that these options were not granted pursuant to the Plan. As of December 31, 1995, none of these options had been exercised.
NOTE 13 - OTHER OPERATING EXPENSES
A summary of other operating expenses for the years ended December 31, 1995, 1994 and 1993 follows:
1995 1994 1993
-------- -------- --------
Insurance $ 24,614 $ 27,108 $ 27,276
Transportation and postage 42,428 35,966 31,527
Regulatory fees and assessments 48,302 85,706 65,389
Regulatory examinations 25,211 23,878 19,214
Legal and professional 62,733 53,922 53,478
Correspondent bank charges 25,617 21,895 18,763
Repairs and maintenance
agreements 22,486 19,136 22,451
Other operating expenses 148,280 76,959 84,247
-------- -------- --------
Total other operating expenses $399,671 $344,570 $322,345
======== ======== ========
|
NOTE 14 - INTEREST EXPENSE
Interest expenses on deposits and short-term borrowings for the years ended December 31, 1995, 1994 and 1993 are presented below:
1995 1994 1993
----------- ---------- ----------
NOW accounts $ 119,318 $ 105,021 $ 81,077
Money market accounts 130,866 104,143 100,918
Savings 72,819 79,666 63,904
Time, under $100,000 1,148,629 904,264 713,117
Time, $100,000 and over 364,236 244,016 218,347
Other borrowings 45,983 - - - -
Federal funds purchased 10,903 994 - -
---------- ---------- ----------
Total interest expense $1,892,754 $1,438,104 $1,177,363
|
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
NOTE 15 - RELATED PARTY TRANSACTIONS
The Company entered into an employment agreement with one of its directors who also serves as president and chief executive officer (the "CEO") of the Bank. The agreement commenced June 1, 1989 and expires May 29, 1996. The agreement provides for an annual base salary of $108,000, and, beginning January 1, 1994, an annual cash performance bonus equalling 5% of the annual income of the Bank, not to exceed 50% of his annual salary. Additionally, under the Agreement, as of December 31, 1995, the CEO has earned 19,496 options and may earn an additional 4,874 options during 1996. The exercise price for the options which were already earned ranged from $10.00 per share to $11.08 per share. For each of the calendar years ended December 31, 1995 and 1994, the CEO earned 4,874 options with an average exercise price of $10.54 per share. The above options may be exercised at the earlier of seven years from the date of grant or ten years from May 29, 1991. During 1995 and 1994, expenses incurred with respect to the agreement with the CEO approximated $176,753 and $147,180, respectively.
In the ordinary course of business, the Bank makes loans to officers and directors of the Company or the Bank. These loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons.
Loans to directors, principal shareholders, officers of the Company or the Bank, and their related parties, either directly or indirectly, were as follows:
1995 1994
------------ ------------
Balance, beginning of year $ 1,293,008 $ 1,071,224
Loan proceeds 1,710,770 1,520,366
Less: Loan pay-offs (1,467,820) (1,298,582)
----------- -----------
Balance, end of year $ 1,535,958 $ 1,293,008
=========== ===========
|
At December 31, 1995 and 1994, deposits by directors, their related interests and principal shareholders amounted to $1,082,900 and $998,105, respectively. In addition, several directors were compensated, exclusive of salaries, for services performed or for sales of goods to the Company or the Bank. Such compensation aggregated $40,483 and $4,708 for the years ended December 31, 1995 and 1994, respectively. Additionally, during 1995 and 1994 members of the Board of Directors were paid, in the aggregate, $18,675 and
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
$14,995, respectively, for attending and participating in Board and Committee meetings.
Please refer to Note 12 for a discussion concerning the directors and organizers stock warrants. Note 12 also discusses the incentive stock option plan which may be awarded to officers and key employees.
NOTE 16 - INCOME TAXES
The Company adopted SFAS No. 109, "Accounting for Income Taxes". Under SFAS No. 109, deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period.
As of December 31, 1995, 1994 and 1993, the Company's provision for income taxes consisted of the following:
1995 1994 1993
--------- ----------- ------------
Current $ 311,412 $ 225,488 $ 106,079
Deferred (4,793) (1,451) 1,726
Benefit of loss carryforward - - (1,037) (107,805)
--------- --------- ---------
Federal income tax expense $ 306,619 $ 223,000 $ - -
========= ========= =========
|
Deferred income taxes consist of the following:
1995 1994 1993
----------- ----------- -----------
Provision for loan losses, net $ (4,793) $ - - $ - -
Contributions - - (1,726) 1,726
Depreciation - - 275 - -
--------- ---------- -------
Total $ (4,793) $ (1,451) $ 1,726
========= ========= =======
|
The Company's provision for income taxes differs from the amounts computed by applying the federal income tax statutory rates to income before income taxes.
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
A reconciliation of federal statutory income taxes to the Company's actual income tax provision as of December 31, 1995, 1994 and 1993 follows:
1995 1994 1993
--------- ----------- ------------
Income taxes at statutory rate $ 312,163 $183,169 $ 76,109
Provision for loan losses (4,793) 40,948 30,304
Non-deductible expenses (751) - - - -
Other - - (1,117) (106,413)
---------- ---------- ---------
Total $ 306,619 $223,000 $ - -
========== ========== =========
|
NOTE 17 - PROFIT SHARING PLAN
In November, 1992, the Bank established a Profit Sharing Plan for the benefit of its employees. The Bank contributes a percentage of the annual compensation of each eligible participant to the Profit Sharing Plan. Total expense relating to the Profit Sharing Plan for the years ended December 31, 1995, 1994 and 1993 amounted to $45,000, $38,000 and $28,690, respectively.
NOTE 18 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments which include commitments to extend credit and standby letters of credit involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At December 31, 1995 and 1994, unfunded commitments to extend credit were $3,849,754 and $6,673,565, respectively. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
credit, is based on management's credit evaluation of the counter-party. Collateral varies but may include accounts receivable, inventory, property, plant, and equipment, and income producing commercial properties.
At December 31, 1995 and 1994, commitments under letters of credit aggregated approximately $353,200 and $178,700, respectively. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral varies but may include accounts receivable, inventory, equipment, marketable securities and property. Since most of the letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements.
The Company's exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amounts of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
The Company makes commercial, agricultural, real estate and consumer loans to businesses and individuals generally located within a thirty-mile radius of downtown Albany, Georgia. Many of the loan customers are also depositors. Concentration of credit by loan category is set forth under Note 6 of this report. As a matter of policy and regulatory requirements, the Bank will generally not extend credit to any single borrower or group of related borrowers in excess of 25% of the Bank's stated capital. As of December 31, 1995, the Bank's stated capital amounted to approximately $4.5 million.
NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" ("SFAS 107"), requires the disclosure of estimated fair values for all financial instruments, both on-and-off balance sheet assets and liabilities, whose values may be practically estimated, along with pertinent information on those financial instruments whose values may not be so estimated.
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
Fair value estimates are made at a specific point in time and are based on relevant market information which is continuously changing. Because no quoted market prices exist for a significant portion of the Company's financial instruments, fair values for such instruments are based on management's assumptions with respect to future economic conditions, estimated discount rates, estimates of the amount and timing of future cash flows, expected loss experience and other factors. These estimates are subjective in nature involving uncertainties and matters of significant judgment. Therefore, they cannot be determined with precision. Note that changes in the assumption could significantly affect the estimates. The following disclosures should not be considered a substitute for the liquidation value of the Company and its subsidiary, but rather a good-faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination or issuance. The Company has not undertaken any steps to value any assets or liabilities that are not considered financial instruments. For example, premises, equipment, core deposits, intangibles and goodwill are not considered financial instruments.
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments.
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
Discounted cash flows have been used to value fixed rate term deposits and variable rate term deposits having reached an interest rate floor. The discount rate used is based on interest rates currently being offered by the Company on comparable deposits as to amount and term.
At December 31, 1995
------------------------
Carrying Estimated
Amount Fair Value
----------- -----------
Assets:
Cash and due from banks $ 2,474,112 $ 2,474,112
Investment securities
available for sale 11,399,640 11,399,640
Federal funds sold and
securities purchased
under agreements to resell 4,450,000 4,450,000
Loans 32,969,161 32,885,600
Liabilities:
Non-interest
bearing deposits 7,374,007 7,374,007
Interest bearing deposits 39,384,184 39,429,100
FHLB and other borrowings 1,000,000 1,000,000
|
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
NOTE 20 - DIVIDENDS
To date, the Company has paid no dividends. Future dividend policy will depend on the Bank's and Company's earnings, capital requirements, financial condition and other factors considered relevant by the Company's Board of Directors. The Bank is restricted in its ability to pay dividends under the national banking laws and regulations of the Comptroller of the Currency (the "OCC"). Generally, these restrictions require the Bank to pay dividends derived solely from net profits. Moreover, OCC prior approval is required if dividends declared in any calendar year exceed the Bank's net profit for that year combined with its retained net profits for the preceding two years.
NOTE 21 - PARENT COMPANY FINANCIAL INFORMATION
This information should be read in conjunction with the other notes to the consolidated financial statements.
December 31,
------------------------
Assets 1995 1994
- -------------------------------------- ----------- -----------
Cash and cash equivalents $ 822,495 $ 735,783
Receivables 7,033 5,813
Investment securities 200,760 200,357
Investment in Bank 4,461,543 3,477,597
Other assets 2,086 7,091
---------- ----------
Total Assets $5,493,917 $4,426,641
========== ==========
Liabilities and Shareholders' Equity
- --------------------------------------
Liabilities:
Accrued expenses $ 6,601 $ 6,000
---------- ----------
Total Liabilities $ 6,601 $ 6,000
---------- ----------
Shareholders' Equity:
Common stock $2,477,045 $2,437,045
Paid-in-capital 2,396,134 2,350,634
Retained earnings 625,865 14,355
Unrealized loss, securities
available for sale by subsidiary (11,728) (381,393)
---------- ----------
Total Shareholders' Equity $5,487,316 $4,420,641
---------- ----------
Total Liabilities and Capital $5,493,917 $4,426,641
========== ==========
|
FIRST NATIONAL FINANCIAL CORPORATION
Albany, Georgia
Notes to Consolidated Financial Statements December 31, 1995
Years ended December 31,
-----------------------------------------
1995 1994 1993
---------- ---------- ---------
Interest income $ 33,196 $ 28,544 $ 23,270
Interest expense - - - - - -
---------- ---------- ---------
Net interest margin $ 33,196 $ 28,544 $ 23,270
==========
Operating expenses:
Legal and professional $ (16,229) $ (16,351) $ (15,126)
Amortization of organization costs (5,006) (5,006) (5,006)
Other operating expense (14,732) (13,318) (13,094)
Equity in undistributed
earnings of Bank 614,281 321,863 248,057
---------- ---------- ----------
Net Income $ 611,510 $ 315,732 $ 238,101
========== ========== ==========
|
Years ended December 31,
-----------------------------------------
1995 1994 1993
---------- ---------- ---------
Cash flows from operating activities:
Net income $ 611,510 $ 315,732 $ 238,101
Equity in undistributed
(earnings) of Bank (614,281) (321,863) (248,057)
Amortization of organization costs 5,006 5,006 5,006
Increase in accrued expenses 601 4,110 990
Decrease in other assets (1,624) 2,996 2,981
----------- ----------- ----------
Net cash provided by
operating activities 1,212 5,981 $ (979)
----------- ----------- ----------
Cash flow from investing activities:
Proceeds from exercise
of stock options $ 85,500 $ - - $ - -
=========== =========== ===========
Net cash provided from
financing activities 85,500 - - - -
----------- ----------- ----------
Net increase (decrease) in cash $ 86,712 $ 5,981 $ (979)
----------- ----------- ----------
Cash, beginning of period 735,783 729,802 730,781
----------- ----------- ----------
Cash, end of period $ 822,495 $ 735,783 $ 729,802
=========== =========== ==========
|
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
(UNAUDITED)
- ----------------------------------------------------------------------------------
ASSETS 1996 1995
---- ----
Cash and due from banks $ 2,141,940 $ 1,588,742
Federal funds sold - 880,000
Securities available for sale, at fair value 7,977,966 6,070,924
Securities held for investment, at cost 2,883,580 3,251,178
Loans, less allowance for loan losses of $445,115
and $371,884 34,988,252 29,774,901
Office properties and equipment, net 1,073,524 1,190,573
Accrued interest receivable 737,889 572,472
Other assets 300,601 1,485,772
----------- -----------
$50,103,752 $44,814,562
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing demand $ 3,514,460 $ 2,728,987
Interest-bearing demand 9,668,049 9,205,791
Savings 3,148,812 3,046,732
Time, $100,000 and over 8,005,442 4,149,535
Other time 20,387,251 21,469,634
----------- -----------
Total deposits 44,724,014 40,600,679
----------- -----------
Accrued interest and other liabilities 1,080,051 454,911
----------- -----------
Total liabilities 45,804,065 41,055,590
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Capital stock, common, par value $1; 10,000,000
shares authorized, and 218,130 shares issued
and outstanding 218,130 218,130
Additional paid-in capital 2,423,300 2,423,300
Retained earnings 1,677,502 1,098,322
Unrealized gains (losses) on securities
available for sale, net of taxes (19,245) 19,220
----------- -----------
Total stockholders' equity 4,299,687 3,758,972
----------- -----------
$50,103,752 $44,814,562
=========== ===========
|
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
1996 1995
---- ----
INTEREST INCOME
Interest and fees on loans $ 925,450 $764,822
Investment securities and time deposits 171,281 143,712
Other interest income 16,228 5,853
---------- --------
1,112,959 914,387
---------- --------
INTEREST EXPENSE
Interest on deposits 539,327 397,345
Interest on borrowed money 800 5,950
---------- --------
540,127 403,295
---------- --------
Net interest income 572,832 511,092
PROVISION FOR LOAN LOSSES - 45,000
---------- --------
Net interest income after provision
for loan losses 572,832 466,092
---------- --------
OTHER INCOME
Service charges 127,873 113,694
Other income 51,755 45,925
---------- --------
179,628 159,619
---------- --------
GENERAL AND ADMINISTRATIVE EXPENSES
Employee compensation and benefits 227,431 210,687
Occupancy and equipment 77,480 90,635
Other operating expenses 170,522 174,859
---------- --------
475,433 476,181
---------- --------
Income before income taxes 277,027 149,530
APPLICABLE INCOME TAXES 104,578 57,099
---------- --------
Net income $ 172,449 $ 92,431
========== ========
PER SHARE OF COMMON STOCK
Net income $ .79 $ .42
========== ========
|
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
1996 1995
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 172,449 $ 92,431
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 33,516 38,857
Provision for loan losses - 45,000
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable 7,866 (21,895)
(Increase) decrease in other assets 999,292 (25,451)
Decrease in accrued interest payable (97,277) (65,926)
(Increase) decrease in accrued expenses and
other liabilities 485,432 (8,962)
----------- ----------
Net cash provided by operating activities 1,601,278 54,054
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in Federal funds sold 2,010,000 700,000
Purchases of securities available for sale (819,417) (1,447,465)
Proceeds from sales of securities available for sale 660,797 1,115,432
Net increase in loans (2,089,075) (1,184,487)
Purchases of property and equipment - (5,930)
----------- ----------
Net cash used in investing activities (237,695) (822,450)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of dividends - (108,850)
Net increase (decrease) in customer deposits (1,486,822) 1,852,819
----------- ----------
Net cash provided by (used in) financing
activities (1,486,822) 1,743,969
----------- ----------
Net increase (decrease) in cash and due from banks (123,239) 975,573
Cash and due from banks at beginning of period 2,265,179 613,169
----------- ----------
Cash and due from banks at end of period $ 2,141,940 $1,588,742
=========== ==========
|
CENTRAL BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The accompanying unaudited consolidated financial statements, which are for interim periods, do not include all disclosures provided in the annual consolidated financial statements. These financial statements and the notes thereto should be read in conjunction with the annual financial statements and the notes thereto for the years ended December 31, 1995 and 1994 included elsewhere in this Proxy Statement/Prospectus.
(2) All material intercompany balances and transactions have been eliminated.
(3) In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the financial statements. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results to be expected for the full year.
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS
CENTRAL BANKSHARES, INC.
CORDELE, GEORGIA
We have audited the accompanying consolidated balance sheets of CENTRAL BANKSHARES, INC. AND SUBSIDIARY as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Central Bankshares, Inc. and subsidiary, as of December 31, 1995 and 1994, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles.
/s/ Mauldin & Jenkins
-----------------------------
Macon, Georgia
January 26, 1996
|
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
ASSETS 1995 1994
----------- -----------
Cash and due from banks $ 2,265,179 $ 613,169
Federal funds sold 2,010,000 1,580,000
Securities available for sale, at fair value
(Note 2) 7,657,910 4,761,587
Securities held for investment, at cost (fair value
$3,153,364 and $3,806,937) (Note 2) 3,167,994 4,086,463
Loans, less allowance for loan losses of $477,618
and $316,348 (Note 3) 32,899,177 28,635,414
Office properties and equipment, net (Note 4) 1,107,040 1,223,500
Accrued interest receivable 745,755 550,577
Other assets 1,299,893 1,460,321
----------- -----------
$51,152,948 $42,911,031
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing demand $ 3,855,460 $ 3,826,152
Interest-bearing demand 10,088,278 9,764,121
Savings 2,996,337 3,028,255
Time, $100,000 and over 7,796,339 3,381,390
Other time 21,474,422 18,747,942
----------- -----------
Total deposits 46,210,836 38,747,860
Accrued interest and other liabilities 734,867 473,397
----------- -----------
Total liabilities 46,945,703 39,221,257
----------- -----------
Commitments and contingent liabilities (Note 7)
Stockholders' equity (Notes 6 and 9)
Capital stock, common, par value $1; 10,000,000
shares authorized, and 218,130 shares issued
and outstanding 218,130 218,130
Additional paid-in capital 2,423,300 2,423,300
Retained earnings 1,505,053 1,114,741
Unrealized gains (losses) on securities
available for sale, net of taxes 60,762 (66,397)
----------- -----------
Total stockholders' equity 4,207,245 3,689,774
----------- -----------
$51,152,948 $42,911,031
=========== ===========
|
See Notes to Consolidated Financial Statements.
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
1995 1994
----------- -----------
Interest income
Interest and fees on loans $ 3,488,170 $ 2,771,563
Investment securities and time deposits 582,433 441,072
Other interest income 70,851 39,967
----------- -----------
4,141,454 3,252,602
----------- -----------
Interest expense
Interest on deposits 1,953,037 1,236,982
Interest on borrowed money 6,486 10,851
----------- -----------
1,959,523 1,247,833
----------- -----------
Net interest income 2,181,931 2,004,769
Provision for loan losses (Note 3) 139,774 180,000
----------- -----------
Net interest income after provision for
loan losses 2,042,157 1,824,769
----------- -----------
Other income
Service charges 507,685 500,964
Net realized gains (losses) on sales of
securities available for sale (14,432) 1,820
Other income 103,022 164,503
----------- -----------
596,275 667,287
----------- -----------
General and administrative expenses
Employee compensation and benefits 952,094 903,265
Occupancy and equipment 279,587 273,938
FDIC insurance premiums 90,502 81,975
Advertising 58,631 46,047
Directors fees and benefits 50,268 52,069
Other operating expenses 442,812 437,179
----------- -----------
1,873,894 1,794,473
----------- -----------
Income before income taxes 764,538 697,583
Applicable income taxes (Note 5) 265,341 240,324
----------- -----------
Net income $ 499,197 $ 457,259
=========== ===========
Per share of common stock
Net income $ 2.20 $ 2.03
=========== ===========
|
See Notes to Consolidated Financial Statements.
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
Unrealized
Gains
(Losses) on
Securities
Available
Common Stock Additional for Sale,
---------------------- Paid-in Retained Net of
Shares Par Value Capital Earnings Taxes Total
------- --------- ---------- ---------- ------------- ----------
Balance, December 31, 1993 220,000 $220,000 $2,450,000 $ 657,482 $ - $3,327,482
Net income - - - 457,259 - 457,259
Purchase and simultaneous
retirement of the Company's
common stock (1,870) (1,870) (26,700) - - (28,570)
Net change in unrealized
gains (losses) on securities
available for sale, net of
taxes - - - - - (66,397)
------- -------- ---------- ---------- -------- ----------
Balance, December 31, 1994 218,130 218,130 2,423,300 1,114,741 (66,397) 3,689,774
Net income - - - 499,197 - 499,197
Payment of dividends - - - (108,885) - (108,885)
Net change in unrealized
gains (losses) on securities
available for sale, net of
taxes - - - - 127,159 127,159
------- -------- ---------- ---------- -------- ----------
Balance, December 31, 1995 218,130 $218,130 $2,423,300 $1,505,053 $ 60,762 $4,207,245
======= ======== ========== ========== ======== ==========
|
See Notes to Consolidated Financial Statements.
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 499,197 $ 457,259
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 184,329 191,161
Provision for loan losses 139,774 180,000
Amortization on investments 8,447 42,560
Deferred income tax (benefits) expense (48,205) 51,712
Net realized gains (losses) on securities
available for sale 15,738 (1,820)
Changes in assets and liabilities:
Increase in accrued interest receivable (195,178) (81,624)
(Increase) decrease in other assets 61,870 (1,121,855)
Increase in accrued interest payable 118,173 93,842
(Increase) decrease in accrued expenses and
other liabilities 191,502 (80,453)
----------- -----------
Net cash provided by (used in) operating
activities 975,647 (269,218)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in Federal funds sold (430,000) (727,000)
Purchases of securities available for sale (7,396,446) (3,948,789)
Proceeds from sales of securities available
for sale 3,143,929 3,303,253
Proceeds from maturities of securities
available for sale 1,629,725 1,250,000
Purchases of securities held for investment - (3,540,719)
Proceeds from maturities of securities held
for investment 819,478 805,047
Net increase in loans (4,403,538) (1,620,796)
Purchases of property and equipment (40,876) (98,667)
----------- -----------
Net cash used in investing activities (6,677,728) (4,577,671)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of dividends (108,885) -
Repayment of note payable - (61,973)
Net increase in customer deposits 7,462,976 3,205,160
Purchase of common stock for the treasury - (28,570)
----------- -----------
Net cash provided by financing activities 7,354,091 3,114,617
----------- -----------
|
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
1995 1994
----------- -----------
|
Net increase (decrease) in cash and due from banks $1,652,010 $(1,732,272)
Cash and due from banks at beginning of year 613,169 2,345,441
---------- -----------
Cash and due from banks at end of year $2,265,179 $ 613,169
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments for: Interest $1,841,350 $1,154,955 Income taxes $ 207,474 $ 263,119 |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITY
Other real estate acquired in settlement of loans $ 98,623 $ 216,660 Net change in unrealized gains (losses) on securities available for sale $ 127,159 $ (66,397) |
See Notes to Consolidated Financial Statements.
CENTRAL BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Central Bankshares, Inc. is a one-bank holding company whose business is presently conducted by its wholly-owned subsidiary, Central Bank and Trust. The Company provides a full range of banking services to individual and corporate customers in its primary market of Crisp County, Georgia and surrounding counties. The Company is subject to competition from other financial institutions and the regulations of certain federal and state agencies. The Company is periodically examined by certain regulatory authorities.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiary. Significant intercompany transactions and accounts are eliminated in consolidation. The accounting and reporting policies of the Company and its subsidiary conform to generally accepted accounting principles and with general practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that effect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates.
The principles which significantly affect the determination of financial position, results of operations and cash flows are summarized below:
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and due from banks includes cash on hand and amounts due from banks (including cash items in process of clearing). Cash flows from loans originated by the Company, deposits, interest-bearing deposits, Federal funds purchased and sold are reported net.
The Company maintains amounts due from banks which, at times, may exceed Federally insured limits, and has experienced no related losses.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities Available for Sale
Securities classified as available for sale are those debt securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company's assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are carried at fair value. Unrealized gains and losses are reported as increases and decreases in stockholders' equity, net of the related deferred tax effect. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings.
Securities Held for Investment
Securities classified as held for investment are those debt securities the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost adjusted for amortization of premium and accretion of discount, computed by the interest method over their contractual lives. The sale of a security within three months of its maturity date or after collection of at least 85 percent of the principal outstanding at the time the security was acquired is considered a maturity for purposes of classification and disclosure.
A decline in the fair value below cost of any available for sale or held to maturity security that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security.
Loans
Loans are stated at the amount of unpaid principal, reduced by unearned discount. Interest on loans is credited to income on a daily basis based upon the principal amount outstanding, except for certain installment loans which is credited to income based on the sum-of-the-months-digits method, the results of which are not materially different from generally accepted accounting principles.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
Accrual of interest income is discontinued on loans when, in the opinion of management, collection of such interest income becomes doubtful. Accrual of interest on such loans is resumed when, in management's judgment, the collection of interest and principal becomes probable.
Loan Fees
Fees on loans and costs incurred in origination of loans are recognized at the time the loan is placed on the books. Because loan fees are not significant and the majority of loans have maturities of one year or less, the results of this method of accounting are not materially different than the results which would be obtained by accounting for loan costs in accordance with generally accepted accounting principles.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses charged to expenses. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible, based on evaluations of the collectibility of loans and prior loan loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower's ability to pay. Certain estimates are susceptible to change in the near term. Such estimates include the creditworthiness of significant borrowers and the collateral value of delinquent loans. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses, and may require the Company to record additions to the allowance based on their judgment about information available to them at the time of their examinations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (Continued)
Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is impaired when it is probable the creditor will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Accrual of interest on an impaired loan is discontinued when management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is doubtful. Cash collections on impaired loans are credited to the loans receivable balance, and no interest income is recognized on those loans until the principal balance has been collected.
Office Buildings and Equipment
Office buildings and equipment are stated at cost less accumulated depreciation, computed on the straight-line method over the estimated useful lives of the assets.
Income Taxes
The Company and its subsidiary file a consolidated income tax return. The subsidiary provides for income taxes based on its contribution to income taxes (benefits) of the consolidated group.
Provisions for income taxes are based on amounts reported in the consolidated statements of income after exclusion of nontaxable income such as interest on state and municipal securities and include deferred taxes on temporary differences in the recognition of income and expense for tax and financial statement purposes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
Deferred taxes are computed on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws on the date of enactment.
Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107, "Disclosures About Fair Value of Financial Instruments", requires disclosure about fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement No. 107 excludes certain financial instruments from its disclosure requirements. The aggregate fair value amounts presented do not represent the underlying value of the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Value of Financial Instruments (Continued)
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Carrying amounts approximate fair values for the following instruments:
Cash and due from banks Federal funds sold Securities available for sale Variable rate loans that Variable rate money markets reprice frequently Variable rate certificates of Accrued interest receivable deposit Accrued interest payable and other liabilities |
Quoted market prices, where available, of if not available, based upon quoted market prices of comparable instruments for securities held for investment.
Discounted cash flows using interest rates currently being offered on instruments with similar terms and with similar credit quality:
All loans except variable rate loans described above
Fixed rate certificates of deposits
Commitments to extend credit and standby letters of credit are not recorded until such commitments are funded. The value of these commitments are the fees charged to enter into such agreements. These commitments do not represent a significant value to the Company until such commitments are funded. The Company has determined that such instruments do not have a distinguishable fair value and no fair value has been assigned to these instruments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share
Earnings per share are calculated on the basis of the weighted average number of shares outstanding. The effect of the stock options outstanding (see Note 6) are included in the computation of the weighted average number of shares outstanding since the effect of options is considered to be dilutive.
Reclassifications
Certain items on the consolidated financial statements as of and for the year ended December 31, 1994 have been reclassified with no effect on net income, to be consistent with the classifications adopted for the year ended December 31, 1995.
NOTE 2. INVESTMENTS IN SECURITIES
The amortized cost and fair values of investments in
securities as of December 31, 1995 and 1994 are summarized as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Securities Available for Sale
December 31, 1995:
U. S. Treasury securities $ 499,889 $ 2,611 $ - $ 502,500
U. S. Government agencies 1,451,259 36,576 - 1,487,835
Mortgage-backed securities 5,614,699 57,393 (4,517) 5,667,575
----------- --------- ---------- ----------
$7,565,847 $ 96,580 $ (4,517) $7,657,910
=========== ========= =========== ==========
December 31, 1994:
U. S. Treasury securities $2,977,008 $ - $ (64,698) $2,912,310
U. S. Government agencies 984,215 - (12,810) 971,405
Mortgage-backed securities 907,025 4,482 (33,635) 877,872
----------- --------- ---------- ----------
$4,868,248 $ 4,482 $ (111,143) $4,761,587
=========== ========= =========== ==========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. INVESTMENTS IN SECURITIES (Continued)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- ------
Securities Held for Investment:
December 31, 1995:
Mortgage-backed securities $3,002,394 $ - $ (14,630) $2,987,764
Federal Home Loan Bank stock 165,600 - - 165,600
---------- ---------- ---------- ----------
$3,167,994 $ - $ (14,630) $3,153,364
December 31, 1994:
U. S. Government agencies, one
to five years $ 500,000 $ - $ (30,715) $ 469,285
Mortgage-backed securities 3,420,863 321 (249,132) 3,172,052
Federal Home Loan Bank stock 165,600 - - 165,600
---------- ---------- ---------- ----------
$4,086,463 $ 321 $ (279,847) $3,806,937
|
Gross realized gain or loss from the sale of securities available for sale for the years ended December 31, 1995 and 1994 was $15,738 and $1,820, respectively.
The amortized cost and fair value of securities as of December 31, 1995 by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without penalty. Federal Home Loan Bank stock has no contractual maturity. Therefore, these securities are not included in the maturity categories in the following maturity summary:
Securities Available for Sale Securities Held for Investment
----------------------------- ------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------ --------- -----
Due in one year or less $ 991,835 $ 999,140 $ - $ -
Due from one year to five years 454,174 485,885 - -
Due from five years to ten years 505,140 505,310 - -
Mortgage-backed securities 5,614,698 5,667,575 3,002,394 2,987,764
Federal Home Loan Bank stock - - 165,600 165,600
---------- ---------- ---------- ----------
$7,565,847 $7,657,910 $3,167,994 $3,153,364
========== ========== ========== ==========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. INVESTMENTS IN SECURITIES (Continued)
Securities with a carrying value of $6,104,297 and $4,527,324 at December 31, 1995 and 1994, respectively, were pledged to secure public deposits and for other purposes.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
A comparative summary of loans receivable as of December 31, 1995 and 1994, is as follows:
1995 1994
----------- -----------
Real estate:
Construction and land development $ 697,869 $ 384,971
Secured by farmland 1,319,053 1,514,974
Secured by residential property 9,604,145 9,300,414
Secured by other real estate 4,123,444 3,788,888
Agricultural 3,402,984 2,696,759
Commercial 7,476,559 4,269,320
Consumer 6,650,828 6,908,351
Other 101,913 88,385
----------- -----------
33,376,795 28,952,062
Reserve for loan losses (477,618) (316,648)
----------- -----------
$32,899,177 $28,635,414
=========== ===========
|
The Company primarily lends money to customers located in the immediate geographic area.
As of December 31, 1995 and 1994, the Company serviced loans for others in the amounts of $13,819,850 and $12,642,411, respectively.
The Company had no loans it considered to be impaired other than the loans on which the accrual of interest had been discontinued. Loans on which the accrual of interest had been discontinued amounted to $10,450 and $50,574 at December 31, 1995 and 1994, respectively. There was no significant amount of interest recognized on nonaccrual loans in either year.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
At December 31, 1995 and 1994, certain executive officers and directors, and companies in which they have a 10 percent or more ownership, were indebted to the Company. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction, and repayment terms are customary. Following is a summary of transactions:
December 31,
----------------------------
1995 1994
------------ -----------
Balance, beginning of year $1,587,622 $1,125,486
Advances 1,853,368 1,369,937
Repayments (1,665,706) (907,801)
Balance, end of year $1,775,284 $1,587,622
|
Changes in the allowance for loan losses are summarized as follows:
December 31,
----------------------------
1995 1994
----------- -----------
Balance, beginning of year $ 316,648 $ 369,517
Provision charged to operations 139,774 180,000
Recoveries 24,590 33,111
Loans charged off (3,394) (265,980)
---------- ----------
Balance, end of year $ 477,618 $ 316,648
========== ==========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. OFFICE PROPERTIES AND EQUIPMENT
At December 31, 1995 and 1994, office properties and equipment consisted of the following:
1995 1994
----------- -----------
Land $ 204,498 $ 204,498
Buildings and improvements 628,449 627,703
Furniture, equipment and automobiles 1,359,872 1,330,020
----------- ----------
2,192,819 2,162,221
Accumulated depreciation (1,085,779) (938,721)
----------- ----------
$ 1,107,040 $1,223,500
========== ==========
|
For the years ended December 31, 1995 and 1994, depreciation expense amounted to $157,336 and $164,174, respectively.
NOTE 5. INCOME TAXES
The components of the income tax provision for the years ended December 31, 1995 and 1994 were as follows:
1995 1994
----------- -----------
Current tax expense $ 313,546 $ 188,612
Deferred tax (benefit) expense (48,205) 51,712
---------- ----------
$ 265,341 $ 240,324
========== ==========
|
The Company's provision for income taxes differs from amounts computed by applying the Federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows:
December 31, 1995 December 31, 1995
---------------------- ---------------------
Amount Percent Amount Percent
-------- --------- -------- ---------
Tax provision at statutory rate $259,943 34.0 % $237,178 34.0 %
State income taxes 10,257 1.3 - -
Other items, net (4,859) (.6) 3,146 .5
-------- ------- -------- -------
Provision for income taxes $265,341 34.7 % $240,324 34.5 %
======== ======== ======== =======
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INCOME TAXES (Continued)
Net deferred income tax liabilities of $7,646 and $55,851 at December 31, 1995 and 1994, respectively, are included in other liabilities. The components of deferred income taxes are as follows:
December 31,
----------------------------
1995 1994
----------- -----------
Deferred tax assets:
Loan loss reserves $ 92,857 $ 45,334
Deferred benefits payable 24,646 9,569
Writedown of other real estate owned 4,951 744
--------- ---------
122,454 55,647
--------- ---------
Deferred tax liabilities:
Depreciation and amortization 100,136 98,961
Income from life insurance contracts 29,964 -
Other liabilities - 12,537
--------- ---------
130,100 111,498
--------- ---------
Net deferred tax liabilities $ 7,646 $ 55,851
========= =========
|
NOTE 6. STOCK OPTIONS AND EARNINGS PER SHARE
The Company granted stock options to the President and Senior Vice-President for the purchase of 9,990 and 7,200 shares, respectively, of the Company's common stock. The option price is $10 per share (market value at date of grant) and the options are exercisable until October 1996. No options have expired, been exercised or canceled since granted. The options may be canceled, reduced or modified if the Board of Directors considers it necessary in connection with any proposed issuance of the Company's common stock.
Income per share of common stock includes the effect of the stock options mentioned above as if the option had been exercised at January 1, 1995. The number of common shares outstanding was increased by the number of shares issuable under the stock option and this theoretical increase in the number of common shares was reduced by the number of common shares which are assumed to have been repurchased with the applicable portion of the proceeds from the exercise of the options. Repurchase price was assumed to be the average market value during the year.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES
In the ordinary course of business, the Company may enter into off balance sheet financial instruments which are not reflected in the consolidated financial statements. These instruments include commitments to extend credit, standby letters of credit and liability for assets held in trust. Such financial instruments are recorded in the consolidated financial statements when funds are disbursed or the instruments become payable. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet.
The Company's exposure to credit losses in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies for these off balance sheet financial instruments as it does for other instruments that are recorded in the consolidated financial statements. A summary of the Company's commitments is as follows:
1995 1994
---------- ----------
Commitments to extend credit $2,792,471 $2,885,600
Standby letters of credit 175,100 220,300
---------- ----------
$2,967,571 $3,105,900
========== ==========
|
Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitment amounts expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The credit risk involved in issuing these financial instruments is essentially the same as that involved in extending other loans to customers. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, is based on management's credit evaluation of the customer. Collateral held varies but may include real estate and improvements, marketable securities, accounts receivable, inventory, equipment and personal property.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Collateral held varies as specified above and is required in instances which the Company deems necessary.
The Company does not anticipate any material losses as a result of the commitments.
The nature of the business of the Company is such that it ordinarily results in a certain amount of litigation. In the opinion of management, there is no litigation in which the outcome will have a material effect on the consolidated financial statements.
NOTE 8. CONCENTRATIONS OF CREDIT
The Company makes agricultural, agribusiness, commercial, residential and consumer loans to customers primarily in its market area of Crisp County, Georgia and surrounding counties. A substantial portion of the Company's customers' abilities to honor their contracts is dependent on the agribusiness economy in this market area.
Although the Company's loan portfolio is diversified, there is a relationship in this region between the agricultural economy and the economic performance of loans made to nonagricultural customers. The Company's lending policies for agricultural and nonagricultural customers require loans to be well-collateralized and supported by cash flows. Collateral for agricultural loans include equipment, crops, livestock, and land. Credit losses from loans related to the agricultural economy is taken into consideration by management in determining the allowance for loan losses.
A substantial portion of the Company's loans are secured by real estate in the Company's primary market area. In addition, a substantial portion of the real estate owned is located in those same markets. Accordingly, the ultimate collectibility of a substantial portion of the Company's loan portfolio and the recovery of a substantial portion of the carrying amount of real estate owned are susceptible to changes in the market conditions in the Company's primary market area.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. CONCENTRATIONS OF CREDIT (Continued)
Most of the Company's loan customers are also depositors of the Company. The concentrations of credit by type of loan are also set forth in Note 3. Standby letters of credit are granted primarily to commercial borrowers of the Company. The Company, as a matter of policy, does not generally extend credit to any single borrower or group of related borrowers in excess of 25% of the Company's combined capital stock and capital surplus accounts ($2,641,430) which amounted to $660,358 at December 31, 1995.
The Company has a concentration of funds on deposit at its principle correspondent bank at December 31, 1995, as follows:
Noninterest-bearing accounts $1,404,124
Federal funds sold 1,480,000
----------
$2,884,124
==========
|
NOTE 9. STOCKHOLDERS' EQUITY
The primary source of funds available to the Parent Company is the payment of dividends by the subsidiary. Banking regulations limit the amount of dividends that may be paid without prior approval of the subsidiary Bank's regulatory agency. Approximately $249,600 are available to be paid as dividends by the subsidiary Bank at December 31, 1995.
Banking regulations also require the Company to maintain minimum capital levels in relation to Company assets. At December 31, 1994, the Company's capital ratios were considered adequate based on regulatory requirements. The minimum capital requirements and the actual capital ratios for the Bank at December 31, 1995 are as follows:
Actual Requirement
-------- ------------
Leverage capital ratio 8.35 % 4.00 %
Risk based capital ratios:
Core capital 11.86 % 4.00 %
Total capital 13.12 % 8.00 %
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair value of the Company's financial instruments are as follows:
Carrying Fair
Value Value
----------- -----------
Financial assets:
Cash and short-term investments $ 4,275,179 $ 4,275,179
=========== ===========
Investments in securities $10,825,904 $10,811,274
=========== ===========
Loans $33,376,795 $33,053,000
Allowance for loan losses 477,618 -
----------- -----------
Loans, net $32,899,177 $33,053,000
=========== ===========
Financial liabilities:
Noninterest-bearing demand $ 3,855,460 $ 3,855,460
Interest-bearing demand 10,088,278 10,088,278
Savings 2,996,337 2,996,337
Time deposits 29,270,761 29,288,000
----------- -----------
Total deposits $46,210,836 $46,228,075
=========== ===========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. CONDENSED FINANCIAL INFORMATION ON CENTRAL BANKSHARES, INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
---------- ----------
Assets
Cash $ 14,053 $ 12,055
Due from subsidiary - -
Unamortized organization costs 30,990 43,386
Investment in subsidiary 4,162,202 3,634,984
---------- ----------
Total assets $4,207,245 $3,690,425
========== ==========
Liabilities
Due to subsidiary $ - $ 651
---------- ----------
Stockholders' equity 4,207,245 3,689,774
---------- ----------
Total liabilities and
stockholders' equity $4,207,245 $3,690,425
========== ==========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. CONDENSED FINANCIAL INFORMATION ON CENTRAL BANKSHARES, INC.
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
--------- ---------
Income, dividends received $108,885 $ 99,000
Expense, other 14,769 17,500
--------- ---------
Income before income tax
benefits and equity in undistributed
earnings of subsidiary 94,116 81,500
Income tax benefits 5,021 5,950
--------- ---------
Income before equity in
undistributed earnings of
subsidiary 99,137 87,450
Equity in undistributed earnings of
subsidiary 400,060 369,809
--------- ---------
Net income $ 499,197 $ 457,259
========= =========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. CONDENSED FINANCIAL INFORMATION ON CENTRAL BANKSHARES, INC.
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
-------- --------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $499,197 $457,259
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of organization costs 12,396 12,390
Undistributed earnings of subsidiary (400,059) (369,809)
Decrease in due from subsidiary - 2,107
Increase (decrease) in due to subsidiary (651) 651
-------- --------
Total adjustments (388,314) (354,661)
-------- --------
Net cash provided by operating
activities 110,883 102,598
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends paid (108,885) -
Retirement of debt - (61,973)
Retirement of treasury stock - (28,570)
-------- --------
Net cash used in financing
activities (108,885) (90,543)
-------- --------
Net increase in cash 1,998 12,055
Cash at beginning of year 12,055 -
-------- --------
Cash at end of year $ 14,053 $ 12,055
======== ========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. PENDING MERGER
The directors of the Company have entered into a definitive merger agreement with ABC Bancorp, a multi-bank holding company with headquarters in Moultrie, Georgia, whereby ABC Bancorp would acquire all of the outstanding common stock of the Company in exchange for common stock of ABC Bancorp. The merger is subject to approval by the Company's shareholders and certain regulatory authorities. Upon completion of the merger, Central Bank & Trust will become a wholly-owned subsidiary of ABC Bancorp. The merger will be accounted for as a pooling of interests.
SOUTHLAND BANCORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
Unaudited
(dollars in thousands except per share data)
ASSETS MARCH 31, 1996 DECEMBER 31, 1995
- ---------------------------------------- -------------- -----------------
Cash and due from banks $ 2,667 $ 4,845
Investment securities held to maturity 11,968 1,660
Investment securities available for sale 13,212 19,271
Loans 76,054 71,371
Less allowance for loan losses (1,174) (1,229)
-------- --------
Net loans 74,880 70,142
Premises and equipment 2,543 2,695
Other real estate 246 339
Other assets 1,952 1,855
-------- --------
Total assets $107,468 $100,807
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
Deposits:
Noninterest bearing $ 8,663 $ 9,295
Interest bearing 71,425 68,124
Time deposits $100,000 and over 7,777 7,409
-------- --------
Total deposits 87,865 84,828
Borrowings 12,008 8,525
Other liabilities 1,027 1,138
-------- --------
Total liabilities 100,900 94,491
-------- --------
Stockholders' Equity:
Common stock, Class A, no par:
1,800,000 shares authorized;
509,556 shares issued 26 26
Common stock, Class B, par value
$8.50 per share, 380 shares
authorized; none issued
Preferred stock, Class A, par value
$5.00 per share, 6,000 shares
authorized; none issued
Additional paid-in-capital 2,575 2,575
Unrealized holding (loss) gain on
investment securities available for (104) 4
sale,
net of tax
Retained earnings, substantially 4,137 3,777
restricted
Treasury shares at cost, 21,474 shares (66) (66)
-------- --------
Total stockholders' equity 6,568 6,316
Total liabilities and stockholders' $107,468 $100,807
equity ======== ========
See accompanying notes to consolidated financial statements
|
SOUTHLAND BANCORPORATION AND SUBSIDIARY
Consolidated Statements of Earnings
Unaudited
(dollars in thousands except per share data)
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
----------------- -----------------
Interest income:
Loans, including fees $2,041 $1,981
Interest-bearing deposits in other
financial institutions 15 --
Interest and dividends on investment
securities held to maturity
Taxable 199 13
Tax-exempt -- 1
Interest on investment securities
available for sale 201 275
------ ------
Total interest income 2,456 2,270
------ ------
Interest expense:
Deposits 1,042 930
Borrowings 164 150
------ ------
Total interest expense 1,206 1,080
------ ------
Net interest income 1,250 1,190
Provision for loan losses -- 52
------ ------
Net interest income after
provision for loan losses 1,250 1,138
------ ------
Other income:
Service charges on deposit accounts 161 159
Gain on sales of investment securities
available for sale 3 --
Gain on sales of loans 87 108
Other 148 101
------ ------
Total other income 399 368
------ ------
Other expenses:
Salaries and employee benefits 557 539
Net occupancy 91 107
Equipment 56 38
FDIC insurance 6 52
Other real estate, net 31 44
Other 335 302
------ ------
Total other expenses 1,076 1,082
------ ------
Earnings from continuing operations
before income taxes 573 424
Income tax expense 213 171
------ ------
Earnings from continuing operations 360 253
Discontinued operations net of
income tax benefit --- (12)
------ -------
Net earnings $ 360 $ 241
====== ======
Per share amounts:
Earnings from continuing operations $.74 $.52
====== ======
Net earnings $.74 $.49
====== ======
See accompanying notes to consolidated
financial statements
|
SOUTHLAND BANCORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
----------------- -----------------
Cash flows from operating activities:
Net earnings $ 360 $ 241
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 93 97
Provision for loan losses -- 52
(Accretion) of discounts and
amortization of premiums on
investment securities 18 (2)
Gain on sales of investment
securities available for sale (3) --
Loss on sale premises and equipment 1 1
Gain on sale of other real estate -- (8)
Provisions for losses of other real estate 23 43
Gain on sales of loans (87) (108)
(Increase) decrease in other assets (57) 81
(Decrease) increase in other liabilities (111) 267
------- -------
Net cash provided by
operating activities 237 664
------- -------
Cash flows from investing activities:
Proceeds from calls of investment
securities available for sale 7,000 --
Proceeds from sales of investment
securities available for sale 2,080 --
Purchase of investment securities
held to maturity (9,000) --
Purchase of investment securities
available for sale (4,580) (2,936)
Principal repayments of investment
securities held to maturity 85 7
Principal repayments of investment
securities available for sale 510 322
Net purchases of Federal Home
Loan Bank stock (480) (2)
Net increase in loans (5,625) (1,920)
Proceeds from sales of loans 974 1,785
Purchase of premises and equipment (29) (39)
Proceeds from sale of premises
and equipment 58 (24)
Proceeds from sale of other real estate 70 260
------- -------
Net cash used in investing activities (8,937) (2,547)
------- -------
|
continued
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
----------------- -----------------
Cash flows from financing activities:
Net (decrease) increase in noninterest
bearing deposits (632) 559
Net increase in interest-bearing deposits 3,300 4,269
Net increase in time deposits,
$100,000 and over 371 1,858
Principal payments on notes payable (67) (1)
Net increase in Federal Home Loan
Bank advances 3,550 --
------- -------
Net cash provided by financing activities 6,522 6,685
------- -------
Net (decrease) increase in cash and
cash equivalents (2,178) 4,802
Cash and cash equivalents at
beginning of period 4,845 3,793
Cash and cash equivalents at end of period $ 2,667 $ 8,595
======= =======
Supplemental schedule of cash flow
information:
Cash paid during the period for:
Interest $ 1,374 $ 969
======= =======
Income taxes $ 5 $ --
======= =======
See accompanying notes to consolidated financial statements
|
SOUTHLAND BANCORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 and 1995
(Unaudited)
(1) The accompanying unaudited consolidated financial statements, which are for interim periods, do not include all disclosures provided in the annual consolidated financial statements. These financial statements and the notes thereto should be read in conjunction with the annual financial statements and the notes thereto for the years ended December 31, 1995, 1994, and 1993 included elsewhere in this Proxy Statement/Prospectus.
(2) All material intercompany balances and transactions have been eliminated.
(3) In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the financial statements. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results to be expected for the full year.
The Board of Directors and Stockholders
Southland Bancorporation:
We have audited the accompanying consolidated balance sheets of Southland Bancorporation and subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Southland Bancorporation and subsidiary at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 9, the Company changed its method of accounting for income taxes in 1993 to adopt the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. As discussed in Note 1, the Company changed its method of accounting for investments in debt and equity securities at January 1, 1994 to adopt the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities.
/s/ KPMG Peat Marwick LLP
--------------------------
Atlanta, Georgia
January 19, 1996
|
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
------- ------------ -----------
Cash and due from banks (note 2) $ 4,844,760 3,793,519
Investment securities available for sale (notes 3 and 8) 19,271,117 13,323,249
Investment security held to maturity (fair value of $1,659,470
and $1,681,655 in 1995 and 1994, respectively) (notes 3 and 8) 1,659,934 1,731,077
Loans held for sale -- 291,733
Loans, net of unearned income of $238,848 and $253,031 in
1995 and 1994, respectively (notes 4 and 8) 71,371,295 69,731,944
Less allowance for loan losses (note 4) (1,229,603) (1,331,778)
------------ ----------
Net loans 70,141,692 68,400,166
Premises and equipment, net (note 5) 2,695,917 3,040,736
Other real estate, net (note 6) 338,652 953,130
Deferred taxes (note 9) 424,816 713,207
Other assets 1,429,810 1,122,820
------------ ----------
Total assets $100,806,698 93,369,637
============ ==========
See accompanying notes to consolidated financial statements. (Continued)
|
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets, Continued
December 31, 1995 and 1994
Liabilities and Stockholders' Equity 1995 1994
------------------------------------- ---------- ----------
Deposits:
Noninterest-bearing $ 9,295,421 7,115,041
Interest-bearing 68,125,482 65,818,158
Time deposits $100,000 and over 7,406,845 6,405,120
----------- -----------
Total deposits 84,827,748 79,338,319
Borrowings (note 8) 8,524,969 8,479,214
Other liabilities 1,138,459 695,091
----------- -----------
Total liabilities 94,491,176 88,512,624
----------- -----------
Stockholders' equity (note 11):
Common stock, Class A, no par value; 1,800,000 shares
authorized; 509,556 shares issued 26,065 26,065
Common stock, Class B, par value $8.50 per share, 360
shares authorized, none issued -- --
Preferred stock, Class A, par value $5.00 per share,
6,000 shares authorized, none issued -- --
Additional paid-in capital 2,575,204 2,575,204
Net unrealized holding gain(loss) on investment securities
available for sale (notes 1 and 3) 3,638 (452,969)
Retained earnings, substantially restricted 3,777,134 2,775,232
Treasury stock at cost, 21,474 shares (66,519) (66,519)
----------- -----------
Total stockholders' equity 6,315,522 4,857,013
----------- -----------
Commitments and contingencies (notes 4 and 11)
Total liabilities and stockholders' equity $100,806,698 93,369,637
============ ==========
See accompanying notes to consolidated financial statements. (Continued)
F-102
|
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Earnings
Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
--------- ----------- ----------
Interest income:
Loans, including fees $7,645,653 6,491,895 6,428,140
Federal funds sold -- 56,077 37,287
Investment securities held to maturity:
Taxable 155,049 59,969 33,472
Tax-exempt 2,851 7,934 14,355
Investment securities available for sale:
Taxable 1,229,420 777,430 463,200
Tax-exempt 177 -- --
---------- --------- ---------
Total interest income 9,033,150 7,393,305 6,976,454
Interest expense:
Deposits (including interest on time deposits $100,000
and over of $419,496, $197,533, and $304,566 in 1995,
1994, and 1993 respectively) 4,183,861 3,131,406 3,015,164
Federal funds purchased 1,138 44,912 --
Borrowings 589,708 419,867 244,622
---------- --------- ---------
Total interest expense 4,774,707 3,596,185 3,259,786
--------- --------- ---------
Net interest income 4,258,443 3,797,120 3,716,668
Provision for loan losses (note 4) (71,874) (582,022) (536,049)
---------- --------- ---------
Net interest income after provision for loan losses 4,186,569 3,215,098 3,180,619
---------- --------- ---------
Other income:
Service charges on deposit accounts 774,568 732,717 888,109
Loss on sales of investment securities available for sale (note 3) (1,553) -- --
Gain on sales of investment securities held to maturity (note 3) -- -- 35,301
Trading account gains -- -- 112,338
Gain on sales of loans 298,261 251,391 765,072
Loan servicing fees 166,121 104,512 --
Correspondent fees 161,373 -- --
Other 183,120 217,970 381,614
--------- --------- ---------
Total other income 1,581,890 1,306,590 2,182,434
--------- --------- ---------
See accompanying notes to consolidated financial staements. (Continued)
F-103
|
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Earnings, Continued Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
----------- ------------ -----------
Other expenses:
Salaries and employee benefits (note 7) 2,012,059 1,931,480 1,867,338
Net occupancy 680,976 790,681 660,298
Equipment 117,318 120,137 207,420
FDIC insurance 120,049 234,396 217,465
Other real estate, net 176,825 217,269 212,372
Other 993,625 1,203,880 1,177,888
---------- --------- ---------
Total other expenses 4,100,852 4,497,843 4,342,781
---------- --------- ---------
Earnings from continuing operations
before income taxes and cumulative
effect of change in accounting method 1,667,607 23,845 1,020,272
Income tax expense (benefit) (note 9) 643,358 (62,866) 371,853
---------- --------- ---------
Earnings from continuing operations
before cumulative effect of change
in accounting method 1,024,249 86,711 648,419
Discontinued operations:
Loss from operations of discontinued
insurance agency, net of income tax
benefits of $11,512, $44,134, and $29,853
in 1995, 1994, and 1993, respectively (note 12) (22,347) (85,673) (57,951)
---------- --------- ---------
Earnings before cumulative effect of change
in accounting method 1,001,902 1,038 590,468
Cumulative effect of change in accounting method (notes 1 and 9) -- -- 49,054
---------- --------- ---------
Net earnings $1,001,902 1,038 639,522
========== ========= =========
Per share amounts:
Earnings from continuing operations before cumulative
effect of change in accounting method $ 2.10 .18 1.33
========== ========= =========
Earnings before cumulative effect of change in
accounting method $ 2.05 -- 1.21
Cumulative effect of change in accounting method -- -- .10
---------- --------- ---------
Net earnings $ 2.05 -- 1.31
========== ========= =========
Weighted average common shares outstanding, including
common stock equivalents 488,082 488,082 488,082
========== ========= =========
See accompanying notes to consolidated financial statements.
F-104
|
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity Years Ended December 31, 1995, 1994, and 1993
Net
unrealized
holding
gain (loss)
on
investment
Additional securities
Common Common paid-in available Retained Treasury
shares stock capital for sale, earnings stock Total
----------- ----------- ---------- ------------- ------------- ----------- -----------
Balance at December 31,
1992 509,566 $ 26,065 2,575,204 -- 2,134,672 (66,519) 4,669,422
Net Earnings -- -- -- -- 639,522 -- 639,522
-------- ---------- --------- ---------- ----------- ---------- ----------
Balance at December 31,
1993 509,566 26,065 2,575,204 -- 2,774,194 (66,519) 5,308,944
Effect of adoption of
FAS 115,
Accounting
for Certain
Investments
in Debt and
Equity
Securities, on
January 1, 1994 (note 1) -- -- -- 79,241 -- -- 79,241
Change in unrealized
gain (loss)
on investment
securities
available for
sale, net of
tax effect -- -- -- (532,210) -- -- (532,210)
Net earnings -- -- -- -- 1,038 -- 1,038
-------- ---------- --------- ---------- ----------- ---------- ----------
Balance at December 31,
1994 509,566 26,065 2,575,204 (452,969) 2,775,232 (66,519) 4,857,013
Net earnings -- -- -- -- 1,001,902 -- 1,001,902
Change in unrealized
gain
(loss) on
investment
securities
available
for sale, net of tax
effect -- -- -- 456,607 -- -- 456,607
-------- ---------- --------- ---------- ----------- ---------- ----------
Balance at December 31,
1995 509,566 $ 26,065 2,575,204 3,638 3,777,134 (66,519) 6,315,522
========= ========== ========= ========= =========== ========== =========
See accompanying notes to consolidated financial statements.
F-105
|
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
---------- ------------ -----------
Cash flows from operating activities:
Net earnings $ 1,001,902 1,038 639,522
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 384,493 409,112 335,188
Provision for loan losses 71,874 582,022 536,049
Deferred tax expense (benefit) (16,014) (156,000) (68,000)
(Accretion) of discounts and amortization of
premiums on investment securities (19,310) 25,631 143,565
Loss on sales of investment securities available for sale 1,553 -- --
Gain on sales of investment securities held to maturity -- -- (35,301)
Proceeds from sale of trading securities -- -- 8,518,969
Gain on sale of trading securities -- -- (112,338)
Loss on sale of premises and equipment 744 633 11,646
Loss on sale of other real estate 37,433 101,973 68,424
Provision for losses of other real estate 104,059 86,063 64,926
Loss on sale of repossessed property -- 3,203 6,577
Gain on sales of loans (298,261) (251,391) (765,072)
Cumulative effect of change in accounting method -- -- (49,054)
(Increase) decrease in other assets (306,990) (553,958) 1,296,510
Increase (decrease) in other liabilities 443,368 312,749 (28,366)
------------ ----------- -----------
Net cash provided by operating activities 1,404,851 561,075 10,563,245
------------ ----------- -----------
Cash flows from investing activities:
Proceeds from sale of investment securities held to maturity -- -- 1,012,675
Proceeds from maturity of investment securities held to maturity 50,000 55,000 150,000
Proceeds from calls of investments securities held to maturity 10,000 15,000 --
Proceeds from calls of investment securities available for sale 10,000,000 -- --
Proceeds from sales of investment securities available for sale 1,631,744 -- --
Purchase of investment securities held to maturity -- -- (13,378,379)
Purchase of investment securities available for sale (18,290,798) (3,436,619) --
Principal repayments of investment securities held to maturity 15,762 18,059 1,052,971
Principal repayments of investment securities available for sale 1,487,436 1,524,388 --
Net (purchases) redemptions of Federal Home Loan Bank stock (2,100) 31,900 --
Net increase in loans (5,128,606) (23,120,487) (54,049,059)
Proceeds from sales of loans 3,928,589 27,078,423 54,144,972
Purchase of premises and equipment (95,066) (296,862) (1,324,208)
Proceeds from sale of premises and equipment 54,648 61,411 29,424
Proceeds from sale of other real estate 449,597 126,412 388,032
Proceeds from sale of repossessed property -- 10,500 22,858
------------ ----------- -----------
Net cash (used in) provided by investing activities (5,888,794) 2,067,125 (11,950,714)
------------ ----------- -----------
See accompanying notes to consolidated financial statements. (Continued)
F-106
|
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
-------- -------- --------
Cash flows from financing activities:
Net increase (decrease) in noninterest bearing deposits 2,180,380 (947,186) (1,110,131)
Net increase (decrease) in interest-bearing deposits 2,307,324 (6,662,277) 4,330,503
Net increase (decrease) in time deposits, $100,000 and over 1,001,725 (104,604) 152,265
Principal payments on notes payable (6,437) (20,719) (105,468)
Proceeds from issuance of note payable 52,192 115,000 100,000
Net increase in Federal Home Loan Bank advances -- 1,000,000 700,000
---------- ---------- ----------
Net cash provided by (used in) financing activities 5,535,184 (6,619,786) 4,067,169
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 1,051,241 (3,991,586) 2,679,700
Cash and cash equivalents at beginning of year 3,793,519 7,785,105 5,105,405
---------- ---------- ----------
Cash and cash equivalents at end of year $4,844,760 3,793,519 7,785,105
========== ========== ==========
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest $4,312,181 3,523,087 3,358,402
========== ========== ==========
Income taxes $ 601,605 250,000 335,116
========== ========== ==========
Supplemental information on noncash transactions:
Transfers from loans to other real estate $ 160,196 478,401 685,131
========== ========== ==========
Transfers to investment securities available for sale
from investment securities held to maturity $ -- -- 12,270,147
========== ========== ==========
Transfers from investment securities available for sale
to investment securities held to maturity $ -- 75,643 --
========== ========== ==========
Transfer from premises and equipment to other real estate $ -- 145,618 --
========== ========== ==========
Loans to facilitate $ 183,585 306,959 --
========== ========== ==========
Effect of adoption of FAS 115, Accounting for Certain
Investments in Debt and Equity Securities, on
January 1, 1994 $ -- 79,241 --
========== ========== ==========
Change in unrealized gain (loss) on investment securities
available for sale, net of tax effect of $304,405 and
$354,807 in 1995 and 1994, respectively $ 456,607 (532,210) --
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-107
|
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
The accompanying consolidated financial statements include the accounts of Southland Bancorporation (the Corporation) and its wholly-owned subsidiary, Southland Bank (the Bank) collectively as the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.
The Company provides a full range of banking services to individual and corporate customers in its primary market area of Dothan, Alabama and surrounding counties. The Bank is subject to competition from other financial institutions. The Company is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those authorities.
A substantial portion of the Company's loans are secured by real estate in the Company's primary market area. In addition, a substantial portion of other real estate is located in those same markets. Accordingly, the ultimate collectibility of a substantial portion of the Company's loan portfolio and the recovery of a substantial portion of the carrying amount of other real estate are susceptible to changes in market conditions in the Company's primary market area.
The accounting principles and reporting policies of the Company, and the methods of applying these principles, conform with generally accepted accounting principles and with general practice within the banking industry. Certain items in the prior year's financial statements have been reclassified to conform with the current financial statement presentation.
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses, management periodically reviews the creditworthiness of significant borrowers and evaluates the collateral position of delinquent loans. Management obtains independent appraisals for significant properties in determining the allowance for loan losses and the valuation of other real estate.
Management believes that the allowances for losses on loans and other real estate are adequate. While management uses available information to recognize losses on loans
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
and other real estate, future additions to the allowances may be necessary based on changes in economic conditions, particularly in the Company's primary market area. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowances for losses on loans and other real estate. Such agencies may require the Company to recognize additions to the allowances based on their judgments about information available to them at the time of their examination.
For purposes of the statements of cash flows, the Company considers amounts due from financial institutions and federal funds sold to be cash equivalents. Federal funds sold are generally sold for one-day periods.
The Company adopted Statement of Financial Accounting Standards (FAS) 115, Accounting for Certain Investments in Debt and Equity Securities, effective January 1, 1994. In accordance with FAS 115, investments are classified in three categories: held to maturity securities (reported at amortized cost), trading securities (reported at fair value), and available for sale securities (reported at fair value). Designation of an investment security as held to maturity, trading, or available for sale is made at the time the security is purchased, based on the Company's intent and ability to hold the security. Investment securities to be held to maturity are carried at cost adjusted for amortization of premiums and accretion of discounts to maturity. Unrealized gains or losses on trading securities are included in earnings. The Company did not have any trading account securities at December 31, 1995 or 1994. Unrealized gains or losses on available for sale securities are excluded from earnings and reported as a separate component of stockholders' equity, net of the related income tax effect. Gains or losses on the sale of investment securities are computed on the specific identification method, and recognized in earnings on the trade date.
At adoption of FAS 115, the Company transferred certain investment securities with a total amortized cost of $12,270,147 and fair value of $12,393,960 from held to maturity to investment securities available for sale. The unrealized net holding gains on investment securities available for sale at January 1, 1994 totaled $123,813 and were included as a separate component of stockholders' equity of $79,241, net of income taxes of $44,572 upon the Corporation's adoption of FAS 115.
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Purchase premiums and discounts on investment securities are amortized and accreted to interest income using the level yield method on the outstanding principal balances. In establishing the accretion of discounts and amortization of premiums, the Company utilizes market based prepayment assumptions. Interest and dividend income are recognized when earned.
A decline in the fair value below cost of any available for sale or held to maturity security that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security.
Loans are stated at principal amounts outstanding less unearned income and the allowance for loan losses. Interest income on loans is credited to earnings based on the principal amount outstanding at the respective rate of interest except for add on installment loans for which interest is recognized on the "Rule of 78's" method. It is the general policy of the Bank to discontinue the accrual of interest when principal or interest payments are delinquent for more than 90 days and the ultimate collection of either is in doubt.
Loans held for sale are carried at the lower of aggregate cost or market. Gains or losses on disposition are recorded in other income, based on the net proceeds received and the recorded investment in the loan sold. For sales of the Small Business Association (SBA) guaranteed portion of loans, the basis in the portion of the loan sold is determined by allocating the loan carrying value to the portion sold and portion retained based on the relative fair values of the portion sold and portion retained. Such gains or losses are adjusted by the amount of any excess servicing fee receivables resulting from the transactions.
Accrual of interest on loans is discontinued either when reasonable doubt exists as to the full, timely collection on interest or principal or when a loan becomes contractually past due by 90 days or more with respect to interest or principal. When a loan is placed on nonaccrual status, all interest previously accrued, but not collected, is reversed against current period interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable. Interest accruals are recorded on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
In May 1993, the Financial Accounting Standards Board (FASB) issued FAS 114, Accounting by Creditors for Impairment of a Loan. FAS 114 requires impaired loans to be measured based on the present value of expected future cash flows, discounted at the loan's effective interest rate, or at the loan's observable market price, or the fair value of the collateral if the loan is collateral dependent, beginning in 1995. In October 1994, the FASB issued FAS 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures, which amends the requirements of FAS 114 regarding interest income recognition and related disclosure requirements. Initial adoption of FAS 114 and FAS 118 must be reflected prospectively. The Company adopted FAS 114 and FAS 118 on January 1, 1995 and the impact to the consolidated financial statements was not material. At December 31, 1995, pursuant to the definition within FAS 114, the Company had $480,000 of impaired loans, which includes one loan for $180,000 with a valuation allowance of $68,000. No valuation allowance was deemed necessary for the remaining $300,000 of impaired loans.
Additions to the allowance for loan losses are based on management's evaluation of the loan portfolio under current economic conditions, including such factors as the volume and character of loans outstanding, past loss experience, general economic conditions, and such other factors which, in management's judgment, deserve recognition in estimating loan losses. Loans are charged to the allowance when, in the opinion of management, such loans are deemed to be uncollectible. Provisions for loan losses and recoveries of loans previously charged to the allowance are added to the allowance.
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of the respective assets which range from 3 to 30 years. Leasehold improvements are amortized on a straight-line basis over the life of the respective lease or, if shorter, the estimated useful life of the improvements.
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Other real estate is reported net of the allowance for losses. Other real estate represents property acquired through foreclosure or deeded to the Bank in lieu of foreclosure on real estate mortgage loans on which the borrowers have defaulted as to payment of principal and interest. For real estate acquired through foreclosure, a new cost basis is established through a charge to the allowance for loan losses, at fair value at the time of foreclosure less costs to sell. Subsequent to foreclosure, foreclosed assets are carried at the lower of fair value less estimated costs to sell, or cost, with the difference recorded as a valuation allowance, on an individual asset basis. Subsequent decreases in fair value and increases in fair value, up to the value established at foreclosure, are recognized as charges or credits to other expense.
During 1993, the Company adopted FAS 109 Accounting for Income Taxes. Under the asset and liability method of FAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable earnings in the years in which those temporary differences are expected to be recovered or settled. Under FAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.
Upon adoption in 1993, the Company applied the provisions of FAS 109 without restating prior years' financial statements. The cumulative effect of the change in the method of accounting for income taxes was $49,054 and is reported separately in the 1993 financial statements.
The Bank has a defined contribution plan which covers substantially all employees. The Bank contributes amounts to the defined contribution plan subject to minimums established by regulation and maximums allowed for tax purposes.
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Earnings per common share is based on the weighted average number of shares outstanding during each period. The effect of outstanding stock options is not significant to the computation of earnings per share.
In October 1995, the FASB issued FAS 123, Accounting for Stock-Based Compensation. FAS 123 establishes financial accounting and reporting standards for stock-based employee compensation plans. Those plans include all arrangements by which employees receive shares of stock or other equity instruments of the employer or the employer incurs liabilities to employees in amounts based on the price of the employer's stock. Such instruments include stock purchase plans, stock options, restricted stock, and stock appreciation rights. FAS 123 also applies to transactions in which an entity issues its equity instruments to acquire goods or services from nonemployees.
A new method of accounting for stock-based compensation arrangements with employees is established by FAS 123. The new method is a fair value based method rather than the intrinsic value based method. However, FAS 123 does not require an entity to adopt the new fair value based method for purposes of preparing its basic financial statements. Entities are allowed (1) to continue to use their existing method or (2) adopt the FAS 123 fair value based method. The selected method would apply to all of an entity's compensation plans and transactions
FAS 123 requires that an employer's financial statements include certain disclosures about stock-based employee compensation arrangements regardless of the method used to account for them. The accounting requirements of this statement are effective for transactions entered into in fiscal years that begin after December 15, 1995. The disclosure requirements are effective for financial statements for fiscal years beginning after December 15, 1995. The Company has not determined the impact of adopting FAS 123.
The Bank is required to maintain certain daily reserve balances in accordance with Federal Reserve Board requirements. The required balances were $25,000 and $68,000 at December 31, 1995 and 1994, respectively.
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The amortized cost, gross unrealized gains and losses, and approximate
fair value of investment securities held to maturity at December 31, 1995 and
1994, respectively, were as follows:
1995
-----------------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- -----------
Debt securities:
State and political subdivisions $ 15,015 1,357 -- 16,372
U.S. government agencies 33,808 3,863 -- 37,671
Mortgage-backed securities 1,008,611 322 6,006 1,002,927
---------- ------ --------- ---------
1,057,434 5,542 6,006 1,056,970
Other securities:
Stock in Federal Home Loan
Bank of Atlanta 602,500 -- -- 602,500
---------- ------ --------- ---------
$1,659,934 5,542 6,006 1,659,470
========== ====== ========= =========
1995
-----------------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- -----------
State and political subdivisions $ 74,017 1,406 -- 75,423
U.S. government agencies 46,286 3,820 -- 50,106
Mortgage-backed securities 1,010,374 84 54,732 955,726
---------- ------ --------- ---------
1,130,677 5,310 54,732 1,081,255
Other securities:
Stock in Federal Home Loan
Bank of Atlanta 600,400 -- -- 600,400
---------- ------ --------- ---------
$1,731,077 5,310 54,732 1,681,655
========== ====== ========= =========
|
The stock in the Federal Home Loan Bank of Atlanta, which is carried at cost, has no contractual maturity, has no quoted fair value, and no ready market exists; therefore, the fair value of such stock is assumed to approximate cost in the above summary. The investment in the stock is required by law of every member of the Federal Home Loan Bank system.
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The amortized cost and approximate fair value of investment securities held to
maturity at December 31, 1995, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
1995
-------------------------
Approximate
Amortized fair
cost value
--------- -----------
Due after one year through five years $ 15,015 16,372
Due after five years through ten years -- --
Due after ten years 33,808 37,671
--------- ---------
48,823 54,043
Mortgage-backed securities 1,008,611 1,002,927
--------- ---------
$ 1,057,434 1,056,970
=========== =========
|
There were no sales of investment securities held to maturity during 1995 or 1994. Proceeds from sales of investments securities during 1993 were $1,012,675. Gross gains of $35,301 were realized on those sales in 1993.
The amortized cost, gross unrealized gains and losses, and approximate fair value of investment securities available for sale at December 31, 1995 were as follows:
1995
---------------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
----------- ---------- --------- -----------
State and political subdivisions $ 357,519 -- 2 357,517
U.S. government agencies 7,982,427 26,636 -- 8,009,063
Mortgage-backed securities 10,934,921 16,713 47,097 10,904,537
----------- ------- ------ ----------
$19,274,867 43,349 47,099 19,271,117
=========== ======= ====== ==========
|
In 1994, the Bank transferred four investment securities from available for sale to held to maturity. These securities carried total unrealized holding gains of $11,520 at the date of transfer. These unrealized holding gains are included as a component of amortized cost and are being amortized over the remaining life of the securities. The total unamortized holding gains at December 31, 1995 and 1994 amounted to $9,813 and $10,667, respectively. The portion of these unamortized holding gains included in the unrealized gain on available for sale securities, net of tax, at December 31, 1995 and the unrealized loss on available for salesecurities, net of tax, at December 31, 1994 was $5,888 and $6,400, respectively.
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The amortized cost, gross unrealized gains and losses, and approximate fair
value of investment securities available for sale at December 31, 1994 were as
follows:
1994
-------------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
---------- ---------- ----------- -----------
Mortgage-backed securities $14,088,864 -- 765,615 13,323,249
=========== ===== ======= ==========
|
The amortized cost and approximate fair value of investment securities available for sale at December 31, 1995, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
1995
-----------------------
Approximate
Amortized fair
cost value
---------- -----------
Due after one year through five years $5,982,427 6,009,063
Due after five years through ten years 2,000,000 2,000,000
Due after ten years 357,519 357,517
Mortgage-backed securities 10,934,921 10,904,537
----------- -----------
$19,274,867 19,271,117
=========== ==========
|
Proceeds from sales of investment securities available for sale were $1,631,744 for the year ended December 31, 1995. Gross losses of $1,553 were realized on those sales for the year ended December 31, 1995. No sales of investment securities available for sale occurred during 1994 or 1993.
Securities having an approximate amortized cost of $1,308,000 and $2,075,000 at December 31, 1995 and 1994, respectively, were pledged to secure public funds. In addition, securities having an approximate amortized cost of $2,100,000 and $647,000 at December 31, 1995 and 1994, respectively, were pledged to secure FHLB advances.
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
At December 31, 1995 and 1994, the composition of the loan
portfolio was as follows:
1995 1994
----------- -----------
Commercial, financial, and agricultural $29,382,692 22,113,615
Real estate - mortgage 38,290,739 42,903,896
Installment loans 3,635,583 4,218,936
Other 62,281 495,497
---------- ----------
Total loans 71,371,295 69,731,944
Less allowance for loan losses (1,229,603) (1,331,778)
----------- ----------
Loans, net $70,141,692 68,400,166
=========== ==========
A summary of the transactions in the allowance for loan losses follows:
1995 1994 1993
---- ---- ----
Balance at beginning of year $1,331,778 883,083 880,780
Provision charged to operating expense 71,874 582,022 536,049
Recoveries of loans previously charged off 163,129 156,113 42,830
Loans charged off (337,178) (289,440) (576,576)
-------- ---------- ---------
Balance at end of year $1,229,603 1,331,778 883,083
========== ========= =========
|
Nonaccrual loans at December 31, 1995 and 1994 totaled $303,000 and $1,200,000, respectively. Foregone interest on these loans was $42,840 in 1995, $85,659 in 1994, and $12,211 in 1993.
Certain directors and officers of the Bank are loan customers of the Bank. Total loans outstanding to these persons at December 31, 1995 and 1994 amounted to $482,410 and $393,216, respectively. The change from 1994 to 1995 reflects payments of $431,089 and advances of $520,283. Such loans are made in the ordinary course of business on substantially the same terms as those prevailing at the time for comparable transactions with other customers, including interest rate and collateral, and in the opinion of management do not represent more than a normal credit risk or present unfavorable features.
Proceeds from the sale of loans during 1995, 1994, and 1993 were $3,928,589, $27,078,423, and $54,144,972 and realized gains were $298,261, $251,391, and $765,072, respectively. There were no sales of real estate mortgage loans in 1995. Sales of real estate mortgage loans accounted for $19,786,981 and $45,797,271 of total sales in 1994 and 1993, respectively. At December 31, 1995 and 1994, the Company was servicing certain Small Business Administration loans for others with aggregate principal balances of approximately $14,612,000 an $13,705,000, respectively.
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
A summary of premises and equipment at December 31, 1995 and 1994 follows:
1995 1994
--------- ---------
Construction in progress $ 38,900 17,300
Land 541,943 553,063
Buildings 2,423,210 2,466,627
Furniture and equipment 2,789,727 2,723,332
Leasehold improvements 50,650 50,650
--------- ---------
5,844,430 5,810,972
Less accumulated depreciation and amortization 3,148,513 2,770,236
---------- ---------
Total $2,695,917 3,040,736
========= =========
|
Depreciation and amortization charged to operating expense was $384,493, $409,112, and $335,188 in 1995, 1994, and 1993 respectively.
A summary of the transactions in the allowance for losses of other real estate for the years ended December 31, 1995, and 1994, and 1993 follows:
1995 1994 1993
-------- -------- --------
Balance at beginning of year $ 226,394 140,332 105,406
Provision charged to earnings 104,059 91,000 64,926
Charge-offs (34,988) (4,938) (30,000)
------- ------- -------
Balance at end of year $ 295,465 226,394 140,332
======= ======= =======
|
Other real estate, net, as of December 31, 1995 and 1994 totaled $338,652 and $953,130, respectively, and consist primarily of commercial properties.
Employees of the Bank may contribute up to 15 percent of their annual salary to the Bank's defined contribution retirement plan. Under the provisions of the plan, the Bank is required to match the employees' contributions up to 3 percent of their annual salary and may make additional discretionary contributions.
Contributions to the plan by the Bank totaled $84,905, $81,164, and $78,340 for the years ended December 31, 1995, 1994, and 1993, respectively.
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Borrowings at December 31, 1995 and 1994 are summarized as follows:
December 31
-------------------
1995 1994
---- ----
Advances from the Federal Home Loan Bank of
Atlanta under the terms of the adjustable rate
credit program, maturing in equal amounts of
$2,000,000 on March 30, 1996, 1997 and 1998,
respectively, and $1,000,000 on January 28,
1996. The interest rates at December 31,
1995 range from 5.8875 percent to 5.9575 percent
and are based on the 90-day LIBOR rate. The
advances are collateralized by real estate
mortgage loans of $7,861,834 and $5,966,345
at December 31, 1995 and 1994, respectively,
and by securities having an approximate
amortized cost of $2,100,000 and $647,000 at
December 31, 1995 and 1994, respectively. $7,000,000 7,000,000
|
Notes payable to various individuals, including certain directors, bearing interest at a prime rate (8.50 at December 31, 1995) plus one percent. Principal and interest payments are due quarterly through March 2001. 1,400,000 1,400,000
Note payable to an individual bearing interest at 13 percent with principal and interest payments
due monthly through 2016. 124,969 79,214
---------- ---------
$8,524,969 8,479,214
========== =========
|
The Bank has available a revolving line of credit with the Federal Home Loan Bank of Atlanta bearing interest under the terms of an adjustable rate credit program. The amount available was $10,000,000 at December 31, 1995 and 1994, respectively. Advances drawn on the line of credit are to be collateralized by U.S. government agencies securities.
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Total
----------
1996 $3,563,310
1997 2,184,364
1998 2,185,552
1999 206,890
2000 164,463
Thereafter 220,390
----------
$8,524,969
==========
|
As discussed in note 1, the Company adopted FAS 109 as of January 1, 1993.
Total income tax expense (benefit) for the years ended December 31, 1995, 1994, and 1993 was allocated as follows (in thousands):
1995 1994 1993
---------- ----------- -----------
Income from continuing operations $ 643,358 (62,866) 371,853
========= =========== ===========
Loss from discontinued operations $ (11,512) (44,134) (29,853)
========= =========== ===========
Stockholders' equity, for unrealized gains (losses)
on investment securities available for sale $ 304,405 (301,979) --
========= =========== ===========
Components of income tax expense (benefit) for the years ended December
31, 1995, 1994, and 1993
are as follows:
1995
-------------------------------
Current Deferred Total
------- -------- ------
Federal $580,141 (15,794) 564,347
State 67,719 (220) 67,499
-------- ----------
Totals $647,860 (16,014) 631,846
======== ========= ========
1994
---------------------------------
Current Deferred Total
------- -------- -----
Federal $ 49,000 (143,000) (94,000)
State -- (13,000) (13,000)
-------- --------- ---------
Totals $ 49,000 (156,000) (107,000)
======== ======== ========
|
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) INCOME TAXES, CONTINUED
-----------------------
1993
------------------------------
Current Deferred Total
------- -------- -----
Federal $382,000 (58,000) 324,000
State 28,000 (10,000) 18,000
-------- --------- -------
Totals $410,000 (68,000) 342,000
======== ========= =======
|
The provisions for income taxes for 1995, 1994, and 1993 are more than that computed by applying the U.S. federal corporate tax rate of 34 percent to earnings from continuing operations before income taxes and cumulative effect of a change in accounting method for the following reasons:
1995 1994 1993
----- ------ ------
Amount computed at statutory rate $ 566,986 8,107 346,892
Increase (reduction) in income taxes resulting from:
Tax exempt interest (4,942) (4,630) (4,874)
State income tax, net of federal income tax benefit 46,869 (8,580) 11,880
Internal Revenue Service exam settled -- (59,443) --
Other, net 34,445 1,680 17,955
------- -------- -------
$ 643,358 (62,866) 371,853
========= ========= =======
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994 are as follows:
1995 1994
-------- -------
Deferred tax assets:
Loans, principally due to allowance for loan losses $ 328,385 431,807
Unrealized loss on investment securities available for sale -- 301,979
Premises and equipment, principally due to differences
in depreciation -- 8,238
Other real estate 124,521 17,922
Deferred compensation 31,135 --
Deferred income -- 10,699
Other 28,160 --
------- -------
Total gross deferred tax assets 512,201 770,645
Less valuation allowance -- --
-------- -------
Net deferred tax assets 512,201 770,645
-------- -------
|
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) INCOME TAXES, CONTINUED
-----------------------
1995 1994
------ ------
Deferred tax liabilities:
Tax exempt discount accretion 1,814 1,448
Unrealized gain on investment securities
available for sale 2,425 --
Federal Home Loan Bank stock dividends 3,187 8,439
Prepaid expenses 25,069 13,742
Repossessed property 29,700 29,700
Premises and equipment, principally due to
differences in depreciation 22,387 --
Other 2,803 4,109
-------- -------
Total gross deferred tax liabilities 87,385 57,438
-------- -------
Net deferred tax asset $424,816 713,207
======== =======
|
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projection for future taxable income over the periods which the temporary differences resulting in the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.
The Corporation has granted nonqualified compensatory stock options to
certain employees. The options may only be exercised at five years from the
grant date. The following is summary of the options outstanding at December 31,
1995:
Options Exercise
Grant date granted price Total
---------- -------- ------- --------
January 22, 1992 5,436 $ 8.33 $45,282
January 4, 1993 5,556 9.68 53,782
January 22, 1994 5,763 10.00 57,630
-------- --------
16,755 $156,694
======== ========
|
No options were granted during the year ended December 31, 1995. Options forfeited totaled 3,529, 3,296, and 4,494 during the years ended December 31, 1995, 1994, and 1993, respectively. The exercise price for options granted is based on a discounted per share book value at the date of grant, as no ready market is available.
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, and standby letters of credit. Such instruments involve elements of credit risk in excess of the amounts recognized in the financial statements.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does in granting credit in transactions recorded in the financial statements.
The off-balance sheet financial instruments whose contract amounts represent credit risk as of December 31, 1995, are as follows:
Commitments to extend credit $2,662,000 Standby letters of credit $ 19,000
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Standby letters of credit and financial guarantees written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds various assets as collateral supporting those commitments for which collateral is deemed necessary.
The Bank is involved in various legal actions arising in the normal course of business. In the opinion of management, based upon consultation with legal counsel, the ultimate resolution of the proceedings will not have a material adverse effect upon the financial position of the Bank.
On November 26, 1989, the Bank entered into a Memorandum of Understanding with the Federal Deposit Insurance Corporation and the Banking Department of the State of Alabama whereby the Bank agreed to take certain affirmative actions. The Memorandum was revised in March 1993. The actions required of the Bank primarily include (a) developing a management plan which defines lines of authority and responsibilities for each officer; (b) retaining qualified management including a chief executive officer and senior lending officer; (c) establishing a committee of directors to review each officer's performance at least annually; (d) developing a three-year capital plan that provides for maintenance of specified levels of capital, projections of growth and future capital needs and contingency plans that identify alternate sources of capital;
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(e) establishing a program for maintaining an adequate allowance for loan
losses; (f) reducing substandard assets to specified levels by certain dates;
(g) developing written action plans to eliminate the basis of criticism for
significant classified loans; (h) ceasing extension of credit to borrowers with
loans classified below certain levels; (i) revising the funds management policy
to include an increase in the minimum target ratio for liquidity and reducing
the Bank's reliance upon potentially volatile liabilities to fund long-term
assets; (j) preparation of annual budgets; (k) obtaining regulatory approval
prior to paying dividends and (l) correcting certain internal control
deficiencies and violations of rules and regulations.
On September 12, 1994, the Corporation entered into a Memorandum of
Understanding with the Federal Reserve Bank of Atlanta (FRB) whereby the
Corporation agreed to take certain affirmative actions. The actions required of
the Corporation primarily include (a) no increase in its borrowings or insurance
of debt without the prior written approval of the FRB; (b) by no later than
September 30, 1994, the Corporation will submit to the FRB, and thereafter
comply with, a written plan to service its outstanding debt and any other cash
obligations for at least a five-year period; (c) the Corporation will
immediately notify the FRB of any anticipated deviations to the written plan;
(d) the Corporation will not (i) purchase or redeem treasury stock or (ii)
declare or pay dividends to its stockholders without the prior written approval
of the FRB. The Corporation is to submit its request to the FRB thirty days
before the date on which it wishes to take any such action; (e) the Corporation
will maintain a separate checking account ("separate account") for the proceeds
of any insurance of debt (including debt incurred in connection with the
issuance of equity) approved by the FRB; (f) the Corporation will notify the FRB
at least thirty days prior to the payment of any salary or other compensation at
the parent company level. Along with such notification, the Corporation will
provide the FRB with justification for such compensation payment(s) and
information detailing the source of funding for the payment(s); (g) within
thirty days of the end of each calendar quarter, the Corporation will continue
to submit to the FRB a written progress report detailing the form and manner of
all actions taken to comply with this Memorandum and the results thereof. The
Corporation submitted the debt service/capital plan (the Plan) to the FRB which
was approved by the Corporation's board of directors on September 30, 1994.
According to the Plan, the Corporation will (1) issue up to $1,000,000 in new
equity, in maximum amounts of $250,000 in each of the next four years, (2) use
the equity proceeds, in part, to retire 25 percent of the principal balance of
its outstanding debt over the next five years, (3) extend the maturities of the
remaining principal balance of the debt maturing in the next five years, and (4)
establish a cash reserve of approximately $500,000 that can be used for capital
injections into the Corporation, if necessary, or for longer-term debt servicing
needs. No corporate dividends or corporate salary expenses are projected in the
Plan.
At December 31, 1995, the Corporation and Bank believe they were in compliance with the requirements as defined in each of the memorandums of understanding.
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
During 1995, the Bank sold the property and casualty book of business developed by its subsidiary, Southland Insurance Agency, Inc. In conjunction with the sale, the Bank discontinued its insurance agency operations. Accordingly, all related operating activity for the insurance agency has been reclassified and reported as discontinued operations. Under the terms of the sales agreement, the sales price is based on a percentage of future insurance premiums underwritten by the buyer and is to be adjusted upon the one-year anniversary of the sales agreement based on policies in force at that time. The Company did not recognize any gain on the sale in 1995. Such gain will be recorded when the sales proceeds are determined in 1996.
FAS 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimated do not reflect any premium or discount that could result form offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates The assumptions used in the estimation of the fair value of the Company's financial instruments are explained below. Where quoted market prices are not available, fair values are based on estimates using discounted cash flow and other valuation techniques. Discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following fair value estimates cannot be substantiated by comparison to independent markets and should not be considered representative of the liquidation value of the Company's financial instruments, but rather a good-faith estimate of the fair value of financial instruments held by the Company. FAS 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements.
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Fair value equals the carrying value of such assets.
The fair value of investment securities is based on quoted market prices.
The fair value of loans is calculated using discounted cash flows by loan type. The discount rate used to determine the present value of the loan portfolio is an estimated market discount rate that reflects the credit and interest rate risk inherent in the loan portfolio. The estimated maturity is based on the Company's historical experience with repayments adjusted to estimate the effect of current market conditions. The carrying amount of accrued interest approximates its fair value.
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
As required by FAS 107, the fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, NOW accounts, savings, and money market deposit accounts, is equal to their carrying values. Certificates of deposit have been valued using discounted cash flows. The discount rate used is based on estimated market rates for deposits of similar remaining maturities.
The fair value of borrowings has been determined using discounted cash flows. The discount rate used is based on estimated market rates for borrowings of similar remaining maturities.
The carrying value and estimated fair value of the Company's financial instruments at December 31, 1995 are as follows (in thousands):
Estimated
Carrying fair
amount value
-------- ---------
Financial assets:
Cash and due from banks $ 4,845 4,845
======= ======
Investment securities $20,931 20,931
======= ======
Loans, net $70,142 69,985
======= ======
Financial liabilities:
Deposits $84,828 85,041
======= ======
Borrowings $ 8,525 8,540
======= ======
|
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
------- ----- ------
Cash and cash equivalents $ 180,496 11,090
Investment in Bank 7,628,333 6,274,556
Premises and equipment 680 --
Other assets 73,743 67,342
---------- ----------
Total assets $7,883,252 6,352,988
========== ==========
Liabilities and Stockholders' Equity
-----------------------------------
Liabilities:
Note payable $1,524,969 1,479,214
Other liabilities 42,761 16,761
---------- ---------
Total liabilities 1,567,730 1,495,975
Stockholders' equity:
Common stock 26,065 26,065
Additional paid-in capital 2,575,204 2,575,204
Net unrealized loss on investment securities
available for sale 3,638 (452,969)
Retained earnings 3,777,134 2,775,232
Treasury stock (66,519) (66,519)
---------- ----------
Total stockholders' equity 6,315,522 4,857,013
---------- ----------
Total liabilities and stockholders' equity $7,883,252 6,352,988
========== ==========
Statements of Earnings
Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
---- ---- ----
Interest income $ 479 485 1,432
Interest expense (146,851) (119,875) (100,754)
Dividends from Bank 300,000 -- 50,000
Other expense (93,896) (2,699) (230)
---------- -------- ---------
Income (loss) before income tax benefit 59,732 (122,089) (49,552)
Income tax benefit 45,000 44,000 34,000
Undistributed equity in earnings of Bank 897,170 79,127 655,074
---------- -------- ---------
Net earnings $1,001,902 1,038 639,522
========== ======== =========
|
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Statements of Cash Flows
Years Ended December 31, 1995, and 1994, and 1993
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net earnings $1,001,902 1,038 639,522
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Undistributed equity in earnings of Bank (897,170) (79,127) (655,074)
Increase in other assets (6,401) (44,269) 23,073
Increase (decrease) in other liabilities 26,000 16,761 (102,749)
--------- -------- --------
Net cash provided by (used in)
operating activities 124,331 (105,597) (95,228)
--------- --------- -------
Cash flows from investing activities:
Purchase of premises and equipment (680) -- --
--------- --------- -------
Net cash used in financing activities (680) -- --
--------- --------- -------
Cash flows from financing activities:
Principal payments on note payable (6,437) (20,719) (105,468)
Proceeds from issuance of note payable 52,192 115,000 100,000
--------- -------- -------
Net cash provided by (used in)
financing activities 45,755 94,281 (5,468)
--------- -------- -------
Increase (decrease) in cash and cash equivalents 169,406 (11,316) (100,696)
Cash and cash equivalents, beginning of year 11,090 22,406 123,102
--------- -------- --------
Cash and cash equivalents, ending of year $ 180,496 11,090 22,406
========= ======== ========
Supplemental schedule of cash flow information:
Cash paid during the year for:
Interest $ 145,931 114,096 100,226
========= ======== ========
Income taxes $ -- 250,000 335,116
========= ======== ========
|
SOUTHLAND BANCORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Dividends paid by the Bank are the primary source of funds available to the Corporation for payment of dividends to its stockholders and other needs. Federal and state statutes and regulations impose restrictions on the amount of dividends that may be declared by the Bank. In addition, the Bank is also required to maintain minimum amounts of capital as defined by banking regulators, which could further limit the availability of dividends from the Bank. Regulatory authorities have restricted the Bank from paying any dividends without obtaining prior regulatory consent (see note 11). On March 29, 1995, the Bank obtained approval to pay quarterly dividends of $100,000 to the Corporation following the end of each calendar quarter beginning March 31, 1995. Payment of these dividends is contingent upon the Bank meeting certain capital and core earnings requirements. Accordingly, at December 31, 1995, substantially all of the Corporation's investment in the Bank is restricted as to dividend payments by the Bank to the Corporation.
On December 8, 1995, the Company and ABC Bancorp (ABC) announced the signing of an Agreement and Plan of Merger (the Agreement) which provides for the merger of the Company with and into ABC. The transaction is expected to be accounted for as a purchase. The Agreement is subject to approval by the shareholders of the Corporation and certain regulatory authorities, and is expected to close in 1996.
Under the terms of the Agreement, upon consumption of the merger, each outstanding share of the Corporation's stock will be converted into cash and stock of ABC, based on each shareholders' elections, in an amount equal to 1.8 times the book value of the Corporations' stock at the valuation date, as defined in the Agreement. In any case, the number of shares of the Corporation's stock to be converted into cash will not be less than 35 percent nor more than 49 percent of the total outstanding shares of the Corporation.
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ABC BANCORP
AND
FIRST NATIONAL FINANCIAL CORPORATION
As of April 15, 1996
TABLE OF CONTENTS
Page
Preamble................................................................... A-1
ARTICLE 1 TERMS OF MERGER................................................ A-1
1.1 Merger......................................................... A-1
1.2 Time and Place of Closing...................................... A-2
1.3 Effective Time................................................. A-2
ARTICLE 2 ARTICLE, BYLAWS, MANAGEMENT.................................... A-2
2.1 Articles of Incorporation...................................... A-2
2.2 Bylaws......................................................... A-2
2.3 Directors and Officers......................................... A-2
ARTICLE 3 MANNER OF CONVERTING AND EXCHANGING SHARES..................... A-3
3.1 Conversion of Shares........................................... A-3
3.2 Exchange of Shares............................................. A-4
3.3 Anti-Dilution Provisions....................................... A-5
3.4 Shares Held by TARGET or PURCHASER............................. A-5
3.5 TARGET Bank.................................................... A-5
3.6 Rights of Former TARGET Shareholders........................... A-5
3.7 Treatment of OPtions and Warrants.............................. A-6
ARTICLE 4 REPRESENTATIONS AND WARRANTS OF TARGET......................... A-6
4.1 Organization, Standing and Power............................... A-6
4.2 Authority; No Breach........................................... A-7
4.3 Capital Stock.................................................. A-8
4.4 TARGET Subsidiaries............................................ A-8
4.5 Financial Statements........................................... A-9
4.6 Absence of Undisclosed Liabilities............................. A-9
4.7 Absence of Certain Changes or Events........................... A-9
4.8 Tax Matters.................................................... A-10
4.9 TARGET Allowance for Possible Loan Losses...................... A-11
4.10 Assets......................................................... A-11
4.11 Environmental Matters.......................................... A-11
4.12 Compliance with Laws........................................... A-13
4.13 Labor Relations................................................ A-13
4.14 Employee Benefit Plans......................................... A-14
4.15 Material Contracts............................................. A-16
4.16 Legal Proceedings.............................................. A-16
|
4.17 Reports........................................................ A-17
4.18 Statements True and Correct.................................... A-17
4.19 Accounting, Tax and Regulatory Matters......................... A-18
4.20 Charter Provisions............................................. A-18
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER.................... A-18
5.1 Organization, Standing and Power............................... A-18
5.2 Authority; No Breach........................................... A-18
5.3 Capital Stock.................................................. A-19
5.4 PURCHASER Susidiaries.......................................... A-20
5.5 Financial Statements........................................... A-21
5.6 Absence of Undisclosed Liabilities............................. A-21
5.7 Absence of Certain Changes or Events........................... A-21
5.8 Tax Matters.................................................... A-22
5.9 PURCHASER Allowance for Possible Loan Losses................... A-23
5.10 Assets......................................................... A-23
5.11 Environmental Matters.......................................... A-23
5.12 Compliance with Laws........................................... A-25
5.13 Labor Relations................................................ A-25
5.14 Employee Benefit Plans......................................... A-25
5.15 Legal Proceedings.............................................. A-28
5.16 Reports........................................................ A-28
5.17 Statements True and Correct.................................... A-28
5.18 Accounting, Tax and Regulatory Matters......................... A-29
5.19 Charter Provisions............................................. A-29
ARTICLE 6 CONDUCT OF BUSINESS PENDING CONSUMMATION....................... A-30
6.1 Affirmative Covenants of TARGET................................ A-30
6.2 Negative Covenants of TARGET................................... A-30
6.3 Covenants of PURCHASER......................................... A-32
6.4 Adverse Changes in Condition................................... A-32
6.5 Reports........................................................ A-32
ARTICLE 7 ADDITIONAL AGREEMENTS.......................................... A-33
7.1 Registration Statement; Proxy Statement; Shareholder Approval.. A-33
7.2 Listing........................................................ A-33
7.3 Applications................................................... A-33
7.4 Filings with State Offices..................................... A-34
7.5 Agreements as to Efforts to Consummate......................... A-34
7.6 Investigation and Confidentiality.............................. A-34
7.7 Press Releases................................................. A-35
|
7.8 No Solicitation................................................ A-35
7.9 Tax Treatment.................................................. A-37
7.10 Agreement of Affiliates........................................ A-37
7.11 Employee Benefits and Contracts................................ A-38
7.12 Large Deposits................................................. A-38
7.13 Indemnification................................................ A-38
7.14 Irrevocable Proxies............................................ A-39
7.15 Noncompetition Agreements...................................... A-39
7.16 TARGET Options and Warrants.................................... A-39
ARTICLE 8 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE.............. A-39
8.1 Conditions to Obligations of Each Party........................ A-39
8.2 Conditions to Obligations of PURCHASER......................... A-40
8.3 Conditions to Obligations of TARGET............................ A-42
ARTICLE 9 TERMINATION.................................................... A-43
9.1 Termination.................................................... A-43
9.2 Effect of Termination.......................................... A-44
ARTICLE 10 MISCELLANEOUS.................................................. A-44
10.1 Definitions.................................................... A-44
10.2 Expenses....................................................... A-53
10.3 Brokers and Finders............................................ A-53
10.4 Entire Agreement............................................... A-54
10.5 Amendments..................................................... A-54
10.6 Waivers........................................................ A-54
10.7 Assignment..................................................... A-55
10.8 Notices........................................................ A-55
10.9 Governing Law.................................................. A-56
10.10 Counterparts................................................... A-56
10.11 Captions....................................................... A-56
10.12 Enforcement of Agreement....................................... A-56
10.13 Severability................................................... A-56
10.14 Survival....................................................... A-57
|
[CAPTION]
LIST OF EXHIBITS
----------------
Exhibit Number Description
- -------------- -----------
1. List of Holders (S3.7).
2. Form of agreement of affiliates of First National Financial
Corporation (S7.10).
3. Irrevocable Proxy (S7.14).
4. Form of Noncompetition Agreement with Mr. Phillips
(S7.15).
4A. Form of Noncompetition Agreement with Directors other
than Mr. Phillips (S7.15).
5. Form of letter from Holders of Warrants (S7.16).
6. Form of letter from Holders of Options (S7.16).
7. Matters as to which Smith, Gambrell & Russell will opine
(S8.2(d)).
8. Matters as to which Rogers & Hardin will opine
(S8.3(d)).
|
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered into as of April 15, 1996, by and between FIRST NATIONAL FINANCIAL CORPORATION ("TARGET"), a corporation organized and existing under the laws of the State of Georgia, with its principal office located in Albany, Georgia, and ABC BANCORP ("PURCHASER"), a corporation organized and existing under the laws of the State of Georgia, with its principal office located in Moultrie, Georgia.
Certain terms used in this Agreement are defined in Section 10.1 hereof.
The Boards of Directors of TARGET and PURCHASER are of the opinion that the transactions described herein are in the best interests of the parties and their respective shareholders. This Agreement provides for the combination of TARGET with PURCHASER pursuant to the merger of TARGET with and into PURCHASER, as a result of which the outstanding shares of the capital stock of TARGET shall be converted into the right to receive shares of common stock of PURCHASER (except as provided herein), and the shareholders of TARGET shall become shareholders of PURCHASER (except as provided herein). The transactions described in this Agreement are subject to the approvals of the shareholders of TARGET, the Board of Governors of the Federal Reserve System, the Georgia Department of Banking and Finance and the satisfaction of certain other conditions described in this Agreement. It is the intention of the parties to this Agreement that the Merger for federal income tax purposes shall qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code.
Following the Closing of the Merger, First National Bank of South Georgia, a wholly-owned national bank subsidiary of TARGET (the "Bank"), will be operated as a separate subsidiary of PURCHASER.
NOW, THEREFORE, in consideration of the above and the mutual warranties, representations, covenants and agreements set forth herein, the parties agree as follows:
(a) Each share of PURCHASER Common Stock issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding from and after the Effective Time.
(b) Each share of TARGET Common Stock outstanding immediately prior to
the Effective Time, other than shares with respect to which statutory
dissenters' rights have been perfected (the "Dissenting Shares") and shares held
in TARGET's treasury which shall be cancelled without consideration at the
Effective Time (the "Outstanding TARGET Shares"), shall automatically be
converted at the Effective Time into the right to receive whole shares of
PURCHASER Common Stock, plus cash in lieu of fractional shares pursuant to
subparagraph (c) below, if applicable, in an amount equal to (i) the Merger
Consideration, plus (ii) the Aggregate Option Consideration, divided by
(iii) the Aggregate TARGET Shares (the "Per Share Merger Consideration"). In
accordance with the provisions of this Section 3.1, each TARGET shareholder who
does not dissent shall receive the number of shares, or such fractions of a
share (subject to paragraph (b) below), of PURCHASER Common Stock which shall be
equal to the (i) the Per Share Merger Consideration divided by the Base Period
Trading Price (the "Exchange Ratio"), (ii) multiplied by the aggregate number of
Outstanding TARGET Shares such shareholder holds as of the Effective Time.
(c) Notwithstanding any other provision of this Agreement, each holder of shares of TARGET Common Stock exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of PURCHASER Common Stock (after taking into account all certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to such fractional part of a share of PURCHASER Common Stock multiplied by the Base Period Trading Price. No such holder will be entitled to dividends, voting rights, or any other rights as a shareholder in respect of any fractional shares.
(d) Each share of the TARGET Common Stock that is not an Outstanding TARGET Share as of the Effective Time shall be cancelled without consideration therefor.
(e) Outstanding TARGET Shares held by TARGET shareholders who, prior to the Effective Time, have met the requirements of Article 13 of the GBCC with
respect to shareholders dissenting from the Merger ("Dissenting TARGET Shareholders") shall not be converted in the Merger, but all such shares shall be cancelled and the holders thereof shall thereafter have only such rights as are granted to dissenting shareholders under Article 13 of the GBCC; provided, however, that if any such shareholder fails to perfect his or her rights as a dissenting shareholder with respect to his or her Outstanding TARGET Shares in accordance with Article 13 of the GBCC, such shares held by such shareholder shall, upon the happening of that event, be treated the same as all other holders of TARGET Common Stock who have not dissented as to the Merger.
In no event will any holder of TARGET Common Stock exchanged in the Merger be entitled to receive any interest on any amounts held by the Exchange Agent or PURCHASER.
Agreement. However, upon surrender of such TARGET Common Stock certificate, both the PURCHASER Common Stock certificate (together with all such undelivered dividends or other distributions without interest) and any undelivered cash payments to be paid for fractional share interests (without interest) shall be delivered and paid with respect to each share represented by such certificate.
TARGET hereby represents and warrants to PURCHASER as follows:
(a) TARGET has the corporate power and authority necessary to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein, including the Merger, have been duly and validly authorized by all necessary corporate action in respect thereof on the part of TARGET, subject to the approval of this Agreement by the holders of a majority of the outstanding TARGET Common Stock. Subject to such requisite shareholder approval, this Agreement represents a legal, valid and binding obligation of TARGET, enforceable against TARGET in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by TARGET, nor
the consummation by TARGET of the transactions contemplated hereby, nor
compliance by TARGET with any of the provisions hereof, will (i) conflict with
or result in a breach of any provision of TARGET's Articles of Incorporation or
Bylaws, or (ii) constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any TARGET
Company under, any Contract or Permit of any TARGET Company, where such Default
or Lien, or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on TARGET, or,
(iii) subject to receipt of the requisite approvals referred to in
Section 8.1(b) of this Agreement, violate any Law or Order applicable to any
TARGET Company or any of their respective Assets.
(c) Other than in connection or compliance with the provisions of the Securities Laws, applicable state corporate and securities Laws, and other than Consents required from Regulatory Authorities, and other than notices to or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans, and other than Consents, filings or notifications which, if not obtained or made, are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET, no notice to, filing with, or Consent of any public body or authority is necessary for the consummation by TARGET of the Merger and the other transactions contemplated in this Agreement.
(a) The authorized capital stock of TARGET consists of (i) 10,000,000 shares of TARGET Common Stock, of which 495,409 shares are issued and outstanding as of the date of this Agreement, and (ii) 1,000,000 shares of Preferred Stock, none of which are issued or outstanding as of the date of this Agreement. All of the issued and outstanding shares of capital stock of TARGET are duly and validly issued and outstanding and are fully paid and nonassessable under the GBCC. None of the outstanding shares of capital stock of TARGET has been issued in violation of any preemptive rights of the current or past shareholders of TARGET.
(b) Except as set forth in Section 4.3(a) of this Agreement or as Previously Disclosed, there are no shares of capital stock or other equity securities of TARGET outstanding and no outstanding options, warrants, scrip, rights to subscribe to, calls, or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, shares of the capital stock of TARGET or contracts, commitments, understandings, or arrangements by which TARGET is or may be bound to issue additional shares of its capital stock or options, warrants, or rights to purchase or acquire any additional shares of its capital stock.
Assets and to carry on its business as now conducted. Each TARGET Subsidiary is duly qualified or licensed to transact business as a foreign corporation in good standing in the States of the United States and foreign jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET. Each TARGET Subsidiary that is a depository institution is an insured institution as defined in the Federal Deposit Insurance Act and applicable regulations thereunder.
would represent or result in a material breach or violation of any of the covenants and agreements of TARGET provided in Article 7 of this Agreement.
(a) All Tax returns required to be filed by or on behalf of any of the TARGET Companies have been duly filed or requests for extensions have been timely filed, granted, and have not expired for periods ended on or before December 31, 1995, and on or before the date of the most recent fiscal year end immediately preceding the Effective Time, except to the extent that all such failures to file, taken together, are not reasonably likely to have a Material Adverse Effect on TARGET, and all returns filed are complete and accurate to the Knowledge of TARGET. All Taxes shown on filed returns have been paid. As of the date of this Agreement, there is no audit examination, deficiency, or refund Litigation with respect to any Taxes that is reasonably likely to result in a determination that would have, individually or in the aggregate, a Material Adverse Effect on TARGET, except as reserved against in the TARGET Financial Statements delivered prior to the date of this Agreement. All Taxes and other Liabilities due with respect to completed and settled examinations or concluded Litigation have been paid.
(b) None of the TARGET Companies has executed an extension or waiver of any statute of limitations on the assessment or collection of any Tax due that is currently in effect, and no unpaid tax deficiency has been asserted in writing against or with respect to any TARGET Company, which deficiency is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET.
(c) Adequate provision for any Taxes due or to become due for any of the TARGET Companies for the period or periods through and including the date of the respective TARGET Financial Statements has been made and is reflected on such TARGET Financial Statements.
(d) Deferred Taxes of the TARGET Companies have been provided for in accordance with GAAP.
(e) Each of the TARGET Companies is in compliance with, and its records contain all information and documents (including, without limitation, properly completed IRS Forms W-9) necessary to comply with, all applicable information reporting and Tax withholding requirements under federal, state and local Tax Laws, and such records identify with specificity all accounts subject to backup withholding under Section 3406 of the Internal Revenue Code, except for such instances of noncompliance and such omissions as are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET.
(f) Effective January 1, 1993, TARGET adopted Financial Accounting Standards Board Statement 109, "Accounting for Income Taxes."
(a) Each TARGET Company, its Participation Facilities and its Loan Properties are, and have been, in compliance with all Environmental Laws, except for violations which are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET.
(b) There is no Litigation pending or, to the Knowledge of TARGET, threatened before any court, governmental agency or authority or other forum in which any TARGET Company or any of its Participation Facilities has been or, with respect to threatened Litigation, may be named as a defendant (i) for alleged noncompliance (including by any predecessor) with any Environmental Law or (ii) relating to the release into the environment of any Hazardous Material or oil, whether or not occurring at, on, under or involving a site owned, leased or operated by any TARGET Company or any of its Participation Facilities, except for such Litigation pending or, to the Knowledge of TARGET, threatened that is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET.
(c) There is no Litigation pending or, to the Knowledge of TARGET, threatened before any court, governmental agency or board or other forum in which any of its Loan Properties (or any TARGET Company in respect of such Loan Property) has been or, with respect to threatened litigation, may be named as a defendant or potentially responsible party (i) for alleged noncompliance (including by any predecessor) with any Environmental Law or (ii) relating to the release into the environment of any Hazardous Material or oil, whether or not occurring at, on, under or involving a Loan Property, except for such Litigation pending or, to the Knowledge of TARGET, threatened that is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET.
(d) To the Knowledge of TARGET, there is no reasonable basis for any Litigation of a type described in subsections (b) or (c), except such as is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET.
(e) During the period of (i) any TARGET Company's ownership or operation of any of their respective current properties, (ii) any TARGET Company's participation in the management of any Participation Facility, or (iii) any TARGET Company's holding of a security interest in a Loan Property, there have been no releases of Hazardous Material or oil in, on, under or affecting any such property, Participation Facility, or to the Knowledge of TARGET Loan Property, except such as are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET.
(f) Prior to the period of (i) any TARGET Company's ownership or operation of any of their respective current properties, (ii) any TARGET Company's
participation in the management of any Participation Facility, or (iii) any TARGET Company's holding of a security interest in a Loan Property, to the Knowledge of TARGET, there were no releases of Hazardous Material or oil in, on, under or affecting any such property, Participation Facility or Loan Property, except such as are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET.
(a) TARGET is duly registered as a bank holding company under the BHC Act. Each TARGET Company has in effect all Permits necessary for it to own, lease or operate its Assets and to carry on its business as now conducted, except for those Permits the absence of which are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET, and there has occurred no Default under any such Permit, other than Defaults which are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET.
(b) Except as Previously Disclosed no TARGET Company:
(i) is in violation of any Laws, Orders or Permits applicable to its business or employees conducting its business, except for violations which are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET; and
(ii) has received any notification or communication from any agency or department of federal, state, or local government or any Regulatory Authority or the staff thereof (A) asserting that any TARGET Company is not in compliance with any of the Laws or Orders which such governmental authority or Regulatory Authority enforces, where such noncompliance is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET, (B) threatening to revoke any Permits, the revocation of which is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on TARGET, or (C) requiring any TARGET Company to enter into or consent to the issuance of a cease and desist order, formal agreement, directive, commitment or memorandum of understanding, or to adopt any Board resolution or similar undertaking, which restricts materially the conduct of its business, or in any manner relates to its capital adequacy, its credit or reserve policies, its management, or the payment of dividends.
wages or conditions of employment, nor is there any strike or other labor dispute involving any TARGET Company, pending or, to its Knowledge, threatened, or to its Knowledge, is there any activity involving any TARGET Company's employees seeking to certify a collective bargaining unit or engaging in any other organization activity.
(a) TARGET has Previously Disclosed, and delivered or made available to PURCHASER prior to the execution of this Agreement, copies in each case of all pension, retirement, profit-sharing, deferred compensation, stock option, employee stock ownership, severance pay, vacation, bonus, or other incentive plans all other written employee programs, arrangements, or agreements, all medical, vision, dental, or other health plans, all life insurance plans, and all other employee benefit plans or fringe benefit plans, including, without limitation, "employee benefit plans," as that term is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored in whole or in part by, or contributed to by any TARGET Company or Affiliate thereof for the benefit of employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries and under which employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries are eligible to participate (collectively, the "TARGET Benefit Plans"). Any of the TARGET Benefit Plans which is an "employee pension benefit plan," as that term is defined in Section 3(2) of ERISA, is referred to herein as a "TARGET ERISA Plan." Each TARGET ERISA Plan which is also a "defined benefit plan" (as defined in Section 414(j)) of the Internal Revenue Code) is referred to herein as a "TARGET Pension Plan." No TARGET Pension Plan is or has been a multi- employer plan within the meaning of Section 3(37) of ERISA.
(b) All TARGET Benefit Plans are in compliance with the applicable terms
of ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on TARGET. Each TARGET ERISA Plan which is
intended to be qualified under Section 401(a) of the Internal Revenue Code has
received a favorable determination letter from the Internal Revenue Service, and
TARGET is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. To the Knowledge of TARGET, no TARGET
Company has engaged in a transaction with respect to any TARGET Benefit Plan
that, assuming the taxable period of such transaction expired as of the date
hereof would subject any TARGET Company to a tax or penalty imposed by either
Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA in amounts
which are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on TARGET.
(c) No TARGET ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d)(8)(A) of
ERISA, based on actuarial assumptions set forth for such plan's most recent
actuarial valuation. Since the date of the most recent actuarial valuation,
there has been (i) no material change in the financial position of any TARGET
Pension Plan, (ii) no change in the actuarial assumptions with respect to any
TARGET Pension Plan, and (iii) no increase in benefits under any TARGET Pension
Plan as a result of plan amendments or changes in applicable law, which is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on TARGET or materially adversely affect the funding status of any such
plan. Neither any TARGET Pension Plan nor any "single-employer plan," within
the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by
any TARGET Company, or the single-employer plan of any entity which is
considered one employer with TARGET under Section 4001 of ERISA or Section 414
of the Internal Revenue Code or Section 302 of ERISA (whether or not waived)
(an "ERISA Affiliate") has an "accumulated funding deficiency" within the
meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
which is reasonably likely to have a Material Adverse Effect on TARGET. No
TARGET Company has provided, or is required to provide, security to a TARGET
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Code.
(d) Within the six-year period preceding the Effective Time, no
Liability under Subtitle C or D of Title IV or ERISA has been or is expected to
be incurred by any TARGET Company with respect to any ongoing, frozen or
terminated single-employer plan or the single-employer plan of any ERISA
Affiliate, which Liability is reasonably likely to have a Material Adverse
Effect on TARGET. Except as Previously Disclosed, no TARGET Company has incurred
any withdrawal Liability with respect to a multi-employer plan under Subtitle B
of Title TV or ERISA (regardless of whether based on contributions of an ERISA
Affiliate), which Liability is reasonably likely to have a Material Adverse
Effect on TARGET. No notice of a "reportable event," within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not been
waived, has been required to be filed for any TARGET Pension Plan or by any
ERISA Affiliate within the 12-month period ending on the date hereof.
(e) No TARGET Company has any obligations for retiree health and life benefits under any of the TARGET Benefit Plans and there are no restrictions on the rights of such TARGET Company to amend or terminate any such Plan without incurring any Liability thereunder, which Liability is reasonably likely to have a Material Adverse Effect on TARGET.
(f) Except as Previously Disclosed, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result
in any payment (including, without limitation, severance, unemployment compensation, golden parachute or otherwise) becoming due to any director or any employee of any TARGET Company from any TARGET Company under any TARGET Benefit Plan or otherwise, (ii) increase any benefits otherwise payable under any TARGET Benefit Plan, or (iii) result in any acceleration of the time of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred compensation entitlements (including, without limitation, entitlements under any executive compensation, supplemental retirement, or employment agreement) of employees and former employees of any TARGET Company and their respective beneficiaries, other than entitlements accrued pursuant to funded retirement plans subject to the provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA, have been fully reflected on the TARGET Financial Statements to the extent required by and in accordance with GAAP.
PURCHASER hereby represents and warrants to TARGET as follows:
(a) PURCHASER has the corporate power and authority necessary to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated herein, including the Merger, have been duly and validly authorized by all necessary corporate action in respect thereof on the part of PURCHASER. This Agreement represents a legal, valid and binding obligation of PURCHASER, enforceable against PURCHASER in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by PURCHASER, nor the consummation by PURCHASER of the transactions contemplated hereby, nor compliance by PURCHASER with any of the provisions hereof will (i) conflict with or result in a breach of any provision of PURCHASER's Articles of Incorporation or Bylaws, or (ii) constitute or result in a Default under, or require any Consent pursuant to, or result in the creation of any Lien on any Asset of any PURCHASER Company under, any Contract or Permit of any PURCHASER Company, where such Default or Lien, or any failure to obtain such Consent, is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on PURCHASER, or, (iii) subject to receipt of the requisite approvals referred to in Section 8.1(b) of this Agreement, violate any Law or Order applicable to any PURCHASER Company or any of their respective Assets.
(c) Other than in connection or compliance with the provisions of the Securities Laws, applicable state corporate and securities Laws, and rules of the NASD, and other than Consents required from Regulatory Authorities, and other than notices to or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans, and other than Consents, filings or notifications which, if not obtained or made, are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on PURCHASER, no notice to, filing with, or Consent of any public body or authority is necessary for the consummation by PURCHASER of the Merger and the other transactions contemplated in this Agreement.
(a) The authorized capital stock of PURCHASER consists of (i) 10,000,000 shares of PURCHASER Common Stock, of which 3,379,192 shares are issued and outstanding as of the date of this Agreement, and (ii) 5,000,000 shares of Preferred Stock, none of which are issued or outstanding as of the date of this Agreement. All of the issued and outstanding shares of PURCHASER Common Stock are, and all of the shares of PURCHASER Common Stock to be issued in exchange for shares of TARGET Common Stock upon consummation of the Merger, when issued in accordance with the terms of this
Agreement, will be, duly and validly issued and outstanding and fully paid and nonassessable under the GBCC. None of the outstanding shares of PURCHASER Common Stock has been, and none of the shares of PURCHASER Common Stock to be issued in exchange for shares of TARGET Common Stock upon consummation of the Merger will be, issued in violation of any preemptive rights of the current or past shareholders of PURCHASER.
(b) Except as set forth in Section 5.3(a) of this Agreement, or as Previously Disclosed, there are no shares of capital stock or other equity securities of PURCHASER outstanding and no outstanding options, warrants, scrip, rights to subscribe to, calls, or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, shares of the capital stock of PURCHASER or contracts, commitments, understandings, or arrangements by which PURCHASER is or may be bound to issue additional shares of its capital stock or options, warrants, or rights to purchase or acquire any additional shares of its capital stock.
aggregate, a Material Adverse Effect on PURCHASER. Each PURCHASER Subsidiary that is a depository institution is an insured institution as defined in the Federal Deposit Insurance Act and applicable regulations thereunder.
(a) All Tax returns required to be filed by or on behalf of any of the PURCHASER Companies have been timely filed or requests for extensions have been timely filed, granted, and have not expired for periods ended on or before December 31, 1995, and on or before the date of the most recent fiscal year end immediately preceding the Effective Time, except to the extent that all such failures to file, taken together, are not reasonably likely to have a Material Adverse Effect on PURCHASER, and all returns filed are complete and accurate to the Knowledge of PURCHASER. All Taxes shown on filed returns have been paid. As of the date of this Agreement, there is no audit examination, deficiency, or refund Litigation with respect to any Taxes that is reasonably likely to result in a determination that would have, individually or in the aggregate, a Material Adverse Effect on PURCHASER, except as reserved against in the PURCHASER Financial Statements delivered prior to the date of this Agreement. All Taxes and other Liabilities due with respect to completed and settled examinations or concluded Litigation have been paid.
(b) None of the PURCHASER Companies has executed an extension or waiver of any statute of limitations on the assessment or collection of any Tax due that is currently in effect, and no unpaid tax deficiency has been asserted in writing against or with respect to any PURCHASER Company, which deficiency is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(c) Adequate provision for any Taxes due or to become due for any of the PURCHASER Companies for the period or periods through and including the date of the respective PURCHASER Financial Statements has been made and is reflected on such PURCHASER Financial Statements.
(d) Deferred Taxes of the PURCHASER Companies have been provided for in accordance with GAAP.
(e) Each of the PURCHASER Companies is in compliance with, and its records contain all information and documents (including, without limitation, properly completed IRS Forms W-9) necessary to comply with, all applicable information reporting and Tax withholding requirements under federal, state and local Tax Laws, and such records identify with specificity all accounts subject to backup withholding under Section 3406 of the Internal Revenue Code, except for such instances of noncompliance and such omissions as are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(f) Effective January 1, 1993, PURCHASER adopted Financial Accounting Standards Board Statement 109, "Accounting for Income Taxes."
(a) Each PURCHASER Company, its Participation Facilities and its Loan Properties are, and have been, in compliance with all Environmental Laws, except for violations which are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(b) There is no Litigation pending or, to the Knowledge of PURCHASER, threatened before any court, governmental agency or authority or other forum in which any PURCHASER Company or any of its Participation Facilities has been or, with respect to threatened Litigation, may be named as a defendant (i) for alleged noncompliance (including by any predecessor) with any Environmental Law or (ii) relating to the release into the environment of any Hazardous Material (as defined below) or oil, whether or not occurring at, on, under or involving a site owned, leased or operated by any PURCHASER Company or any of its Participation Facilities, except for such Litigation pending or, to the Knowledge of Purchaser, threatened that is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(c) There is no Litigation pending or, to the Knowledge of Purchaser, threatened before any court, governmental agency or board or other forum in which any of its Loan Properties (or any PURCHASER Company in respect of such Loan Property) has been or, with respect to threatened Litigation, may be named as a defendant or potentially responsible party (i) for alleged noncompliance (including by any predecessor), with any Environmental Law or (ii) relating to the release into the environment of any Hazardous Material or oil, whether or not occurring at, on, under or involving a Loan Property, except for such Litigation pending or, to the Knowledge of Purchaser, threatened that is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(d) To the Knowledge of PURCHASER, there is no reasonable basis for any Litigation of a type described in subsections (b) or (c), except such as is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(e) During the period of (i) any PURCHASER Company's ownership or
operation of any of their respective current properties, (ii) any PURCHASER
Company's participation in the management of any Participation Facility, or
(iii) any PURCHASER Company's holding of a security interest in a Loan Property,
there have been no releases of Hazardous Material or oil in, on, under or
affecting such property, Participation Facility or Loan Property, except such as
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on PURCHASER.
(f) Prior to the period of (i) any PURCHASER Company's ownership or
operation of any of their respective current properties, (ii) any PURCHASER
Company's participation in the management of any Participation Facility, or
(iii) any PURCHASER Company's holding of a security interest in a Loan Property,
to the Knowledge of PURCHASER, there were no releases of Hazardous Material or
oil in, on, under or affecting any such property, Participation Facility or Loan
Property, except such as are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on PURCHASER.
(a) No PURCHASER Company:
(i) is in violation of any Laws, Orders or Permits applicable to its business or employees conducting its business, except for violations which are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on PURCHASER; or
(ii) has received any notification or communication from any agency or department of federal, state, or local government or any Regulatory Authority or the staff thereof (A) asserting that any PURCHASER Company is not in compliance with any of the Laws or Orders which such governmental authority or Regulatory Authority enforces, where such noncompliance is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on PURCHASER, (B) threatening to revoke any Permits, the revocation of which is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on PURCHASER, or (C) requiring any PURCHASER Company to enter into or consent to the issuance of a cease and desist order, formal agreement, directive, commitment or memorandum of understanding, or to adopt any Board resolution or similar undertaking, which restricts materially the conduct of its business, or in any manner relates to its capital adequacy, its credit or reserve policies, its management, or the payment of dividends.
(a) PURCHASER has Previously Disclosed and delivered or made available to TARGET prior to the execution of this Agreement copies in each case of all pension, retirement, profit-sharing, deferred compensation, stock option, employee stock ownership, severance pay, vacation, bonus, or other incentive plans, all other written employee programs, arrangements, or agreements, all medical, vision, dental, or other health plans, all life insurance plans, and all other employee benefit plans or fringe benefit plans, including, without limitation, "employee benefit plans," as that term is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored in whole or in part by, or contributed to by any PURCHASER Company or Affiliate thereof for the benefit of employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries and under which employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries are eligible to participate (collectively, the "PURCHASER Benefit Plans). Any of the PURCHASER Benefit Plans which is an "employee pension benefit plan," as that term is defined in Section 3(2) of ERISA, is referred to herein as a "PURCHASER ERISA Plan." Each PURCHASER ERISA Plan which is also a "defined benefit plan" (as defined in Section 414(j)) of the Internal Revenue Code) is referred to herein as a "PURCHASER Pension Plan." No PURCHASER Pension Plan is or has been a multi-employer plan within the meaning of Section 3(37) of ERISA.
(b) All PURCHASER Benefit Plans are in compliance with the applicable
terms of ERISA, the Internal Revenue Code, and any other applicable Laws the
breach or violation of which are reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on PURCHASER. Each PURCHASER ERISA
Plan which is intended to be qualified under Section 401(a) of the Internal
Revenue Code has received a favorable determination letter from the Internal
Revenue Service, and PURCHASER is not aware of any circumstances likely to
result in revocation of any such favorable determination letter. To the
Knowledge of PURCHASER, no PURCHASER Company has engaged in a transaction with
respect to any PURCHASER Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof would subject any PURCHASER Company to
a tax or penalty imposed by either Section 4975 of the Internal Revenue Code or
Section 502(i) of ERISA in amounts which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on PURCHASER.
(c) No PURCHASER ERISA Plan which is a defined benefit pension plan has any "unfunded current liability," as that term is defined in Section 302(d)(8)(A) of ERISA, based on actuarial assumptions set forth for such plan's most recent actuarial valuation. Since the date of the most recent actuarial valuation, there has been (i) no material change in the financial position of any PURCHASER Pension Plan, (ii) no change in the actuarial assumptions with respect to any PURCHASER Pension Plan, and (iii) no increase in benefits under any PURCHASER Pension Plan as a result of plan amendments or changes in applicable Law which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on PURCHASER or materially adversely affect the funding status of any such plan. Neither any PURCHASER Pension Plan nor any "single-employer plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any PURCHASER Company, or the single- employer plan of any ERISA Affiliate has an "accumulated funding deficiency" within the meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA, which is reasonably likely to have a Material Adverse Effect on PURCHASER. No PURCHASER Company has provided, or is required to provide, security to a PURCHASER Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
(d) No Liability under Subtitle C or D of Title IV or ERISA has been or is expected to be incurred by any PURCHASER Company with respect to any ongoing, frozen or terminated single-employer plan or the single-employer plan of any ERISA Affiliate, which Liability is reasonably likely to have a Material Adverse Effect on PURCHASER. No PURCHASER Company has incurred any withdrawal Liability with respect to a multi-employer plan under Subtitle B of Title IV or ERISA (regardless of whether based on contributions of an ERISA Affiliate), which Liability is reasonably likely to have a Material Adverse Effect on PURCHASER. No notice of a "reportable event" within the meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any PURCHASER Pension Plan or by any ERISA Affiliate within the 12-month period ending on the date hereof
(e) Except as Previously Disclosed, (i) no PURCHASER Company has any obligations for retiree health and life benefits under any of the PURCHASER Benefit Plans and (ii) there are no restrictions on the rights of such PURCHASER Company to amend or terminate any such Plan without incurring any Liability thereunder, which Liability is reasonably likely to have a Material Adverse Effect on PURCHASER.
(f) Except as Previously Disclosed, neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute or otherwise) becoming due to any
director or any employee of any PURCHASER Company from any PURCHASER Company
under any PURCHASER Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable under any PURCHASER Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred compensation entitlements (including, without limitation, entitlements under any executive compensation, supplemental retirement, or employment agreement) of employees and former employees of any PURCHASER Company and their respective beneficiaries, other than entitlements
accrued pursuant to funded retirement plans subject to the provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA, have been fully reflected on the PURCHASER Financial Statements to the extent required by and in accordance with GAAP.
documents to be filed by any PURCHASER Company or any Affiliate thereof with the SEC or any other Regulatory Authority in connection with the transactions contemplated hereby, will, at the respective time such documents are filed, and with respect to the Proxy Statement, when first mailed to the shareholders of TARGET, be false or misleading with respect to any material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or, in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the Shareholders' Meeting, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the Shareholders' Meeting. All documents that any PURCHASER Company or any Affiliate thereof is responsible for filing with any Regulatory Authority in connection with the transactions contemplated hereby will comply as to form in all material respects with the provisions of applicable Law.
(a) amend the Articles of Incorporation, Bylaws or other governing instruments of any TARGET Company; or
(b) incur any additional debt obligation or other obligation for borrowed money (other than indebtedness of a TARGET Company to another TARGET Company) in excess of an aggregate of $50,000 (for the TARGET Companies on a consolidated basis) except in the ordinary course of the business of TARGET Companies consistent with past practices (which shall include, for TARGET Subsidiaries that are depository institutions, creation of deposit liabilities, purchases of federal funds, receipt of Federal Home Loan Bank advances, and entry into repurchase agreements fully secured by U.S. government or agency securities), or impose, or suffer the imposition, on any share of stock held by any TARGET Company of any Lien or permit any such Lien to exist; or
(c) repurchase, redeem, or otherwise acquire or exchange (other than exchanges in the ordinary course under employee benefit plans), directly or indirectly, any shares, or any securities convertible into any shares, of the capital stock of any TARGET Company, or declare or pay any dividend or make any other distribution in respect of TARGET's capital stock; or
(d) except for the issuance of TARGET Options to purchase 4,874 shares of TARGET Common Stock at an exercise price of $11.08 per share to the Bank's President and Chief Executive Officer, Raymond B. Phillips ("Mr. Phillips"), or as otherwise permitted hereby, or as Previously Disclosed, issue, sell, pledge, encumber, authorize the issuance of, or enter into any Contract to issue, sell, pledge, encumber, or authorize the issuance of or otherwise permit to become outstanding, any additional shares of TARGET Common Stock or any other capital stock of any TARGET Company, or any stock appreciation rights, or any option, warrant, conversion, or other right to acquire any such stock, or any security convertible into any such stock; or
(e) adjust, split, combine or reclassify any capital stock of any TARGET Company or issue or authorize the issuance of any other securities in respect of or in substitution for shares of TARGET Common Stock or sell, lease, mortgage or otherwise dispose of or otherwise encumber (i) any shares of capital stock of any TARGET Subsidiary (unless any such shares of stock are sold or otherwise transferred to another TARGET Company) or (ii) any Asset having a book value in excess of $50,000 other than in the ordinary course of business for reasonable and adequate consideration; or
(f) acquire direct or indirect control over any Person, other than in
connection with (i) internal reorganizations or consolidations involving
existing Subsidiaries, (ii) foreclosures in the ordinary course of business, or
(iii) acquisitions of control by a depository institution Subsidiary in its
fiduciary capacity; or
(g) grant any increase in compensation or benefits to the employees or officers of any TARGET Company (including such discretionary increases as may be contemplated by existing employment agreements), except in accordance with past practice Previously Disclosed or as required by Law; pay any bonus except for any bonus properly payable to Mr. Phillips under the Employment Agreement dated December 20, 1993 between the Bank and Mr. Phillips or otherwise payable in accordance with past practice Previously Disclosed or the provisions of any applicable program or plan adopted by its Board of Directors prior to the date of this Agreement; enter into or amend any severance agreements with officers of any TARGET Company; grant any increase in fees or other increases in compensation or other benefits to directors of any TARGET Company or in accordance with past practice Previously Disclosed; or
(h) enter into or amend any employment Contract between any TARGET Company and any Person (unless such amendment is required by Law) that the TARGET Company does not have the unconditional right to terminate without Liability (other than Liability for services already rendered), at any time on or after the Effective Time; or
(i) adopt any new employee benefit plan of any TARGET Company or make any material change in or to any existing employee benefit plans of any TARGET Company other than any such change that is required by Law or that, in the opinion of counsel, is necessary or advisable to maintain the tax qualified status of any such plan; or
(j) make any significant change in any accounting methods or systems of internal accounting controls, except as may be appropriate to conform to changes in regulatory accounting requirements or GAAP; or
(k) commence any Litigation other than in accordance with past practice, settle any Litigation involving any Liability of any TARGET Company for money damages in excess of $50,000 or which involves material restrictions upon the operations of any TARGET Company; or
(l) except in the ordinary course of business, modify, amend or terminate any material Contract or waive, release, compromise or assign any material rights or claims.
entity filing such statements as of the dates indicated and the consolidated results of operations, changes in shareholders' equity, and cash flows for the periods then ended in accordance with GAAP (subject in the case of interim financial statements to normal recurring year-end adjustments that are not material). As of their respective dates, such reports filed with the SEC will comply in all material respects with the Securities Laws and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Any financial statements contained in any other reports to another Regulatory Authority shall be prepared in accordance with Laws applicable to such reports.
Regulatory Authorities having jurisdiction over the transactions contemplated by this Agreement seeking the requisite Consents necessary to consummate the transactions contemplated by this Agreement.
(a) Prior to the Effective Time, each Party will keep the other Party advised of all material developments relevant to its business and to consummation of the Merger and shall permit the other Party to make or cause to be made such investigation of the business and properties of it and its Subsidiaries and of their respective financial and legal conditions as the other Party reasonably requests, provided that such investigation shall be reasonably related to the transactions contemplated hereby and shall not interfere unnecessarily with normal operations. No investigation by a Party shall affect the representations and warranties of the other Party.
(b) Except as may be required by applicable Law or legal process, and except for such disclosure to those of its directors, officers, employees and representatives as may be appropriate or required in connection with the transactions contemplated hereby, each Party shall hold in confidence all nonpublic information obtained from the other Party (including work papers and other material derived therefrom) as a result of this Agreement or in connection with the transactions contemplated hereby (whether so obtained before or
after the execution hereof) until such time as the Party providing such information consents to its disclosure or such information becomes otherwise publicly available. Promptly following any termination of this Agreement, each of the Parties agrees to use its best efforts to cause its respective directors, officers, employees and representatives to destroy or return to the providing party all such nonpublic information (including work papers and other material retrieved therefrom), including all copies thereof. Each Party shall, and shall cause its advisers and agents to, maintain the confidentiality of all confidential information furnished to it by the other Party concerning its and its Subsidiaries' businesses, operations, and financial positions and shall not use such information for any purpose except in furtherance of the transactions contemplated by this Agreement. If this Agreement is terminated prior to the Effective Time, each Party shall promptly return all documents and copies thereof and all work papers containing confidential information received from the other Party, except one copy of certain materials that can be retained for legal files in accordance with the provisions of the Confidentiality Agreements.
(c) Each Party agrees to give the other Party notice as soon as practicable after any determination by it of any fact or occurrence relating to the other Party which it has discovered through the course of its investigation and which represents, or is reasonably likely to represent, either a material breach of any representation, warranty, covenant or agreement of the other Party or which has had or is reasonably likely to have a Material Adverse Effect on the other Party.
(d) It is hereby agreed that this Section 7.6 shall supersede in its entirety that certain Confidentiality Agreement dated April 9, 1996, between PURCHASER and TARGET.
consultation with counsel, such failure to act would be inconsistent with its
fiduciary duties to shareholders under applicable law, TARGET may, in response
to an unsolicited takeover proposal, and subject to compliance with subparagraph
(c) below, (A) furnish information with respect to TARGET to any Person pursuant
to a confidentiality agreement and (B) participate in negotiations regarding
such takeover proposal. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in the immediately preceding
sentence by any executive officer of TARGET or any of its Subsidiaries or any
investment banker, attorney or other advisor or representative of TARGET or any
of its Subsidiaries, whether or not such person is purporting to act on behalf
of TARGET or any of its Subsidiaries or otherwise, shall be deemed to be a
breach of this Section 7.8 by TARGET. For purposes of this Agreement, "takeover
proposal" means an inquiry, proposal or acquisition or purchase of a substantial
amount of assets of TARGET or any of its Subsidiaries (other than investors in
the ordinary course of business) or of over 20% of any class of equity
securities of TARGET or any of its Subsidiaries or any tender offer or exchange
offer that if consummated would result in any Person beneficially owning 20% or
more of any class of equity securities of TARGET or any of its Subsidiaries, or
any merger, consolidation, business combination, sale of substantially all
assets, recapitalization, liquidation, dissolution or similar transaction
involving TARGET or any of its Subsidiaries other than the transactions
contemplated by this Agreement, or any other transaction the consummation of
which would reasonably be expected to impede, interfere with, prevent or
materially delay the Merger or which would reasonably be expected to dilute
materially the benefits to PURCHASER of the transactions contemplated hereby.
(b) Except as set forth herein, neither the Board of Directors of TARGET nor
any committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to PURCHASER, the approval or recommendation of such
Board of Directors or any such committee of this Agreement or the Merger,
(ii) approve or recommend, or propose to approve or recommend, any takeover
proposal or (iii) enter into any agreement with respect to any takeover
proposal. Notwithstanding the foregoing, if in the opinion of the TARGET Board
of Directors, after consultation with counsel, failure to do so would be
inconsistent with its fiduciary duties to TARGET shareholders under applicable
law, then, prior to the Shareholders' Meeting, the TARGET Board of Directors may
(subject to the terms of this and the following sentences) withdraw or modify
its approval or recommendation of this Agreement or the Merger, approve or
recommend a superior proposal, or enter into an agreement with respect to a
superior proposal, in each case at any time after the second business day
following PURCHASER's receipt of written notice (a "Notice of Superior
Proposal") advising PURCHASER that the TARGET Board of Directors has received a
superior proposal, specifying the material terms and conditions of such superior
proposal and identifying the Person making such superior proposal; provided that
TARGET shall not enter into an agreement with respect to a superior proposal
unless TARGET shall have furnished PURCHASER with written notice no later than
12:00 noon
one (1) day in advance of any date that it intends to enter into such agreement. In addition, if TARGET proposes to enter into an agreement with respect to any takeover proposal, it shall concurrently with entering into such agreement pay, or cause to be paid, to PURCHASER the Expenses and the Termination Fee (as defined in Section 10.2(b). For purposes of this Agreement, a "superior proposal" means any bona fide takeover proposal to acquire, directly or indirectly, for consideration consisting of cash and/or securities, more than 50% of the shares of TARGET Common Stock or TARGET Bank then outstanding or all or substantially all of the assets of TARGET or TARGET Bank and otherwise on terms which the TARGET Board of Directors determines in its good faith judgment (based on the advice of a financial advisor of recognized reputation) to be more favorable to its shareholders than the Merger.
(c) In addition to the obligations of TARGET set forth in paragraph (b) above, TARGET shall immediately advise PURCHASER orally and in writing of any request for information or of any takeover proposal, or any inquiry with respect to or which could lead to any takeover proposal, the material terms and conditions of such request, takeover proposal or inquiry, and the identity of the person making any takeover proposal or inquiry. TARGET shall keep PURCHASER fully informed of the status and details (including amendments or proposed amendments) of any such request, takeover proposal or inquiry.
(d) Nothing contained in this Section 7.8 shall prohibit TARGET from making any disclosure to TARGET's shareholders if, in the opinion of the TARGET Board of Directors, after consultation with counsel, failure to so disclose would be inconsistent with its fiduciary duties to its shareholders under applicable law; provided that TARGET does not, except as permitted by subparagraph (b) above, withdraw or modify, or propose to withdraw or modify, its position with respect to the Merger or approve or recommend, or propose to approve or recommend, a takeover proposal.
be received by such Person upon consummation of the Merger except in compliance with applicable provisions of the 1933 Act and the rules and regulations thereunder. Regardless of whether each such affiliate has provided the written agreement referred to in this Section, PURCHASER shall be entitled to place restrictive legends upon certificates for shares of PURCHASER Common Stock issued to affiliates of TARGET pursuant to this Agreement to enforce the provisions of this Section.
provided, however, that all rights to any indemnification in respect of any claim asserted or made within such period shall continue until the final disposition of such claim.
render inadvisable the consummation of the Merger; provided, however, that no such condition or restriction shall be deemed to be materially adverse unless it materially differs from terms and conditions customarily imposed by any Regulatory Authority in connection with similar transactions.
(c) TARGET shall have delivered to PURCHASER (i) a certificate, dated as
of the Effective Time and signed on its behalf by its chief executive officer,
to the effect that the conditions of its obligations set forth in
Sections 8.2(a) and 8.2(b) of this Agreement have been satisfied, and
(ii) certified copies of resolutions duly adopted by TARGET's Board of Directors
and shareholders evidencing the taking of all corporate action necessary to
authorize the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, all in such reasonable
detail as PURCHASER and its counsel shall reasonably request.
of this Agreement, and the consummation of the transactions contemplated hereby, all in such reasonable detail as TARGET and its counsel shall reasonably request.
(a) By mutual consent of the Board of Directors of PURCHASER and the Board of Directors of TARGET; or
(b) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
of a material breach by the other Party of any representation or warranty
contained in this Agreement which cannot be or has not been cured within thirty
(30) days after the giving of written notice to the breaching Party of such
breach and which breach would provide the non-breaching party the ability to
refuse to consummate the Merger under the standard set forth in Section 8.2(a)
of this Agreement in the case of PURCHASER and Section 8.3(a) of this Agreement
in the case of TARGET; or
(c) By the Board of Directors of either Party (provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event of a material breach by the other Party of any covenant or agreement contained in this Agreement which cannot be or has not been cured within (30) days after the giving of written notice to the breaching Party of such breach; or
(d) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
(i) any Consent of any Regulatory Authority required for consummation of the
Merger and the other transactions contemplated hereby has been denied by final
nonappealable action of such authority or if any action taken by such authority
is not appealed within the time limit for appeal, or (ii)
if the shareholders of TARGET fail to approve this Agreement and the transactions contemplated hereby as required by the GBCC at the Shareholders' Meetings where the transactions were presented to such shareholders for approval and voted upon; or
(e) By the Board of Directors of either Party in the event that the Merger shall not have been consummated by November 1, 1996 but only if the failure to consummate the transactions contemplated hereby on or before such date is not caused by any breach of this Agreement by the Party electing to terminate pursuant to this Section 9.1 (e); or
(f) By the Board of Directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
that any of the conditions precedent to the obligations of such Party to
consummate the Merger cannot be satisfied or fulfilled by the date specified in
Section 9.1(e) of this Agreement.
(g) By the Board of Directors of TARGET in connection with entering into a definitive agreement in accordance with Section 7.8(b), provided that it has complied with all provisions thereof, including the notice provisions therein, and that it makes simultaneous payment of the Expenses and the Termination Fee.
"Acquisition Proposal" with respect to a Party shall mean any tender offer or exchange offer or any proposal for a merger, acquisition of all of the stock or Assets of, or other business combination involving such Party or any of its Subsidiaries or the acquisition of a substantial equity interest in, or a substantial portion of the Assets of, such Party or any of its Subsidiaries.
"Affiliate" of a Person shall mean: (a) any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person or (b) any officer, director, partner, employer, or direct or indirect beneficial owner of any 10% or greater equity or voting interest of such Person.
"Aggregate Option Consideration" shall mean the aggregate exercise price of all options and warrants to purchase TARGET Common Stock outstanding immediately prior to the Effective Time (whether or not such option or warrant is then exercisable).
"Aggregate TARGET Shares" shall mean the aggregate number of outstanding shares of TARGET Common Stock plus the aggregate number of Option Shares outstanding immediately prior to the Effective Time.
"Agreement" shall mean this Agreement and Plan of Merger and the Exhibits delivered pursuant hereto and incorporated herein by reference.
"Assets" of a Person shall mean all of the assets, properties, businesses and rights of such Person of every kind, nature, character and description, whether real, personal or mixed, tangible or intangible, accrued or contingent, or otherwise relating to or utilized in such Person's business, directly or indirectly, in whole or in part, whether or not carried on the books and records of such Person, and whether or not owned in the name of such Person or any Affiliate of such Person and wherever located.
"Base Period Trading Price" shall mean the average of the daily high and low sales prices of a share of PURCHASER Common Stock as reported on NASDAQ for the twenty (20) consecutive trading days immediately preceding five (5) consecutive calendar days immediately preceding the Effective Time; provided however, that for purposes of this calculation, the Base Period Trading Price shall be deemed to equal (i) $16.00 in the event the Base Period Trading Price is greater than $16.00 or (ii) $12.00 in the event the Base Period Trading Price is less than $12.00.
"Bank" shall have the meaning provided in the Preamble to this Agreement.
"BHC Act" shall mean the federal Bank Holding Company Act of 1956, as amended.
"Closing" shall mean the closing of the transactions contemplated hereby, as described in Section 1.2 of this Agreement.
"Closing Date" shall have the meaning provided in Section 1.2 of this Agreement.
"Consent" shall mean any consent, approval, authorization, clearance, exemption, waiver, or similar affirmation by any Person pursuant to any Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement, authorization, commitment, contract, indenture, instrument, lease, obligation, plan, practice, restriction, understanding or undertaking of any kind or character, or other document to which any Person is a party or that is binding on any Person or its capital stock, Assets or business.
"Default" shall mean (a) any breach or violation of or default under any Contract, Order or Permit, (b) any occurrence of any event that with the passage of time or the giving of notice or both would constitute a breach or violation of or default under any Contract, Order or Permit, or (c) any occurrence of any event that with or without the passage of or the giving of notice would give rise to a right to terminate or revoke, change the current terms of, or renegotiate, or to accelerate, increase, or impose any Liability under, any Contract, Order or Permit.
"Dissenting Shares" shall have the meaning provided in Section 3.1(b) of this Agreement.
"Dissenting TARGET Shareholders" shall have the meaning provided in Section 3.1(l) of this Agreement.
"Effective Time" shall mean the date and time at which the Merger becomes effective as defined in Section 1.3 of this Agreement.
"Environmental Laws" shall mean all Laws which are administered, interpreted or enforced by the United States Environmental Protection Agency and state and local agencies with primary jurisdiction over pollution or protection of the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Plan" shall have the meaning provided in Section 4.14 of this Agreement.
"Exchange Agent" shall have the meaning provided in Section 3.2 of this Agreement.
"Exchange Ratio" shall have the meaning provided in Section 3.1(b) of this Agreement.
"Exhibits" 1 through 3, inclusive, shall mean the Exhibits so marked, copies of which are attached to this Agreement. Such Exhibits are hereby incorporated by reference herein and made a part hereof and may be referred to in this Agreement and any other related instrument or document without being attached hereto.
"Expenses" shall have the meaning provided in Section 10.2 of this Agreement.
"GAAP" shall mean generally accepted accounting principles, consistently applied during the periods involved.
"Georgia Articles of Merger" shall mean the Articles of Merger to be executed by PURCHASER and filed with the Secretary of State of the State of Georgia relating to the Merger as contemplated by Section 1.3 of this Agreement.
"GBCC" shall mean the Georgia Business Corporation Code.
"Hazardous Material" shall mean any pollutant, contaminant, or hazardous substance within the meaning of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. (S) 9601 et seq., or any similar federal, state or local Law.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.
"IRS" shall mean the Internal Revenue Service.
"Knowledge" as used with respect to a Person shall mean the Knowledge after reasonable due inquiry of the Chairman, President, Chief Financial Officer, Chief Accounting Officer, Chief Credit Officer, or any Senior or Executive Vice President of such Person.
"Law" shall mean any code, law, ordinance, regulation, reporting or licensing requirement, rule, or statute applicable to a Person or its Assets, Liabilities or business, including, without limitation, those promulgated, interpreted or enforced by any of the Regulatory Authorities.
"Letter of Transmittal" shall have the meaning provided in Section 3.2 of this Agreement.
"Liability" shall mean any direct or indirect, primary or secondary, liability, indebtedness, obligation, penalty, cost or expense (including, without limitation, costs of
investigation, collection and defense), claim, deficiency, guaranty or endorsement of or by any Person (other than endorsements of notes, bills, checks, and drafts presented for collection or deposit in the ordinary course of business) of any type, whether accrued, absolute or contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title, easement,
encroachment, encumbrance, hypothecation, infringement, lien, mortgage, pledge,
reservation, restriction, security interest, title retention or other security
arrangement, or any adverse right or interest, charge, or claim of any nature
whatsoever of, on, or with respect to any property or property interest, other
than (i) Liens for current property Taxes not yet due and payable, (ii) for
depository institution Subsidiaries of a Party, pledges to secure deposits and
other Liens incurred in the ordinary course of the banking business, and
(iii) Liens which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on a Party.
"Litigation" shall mean any action, arbitration, cause of action, claim, complaint, criminal prosecution, demand letter, governmental or other examination or investigation, hearing, inquiry, administrative or other proceeding, or notice (written or oral) by any Person alleging potential Liability or requesting information relating to or affecting a Party, its business, its Assets (including, without limitation, Contracts related to it), or the transactions contemplated by this Agreement, but shall not include regular, periodic examinations of depository institutions and their Affiliates by Regulatory Authorities.
"Loan Property" shall mean any property owned by the Party in question or by any of its Subsidiaries or in which such Party or Subsidiary holds a security interest, and, where required by the context, includes the owner or operator of such property, but only with respect to such property.
"Material" for purposes of this Agreement shall be determined in light of the facts and circumstances of the matter in question, provided that any specific monetary amount stated in this Agreement shall determine materiality in that instance.
"Material Adverse Effect" on a Party shall mean an event, change or occurrence
which has a material adverse impact on (a) the financial position, business, or
results of operations of such Party and its Subsidiaries, taken as a whole, or
(b) the ability of such Party to perform its obligations under this Agreement or
to consummate the Merger or the other transactions contemplated by this
Agreement, provided that "material adverse impact" shall not be deemed to
include the impact of (x) changes in banking and similar Laws of general
applicability or interpretations thereof by courts or governmental authorities,
(y) changes in generally accepted accounting principles or regulatory accounting
principles generally applicable to banks and their holding companies, and
(z) the Merger and
compliance with the provisions of this Agreement on the operating performance of the Parties.
"Merger" shall mean the merger of TARGET with and into PURCHASER referred to in Section 1.1 of this Agreement.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the Nasdaq National Market.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Old Certificates" shall have the meaning provided in Section 3.2 of this Agreement.
"Option Shares" shall mean the shares of TARGET Common Stock issuable by TARGET in connection with the exercise of any TARGET Option or TARGET Warrant (whether or not such option or warrant is then exercisable).
"Order" shall mean any administrative decision or award, decree, injunction, judgment, order, quasi-judicial decision or award, ruling, or writ of any federal, state, local or foreign or other court, arbitrator, mediator, tribunal, administrative agency or Regulatory Authority.
"Outstanding TARGET Shares" shall have the meaning provided in
Section 3.1(b) of this Agreement.
"Participation Facility" shall mean any facility or property in which the Party in question or any of its Subsidiaries participates in the management (including any property or facility held in a joint venture) and, where required by the context, said term means the owner or operator of such facility or property, but only with respect to such facility or property.
"Party" shall mean either TARGET or PURCHASER, and "Parties" shall mean both
TARGET and PURCHASER.
"Per Share Merger Consideration" shall have the meaning set forth in
Section 3.1(b) of this Agreement.
"Permit" shall mean any federal, state, local, and foreign governmental approval, authorization, certificate, easement, filing, franchise, license, notice, permit, or right to which any, Person is a party or that is or may be binding upon or inure to the benefit of any Person or its capital stock, Assets, Liabilities, or business.
"Person" shall mean a natural person or any legal, commercial or governmental entity, such as, but not limited to, a corporation, general partnership, joint venture, limited partnership, limited liability company, trust, business association, group acting in concert, or any person acting in a representative capacity.
"Previously Disclosed" shall mean information (a) delivered in writing prior to the date of this Agreement in the manner and to the Party and counsel described in Section 10.8 of this Agreement and describing in reasonable detail the matters contained therein, provided that in the case of Subsidiaries acquired after the date of this Agreement, such information may be so delivered by the acquiring Party to the other Party prior to the date of such acquisition, or (b) disclosed prior to the date of this Agreement by one Party to the other in an SEC Document delivered to such other Party in which the specific information has been identified by the Party making the disclosure.
"Proxy Statement" shall mean the proxy statement used by TARGET to solicit the approval of its shareholders of the transactions contemplated by this Agreement and shall include the prospectus of PURCHASER relating to shares of PURCHASER Common Stock to be issued to the shareholders of TARGET.
"PURCHASER Allowance" shall have the meaning provided in Section 5.9 of this Agreement.
"PURCHASER Benefit Plans" shall have the meaning set forth in Section 5.14 of this Agreement.
"PURCHASER Common Stock" shall mean the $1.00 par value common stock of
PURCHASER.
"PURCHASER Companies" shall mean, collectively, PURCHASER and all PURCHASER Subsidiaries.
"PURCHASER Financial Statements" shall mean (i) the consolidated statements of condition (including related notes and schedules, if any) of PURCHASER as December 31, 1995, 1994 and 1993, and the related statements of income, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) for each of the three years ended December 31, 1995, 1994, and 1993, as filed by PURCHASER in SEC Documents and (ii) the consolidated statements of condition of PURCHASER (including related notes and schedules, if any) and related statements of income, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) included in SEC Documents filed with respect to periods ended subsequent to December 31, 1995.
"PURCHASER Stock Plans" shall mean the existing stock option and other stock- based compensation plans.
"PURCHASER Subsidiaries" shall mean the Subsidiaries of PURCHASER.
"Record Date" shall have the meaning provided in Section 3.1(e) of this Agreement.
"Registration Statement" shall mean the Registration Statement on Form S-4, or other appropriate form, filed with the SEC by PURCHASER under the 1933 Act in connection with the transactions contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively, the Federal Trade Commission, the United States Department of Justice, the Board of the Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, all state banking and other regulatory agencies having jurisdiction over the Parties and their respective Subsidiaries, the NASD, and the SEC.
"SEC Documents" shall mean all reports and registration statements filed, or required to be filed, by a Party or any of its Subsidiaries with any Regulatory Authority pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the Investment Company Act of 1940, as amended, the Investment Advisors Act of 1940, as amended, the Trust Indenture Act of 1939, as amended, state blue sky laws, and the rules and regulations of any Regulatory Authority promulgated thereunder.
"Shareholders' Meeting" shall mean the meeting of the shareholders of TARGET to be held pursuant to Section 7.1 of this Agreement, including any adjournment or adjournments thereof.
"Subsidiaries" shall mean all those corporations, banks, associations, or other entities of which the entity in question owns or controls 5% or more of the outstanding equity securities either directly or through an unbroken chain of entities as to each of which 5 % or more of the outstanding equity securities is owned directly or indirectly by its parent; provided, however, there shall not be included any such entity acquired through foreclosure or any such entity the equity securities of which are owned or controlled in a fiduciary capacity.
"Surviving Corporation" shall mean PURCHASER as the surviving corporation resulting from the Merger.
"TARGET Allowance" shall have the meaning provided in Section 4.9 of this Agreement.
"TARGET Bank" shall mean First National Bank of South Georgia, Albany, a Georgia state-chartered bank and a TARGET Subsidiary.
"TARGET Benefit Plans" shall have the meaning set forth in Section 5.14 of this Agreement.
"TARGET Common Stock" shall mean the $5.00 par value Common Stock of TARGET.
"TARGET Companies" shall mean, collectively, TARGET and all TARGET Subsidiaries.
"TARGET Financial Statements" shall mean (a) the consolidated balance sheets (including related notes and schedules, if any) of TARGET as of December 31, 1995, 1994 and 1993, and the related statements of income, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) for each of the three fiscal years ended December 31, 1995, 1994, 1993, as previously furnished by TARGET to Purchaser, and (b) the consolidated balance sheets of TARGET (including related notes and schedules, if any) and related statements of income, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) with respect to periods ended subsequent to December 31, 1995.
"TARGET Option" shall have the meaning set forth in Section 3.7 of this Agreement.
"TARGET Stock Plans" shall mean the existing stock option and other stock- based compensation plans of TARGET.
"TARGET Subsidiaries" shall mean the Subsidiaries of TARGET, which shall include the TARGET Subsidiaries described in Section 4.4 of this Agreement and any Person acquired as a Subsidiary of TARGET in the future and owned by TARGET at the Effective Time.
"TARGET Warrant" shall have the meaning set forth in Section 3.7 of this Agreement.
"Taxes" shall mean any federal, state, county, local, foreign and other taxes, assessments, charges, fares, and impositions, including interest and penalties thereon or with respect thereto.
"Termination Fee" shall have the meaning provided in Section 10.2 of this Agreement.
"Total Equity of TARGET" shall mean TARGET's total stockholders' equity calculated under GAAP as of the close of business on the day immediately preceding the Closing Date.
(a) Except as otherwise provided in this Section 10.2, each of the Parties shall bear and pay all direct costs and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, including filing, registration and application fees, printing fees, and fees and expenses of its own financial or other consultants, investment bankers, accountants, and counsel (the "Expenses"), except that each of the Parties shall bear and pay one-half of the filing fees payable in connection with the Registration Statement and the Proxy Statement and printing costs incurred in connection with the printing of the Registration Statement and the Proxy Statement.
(b) TARGET shall pay, or cause to be paid, in same day funds to PURCHASER the sum of (i) all of PURCHASER's Expenses, plus (ii) $200,000 (the "Termination Fee") upon demand if (A) TARGET terminates this Agreement pursuant to Section 9.1(g) or (B) prior to the termination of this Agreement (other than by TARGET pursuant to Section 9.1(b)), a takeover proposal shall have been made and TARGET shall have entered into an agreement with respect to, or approves or recommends or takes any action to facilitate, such takeover proposal. The amount of Expenses so payable shall be the amount set forth in an estimate delivered by PURCHASER, subject to an upward or downward adjustment.
Affiliates has employed any broker or finder or incurred any Liability for any financial advisory fees, investment bankers' fees, brokerage fees, commissions, or finders' fees in connection with this Agreement or the transactions contemplated hereby. In the event of a claim by any broker or finder based upon its representing or being retained by or allegedly representing or being retained by TARGET or PURCHASER, each of TARGET and PURCHASER, as the case may be, agrees to indemnify and hold the other Party harmless of and from any Liability in respect of any such claim.
(a) Prior to or at the Effective Time, PURCHASER, acting through its Board of Directors, chief executive officer or other authorized officer, shall have the right to waive any Default in the performance of any term of this Agreement by TARGET, to waive or extend the time for the compliance or fulfillment by TARGET of any and all of its obligations under this Agreement, and to waive any or all of the conditions precedent to the obligations of PURCHASER under this Agreement, except any condition which, if not satisfied, would result in the violation of any Law. No such waiver shall be effective unless in writing signed by a duly authorized officer of PURCHASER .
(b) Prior to or at the Effective Time, TARGET, acting through its Board of Directors, chief executive officer or other authorized officer, shall have the right to waive any Default in the performance of any term of this Agreement by PURCHASER, to waive or extend the time for the compliance or fulfillment by PURCHASER of any and all of its obligations under this Agreement, and to waive any or all of the conditions precedent to the
obligations of TARGET under this Agreement, except any condition which, if not satisfied, would result in the violation of any Law. No such waiver shall be effective unless in writing signed by a duly authorized officer of TARGET.
(c) The failure of any Party at any time or times to require performance of any provision hereof shall in no manner affect the right of such Party at a later time to enforce the same or any other provision of this Agreement. No waiver of any condition or of the breach of any term contained in this Agreement in one or more instances shall be deemed to be or construed as a further or continuing waiver of such condition or breach or a waiver of any other condition or of the breach of any other term of this Agreement.
PURCHASER: ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
Telecopy Number: (912) 890-2235
Attention: President
Copy to Counsel: Rogers & Hardin
2700 Cain Tower, Peachtree Center
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Telecopy Number: (404) 525-2224
Attention: Steven E. Fox, Esq.
TARGET: First National Financial Corporation
2627 Dawson Road
55
|
Albany, Georgia 31707-1748
Telecopy Number: (912) 888-5359
Attention: President
Copy to Counsel: Smith, Gambrell & Russell
Suite 1800
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326-1010
Telecopy Number: (404) 815-3509
Attention: Robert T. Molinet, Esq.
|
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed on its behalf and its corporate seal to be hereunto affixed and attested by its officers as of the day and year first above written.
ATTEST: ABC BANCORP
/s/ Sara R. Hall By: /s/ Kenneth J. Hunnicutt
- ---------------- -----------------------------
Secretary Its: President
-------------------------
[CORPORATE SEAL]
ATTEST: FIRST NATIONAL FINANCIAL
CORPORATION
/s/ By /s/ Raymond B. Phillips
- ---------------- -----------------------------
Secretary Its: President
-------------------------
|
[CORPORATE SEAL]
OUTSTANDING INCENTIVE STOCK OPTIONS GRANTED PURSUANT TO
1991 INCENTIVE STOCK OPTION PLAN
Option Exercise
Option Holder Shares Price
- --------------- ------ --------
Raymond B. Phillips 4,000 $10.50
4,000 $10.50
4,000 $12.00
John M. Hemphill 2,500 $10.50
2,500 $10.50
2,500 $12.00
JoAnn Kitchens 1,000 $10.50
1,000 $10.50
1,000 $12.00
Kathleen Lovelace 1,000 $10.50
1,000 $10.50
1,000 $12.00
Albert Vineyard 1,000 $10.50
1,000 $12.00
-----
Total 27,500
======
|
STOCK OPTIONS GRANTED PURSUANT TO EMPLOYMENT CONTRACT
Option Exercise
Option Holder Shares Price
- ----------------- ------ --------
Raymond B. Phillips 4,874 $10.00
4,874 $10.00
4,874 $10.00
4,874 $11.08
4,874* $11.08
-----
Total 24,370
======
|
* Pursuant to the terms of Mr. Phillips' Employment Contract, these options will be granted to Mr. Phillips at the expiration of the Employment Contract on May 29, 1996.
OUTSTANDING STOCK PURCHASE WARRANTS
Number of Exercise
Warrant Holder Warrants Price
- -------------- --------- --------
Willie Adams, Jr., M.D. 10,000 $10.00
Robert V. Barkley 10,000 $10.00
John L. Gay 15,000 $10.00
Waddell M. Hagins, Jr. 10,300 $10.00
C. Alex Kemp 12,500 $10.00
Glenn A. Kirbo 15,000 $10.00
W. Thomas Mitcham 15,000 $10.00
R. Douglas Oliver 10,000 $10.00
Raymond B. Phillips 10,000 $10.00
W. Paul Wallace, Jr. 10,000 $10.00
------
Total 117,800
=======
|
ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
Attention: President
Ladies and Gentlemen:
The undersigned is a shareholder of First National Financial Corporation ("Target"), a corporation organized under the laws of the State of Georgia and located in Albany, Georgia, and will become a shareholder of ABC Bancorp ("Purchaser") pursuant to the transactions described in the Agreement and Plan of Merger, dated as of April 15, 1996 (the "Agreement"), by and between Target and Purchaser. Under the terms of the Agreement, Target will be merged into and with Purchaser (the "Merger"), and the shares of the $5.00 par value common stock of Target ("Target Common Stock") will be converted into and exchanged for shares of the $1.00 par value common stock of Purchaser ("Purchaser Common Stock"). This Affiliate Agreement represents an agreement between the undersigned and Purchaser regarding certain rights and obligations of the undersigned in connection with the shares of Purchaser to be received by the undersigned as a result of the Merger.
In consideration of the Merger and the mutual covenants contained herein, the undersigned and Purchaser hereby agree as follows:
(a) The Purchaser Common Stock received by the undersigned as a result of the Merger will be taken for his or her own account and not for others, directly or indirectly, in whole or in part.
(b) Purchaser has informed the undersigned that any distribution by the
undersigned of Purchaser Common Stock has not been registered under the 1933 Act
and that shares of Purchaser Common Stock received pursuant to the Merger can
only be sold by the undersigned (i) following registration under the 1933 Act,
or (ii) in conformity with the volume and other requirements of Rule 145
(d) promulgated by the SEC as the same now exist or may hereafter be amended, or
(iii) to the extent some other exemption from registration under the 1933 Act
might be available. The undersigned understands that Purchaser is under no
obligation to file a registration statement with the SEC covering the
disposition of the undersigned's shares of Purchaser Common Stock.
(c) The undersigned agrees not to offer to sell, sell or otherwise dispose of any shares of PURCHASER Common Stock until such time as financial results covering at least 30 days of post-Merger combined operations have been published, either by issuance of a quarterly earnings report on Form 10-Q or other public issuance (such as a press release) which includes such information.
(a) The undersigned understands and agrees that stop transfer instructions with respect to the shares of Purchaser Common Stock received by the undersigned pursuant to the Merger will be given to Purchaser's Transfer Agent and that there will be placed on the certificates for such shares, or shares issued in substitution thereof, a legend stating in substance:
(b) Such legend will also be placed on any certificate representing Purchaser securities issued subsequent to the original issuance of the Purchaser Common Stock pursuant to the Merger as a result of any stock dividend, stock split, or other
recapitalization as long as the Purchaser Common Stock issued to the undersigned pursuant to the Merger has not been transferred in such manner to justify the removal of the legend therefrom. In addition, if the provisions of Rules 144 and 145 are amended to eliminate restrictions applicable to the Purchaser Common Stock received by the undersigned pursuant to the Merger, or at the expiration of the restrictive period set forth in Rule 145(d), Purchaser, upon the request of the undersigned, will cause the certificates representing the shares of Purchaser Common Stock issued to the undersigned in connection with the Merger to be reissued free of any legend relating to the restrictions set forth in Rules 144 and 145(d) upon receipt by Purchaser of an opinion of its counsel to the effect that such legend may be removed.
foregoing serves as trustee, executor or in any similar capacity, and (d) any corporation or other organization in which the undersigned, the undersigned's spouse and any such relative collectively own at least 10% of any class of equity securities or of the equity interest. The undersigned further recognizes that, in the event that the undersigned is a director or executive officer of Purchaser or becomes a director or executive officer of Purchaser upon consummation of the Merger, among other things, any sale of Purchaser Common Stock by the undersigned within a period of less than six months following the effective time of the Merger may subject the undersigned to liability pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended.
This Affiliate Agreement is executed as of the _____ day of ____________, 1996.
Very truly yours,
Signature
AGREED TO AND ACCEPTED as of
- ----------------, 1996
ABC BANCORP
By:_________________________
Its:_____________________
This Irrevocable Proxy is given by the undersigned, ______________ ("Shareholder"), in favor of ABC Bancorp, a Georgia corporation ("ABC"), as of the ____ day of April, 1996.
WHEREAS, ABC and First National Financial Corporation, a Georgia corporation ("Target"), have entered into an Agreement and Plan of Merger dated as of April 12, 1996 (the "Merger Agreement") (capitalized terms used but not defined herein shall have the same meaning assigned to such terms in the Merger Agreement), pursuant to which ABC proposes to acquire the entire equity interest in Target by means of a merger (the "Merger") of Target with and into ABC;
WHEREAS, Shareholder owns, as of the date hereof, _________ shares of Target Common Stock (the "Existing Shares", together with any shares of Target Common Stock acquired after the date hereof and prior to the termination hereof, hereinafter collectively referred to as the "Shares"); and
WHEREAS, ABC has entered into the Merger Agreement in reliance on Shareholder's agreement to support the Merger, including the granting of Shareholder's Irrevocable Proxy hereunder.
NOW, THEREFORE, with respect to the Merger Agreement and the transactions contemplated thereby and in accordance with the Georgia Business Corporation Code, Shareholder hereby irrevocably makes, constitutes and appoints ABC to act as Shareholder's true and lawful proxy and attorney-in-fact in the name and on behalf of Shareholder, solely for the limited purpose set forth herein, with full power to appoint a substitute or substitutes solely for the limited purpose set forth herein. Shareholder further directs ABC, and ABC hereby agrees, to vote all of the Shares which are entitled to vote at any meeting of the shareholders of Target (whether annual or special and whether or not an adjourned meeting), or by written consent in the place and stead of Shareholder, in favor of the Merger as set forth in the Merger Agreement. ABC shall have no right to vote the shares with respect to any other matters. By giving this proxy, Shareholder hereby revokes any other proxy granted by Shareholder at any time with respect to the Shares and no subsequent proxies will be given with respect thereto by Shareholder. THE PROXY GRANTED HEREBY IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE. The proxy granted hereby shall not be terminated by any act of Shareholder or by operation of law, by lack of appropriate power of authority, or by the occurrence of any other event or events and shall be binding upon all beneficiaries, heirs at law, legatees, distributees, successors, assigns and legal representatives of Shareholder. Shareholder agrees to use all good faith efforts to cause any record owner of the Shares of which Shareholder is the beneficial owner to grant to ABC a proxy of the same effect as that contained herein. Shareholder shall perform such
further acts and execute such further documents as may be required to vest in ABC the sole power to vote the Shares during the term of the proxy granted herein. The proxy granted herein shall expire on the earlier of (i) the date on which ABC and Shareholder mutually consent in writing to terminate this Irrevocable Proxy, (ii) the date of the Closing, or (iii) the termination of the Merger Agreement in accordance with the terms thereof. Notwithstanding anything herein to the contrary, the proxy granted hereby and power herein conferred upon ABC (or any substitute or substitutes) may not be exercised prior to the receipt by ABC and Target of the Consents of the Regulatory Authorities (as contemplated by the Merger Agreement).
IN WITNESS WHEREOF, Shareholder has executed and delivered this Irrevocable Proxy as of the date set forth above.
This NONCOMPETITION AGREEMENT (the "Agreement") is executed as of the ___ day of ______________, 1996, by and between ABC BANCORP, a Georgia corporation ("ABC"), and RAYMOND D. PHILLIPS (the "Shareholder").
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of April 15, 1996 (the "Merger Agreement") by and among ABC and First National Financial Corporation ("First National"), First National will merge with and into ABC (the "Merger"), and each shareholder of First National will receive shares of common stock of ABC in exchange for their shares of common stock of First National;
WHEREAS, as a result of the Merger, ABC will acquire the business and goodwill of First National and its wholly-owned subsidiary, First National Bank of South Georgia (the "Bank");
WHEREAS, this Agreement has been entered into as a condition and inducement to the Merger;
WHEREAS, the Bank is a full service bank, offering a wide range of financial services, including deposit and credit services (the "Business");
WHEREAS, the Shareholder is a shareholder of First National, a Director and executive officer of both First National and the Bank, and possesses extensive knowledge of certain information that is deemed confidential by First National and the Bank and is the subject of reasonable efforts by First National and/or the Bank to maintain its confidentiality, including, but not limited to, technical or non-technical data, formulas, compilations, programs, methods, techniques, financial data, financial plans, product plans and lists of actual or potential customers or suppliers (the "Trade Secrets"); and
WHEREAS, as a shareholder of First National, the Shareholder will benefit from the Merger.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties intending to be legally bound agree as follows:
IN WITNESS WHEREOF, the parties have executed this Agreement under seal, to be effective as of the date set forth above.
SHAREHOLDER:
________________________(SEAL)
[SIGNATURES CONTINUED ON PAGE 4]
ABC BANCORP
By:______________________________
Its:__________________________
This NONCOMPETITION AGREEMENT (the "Agreement") is executed as of the ___ day of ______________, 1996, by and between ABC BANCORP, a Georgia corporation ("ABC"), and __________________ (the "Shareholder").
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of April 15, 1996 (the "Merger Agreement") by and among ABC and First National Financial Corporation ("First National"), First National will merge with and into ABC (the "Merger"), and each shareholder of First National will receive shares of common stock of ABC in exchange for their shares of common stock of First National;
WHEREAS, as a result of the Merger, ABC will acquire the business and goodwill of First National and its wholly-owned subsidiary, First National Bank of South Georgia (the "Bank");
WHEREAS, this Agreement has been entered into as a condition and inducement to the Merger;
WHEREAS, the Bank is a full service bank, offering a wide range of financial services, including deposit and credit services (the "Business");
WHEREAS, the Shareholder is a shareholder of First National, a Director of both First National and the Bank, and possesses extensive knowledge of certain information that is deemed confidential by First National and the Bank and is the subject of reasonable efforts by First National and/or the Bank to maintain its confidentiality, including, but not limited to, technical or non-technical data, formulas, compilations, programs, methods, techniques, financial data, financial plans, product plans and lists of actual or potential customers or suppliers (the "Trade Secrets"); and
WHEREAS, as a shareholder of First National, the Shareholder will benefit from the Merger.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties intending to be legally bound agree as follows:
Appendix B
TEXT OF ARTICLE 13 OF THE
GEORGIA BUSINESS CORPORATION CODE
PART 1.
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
14-2-1301. Definitions.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by the corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter before the corporate action, or the surviving or acquiring corporation by merger or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from corporate action under Code Section 14-2-1302 and who exercises that right when and in the manner required by Code Sections 14-2-1320 through 14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate action until the date of payment, at a rate that is fair and equitable under all the circumstances.
(7) "Record shareholder" means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation.
(8) "Shareholder" means the record shareholder or the beneficial shareholder.
14-2-1302. Right to dissent.
(a) A record shareholder of the corporation is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party:
(A) If approval of the shareholders of the corporation is required for the merger by Code Section 14-2-1103 or the articles of incorporation and the shareholder is entitled to vote on the merger, or
(B) If the corporation is a subsidiary that is merged with its parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of the property of the corporation if a shareholder vote is required on the sale or exchange pursuant to Code Section 14-2-1202, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of shares;
(B) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights;
(E) Reduces the number of shares owned by the shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of the class; or
(5) Any corporate action taken pursuant to a shareholder vote to the extent that Article 9 of this chapter, the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares under this article may not challenge the corporate action creating his entitlement unless the corporate action fails to comply with procedural requirements of this chapter or the articles of incorporation or bylaws of the corporation or the vote required to obtain approval of the corporate action was obtained by fraudulent and deceptive means, regardless of whether the shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no right of dissent in favor of the holder of shares of any class or series which, at the record date fixed to determine the shareholders entitled to receive notice of and to vote at a meeting at which a plan of merger or share exchange or a sale or exchange of property or an amendment of the articles of incorporation is to be acted on, were either listed on a national securities exchange or held of record by more than 2,000 shareholders, unless;
(1) In the case of a plan of merger or share exchange, the holders of shares of the class or series are required under the plan of merger or share exchange to accept for their shares anything except shares of the surviving corporation or another publicly held corporation which at the effective date of the merger or share exchange are either listed on a national securities exchange or held of record by more than 2,000 shareholders, except for scrip or cash payments in lieu of fractional shares; or
(2) The articles of incorporation or a resolution of the board of directors approving the transaction provides otherwise.
14-2-1303. Dissent by nominees and beneficial owners.
A record shareholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one beneficial shareholder and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this Code section are determined as if the shares as to which he dissents and his other shares were registered in the names of different shareholders.
PART 2.
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
14-2-1320. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert
dissenters' rights under this article and be accompanied by a copy of this
article.
(b) If corporate action creating dissenters' rights under Code Section 14-2-1302 is taken without a vote of shareholders, the corporation shall notify in writing all shareholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in Code Section 14-2-1322 no later than ten days after the corporate action was taken.
14-2-1321. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of subsection (a) of this Code section is not entitled to payment for his shares under this article.
14-2-1322. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the corporate action was taken and must:
(1) State where the payment demand must be sent and where and when certificates for certified shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment demand, which date may not be fewer than 30 no more than 60 days after the date the notice required in subsection (a) of this Code section is delivered; and
(4) Be accompanied by a copy of this article.
14-2-1323. Duty to demand payment.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in accordance
with the terms of the notice.
(b) A record shareholder who demands payment and deposits his share under subsection (a) of this Code section retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action.
(c) A record shareholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this article.
14-2-1324. Share restrictions.
(a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are canceled or modified by the taking of the proposed corporate action.
14-2-1325. Offer of payment.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a payment
demand, the corporation shall by notice to each dissenter who complied with Code
Section 14-2-1323 offer to pay to such dissenter the amount the corporation
estimates to be the fair value of his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year ending not more an 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any,
(2) A statement of the corporation's estimate of the fair value of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to the corporation within 30 days after the corporation's offer or is deemed to have accepted such offer by failure to respond with said 30 days, payment for his or her shares shall be made within 60 days after the making of the offer or the taking of the proposed corporate action, whichever is later.
14-2-1326. Failure to take action.
(a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it must send a new dissenters' notice under Code Section 14-2-1322 and repeat the payment demand procedure.
14-2-1327. Procedure if shareholder dissatisfied with payment or offer.
(a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate of the fiar value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section 14-2-1325 is less than the fair value of his shares or that the interest due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code section and is deemed to have accepted the corporation's offer unless he or she notifies the corporation of his or her demand in writing under subsection (a) of this Code section within 30 days after the corporation offered payment for his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under subsection (b) of Code Section 14-2-1325, and the corporation shall provide the information to the shareholder within ten days after receipt of a written demand for the information; and
(2) The shareholder may at any time, subject to the limitations period of Code Section 14-2-1332, notify the corporation of his own estimate of the fair value of his shares and the amount of interest due and demand payment of his estimate of the fair value of his shares and interest due.
PART 3.
JUDICIAL APPRAISAL OF SHARES
14-2-1330. Court action.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60 day period, it shall pay each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury equitable valuation proceeding, in the superior court of the county where a corporation's registered office is located. If the surviving corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding, which shall have the effect of an action quasi in rem against their shares. The corporation shall serve a copy of the petition in the proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint, and upon each nonresident dissenting shareholder either by registered or certified mail or by publication, or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) of this Code section is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them or in any amendment to it. Except as otherwise provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any proceeding with respect to dissenters' rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment for the amount which the court finds to be the fair value of his shares, plus interest to the date of judgement.
14-2-1331. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code
Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these attorneys reasonable fees to be paid out of the amounts awarded the dissenters who were benefitted.
14-2-1332. Limitation of actions.
No action by any dissenter to enforce dissenters' rights shall be brought more than three years after the corporate action was taken, regardless of whether notice of the corporate action and of the right to dissent was given by the corporation in compliance with the provisions of Code Section 14-2-1320 and Code Section 14-2-1322.
APPENDIX C
[LETTERHEAD OF T. STEPHEN JOHNSON & ASSOCIATES APPEARS HERE]
May 21, 1996
Board of Directors
First National Financial Corporation
2627 Dawson Road
Albany, Georgia 31708-1748
Dear Directors:
T. Stephen Johnson & Associates, Inc., Roswell, Georgia ("TSJ&A") has been asked to render an opinion as to the fairness from a financial point of view of the consideration to be received by the shareholders of First National Financial Corporation ("First National") in connection with the proposed merger of First National with and into ABC Bancorp ("ABC"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated as of April 15, 1996 (the "Merger"). The Merger Agreement calls for each outstanding share of First National's common stock to be converted into the right to receive that number of shares of ABC's common stock having a value equal to 2.265 times 0.08 times the total assets of First National plus 1.0 times the amount by which total equity of First National exceeds 0.08 times the total assets of First National plus the aggregate exercise price of all options and warrants to purchase First National common shares outstanding immediately prior to the effective time of the Merger, all divided by the aggregate number of then-outstanding First National shares.
TSJ&A is an investment banking and consulting firm that specializes in the valuation of closely-held corporations and provides fairness opinions as part of its practice. Because of its prior experience in the appraisal of Southeastern financial institutions involved in mergers, it has developed an expertise in fairness opinions related to the securities of Southeastern financial institutions. TSJ&A has been retained by First National for the purpose of rendering a fairness opinion for which fixed compensation will be received.
TSJ&A was previously engaged by First National to provide analysis and comparison of two merger offers of which this Merger was one. TSJ&A provided analysis to assist the Directors in making their decision to approve the Merger Agreement and to recommend the Merger to First National's shareholders. TSJ&A has been compensated for this analysis work on an hourly basis.
First National Financial Corporation
May 21, 1996
In performing its analysis, TSJ&A relied upon and assumed without independent verification, the accuracy and completeness of all information provided to it. TSJ&A has not performed any independent appraisal or evaluation of the assets of First National or of ABC or any of its subsidiaries. As such, TSJ&A does not express an opinion as to the fair market value of First National. The opinion of financial fairness expressed herein is necessarily based on market, economic and other relevant considerations as they exist and can be evaluated as of May 21, 1996.
In arriving at its opinion, TSJ&A reviewed and analyzed audited and unaudited financial information regarding First National and ABC, the Merger, the Merger Agreement, national, state and local peer group information as well as publicly available information regarding actual comparable transactions.
The merger consideration to be received by First National's shareholders is subject to change with changes in First National's total assets and total equity. The merger consideration will be based on the average of total assets of First National as of the close of business for each of the 60 calendar days immediately preceding the closing date of the Merger. As of December 31, 1995, First National reported total assets and total equity of $53.7 million and $5.5 million, respectively. As of April 30, 1996, total assets and total equity were reported at $57.85 million and $5.7 million, respectively. TSJ&A used April 30, 1996 figures in its Merger Analysis. Accordingly, the merger consideration would total $11.6 million and the per share value to the shareholders of First National would total $19.99. The $11.6 million consideration would represent 2.027 time First National's estimated book value and 18.90 times actual 1995 earnings.
The number of shares of ABC common stock into which a First National share will be converted will be based on a 20 day Nasdaq National Market close price collared at $16.00 per share and cuffed at $12.00 per share. At May 20, 1996, the Nasdaq National Market close price for ABC was reported at $14.75 per share, within the price range.
TSJ&A reviewed the Merger as of April 30, 1996, for the purpose of determining purchase premiums which could be used in comparing the Merger with other announced transactions. TSJ&A reviewed the purchase premiums paid in 52 transactions that were announced between July 1, 1995 and May 10, 1996 involving selling institutions headquartered in the states of Alabama, Florida and Georgia. Of these transactions, 10 involved selling institutions that have been determined to be comparable transactions. They include institutions representing commercial bank institutions in the with total assets less than $100 million. The merger consideration in each transaction was common stock. A listing of these transactions is attached. The purchase premiums in the Merger rank within the range of purchase premiums paid in the comparable transactions. On average, the ten comparable transactions reported an announced deal price to book value of 1.937 times and an announced deal price to earnings of 16.84 times.
First National Financial Corporation
May 21,1996
Therefore, in consideration of the above, it is the opinion of TSJ&A that, based on the structure of the Merger and the analyses that have been performed, the consideration to be received by the shareholders of First National is fair from a financial point of view.
Sincerely,
/s/ T. Stephen Johnson & Associates, Inc. - ----------------------------------------- T. Stephen Johnson & Associates, Inc. |
Deals Announced from 7/1/95 to 4/30/96
Targets in Florida, Georgia and Alabama
Targets are Commercial Banks with Total Assets less than $100 Million
Consideration in 100% Common Stock
Seller: Seller: Seller: Seller:
Latest Total Shareholders Equity/
Bank/ Financial Assets Equity Assets
Buyer ST Seller City ST Thrift Date ($000) ($000) (%)
- -----------------------------------------------------------------------------------------------------------------------------------
South Alabama Bancorp AL First Monco Bancshrs Monroeville AL Bank 12/31/95 94,927 11,098 11.69
Whitney Holding Corp. LA Amrican Bank & Trst Pensacola FL Bank 12/31/95 67,120 4,684 6.98
Regions Financial AL First Gwinnett Bcshr Norcross GA Bank 06/30/95 62,816 7,408 11.79
Westside Financial GA Eastside Holding Snellville GA Bank 09/30/95 54,773 6,137 11.20
NationsBank Corp. NC North Florida Bk Crp Madison FL Bank 06/30/95 51,770 3,633 7.02
Whitney Holding Corp. LA Liberty Holding Co. Pensacola FL Bank 12/31/95 51,358 5,428 10.57
ABC Bancorp, Inc. GA Central Bankshares Cordele GA Bank 06/30/95 46,618 3,831 8.22
Regions Financial AL Rockdale Community Conyers GA Bank 09/30/95 44,118 6,665 15.11
First Nat'l Bancorp GA Bank of Heard County Franklin GA Bank 03/31/95 38,644 4,205 10.88
Citi-Bancshares FL Citizens First Bcshr Ocala FL Bank 03/31/95 38,481 3,072 7.98
- -----------------------------------------------------------------------------------------------------------------------------------
Average Figures $55,063 $5,616 10.14
--------------------------------------------------------
Seller: Seller: Ann'd Ann'd Ann'd
Tangible Tang Deal Deal Deal Pr/
Equity Eqty/ Announce Value Consider Pr/Bk 4-Qtr
($000) Assets ($) Date Status ($M) Type (%) EPS (x)
- -----------------------------------------------------------------------------------------------------------------------
South Alabama Bancorp 0 11.69 04/29/96 Non Binding 16.7 Com Stock 150.48 13.76
Whitney Holding Corp. 4,684 6.98 04/18/96 Pending 10.2 Com Stock 217.76 18.58
Regions Financial 7,408 11.79 10/24/95 Pending 13.8 Com Stock 185.72 12.95
Westside Financial 6,039 11.03 12/21/95 Pending 8.6 Com Stock 140.13 12.30
NationsBank Corp. 3,633 7.02 07/26/95 Completed 5.8 Com Stock 159.65 16.71
Whitney Holding Corp. 5,422 10.56 04/23/96 Pending 14.0 Com Stock 257.92 24.56
ABC Bancorp, Inc. 3,787 8.13 01/04/96 Pending 7.6 Com Stock 198.38 15.73
Regions Financial 6,665 15.11 03/13/96 Pending 13.0 Com Stock 195.05 16.71
First Nat'l Bancorp 4,205 10.88 07/25/95 Completed 6.8 Com Stock 161.71 14.95
Citi-Bancshares 3,072 7.98 09/29/95 Pending 8.3 Com Stock 270.18 22.13
- -----------------------------------------------------------------------------------------------------------------------
$4,492 10.12 193.70 16.84
- -----------------------------------------------------------------------------------------------------------------------
|
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Georgia Business Corporation Code (the "Georgia Code") provides that the
Articles of Incorporation may include a provision eliminating or limiting the
personal liability of a director, other than: (i) for any appropriation, in
violation of the director's duties, of any business opportunity of the
corporation; (ii) for acts or omissions which involve intentional misconduct
or unlawful violation of laws; (iii) for certain unlawful distributions; and
(iv) for any transaction from which the director received an improper personal
benefit. The Georgia Code further provides that a corporation may indemnify a
director if the director acted in a manner he believed in good faith to be in
or not opposed to the best interest of the corporation and, in the case of any
criminal proceeding, he had no reasonable cause to believe that his conduct
was unlawful. A corporation may not indemnify a director, however, in
connection with a proceeding by or in the right of the corporation in which
the director was adjudged liable to the corporation, or in connection with any
other proceeding in which the director was adjudged liable on the basis that
personal benefit was improperly received by the director. The Georgia Code
provides for mandatory indemnification of a director unless otherwise limited
by a corporation's Articles of Incorporation, to the extent of reasonable
expenses incurred by the director in connection with a proceeding.
A further limitation on indemnification imposed by the Georgia Code is that in the case of indemnification in connection with a proceeding by or in the right of the corporation, indemnification is limited to reasonable expenses incurred in connection with the proceeding.
Article XI of ABC's Amended Articles of Incorporation (the "Articles") provides that no director shall be personally liable to ABC or its stockholders for monetary damages for any breach of the duty of care or other duty as a director, except that such liability shall not be eliminated: (i) for any appropriation, in violation of a director's duties, of any business opportunity of the corporation, (ii) for acts or omissions which involve intentional misconduct or a knowing violation of law, (iii) for certain unlawful distributions, or (iv) for any transaction from which the director derived an improper personal benefit.
The Georgia Code permits a corporation to indemnify a director if the director seeking indemnification acted in a manner he believed in good faith to be in or not opposed to the best interest of such corporation and, in the case of any criminal proceeding, that he had no reasonable cause to believe his conduct was unlawful.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits and Exhibit Index
4.1 Articles of Incorporation of ABC, as amended (incorporated by reference to Exhibit 2.1 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630) filed August 14, 1987).
4.2 Amendment to Amended Articles of Incorporation dated May 26, 1995 (incorporated by reference to Exhibit 3.1.1 to ABC's Form 10-K filed March 28, 1996).
4.3 Amendment to Amended Articles of Incorporation, dated June 3, 1996.
4.4 Bylaws of ABC, as amended (incorporated by reference to Exhibit 2.2 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630) filed August 14, 1987).
5.1 Opinion of Rogers & Hardin regarding legality of securities being registered (including their consent).
8.1 Opinion of Rogers & Hardin regarding certain tax matters (including their consent).
10.1 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference).
II-1
10.2 Incentive Stock Option Agreement with Kenneth J. Hunnicutt dated October 17, 1985 (filed as Exhibit 5.2 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference).
10.3 Deferred Compensation Agreement for Kenneth J. Hunnicutt dated December 16, 1986 (filed as Exhibit 5.3 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference).
10.4 Security Deed in favor of M.I.A., Co. dated December 31, 1984 (filed as Exhibit 5.4 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference).
10.5 Loan Agreement and Master Term Note dated December 30, 1986 (filed as Exhibit 5.5 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference).
10.6 Executive Salary Continuation Agreement dated February 14, 1984 (filed as Exhibit 10.6 to ABC's Annual Report on Form 10-KSB (File Number 2-71257), filed herewith with the Commission on March 27, 1989 and incorporated herein by reference).
10.7 1992 Incentive Stock Option Plan and Option Agreement for K. J. Hunnicutt (filed as Exhibit 10.7 to ABC's Annual Report on Form 10-KSB (File Number 0-16181), filed with the Commission on March 30, 1993 and incorporated herein by reference.)
10.8 Executive Employment Agreement with Kenneth J. Hunnicutt dated September 20, 1994 (filed as Exhibit 10.8 to ABC's Annual Report on Form 10-KSB (File Number 0-016181), filed with the Commission on March 30, 1995 and incorporated herein by reference).
10.9 Executive Consulting Agreement with Eugene M. Vereen dated September 20, 1994 (filed as Exhibit 10.9 to ABC's Annual Report on Form 10-KSB (File Number 0-16181), filed with the Commission on March 30, 1995 and incorporated herein by reference).
10.10 Agreement and Plan of Merger by and between ABC and Southland Bancorporation dated as of December 18, 1995 (filed as Exhibit 10.10 to ABC's Annual Report on Form 10-K (File No. 0-16181), filed with the Commission on March 28, 1996 and incorporated herein by reference), and Amendment No. 1 thereto dated as of April 16, 1996 (filed as part of Appendix A to Amendment No. 1 to ABC's Registration on Form S-4 (Registration No. 333-2387), filed with the Commission on May 21, 1996 and incorporated herein by reference).
10.11 Agreement and Plan of Merger by and between ABC and Central Bankshares, Inc., dated as of December 29, 1995 (filed as Exhibit 10.11 to ABC's Annual Report on Form 10-K (File No. 0-16181), filed with the Commission on March 28, 1996 and incorporated herein by reference), and Amendment No. 1 thereto dated as of April 26, 1996 (filed as part of Appendix A to ABC's Registration on Form S-4 (Registration No. 333-05861), filed with the Commission on June 12, 1996 and incorporated herein by reference).
10.12 Agreement and Plan of Merger by and between ABC and First National Financial Corporation dated as of April 15, 1996 (filed as Exhibit 10.12 to Amendment No. 1 to ABC's Registration on Form S-4 (Registration No. 333-2387), filed with the Commission on May 21, 1996 and incorporated herein by reference).
21.1 Schedule of subsidiaries of ABC Bancorp.
23.1 Consent of Mauldin & Jenkins.
23.2 Consent of Mauldin & Jenkins.
23.3Consent of KPMG Peat Marwick LLP.
II-2
23.4 Consent of Francis & Co., CPAs.
23.5 Consent of T. Stephen Johnson & Associates, Inc., Financial Advisor.
23.6 Consent of Rogers & Hardin (contained in Exhibits 5.1 and 8.1 hereto).
24.1 Powers of attorney (included in the Signature page hereto)
99.1 Letter of Transmittal and Instructions.
99.2 Form of Exchange Agreement by and between SunTrust Bank, Atlanta and ABC Bancorp.
99.3 Form of proxy card.
b. Financial Statement Schedules.
No financial statement schedules are required to be filed with this Registration Statement.
c. Reports, Opinions or Appraisals.
None.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in 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 and 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 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) If the Registrant is a foreign private issuer, to file a post- effective amendment to the registration statement to include any financial statements required by Rule 3-19 of this chapter at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided, that the Registrant includes in the prospectus, by means of a post-effective amendment, financial, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration
II-3
statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3.
(b) The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form.
(c) The Registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement 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.
(e) 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 the public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than 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 or 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 Act and will be governed by the final adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
II-4
SIGNATURES
In accordance with 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 Moultrie, State of Georgia, on July 16, 1996.
ABC BANCORP
/s/ Kenneth J. Hunnicutt
By: _________________________________
Kenneth J. Hunnicutt, President
and Chief Executive Officer
In accordance with requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in their
capacities and on the dates indicated.
|
Each person whose signature appears below hereby authorizes Kenneth J. Hunnicutt and W. Edwin Lane, Jr., and each of them, to file one or more amendments (including post-effective amendments) to the Registration Statement, with all exhibits thereto, which amendments may make such changes as any of such persons deems appropriate, and each person, individually and in each capacity stated below, hereby appoints each of such persons as attorney- in-fact and agent, with full power of substitution and resubstitution, to execute in his name and on his behalf any such amendments to the Registration Statement, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or come to be done by virtue hereof.
SIGNATURES TITLE DATE
---------- ------------------------------- -------------------
/s/ Kenneth J. Hunnicutt President, Chief Executive July 16, 1996
____________________________________ Officer and Director (Principal
KENNETH J. HUNNICUTT Executive Officer)
/s/ W. Edwin Lane, Jr. Executive Vice President and July 16, 1996
____________________________________ Chief Financial Officer
W. EDWIN LANE, JR. (Principal Financial Officer
and Principal Accounting
Officer)
/s/ J. Raymond Fulp Director July 16, 1996
____________________________________
J. RAYMOND FULP
/s/ Williard E. Lasseter Chairman of the Board and July 16, 1996
____________________________________ Director
WILLIARD E. LASSETER
Director , 1996
____________________________________
BOBBY B. LINDSEY
/S/ HAL L. LYNCH Director July 16, 1996
____________________________________
HAL L. LYNCH
/s/ Joseph C. Parker Director July 16, 1996
____________________________________
JOSEPH C. PARKER
/s/ Eugene M. Vereen, Jr. Director July 16, 1996
____________________________________
EUGENE M. VEREEN, JR.
/s/ Doyle Weltzbarker Vice Chairman and Director July 16, 1996
____________________________________
DOYLE WELTZBARKER
Director , 1996
____________________________________
HENRY C. WORTMAN
/s/ Johnny Floyd Director July 16, 1996
____________________________________
JOHNNY FLOYD
|
II-5
EXHIBIT INDEX
4.1 Articles of Incorporation of ABC, as amended (incorporated by reference to Exhibit 2.1 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630) filed August 14, 1987).
4.2 Amendment to Amended Articles of Incorporation dated May 26, 1995 (incorporated by reference to Exhibit 3.1.1 to ABC's Form 10-K filed March 28, 1996).
4.3 Amendment to Amended Articles of Incorporation, dated June 3, 1996.
4.4 Bylaws of ABC, as amended (incorporated by reference to Exhibit 2.2 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630) filed August 14, 1987).
5.1 Opinion of Rogers & Hardin regarding legality of securities being registered (including their consent).
8.1 Opinion of Rogers & Hardin regarding certain tax matters (including their consent).
10.1 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference).
10.2 Incentive Stock Option Agreement with Kenneth J. Hunnicutt dated October 17, 1985 (filed as Exhibit 5.2 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference).
10.3 Deferred Compensation Agreement for Kenneth J. Hunnicutt dated December 16, 1986 (filed as Exhibit 5.3 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference).
10.4 Security Deed in favor of M.I.A., Co. dated December 31, 1984 (filed as Exhibit 5.4 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference).
10.5 Loan Agreement and Master Term Note dated December 30, 1986 (filed as Exhibit 5.5 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference).
10.6 Executive Salary Continuation Agreement dated February 14, 1984 (filed as Exhibit 10.6 to ABC's Annual Report on Form 10-KSB (File Number 2-71257), filed herewith with the Commission on March 27, 1989 and incorporated herein by reference).
10.7 1992 Incentive Stock Option Plan and Option Agreement for K. J. Hunnicutt (filed as Exhibit 10.7 to ABC's Annual Report on Form 10-KSB (File Number 0-16181), filed with the Commission on March 30, 1993 and incorporated herein by reference.)
10.8 Executive Employment Agreement with Kenneth J. Hunnicutt dated September 20, 1994 (filed as Exhibit 10.8 to ABC's Annual Report on Form 10-KSB (File Number 0-016181), filed with the Commission on March 30, 1995 and incorporated herein by reference).
10.9 Executive Consulting Agreement with Eugene M. Vereen dated September 20, 1994 (filed as Exhibit 10.9 to ABC's Annual Report on Form 10-KSB (File Number 0-16181), filed with the Commission on March 30, 1995 and incorporated herein by reference).
10.10 Agreement and Plan of Merger by and between ABC and Southland Bancorporation dated as of December 18, 1995 (filed as Exhibit 10.10 to ABC's Annual Report on Form 10-K (File No. 0-16181), filed with the Commission on March 28, 1996 and incorporated herein by reference), and Amendment No. 1 thereto dated as of April 16, 1996 (filed as part of Appendix A to Amendment No. 1 to ABC's Registration on Form S-4 (Registration No. 333-2387), filed with the Commission on May 21, 1996 and incorporated herein by reference).
10.11 Agreement and Plan of Merger by and between ABC and Central Bankshares, Inc., dated as of December 29, 1995 (filed as Exhibit 10.11 to ABC's Annual Report on Form 10-K (File No. 0-16181), filed with the Commission on March 28, 1996 and incorporated herein by reference), and Amendment No. 1 thereto dated as of April 26, 1996 (filed as part of Appendix A to ABC's Registration on Form S-4 (Registration No. 333-05861), filed with the Commission on June 12, 1996 and incorporated herein by reference).
10.12 Agreement and Plan of Merger by and between ABC and First National Financial Corporation dated as of April 15, 1996 (filed as Exhibit 10.12 to Amendment No. 1 to ABC's Registration on Form S-4 (Registration No. 333-2387), filed with the Commission on May 21, 1996 and incorporated herein by reference).
21.1 Schedule of subsidiaries of ABC Bancorp.
23.1 Consent of Mauldin & Jenkins.
23.2 Consent of Mauldin & Jenkins.
23.3Consent of KPMG Peat Marwick LLP.
23.4 Consent of Francis & Co., CPAs.
23.5 Consent of T. Stephen Johnson & Associates, Inc., Financial Advisor.
23.6 Consent of Rogers & Hardin (contained in Exhibits 5.1 and 8.1 hereto).
24.1 Powers of attorney (included in the Signature page hereto)
99.1 Letter of Transmittal and Instructions.
99.2 Form of Exchange Agreement by and between SunTrust Bank, Atlanta and ABC Bancorp.
99.3 Form of proxy card.
EXHIBIT 4.3
ARTICLES OF AMENDMENT
OF THE ARTICLES OF INCORPORATION
OF ABC BANCORP
Pursuant to the provisions of Section 14-2-1006 of the Georgia Business Corporation Code, as amended (the "Code"), the undersigned, on behalf of ABC BANCORP (the "Corporation"), hereby submits the following information:
1. The name of the Corporation is ABC BANCORP.
2. Pursuant to Section 14-2-1003 of the Code, the following amendment to the Articles of Incorporation of the Corporation was duly adopted by the Board of Directors on February 20, 1996 and by the Shareholders on April 16, 1996. Effective as of the date hereof, the Articles of Incorporation of the Corporation are hereby amended by deleting Article V thereof in its entirety and adding the following Article V thereto:
V.
The maximum amount of shares of stock that this corporation shall be authorized to issue shall be 20,000,000 shares which are to be divided into two classes as follows:
15,000,000 shares of Common Stock, par value $1.00 per share; and
5,000,000 shares of Preferred Stock.
The Common Stock may be created and issued from time to time in one or more series with voting rights for each series as determined by the Board of Directors of the corporation and set forth in the resolution or resolutions providing for the creation and issuance of the stock in such series. The Preferred Stock may be created and issued from time to time in one or more series with such designations, preferences, limitations, conversion rights, cumulative, relative, participating, optional or other rights, including voting rights, qualifications, limitations or restrictions thereof as determined by the Board of Directors of the corporation and set forth in
the resolution or restrictions providing for the creation and issuance of the stock in such series.
3. All other provisions of the Articles of Incorporation of the Corporation shall remain in full force and effect.
EXECUTED this 3rd day of June, 1996.
ABC BANCORP
By: /s/ KENNETH J. HUNNICUTT
----------------------------
Kenneth J. Hunnicutt
Chief Executive Officer and President
ATTEST:
/s/ SARA R. HALL
- ----------------
Sara R. Hall
Secretary
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EXHIBIT 5.1
July 16, 1996
ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31776
Ladies and Gentlemen:
You have requested our opinion in connection with the Form S-4 Registration Statement to be filed with the Securities and Exchange Commission by ABC Bancorp (the "Corporation") on July 17, 1996, with respect to the offer and sale by the Corporation of not more than 736,277 shares of common stock, $1.00 per value per share, of the Corporation (the "Shares") to certain security holders of First National Corporation ("First National") upon the consummation of the merger of First National with and into the consummation of the merger of First National with and into the Corporation, all as further described in the Registration Statement.
We have examined such records and documents and have made such investigation of law as we have deemed necessary under the circumstances.
Based on that examination and investigation, it is our opinion that, when issued and sold in the manner described in the Registration Statement (including all exhibits thereto) and in compliance with the Securities Act of 1933, as amended, and applicable state Blue Sky laws, (i) the Shares will be duly authorized and validly issued; and (ii) the Shares will be fully paid and non-assessable.
We consent to the use of our name under the captions "Proposed Merger - Certain Federal Income Tax Consequences of the Merger," and "Legal Opinions" in the prospectus included in the Registration Statement and to the filing of this opinion as Exhibit 5.1 to the Registration Statement.
Very truly yours,
/s/ Rogers & Hardin --------------------------- ROGERS & HARDIN |
July 17, 1996
ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
First National Financial Corporation
2627 Dawson Road
Albany, Georgia 31707
Re: Federal Income Tax Consequences of Proposed Merger of First National Financial Corporation with and into ABC Bancorp
Gentlemen:
We have acted as counsel for ABc Bancorp ("ABC") in connection with the proposed merger (the "Merger") of First National Financial Corporation ("First National") with and into ABC, pursuant to the Agreement and Plan of Merger (the "Merger Agreement") dated as of April 15, 1996, by and between ABC and First National. In our capacity as counsel for ABC and as provided in the Merger Agreement, we have been requested to render our opinion regarding certain of the federal income tax consequences of the Merger.
We understand that this opinion will be filed as an exhibit to the Registration Statement on Form S-4 (the "Registration Statement") that will be filed by ABC with the Securities and Exchange Commission relating to the securities that will be issued by ABC pursuant to the Merger Agreement and that this opinion will be referred to in the Proxy Statement/Prospectus that will be a part of the Registration Statement. We hereby consent to such use of and reference to this opinion.
All terms used herein without definition shall have the respective meanings specified in the Merger Agreement and, unless otherwise indicated, all section references herein are to the Internal Revenue Code of 1986, as amended.
ABC Bancorp
First National Financial Corporation
July 17, 1996
In rendering this opinion, we have examined such documents as we have deemed appropriate, including the Merger Agreement and the Registration Statement. In the course of such examination, we have assumed, with your consent, that all documents submitted to us as photocopies faithfully reproduce the originals thereof, that all such originals are authentic, that all such documents have been or will be duly executed to the extent required, and that all statements set forth in such documents are accurate. We have also obtained such additional information and representations as we have deemed relevant and necessary through consultations with various representatives of ABC and First National. In addition, we have obtained written certificates from the managements of ABC and First National to verify certain relevant facts that have been represented to us or that we have assumed in rendering this opinion. Such certificates are attached as Exhibits to this opinion. With your consent, we have assumed that the representations made in such certificates are true on the date hereof and will be true at the Effective Time.
Based upon the foregoing, it is our opinion that:
(1) The Merger will constitute a "reorganization" within the meaning of
Section 368(a)(1)(A), and ABC and First National will each be "a party to a
reorganization" within the meaning of Section 368(b).
(2) No gain or loss will be recognized by ABC or First National as a result of the Merger.
(3) A First National shareholder will not recognize gain on his or her exchange of First National Shares in the Merger in excess of the amount of cash, if any, received by him or her for such First National Shares.
(4) The tax basis of any ABC Common Stock received by a First National shareholder in the Merger in exchange for First National Shares will be the same as the tax basis of his or her First National Shares exchanged in the Merger, decreased by the total amount of any cash received by such shareholder for such First National Shares and increased by the total amount of any gain recognized in such exchange.
(5) A First National shareholder's holding period of any ABC
ABC Bancorp
First National Financial Corporation
July 17, 1996
Common Stock received by him or her in the Merger in exchange for First National Shares will include the holding period of his or her First National Shares exchanged in the Merger, provided that he or she held the First National Shares as a capital asset at the Effective Time.
The opinion expressed herein is based upon existing statutory, regulatory, and judicial authority, any of which may be changed at any time with retroactive effect. In addition, such opinion is based solely on the documents that we have examined, the additional information that we have obtained and the representations that have been made to us and cannot be relied upon if any of the facts contained in such documents or in such additional information is, or later becomes, inaccurate or if any of the representations made to us is, or later becomes, inaccurate. Finally, our opinion is limited to the tax matters specifically addressed herein, and we have not been asked to address, nor have we addressed, any other tax consequences of the Merger. Specifically, but without limitation, we express no opinion with respect to the tax consequences to any holder of any Option or Warrant upon the cancellation of such Option or Warrant and the receipt of shares of ABC Common Stock and/or cash with respect thereto pursuant to the Merger Agreement.
Very truly yours,
/s/ Rogers & Hardin ---------------------- ROGERS & HARDIN |
EXHIBIT 21.1
Schedule of Subsidiaries of ABC Bancorp
State of Organization
Name of Subsidiary or Incorporation
- ------------------ ---------------------
American Banking Company Georgia
The Bank of Quitman Georgia
Bank of Thomas County Georgia
The Citizens Bank of Tifton Georgia
Cairo Banking Company Georgia
Southland Bank, Dothan Alabama
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our report dated January 24, 1996 relating to the consolidated financial statements of ABC Bancorp included in the Registration Statement on Form S-4 and to the reference of our Firm under the caption "Experts" in the Prospectus/Proxy Statement.
/s/ Mauldin & Jenkins
-------------------------
MAULDIN & JENKINS
July 17, 1996
Albany, Georgia
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EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our report dated January 26, 1996 relating to the consolidated financial statements of Central Bankshares, Inc. included in the Registration Statement on Form S-4 and to the reference of our Firm under the caption "Experts" in the Prospectus/Proxy Statement.
/s/ Mauldin & Jenkins
-------------------------
MAULDIN & JENKINS
July 17, 1996
Albany, Georgia
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The Board of Directors
Southland Bancorporation:
We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the Prospectus.
Our report refers to a change in the method of accounting for income taxes in 1993 to adopt the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," and a change in the method of accounting for investments in debt and equity securities to adopt the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," at January 1, 1994.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Atlanta, Georgia
July 15, 1996
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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of our report dated February 9, 1996, relating to the financial statements of First National Financial Corporation, Albany, Georgia, and to the reference to our Firm under the caption "Experts" in the Prospectus/Proxy Statement.
/s/ Francis & Co., CPA's
Atlanta, Georgia
July 17, 1996
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EXHIBIT 23.5
[LETTERHEAD OF T. STEPHEN JOHNSON & ASSOCIATES, INC. GOES HERE]
We hereby consent to the use in this Registration on Form S-4 of our opinion dated May 21, 1996, concerning the fairness from a financial point of view of the consideration to be received by connection with the proposed merger of First National with and into ABC Bancorp.
Atlanta, Georgia
July 15, 1996
/s/ T. Stephen Johnson & Associates, Inc. ----------------------------------------- T. Stephen Johnson & Associates |
EXHIBIT 99.1
LETTER OF TRANSMITTAL
To Accompany Certificates Representing
Shares of Common Stock
of
FIRST NATIONAL FINANCIAL CORPORATION
Surrendered in connection with the Merger of First National Financial Corporation with and into ABC BANCORP
To: ____________________________________________________
Exchange Agent
Attention: ____________________
By Mail: By Hand: ____________________ ______________________ ____________________ ______________________ ____________________ ______________________ |
DO NOT SEND CERTIFICATES OR THIS LETTER OF TRANSMITTAL
TO FIRST NATIONAL FINANCIAL CORPORATION OR ABC BANCORP.
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
In connection with the merger (the "Merger") of First National Financial Corporation, a Georgia corporation (the "Company"), with and into ABC Bancorp, a Georgia corporation ("ABC"), the undersigned registered holder(s) of the stock certificate(s) (the "Certificates") formerly representing shares of common stock, $1.00 par value per share, of the Company ("Company Common Stock"), or the transferee or assignee of such registered holder(s), hereby surrenders the Certificates in exchange for certificates representing shares of common stock, $1.00 par value per share, of ABC (the "ABC Common Stock") pursuant to the terms of the Merger Agreement. (Unless otherwise provided herein, all capitalized terms used herein are defined in the Instructions).
COMPANY SHARES TO WHICH THIS
LETTER OF TRANSMITTAL RELATES
IMPORTANT: Shareholders must list below the Company Shares to which this Letter of Transmittal relates.
Certificate No. Shares Represented by Each Certificate
--------------- --------------------------------------
_______________ _____________________________
_______________ _____________________________
_______________ _____________________________
_______________ _____________________________
_______________ _____________________________
Total Shares:
________________________________________________________________________________
(Name(s) of Registered Holder(s) -- Please Print)
________________________________________________________________________________
(Address)
________________________________________________________________________________
(Tax Identification or Social Security Numbers)
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YOU MUST ENCLOSE CERTIFICATES FOR YOUR COMPANY SHARES WITH THIS LETTER OF TRANSMITTAL (DULY ENDORSED IN BLANK OR OTHERWISE IF REQUIRED --SEE INSTRUCTIONS 3 AND 4) IN A FORM ACCEPTABLE FOR TRANSFER ON THE BOOKS OF THE COMPANY.
SPECIAL PAYMENT INSTRUCTIONS
(See Instruction 4)
Certificate(s) for ABC Common Stock to be made issued to:*
Name: _______________________________________________________
(Please Print)
Address: ___________________________________________________
*Only one recipient may be designated. Please attach additional sheets if necessary.
**Section 6109 of the Internal Revenue Code of 1986, as amended (the "Code"), requires recipients of dividends, interest and other payments to furnish identifying numbers to the persons making such payments, who must report such payments to the Internal Revenue Service. Recipients of such payments must provide identification numbers whether or not they are required to file a tax return or are covered by social security. The Code provides a penalty for failure to provide such a number when required to do so.
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 6)
To be completed ONLY if the certificate(s) for ABC Common Stock to be issued are to be registered in the name of the registered holder(s) of the Company Shares but are to be sent to another person or to an address other than the person or address to which this Letter of Transmittal was mailed.
Certificate(s) for ABC Common Stock to be delivered to:*
Name: _______________________________________________________
(Please Print)
Address: ____________________________________________________
*Please attach additional sheets if necessary.
ACKNOWLEDGMENTS, REPRESENTATIONS, WARRANTIES AND
AUTHORIZATIONS OF THE UNDERSIGNED
1. I, the undersigned, hereby acknowledge receipt of the Proxy Statement and agree that all actions, instructions and orders in this Letter of Transmittal are subject to the terms and conditions of the Agreement and Plan of Merger relating to the merger (the "Merger Agreement"), the Proxy Statement and the Instructions applicable to this Letter of Transmittal. I also represent and warrant that I have full authority to give the representations, certifications and instructions contained in this Letter of Transmittal and to surrender the Company Shares pursuant to the Merger, and I will, upon receipt, execute any additional documents necessary or desirable to complete the exchange of Company Shares for shares of ABC Common Stock. My signature below authorizes the Exchange Agent to follow and to rely upon all representations, certifications and instructions contained in this Letter of Transmittal. This Letter of Transmittal shall survive my death or incapacity and shall be binding upon my heirs, personal representatives and assigns.
2. I hereby authorize and instruct the Exchange Agent to deliver the certificates covered hereby, and to receive on my behalf, in exchange for the Company Shares represented by such certificates, any certificate(s) for ABC Common Stock issuable to me.
3. I acknowledge that for each share of Company Common Stock I own I will receive consideration payable in shares of ABC Common Stock according to the terms of the Merger Agreement.
4. Unless otherwise indicated above, please issue certificate(s) representing the ABC Common Stock to which the undersigned is entitled in the name, and mail them to the address, indicated below. The undersigned agrees to pay transfer taxes, if any, due where ABC Common Stock is issued to a name different from that in which the Company Shares surrendered are registered. The undersigned certifies that any tax identification or social security number provided herein is true, correct and complete.
5. I understand that the definitive terms pursuant to which the Merger will be effected, including the amount and form of consideration to be received by holders of Company Shares, the effect of this Letter of Transmittal, and certain conditions to the consummation of the transaction, are summarized in the Proxy Statement, and all of such definitive terms and conditions are set forth in full in the Merger Agreement, which is appended to the Proxy Statement.
SHAREHOLDERS MUST SIGN BELOW
FOR THIS LETTER OF TRANSMITTAL
TO BE VALID
(See Instruction 2)
Please sign exactly as your name(s) appear(s) on your certificate(s). If the Company Shares with respect to which this Letter of Transmittal applies are registered in the name of two or more owners, all such owners must sign personally. Executors, administrators, trustees and persons signing for corporations or partnerships should so indicate. By signing this form persons signing as executors, administrators or trustees and persons signing for corporations or partnerships represent and warrant that they have requisite legal authority to sign in the capacity indicated. Certificate(s) for ABC Common Stock will be issued only in the name of the person(s) submitting this Letter of Transmittal and will be mailed unless the Special Delivery or Special Payment Instructions are completed. If any of your certificate(s) is registered in your name or if you are signing in a representative capacity, see Instructions 4 and 5, respectively.
Name of Owner (Please Print): ______________________________________________
Address: ___________________________________________________________________
Signature: ___________________________________ Date: ______________________
Name of Owner (Please Print): ______________________________________________
Address: ___________________________________________________________________
SIGNATURE GUARANTEE
(See Instructions 3 and 4)
Signature(s)
Guaranteed: _____________________________________________
(Name of Firm Providing Signature Guarantee;
Please Print)
(Authorized Signature) _______________________________
Note: In the event that the certificates representing the ABC Common Stock are to be issued in the name of the registered holder as inscribed on the surrendered Company Share certificates, the surrendered certificate need not be endorsed, and no guarantee of the signature on the Letter of Transmittal is required.
(ALSO COMPLETE SUBSTITUTE FORM W-9 ON NEXT PAGE)
INSTRUCTIONS
FOR THE
LETTER OF TRANSMITTAL
IN CONNECTION WITH THE MERGER OF
FIRST NATIONAL FINANCIAL CORPORATION
WITH AND INTO
ABC BANCORP
TO FIRST NATIONAL FINANCIAL CORPORATION SHAREHOLDERS:
Questions and requests for information, additional copies of the Letter of Transmittal or assistance relating to the Letter of Transmittal should be directed to _________________ at the Exchange Agent (telephone: (404) ___________________).
INSTRUCTIONS
If the Letter of Transmittal is signed by an agent, attorney, administrator, executor, guardian, trustee, or any person in any other fiduciary or representative capacity, or by an officer of a corporation on behalf of the corporation, the person signing must give such person's full title in such capacity. In addition, see Instruction 5.
company in the United States or by a member firm of any national securities exchange or of the National Association of Securities Dealers, Inc.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO ANY POSSIBLE TAX CONSEQUENCES RESULTING FROM THE ISSUANCE OF ANY CHECK OR ANY CERTIFICATE REPRESENTING ABC COMMON STOCK IN A NAME DIFFERENT FROM THAT OF THE REGISTERED HOLDER OF THE SURRENDERED CERTIFICATE(S).
All Letters of Transmittal shall be construed in accordance with the terms and conditions of the Merger Agreement.
EXHIBIT 99.2
EXCHANGE AGENT AGREEMENT
THIS EXCHANGE AGENT AGREEMENT (the "Agreement") dated as of ____________, 1996 is by and among ___________________, with principal offices ______________ in Atlanta, Georgia ("Bank") and ABC BANCORP, a Georgia corporation ("Acquiror").
WHEREAS, Acquiror and First National Financial Corporation ("First National") are parties to an Agreement and Plan of Merger dated as of April 15, 1995 (the "Merger Agreement"). Following the satisfaction or waiver of certain conditions set forth in the Merger Agreement, First National will be merged with and into the Acquiror (the "Merger"), which will be the surviving corporation of the Merger. A true and correct copy of the Merger Agreement, together with specimen stock certificates representing shares of First National Common Stock, $1.00 par value per share ("First National Shares"), have been delivered to the Bank prior to the execution of this Agreement;
WHEREAS, the Merger Agreement provides that, upon consummation of the Merger and proper presentment of the stock certificates representing First National Shares, each First National Share outstanding immediately prior to the Effective Time of the Merger, as defined in the Merger Agreement (the "Effective Time of the Merger"), other than shares as to which statutory dissenters' rights have been perfected, will be converted into the right to receive consideration equal to the Merger Consideration (as specified in the Merger Agreement), payable in whole shares of the common stock, $1.00 par value per share, of ABC ("ABC Common Stock");
WHEREAS, for purposes of determining the number of shares of ABC Common
Stock into which a First National Share may be converted, the "Base Period
Trading Price" means the average of the daily high and low sales prices of a
share of the Acquiror's Common Stock as reported on NASDAQ/NMS for the twenty
(20) consecutive trading days immediately preceding five (5) consecutive
calendar days immediately preceding the Effective Time (as defined in the Merger
Agreement"); provided however, that for purposes of this calculation, the Base
Period Trading Price shall be deemed to equal (i) $16.00 in the event the Base
Period Trading Price is greater than $16.00 or (ii) $12.00 in the event the Base
Period Trading Price is less than $12.00; and
WHEREAS, Acquiror desires to appoint Bank to act as Exchange Agent to effect the exchange described herein, and Bank desires to accept such appointment. (For convenience, hereinafter in this Agreement First National Shares outstanding immediately prior to the Effective Time of the Merger are called "Shares," the certificates representing such shares are called "Certificates," and the holders of such Certificates are called "Shareholders").
NOW, THEREFORE, based on the mutual covenants set forth herein, and other good and valuable consideration, the adequacy and sufficiency of which is hereby acknowledged by each party,
and with the intent to be legally bound, the parties hereto hereby represent, warrant and agree as follows:
(a) Upon receipt of a Letter of Transmittal and related Certificates, Bank shall determine whether (i) the Letter of Transmittal has been properly completed, and (ii) the accompanying Certificate(s) are in proper order (including proper endorsement, if required). If the Letter of Transmittal and/or Certificates are not in proper order, Bank shall advise the presenter promptly.
(b) Bank shall also verify by examining stop transfer records of First National to be furnished to Bank by ABC as to lost, stolen, destroyed or otherwise invalid Certificates that no stop order has been issued against the Shares represented by the surrendered Certificates, the registration of the Certificates should be checked against the certified list of Shareholders of record of First National Shares at the Effective Time of the Merger.
(c) If Certificates are surrendered to Bank with instructions to deliver the check and/or the certificates of ABC Common Stock in a name other than the name of the record holder, Bank shall determine whether each such Certificate is properly endorsed or accompanied by an appropriate stock power and the signatures thereon are guaranteed by an eligible guarantor institution (bank, broker, savings and loan association or credit union) with membership in an approved Medallion Signature Guarantee Program pursuant to Rule 17Ad-5 of the Securities and Exchange Commission. Where a Letter of Transmittal is signed by a trustee, executor, administrator, guardian, officer of a corporation, attorney-in-fact or other person acting in a fiduciary capacity and the surrendered Certificate is not registered in the fiduciary's name, the Letter of Transmittal must be accompanied by proper evidence of the signer's authority to act. If more than one person is the record holder of the surrendered Certificate, each person must sign the Letter of Transmittal. Any necessary stock transfer stamps must be affixed to the Certificate, or funds in lieu thereof must be furnished to Bank.
(d) Bank shall promptly notify the Acquiror if a person submits a Letter of Transmittal to Bank and alleges that the Certificate or Certificates representing the Shares to which the Letter of Transmittal relates have been lost, stolen or destroyed. Bank shall then instruct such person as to the procedure for obtaining a bond of indemnification reasonably satisfactory to Bank and to Acquiror.
(e) Bank shall promptly notify Acquiror if Bank receives any Certificate bearing the name of a person on the list of those persons who have taken steps to perfect their dissenters' rights, which list shall be provided to Bank by Acquiror.
(f) After examining the Certificates which have been surrendered to Bank and the accompanying Letters of Transmittal, Bank shall be obligated to issue certificates for shares of ABC Common Stock (and checks for fractional shares) and deliver same in accordance with Article 3 of the Merger Agreement and in accordance with the duly completed Letters of Transmittal.
(g) Bank shall cancel all those Certificates which have been surrendered to it and with respect to which issuance of a check and/or certificates for shares of ABC Common Stock has been made. All such Certificates so surrendered and cancelled shall be held by Bank until Bank's duties as Exchange Agent shall terminate, at which time Acquiror will take delivery of the Certificates and other documents in the possession of the Exchange Agent concerning the records of the former Shareholders.
(h) Bank shall maintain on a continuing basis, for the term of this Agreement, a list of Shareholders who have not yet surrendered their Certificates.
(i) In examining and processing Certificates and Letters of Transmittal submitted hereunder and making issuances therefor, Bank shall in all cases act as promptly as practicable.
(j) Bank's duties as Exchange Agent shall continue until the earliest of:
(i) the payment of all amounts due to Shareholders under Article 3 of the
Merger Agreement; (ii) the notification by Acquiror to Bank that Acquiror
has appointed a new exchange agent that satisfies the qualifications
specified in Section 8(c) of this Agreement; (iii) the issuance of all
certificates (and checks for fractional shares) for shares of ABC Common
Stock pursuant to the terms of Article 3 of the Merger Agreement; (iv) a
date which is one year after the Effective Time of the Merger; or (v) the
termination of the Merger Agreement prior to the consummation of the Merger
for any reason whatsoever. Upon termination, the Exchange Agent will direct
the Shareholders to the new agent or the Acquiror as appropriate. If notice
of the appointment of a new exchange agent is given to Bank at any time,
Bank shall transfer all blank certificates then held by it under this
Agreement to the new exchange agent upon receipt of a copy of a fully
executed exchange agent agreement with such new exchange agent.
Bank shall have no duty of inquiry nor incur any liability in the event of any payment being made to Shareholders for Shares against which a "stop" order or transfer restriction may apply, unless it is furnished, on a timely basis, with an accurate list of Shares (including certificate numbers) subject to such orders or restrictions.
Bank is to act hereunder solely as Exchange Agent and shall have no liabilities or obligations except for its own gross negligence or willful misconduct as determined by a court of competent jurisdiction.
(a) This Agreement may be executed in several counterparts, each of which shall be an original, but all of which together shall constitute but one instrument, and it shall become effective whenever each party shall have executed at least one counterpart.
(b) This Agreement shall bind and inure to the benefit of the parties and their respective successors and assigns.
(c) Bank may resign its appointment upon 30 days' written notice to Acquiror. In case of the resignation of Bank hereunder, Acquiror may by written instrument appoint as successor exchange agent any bank or trust company located in the United States having capital and surplus at least equal to that of Bank and which has trust powers and is a member of The
Stock Transfer Association, Inc. Such successor shall have all the rights, powers, obligations and immunities of Bank hereunder and such additional obligations as Acquiror shall require.
(d) This Agreement may not be amended in any respect to adversely affect the rights of the Shareholders.
(e) This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia, without regard to any applicable conflicts of laws.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf as of the date first above written.
[NAME OF BANK]
By: ________________________
Title: __________________
ABC BANCORP
By: ________________________
Title: _____________________
EXHIBIT 99.3
PROXY
FIRST NATIONAL FINANCIAL CORPORATION
2627 DAWSON ROAD
ALBANY, GEORGIA 31707-1748
Telephone: (912) 888-5600
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF FIRST NATIONAL FINANCIAL CORPORATION
The undersigned hereby appoints Raymond B. Phillips and Glenn A. Kirbo, or either of them, as Proxies, each with the power to appoint his or her substitute, and hereby authorizes them to represent and to vote, as designated below, all shares of common stock of First National Financial Corporation which the undersigned is entitled to vote at the Special Meeting of Shareholders (the "Meeting") to be held on _____________, 1996, or any adjournment or postponement thereof, on the following matters:
1. PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER BETWEEN FIRST NATIONAL FINANCIAL CORPORATION AND ABC BANCORP PROVIDING FOR THE MERGER OF FIRST NATIONAL FINANCIAL CORPORATION WITH AND INTO ABC BANCORP.
FOR ___________ AGAINST ___________ ABSTAIN _______
2. In their discretion upon such other business as may properly come before the Meeting.
Please sign exactly as name appears on stock certificate(s). If there are two or more owners, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person.
Dated: ___________________ ______________________________________________
(Signature)
______________________________________________
(Signature if held jointly)
Your vote is important.
Please mark, sign, date and
return this Proxy promptly,
using the enclosed envelope.
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