<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the period ended September 30, 1996
[ ] Transition report under Section 13 or 15(d) of the Exchange Act for
the transition period from to
----- -----
Commission file number: 000-21383
APPALACHIAN BANCSHARES, INC.
(Exact name of small business issuer as specified in its charter)
Georgia 58-2242407
(State of Incorporation) (I.R.S. Employer Identification No.)
315 Industrial Blvd.
Ellijay, Georgia 30540
(Address of principal executive offices)
(706) 276-8000
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at November 13, 1996
----- --------------------------------
Common Stock, $5.00 par value 568,000
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
APPALACHIAN BANCSHARES, INC.
September 30, 1996 Form 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet....................................... 3
Consolidated Statement of Income................................. 4
Consolidated Statement of Cash Flows............................. 5
Notes to Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation....... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 12
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APPALACHIAN BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 1996 December 31,
(Unaudited) 1995
------------------- -------------
<S> <C> <C>
ASSETS
Cash $ 551,018 $ 244,111
Due from banks 1,660,726 1,545,987
Federal funds sold 1,290,000 1,970,000
Securities available for sale 17,108,685 14,050,902
Securities held to maturity 671,199 0
Loans 60,848,115 32,168,696
Allowance for loan losses (605,978) (324,599)
----------- -----------
Net Loans 60,242,137 31,844,097
Premises and equipment, net 1,657,932 1,672,504
Accrued interest 782,771 392,793
Other assets 272,217 228,401
---------- ---------
TOTAL ASSETS $84,236,685 $51,948,795
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing $ 2,977,754 $ 2,774,362
Interest-bearing 70,635,988 39,354,469
----------- -----------
TOTAL DEPOSITS 73,613,742 42,128,831
Securities sold under agreements to repurchase 4,553,930 4,311,916
Accrued interest 134,385 95,352
Other liabilities 255,126 49,366
----------- -----------
TOTAL LIABILITIES 78,557,183 46,585,465
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock ($5 par value; 2,000,000 shares authorized, 2,840,000 2,840,000
568,000 shares issued and outstanding)
Capital surplus 2,829,314 2,829,314
Retained earnings (accumulated deficit) 65,802 (348,143)
Unrealized gains (losses) on investment securities available for sale, (55,614) 42,159
net of deferred tax or tax benefit ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 5,679,502 5,363,330
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $84,236,685 $51,948,795
=========== ===========
</TABLE>
See notes to financial statements.
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<PAGE>
APPALACHIAN BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- ------------------
1996 1995 1996 1995
----- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE FROM EARNING ASSETS:
Interest and fees on loans $1,441,078 $565,962 $3,630,804 $ 903,330
Interest on investment securities:
Taxable securities 252,017 126,538 697,344 310,076
Interest on federal funds sold 25,678 45,241 63,614 133,710
---------- -------- ---------- ----------
TOTAL REVENUE FROM EARNING ASSETS 1,718,773 737,741 4,391,762 1,347,116
INTEREST EXPENSE:
Interest on deposits 947,058 424,106 2,359,712 691,380
Interest on federal funds purchased and securities
sold under agreements to repurchase 52,721 0 159,210 1,151
---------- -------- ---------- ---------
TOTAL INTEREST EXPENSE 999,779 424,106 2,518,922 692,531
NET INTEREST INCOME: 718,994 313,635 1,872,840 654,585
Provision for loan losses 96,000 88,000 293,000 248,000
---------- -------- ---------- ---------
NET INTEREST INCOME:
After provision for loan losses 622,994 225,635 1,579,840 406,585
NONINTEREST INCOME:
Service charges on deposits 33,744 18,712 94,676 29,174
Insurance commissions 8,796 5,924 18,346 14,954
Other operating income 24,209 7,795 59,860 14,624
Investment securities gains 0 5,938 9,719 11,929
------- ------- --------- --------
TOTAL NONINTEREST INCOME 66,749 38,369 182,601 70,681
NONINTEREST EXPENSES:
Salaries and employee benefits 227,016 177,088 641,263 473,561
Occupancy expense 24,205 19,728 69,843 42,366
Furniture and equipment expense 32,026 18,882 90,365 39,006
Other operating expenses 154,272 126,783 390,101 323,665
------- ------- --------- --------
TOTAL NONINTEREST EXPENSES 437,519 342,481 1,191,572 878,598
Loss before income taxes 252,224 (78,477) 570,869 (401,332)
Income tax (provision) benefit (48,584) 22,460 (156,924) 132,230
------- ------- --------- --------
NET INCOME (LOSS) 203,640 (56,017) 413,945 (269,102)
======= ======= ========= ========
EARNINGS (LOSS) PER COMMON SHARE - PRIMARY AND
FULLY DILUTED
Net income (loss) per common share .36 (.10) .73 (.47)
Weighted average common shares outstanding 568,000 568,000 568,000 568,000
</TABLE>
See notes to financial statements.
-4-
<PAGE>
APPALACHIAN BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 413,945 $ (269,102)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for loan losses 293,000 248,000
Provision for depreciation and amortization 89,438 44,313
Amortization of investment security premiums (4,591) (23,410)
and accretion of discounts
Deferred tax (benefit) 54,624 (132,230)
Realized investment security gains (9,719) (5,918)
Increase in accrued interest receivable (389,978) (284,182)
Increase in accrued interest payable 39,033 68,141
Other 178,382 84,679
---------- ----------
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES 664,134 (269,709)
INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale 5,948,617 7,200,597
Purchase of securities available for sale (9,140,486) (12,620,336)
Purchase of securities held to maturity (671,226) 0
Net increase in loans to customers (28,691,040) (24,668,176)
Capital expenditures (94,434) (814,598)
---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (32,648,569) (30,902,513)
FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts, 12,048,983 19,956,560
and savings accounts
Net increase in certificates of deposits 19,435,084 14,779,071
Net increase in securities sold under agreement to repurchase 242,014 0
---------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 31,726,081 34,735,631
---------- ------------
Net increase in cash and cash equivalents (258,354) 3,563,409
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,760,098 650,138
---------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,501,744 $4,213,547
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 2,479,889 624,390
Income taxes 0 0
</TABLE>
See notes to financial statements.
-5-
<PAGE>
APPALACHIAN BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(unaudited)
September 30, 1996
NOTE A - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Appalachian
Bancshares, Inc. (the "Company") and its wholly-owned subsidiary, Gilmer County
Bank (the "Bank"). The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended September 30, 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 for Gilmer County Bank for the year ended December 31, 1995, and
footnotes thereto included as Exhibit 99.2 to the Company's registration
statement on Form 8-A, filed with the Securities and Exchange Commission on
September 17, 1996.
The Company was formed in May 1996 for the purpose of acquiring all the
outstanding stock of Gilmer County Bank, a Georgia banking corporation located
in Ellijay, Georgia, and operating as a bank holding company. On August 8,
1996, Gilmer County Bank became a wholly-owned subsidiary of the Company.
Unless otherwise indicated herein, the financial results and projections of the
Company refer to the Company and the Bank on a consolidated basis.
NOTE B - INCOME TAXES
The effective tax rate of approximately 27 percent for the nine months
ended September 30, 1996 approximates the statutory rate less an adjustment
for the effect of tax exempt securities.
NOTE C - INVESTMENT SECURITIES
Effective May 26, 1994, the Company applied the accounting and reporting
requirements of Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities ("SFAS 115"). This
pronouncement requires that all investments in debt securities be classified as
either "held-to-maturity" securities, which are reported at amortized cost;
trading securities, which are reported at fair value, with unrealized gains and
losses included in earnings; or "available-for-sale" securities, which are
reported at fair value, with unrealized gains and losses excluded from earnings
and reported in a separate component of Shareholder's equity (net of deferred
tax effect).
-6-
<PAGE>
At September 30, 1996, the Company had net unrealized losses of $84,264 in
available-for-sale securities which are reflected in the presented assets and
resulted in a decrease in Shareholder's equity of $55,614, net of deferred tax
liability. There were no trading securities. The net decrease in Shareholder's
equity as a result of the SFAS 115 adjustment from December 31, 1995 to
September 30, 1996 was $97,773.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion is intended to assist in an understanding of the Company's
financial condition and results of operations. This analysis should be read in
conjunction with the financial statements and related notes appearing in Item 1
of the September 30, 1996 Form 10-QSB and Management's Discussion and Analysis
of Financial Condition and Results of Operations for the year ended December 31,
1995 appearing in the Bank's Registration Statement on FDIC Form F-1 filed with
the Federal Deposit Insurance Corporation on April 29, 1996.
FINANCIAL CONDITION
SEPTEMBER 30, 1996 COMPARED TO DECEMBER 31, 1995
- ------------------------------------------------
LOANS
Loans comprised the largest single category of the Company's earning
assets on September 30, 1996. Loans, net of unearned income and reserve for
loan losses, were 71.5 percent of total assets at September 30, 1996. Total net
loans were $60,242,137 at September 30, 1996, representing a 89.2 percent
increase from the December 31, 1995 total of $31,844,097. This increase was due
to continued growth in loan base since the Bank's opening on March 3, 1995.
INVESTMENT SECURITIES AND OTHER EARNING ASSETS
Investment securities and federal funds sold increased $3,048,982 or 19.0
percent from December 31, 1995 to September 30, 1996. The increase relates to
an excess of deposit growth over loan demand during the period. The investment
securities portfolio is used to make various term investments, to provide a
source of liquidity and to serve as collateral to secure certain government
deposits. Investment securities at September 30, 1996 were $17,779,884 compared
with $14,050,902 at December 31, 1995, reflecting a 26.5 percent increase of
$3,728,982.
ASSET QUALITY
Between December 31, 1995 and September 30, 1996, a slight decline in the
quality of assets was experienced, as measured by three key ratios. The ratio
of loan loss allowance to total nonperforming assets (defined as nonaccrual
loans, loans past due 90 days or greater, restructured loans, nonaccruing
securities, and other real estate) increased from 7.05 to 10.82. The ratio of
total nonperforming assets to total assets fell to .0007 from .0008 and the
ratio on nonperforming loans to total loans remained at 0.001 as compared to
December 31, 1995. All of these ratios remain favorable as compared with
industry averages, and management is aware of no factors which would suggest
that they are prone to erosion in future periods.
-8-
<PAGE>
DEPOSITS
Total deposits of $73,613,742 at September 30, 1996 increased $31,484,911
(74.7%) over total deposits of $42,128,831 at year-end 1995. Deposits are the
Company's primary source of funds with which to support its earning assets.
Noninterest-bearing deposits increased $203,392 or 7.3 percent from year-end
1995 to September 30, 1996, and interest-bearing deposits increased 79.5% during
the same period. Certificates of deposits of $100,000 or more increased
$5,235,527 (91.9%).
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase totaled $4,553,930 at
September 30, 1996, a $242,014 increase from the December 31, 1995 total of
$4,311,916.
SHAREHOLDERS' EQUITY
Shareholders' equity increased $316,172 from December 31, 1995 to
September 30, 1996, due to net earnings of $413,945 and the decrease in the
measurement for unrealized gains or losses on securities available for sale
totaling $97,773, net of deferred tax liability.
CAPITAL RESOURCES
A strong capital position is vital to the continued profitability of the
Company because it promotes depositor and investor confidence and provides a
solid foundation for future growth of the organization. A majority of the
Company's capital requirements have been provided as a result of the Bank's
initial stock offering in 1994, in which the Bank raised a total of $5,680,000
in capital.
Regulatory authorities in the banking industry are placing increased
emphasis on the maintenance of adequate capital. In 1990, new risk-based
capital requirements became effective. The guidelines take into consideration
risk factors, as defined by regulators, associated with various categories of
assets, both on and off the balance sheet. Under the guidelines, capital
strength is measured in two tiers which are used in conjunction with risk-
adjusted assets to determine the risk-based capital ratios. Tier I capital,
which consists of common equity less goodwill, amounted to 5.68 million at
September 30, 1996. Tier II capital components include supplemental capital
components such as qualifying allowance for loan losses and qualifying
subordinated debt. Tier I capital plus the Tier II capital components is
referred to as Total Risk-Based capital and was $6.21 million at September 30,
1996.
The Company's current capital positions exceed the new guidelines.
Management has reviewed and will continue to monitor the Company's asset mix and
product pricing, and the loan loss allowance, which are the areas determined to
be most affected by these new requirements.
-9-
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
- ------------------------------------
SUMMARY
Net earnings for the nine months ended September 30, 1996 were
$413,945 compared to a net loss of $269,102 for the same period in 1995. The
net loss in the previous year related to the effect of start up costs associated
with the Bank's opening on March 3, 1995. The Company has reported net income
for each quarter since the fourth quarter of 1995. Net interest income
increased $1,218,255 during the first nine months of 1996, as compared to the
same period in 1995; noninterest expenses increased $312,974 during same period,
while noninterest income increased by $111,920.
NET INTEREST INCOME
Net interest income, the difference between interest earned on assets and
the cost of interest-bearing liabilities, is the largest component of the
Company's net income. Revenue from earning assets of the Company during the
nine months ended September 30, 1996 increased $3,044,646 (226.01%) from the
same period in 1995. This increase was due to higher average outstanding
balances of earning assets. Average earning assets outstanding during the nine
months ended September 30, 1996 were $45,543,731 higher during the same period
of 1995. Interest expense for the nine months ended September 30, 1996
increased $1,826,390 or (263.73%) compared to the same period of 1995.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents the charge against current
earnings necessary to maintain the reserve for loan losses at a level which
management considers appropriate. This level is determined based upon
management's assessment of current economic condition, the composition of the
loan portfolio and the levels of nonaccruing and past due loans. The provision
for loan losses was $293,000 for the nine months ended September 30, 1996
compared to $248,000 for the same period of 1995. Charge-offs exceeded
recoveries by $12,124 for the nine months ended September 30, 1996. The reserve
for loan losses as a percent of outstanding loans, net of unearned income, was
1.00 percent at September 30, 1996 compared to 1.01 percent at year-end 1995.
NONINTEREST INCOME
Noninterest income for the nine months ended September 30, 1996 was
$182,601 compared to $70,681 for the same period of 1995. This increase was
primarily due to an increase in service charges
-10-
<PAGE>
on deposit accounts of $65,902 in 1996 as compared to the same period of 1995,
and due to service charges on credit cards. Significant components of
noninterest income are as follows: Service charges on deposit increased $65,502
(224.52%), insurance commissions increased $3,392 (22.7%), investment securities
increased $2,210 (18.5%), and other operating income, primarily credit card and
safe deposit box fees increased $45,236 (309.3%) to $59,860.
NONINTEREST EXPENSES
Noninterest expenses for the nine months ended September 30, 1996 were
$1,191,572, reflecting a 35.6 percent increase over the same period of 1995.
The primary components of noninterest expenses are salaries and employee
benefits, which increased to $641,263 for the nine months ended September 30,
1996, 35.4 percent higher than in the same period of 1995. The increase in
salaries and employee benefits are due to increased staffing for the unusually
high level of growth which has been experienced since the Bank's opening on
March 3, 1995. Occupancy costs increased $27,477 (64.9%), and furniture and
equipment expenses rose by $51,359. Other operating expenses rose by only 20.5
percent to $390,101.
The substantial increase in the Company's size has necessitated increased
expenditures for data processing and other support activities and personnel,
which will continue in the future.
The Company's strategy is to fully develop its market in Gilmer County and
surrounding areas by offering, through its Bank subsidiary, a full range of
banking services to customers. Management will strive to build the Company's
business in a profitable manner and to minimize any losses and adverse effects
on the Company's earnings. Our strategy for long term success in these areas
will not be sacrificed for immediate gain.
INCOME TAXES
The Company attempts to maximize its net income through active tax
planning. The provision for income taxes of $156,924 for the nine months ended
September 30, 1996 increased $289,154 compared to the same period of 1995, due
primarily to the reversal of the Company's loss position in the prior year to a
cumulatively profitable position in the current year. Since the Company expects
that taxable income will exceed it net operating loss carryforwards for the
year, management is attempting to reduce its tax burden by purchasing tax exempt
securities.
-11-
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 8, 1996, the Company and the Bank consummated a reorganization
pursuant to a Plan of Reorganization and Agreement of Merger (the
"Reorganization Plan") among the Company, the Bank and Gilmer Interim, Inc.
("Gilmer Interim"), a wholly-owned subsidiary of the Company (the
"Reorganization"). In accordance with the terms of the Reorganization Plan,
Gilmer Interim merged with and into the Bank with the Bank being the surviving
corporation. Upon effectiveness of the merger, each outstanding share of common
stock of the Bank was exchanged for one share of common stock of the Company.
As a result of the Reorganization, the shareholders of the Bank became the
shareholders of the Company instead of the Bank, the Bank became a wholly-owned
subsidiary of the Company, and Interim ceased to exist as a separate entity.
As a result of the Reorganization, the Holding Company has approximately
750 shareholders of record. On September 17, 1996, the Holding Company filed a
registration statement on Form 8-A with the Securities and Exchange Commission
(the "Commission") under Section 12(g) of the Securities Exchange Act of 1934
with respect to such shares, which registration statement was declared effective
by the Commission on October 1, 1996.
Upon consummation of the Reorganization, the Holding Company became the
sole shareholder of the Bank, with one share of Common Stock of the Bank
remaining issued and outstanding. Accordingly, the Bank terminated registration
of its Common Stock with the FDIC effective October 9, 1996 in accordance with
Section 12(g)(4) of the Securities Exchange Act of 1934.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Plan of Reorganization and Agreement of Merger, dated May 24, 1996, by
and among Gilmer County Bank, Appalachian Bancshares, Inc. and Gilmer
Interim, Inc.
3.1 Articles of Incorporation of the Company (incorporated by reference to
the Company's registration statement on Form 8-A , filed September 17,
1996).
3.2 Bylaws of the Company (incorporated by reference to the Company's
registration statement on Form 8-A , filed September 17, 1996).
11 Computation of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the period covered by
this report.
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<PAGE>
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the
Company has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: November 14, 1996
APPALACHIAN BANCSHARES, INC.
/s/ Tracy R. Newton
------------------------
Tracy R. Newton
President and CEO
(Duly authorized officer)
/s/ Kent W. Sanford
------------------------
Kent W. Sanford
Executive Vice President
(Principal financial officer)
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<PAGE>
EXHIBIT 2.1
PLAN OF REORGANIZATION AND AGREEMENT OF MERGER
This Plan of Reorganization and Agreement of Merger entered into as of this
24th day of May, 1996 (the "Reorganization Plan"), by and among GILMER
----
COUNTY BANK, Ellijay, Georgia, a banking corporation organized under the
laws of the State of Georgia (the "Bank"), APPALACHIAN BANCSHARES, INC., a
Georgia corporation (the "Holding Company") and GILMER INTERIM, INC., a
Georgia corporation (the "Subsidiary"), (the Bank and the Subsidiary
sometimes being referred to as the "Constituent Companies").
W I T N E S S E T H:
WHEREAS, the authorized capital stock of the Bank consists of 2,000,000
shares of common stock, $5.00 par value ("Bank Common Stock"), of which 568,000
shares are issued and outstanding; and
WHEREAS, the authorized capital stock of the Subsidiary consists of 50
shares of common stock, $5.00 par value ("Subsidiary Common Stock"), all of
which are issued to the Holding Company; and
WHEREAS, the authorized capital stock of the Holding Company consists of
20,000,000 shares of common stock, $5.00 par value ("Holding Company Common
Stock"), of which 50 shares are issued and outstanding; and
WHEREAS, the respective board of directors of the Bank and the Subsidiary
deem it advisable and in the best interests of both Constituent Companies and
their respective shareholders that the Subsidiary be merged with and into the
Bank pursuant to the provisions of (S) 14-2-1101, et seq. of the Georgia
-- ---
Business Corporation Code (the "Corporation Code") and (S) 7-1-530, et seq.
-- ---
of the Financial Institutions Code of Georgia ("Financial Institutions Code"),
and the board of directors of each of the Constituent Companies has, by
resolution, duly adopted and approved this Reorganization Plan; and
WHEREAS, the board of directors of the Bank has directed that this
Agreement be submitted to a vote of its shareholders at the Bank's Annual
Meeting of Shareholders to be held on June 27, 1996 at 6:00 p.m. or at such date
and time as designated by the board of directors (the "Annual Meeting"), and the
board of directors of the Subsidiary has recommended the merger to its sole
shareholder and directed that this Agreement be submitted to a vote of the sole
shareholder of the Subsidiary, for the purpose of approving this Reorganization
Plan; and
WHEREAS, the board of directors of the Holding Company has approved and
adopted this Reorganization Plan, and the Holding Company has agreed to join in
and be bound thereby and to issue the shares of the Holding Company Common Stock
which the shareholders of the Bank will be entitled to receive on and after the
Effective Date (as defined herein) of the merger provided for herein; and
WHEREAS, for federal income tax purposes, it is intended that the merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code") and the rules and
regulations with respect thereto.
-14-
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for the purpose of stating the terms and conditions of such
merger, the mode of carrying the same into effect, the manner of converting and
exchanging the shares of the Constituent Companies into shares of the Bank or
shares of the Holding Company, as the case may be, and other details and
provisions deemed necessary or proper, the parties hereto agree as follows:
1. MERGER
------
Upon the merger ("Merger") becoming effective in accordance with the
provisions of the Financial Institutions Code and the Corporation Code, the
Subsidiary shall be merged into the Bank. The Bank shall be the surviving
company ("Surviving Company") and its name shall continue to be "Gilmer County
Bank." Except as specifically set forth herein, the identity, existence,
purposes, powers, objects, rights, privileges, franchises and immunities of the
Bank shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of the Subsidiary shall be merged into the
Bank, and the Bank shall be fully vested therewith. The separate and individual
existence of the Subsidiary shall cease and terminate on the Effective Date.
2. EFFECTIVE DATE OF THE MERGER
----------------------------
Subject to the terms and upon satisfaction of all requirements of law and
the conditions specified herein, including, among other conditions, receipt of
approval of the Georgia Department of Banking and Finance, the Board of
Governors of the Federal Reserve System (or its lawful delegate) and the Federal
Deposit Insurance Corporation, the Merger shall become effective on the date
that the Secretary of State of Georgia shall issue a certificate of merger with
respect thereto in accordance with the provisions of the Financial Institutions
Code and the Corporation Code (the "Effective Date").
3. ARTICLES OF INCORPORATION, BYLAWS, OFFICERS, DIRECTORS AND CAPITAL STRUCTURE
----------------------------------------------------------------------------
OF THE SURVIVING COMPANY
------------------------
Upon consummation of the Merger:
(a) The articles of incorporation of the Bank as in effect on the Effective
Date shall be the articles of incorporation of the Surviving Company until
changed as provided by law;
(b) The by-laws of the Bank as in effect on the Effective Date shall be the
by-laws of the Surviving Company until altered, amended or repealed; and
(c) The officers and directors of the Bank on the Effective Date shall be
the officers and directors of the Surviving Company and shall serve until their
respective successors are elected or appointed pursuant to the by-Laws of the
Surviving Company.
(d) The capital structure of the Bank in existence on the Effective Date of
the Merger shall not be altered or amended by the Merger and shall continue in
effect as that of the Surviving Company.
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<PAGE>
4. MANNER AND BASIS OF CONVERTING SHARES OF CAPITAL STOCK
------------------------------------------------------
The manner of converting and exchanging the shares of the Bank Common Stock
and Subsidiary Common Stock into shares of Holding Company Common Stock and
shares of common stock of the Surviving Company, as the case may be, shall be as
follows:
(a) Each of the shares of Bank Common Stock outstanding immediately prior
to the Effective Date shall, by virtue of the Merger and without any action of
the part of the holders thereof, be converted into and exchanged for a number of
shares of Holding Company Common Stock at the rate of one share of Holding
Company Common Stock for each share of Bank Common Stock.
(b) The shares of Subsidiary Common Stock outstanding immediately prior to
the Effective Date shall, by virtue of the Merger and without any action on the
part of the holders thereof, be converted into and exchanged for a number of
shares of Common Stock of the Surviving Company equal to the number of shares of
the Bank Common Stock outstanding immediately prior to the Effective Date.
(c) From and after the Effective Date, each holder of any of the shares of
Bank Common Stock to be converted as above provided shall be entitled, upon
presentation and surrender to the Holding Company of the certificates
representing such shares, to receive in exchange therefor certificates
representing the number of shares of Holding Company Common Stock into which
such shares have been converted, and said surrendered shares of the Bank shall
be cancelled. Until so surrendered, each such outstanding certificate which
prior to the Effective Date represented Bank Common Stock shall be deemed for
all corporate purposes, except as set forth below, to evidence ownership of the
number of shares of Holding Company Common Stock into which the same shall have
been converted. Unless and until any such certificate shall be so surrendered,
or unless otherwise required by law, the holder of such certificate shall not
have any right to receive payment of any dividends or other distributions on
shares of Holding Company Common Stock, to receive any notices sent by the
Holding Company to its shareholders or to vote such shares.
5. RIGHTS, DUTIES, ASSETS AND LIABILITIES OF THE SURVIVING COMPANY
---------------------------------------------------------------
Upon the Effective Date, each and all of the rights, duties, liabilities
and interests of the Bank and the Subsidiary, and all the assets of every kind
and character, including all real and personal property and choses in action,
thereunto belonging, shall be deemed to be transferred to and vested in the
Surviving Company, without any deed, transfer or assignment, and the Surviving
Company shall hold, enjoy and be subject to the same in the same manner and to
the same extent as the Bank and the Subsidiary, respectively, had, held, owned,
enjoyed, and were subject to the same.
The rights of creditors of the Bank and the Subsidiary shall not be
impaired in any manner by the Merger; nor shall any liability or obligation for
the payment of any sums due or to become due, or any claim or demand in any
matter or for any cause existing against such corporations, be in any manner
released or impaired; and all the rights, obligations and relations of all the
parties, creditors, depositors, and others shall remain unimpaired by the
Merger. The Surviving Company shall succeed to the obligations, trusts and
liabilities of the Constituent Companies, and shall be held liable to pay and
discharge all such debts and liabilities and to perform all such trusts in the
same manner as though the Surviving Company had itself incurred the obligation
or liability; and no suit, action, or other proceeding then pending before any
-16-
<PAGE>
court or tribunal in which either the Bank or the Subsidiary is a party shall be
deemed to have abated or been discontinued by reason of the Merger, but the same
may be prosecuted to final judgment in the same manner as if said corporation
had not entered into this Plan, or the Surviving Company may be substituted in
the place of either corporation by order of the court in which such action, suit
or proceeding may be pending. The Surviving Company may be sued in any court
having jurisdiction, upon any cause of action against the Subsidiary or the
Bank, in the same manner as if such cause of action had originated against the
Surviving Company.
6. FURTHER ACTIONS
---------------
From time to time, as and when requested by the Surviving Company, or by
its successors or assigns, the Bank and the Subsidiary shall execute and deliver
or cause to be executed and delivered all such deeds and other instruments, and
shall take or cause to be taken all such further or other actions, as the
Surviving Company, or its successors or assigns, may deem necessary or desirable
in order to vest in and confirm to the Surviving Company, and its successors and
assigns, title to and possession of all the property, rights, trusts, powers,
duties and obligations referred to in Section 5 hereof and otherwise to carry
out the intent and purposes of this Reorganization Plan.
7. REDEMPTION OF HOLDING COMPANY SHARES
------------------------------------
On the Effective Date, the Holding Company shall redeem the 50 shares of
Holding Company Common Stock issued upon its organization for the $250 paid to
the Holding Company for such shares, so that upon consummation of the Merger the
outstanding shares of Holding Company Common Stock shall consist solely of the
shares to be issued by the Holding Company upon the conversion and exchange of
shares of Bank Common Stock.
8. CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGER
--------------------------------------------------
This Plan is subject to, and consummation of the Merger is conditioned
upon, the fulfillment prior to the Effective Date of each of the following
conditions:
(a) Approval of this Plan by the affirmative vote of the holders of at
least two-thirds of the outstanding voting shares of the Bank and at least two-
thirds of the outstanding voting shares of the Subsidiary; and
(b) Procurement of any action, consent, approval or ruling, governmental
or otherwise, including without limitation the approval of the Georgia
Department of Banking and Finance, the Board of Governors of the Federal Reserve
system (or its lawful delegate) and the Federal Deposit Insurance Corporation
which is, or in the opinion of counsel may be, necessary to consummate the
Merger and to permit or enable the Surviving Company, upon and after the Merger,
to conduct all or any part of the business activities being conducted by the
Bank as of the time of the Merger, in the manner in which such activities and
business are then conducted.
9. TERMINATION
-----------
In the event that:
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<PAGE>
(a) The number of shares of capital stock of the Bank voted against the
Merger, or in respect of which written notice is given purporting to dissent
from the Merger, shall make consummation of the Merger unwise in the opinion
of either the Board of Directors of the Bank, the Subsidiary or
the Holding Company; or
(b) Any action, suit, proceeding, or claim has been instituted, made, or
threatened relating to the proposed merger which shall make consummation of the
Merger inadvisable in the opinion of either the Board of Directors of the Bank,
the Subsidiary or the Holding Company; or
(c) Any action, consent, approval, opinion or ruling, governmental or
otherwise, required to be provided by paragraph (b) of Section 8 of this
Reorganization Plan shall not have been obtained; or
(d) For any reason consummation of the Merger is inadvisable in the
opinion of the Board of Directors of either the Bank, the Subsidiary or the
Holding Company, notwithstanding favorable action on the Merger by the
shareholders of either or both Constituent Corporations;
then this Plan may be terminated at any time prior to the issuance of a
certificate of merger by the Secretary of State of Georgia in accordance with
Section 7-1-535(b) of the Financial Institutions Code. Termination shall be by
written notice by either the Bank, the Subsidiary or the Holding Company to the
other parties, authorized or approved by resolution adopted by the Board of
Directors of the party giving the notice. Upon termination by written notice as
provided in this Section 9, this Reorganization Plan shall be void and of no
further effect, and there shall be no liability by reason of this Reorganization
Plan or the termination thereof on the part of either the Bank, the Subsidiary,
the Holding Company, or the directors, officers, employees, agents or
shareholders of any of them.
10. COUNTERPARTS; TITLE; HEADINGS
-----------------------------
This Reorganization Plan may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument. The title of this Plan and the headings
herein set out are for the convenience of reference only and shall not be deemed
a substantive part of this Plan.
11. AMENDMENT; ADDITIONAL AGREEMENTS
--------------------------------
At any time before or after approval and adoption by the respective
shareholders of the Bank and the Subsidiary, this Plan (other than paragraphs
(a) and (b) of Section 4) may be modified, amended or supplemented by additional
agreements, articles or certificates as may be determined in the judgment of the
respective Boards of Directors of the parties hereto to be necessary, desirable
or expedient to further the purposes of this Reorganization Plan, to clarify the
intention of the parties, to add to or modify the covenants, terms or conditions
contained herein or to effectuate or facilitate any governmental approval of the
Merger or this Reorganization Plan, or otherwise to effectuate or facilitate the
consummation of the transactions contemplated hereby; provided, however, that no
such modification, amendment or supplement shall affect the rights of the
shareholders of the Bank in a manner which is materially adverse to such
shareholders in the judgment of the Board of Directors of the Bank.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Plan of Reorganization and
Agreement of Merger to be executed by their duly authorized corporate officers,
all as of the day and year first above written.
GILMER COUNTY BANK
(BANK SEAL)
By: /s/ Tracy R. Newton
--------------------
ATTEST: Tracy R. Newton
President
/s/ Joseph C. Hensley
- -----------------------
Joseph C. Hensley
Assistant Secretary
APPALACHIAN BANCSHARES, INC.
By: /s/ Tracy R. Newton
------------------------------------
ATTEST: Tracy R. Newton
President
/s/ Joseph C. Hensley
- ----------------------
Joseph C. Hensley
Assistant Secretary
GILMER INTERIM, INC.
By: /s/ Tracy R. Newton
-------------------------------------
ATTEST: Tracy R. Newton
President
/s/ Joseph C. Hensley
- ----------------------
Joseph C. Hensley
Assistant Secretary
-19-
<PAGE>
EXHIBIT 11
APPALACHIAN BANCSHARES, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
The following tabulation presents the calculation of primary and fully diluted
earnings per common share for the nine month period ended September 30, 1996 and
1995.
<TABLE>
<CAPTION>
Nine Months Ended September 30
-------------------------------
1996 1995
------------- ----------------
<S> <C> <C>
Reported net income (loss) $413,945 $(269,102)
Earnings (loss) on common shares $413,945 $(269,102)
======== =========
Weighted average common shares outstanding 568,000 568,000
======== =========
Earnings (loss) per common share - primary and fully diluted
Income form continuing operations $ .73 $ (.47)
======== =========
Net income (loss) $ .73 $ (.47)
======== =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 551,018
<INT-BEARING-DEPOSITS> 1,660,726
<FED-FUNDS-SOLD> 1,290,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,108,658
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 671,226
<LOANS> 60,848,115
<ALLOWANCE> (605,978)
<TOTAL-ASSETS> 84,236,685
<DEPOSITS> 73,613,742
<SHORT-TERM> 9,553,930
<LIABILITIES-OTHER> 389,511
<LONG-TERM> 0
0
0
<COMMON> 2,840,000
<OTHER-SE> 2,839,502
<TOTAL-LIABILITIES-AND-EQUITY> 84,236,685
<INTEREST-LOAN> 3,630,804
<INTEREST-INVEST> 697,344
<INTEREST-OTHER> 63,614
<INTEREST-TOTAL> 4,391,762
<INTEREST-DEPOSIT> 2,359,712
<INTEREST-EXPENSE> 2,518,922
<INTEREST-INCOME-NET> 1,872,840
<LOAN-LOSSES> 293,000
<SECURITIES-GAINS> 9,719
<EXPENSE-OTHER> 390,101
<INCOME-PRETAX> 570,869
<INCOME-PRE-EXTRAORDINARY> (156,924)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 413,945
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
<YIELD-ACTUAL> 9.24
<LOANS-NON> 56,035
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (324,599)
<CHARGE-OFFS> 12,124
<RECOVERIES> 0
<ALLOWANCE-CLOSE> (605,978)
<ALLOWANCE-DOMESTIC> (605,978)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> (605,978)
</TABLE>
