U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
Commission File Number: 333-20399
PINNACLE BANKSHARES CORPORATION
(Exact name of small business issuer as specified in its charter)
VIRGINIA 54-1832714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 29
Altavista, Virginia 24517
(Address of principal executive offices)
(804) 369-3000
(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 Exchange Act 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
At April 8, 1997, 239,675 shares of The First National Bank of Altavista's
common stock, $2 par value, were outstanding.
Transitional small business disclosure format: Yes No x .
<PAGE>
PINNACLE BANKSHARES CORPORATION
FORM 10-QSB
MARCH 31, 1997
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 1997
and December 31, 1996 3
Statements of Income for the periods ended
March 31, 1997 and 1996 4
Statements of Cash Flows for the periods ended
March 31, 1997 and 1996 5
Notes to Financial Statements 6-7
Item 2. Management's Discussion and Analysis or Plan
of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PINNACLE BANKSHARES CORPORATION
BALANCE SHEETS
(Unaudited)
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
==========================================================================================================================
<S> <C>
ASSETS March 31, 1997 December 31, 1996
Cash and cash equivalents: (note 2)
Cash and due from banks $2,677 $3,159
Federal funds sold 3,773 2,585
-------- --------
Total cash and cash equivalents 6,450 5,744
Securities (note 3):
Available-for-sale, at fair value 22,819 23,861
Held-to-maturity, at amortized cost 11,335 11,905
Federal Reserve Bank stock, at cost 75 75
Federal Home Loan Bank Stock, at cost 409 403
Loans, net (note 4) 82,067 79,842
Bank premises and equipment, net 1,313 1,216
Other real estate owned 155 156
Accrued income receivable 958 1,066
Other assets 711 683
-------- --------
Total assets $126,292 $124,951
=========================================================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand 9,775 9,830
Savings and NOW accounts 37,991 36,322
Time 64,476 65,052
-------- --------
Total deposits 112,242 111,204
Accrued interest payable 605 537
Other liabilities 597 553
-------- --------
Total liabilities 113,444 112,294
-------- --------
Stockholders' equity:
Common stock, $2 par value. Authorized 350,000 shares,
issued and outstanding 239,675 shares in 1997 and 1996 479 479
Capital surplus 2,016 2,016
Retained earnings 10,501 10,174
Unrealized gains(losses) on available-for-sale securities,
net of deferred tax expense (benefit) (148) (12)
-------- --------
Total stockholders' equity 12,848 12,657
Total liabilities and stockholders' equity $126,292 $124,951
==========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
PINNACLE BANKSHARES CORPORATION
STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands of dollars, except for per share amounts)
<TABLE>
<CAPTION>
==============================================================================================================
For the Period For the Period
January 1, 1997 January 1, 1996
Through Through
March 31, 1997 March 31, 1996
-------------- ---------------
<S> <C>
Interest Income:
Interest and fees on loans $1,871 1,747
Interest on securities:
U.S. Treasury 65 47
U.S. Government agencies 296 322
Corporate 14 11
States and political subdivisions (tax exempt) 165 167
Other 12
Interest on federal funds sold 30 50
----------------------------
Total interest income 2,453 2,344
----------------------------
Interest expense:
Interest on deposits:
Savings and NOW accounts 276 280
Time - other 774 764
Time - $100,000 and over 138 149
----------------------------
Total interest expense 1,188 1,193
----------------------------
Net interest income 1,265 1,151
Provision for loan losses 60 45
----------------------------
Net interest income after provision for loan losses 1,205 1,106
Noninterest income:
Service charges on deposit accounts 61 58
Net gain(loss) on calls and sales of securities 4 12
Other operating income 47 32
----------------------------
Total noninterest income 112 102
----------------------------
Noninterest expense:
Salaries and employee benefits 408 379
Occupancy expense 24 24
Furniture and equipment 79 71
FDIC assessment 5 10
Other operating expenses 190 177
----------------------------
Total noninterest expense 706 661
Income before income tax expense 611 547
----------------------------
Income tax expense 169 147
----------------------------
Net income $442 $400
========================================================================================================
Net income per share (note 5) $1.84 $1.67
========================================================================================================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
PINNACLE BANKSHARES CORPORATION
STATEMENTS ON CASH FLOWS
(Unaudited)
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
===========================================================================================================
For the Period For the Period
January 1, 1997 January 1, 1996
Through Through
March 31, 1997 March 31, 1996
-------------- ---------------
<S> <C>
Cash flows from operating activities:
Net income $442 $400
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of bank premises and equipment 53 49
Amortization of core deposit premium 4 5
Amortization of net unearned fees (26) (27)
Net amortization (accretion) of premiums and
discounts on securities 2 (9)
Provision for loan losses 60 45
Provision for deferred income taxes 24 0
Net (gain) loss on calls and sales of securities (4) (12)
Net (increase) decrease in:
Accrued income receivable 108 9
Other assets (44) 58
Net increase (decrease) in:
Accrued interest payalbe 68 118
Other liabilities 44 77
----------------------------
Net cash provided by operating activities 731 713
======================================================================================================
Cash flows from investing activities:
Purchases of held-to-maturity securities 0 (984)
Purchases of available-for-sale securities (217) (4,441)
Proceeds from maturities and calls of held-to-maturity securities 570 1,402
Proceeds from sale, maturities and calls of available-for-sale
securities 1,053 2,535
Purchase of Federal Home Loan Bank stock (6) 0
Net increase in loans (2,237) (156)
Recoveries on loans charged off 38 33
Purchases of bank premises and equipment (150) (82)
Rent payments on other real estate owned 1 1
----------------------------
Net cash used in investing activities (948) (1,692)
======================================================================================================
Cash flows from financing activites:
Net increase in demand, savings and NOW deposits 1,614 283
Net increase (decrease) in time deposits (576) 1,318
Dividends paid (115) (101)
----------------------------
Net cash provided by financing activities 923 1,500
======================================================================================================
Net increase in cash and cash equivalents 706 521
Cash and cash equivalents, beginning of year 5,744 6,165
----------------------------
Cash and cash equivalents, end of year $6,450 $6,686
======================================================================================================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
PINNACLE BANKSHARES CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
Organization and Summary of Significant Accounting Policies
(1) GENERAL
Pinnacle Bankshares Corporation, a Virginia Corporation (the
"Company"), was incorporated under the laws of the Commonwealth of Virginia on
January 22, 1997, primarily to serve as a holding company for The First National
Bank of Altavista (the "Bank"). All requisite regulatory approvals and the
satisfaction of all other conditions to the Reorganization have been completed.
The Reorganization was effective on May 1, 1997. The financial statements
reflect the financial position, results of operations, and cash flows of the
Bank, as the formation of the holding company was consummated after the end of
the quarter ending March 31, 1997. For further discussion of the holding company
formation, the reader is directed to refer to the Company's Form S-4
Registration Statement (333-20399) filed January 30, 1997, as amended.
The financial statements conform to generally accepted accounting
principles and to general banking industry practices. The interim period
financial statements are unaudited; however, in the opinion of management, all
adjustments of a normal recurring nature which are necessary for a fair
presentation of the financial statements included herein have been reflected in
the financial statements. The results of operations for the interim periods are
not necessarily indicative of the results to be expected for the full year.
(2) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents
include cash and due from banks, interest-bearing deposits, and federal funds
sold.
(3) SECURITIES
The amortized costs, gross unrealized gains, gross unrealized
losses, and fair values for securities at March 31, 1997, are shown in the table
below. As of March 31, 1997, securities with amortized costs of $3,239 and fair
values of $3,240 were pledged as collateral for public deposits.
6
<PAGE>
(3) (CONTINUED)
Gross Gross
Amortized Unrealized Unrealized Fair
Available-for-Sale: Costs Gains Losses Values
--------------------------------------------------------------------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 11,336 31 (217) 11,150
Obligations of states and
political subdivisions 3,953 84 ( 30) 4,007
Mortgage-backed securities-
Government 6,878 42 (139) 6,781
Other securities 10 - - 107
Corporate securities 771 3 - 774
--------------------------------------------------------------------
TOTALS $ 23,045 160 (386) 22,819
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Held-to-Maturity: Costs Gains Losses Values
--------------------------------------------------------------------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 3,637 4 ( 24) 3,617
Obligations of states and
political subdivisions 7,682 66 ( 57) 7,691
Mortgage-backed securities-
Private 16 - - 16
--------------------------------------------------------------------
TOTALS $ 11,335 70 ( 81) 11,324
--------------------------------------------------------------------
(4) ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
Balance at January 1, 1997 $674
Provision for loan losses 60
Loans charged off (84)
Recoveries 38
----
Balance at March 31, 1997 $688
====
(5) NET INCOME PER SHARE
Net income per share is based upon the weighted average number of
common stock shares outstanding during the period. Shares outstanding during the
period were 239,675.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(Amounts in 000's)
On April 8, 1997, the shareholders approved an Agreement and Plan of
Reorganization, dated January 22, 1997, as amended (the Agreement), relating to
the formation of a bank holding company structure with Pinnacle Bankshares
Corporation (hereinafter referred to as "the Company") serving as the holding
company of the Bank. This transaction was consummated on May 1, 1997,
accordingly, financial information for the period ended March 31, 1997,
contained herein, only reflects the operations of the Bank. For further
discussion on the holding company formation, the reader is directed to refer to
the Company's Form S-4 Registration Statement (333-20399) filed January 30, 1997
and Item 5 herein below. The Company is disclosing the consummation of the
transaction in this form 10-QSB in lieu of filing a Form 8K.
Total assets at March 31, 1997 were $126,292, up 1.07% from $124,951
at December 31, 1996, reflecting growth in loans. The principal components of
the Bank's assets at the end of the period were $34,154 in securities and
$82,067 in net loans. During the three month period, gross loans increased 2.75%
or $2,226. The Bank's lending activities are a principal source of income. Bank
premises and equipment grew 7.04%, basically due to contracts-in-progress,
related to construction of an addition to the main office facility.
Total liabilities at March 31, 1997 were $113,444, up from $112,294
at December 31, 1996, with the increase almost entirely represented by $1,038 or
.93% growth in deposits. Non-interest bearing demand deposits decreased $55 or
.56% and represented 8.71% of total deposits. The Bank's deposits are provided
by individuals and businesses located within the communities served.
Total shareholders' equity at March 31, 1997 was $12,848 consisting
of $10,501 in retained earnings, reduced by $148 of unrealized losses on
securities available-for-sale, net of the related deferred tax benefit. At
December 31, 1996, total shareholder's equity was $12,657.
The Bank had net income of $442 for the three months ended March 31,
1997, compared with net income of $400 for the comparable period in 1996, an
increase of 10.50%. The results of operations for the three month periods ended
March 31, 1997 and 1996 are not necessarily indicative of the results to be
expected for the full year.
Profitability as measured by the Bank's return on average assets
(ROA) was 1.42% for the first quarter of 1997, up from 1.34% for the same period
of 1996. Another key indicator of performance, the return on average equity
(ROE) for March 31, 1997 was 14.34%, compared to 14.30% for March 31, 1996.
8
<PAGE>
Net interest income represents the principal source of earnings for
the Bank. Changes in the volume and mix of earning assets and interest-bearing
liabilities, as well as their respective yields and rates, have a significant
impact on the level of net interest income.
The net interest margin increased from 4.27% for the three months
ending March 31, 1996, to 4.48% for the three months ending March 31, 1997. Net
interest income was $1,265 for the three months ended March 31, 1997 and is
attributable to interest income from loans and securities exceeding the cost
associated with interest paid on deposits. The Bank benefitted from lower
interest expense due to certain deposits repricing at lower rates.
The Bank's principal sources of non-interest income are service
charges and fees on deposits accounts, particularly transaction accounts and
fees from loans. Non-interest income increased $10 or 9.80% in the first quarter
of 1997 over the first quarter of 1996. The majority of this increase is
attributed to income generated from loan fees and commissions on credit
insurance.
Non-interest expense increased $45 or 7.65%, in the first quarter of
1997 over the first quarter of 1996. The increase in non-interest expense when
comparing the two periods is attributed to overall growth of the Bank and
expenses connected with repossessed vehicles.
A provision for loan losses of $60 was provided in recognition of
management's estimate of risks inherent with lending activities. Among other
factors, management considers the Bank's historical loss experience, the size
and composition of the loan portfolio, the value and adequacy of collateral and
guarantors, non-performing credits, and current and anticipated economic
conditions. There are additional risks of future loan losses which cannot be
precisely quantified or attributed to particular loans or classes of loans.
Since those risks include general economic trends as well as conditions
affecting individual borrowers, the allowance for loan losses is an estimate.
The allowance is also subject to regulatory examinations and determination as to
adequacy, which may take into account such factors as the methodology used to
calculate the allowance. The allowance for loan losses was $688 as of March 31,
1997, and represents approximately .83% of gross loans outstanding. Management
believes the allowance is adequate as of March 31, 1997. Management evaluates
the reasonableness of the allowance for loan losses on a quarterly basis and
adjusts the provision as deemed necessary.
Total nonperforming assets, which consist of nonaccrual loans, were
$80 at March 31, 1997 and December 31, 1996. Management believes losses, if any,
will be minimal. Loans are generally placed in nonaccrual status when the
collection of principal and interest is 90 days or more past due, unless the
obligation is both well-secured and in the process of collection.
9
<PAGE>
Liquidity represents an institution's ability to meet present and
future financial obligations through either the sale or maturity of existing
assets or the acquisition of additional funds from alternative funding sources.
Liquid assets include cash, interest bearing deposits with banks, federal funds
sold, investments and loans maturing within one year. The Bank's ability to
obtain deposits and purchase funds at favorable rates determines its liquidity.
As a result of the Bank's management of liquid assets and the ability to
generate liquidity through alternative funding sources, management believes that
the bank maintains overall liquidity which is sufficient to satisfy its
depositors' requirements and to meet customers' credit needs. At March 31, 1997,
cash, securities classified as available for sale and federal funds sold were
24.07% of total earning assets compared to 24.71% at December 31,1996. Liquidity
is also provided by managing the investment maturities. Additional sources of
liquidity available to the Bank include its capacity to borrow additional funds
through correspondent banks.
The Bank's financial position at March 31, 1997 reflects liquidity
and capital levels currently adequate to fund anticipated future business
expansion. Capital ratios are well in excess of required regulatory minimums for
a well-capitalized institution. The assessment of capital adequacy depends on a
number of factors such as asset quality, liquidity, earnings performance, and
changing competitive conditions and economic forces. The adequacy of the
Company's capital is reviewed by management on an ongoing basis. Management
seeks to maintain a capital structure that will assure an adequate level of
capital to support anticipated asset growth and to absorb potential losses.
Shareholders' equity reached $12,848 at the end of the first quarter
of 1997 compared to $12,657 at December 31, 1996. The leverage ratio consists of
Tier I capital divided by quarterly average assets. At March 31, 1997, the
Bank's leverage ratio was 10.32% compared to 10.14% at December 31, 1996. Each
of these exceeds the required minimum leverage ratio of 3%.
The effect of changing prices on financial institutions is typically
different from other industries as the Bank's assets and liabilities are
monetary in nature. Interest rates are significantly impacted by inflation, but
neither the timing nor the magnitude of the changes are directly related to
price level indices. Impacts of inflation on interest rates, loan demand, and
deposits are reflected in the financial statements.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Bank is
a party or of which the property of the Bank is subject.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The First National Bank of Altavista Annual Shareholders Meeting was
held on April 8, 1997.
(a) The following Directors were elected to the Board of Directors
for a period of one year:
Alvah P. Bohannon, III R.B. Hancock, Jr.
John P. Erb James P. Kent, Jr.
Robert L. Finch Percy O. Moore
Robert H. Gilliam, Jr. Herman P. Rogers, Jr.
Carroll E. Shelton Kenneth S. Tyler, Jr.
John L. Waller
(b) Approval was given for the formation of a bank holding company,
of which the Bank will be a wholly owned subsidiary. The approval of the
Agreement (as defined in Part I, Item 2) served to elect each of the directors
listed in (a) above as directors of the Company upon the effective date of the
transaction. The directors will be divided into three classes as set forth in
the proxy materials attached hereto as Exhibit 20.
ITEM 5 - OTHER INFORMATION: ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to the instructions set forth in Item 5 of this form, and
in lieu of filing a Form 8-K Current Report, the Registrant discloses
hereinbelow an "Acquisition or Disposition of Assets" required to be disclosed
currently pursuant to Item 2 of Form 8-K.
Pursuant to an Agreement and Plan of Reorganization (the
"Agreement") dated as of January 22, 1997, as amended, Pinnacle Bankshares
Corporation, a bank holding company organized under the laws of Virginia (the
"Holding Company"), acquired, effective May 1, 1997, all of the issued and
outstanding capital stock of The First National Bank of Altavista, a national
banking association headquartered in Altavista, Virginia (the "Bank"). The
purpose of the Agreement was to create a bank holding company structure for the
Bank. The reorganization of the Bank (the "Reorganization") was accomplished
through the merger of the Bank with and into Pinnacle Bank, N.A., an interim
national banking association and wholly-owned subsidiary of the Holding Company.
11
<PAGE>
The Holding Company did not engage in any business activity prior to
the May 1, 1997, effective date of the Reorganization, and its only significant
asset at the present time is its investment in the bank resulting from the
Reorganization (the "Continuing Bank"). On the effective date, the Continuing
Bank changed its name to The First National Bank of Altavista.
The operations of the Continuing Bank will continue in substantially
the same manner as conducted by the Bank immediately prior to the
Reorganization. All eleven directors of the Bank were appointed as of the
consummation as the directors of the Holding company, and the Board of Directors
of the Bank automatically became directors of the Continuing Bank, and the
officers and employees of the Bank assumed corresponding positions with the
Continuing Bank.
On the effective date of the Reorganization, each share of common
stock of the Bank, par value $2.00 per share, was converted into three (3)
shares of common stock of the Holding Company, par value $3.00 per share. In
order to effect the Reorganization, the Holding Company issued approximately
719,025 shares of its common stock.
The shares of common stock issued by the Holding Company to
shareholders of the Bank in the Reorganization were registered pursuant to a
registration statement on Form S-4EF (No. 333-20399) filed by the Holding
Company with the Securities and Exchange Commission ("Commission") on January
24, 1997 (the "Registration Statement"), and the registration became
automatically effective under General Instruction G of Form S-4EF on the
twentieth day after the date of filing. The prospectus/proxy statement ("Proxy
Statement") contained in the Registration Statement and used in connection with
the Annual Meeting contains a more complete description of the Business of the
Bank and the Holding Company, as well as the terms of the Reorganization. Such
Proxy Statement in the form mailed to shareholders of the Bank is attached
hereto as Exhibit 20 (with the Agreement filed herewith separately as Exhibit
2).
Financial Statements. The Reorganization met all of the conditions
set forth in Staff Accounting Bulletin No. 50 "Financial Statement Requirements
in Filings Involving the Formation of a One Bank Holding Company". Therefore,
the Holding Company omitted from inclusion in the Proxy Statement the financial
statements of the Bank and the information required by Guide 3 of the Industry
Guides promulgated under the Securities Act of 1933. However, the audited
financial statements of the Bank for the two years ended December 31, 1996,
prepared in conformity with generally accepted accounting principles, as
contained in the 1996 Annual Report to Shareholders of the Bank, which was
furnished to shareholders along with the Proxy Statement, were included as
Exhibit 13 with the Registration Statement and are incorporated herein by
reference.
12
<PAGE>
In addition, the pro forma financial information is incorporated by
reference to pages 18-19 of the Proxy Statement as included in the Registration
Statement.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Pursuant to the requirements of Item 7 of Form 8-K, the
registrant includes herewith the following exhibits.
Exhibit No. Item
----------- ----
2 Agreement and Plan of Reorganization, dated as of
January 22, 1997, as amended, by and among The First
National Bank of Altavista, Pinnacle Bankshares
Corporation and Pinnacle Bank, N.A.
20 A copy of the Prospectus/Proxy Statement of The First
National Bank of Altavista (Exhibit A set forth as
Exhibit 2 above).
27 Financial Data Schedule
99.1 Financial Statements contained in the 1996 Annual
Report to Shareholders of The First National Bank of
Altavista, incorporated by reference to Exhibit 13
of the Registration Statement.
(b) Reports on Form 8-K
The Company in lieu of filing a Form 8-K related to the
consummation of the holding company on May 1, 1997, has reported the transaction
herein under Item 5.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
PINNACLE BANKSHARES CORPORATION
MAY 6, 1997 /s/ Robert H. Gilliam, Jr.
- -------------------- ---------------------------
Date Robert H. Gilliam Jr., President and
Chief Executive Officer
MAY 6, 1997 /s/ Dawn P. Crusinberry
- -------------------- ------------------------------------
Date Dawn P. Crusinberry, Secretary,
Treasurer and Chief Financial Officer
14
EXHIBIT 2
AMENDED
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AGREEMENT AND PLAN OF REORGANIZATION is made and entered
into as of January 22, 1997, by and among Pinnacle Bankshares Corporation, a
proposed bank holding company organized under the laws of Virginia, with its
principal office in Altavista, Virginia (the "Holding Company"), The First
National Bank of Altavista, a national banking corporation organized under the
laws of the United States of America, with its Main Office in Altavista,
Virginia (the "Bank") and Pinnacle Bank, N.A., an interim national bank being
organized under the laws of the United States of America, with its Main Office
in Altavista, Virginia, established for the purpose of effectuating the
reorganization of the Bank under a bank holding company structure (the
"Receiving Bank"). The Holding Company, the Bank and the Receiving Bank shall be
collectively referred to as the "Constituent Corporations."
WITNESSETH:
WHEREAS, the Constituent Corporation originally entered into the
Agreement and Plan of Reorganization as of January 22, 1997, and each
Constituent Corporation desires to amend and restate such original agreement in
order to comply with the requirements of the Office of Comptroller of the
Currency (the "OCC").
WHEREAS, the original agreement as amended and restated herein shall
be referred to herein as the "Agreement".
WHEREAS, the respective boards of directors of the Constituent
Corporations consider the merger of the Bank into the Receiving Bank, so that
the Bank will become and be a wholly-owned subsidiary of the Holding Company
(the "Merger"), to be in the respective best interests of the Constituent
Corporations and their shareholders. To that end, each such board has approved
this Agreement, as such shall or may be amended hereinafter in accordance
herewith.
WHEREAS, the Holding Company has initiated steps to establish the
Receiving Bank by making application to the OCC.
WHEREAS, the Bank has total capital of $12,657,000, comprised of
239,675 shares of common stock, par value $2.00 per share, with $479,000 in its
stated capital account, paid-in surplus of $2,016,000, undivided profits,
including capital reserves, of $10,174,000, and unrealized losses on securities
available for sale of $12,000 as of December 31, 1996, and the Receiving Bank,
which is an interim national bank in the process of formation, and which prior
to the Effective Date will have total capital of $120,000, comprised of 50,000
shares of common stock, par value $2.00 per share, with $100,000 in its stated
capital account and paid-in surplus of $20,000, each acting pursuant to a
resolution of its board of directors, adopted by the vote of a majority of its
directors, pursuant to the authority given by and in accordance with the
provisions of the Act of November 7, 1918, as amended (12 U.S.C. 215(a)),
witnessed as follows:
<PAGE>
NOW THEREFORE, in consideration of the mutual agreements set forth
herein, the Constituent Corporations agree as follows:
1. THE MERGER. At the Effective Date of the Merger (as hereinafter
defined), the Bank shall be merged with and into the Receiving Bank, which shall
be the surviving or continuing corporation, under the Articles of Association of
the Receiving Bank. The Merger shall be pursuant to the provisions of 12 U.S.C.
Section 215a and with the effect specified in that section.
2. NAME; ARTICLES OF ASSOCIATION; BYLAWS; OFFICES. At the Effective
Date, the name of the Receiving Bank (herein referred to as the "Continuing
Bank" whenever reference is made to it as of the Effective Date or thereafter)
shall be changed to The First National Bank of Altavista, and the Articles of
Association and Bylaws of the Receiving Bank shall become and be the Articles of
Association and Bylaws of the Continuing Bank. As of the Effective Date, the
Articles of Incorporation of the Holding Company shall be amended and restated
in substantially the form attached as Appendix I hereto. The main office and
branches of the Bank immediately prior to the Merger shall become the main
office and branches of the Continuing Bank
3. CONVERSION OF SHARES. Upon, and by reason of, the Merger becoming
effective pursuant to the issuance of a merger approval, or other corresponding
order, by the OCC (the "Effective Date"), no cash shall be allocated to the
shareholders of the Bank, and stock shall be issued and allocated as follows:
Each of the issued and outstanding shares of common stock of
the Bank ("Bank Common Stock") shall be automatically exchanged for three shares
of common stock of the Holding Company ("Holding Company Common Stock").
Outstanding certificates representing shares of Bank Common Stock will
thereafter represent an equivalent number of shares of Holding Company Common
Stock after multiplying by a factor of three (the "Exchange Ratio"). As soon a
practicable thereafter, the Holding Company will issue new stock certificates
representing Holding Company Common Stock received in the Merger adjusted in
accordance with the Exchange Ratio. Each holder of Bank Common Stock, upon the
surrender of his Bank stock certificates to the Holding Company duly endorsed
for transfer, will be entitled to receive in exchange therefor a certificate or
certificates representing the Exchange Ratio adjusted shares of Holding Company
Common Stock, but shareholders will not be required to surrender their Bank
stock certificates.
4. CAPITAL, ASSETS AND LIABILITIES OF THE BANK AND RECEIVING BANK.
(a) Prior to the Effective Date, the Holding Company shall have
acquired 50,000 shares of Receiving Bank Common Stock, par value $2.00 per
share, for $120,000, such that the Receiving Bank's stated capital account shall
be $100,000 with paid-in surplus of $20,000. The Holding Company shall arrange
to draw upon a line of credit provided by one of the Bank's correspondent banks
at the then current market rate in order to capitalize the Receiving Bank. The
Holding Company shall not draw upon the line of credit until five business days
before the Effective Date. Such initial capital of the Receiving Bank shall not
<PAGE>
be retained in the Continuing Bank subject to the effectiveness of the Merger as
set forth in 4(b) below. Such line of credit borrowings will be repaid
immediately after the Effective Date of the Merger from funds provided by a
special dividend from the Continuing Bank to the Holding Company as set forth in
4(b) immediately below.
(b) At the Effective Date, by virtue of and simultaneous
with the Merger and without any action on the part of the Constituent
Corporations, each share of the Bank Common Stock issued and outstanding
immediately prior to the Effective Date and received by the Holding Company as
set forth above in Section 3 above shall be converted into one share of
Continuing Bank Common Stock. In addition, simultaneous with the effectiveness
of this conversion of Bank Common Stock into Continuing Bank Common Stock, the
Continuing Bank shall pay a special dividend to the Holding Company in the
amount of $120,000, representing the original consideration paid by the Holding
Company for the 50,000 shares of Receiving Bank Common Stock and, in turn, the
Holding Company shall cancel the certificates representing such previously
outstanding shares. By virtue of the Bank's merger into the Continuing Bank, the
Continuing Bank's capital structure shall be identical to that of the Bank
immediately prior to the Effective Date, such that the Continuing Bank's capital
shall be as follows: 239,675 shares of Common Stock, par value $2.00 per share,
issued and outstanding for total stated capital of $479,000, paid-in surplus of
$2,016,000, and undivided profits, including capital reserves, of $10,174,000,
and unrealized losses on securities available for sale of $12,000; adjusted
however, for normal earnings and expenses (and if applicable, purchase
accounting adjustments) between December 31, 1996, and the Effective Date of the
Merger.
(c) All assets of the Bank as they exist at the Effective Date of
the Merger shall pass to and vest in the Continuing Bank without any
conveyance or other transfer. Thus, at the Effective Date, the Continuing Bank
shall have on hand identical assets as reflected in the Bank's latest audited
financial reports as of December 31, 1996, as adjusted, however, for normal
earnings, expenses and other operations in the normal course between December
31, 1996, and the Effective Date. In addition, all of the liabilities of every
kind and description of the Bank existing as of the Effective Date shall pass
to, vest in and be assumed by the Continuing Bank without any conveyance or
other transfer thereof. The President and Cashier and such additional officers
as the board of directors of each bank at the time of the Merger shall have
satisfied themselves that the statement of condition of each bank as of the
Effective Date fairly presents its financial condition and since such date there
has been no material adverse change in the financial condition or business of
either bank.
5. BOARD OF DIRECTORS; OFFICERS. (a) At the Effective Date, the boards
of directors of the Bank and the Holding Company shall continue to serve as the
directors of the Continuing Bank and the Holding Company, respectively, except
as otherwise determined in the discretion of the Boards prior to the Effective
Date, until the next annual meeting or until such time as their successors have
been elected and qualified.
(b) At the Effective Date, the respective officers of the
Continuing Bank and the Holding Company shall continue to serve in their then
current positions until such time as their successors have been elected or
appointed.
<PAGE>
6. RIGHTS OF DISSENTING SHAREHOLDERS. Shareholders of the Bank who
dissent from the Merger will [ ] be entitled to the dissenters' rights and
remedies set forth in the provisions of 12 U.S.C Section 215a.
7. CONDITIONS TO THE MERGER. Consummation of the Merger is conditioned
upon (i) the approval of this Agreement, which shall include any subsequent
amendments authorized hereinbelow, by the affirmative vote of the shareholders
owning more than two-thirds of the outstanding shares of common stock of the
Bank and the Receiving Bank, respectively, at meetings to be held on the call of
their respective boards of directors, (ii) the receipt of the required
regulatory approvals, (iii) the receipt of an opinion of counsel as to the
tax-free nature of the transaction, and (iv) such amendments or modifications to
this Agreement as may be requested or required by the OCC or any other
regulatory agency for the transactions contemplated herein to be accomplished,
as approved by the boards of directors of the Constituent Corporations. Upon the
satisfaction of the foregoing conditions, the Merger shall become effective at
the time specified in a Certificate of Merger to be issued by the Comptroller of
the Currency approving the Merger.
8. TERMINATION. This Agreement may be terminated by the unilateral
action of either of the boards of directors of the Receiving Bank or the Bank
prior to the approval of the Agreement by the shareholders of such party or by
the mutual consent of the respective boards of directors of the Receiving Bank
and the Bank after any shareholder group has taken the requisite affirmative
action. Upon termination for any reason, this Agreement shall be void and of no
further effect, and there shall be no liability by reason of this Agreement or
the termination thereof on the part of the Bank, the Receiving Bank or the
Holding Company or any of their directors, officers, employees, agents or
shareholders.
WITNESS, the following signatures and seals for the parties, each
hereunto set by its President and attested by its Cashier or Secretary, pursuant
to duly authorized resolutions of its Board of Directors.
ATTEST: PINNACLE BANKSHARES CORPORATION
(in formation)
/s/ Dawn P. Crusinberry By: /s/ Robert H. Gilliam, Jr.
- ------------------------------- --------------------------
Secretary Robert H. Gilliam, Jr.
Pinnacle Bankshares Corporation President and Chief Executive Officer
(Company Seal)
4
<PAGE>
ATTEST: THE FIRST NATIONAL BANK OF ALTAVISTA
/s/ Dawn P. Crusinberry By: /s/ Robert H. Gilliam, Jr.
- ------------------------------------ --------------------------
Cashier Robert H. Gilliam, Jr.
The First National Bank of Altavista President
(Bank Seal)
ATTEST: PINNACLE BANK, N.A.
(in formation)
/s/ Dawn P. Crusinberry By: /s/ Robert H. Gilliam, Jr.
- ----------------------- --------------------------
Cashier Robert H. Gilliam, Jr.
Pinnacle Bank, N.A. President
(Bank Seal)
5
<PAGE>
APPENDIX I
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PINNACLE BANKSHARES CORPORATION
I. NAME
The name of the Corporation is Pinnacle Bankshares Corporation.
II. PURPOSE
The purpose for which the Corporation is organized is to act as a bank
holding company and to transact any and all lawful business, not required to be
specifically stated in the Articles of Incorporation, for which corporations may
be incorporated under the Virginia Stock Corporation Act.
III. CAPITAL STOCK
Section 1. The Corporation shall have authority to issue three
million (3,000,000) shares of Common Stock, par value $3.00 per share.
Section 2. Subject to the provisions of law, the holders of Common
Stock at the time outstanding shall be entitled to receive such dividends at
such times and in much amounts as the Board of Directors may deem advisable.
Section 3. In the event of any liquidation, dissolution or winding up
(whether voluntary or involuntary) of the Corporation, after the payment or
provision for payment in full for all debts and other liabilities of the
Corporation, the remaining net assets of the Corporation shall be distributed
ratably among the holders of the shares at the time outstanding of Common Stock.
Section 4. The holders of Common Stock shall be entitled to one vote
per share on all matters as to which a stockholder vote is taken.
I-1
<PAGE>
IV. NO PREEMPTIVE RIGHTS
No holder of capital stock of the corporation of any class shall have
any preemptive right to subscribe to or purchase (i) any shares of capital stock
of the Corporation, (ii) any securities convertible into such shares or (iii)
any options, warrants or rights to purchase such shares or securities
convertible into any such shares.
V. DIRECTORS
Section 1. The Board of Directors shall consist of a minimum of
three (3) and a maximum of fifteen (15) individuals, and the number of
directors may be fixed or changed from time to time within such range by the
Board of Directors.
Section 2. The Board of Directors shall be divided into three classes,
Class I, Class II, and Class III as nearly equal in number as possible.
Directors of the first class (Class I) shall be elected to hold office for a
term expiring at the 1998 annual meeting of the shareholders; directors of the
second class (Class II) shall be elected for a term expiring at the 1999 annual
meeting of the shareholders, and directors of the third class (Class III) shall
be elected to hold office for a term expiring at the 2000 annual meeting of
shareholders. The successors to the class of directors whose terms expire shall
be identified as being of the same class as the directors they succeed and
elected to hold office for a term expiring at the third succeeding annual
meeting of shareholders. When the number of directors is changed, any newly
created directorships or any decrease in directorships shall be apportioned
among the classes by the Board of Directors as to make all classes as nearly
equal as possible.
Section 3. Directors of the Corporation may be removed only for cause
and with the affirmative vote of at least two-thirds of the outstanding
shares entitled to vote.
Section 4. If the office of any director shall become vacant, the
directors at the time in office, whether or not a quorum, may, by majority
vote of the directors then in office, choose a successor who shall hold office
until the next annual meeting of stockholders. In such event, the successor
elected by the stockholders at that annual meeting shall hold office for a term
that shall coincide with the remaining term of the class of directors to which
that person has been elected. Vacancies resulting from the increase in the
number of directors shall be filled in the same manner.
I-2
<PAGE>
VI. SHAREHOLDER APPROVAL OF CERTAIN TRANSACTIONS
Any amendment of the Corporation's Articles of Incorporation, a plan
of merger or exchange, a transaction involving the sale of all or substantially
all the Corporation's assets other than in the regular course of business and a
plan of dissolution shall be approved by the vote of a majority of all the votes
entitled to be cast on such transactions by each voting group entitled to vote
on the transaction at a meeting at which a quorum of the voting group is
present, provided that the transaction has been approved and recommended by at
least two-thirds of the directors in office at the time of such approval and
recommendation. If the transaction is not so approved and recommended, then the
transaction shall be approved by the vote of eighty percent (80%) or more of all
votes entitled to be cast on such transactions by each voting group entitled to
vote on the transaction.
VII. LIMIT ON LIABILITY AND INDEMNIFICATION
Section 1. To the full extent that the Virginia Stock Corporation
Act, as it exists on the date hereof or may hereafter be amended, permits
the limitation or elimination of the liability of directors or officers, a
director or officer of the Corporation shall not be liable to the Corporation or
its shareholders for monetary damages.
Section 2. To the full extent permitted and in the manner prescribed
by the Virginia Stock Corporation Act, the Corporation shall indemnify each
director or officer of the Corporation against liabilities, fines, penalties and
claims imposed upon or asserted against him (including amounts paid in
settlement) by reason of having been such director or officer, whether or not
then continuing so to be, and against all expenses (including counsel fees)
reasonably incurred by him in connection therewith, except in relation to
matters as to which he shall have been finally adjudged liable by reason of his
willful misconduct or a knowing violation of criminal law in the performance of
his duty as such director or officer. The Board of Directors is hereby
empowered, by majority vote of a quorum of disinterested directors, to contract
in advance to indemnify any director or officer.
Section 3. The Board of Directors is hereby empowered, by majority
vote of a quorum of disinterested directors, to cause the Corporation to
indemnify or contract in advance to indemnify any person not specified in
Section 2 of this Article against liabilities, fines, penalties and claims
imposed upon or asserted against him (including amounts paid in settlement) by
reason of having been an employee, agent or consultant of the Corporation,
whether or not then continuing so to be, and against all expenses (including
counsel fees) reasonably incurred by him in connection therewith, to the same
extent as if such person were specified as one to whom indemnification is
granted in Section 2.
Section 4. The Corporation may purchase and maintain insurance to
indemnify it against the whole or any portion of the liability assumed by it in
accordance with this Article and may also procure insurance, in such amounts as
the Board of Directors may determine, on behalf of any person who is or was a
I-3
<PAGE>
director, officer, employee, agent or consultant of the Corporation against any
liability asserted against or incurred by any such person in any such capacity
or arising from his status as such, whether or not the Corporation would have
power to indemnify him against such liability under the provisions of this
Article.
Section 5. In the event there has been a change in the composition of
a majority of the Board of Directors after the date of the alleged act or
omission with respect to which indemnification is claimed, any determination as
to indemnification and advancement of expenses with respect to any claim for
indemnification made pursuant to Sections 2 or 3 of this Article VI shall be
made by special legal counsel agreed upon by the Board of Directors and the
proposed indemnitee. If the Board of Directors and the proposed indemnitee are
unable to agree upon such special legal counsel, the Board of Directors and the
proposed indemnitee each shall select a nominee, and the nominees shall select
such special legal counsel.
Section 6. No amendment, modification or repeal of this Article shall
diminish the rights provided hereby or diminish the right to indemnification
with respect to any claim, issue or matter in any then pending or subsequent
proceeding that is based in any material respect on any alleged action or
failure to act occurring before the adoption of such amendment, modification or
repeal.
Section 7. Every reference herein to director, officer, employee,
agent or consultant shall include (i) every director, officer, employee, agent,
or consultant of the Corporation or any corporation the majority of the voting
stock of which is owned directly or indirectly by the Corporation, (ii) every
former director, officer, employee, agent, or consultant of the Corporation,
(iii) every person who may have served at the request of or on behalf of the
Corporation as a director, officer, employee, agent, consultant or trustee of
another corporation, partnership, joint venture, trust or other entity, and (iv)
in all of such cases, his executors and administrators.
I-4
EXHIBIT 20
[The First National Bank of Altavista Letterhead]
February 24, 1997
Dear Fellow Shareholders:
You are cordially invited to attend the Annual
Meeting of Shareholders of your Bank on April 8, 1997, at 11:30 a.m. at the
Fellowship Hall of Altavista Presbyterian Church, located at 707 Broad Street,
Altavista, Virginia. The accompanying Notice and Proxy Statement/Prospectus
describe important matters to be presented at the meeting. Please give them your
prompt attention.
At the Annual Meeting you will be asked to approve a
proposal to adopt a bank holding company form of organization for the Bank.
Under the proposal, the Bank will conduct its banking operations as a
wholly-owned subsidiary of Pinnacle Bankshares Corporation, a Virginia
corporation that will serve as the holding company for the Bank (the "Holding
Company"). Each share of your stock in the Bank will be converted, in a tax-free
transaction, into three shares of common stock of the Holding Company. Following
the reorganization of the Bank into a holding company structure, your equity
ownership in the Holding Company will be exactly the same as your present
ownership in the Bank, and the Bank will continue to operate from the same
offices it currently occupies.
The financial services industry is one of the most
rapidly changing segments of Virginia's and the nation's economy. Historical
distinctions between various types of financial institutions are eroding rapidly
and banks are subject to new and more aggressive competition from every side.
Your Board believes that the greater flexibility and investment opportunities
provided by the establishment of a holding company will facilitate the
fulfillment of our customers' needs in this rapidly changing environment. The
Board of Directors encourages you to read carefully the enclosed Proxy
Statement/Prospectus and to VOTE FOR the reorganization of the Bank.
At the meeting, you also will vote on the election
of all of the directors of the Bank for the coming year. Your Board of
Directors unanimously supports these individuals and recommends that you VOTE
FOR them as directors.
We hope you can attend the Annual Meeting. Whether of
not you plan to attend, please complete, sign and date the enclosed proxy
card and return it promptly in the enclosed envelope. Your vote is important
regardless of the number of shares you own. We look forward to seeing you at the
Annual Meeting, and we appreciate your continued loyalty and support.
Sincerely,
Robert H. Gilliam, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 8, 1997
To Our Shareholders:
The Annual Meeting of Shareholders of The First National Bank of
Altavista (the "Bank") will be held, on Tuesday, April 8, 1997, at 11:30 a.m. at
the Fellowship Hall of Altavista Presbyterian Church, located at 707 Broad
Street, Altavista, Virginia for the following purposes:
1. To approve an Agreement and Plan of Reorganization dated as of
January 22, 1997 (the "Agreement"), a copy of which is attached to the
accompanying Proxy Statement/Prospectus as Exhibit A, providing for the merger
of the Bank into a wholly-owned national bank subsidiary of Pinnacle Bankshares
Corporation, a Virginia corporation, formed to serve as the holding company for
the Bank;
2. To elect the directors of the Bank for a one year term and until
their successors are elected and qualified; and
3. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on February 14,
1997, will be entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof.
By Order of the Board of Directors
Robert H. Gilliam, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
February 24, 1997
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER
OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING.
THE BOARD OF DIRECTORS OF FIRST NATIONAL BANK RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE THE AGREEMENT.
<PAGE>
THE
FIRST NATIONAL BANK
OF
ALTAVISTA
-------------------------
PROXY STATEMENT / PROSPECTUS
719,025 SHARES OF COMMON STOCK
OF
PINNACLE BANKSHARES CORPORATION
-------------------------
INTRODUCTION
This Proxy Statement/Prospectus is furnished to shareholders of The
First National Bank (the "Bank") in connection with the solicitation of proxies
by the Board of Directors of the Bank for use at the Annual Meeting of
Shareholders to be held on April 8, 1997, at the time and place set forth in the
accompanying Notice of Annual Meeting of Shareholders and at any adjournment
thereof (the "Annual Meeting"). This Proxy Statement/Prospectus and the enclosed
form of proxy are being mailed to the shareholders of the Bank on or about
February 24, 1997.
At the Annual Meeting, shareholders will be asked to approve the
reorganization of the Bank into a holding company structure (the
"Reorganization") in accordance with the terms and conditions set forth in the
Agreement and Plan of Reorganization, dated as of January 22, 1997 (the
"Agreement"), a copy of which is attached as Exhibit A to this Proxy
Statement/Prospectus. The Agreement provides for the merger of the Bank into a
wholly-owned subsidiary of Pinnacle Bankshares Corporation, a Virginia
corporation recently organized to serve as the holding company for the Bank (the
"Holding Company"). Under the terms of the Agreement, the Bank will be merged
into Pinnacle Bank, N.A., a newly chartered subsidiary bank of the Holding
Company organized to serve as a vehicle in accomplishing the Reorganization
("Pinnacle Bank"). At the effective date of the Reorganization, each outstanding
share of common stock of the Bank will be converted, in a tax-free transaction,
into three shares of common stock of the Holding Company. After consummation of
the Reorganization, the Bank will conduct its business as a wholly-owned
subsidiary of the Holding Company in substantially the same manner and from the
same offices as the Bank did before the Reorganization. If an adjournment is
proposed, the persons named as proxies will vote in favor of such adjournment
those proxies which are entitled to be voted in favor of the Agreement and
against such adjournment those proxies containing instructions to vote against
approval of the Agreement, unless the shareholder clearly writes on the face of
that proxy specific instructions stating how that proxy should be voted in the
case of an adjournment proposed prior to a vote on the Reorganization. See "The
Proposed Reorganization."
This Proxy Statement/Prospectus also serves as the prospectus for
the Holding Company as it relates to the 719,025 shares of Holding Company
common stock, par value $3 per share, to be issued to the shareholders of the
Bank in exchange for their shares of Bank common stock. Holding Company common
stock, like Bank common stock, is expected to trade thinly primarily on the
local market. The Holding Company has filed a Registration Statement under the
Securities Act of 1933 with the Securities and Exchange Commission with respect
to the shares of Holding Company common stock to be issued in connection with
the Reorganization.
At the Annual Meeting, you also will vote on the election of all
of the directors of the Bank for the coming year. With the exception of the
election of Herman P. Rogers, Jr. to replace Hugh W. Rosser, who is retiring,
the same individuals are currently serving as directors of the Bank.
<PAGE>
The principal offices of the Bank and the Holding Company are at 622
Broad Street, Altavista, Virginia 24517 (telephone: (804) 369-3000).
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF HOLDING COMPANY COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR
SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
-------------------------
THE DATE OF THIS PROXY STATEMENT / PROSPECTUS IS FEBRUARY 24, 1997.
<PAGE>
AVAILABLE INFORMATION
The First National Bank is not currently subject to the
informational reporting requirements of the rules and regulations of the Office
of the Comptroller of the Currency (the "OCC") or any other agency.
Pinnacle Bankshares Corporation, the proposed one-bank holding
company that will become the parent corporation of the Bank, has filed with the
Securities and Exchange Commission ("SEC") a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the shares of Holding Company Common Stock
issuable in the Reorganization. As permitted by the rules and regulations of the
Commission, this Proxy Statement/Prospectus omits certain information contained
in the Registration Statement. For further information and reference, the
Registration Statement and the exhibits thereto may be inspected without charge
at the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained from the Commission at
prescribed rates.
Pursuant to the Reorganization, the Holding Company will be subject
to reporting responsibilities under the Exchange Act. Following the
Reorganization, the Holding Company must comply with the reporting requirements
of the SEC, and will file such reports and information with the SEC.
The Bank's Annual Report (including financial statements) for the
year ended December 31, 1996, which Report includes audited consolidated
financial statements of the Bank for the two years ended December 31, 1996 and
five-year summary financial information is included with this Proxy
Statement/Prospectus in connection with the 1997 Annual Meeting of Shareholders.
The Annual Report is prepared in conformity with generally accepted accounting
principles. Copies of the Bank's audited financial statements, and unaudited
quarterly reports to shareholders and call reports will be available for
inspection by shareholders at the Annual Meeting. Copies of all financial
statements will be made available upon request. In addition, copies of the
Bylaws of the Holding Company will be available for inspection at the Annual
Meeting and will be provided upon request prior to the meeting. All requests for
copies of information should be directed to the Bank's Chief Financial Officer
at the Bank's Main Office at the address set forth on the first page of this
Proxy Statement/Prospectus or by telephone to Dawn P. Crusinberry at (804)
369-3000.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page Page
<S> <C>
Summary of the Proxy Statement/Prospectus........ 5 Indemnification of Directors and
Officers............................................... 21
General Information.............................. 9 Pinnacle Bank............................................ 22
Use and Revocation of Proxies.................. 9 Description of Holding Company Capital
Shareholders Entitled to Vote and Stock................................................ 22
Vote Required................................ 9 Market for the Holding Company
Solicitation of Proxies........................ 9 Common Stock.......................................... 22
Financial Statements........................... 9
The First National Bank of Altavista....................... 23
The Proposed Reorganization...................... 10 Business................................................. 23
Description of the Reorganization.............. 10 Securities Ownership of Certain
Reasons for the Reorganization................. 10 Beneficial Owners..................................... 23
Management of the Holding Company.............. 11 Election of Directors; Management.......................... 24
Anticipated Effective Date of the Meetings and Committees of the
Reorganization............................... 11 Board of Directors..................................... 26
Conversion and Exchange of Stock............... 11 Executive Compensation................................... 27
Federal Income Tax Consequences................ 11 Transactions with Management............................. 27
Required Regulatory Approvals.................. 12 Principal Security Holders............................... 27
Possible Abandonment of the
Reorganization............................... 12 Supervision and Regulation................................. 27
Rights of Dissenting Shareholders.............. 12 General.................................................. 27
The Holding Company...................................... 28
Certain Effects of the The First National Bank of Altavista and the
Reorganization and Risk Factors................ 13 Continuing Bank.......................................... 30
Anti-Takeover Effects of the Reorganization... 13
Comparison in the Rights of
Shareholders................................. 14 Appointment of Auditors.................................... 32
Historical and Pro Forma Other Matters.............................................. 33
Capitalization............................... 18 Legal Matters.............................................. 33
Regulation and Supervision..................... 20 Experts.................................................... 33
Shareholder Proposals...................................... 33
The Holding Company.............................. 20
General........................................ 20 Exhibit A - Agreement and Plan of Reorganization
Management and Operations After Appendix I - Amended and Restated Articles of
the Merger................................... 20 Incorporation of Pinnacle Bankshares
Corporation
Exhibit B - Dissenters' Rights: 12 USC ss. 215a(b)
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO 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 OF PINNACLE BANKSHARES CORPORATION
(THE "HOLDING COMPANY") 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.
<PAGE>
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
The following material is qualified in its entirety by the
information appearing elsewhere in this Proxy Statement/Prospectus and the
Exhibits hereto.
ANNUAL MEETING
DATE, TIME AND PLACE. April 8, 1997 at 11:30 am. at the Fellowship
Hall of Altavista Presbyterian Church, located at 707 Broad Street,
Altavista, Virginia.
PURPOSE. Shareholders will be asked to vote on the Agreement
providing for the establishment of a holding company structure for the Bank. The
affirmative vote of more than two-thirds of the outstanding shares of Bank
common stock will be required to approve the Agreement. In addition,
shareholders will vote to elect directors of the Bank for a one year term and
until their successors are elected and qualified. A majority of votes cast at
the Annual Meeting is required to approve the election of directors. The Bank's
Board of Directors recommends that shareholders vote for the Reorganization and
the election of directors.
THE REORGANIZATION
At the direction of the Board of Directors of the Bank, the Holding
Company was incorporated on January 22, 1997 under the laws of Virginia to serve
as the holding company for the Bank. A new national banking association also has
been organized as a wholly-owned subsidiary of the Holding Company for the sole
purpose of serving as a vehicle in the formation of the proposed holding company
for the Bank. Pursuant to the Agreement, the Bank will be merged into the
newly-organized bank. The bank resulting from that merger (the "Continuing
Bank") will conduct its business in substantially the same manner and from the
same offices as the Bank did prior to the Reorganization. At the effective date
of the Reorganization, shareholders of the Bank will automatically become
shareholders of the Holding Company and will receive three shares of Holding
Company common stock in exchange for each share of Bank common stock they hold.
Management intends for the Holding Company to maintain the Bank's past practice
of paying dividends, although there can be no guarantees of the amount or
frequency of future dividend payments. See "The Proposed Reorganization -
Description of the Reorganization."
REASONS FOR THE REORGANIZATION
The Board of Directors believes the establishment of a holding
company structure for the Bank will provide greater flexibility in responding to
the expanding financial needs of the Bank's customers and in meeting increasing
and ever-changing forms of competition for financial services. Though not
currently contemplated, the holding company structure may facilitate the
affiliation with other financial institutions and may provide more defenses
against an unwanted attempt by another party to gain control of the Bank. The
holding company structure will also afford certain investment opportunities and
options that are otherwise not available currently to the Bank. See "The
Proposed Reorganization - Reasons for the Reorganization."
MANAGEMENT OF THE HOLDING COMPANY
Management of the Bank will not change as a result of the
Reorganization. The Board of Directors of the Holding Company following
consummation of the Reorganization will consist of the eleven individuals
serving as directors of the Bank. The senior management of the Holding Company
is intended to be the same as the Bank's. The Board of Directors and executive
officers of the Bank currently control approximately 5.1% of the Bank's Common
Stock, and all of those individuals have indicated that they intend to vote for
the Reorganization. See "The Holding Company - Management and Operations After
the Merger" and "The Proposed Reorganization - Management of the Holding
Company."
<PAGE>
MARKET FOR COMMON STOCK
Bank Common Stock is traded thinly on the local market. Recent
trades have been at $57.00 per share. This price does not represent a
significant premium to book value per share, but the limited number of trades
effects the stock price, and this price may not reflect the price a shareholder
would receive if the stock was widely traded. Holding Company Common Stock is
similarly expected to trade thinly on the local market. See "Description of
Holding Company Common Stock - Common Stock."
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is intended to qualify for federal income tax
purposes as a tax-free "reorganization" under Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code in which no gain or loss will be
recognized by a Bank shareholder upon the receipt of Holding Company common
stock in exchange for Bank common stock. See "The Proposed Reorganization -
Federal Income Tax Consequences."
COMPARISON IN THE RIGHTS OF SHAREHOLDERS
As set forth herein, there are certain material differences between
your rights as a Bank shareholder and your rights as a Holding Company
shareholder. The differences are described in detail under "Certain Effects of
the Reorganization - Comparison of the Rights of Shareholders." For instance,
shareholders of the Bank currently have preemptive rights to acquire additional
shares of Bank stock and cumulative voting rights in the election of directors.
The shareholders of the Holding Company will not be entitled to these rights. In
addition, in order to enhance the Holding Company's flexibility in raising
additional capital and in negotiating for the acquisition of other businesses,
its Articles of Incorporation contain provisions that vary in several respects
from the current Articles of Association of the Bank. Listed below are the major
differences.
First, the Holding Company will be authorized to issue up to
3,000,000 shares of common stock while the Bank is currently authorized to issue
350,000 shares of common stock. Second, directors of the Holding Company will
serve staggered, three-year terms, instead of one-year terms which Bank
directors currently serve, and may be removed only for cause and by vote of
holders of two-thirds of Holding Company common stock. Third, the Holding
Company may have a minimum of three directors, while the Bank must have at least
five. It is currently contemplated that the Holding Company will have eleven
directors initially. Fourth, the Holding Company's Articles of Incorporation
provide for changes in the requirements of shareholder approvals for certain
fundamental corporate transactions. Last, the directors and officers of the
Holding Company will be entitled to greater rights of indemnification and
protected to a greater extent from liability in shareholder and derivative
actions than current Bank directors. See "Certain Effects of the Reorganization
- - Comparison of the Rights of Shareholders."
ANTI-TAKEOVER EFFECT OF THE REORGANIZATION
The Holding Company's Articles of Incorporation and the Virginia
Stock Corporation Act (the "Virginia SCA") contain certain provisions designed
to enhance the ability of the Board of Directors to deal with attempts to
acquire control of the Holding Company. In addition, these provisions may
facilitate the ability of the Holding Company to acquire additional financial
institutions. These provisions may be deemed to have an anti-takeover effect and
may discourage takeover attempts which have not been approved by the Board of
Directors. The protective provisions contained in the Holding Company's Articles
of Incorporation and provided by the Virginia SCA are discussed in further
detail under "Certain Effects of the Reorganization - Comparison of the Rights
of Shareholders."
<PAGE>
GOVERNMENT REGULATION AND SUPERVISION
After the effective date, the Holding Company will be subject to the
Bank Holding Company Act of 1956, as amended (the "BHCA of 1956"), and will be
subject to regulation by the Board of Governors of the Federal Reserve System
(the "FRB") with respect to its operations as a bank holding company. The
Continuing Bank will continue to be subject to regulation by the OCC. See
"Regulation and Supervision."
RIGHTS OF DISSENTING SHAREHOLDERS
Those shareholders of the Bank who object to the Reorganization will
be entitled to dissenters' rights to receive the fair value of their shares
pursuant to the National Bank Act.
CONDITIONS FOR CONSUMMATION; ANTICIPATED EFFECTIVE DATE; TERMINATION
The consummation of the Reorganization is subject to, among other
things, (i) the affirmative vote of more than two-thirds of the outstanding
shares of Bank common stock, and (ii) the approval by the OCC and the FRB.
Applications for approval of the Reorganization were filed with the OCC and the
FRB on or about February 5, 1997, and the Reorganization is expected to be
consummated on or about May 1, 1997 (the "Effective Date"). The Reorganization
may be terminated by either the Holding Company, Pinnacle Bank or the Bank prior
to the approval of the Agreement by the shareholders of such party or by the
mutual consent of the Boards of Directors of the Holding Company, Pinnacle Bank
and the Bank after any required shareholder approvals are received. See "The
Proposed Reorganization - Possible Abandonment of the Reorganization."
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
OF FIRST NATIONAL BANK
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C>
INCOME STATEMENT DATA:
Net interest income $4,749 $4,388 $4,595 $4,163 $3,908
Provision for loan losses 205 240 200 210 247
Other income 378 192 340 363 359
Other expenses 2,764 2,712 2,581 2,370 2,214
Income tax expense 573 438 626 546 513
Net income $1,585 $1,190 $1,528 $1,401 $1,292
PER SHARE DATA: (3)
Net income $6.61 $4.97 $6.38 $5.84 $5.39
Cash dividends 1.78 1.68 1.54 1.33 1.10
Book value $52.81 $48.86 $42.53 $39.94 $35.43
BALANCE SHEET DATA:
Assets $124,951 $119,380 $116,024 $115,888 $114,593
Loan, net of unearned income
and allowance for loan losses 79,842 75,484 73,063 65,293 57,213
Total investment securities (1) 35,766 34,647 34,613 38,708 34,730
Deposits 111,204 106,678 104,952 105,551 105,396
Stockholders' equity (2) $12,657 $11,709 $10,194 $9,573 $8,492
Average shares outstanding (3) 239,675 239,675 239,675 239,675 239,675
PERFORMANCE RATIOS:
Return on average assets 1.30% 1.01% 1.29% 1.21% 1.17%
Return on average equity 13.01% 10.87% 15.46% 15.51% 13.99%
Dividend payout 26.93% 33.80% 24.14% 22.77% 20.41%
CAPITAL RATIOS:
Leverage 10.14% 9.63% 8.89% 8.18% 7.25%
Risk-based:
Tier 1 capital 15.79% 15.06% 14.45% 14.09% 14.08%
Total capital 16.63% 15.88% 15.22% 14.87% 14.62%
Average equity to
average assets 10.01% 9.27% 8.33% 7.78% 7.20%
</TABLE>
- -------------
(1) Investment securities at December 31, 1995 and 1996 reflect an increase of
$300, and a decrease of $18, respectively, representing net unrealized
gains in 1995 and net unrealized losses in 1996. Such amounts resulted
from the adoption in 1994 of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." See Note 3 of the 1996 audited financial statements of the
Bank.
(2) Stockholders' Equity at December 31, 1995 and 1996 reflects an increase of
$198, and a decrease of $12, representing net unrealized gains in 1995 and
net unrealized losses in 1996. Such amounts resulted from the adoption in
1994 of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." See Note 3 of the
1996 audited financial statements of the Bank.
(3) All share and per share data have been retroactively adjusted to reflect
stock dividends.
<PAGE>
GENERAL INFORMATION
USE AND REVOCATION OF PROXIES
If the enclosed proxy is properly executed and returned in time for
voting at the Annual Meeting, the shares represented thereby will be voted in
accordance with such instructions. If no instructions are given in a returned,
executed proxy, the proxy will be voted in favor of the Reorganization, and in
the discretion of the proxy holders as to any other matters which may properly
come before the meeting. Proxies will extend to, and will be voted at, any
properly adjourned session of the Annual Meeting, unless otherwise revoked. If
an adjournment is proposed, the persons named as proxies will vote in favor of
such adjournment those proxies which are entitled to be voted in favor of the
Agreement and against such adjournment those proxies containing instructions to
vote against approval of the Agreement, unless the shareholder clearly writes on
the face of that proxy specific instructions stating how that proxy should be
voted in the case of an adjournment proposed prior to a vote on the
Reorganization.
Execution of a proxy will not affect a shareholder's right to attend
the Annual Meeting and to vote in person. Any shareholder who has executed and
returned a proxy and for any reason desires to revoke it may do so at any time
before the proxy is exercised by filing with the Secretary of the Bank an
instrument revoking it or a duly exercised proxy bearing a later date, or by
attending the Annual Meeting and voting in person.
SHAREHOLDERS ENTITLED TO VOTE AND VOTE REQUIRED
Only holders of record of Bank common stock at the close of business
on February 14, 1997 are entitled to vote at the Annual Meeting. On the record
date there were 239,675 shares of Bank common stock, par value $2.00 per share,
outstanding and entitled to vote. Each share of outstanding Bank common stock is
entitled to one vote on all matters presented at the Annual Meeting. In order
for the Reorganization to become effective, more than two-thirds of the
outstanding shares of Bank common stock must be voted in favor of the
Reorganization. On all other matters, an affirmative vote by the holders of a
majority of shares represented at the meeting is be required for such approvals.
Directors, executive officers and their affiliates beneficially own
and may vote 12,134 of the outstanding shares of the Bank's stock entitled to
vote on the Reorganization, which shares represent 5.1% of the votes required to
approve the Reorganization. The Bank believes that all of these shares will be
voted for the Reorganization.
SOLICITATION OF PROXIES
The Bank will bear its own expenses incident to soliciting proxies.
Directors, officers, employees and agents of the Bank acting without commission
or other special compensation may solicit proxies in person, by telephone or by
mail.
FINANCIAL STATEMENTS
The Annual Report to Shareholders for the year ended December 31,
1996 is included with this Proxy Statement/Prospectus to inform shareholders of
the Bank's recent financial performance. Additional copies of the reports will
be furnished without charge to shareholders upon written request directed to the
Bank's Cashier at the address set forth at the end of this Proxy
Statement/Prospectus. The above-referenced financial statements will be
available at the Annual Meeting for inspection by shareholders. Additional
financial information will be provided upon request. Please refer to the
instructions in "Available Information" above.
<PAGE>
THE PROPOSED REORGANIZATION
DESCRIPTION OF THE REORGANIZATION
The Board of Directors of the Bank has unanimously approved the
proposed Reorganization whereby the business of the Bank will be conducted under
a holding company structure. The Holding Company was organized in January of
this year under the laws of Virginia at the direction of the Board of Directors
of the Bank to serve as the holding company for the Bank. In addition, Pinnacle
Bank, N.A. ("Pinnacle Bank") filed an application with the OCC to be organized
on February 5, 1997 at the direction of the Board of Directors of the Holding
Company. The affirmative vote of persons holding more than two-thirds of the
outstanding shares of Bank common stock will be required to approve the
Reorganization.
The Bank, Pinnacle Bank and the Holding Company have entered into
the Agreement under the terms of which the Bank will be merged into Pinnacle
Bank, with the bank resulting from the Reorganization to continue the business
of the Bank as a wholly-owned subsidiary of the Holding Company. The material
terms of the Agreement are provided below. Since the identities and business of
both the Bank and Pinnacle Bank will be merged into one entity that will
continue after the Reorganization as one bank, the bank surviving the
Reorganization is referred to in this Proxy Statement/Prospectus as the
"Continuing Bank". Pinnacle Bank will be the Continuing Bank pursuant to the
Reorganization. Pinnacle Bank is a national banking association formed as an
interim bank solely to effectuate the Reorganization. Pursuant to the
Reorganization, the Bank will be merged into Pinnacle Bank, and Pinnacle Bank's
Articles of Association and Bylaws which are substantially identical to the
Bank's Articles of Association and Bylaws, will become the Articles of
Association and Bylaws of the surviving subsidiary bank. In addition, Pinnacle
Bank will change its name to The First National Bank of Altavista as a part of
the consummation of the Reorganization. Upon consummation of the Reorganization,
shareholders of the Bank automatically will become shareholders of the Holding
Company and will receive three shares of Holding Company common stock for each
share of Bank common stock they held at the Effective Date.
The Continuing Bank will conduct its business in the same manner as
the Bank prior to the Reorganization. In addition, the Continuing Bank will
succeed to and hold all the rights, franchises and interests in and to every
type of property (real, personal, and mixed) that were held by both the Bank and
Pinnacle Bank immediately prior to the Reorganization. The Continuing Bank also
will be liable for all liabilities of the Bank and Pinnacle Bank at the time of
the Reorganization. (Pinnacle Bank will not incur any significant liabilities
pursuant to the Reorganization nor will it open for business prior to the
Reorganization). The officers and personnel of the Bank will continue in their
same capacity with the Continuing Bank.
The Bank will pay all expenses incurred in connection with the
Reorganization, including the costs of organizing the Holding Company and
Pinnacle Bank.
REASONS FOR THE REORGANIZATION
The financial services industry is one of the most rapidly changing
segments of the American economy. Historical distinctions between various types
of financial institutions are eroding rapidly as a result of legislative changes
and changing regulatory philosophies. In addition, traditional restrictions on
branch banking have given way to multi-state banking and multi-bank holding
companies. Accordingly, banks are subject to aggressive competition from a wide
variety of institutions offering an expansive array of financial products and
services. Current laws and regulations applicable to banks limit their ability
to supplement traditional financial services and products and to diversify into
other banking-related ventures in response to increasing competition and
changing customer needs.
The laws and regulations applicable to bank holding companies,
however, allow holding companies greater flexibility in expanding their markets
and in increasing the variety of services they and their subsidiaries provide
their customers. Thus, Management and the Board of Directors of the Bank believe
that the new corporate structure will enhance the institution's ability to
compete under existing laws and regulations and to respond effectively to
changing market conditions.
<PAGE>
Currently, neither the Bank nor the Holding Company has made any
commitment to expand significantly its market through the acquisition of
existing banks or to engage in activities other than those conducted by the
Bank. If the Reorganization is approved, the Board anticipates that the Holding
Company structure will provide a mechanism to facilitate future combinations
with other financial institutions, should suitable opportunities arise for
acquisition, expansion or affiliation. In addition, the Holding Company
structure may provide opportunities to engage in new activities related to
banking. Finally, the holding company also may provide more defenses against an
unwanted attempt by another party to acquire or gain control of the Bank,
although the Bank is not aware of anyone who currently plans to acquire the
Bank.
MANAGEMENT OF THE HOLDING COMPANY
Management of the Bank will not change as a result of the
Reorganization. The Board of Directors of the Holding Company following
consummation of the Reorganization will consist of the eleven individuals
serving as directors of the Bank. The senior management of the Holding Company
is intended to be the same as the Bank's. The Board of Directors and executive
officers of the Bank currently control approximately 5.1% of the Bank's Common
Stock, and all of those individuals have indicated that they intend to vote for
the Reorganization. See "The Holding Company - Management and Operations After
the Merger".
ANTICIPATED EFFECTIVE DATE OF THE REORGANIZATION
If the holders of more than two-thirds of the outstanding shares of
Bank common stock approve the Agreement, the Reorganization will become
effective upon satisfaction of certain conditions and the receipt of required
regulatory approvals, including approval by the FRB and the OCC. Applications
for approval of the Reorganization have been filed with the FRB and the OCC.
Subject to receipt of all requisite regulatory approvals and the satisfaction of
all other conditions to the Reorganization, the objective is to have the
Reorganization declared effective on or about May 1, 1997 (the "Effective
Date").
CONVERSION AND EXCHANGE OF STOCK
On the Effective Date, shareholders of the Bank will become
shareholders of the Holding Company. Each share of Bank common stock, par value
$2.00 per share, will be converted into three shares of Holding Company common
stock, par value of $3.00 per share (the "Exchange Ratio"). Outstanding
certificates representing shares of Bank common stock will thereafter represent
three shares of Holding Company common stock. Upon consummation of the
Reorganization, promptly after the Effective Date, the Holding Company, as the
exchange agent, will mail to Bank Common Stock shareholders who hold stock
immediately prior to the Effective Date a letter of transmittal and instructions
related to the exchange of their Bank Common Stock certificates representing the
number of shares of Holding Company Common Stock into which their Bank Common
Stock has been converted as a result of the Reorganization.
BANK SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE SUCH INSTRUCTIONS.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is intended to qualify as a "reorganization" under
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code, and the
material federal income tax consequences summarized below are based on that
assumption. One condition to consummation of the Reorganization is the Bank's
receipt of an opinion of Mays & Valentine, counsel to the Bank and Holding
Company, to the effect that the Reorganization will qualify as a reorganization
under Section 368(a)(1)(A) and that, for the Bank's shareholders who receive
Holding Company common stock for their Bank common stock, the exchange will
result in the non-recognition of gain or loss. A copy of that opinion is
<PAGE>
available for inspection as an exhibit to the Registration Statement and upon
request from the Bank at the address set forth on the first page of this Proxy
Statement/Prospectus or by telephone to Dawn P. Crusinberry at (804) 369-3000.
The Bank's shareholders will not recognize any gain or loss on the
exchange of Bank common stock solely for Holding Company common stock. A
shareholder's tax basis in the shares of Holding Company common stock received
in exchange for his Bank common stock will equal his tax basis in the shares of
Bank common stock exchanged therefor. The holding period for those shares of
Holding Company common stock will include the shareholder's holding period for
the shares of Bank common stock exchanged therefor, if they are held as a
capital asset at the time of the exchange.
Upon consummation of the Reorganization, no gain or loss will be
recognized by the Holding Company or Bank.
THE FOREGOING DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES IS A
SUMMARY OF GENERAL INFORMATION MATERIAL TO MOST SHAREHOLDERS. DUE TO THE
INDIVIDUAL NATURE OF THE TAX CONSEQUENCES OF A REORGANIZATION, EACH BANK
SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH REGARD TO
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE REORGANIZATION.
REQUIRED REGULATORY APPROVALS
The Reorganization must be approved by the FRB and the OCC.
Management of the Bank has filed the required applications for approval of the
Reorganization with the appropriate regulatory authorities. Subject to the
approval of the FRB and the OCC and the satisfaction of all other conditions to
the Reorganization, Management believes that the Reorganization will be declared
effective on or about May 1, 1997.
POSSIBLE ABANDONMENT OF THE REORGANIZATION
Consummation of the Reorganization is subject to obtaining the
required shareholder approval and various regulatory approvals. The Agreement
may be terminated by the unilateral action of the Boards of Directors of the
Bank, Pinnacle Bank or the Holding Company prior to the approval of the
Agreement by the shareholders or by the mutual consent of the respective Boards
of Directors of the Bank, Pinnacle Bank and the Holding Company after any
required shareholder approval has been received.
RIGHTS OF DISSENTING SHAREHOLDERS
Pursuant to 12 U.S.C. ss. 215a(b), the holders of Bank Common Stock
are entitled to dissent and obtain payment for the fair value of their shareS in
the event that the Reorganization is consummated. If (a) the Agreement and the
Reorganization are approved by the requisite number of holders of Bank Common
Stock; and (b) the Reorganization receives all necessary regulatory approvals,
then any shareholder of the Bank who has voted against the Reorganization at the
Annual Meeting, or who has given notice in writing at or prior to such meeting
to the presiding officer that he or she dissents from the Reorganization, shall
be entitled to receive the value of the shares so held, upon written request
made to the Bank at any time before thirty days after the date of consummation
of the Reorganization, accompanied by surrender of his or her stock
certificates.
The value of the shares of any dissenting shareholder shall be
ascertained, as of the Effective Date of the Reorganization, by an appraisal
made by a committee of three persons, composed of (1) one appraiser selected by
the vote of a majority of the stockholders who dissent and are entitled to
payment in cash; (2) one appraiser selected by the directors of the Bank; and
(3) one appraiser selected by the two appraisers so selected. The valuation
agreed upon by any two of the appraisers shall govern. If the value so fixed
shall not be satisfactory to any dissenting shareholder who has requested the
payment, that shareholder may, within five days after being notified of the
appraised value of the shares, appeal to the OCC, who shall cause a reappraisal
to be made. Any such reappraisal shall be final and binding as to the value of
the shares of the appellant.
<PAGE>
If, within 90 days from the date of consummation of the
Reorganization, for any reason one or more of the appraisers is not selected as
provided above, or the appraisers fail to determine the value of such shares,
the OCC shall, upon written request of any interested party, cause an appraisal
to be made which shall be final and binding on all parties. The expenses of the
OCC in making the reappraisal or the appraisal, as the case may be, shall be
paid by the Holding Company. The value of the shares ascertained shall be
promptly paid to the dissenting shareholders by the Holding Company. The shares
of stock of the Holding Company which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
Holding Company at an advertised public auction, and the Holding Company shall
have the right to purchase any of such shares at such public auction, if it is
the highest bidder therefore, for the purpose of reselling such shares within
thirty days thereafter to such person or persons and at such price not less than
par as its Board of Directors by resolution may determine. If the shares are
sold at public auction at a price greater than the amount paid to the dissenting
shareholders, the excess in such sale price shall be paid to such dissenting
shareholders. The provisions of this subsection shall apply only to shareholders
of (and to stock owned by them in) the Bank, merged into the Continuing Bank, in
exchange for Holding Company Common Stock.
The foregoing discussion describes the provisions of the National
Bank Act, 12 U.S.C. ss. 215a(b), deemed material by the Bank; however,
shareholders are urged to review the section in its entirety, which is included
as Exhibit B to this Proxy Statement/Prospectus. Any shareholder who intends to
dissent from the Reorganization should review the text of those provisions
carefully and also should consult with his or her attorney. NO FURTHER NOTICE OF
THE EVENTS GIVING RISE TO DISSENTER'S RIGHTS OR ANY STEPS ASSOCIATED THEREWITH
WILL BE FURNISHED TO BANK SHAREHOLDERS, EXCEPT AS INDICATED ABOVE OR OTHERWISE
REQUIRED BY LAW.
Any dissenting shareholder who exercises his or her right to be paid
the fair value of his or her shares will recognize gain or loss, if any, for
federal income tax purposes upon the receipt of cash for his or her shares. The
amount of gain or loss and its character as ordinary income or capital gain will
be determined in accordance with applicable provisions of the Internal Revenue
Code. See "The Reorganization - Certain Federal Income Tax Consequences."
CERTAIN EFFECTS OF THE REORGANIZATION
AND RISK FACTORS
ANTI-TAKEOVER EFFECTS OF THE REORGANIZATION
The Holding Company's Articles of Incorporation and the Virginia SCA
contain certain provisions designed to enhance the ability of the Board of
Directors to deal with attempts to acquire control of the Holding Company. All
material provisions are discussed in greater detail below. These may be deemed
to have an anti-takeover effect and may discourage takeover attempts which have
not been approved by the Board of Directors (including takeovers which certain
stockholders may deem to be in their best interest). To the extent that such
takeover attempts are discouraged, temporary fluctuations in the market price of
Holding Company Common Stock resulting from actual or rumored takeover attempts
may be inhibited. These provisions also could discourage or make more difficult
a merger, tender offer or proxy contest, even though such transaction may be
favorable to the interests of stockholders, and potentially could affect
adversely the market price of Holding Company Common Stock.
The provisions included in the Holding Company's Articles are not
adopted in response to or with knowledge of any takeover attempts or
"unfriendly" efforts to gain control of the Bank. The Boards of the Bank and
Holding Company propose these provisions in order to provide standard corporate
protections common among bank holding companies and in the best interests of
current Bank shareholders who will become shareholders of the Holding Company
upon consummation of the Reorganization. Also, there are no additional plans to
<PAGE>
adopt other anti-takeover provisions following the Reorganization. The Board of
the Bank and the Holding Company unanimously adopted these proposed provisions.
However, the Holding Company Board members do have an interest in adoption of
the provisions pursuant to the Reorganization. Provisions providing for
staggered Board terms and removal of directors only for cause may stabilize the
composition of the board.
The protective provisions contained in the Holding Company's
Articles and provided by the Virginia SCA are summarized in further detail in
the sections immediately below. This summary is necessarily general and is not
intended to be a complete description of all the features and consequences of
those provisions, and is qualified in its entirety by reference to the Holding
Company's Articles and the statutory provisions contained in the Virginia SCA.
COMPARISON IN THE RIGHTS OF SHAREHOLDERS
GENERAL. The Bank is a national bank subject to the provisions of
the National Bank Act (the "NBA"). Shareholders of the Bank, whose rights are
governed respectively by the Bank's Articles of Association and Bylaws will
become shareholders of the Holding Company upon consummation of the
Reorganization. The rights of such shareholders will then be governed by the
Holding Company's Articles, the Holding Company's Bylaws and by the Virginia
SCA.
Except as set forth below, there are no material differences between
the rights of the Bank's shareholders and the rights of shareholders receiving
Holding Company Common Stock in the Reorganization. THIS SUMMARY IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE ARTICLES OF ASSOCIATION AND BYLAWS OF THE BANK
AND TO THE NBA AND THE ARTICLES OF INCORPORATION AND BYLAWS OF THE HOLDING
COMPANY AND THE VIRGINIA SCA.
AUTHORIZED CAPITAL. The Bank's Articles of Association (the "Bank
Articles") authorize the issuance of up to 350,000 shares of Bank Common Stock,
par value $2.00 per share, of which 239,675 shares were issued and outstanding
as of December 31, 1996. Neither the Bank nor the Holding Company is authorized
to issue shares of preferred stock. The Holding Company's Articles will
authorize the issuance of up to 3,000,000 shares of Holding Company Common
Stock, par value $3.00 per share, of which no shares were issued and outstanding
as of the date of these proxy materials.
SHAREHOLDER VOTE REQUIRED FOR CERTAIN ACTIONS. The Virginia SCA and
the NBA provide that an amendment to a corporation's or bank's charter must be
approved by each voting group entitled to vote on the proposed amendment. Under
the Virginia SCA and the NBA, an amendment to a bank's articles of incorporation
or association must be approved by more than two-thirds of all votes entitled to
be cast by that voting group. However, in Virginia, a bank's articles of
incorporation may require a greater vote or a lesser vote, which may not be less
than a majority, by each voting group entitled to vote on the transaction.
The Bank Articles provide that an amendment of the Bank's Articles
may be approved by shareholders owning a majority of the stock in the Bank,
consistent with applicable laws. Other fundamental matters, such as mergers,
dissolution, sale of substantially all the assets, etc. (referred to hereinafter
as "Fundamental Actions"), must be approved by 80% of the shares outstanding.
The 80% voting requirement is not applicable if a Fundamental Action is approved
by a majority of the Board, in which case a Fundamental Action requires the
affirmative vote of two-thirds of the outstanding Bank shares. The Bank's Bylaws
may be amended at any regular meeting of the Board of Directors by a majority
vote of the directors in office.
Similarly, the Holding Company's Articles decrease the shareholder
vote required to approve Fundamental Actions to a majority of the shares
entitled to be cast, provided that two-thirds of the members of the Board of
Directors then in office have approved and recommended the Fundamental Action.
In the absence of such approval and recommendation by the Board, the vote
required for approval of Fundamental Actions is increased to 80% or more of the
shares entitled to vote on the matter.
<PAGE>
The effect of this provision is to make shareholder approval of
Fundamental Actions less difficult to obtain in the case of Fundamental Actions
favored by the Board of Directors. A lower required shareholder vote will
benefit the Holding Company in terms of cost savings related to the solicitation
efforts necessary to obtain a more than two-thirds vote. If, however, the
incumbent Board does not approve a Fundamental Action by at least a two-thirds
vote, this provision will make approval of the Fundamental Action subject to the
80% affirmative vote requirement and therefore more difficult to obtain. For
this reason, the provisions of the Holding Company's Articles have anti-takeover
implications in that it makes a Fundamental Action not substantially favored by
the Board more difficult to adopt.
The Holding Company Articles provide that an amendment of the
Articles may be approved by a vote of a majority of shareholders entitled to
vote at a meeting at which a quorum of the voting group is present, provided
that the transaction has been approved and recommended by at least two-thirds of
the directors in office at the time of such approval. If the amendment is not so
approved, the amendment must be approved by the vote of 80% or more of all votes
entitled to be cast by each voting group entitled to vote on the amendment. The
Holding Company's Bylaws provide that the power to amend the Bylaws is vested in
the Board of Directors. Thus, the Holding Company's Bylaws may be amended by a
majority of the directors present at a meeting which was properly called and at
which a quorum is present. Also, under the Virginia SCA, the Bylaws may be
amended by action of a majority of the shareholders.
SIZE AND CLASSIFICATION OF BOARD OF DIRECTORS. The Bank's Articles
provide for a board of directors consisting of not less than 5 nor more than 25
individuals, the exact number to be fixed from time to time by a resolution of a
majority of the full Bank Board or by resolution of the shareholders at any
annual or special meeting. The Bank Board, however, may not increase the number
of directors by more than two between shareholders' meetings. The NBA requires
that each director own Bank common stock having a par value of not less than
$1,000, or stock in like amount of the bank's holding company.
The Holding Company's Articles provide for a board of directors
consisting of a minimum of 3 and a maximum of 15 individuals. The Holding
Company's Articles provide that directors are divided into three classes as
nearly equal as possible, to be elected to consecutive three-year terms, with
the first class' term expiring in 1998. Directors of a class whose term expires,
or their replacements, will be elected at the next annual meeting of
shareholders.
VACANCIES AND REMOVAL OF DIRECTORS. The Bank's Bylaws provide that
vacancies on the Board of Directors may be filled by a majority vote of the
remaining directors. The NBA provides that any director appointed following a
vacancy shall hold office until the next election of directors. Neither the NBA
nor the Bank Articles or Bylaws provide for the removal of directors.
The Holding Company Articles provide that the directors then in
office, whether or not a quorum, may fill a vacancy by majority vote, and the
successor's class will coincide with the class of the director whose vacancy was
filled. The successor will serve until the next annual meeting of shareholders,
at which time the successor will be up for election to serve for the remaining
term of the vacated directorship. Holding Company directors may be removed only
for cause and with the affirmative vote of at least two-thirds of the
outstanding shares entitled to vote.
DIRECTOR LIABILITY AND INDEMNIFICATION. The Bank Articles provide
that the Bank may indemnify a director or officer made a party to a proceeding
because he is or was a director of officer of the bank if he is adjudged to have
been not guilty of or liable for gross negligence, willful misconduct or
criminal acts in the performance of his duties to the Bank. The Bank may not
indemnify a director or officer in connection with a proceeding by or in the
right of the Bank if he is judged liable, in connection with an administrative
proceeding by a bank regulatory agency which results in a final order assessing
civil money penalties requiring payments to the Bank or requiring removal or
prohibiting participation in the Bank's affairs, or in connection with a
proceeding charging personal benefit to the director or officer in which he is
adjudged liable.
<PAGE>
The Bank must indemnify a director or officer for reasonable
expenses if he entirely prevails in the defense of a proceeding brought because
he is an officer or director. In addition, the Bank may advance expenses for
defending such a proceeding under certain circumstances, especially when the
matter is a regulatory action and a majority of the disinterested directors
conclude that the director or officer is substantially likely to succeed and has
the ability to repay if necessary. Also, the individual may apply to a court for
an order directing the Bank to make advances or reimburse expenses.
The Bank may not indemnify a director or officer unless a
determination is made that he or she met the required standard of conduct (i) by
a majority of a quorum of the board, (ii) if a quorum cannot be obtained, by a
majority of a committee consisting of two or more disinterested directors, (iii)
by special legal counsel selected by the board or the disinterested directors,
or (iv) by shareholders who are not parties to the proceeding. Insurance on
behalf of directors and officers may be carried by the Bank, except no such
insurance may cover civil money penalties, payments due to the Bank, or removal
from office or restriction of activities with the Bank. The Bank may make any
further indemnity it deems proper, except no indemnity is available for willful
misconduct or a knowing violation of criminal law.
The Virginia SCA provides that in any proceeding brought by or in
the right of a corporation or brought by or on behalf of shareholders of a
corporation, the damages assessed against an officer or director arising out of
a single transaction, occurrence or course of conduct may not exceed the lesser
of (i) the monetary amount, including the elimination of liability, specified in
the articles of incorporation or, if approved by the shareholders, in the bylaws
as a limitation on or elimination of the liability of the officer or director;
or (ii) the greater of (a) $100,000 or (b) the amount of cash compensation
received by the officer or director from the corporation during the twelve
months immediately preceding the act or omission for which liability was
imposed. The liability of an officer or director is not limited under the
Virginia SCA or a corporation's articles of incorporation and bylaws if the
officer or director engaged in willful misconduct or a knowing violation of the
criminal law or of any federal or state securities law.
The Holding Company Articles provide that to the full extent
permitted by the Virginia SCA each director and officer shall be indemnified
against liabilities, penalties and claims imposed by reason of that person
serving as a director or officer of the Holding Company, except as to matters
for which he is finally adjudged liable due to willful misconduct or knowing
violation of criminal law. The Holding Company Articles also provide that
liability of each director and officer shall be limited to the full extent
permitted by the Virginia SCA in any proceeding brought by a shareholder in the
right of the Holding Company or brought by or on behalf of shareholders of the
Holding Company, except that liability shall not be limited in the case of
willful misconduct or a knowing violation of criminal or securities laws on the
part of the director or officer. Finally, a majority of a quorum of the
disinterested directors may indemnify or contract to indemnify any person
against liabilities, fines, penalties and claims imposed or asserted due to that
person acting as an employee, agent or consultant of the Holding Company, to the
same extent such indemnification may be available to a director or officer.
SPECIAL MEETINGS OF SHAREHOLDERS. The Bank's Articles provide that
special meetings of the shareholders may be called by the Board of Directors or
by five or more shareholders owning, in the aggregate, not less than 50% of the
outstanding stock of the Bank. The Virginia SCA provides that a special meeting
of shareholders may be held at the request of the chairman of the board of
directors, the president, the board of directors or the person or persons
authorized to do so by the articles of incorporation or bylaws. The Holding
Company's Bylaws provide that special meetings of the shareholders may be called
by the Board of Directors, the Chairman of the Board or the President.
DIRECTOR NOMINATIONS. It is the practice of the Bank for the board
to appoint a committee to consider candidates for board election, and that
committee presents a recommendation for the board's consideration. The entire
board then determines which candidate(s) should be nominated for the
shareholders' approval. The Bank's Bylaws provide that a director may not stand
for election after his or her seventieth birthday. Any director nomination,
other than those made on behalf of existing management, must be stated in
writing and filed with the President of the Bank and with the OCC not less than
14 days nor more than 50 days prior to the date of the shareholder meeting. The
notice must contain certain information relating to the nominee for director.
Nominations not made in accordance with the requirements will not be considered
at the meeting.
<PAGE>
The Holding Company's Bylaws provide that nominations may be made by
the Board or by any eligible shareholder. No person who will be age 70 or older
on the date set for election shall be eligible for nomination for Director. In
order for a shareholder to make a nomination, he or she must provide certain
information with respect to his or her eligibility to submit a nomination,
certain information about the nominee and certain enumerated information
required under the Holding Company bylaws on a timely basis in advance of any
annual meeting. Due to the specificity of the information required, and the
timeliness of the submission of such information, any deficiency in or variance
from the requirements set forth in the Bylaws may result in the Holding Company
not recognizing such nomination submission.
SHAREHOLDER PROPOSALS. The Bank's Articles and Bylaws do not
contain any requirements relating to the timing or content of shareholder
proposals for shareholder vote.
The Holding Company's Bylaws contain requirements relating to the
timing or content of shareholder proposals for shareholder vote consistent with
Rule 14a-8 of the regulations promulgated by the SEC under the Exchange Act. The
Exchange Act provides that shareholders who own at least 1% or $1,000 of market
value of voting securities of a registrant, which will include the Holding
Company, may make a proposal for a vote at a shareholders' meeting if the
proposal is received on a timely basis and may not otherwise be omitted by the
registrant, all as described in more detail in that rule. The timing and content
of shareholder proposals are very specifically set forth in the Holding
Company's Bylaws. Failure to adhere to the strict requirements in the Bylaws may
result in the Holding Company disregarding the proposal.
SHAREHOLDER VOTING RIGHTS IN GENERAL. The Bank's Articles provide
shareholder preemptive rights and the Bylaws provide cumulative voting. The NBA
provides that shareholders of all national banks, including the Bank, shall have
cumulative voting in the election of directors and shareholder preemptive rights
unless otherwise negated by the Bank's Articles of Association. The Holding
Company articles do not provide cumulative voting to shareholders, and the
Articles expressly deny shareholder preemptive rights. See "Description of
Holding Company Capital Stock."
STATE ANTI-TAKEOVER STATUTES. The NBA does not provide any specific
anti-takeover statutes to national banking associations, like the Bank. The
Virginia SCA restricts transactions between a corporation and its affiliates and
potential acquirors. The summary below is necessarily general and is not
intended to be a complete description of all the features and consequences of
those provisions, and is qualified in its entirety by reference to the statutory
provisions contained in the Virginia SCA. The Virginia SCA will apply to the
Holding Company upon organization.
AFFILIATED TRANSACTIONS. The Virginia SCA contains provisions
governing "Affiliated Transactions," found at Sections 13.1-725 - 727.1 of the
Virginia SCA. Affiliated Transactions include certain mergers and share
exchanges, certain material dispositions of corporate assets not in the ordinary
course of business, any dissolution of a corporation proposed by or on behalf of
an Interested Shareholder (as defined below), and reclassifications, including
reverse stock splits, recapitalizations or mergers of a corporation with its
subsidiaries, or distributions or other transactions which have the effect of
increasing the percentage of voting shares beneficially owned by an Interested
Shareholder by more than 5%. For purposes of the Virginia SCA, an Interested
Shareholder is defined as any beneficial owner of more than 10% of any class of
the voting securities of a Virginia corporation.
Subject to certain exceptions discussed below, the provisions
governing Affiliated Transactions require that, for three years following the
date upon which any shareholder becomes an Interested Shareholder, any
Affiliated Transaction must be approved by the affirmative vote of holders of
two-thirds of the outstanding shares of the corporation entitled to vote, other
than the shares beneficially owned by the Interested Shareholder, and by a
majority (but not less than two) of the Disinterested Directors (as defined
below). A Disinterested Director is defined in the Virginia SCA as a member of a
corporation's board of directors who (i) was a member before the later of
<PAGE>
January 1, 1988 or the date on which an Interested Shareholder became an
Interested Shareholder and (ii) was recommended for election by, or was elected
to fill a vacancy and received the affirmative vote of, a majority of the
Disinterested Directors then on the corporation's board of directors. At the
expiration of the three year period after a shareholder becomes an Interested
Shareholder, these provisions require approval of the Affiliated Transaction by
the affirmative vote of the holders of two-thirds of the outstanding shares of
the corporation entitled to vote, other than those beneficially owned by the
Interested Shareholder.
The principal exceptions to the special voting requirement apply to
Affiliated Transactions occurring after the three year period has expired and
require either that the transaction be approved by a majority of the
corporation's Disinterested Directors or that the transaction satisfy certain
fair price requirements of the statute. In general, the fair price requirements
provide that the shareholders must receive the higher of: the highest per share
price for their shares as was paid by the Interested Shareholder for his or its
shares, or the fair market value of the shares. The fair price requirements also
require that, during the three years preceding the announcement of the proposed
Affiliated Transaction, all required dividends have been paid and no special
financial accommodations have been accorded the interested Shareholder, unless
approved by a majority of the Disinterested Directors.
None of the foregoing limitations and special voting requirements
applies to a transaction with an Interested Shareholder who has been an
Interested Shareholder continuously since the effective date of the statute
(January 26, 1988) or who became an Interested Shareholder by gift or
inheritance from such a person or whose acquisition of shares making such person
an Interested Shareholder was approved by a majority of the Disinterested
Directors of the corporation.
These provisions were designed to deter certain takeovers of
Virginia corporations. In addition, the Virginia SCA provides that, by
affirmative vote of a majority of the voting shares other than shares owned by
any Interested Shareholder, a corporation may adopt, by meeting certain voting
requirements, an amendment to its articles of incorporation or bylaws providing
that the Affiliated Transactions provisions shall not apply to the corporation.
The Holding Company has not adopted such an amendment. There are no Interested
Shareholders as defined by the Virginia SCA.
CONTROL SHARE ACQUISITIONS. The Virginia Control Share Acquisitions
statute, found at Sections 13.1-728 - 728.8 of the Virginia SCA, also is
designed to afford shareholders of a public company incorporated in Virginia
protection against certain types of non-negotiated acquisitions in which a
person, entity or group ("Acquiring Person") seeks to gain voting control of
that corporation. With certain enumerated exceptions, the statute applies to
acquisitions of shares of a corporation which would result in an Acquiring
Persons ownership of the corporation's shares entitled to vote in the election
of directors falling within any one of the following ranges: 20% to 33-1/3%,
33-1/3% to 50% or 50% or more (a "Control Share Acquisition"). Shares that are
the subject of a Control Share Acquisition ("Control Shares") will not be
entitled to voting rights unless the holders of a majority of the "Disinterested
Shares" vote at an annual or special meeting of shareholders of the corporation
to accord the Control Shares with voting rights. Disinterested Shares do not
include shares owned by the Acquiring Person or by officers and inside directors
of the target company. Under certain circumstances, the statute permits an
Acquiring Person to call a special shareholders' meeting for the purpose of
considering granting voting rights to the holders of the Control Shares. As a
condition to having this matter considered at either an annual or special
meeting, the Acquiring Person must provide shareholders with detailed
disclosures about his identity, the method and financing of the Control Share
Acquisition and any plans to engage in certain transactions with, or to make
fundamental changes to, the corporation, its management or business. Under
certain circumstances, the statute grants dissenters' rights to shareholders who
vote against granting voting rights to the Control Shares. The Virginia Control
Share Acquisitions Statute also enables a corporation to make provisions for
redemption of Control Shares with no voting rights. A corporation may opt-out of
the statute, which the Holding Company has not done, by so providing in its
articles of incorporation or bylaws. Among the acquisitions specifically
excluded from the statute are acquisitions which are a part of certain
negotiated transactions to which the corporation is a party and which, in the
case of mergers or share exchanges, have been approved by the corporation's
shareholders under other provisions of the Virginia SCA.
<PAGE>
DISSENTERS' RIGHTS. For a description of the respective rights for
dissenting shareholders of the Bank, see "The Reorganization - Appraisal Rights
for Dissenting Shareholders." Shareholders of the Holding Company will have
substantially less rights in this regard than shareholders of the Bank.
HISTORICAL AND PRO FORMA CAPITALIZATION
The table below sets forth the capitalization of the Bank as of
December 31, 1996 and the pro forma capitalization of the Bank and Holding
Company as adjusted to reflect the consummation of the Reorganization.
Liabilities other than those related to the new line of credit are not shown
below because the merger is not expected to have any effect on other
liabilities.
HISTORICAL
HOLDING
BANK COMPANY
PRIOR TO THE REORGANIZATION ---- -------
Borrowings under line of credit................. $ 0 $300,000(4)
========= =======
Number of shares of Capital Stock
Authorized
Common Stock(1)................. 350,000 5,000
Issued and Outstanding
Common Stock(2)................. 239,675 25
Shareholders' Equity
Common Stock(2)..................... $ 479,000 $ 75
Surplus(2).......................... 2,016,000 425
Retained Earnings................... 10,174,000 0
Net Unrealized Losses on
Securities Available-for-Sale,
Net of Tax Effect............... (12,000) 0
--------- ---
Total Shareholders' Equity...................... $ 12,657,000 $ 500
=========== ====
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
HOLDING COMPANY
COMBINED
BANK WITH THE BANK
---- --------------
AFTER THE REORGANIZATION
<S> <C>
Borrowings under line of credit $ 0 $ 0(4)
============ ==============
Number of Shares of Capital Stock
Authorized
Common Stock(1)................ 350,000 3,000,000
Issued and Outstanding
Common Stock................... 239,675 719,025
Shareholders' Equity(3)(5)
Common Stock....................... $ 479,000 $ 2,157,000
Surplus............................ 2,016,000 338,000
Retained Earnings.................. 10,174,000 10,174,000
Net Unrealized Losses on
Securities Available-for-Sale,
Net of Tax Effect.............. (12,000) (12,000)
--------- ---------
Total Shareholders' Equity..................... $ 12,657,000 $ 12,657,000
=========== ============
</TABLE>
- ----------------
(1) The Holding Company is currently authorized to issue 5,000 shares of
common stock. Prior to the Effective Date of the Reorganization, the
Articles of Incorporation of the Holding Company will be amended in
the form attached hereto as Appendix I to Exhibit A to increase the
number of authorized shares of common stock to 3,000,000.
(2) In order to capitalize the Holding Company, the five organizing
directors of the Holding Company, Messrs. Gilliam, Tyler, Bohannon,
Finch and Kent, each have purchased five shares of Holding Company
stock at $20.00 per share. These shares will be redeemed by the
Holding Company at $20.00 per share after consummation of the
Reorganization.
(3) At the Effective Date, each of the issued and outstanding shares of
Bank common stock will be converted into and become three shares of
Holding Company common stock, par value $3.00, and the shareholders
of the Bank will thereupon become shareholders of the Holding
Company. The Holding Company will then own all the outstanding
shares of Bank common stock.
(4) The Holding Company has arranged to draw upon a $300,000 line of
credit provided by a correspondent bank to capitalize the Interim
Bank. It is anticipated that the Holding Company will not draw upon
the line of credit until several days before the effective date of
the Merger. The capital of the Interim Bank will not be retained in
the Continuing Bank. Such line of credit borrowings will be repaid
immediately after the Effective Date of the Reorganization from
funds provided by a special dividend from the Continuing Bank to the
Holding Company. Because of the short duration of borrowings
outstanding under the line, the resulting interest expense is
expected to be minimal.
(5) The amount representing the par value of the additional shares
issued and the three-for-one conversion was transferred from
Surplus to Common Stock.
<PAGE>
REGULATION AND SUPERVISION
The Bank currently is subject to regulation and examination by the
OCC, and the Continuing Bank will continue to be subject to such regulation and
examination after the Reorganization. In addition, the Holding Company will be
subject to regulation by the FRB under the BHCA of 1956 and by the SCC under the
Virginia Banking Act. The Holding Company also will be under the jurisdiction of
the Securities and Exchange Commission and certain state securities commissions
with respect to matters relating to the offer and sale of its securities. See
"Regulation and Supervision" for additional information.
THE HOLDING COMPANY
GENERAL
The Holding Company was incorporated under the laws of Virginia on
January 22, 1997 at the direction of the Board of Directors of the Bank for the
purpose of acquiring all of the outstanding shares of the Bank's common stock.
It has filed an application with the FRB for prior approval to become a bank
holding company, and an application with the OCC for permission to merge the
Bank into Pinnacle Bank. The Holding Company has not yet engaged in business
activity (see "The Proposed Reorganization - Reasons for the Reorganization").
With the exception of this purchase of stock, the Holding Company has no current
plans to engage in any activities other than acting as a holding company for the
common stock of the Bank.
The Holding Company owns no properties and therefore, as necessary,
will use the Bank's existing premises, facilities and personnel. The Holding
Company's needs in this regard are expected to be minimal, and the Holding
Company will reimburse the Bank for such expenses, determined in accordance with
generally accepted accounting principles. The Holding Company's offices will be
located in the Bank's offices at 622 Broad Street, Altavista, Virginia. The
Holding Company does not, therefore, contemplate any substantial expenditures
for equipment, plant, or additional personnel, prior to consummation of the
Reorganization, during 1997 or for the foreseeable future.
After consummation of the Reorganization, the Holding Company will
continue to follow the Bank's present policy of paying dividends as and when
determined by the Board of Directors after consideration of the earnings,
general economic conditions, the financial condition of the business, and other
factors as might be appropriate in determining dividend policy. The Holding
Company's payment of dividends will be entirely dependent upon the Bank's
performance and dividend policy. Also, the Bank is subject to certain
limitations under state and federal banking laws with respect to payment of
dividends which may adversely affect payment of dividends. However, management
does not anticipate that the Reorganization will affect current levels of
dividend payments.
The Holding Company is not a party to any pending legal proceedings
before any court, administrative agency or other tribunal. Further, the Holding
Company is not aware of any material litigation which is threatened against it
or the Bank in any court, administrative agency, or other tribunal.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
On the effective date of the Reorganization, the Bank will be merged
into Pinnacle Bank. The separate existence of the Bank will cease and Pinnacle
Bank will change its name to The First National Bank of Altavista. The Holding
Company will then serve as the parent holding company for the Continuing Bank.
<PAGE>
The Board of Directors of the Holding Company, after the Merger,
initially will be comprised of eleven members. At the direction of the Board of
Directors of the Bank, the Holding Company designated the following persons to
serve as the initial directors of the Holding Company up to and following
consummation of the Reorganization:
Alvah P. Bohannon, III R. B. Hancock, Jr. Carroll E. Shelton
John P. Erb James P. Kent, Jr. Kenneth S. Tyler, Jr.
Robert L. Finch Percy O. Moore John L. Waller
Robert H. Gilliam, Jr. Herman P. Rogers, Jr.
The Board of Directors of the Bank in authorizing the formation of
the Holding Company was not aware of any family relationship between any
director or person nominated to become a director of the Holding Company; nor
was the Board of Directors of the Bank aware of any involvement in legal
proceedings which are material to any impairment of the ability or integrity of
any director or person nominated to become such director.
Approval of the Reorganization by the shareholders of the Bank at
the Annual Meeting will be deemed to constitute the election of the eleven
designees as directors of the Holding Company at the Effective Date. The Holding
Company Board is divided into three classes, and directors are elected to serve
staggered three-year terms. The classes into which the directors will be divided
are as follows:
CLASS I CLASS II CLASS III
------- -------- ---------
John P. Erb Alvah P. Bohannon, III Herman P. Rogers, Jr.
Robert L. Finch James P. Kent, Jr. Carroll E. Shelton
Robert H. Gilliam, Jr. Percy O. Moore Kenneth S. Tyler, Jr.
R. B. Hancock, Jr. John L. Waller
The directors in Class I will serve until the 1998 Annual Meeting of
Shareholders of the Holding Company, and the Class II directors and Class III
directors will serve until the 1999 and 2000 Annual Meetings, respectively.
The Board of Directors, officers and employees of the Bank will not
change as a result of the Reorganization.
Following the Reorganization, the Continuing Bank will keep its
existing name and office locations and will continue to carry on its banking
businesses in the same manner as before the Merger.
The five members of the proposed Holding Company Board currently
serve as members of the Board of Directors of the Bank. See "Management of the
Bank - Directors" for a description of the initial directors' principal
occupations for the past five years, their ages, the years in which they were
first elected to the Board of Directors of the Bank and the number of shares of
Bank common stock beneficially held by each of them.
At its initial meeting following the Reorganization, the Holding
Company Board will appoint Mr. Gilliam to serve as President and Chief Executive
Officer, Mr. Shelton to serve as the Vice President, and Dawn P. Crusinberry to
serve as Secretary, Treasurer and Chief Financial Officer.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As mentioned above in "Comparison of the Rights of Shareholders -
Director Liability and Indemnification," the Holding Company's Articles of
Incorporation provide for the indemnification of the directors and officers. The
Holding Company's Articles provide for indemnification of the directors and
officers to the full extent permitted by the Virginia SCA as in effect from time
to time. As of July 1, 1987, the Virginia SCA permits a corporation to provide
in its articles of incorporation or a shareholder-approved bylaw for the
<PAGE>
mandatory indemnification of its directors and officers against liability
incurred in all proceedings, including derivative proceedings, arising out of
their service to the corporation so long as they have not engaged in willful
misconduct or a knowing violation of the criminal law. Accordingly, the Holding
Company is required to indemnify its directors and officers in all such
proceedings if they have not violated this standard.
In addition, the Holding Company's Articles of Incorporation
eliminates the liability of the directors and officers of the Holding Company
for monetary damages in connection with a derivative or shareholder proceeding.
The limitation of liability in the Holding Company's Articles does not apply in
the event the director or officer has engaged in willful misconduct or a knowing
violation of the criminal law or a federal or state securities law.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Holding Company pursuant to the foregoing provisions, the
Holding Company has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
PINNACLE BANK
Pinnacle Bank is in the process of organization as a subsidiary of
the Holding Company solely for the purpose of implementing the Reorganization.
In accordance with the Agreement, the Bank will be merged with and into Pinnacle
Bank, and the surviving bank will continue the business of the Bank as a
wholly-owned subsidiary of the Holding Company. Like the Bank, Pinnacle Bank is
being organized as a national banking association. It is anticipated that the
funds necessary to capitalize Pinnacle Bank will be provided by the Holding
Company and its five initial directors from the proceeds of a loan made by a
correspondent banking institution. Upon the effective date of the
Reorganization, the shares required to capitalize Pinnacle Bank will be retired
and the loan will be repaid. Pinnacle Bank owns no property and has no
employees. The Holding Company has agreed to cause Pinnacle Bank to take all
necessary action for approval of the Reorganization.
DESCRIPTION OF HOLDING COMPANY CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK. The Holding Company is
authorized to issue up to 3,000,000 shares of its common stock, par value $3.00
per share. As of the date hereof, the Bank had 239,675 shares of Common Stock
outstanding held by 348 shareholders of record. No shares of preferred stock
were issued or authorized by the Bank. Following the Reorganization the Holding
Company will have 719,025 shares of Common Stock outstanding, based upon an
exchange ratio of three-for-one. The following summary description of the
capital stock of the Holding Company is qualified in its entirety by reference
to the Articles of Incorporation of the Holding Company (the "Holding Company's
Articles") and the Holding Company's Bylaws, copies of which are available for
inspection as exhibits to the registration statement filed with the SEC in
conjunction with this Proxy Statement/Prospectus.
COMMON STOCK. The holders of Holding Company Common Stock are
entitled to one vote per share on all matters submitted to a vote of
shareholders. Subject to certain limitations on the payment of dividends,
holders of Holding Company Common Stock are entitled to receive dividends when
declared by the Holding Company's Board of Directors for which funds are legally
available.
All shares of Holding Company Common Stock to be issued in the
Reorganization are fully paid (or will be fully paid) and nonassessable. Holders
of common stock will not be entitled to cumulative voting rights. Therefore, the
holders of a majority of the shares voted in the election of directors can elect
all of the directors then standing for election. Holders of common stock have no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to the common stock.
<PAGE>
See "Certain Effects of the Reorganization - Comparison of the
Rights of Shareholders" for a discussion of the similarities and differences
between the rights and privileges of the shareholders of the Holding Company and
the Bank.
MARKET FOR THE HOLDING COMPANY COMMON STOCK
No established public trading market currently exists for the Bank's
common stock. No brokerage firm regularly makes a market for the Bank common
stock. The stock is infrequently traded, and the current market for the stock is
limited. The Bank is prohibited by law from holding or purchasing its own shares
except in limited circumstances upon the approval of shareholders.
Similarly, there will be no established public trading market for
Holding Company common stock. Unlike the Bank, however, the Holding Company will
generally be able to purchase its own shares. In some circumstances, a bank
holding company may not purchase its own shares without giving prior notice to
the FRB. Specifically, if the Holding Company desires to purchase as much as 10%
(in value) of its own stock in any 12-month period, it may be required in some
instances to obtain approval for so doing from the Federal Reserve Board.
Otherwise, the Holding Company is restricted by sound business judgment, its
prior commitments, and the consolidated financial condition of the Holding
Company and its subsidiaries. In no event may a Virginia corporation purchase
its own shares when the corporation is insolvent or when such a purchase would
make it insolvent.
THE FIRST NATIONAL BANK OF ALTAVISTA
BUSINESS
The Bank was organized as a national bank in 1908 and commenced its
general banking operations in December of that year, providing services to
commercial and agricultural businesses and individuals in the Altavista area.
With an emphasis on personal service, the Bank today offers a broad
range of commercial and retail banking products and services including checking,
savings and time deposits, individual retirement accounts, merchant bankcard
processing, residential and commercial mortgages, home equity loans, consumer
installment loans, agricultural loans, investment loans, small business loans,
commercial lines of credit and letters of credit.
The Bank serves a trade area consisting primarily of southern
Campbell County, northern Pittsylvania County and southeastern Bedford County
from facilities located in the Town of Altavista. The main office is located in
the downtown area at 622 Broad Street, with a drive-in facility at 418 Main
Street. The Bank's Vista Branch is at 1307 Main Street, situated on a front
parcel at Town & Country Shopping Center. The Bank has automated teller machines
with on-line network service at the drive-in office and at the Vista Branch. The
Bank owns all of its facilities and there are no mortgages or liens against any
of its real or personal property.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
No shareholder of the Bank owns 5% or more of the outstanding common
stock. For information regarding securities ownership by members of the Bank's
Board of Directors and management, please see "First National Bank Election of
Directors; Management."
<PAGE>
ELECTION OF DIRECTORS; MANAGEMENT
All shareholders of the Bank are also encouraged to vote on the
election of the Bank's Board of Directors. All shareholders may exercise
cumulative voting rights in the election of the Bank's Board of Directors. With
eleven Directors to be elected at the meeting, each shareholder will be entitled
to vote eleven times the number of shares they own on the record date. These
votes may be accumulated and voted for any number of Directors between one and
eleven individuals. In order to exercise your cumulative voting rights, you
should strike out any number of the Board nominated Directors on the Proxy. You
may then accumulate all of your remaining votes on the remaining votes on the
remaining nominees to serve as members of the Bank's Board of Directors. If you
elect to exercise your cumulative voting rights, you should clearly state the
number of votes you intend to cast opposite the individual's name on the Proxy.
Your right to exercise cumulative voting is entirely in your discretion;
otherwise, your votes will be split among the Board nominees to elect as many as
possible. A majority of votes cast at the Annual Meeting is required to approve
the election of directors.
NOMINEES FOR ELECTION. The following table sets forth certain
information concerning the individuals nominated to serve as directors of the
Bank as of the date of the mailing of this Proxy Statement/Prospectus. With the
exception of Herman P. Rogers, Jr., the replacement director for Hugh W. Rosser
who is retiring, each of these persons listed below currently serves as a
Director of the Bank. They were elected March 12, 1996, to serve until the next
annual meeting of the shareholders. All directors of the Bank received an annual
retainer of $3,000 in 1996 and, in addition, the outside directors received
$125.00 for each committee meeting attended.
<PAGE>
<TABLE>
<CAPTION>
COMMON
SHARES OF OWNERSHIP AS A
DIRECTOR OF BANK PERCENTAGE OF
NAME (AGE) AND PRINCIPAL OCCUPATION BANK BENEFICIALLY COMMON STOCK
ADDRESS LAST FIVE YEARS SINCE OWNED (1)(2) OUTSTANDING
------- --------------- ----- ------------ -----------
<S> <C>
Alvah P. Bohannon, III, 49 President 1985 640 *
Altavista, Virginia Altavista Motors, Inc.
John P. Erb, 53 Assistant Superintendent 1989 567 (3) *
Altavista, Virginia Campbell County Schools
Robert L. Finch, 66 Former 1986 804 (4) *
Altavista, Virginia President & Treasurer
Finch & Finch, Inc.
Robert H. Gilliam, Jr., 51 President & CEO 1979 1,248 *
Lynch Station, Virginia The First National Bank
of Altavista
R. B. Hancock, Jr., 46 President & Owner 1994 585 (5) *
Huddleston, Virginia R.B.H., Inc. d/b/a Napa Auto Parts
James P. Kent, Jr., 57 Partner 1980 2,841 (6) *
Hurt, Virginia Kent & Kent
Percy O. Moore, 63 Retired 1989 567 (3) *
Altavista, Virginia Customer Service Supervisor
Herman P. Rogers, Jr., 53 Plant Manager N.A 500 (3) *
Lynch Station, Virginia BGF Industries, Inc.
Carroll E. Shelton, 46 Senior Vice President 1990 987 (3) *
Hurt, Virginia The First National Bank
of Altavista
Kenneth S. Tyler, Jr., 56 President & CEO 1976 597 *
Altavista, Virginia The Lane Company, Inc.
John L. Waller, 53 Owner & Operator 1989 567 (7) *
Hurt, Virginia Waller Farms, Inc.
All directors and executive 12,134 5.1%
officers as a group (15 persons)
</TABLE>
- ------------------
<PAGE>
* Less than 1.0%; based on total outstanding shares of 239,675 shares as of
the date of this Proxy Statement/Prospectus.
(1) For purposes of this table, beneficial ownership has been determined in
accordance with the provision of Rule 13d-3 of the Securities Exchange Act
of 1934 under which, in general, a person is deemed to be the beneficial
owner of a security if he has or shares the power to vote or direct the
voting of the security or the power to dispose of or direct the disposition
of the security, or if he has the right to acquire beneficial ownership of
the security within sixty days.
(2) Includes shares held by affiliated corporations, close relatives, and
children, and shares held jointly with spouses or as custodians or
trustees for children.
(3) Shares held jointly with spouse.
(4) 154 of the reported shares as held jointly with spouse and 5 shares held
solely in spouse's name.
(5) 525 of the reported shares held jointly with spouse and 60 shares held as
custodian for minor child.
(6) 275 of the reported shares held solely in spouse's name.
(7) 26 of the reported shares held in name of majority children living at home.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors conducts its business through meetings of the Board and through its
committees. During calendar year 1996, the Board of Directors held 13 meetings.
No director attended fewer than 75 percent of the total meetings of the Board of
Directors and committees on which he or she served during this period. A brief
description of each of the committees of the Bank follows.
PLANNING COMMITTEE. The Planning Committee's reviews and makes
recommendation to the board on matters affecting the future direction of the
Bank. Members of the Planning Committee are Messrs. Erb, Finch, Kent, Tyler,
Shelton and Gilliam, and they met eleven times in 1996.
LOAN COMMITTEE. The Loan Committee formulates and oversees the loan
policy of the Bank. The Loan Committee has the power to discount and purchase
bills, notes and other debt, to buy and sell bills of exchange, and to examine
and approve loans and discounts. Members of the Loan Committee are Messrs. Erb,
Kent, Rosser, Waller, Shelton and Gilliam, and they met fourteen times in 1996.
INVESTMENT COMMITTEE. The Investment Committee is responsible for
the investment policy of the bank and reviews the investment portfolio of the
bank on an annual basis. Members of the Investment Committee are Messrs.
Bohannon, Finch, Rosser, Tyler, Shelton and Gilliam, and they met five times
in 1996.
AUDIT COMMITTEE. The Audit Committee meets to review reports of
the Bank's internal auditor who reports directly to the Audit Committee and
reviews the annual report of the Bank's independent auditors. Members of the
Audit Committee are Messrs. Bohannon, Finch, Hancock, Moore and Waller, and
they met four times in 1996.
PERSONNEL COMMITTEE. The Personnel Committee reviews officer and
employee compensation and employee benefit plans and makes recommendations to
the board concerning such matters. The Personnel Committee makes recommendations
as to the employment of officers of the bank. Members of the Personnel Committee
are Messrs. Erb, Hancock, Moore, Tyler and Gilliam, and they met three times in
1996.
NOMINATING COMMITTEE. The Nominating Committee's duties include
consideration of candidates for board election. The Nominating Committee makes a
recommendation to the board concerning candidates for any vacancy that may occur
and the entire board then determines which candidate(s) should be nominated for
the shareholders' approval. Members of the Nominating Committee are Messrs. Erb,
Kent, Tyler and Gilliam, and they met one time in 1996. While the Board of
Directors will consider nominees recommended by shareholders, it has not
actively solicited recommendations from the Bank's shareholders for nominees,
nor has it established any procedures for this purpose.
<PAGE>
EXECUTIVE COMPENSATION. The following table provides information
concerning Mr. Gilliam, President and CEO, the only executive officer of the
Bank whose compensation exceeded $100,000 for any of the three years ended
December 31, 1996.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------
NAME AND
PRINCIPAL ALL OTHER
POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($)(2)
-------- ---- ------------ -------- ------------------
Robert H. Gilliam, Jr. 1996 106,150 12,378 1,855
PRESIDENT & CHIEF 1995 101,650 8,924 1,247
EXECUTIVE OFFICER 1994 95,550 11,178 454
(1) Includes a Board retainer of $3,000 in 1996, $2,500 in 1995 and $2,400 in
1994.
(2) Cost (based on IRS uniform cost table) of more than $50,000 of group-term
life insurance provided by employer.
TRANSACTIONS WITH MANAGEMENT. Directors and officers of the Bank and
persons with whom they are associated have had, and expect to have in the
future, banking transactions with the Bank in the ordinary course of their
businesses. In the opinion of management of the Bank, all such loans and
commitments for loans were made on substantially the same terms, including
interest rates, collateral and repayment terms as those prevailing at the same
time for comparable transactions with other persons were made in the ordinary
course of business, and do not involve more than a normal risk of collectibility
or present other unfavorable features.
PRINCIPAL SECURITY HOLDERS. The Bank knows of no person or group
that beneficially owned more than five percent of the outstanding shares of
Common Stock as of February 24, 1997.
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law. Consequently, the growth and earnings
performance of the Holding Company and the Bank can be affected not only by
management decisions and general economic conditions, but also by the statutes
administered by, and the regulations and policies of, various governmental
regulatory authorities including, but not limited to, the Federal Reserve, the
FDIC, the OCC, the Internal Revenue Service, federal and state taxing
authorities, and the SEC. The effect of such statutes, regulations and policies
can be significant, and cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to
financial institutions and their holding companies regulate, among other things,
the scope of business, investments, reserves against deposits, capital levels
relative to operations, the nature and amount of collateral for loans, the
establishment of branches, mergers, consolidations and dividends. The system of
supervision and regulation applicable to the Holding Company and the Bank
establishes a comprehensive framework for their respective operations and is
intended primarily for the protection of the FDIC's deposit insurance funds and
the depositors, rather than the shareholders, of the Bank.
The following references to material statutes and regulations
affecting the Holding Company and the Bank are brief summaries thereof and do
not purport to be complete, and are qualified in their entirety by reference to
<PAGE>
such statutes and regulations. Any change in applicable law or regulations may
have a material effect on the business of the Holding Company and the Bank.
THE HOLDING COMPANY
BANK HOLDING COMPANIES
As a result of the Reorganization, the Bank will become a subsidiary
of the Holding Company, and the Holding Company must register as a bank holding
company under the BHC Act and become subject to regulation by the FRB. The FRB
has jurisdiction under the BHC Act to approve any bank or nonbank acquisition,
merger or consolidation proposed by a bank holding company. The BHC Act
generally limits the activities of a bank holding company and its subsidiaries
to that of banking, managing or controlling banks, or any other activity which
is so closely related to banking, or to managing or controlling banks, as to be
a proper incident thereto.
The BHC Act currently prohibits the FRB from approving an
application from a bank holding company to acquire shares of a bank located
outside the state in which the operations of the holding company's principal
bank subsidiary is principally located, unless such an acquisition is expressly
authorized by statute of the state where the bank whose shares are to be
acquired is located. However, under recently enacted federal legislation, the
restriction on interstate acquisitions was abolished effective September 1996,
and bank holding companies from any state are able to acquire banks and bank
holding companies located in any other state, subject to certain conditions,
including nationwide and state imposed concentration limits. Banks also will be
able to branch across state lines by acquisition, merger or de novo, effective
May 1, 1997 (unless state law permits such interstate branching at an earlier
date), provided certain conditions are met, including that applicable state law
must expressly permit such interstate branching.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries that are
designed to reduce potential loss exposure to the depositors of the depository
institutions and to the FDIC insurance fund. For example, under a policy of the
FRB with respect to bank holding company operations, a bank holding company is
required to serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. A bank holding
company's failure to meet its obligations to serve as a source of strength to
its subsidiary banks will generally be considered by the Federal Reserve Board
to be an unsafe and unsound banking practice or a violation of the Federal
Reserve Board's regulations or both.
Banking laws also provide that amounts received from the liquidation
or other dissolution of any insured depository institution by any receiver must
be distributed (after payment of secured claims) to pay the deposit liabilities
of the institution prior to payment of any other general or unsecured senior
liability, subordinated liability, general creditor or stockholder. This
provision would give depositors a preference over general and subordinated
creditors and stockholders in the event a receiver is appointed to distribute
the assets of any bank or bank subsidiary.
The Holding Company also will be required to register in Virginia
with the SCC under the financial institution holding company laws of Virginia.
Accordingly, the Holding Company, and to a limited extent the Bank, will be
subject to regulation and supervision by the SCC.
Finally, the Holding Company will be subject to the periodic
reporting requirements of the Securities Exchange Act of 1934, as amended,
including but not limited to, filing annual, quarterly and other current reports
with the Securities and Exchange Commission.
REGULATORY CAPITAL REQUIREMENTS
All financial institutions are required to maintain minimum levels
of regulatory capital. The FRB and OCC have established substantially similar
risk-based and leveraged capital standards for financial institutions they
<PAGE>
regulate. These regulatory agencies also may impose capital requirements in
excess of these standards on a case-by-case basis for various reasons, including
financial condition or actual or anticipated growth. Under the risk-based
capital requirements of these regulatory agencies, the Bank is required to
maintain a minimum ratio of total capital to risk-weighted assets of at least
8%. At least half of the total capital is required to be "Tier l capital", which
consists principally of common and certain qualifying preferred shareholders'
equity, less certain intangibles and other adjustments. The remainder, "Tier 2
capital", consists of a limited amount of subordinated and other qualifying debt
(including certain hybrid capital instruments) and a limited amount of the
general loan loss reserve. The Tier 1 and total capital to risk-weighted assets
ratios of the Bank on a pro forma combined basis following the Reorganization as
of December 31, 1996 are 15.79% and 16.63%, respectively, exceeding the minimums
required. Based upon the applicable FRB and OCC regulations, at December 31,
1996, the Holding Company and the Bank would be considered "well capitalized".
(See, the "Capital Ratios" table in this section below.)
In addition, the federal regulatory agencies have established a
minimum leveraged capital ratio (Tier 1 capital to adjusted total assets). These
guidelines provide for a minimum leveraged capital ratio of 3% for banks and
their respective holding companies that meet certain specified criteria,
including that they have the highest regulatory examination rating and are not
contemplating significant growth or expansion. All other institutions are
expected to maintain a leverage ratio of at least 100 to 200 basis points above
that minimum. The guidelines also provide that banking organizations
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. The leverage ratio of the
Bank as of December 31, 1996, was 7.14% above the minimum requirements.
Each federal regulatory agency is required to revise its risk-based
capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk and the risks of nontraditional
activities, as well as reflect the actual performance and expected risk of loss
on multifamily mortgages. The FRB has solicited comments on a proposed framework
for implementing the interest rate risk component of the risk-based capital
guidelines. Under the proposal, an institution's assets, liabilities, and
off-balance sheet positions would be weighted by risk factors that approximate
the instruments' price sensitivity to a 100 basis point change in interest
rates. Institutions with interest rate risk exposure in excess of a threshold
level would be required to hold additional capital proportional to that risk. In
1995, the FRB and the OCC solicited comments on a proposed revision to the
risk-based capital guidelines to take account of concentration of credit risk
and the risk of nontraditional activities. The revision proposed to amend each
agency's risk-based capital standards by explicitly identifying concentration of
credit risk and the risk arising from nontraditional activities, as well as an
institution's ability to manage those risks, as important factors to be taken
into account by the agency in assessing an institution's overall capital
adequacy. The proposal was adopted as a final rule by the FRB and the OCC and
subsequently became effective on January 17, 1996. The Holding Company and the
Bank do not expect the final rule to have a material impact on their respective
capital requirements; however, one or more of the applicable federal regulatory
agencies may, as an integral part of their examination process, require either
the Holding Company or the Bank to provide additional capital based on such
agency's judgment of information available at the time of examination.
The following table summarizes the minimum regulatory and current
capital ratios for the Holding Company, on a consolidated basis, and the Bank,
at December 31, 1996, and also the pro forma combined capital ratios as of
December 31, 1996.
<PAGE>
CAPITAL RATIOS
FIRST
REGULATORY NATIONAL PRO FORMA
MINIMUM CURRENT COMBINED
Risk-based capital (1)
Tier 1 (2)................................ 4.00% 15.79 15.79
Total (2)................................. 8.00 16.63 16.63
Leverage (2).................................. 3.00 10.14 10.14
Total shareholders' equity
to total assets........................... N/A 10.13 10.13
(1) The pro forma risk-based capital ratios have been computed using pro
forma combined historical data for the Holding Company and the Bank at
December 31, 1996.
(2) Risk-based capital ratios and leverage ratios are applicable only to the
Bank.
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
Certain state law restrictions are imposed on distributions of
dividends to shareholders of the Holding Company. The Holding Company's
shareholders are entitled to receive dividends as declared by the Holding
Company's Board of Directors in accordance with Section 13.1-653 of the Code of
Virginia. Generally, distributions are made out of surplus, or if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Dividend payments therefore may be
limited in accordance with the provisions of the Virginia SCA and of the Holding
Company's Articles.
Banks likewise have limitations imposed upon all dividends,
including cash dividends, payments to repurchase or otherwise acquire its
shares, payments to shareholders of another institution in a cash-out merger,
and other distributions charged against capital. Under applicable federal laws,
the Comptroller of the Currency restricts, without prior approval, the total
dividend payments of the Bank in any calendar year to the net profits of that
year, as defined, combined with the net profits for the two preceding years. As
of December 31, 1996, the Bank had approximately $1,945,000 available for
dividends, which following the Reorganization could be paid to the Holding
Company.
Following the consummation of the Reorganization, the Holding
Company's ability to pay dividends to its shareholders will depend on dividends
paid to it by the Bank. Based on the Bank's current financial condition, the
Holding Company expects that the above-described provisions will have no impact
on the Holding Company's ability to obtain dividends from the Bank or on the
Holding Company's ability to pay dividends to its shareholders.
THE FIRST NATIONAL BANK OF ALTAVISTA AND THE CONTINUING BANK
In addition to the regulatory provisions regarding holding companies
addressed above, the Bank is subject to extensive regulation as well. The Bank
and the Continuing Bank (the "Banks") are federally chartered national banks,
and as such they are subject to regulation by the OCC. The Banks must file
reports with the OCC concerning its activities and financial condition, and in
addition obtain regulatory approval before entering into certain transactions
such as mergers with or acquisitions of other financial institutions. The Banks'
deposit accounts are insured up to applicable limits by the FDIC. (See,
"--Insurance of Accounts, Assessments and Regulation by the FDIC"). The OCC, as
the primary regulator of national banks, has enforcement authority over all
national banks. The FDIC also has authority to impose enforcement action on such
banks and all "institution-affiliated parties", including directors, officers,
controlling stockholders, and other persons or entities participating in the
affairs of the national banks, as well as attorneys, appraisers and accountants
who knowingly or recklessly participate in wrongful action likely to harm an
<PAGE>
insured institution. The OCC conducts periodic examinations to evaluate each
national bank's compliance with various regulatory requirements. The OCC
completed its most recent regular supervisory examination on January 21, 1997.
The Banks also are members of the FRB.
National banks have restrictions on their investment and lending
authorities. Secured or unsecured loans for commercial, corporate, business or
agricultural purposes are subject to limitations on amount based upon the
institution's capital. In addition, the aggregate amount of all loans secured by
liens on nonresidential real property may not exceed prescribed multiples of the
institution's regulatory capital; however, an institution may be permitted to
exceed a specific lending limit only if the OCC determines that relief from this
restriction poses no significant risk to the safe and sound operation of the
national bank and is consistent with prudent operating practices. National banks
may make loans for personal, family or household purposes, but such loans and
investments are also subject to limitations. At December 31, 1996, the Bank was
in compliance with each of the applicable limitations and requirements.
Additional limitations are imposed on the aggregate amount of loans
that a national bank may make to any one borrower, including relating entities.
With certain limited exceptions, a loan-to-one-borrower NOT FULLY SECURED by
collateral having a market value at least equal to the amount of the loan may
not exceed 15% of the banks unimpaired capital and surplus. A
loan-to-one-borrower FULLY SECURED by readily marketable collateral at least
equal in value to the amount of the loan outstanding may not exceed an
additional 10% of the bank's unimpaired capital and surplus. At December 31,
1996, the maximum amount which the Bank could have loaned unsecured to one
borrower (and related entities) under the limit imposed was $1,984,000. At
December 31, 1996, the Bank had no borrowers to which it had outstanding loans
in excess of its loans-to-one-borrower limit.
INSURANCE OF ACCOUNTS, ASSESSMENTS AND REGULATION BY THE FDIC
The Bank is a nationally-chartered bank whose primary regulator is
the OCC. However, the Bank is a member of the Bank Insurance Fund ("BIF") of the
FDIC, except certain of its deposits acquired from CorEast Savings Bank are
insured by the Savings Association Insurance Fund ("SAIF"). As a BIF insured
institution with certain SAIF insured deposits, the Bank is subject to FDIC
rules and regulations as administrator of the BIF and SAIF. The Bank's deposits
are insured up to $100,000 per insured depositor (as defined by law and
regulation). As insurer, the FDIC is authorized to conduct examinations of and
to require reporting by BIF institutions. The actual assessment to be paid by
each BIF member is based on the institution's assessment risk classification and
whether the institution is considered by its supervisory agency to be
financially sound or to have supervisory concerns.
On March 6, 1992, the Bank, as a BIF insured institution, acquired
the obligation to pay deposits owed by CorEast as a SAIF insured institution.
This transaction was effected under the "Oakar" amendment to the Federal Deposit
Insurance Act (the "FDI Act"), which provides for, among other things, that the
buyer of SAIF deposits, in this case the Bank, becomes subject to the assessment
by the seller's insurance fund (the SAIF) as to the acquired deposits which must
remain insured by the seller's insurance fund, thus becoming the secondary fund
of the buyer.
As a BIF institution, the Bank's BIF assessment rate falls within a
range of 0.00% to 0.31% of BIF insured deposits depending upon, among other
things, the institution's regulatory capital levels and other factors which
relate to the institution's perceived risk to the insurance funds administered
by the FDIC. The Bank is currently classified as "well-capitalized" and
therefore pays the lowest amount allowed.
SAIF deposits have traditionally been scheduled at higher insurance
rates than BIF deposits. Under prior assessment schedules, SAIF rates have
ranged from 23 basis points for institutions in the best assessment risk
classification to 31 basis points for institutions in the least favorable one.
This schedule has recently been adjusted to implement the risk-based assessment
program required by amendments to the FDI Act. The new schedule has been
designed to increase the reserve ratio of the SAIF - the ratio of the SAIF's net
worth to aggregate SAIF-insured deposits, to the designated reserve ratio
("DRR"). The DRR is a target ratio that has a fixed value for each year. The
value is either 1.25 percent or such higher percentage as the FDIC determines to
be justified for that year by circumstances raising a significant risk of
substantial future losses to the SAIF. The assessment rates for the BIF were
<PAGE>
much lower than the comparable rates for the SAIF, because the BIF's reserve
ratio had already reached the DRR. The disparity created incentives for
institutions to move deposits from SAIF-insured status to BIF-insured status,
and raised the question of whether a shrinking SAIF-assessable deposit base
could continue both to service the interest on FICO debt and to capitalize the
SAIF.
In response to these circumstances, Congress adopted the Deposit
Insurance Funds Act of 1996 (the "Funds Act"), on September 30, 1996. The Funds
Act called for the FDIC to impose a one-time special assessment on
SAIF-assessable deposits to raise the SAIF's reserve ratio to the DRR as of
October 1, 1996. The Funds Act also ended the link between the amounts assessed
by the Financing Corporation ("FICO"), an FDIC corporation formed to assist the
FDIC with changes in the methods of assessment and other matters, and the
amounts authorized to be assessed by the SAIF, effective January 1, 1997.
The Funds Act also separates, effective January 1, 1997, the FICO
assessment to service the interest on certain related bond obligations from the
SAIF assessment. The amount assessed on individual institutions by the FICO will
be in addition to the amount paid for deposit insurance according to the FDIC's
risk-related assessment rate schedules. However, between October 1, 1996, and
January 1, 1997, any amount required by the FICO will be deducted from the
amounts the FDIC is authorized to assess SAIF-member savings associations, and
must not be assessed against Sasser and BIF-member Oakar institutions. FICO
assessment rates for the first semiannual period of 1997 were set at 1.30 basis
points annually for BIF-assessable deposits and 6.48 basis points annually for
SAIF-assessable deposits. These rates may be adjusted quarterly to reflect
changes in assessment bases for the BIF and the SAIF. By law, the FICO rate on
BIF-assessable deposits must be one-fifth the rate on SAIF-assessable deposits
until the insurance funds are merged or until January 1, 2000, whichever occurs
first. The rule establishes a SAIF rate schedule of 0 to 27 basis points
effective for BIF-member Oakar institutions on October 1, 1996, and effective
for all institutions beginning January 1, 1997. The Bank does not expect that
the revised BIF and SAIF risk-based assessment schedules will have a materially
adverse effect on earnings following the Reorganization.
The FDIC is authorized to prohibit any BIF-insured institution from
engaging in any activity that the FDIC determines by regulation or order to pose
a serious threat to the insurance fund. Also, the FDIC may initiate enforcement
actions against banks after first giving the institution's primary regulatory
authority an opportunity to take such action. The FDIC may terminate the deposit
insurance of any depository institution, including the Bank, if it determines,
after a hearing, that the institution has engaged or is engaging in unsafe or
unsound practices, is in an unsafe or unsound condition to continue operations,
or has violated any applicable law, regulation, order or any condition imposed
in writing by the FDIC. It also may suspend deposit insurance temporarily during
the hearing process for the permanent termination of insurance, if the
institution has no tangible capital. If deposit insurance is terminated, the
deposits at the institution at the time of termination, less subsequent
withdrawals, shall continue to be insured for a period from six months to two
years, as determined by the FDIC. Management is aware of no existing
circumstances that could result in termination of the Bank's deposit insurance.
OTHER SAFETY AND SOUNDNESS REGULATIONS
The federal banking agencies have broad powers under current federal
law to take prompt corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized," as such terms are defined under uniform regulations defining
such capital levels issued by each of the federal banking agencies.
Each of the federal banking agencies also must develop regulations
addressing certain safety and soundness standards for insured depository
institutions and depository institution holding companies, including
compensation standards, operational and managerial standards, asset quality,
earnings and stock valuation. The federal banking agencies have issued a joint
notice of proposed rulemaking, which requested comment on the implementation of
these standards. The proposed rule sets forth general operational and managerial
standards in the areas of internal controls, information systems and internal
audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth and compensation, fees and benefits. The proposal contemplates that
<PAGE>
each federal agency would determine compliance with these standards through the
examination process, and if necessary to correct weaknesses, require an
institution to file a written safety and soundness compliance plan. The Holding
Company has not yet determined the effect that the proposed rule would have on
its operations and the operations of its depository institution subsidiaries if
it is enacted substantially as proposed.
COMMUNITY REINVESTMENT
The requirements of the Community Reinvestment Act ("CRA") affect
the Bank. The CRA imposes on financial institutions an affirmative obligation to
help meet the credit needs of their local communities, including low- and
moderate-income neighborhoods, consistent with the safe and sound operation of
those institutions. Each financial institution's efforts in helping meet
community credit needs currently is evaluated as part of the examination process
pursuant to a new regulation recently adopted by the banking regulatory
agencies. Under the new regulation a financial institution's efforts in helping
meet its community's credit needs are evaluated according to a three-pronged
test (lending, investment and service) which replaces the twelve assessment
factors used previously. The grade received by a bank is considered in
evaluating mergers, acquisitions and applications to open a branch or facility.
To the best knowledge of the Bank, it is meeting its obligations under the CRA.
APPOINTMENT OF AUDITORS
KPMG Peat Marwick LLP ("KPMG") served as the Bank's independent
certified public accountant for calendar year 1996. The Board of Directors
approved the reappointment of KPMG to serve as the Bank's auditors for calendar
year 1997. KPMG's opinion on the Bank's 1996 financial statements was
unqualified.
OTHER MATTERS
The Board of Directors is not aware of any business to come before
the Annual Meeting other than those matters described above. However, if any
other matters should properly come before the Annual Meeting, it is intended
that proxies in the accompanying form will be voted in respect thereof in
accordance with the judgment of the person or persons voting the proxies.
LEGAL MATTERS
The legality of Holding Company common stock to be issued pursuant
to the Reorganization will be passed upon for the Holding Company by the law
firm of Mays & Valentine, Richmond, Virginia, which has acted as counsel to the
Bank and the Holding Company in connection with the Reorganization.
EXPERTS
The financial statements of The First National Bank of Altavista as
of December 31, 1996 and 1995 and for the years then ended have been included
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
SHAREHOLDER PROPOSALS
As currently contemplated, the Reorganization will be consummated in
the second quarter of 1997. Therefore, assuming the reorganization described
herein is approved, the Holding Company will be conducting the 1998 Annual
Meeting of Shareholders. Shareholder proposals intended to be presented at the
Holding Company's 1998 Annual Meeting must be submitted to the Holding Company
by October 10, 1997 in order to be considered for inclusion in the proxy
materials for such meeting.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-QSB FOR THE QUARTERLY PERIOD ENDING MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-QSB
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 2,677
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,773
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,819
<INVESTMENTS-CARRYING> 11,335
<INVESTMENTS-MARKET> 11,324
<LOANS> 82,067
<ALLOWANCE> 688
<TOTAL-ASSETS> 126,292
<DEPOSITS> 112,242
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,202
<LONG-TERM> 0
0
0
<COMMON> 479
<OTHER-SE> 12,369
<TOTAL-LIABILITIES-AND-EQUITY> 126,292
<INTEREST-LOAN> 1,871
<INTEREST-INVEST> 552
<INTEREST-OTHER> 30
<INTEREST-TOTAL> 2,453
<INTEREST-DEPOSIT> 1,188
<INTEREST-EXPENSE> 1,188
<INTEREST-INCOME-NET> 1,265
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 706
<INCOME-PRETAX> 611
<INCOME-PRE-EXTRAORDINARY> 611
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 442
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.84
<YIELD-ACTUAL> 4.48
<LOANS-NON> 80
<LOANS-PAST> 549
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 674
<CHARGE-OFFS> 84
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 688
<ALLOWANCE-DOMESTIC> 688
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 378
</TABLE>
