As filed with the Securities and Exchange Commission on January 24, 1997
Registration No. 333-_________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PINNACLE BANKSHARES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Virginia 6711 54-1832714
-------- ---- -----------
(State or Other Jurisdiction (Primary Standard Industrial (IRS Employer
Incorporation or Organization Classification Code) Identification No.)
Copy to:
Robert H. Gilliam, Jr. Timothy P. Veith, Esq.
President and Chief Executive Officer Mays & Valentine
Pinnacle Bankshares Corporation 1111 East Main St.,
622 Broad Street NationsBank Center
Altavista, Virginia 24517 Richmond, Virginia 23219
Telephone: (804) 369-3000 Telephone: (804) 697-1265
----------------------------------- ---------------------------
(Name and Address of Agent for Service Process)
Approximate date of commencement of the proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: [x]
CALCULATION OF REGISTRATION FEES
- - --------------------------------------------------------------------------------
Title of Amount Proposed Maximum Proposed Maximum Amount of
Securities to To Be Offering Price Aggregate Registration
Be Registered Registered Per Unit (1) Offering Price Fee
- - --------------------------------------------------------------------------------
Common Stock, 719,025 $17.60 $12,654,840.00 $3,834.80
($3.00 par value) Shares
- - -----------------
(1) Estimated solely for the purpose of calculating the Registration Fee
pursuant to Rule 457 on the basis of $17.60 per share, the book value for the
stock on a pro forma basis, since no trading market yet exists for this stock.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
[The First National Bank of Altavista Letterhead]
February __, 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;
3. To transact such other business as may properly come before the
meeting.
Shareholders of record at the close of business on February __,
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 __, 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 __, 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. 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. 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.
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 date of this Proxy Statement / Prospectus is February __, 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 OF CONTENTS
Page
Summary of the Proxy Statement/Prospectus............................ 4
General Information.................................................. 7
Use and Revocation of Proxies...................................... 7
Shareholders Entitled to Vote and
Vote Required.................................................... 7
Solicitation of Proxies............................................ 7
Financial Statements............................................... 7
The Proposed Reorganization.......................................... 8
Description of the Reorganization.................................. 8
Reasons for the Reorganization..................................... 8
Anticipated Effective Date of the
Reorganization................................................... 9
Conversion and Exchange of Stock................................... 9
Federal Income Tax Consequences.................................... 9
Required Regulatory Approvals...................................... 10
Possible Abandonment of the
Reorganization................................................... 10
Rights of Dissenting Shareholders.................................. 10
Certain Effects of the
Reorganization..................................................... 11
Anti-Takover Effects of the Reorganization........................ 11
Comparison in the Rights of
Shareholders..................................................... 11
Historical and Pro Forma
Capitalization................................................... 16
Regulation and Supervision......................................... 18
The Holding Company.................................................. 18
General............................................................ 18
Management and Operations After
the Merger....................................................... 18
Page
Indemnification of Directors and
Officers........................................................... 19
Pinnacle Bank, N.A. ................................................. 20
Description of Holding Company Capital
Stock............................................................ 20
Market for the Holding Company's
Common Stock...................................................... 21
First National Bank of Altavista
Business............................................................. 22
Securities Ownership of Centain
Beneficial Owners................................................. 22
Election of Directors; Management.................................... 22
Meetings and Committees of the
Board of Directors................................................. 24
Executive Compensation............................................... 25
Transactions with Management......................................... 25
Performance Graph.................................................... 25
Principal Security Holders........................................... 25
Supervision and Regulation............................................ 25
General.............................................................. 25
The Holding Company.................................................. 26
The First National Bank of Altavista and the
Continuing Bank...................................................... 28
Appointment of Auditors............................................... 30
Other Matters......................................................... 31
Legal Matters......................................................... 31
Experts............................................................... 31
Shareholder Proposals................................................. 31
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. To adopt 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.
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.
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. 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."
Federal Income Tax Consequences
The Reorganization is intended to qualify for federal income tax
purposes as a tax-free "reorganization" under Section 368(a)(1)(A) 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.
<PAGE>
First, the Holding Company will be authorized to issue up to
3,000,000 shares of common stock and up to 1,000,000 in preferred 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. These provisions, and the ability of the
Board of Directors to set the voting rights, preferences and other terms
thereof, 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."
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 January __, 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.
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 __, 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.
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 filed an application with the OCC to be organized in late January 1997 at
the direction of the Board of Directors of the Holding Company.
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. (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.
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 currently conducted
by the Bank. If the Reorganization is approved, the Board anticipates that the
Holding Company structure will provide a mechanism to facilitate future
<PAGE>
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.
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 Section 368(a)(1)(A) of the Internal Revenue Code, and the 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.
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. 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.
<PAGE>
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.
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
<PAGE>
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
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. These
provisions, which are discussed in greater detail below, including the ability
of the Board of Directors to set the voting rights, preferences and other terms
thereof, 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
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. The Bank is not authorized to issue shares of preferred
stock. The Holding Company's Articles will authorize the issuance of up to
<PAGE>
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. In addition, the Holding Company's Articles authorize the issuance of
up to 1,000,000 shares of preferred stock, par value $1.00 per share ("Preferred
Stock"). The Board of Directors is authorized, without shareholder approval, to
assign preferences, rights and limitations to the shares of Preferred Stock when
they are issued. This authority gives the Board of Directors of the Holding
Company flexibility in the structuring and financing of acquisitions and other
financial activities. The Holding Company may use the Preferred Stock to help
deter hostile takeover attempts by assigning certain rights and preferences to
the Preferred Stock which could adversely affect the voting power of the holders
of Holding Company Common Stock thus making it more difficult for a third party
to gain control of the Bank. No shares of Preferred Stock will be issued
pursuant to the Reorganization and the boards of directors of the Holding
Company, the Bank, and the Receiving Bank, in the Agreement have not and do not
anticipate that any shares will be issued as of the date hereof.
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.
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.
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
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
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
<PAGE>
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.
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
Preferred Stock(1)............... 0 1,000
Common Stock(1).................. 350,000 5,000
Issued and Outstanding
Preferred Stock.................. 0 0
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>
Pro Forma
Holding Company
Combined
Bank with the Bank
After the Reorganization
Borrowings under line of credit $ 0 $ 0(4)
============ ===========
Number of Shares of Capital Stock
Authorized
Preferred Stock(2)............. 0 1,000,000
Common Stock(1)................ 350,000 3,000,000
Issued and Outstanding
Preferred Stock................ 0 0
Common Stock................... 239,675 719,025
Shareholders' Equity(3)(5)
Preferred Stock.................... 0 0
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
=========== ============
- - ----------------
(1) The Holding Company is currently authorized to issue 5,000 shares of
common stock and 1,000 of preferred 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 and
the number of authorized shares of preferred stock to 1,000,000.
(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 will be required to file an application with the FRB for prior approval to
become a bank holding company, and application with the OCC for permission to
merge the Bank into Pinnacle Bank, and an application with the SCC for approval
of the proposed Reorganization. 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 First National Bank. 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 incorporator of 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 five
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
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.
<PAGE>
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, N.A.
Pinnacle Bank, N.A. ("Pinnacle Bank") has been organized 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 has been 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 and 1,000,000 of its preferred stock, par value, $1.00. As of December
31, 1996, the Bank had 239,675 shares of Common Stock outstanding held by 347
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. The possible issuance of serial preferred stock with a preference
over common stock as to dividends would impact the dividend rights of holders of
Holding Company Common Stock.
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 subject to the rights of holders
of preferred stock, if and when issued. 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.
Preferred Stock. The Holding Company will be authorized to issue
1,000,000 shares of Serial Preferred Stock, par value $1.00 per share. The Board
of Directors will be authorized to assign preferences, rights and limitations to
the shares of Serial Preferred Stock when they are issued. This authority gives
the Board of Directors of the Holding Company flexibility in the structuring and
financing of acquisitions and other financial activities. The Holding Company
will also be able to use the Serial Preferred Stock to help deter hostile
takeover attempts by assigning certain rights and preferences to the Serial
Preferred Stock that will make it more difficult for a third party to gain
control of the Holding Company.
<PAGE>
There are currently no plans nor do the Boards of Directors of the
Holding Company or Bank anticipate any need to issue shares of Serial Preferred
Stock of the Holding Company following the Reorganization.
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.
<PAGE>
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."
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.
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 __, 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
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.
<PAGE>
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
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
<PAGE>
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.
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.
<PAGE>
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
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.
<PAGE>
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
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.
<PAGE>
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
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.
<PAGE>
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.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS 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"), and The First National
Bank of Altavista, a banking corporation organized under the laws of the United
States of America, with its Main Office in Altavista, Virginia (the "Bank").
WITNESSETH:
WHEREAS, the Holding Company has initiated steps to establish Pinnacle
Bank, N.A. (the "Receiving Bank"). After the organizers receive regulatory
approval for the formation of the Receiving Bank, the Receiving Bank shall
become an additional party to the Agreement. The Holding Company, the Bank and
the Receiving Bank (once formed) shall be collectively referred to as the
"Constituent Corporations."
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 and Plan of Reorganization.
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 Incorporation; 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 Certificate of Merger, or other
corresponding order, by the Office of the Comptroller of the Currency (the
"Effective Date"), no cash shall be allocated to the shareholders of the Bank,
and stock shall be issued and allocated as follows:
(a) 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.
A-1
<PAGE>
(b) Shares of Receiving Bank Common Stock issued and
outstanding shall, by virtue of the Merger, continue to be issued and
outstanding shares held by the Holding Company.
4. Capital of the Bank. The capital, surplus and undivided profits of
the Bank at the Effective Date will be equal to the capital structure of the
Bank at March 31, 1997, adjusted, however, for capital contributions, normal
earnings and expenses, and other capital changes between March 31, 1997, and the
Effective Date.
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.
6. Rights of Dissenting Shareholders. Shareholders of the
Bank who dissent from the Merger will not 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 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, and (iii) the receipt of an opinion of counsel as
to the tax-free nature of the transaction. 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.
A-2
<PAGE>
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
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 Altavis President
ATTEST: PINNACLE BANK
(in formation)
/s/ Dawn P. Cruisinberry By: /s/ Robert H. Gilliam, Jr.
Pinnacle Bank, N.A. Robert H. Gilliam, Jr.
President
A-3
<PAGE>
APPENDIX I
AMENDED 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
The Corporation shall have authority to issue three
million (3,000,000) shares of Common Stock, par value $3.00 per share, and one
million (1,000,000) shares of Serial Preferred Stock, par value $1.00 per share.
A. Serial Preferred Stock
Section 1. Issuance In Series. The Board of Directors
is hereby empowered to cause the Serial Preferred Stock of the Corporation to
be issued in series with such of the variations permitted by clauses (a) - (h),
both inclusive of this Section 1 as shall have been fixed and determined by the
Board of Directors with respect to any series prior to the issue of any share of
such series.
The shares of the Serial Preferred Stock of different
series may vary as to:
(a) the number of shares constituting such
series, and the designation of such series, which shall
be such as to distinguish the shares thereof from the
shares of all other series and classes;
(b) the rate of dividend, the time of
payment and, if cumulative, the dates from which
dividends shall be cumulative, and the extent of
participation rights, if any;
(c) any right to vote with holders of shares
of any other series or class and any right to vote as a
class, either generally or as a condition to specified
corporate action;
(d) the price at and the terms and
conditions on which shares may be redeemed;
(e) the amount payable upon shares in event
of involuntary liquidation;
(f) the amount payable upon shares in event
of voluntary liquidation;
(g) any sinking fund provisions for the
redemption or purchase of shares; and
(h) the terms and conditions on which shares
may be converted, if the shares of any series are issued
with the privilege of conversion.
The shares of all series of Serial Preferred Stock shall
be identical except as, within the limitations set forth above in this Section
1, shall have been fixed and determined by the Board of Directors prior to the
issuance thereof.
Section 2. Dividends. The holders of the Serial
Preferred Stock of each series shall be entitled to receive, if and when
declared payable by the Board of Directors, dividends at the dividend rate for
such series, and not exceeding such rate except to the extent of any
participation right. Such dividends shall be payable on such dates as shall be
fixed for such series. Dividends, if cumulative and in arrears, shall not bear
interest.
No dividends shall be declared or paid upon or set apart
for the Common stock or for stock of any other class hereafter created ranking
junior to the Serial Preferred Stock in respect of dividends or assets
(hereinafter called Junior Stock), and no shares of Serial Preferred Stock,
Common stock or Junior Stock shall be purchased, redeemed or otherwise
reacquired for a consideration, nor shall any funds be set aside for or paid to
any sinking fund therefor, unless and until (i) full dividends on the
outstanding aerial preferred stock at the dividend rate or rates therefor,
together with the full additional amount required by any participation right,
shall have been paid or declared and set apart for payment with respect to all
past dividend periods, to the extent that the holders of the Serial Preferred
Stock are entitled to dividends with respect to any past dividend period, and
the current dividend period, and (ii) all mandatory sinking fund payments that
shall have become due in respect of any series of the Serial Preferred Stock
shall have been made. Unless full dividends with respect to all past dividend
periods on the outstanding Serial Preferred Stock at the dividend rate or rates
therefor, to the extent that holders of the Serial Preferred Stock are entitled
to dividends with respect to any particular past dividend period, together with
the full additional amount required by any participation right, shall have been
paid or declared and set apart for payment and all mandatory sinking fund
payments that shall have become due in respect of any series of the Serial
Preferred Stock shall have been made, no distributions shall be made to the
holders of the Serial Preferred Stock of any series unless distributions are
made to the Holders of the Serial Preferred Stock of all series then outstanding
in proportion to the aggregate amounts of the deficiencies in payments due to
the respective series, and all payments shall be applied first, to dividends
accrued and in arrears, next, to any amount required by any participation right,
and, finally, to mandatory sinking fund payments. The terms "current dividend
period" and "past dividend period" mean, if two or more series of Serial
Preferred Stock having different dividend periods are at the time outstanding,
the current dividend period, or any past dividend period, as the case may be,
with respect to each such series.
Section 3. Preference on Liquidation. In the event of
any liquidation, dissolution or winding up of the Corporation, the holders of
the Serial Preferred Stock of each series shall be entitled to receive, for each
share thereof, the fixed liquidation price for such series, plus, in case such
liquidation, dissolution or winding up shall have been voluntary, the fixed
liquidation premium for such series, if any, together in all cases with a sum
equal to all dividends accrued or in arrears thereon and the full additional
amount required by any participation right, before any distribution of the
assets shall be made to holders of Common Stock or Junior Stock; but the holders
of the Serial Preferred Stock shall be entitled to no further participation in
such distribution. If upon any such liquidation, dissolution or winding up, the
assets distributable among the holders of Serial Preferred Stock shall be
insufficient to permit the payment of the full preferential amounts aforesaid,
then such assets shall be distributed among the holders of the Serial Preferred
Stock then outstanding ratably in proportion to the full preferential amounts to
which they are respectively entitled. For the purposes of this Section 3, the
expression "dividends accrued or in arrears" means, in respect of each share of
the Serial Preferred Stock of any series at a particular time, an amount equal
to the product of the rate of dividend per annum applicable to the shares of
such series multiplied by the number of yearn and any fractional part of a year
that shall have elapsed from the date when dividends on such shares became
cumulative to the particular time in question less the total amount of dividends
actually paid on the shares of such series or declared and set apart for payment
thereon; provided, however, that, if the dividends on such Shares shall not be
fully cumulative, such expression shall mean the dividends, if any, cumulative
in respect of such shares for the period stated in the articles of serial
designation creating such shares less all dividends paid in or with respect to
such period.
B. Common Stock
Section 1. Subject to the provisions of law and the
rights of holders of shares at the time outstanding of Serial Preferred Stock,
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 2. 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 and all preferential amounts to which the holders of shares at
the time outstanding of Serial Preferred Stock shall be entitled, 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 3. The holders of Common Stock shall be
entitled to one vote per share on all matters as to which a stockholder vote
is taken.
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.
<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 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.
VIII. INITIAL REGISTERED OFFICE AND AGENT
The post office address of the initial registered
office is 23rd Floor, 1111 East Main Street, Richmond, Virginia 23219. The
name of the City in which the initial registered office is located is Richmond.
The name of the initial registered agent is Fred W. Palmore, III, whose business
office is the same as the registered office and who is a resident of Virginia
and a member of the Virginia State Bar.
Date: January 21, 1997 _________________________________
Timothy P. Veith
Incorporator
<PAGE>
EXHIBIT B
12 U.S.C. ss. 215a(b)
Mergers of national banks or State banks into national banks.
Dissenting shareholders. If a merger shall be voted for at the called meetings
by the necessary majorities of the shareholders of each association or State
bank participating in the plan of merger, and thereafter the merger shall be
approved by the Comptroller, any shareholder of any association or State bank to
be merged into the receiving association who has voted against such merger at
the meeting of the association or bank of which he is a stockholder, or has
given notice in writing at or prior to such meeting to the presiding officer
that he dissents from the plan of merger, shall be entitled to receive the value
of the shares so held by him when such merger shall be approved by the
Comptroller upon written request made to the receiving association at any time
before thirty days after the date of consummation of the merger, accompanied by
the surrender of his stock certificates.
B-1
<PAGE>
Part II - Information Not Required in Prospectus
Item 20. Indemnification of Officers and Directors
Article VII of the Registrant's Articles of Incorporation mandates
indemnification of the Registrant's directors and officers to the full extent
permitted by the Virginia Stock Corporation Act (the Virginia Act) as in effect
from time to time. As of the date hereof, the Virginia Act permits a
corporation, to the extent authorized by its articles of incorporation, to
indemnify 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, and accordingly the Registrant is
required to indemnify its directors and officers in all such proceedings if they
have not violated this standard.
In addition, Article VII of the Registrant's Articles of
Incorporation limits the liability of the Registrant's directors and officers to
the full extent permitted by the Virginia Act. As of the date hereof, the
Virginia Act places a limit on the liability of a director or officer in
derivative and shareholder proceedings equal to the lesser of: (i) the monetary
amount, including the elimination of liability, specified in the corporation's
articles of incorporation or a shareholder-approved by-law; or (ii) the greater
of (a) $100,000 or (b) twelve months of cash compensation received by the
officer or director. The limit does not apply in the event the director or
officer has engaged in willful misconduct or a knowing violation of the criminal
law or any federal or state securities law. The effect of the Registrant's
Articles of Incorporation, together with the Virginia Act, is to accordingly
limit liability of directors and officers for money damages in shareholder
derivative proceedings, so long as the required standard of conduct is met.
Item 21. Exhibits and Financial Statement Schedules
An index of exhibits appears at Page II-4 hereof.
Item 22. Undertakings
(a) (a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in the prospectus any
facts or events arising after the effective
date of the registration statement (or the
most recent post-effective amendment
thereof) which, individually or in the
aggregate, represent a fundamental change in
the information set forth in the
registration statement; and
(iii) To include any material information
with respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that,
for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(e) The undersigned registrant hereby undertakes to
deliver or cause to be delivered with the prospectus, to each person to
whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver or to
cause to be delivered to each person to whom the prospectus is sent or
given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial
information.
(g) (1) The undersigned registrant hereby undertakes as
follows: that prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement, by any person or party which is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes
that such reoffering prospectus will contain the information called for
by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i)
that is filed pursuant to paragraph immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers, and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person
of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes to
respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent
to the effective date of the registration statement through the date of
responding to the request.
(c) The undersigned registrant hereby undertakes to
supply by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein, that was
not the subject of and included in the registration statement when it
became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Altavista, Virginia, on January 22,
1997.
PINNACLE BANKSHARES CORPORATION
Altavista, Virginia
by: /s/ Robert H. Gilliam, Jr.
---------------------------------------
Robert H. Gilliam, Jr.
President and
Chief Executive Officer
Pursuant to the requirements of the securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C>
President and Chief Executive Officer
/s/ Robert H. Gilliam, Jr. (Principal Executive Officer) and Director January 22, 1997
- - --------------------------------------------
Robert H. Gilliam, Jr.
Secretary, Treasurer and Chief Financial
Officer (Principal Financial
/s/ Dawn P. Crusinberry. and Accounting Officer) January 22, 1997
- - --------------------------------------------
Dawn P. Crusinberry
/s/ Alvah P. Bohannon, Jr. Director January 22, 1997
- - --------------------------------------------
Alvah P. Bohannon, III
/s/ Robert L. Finch Director January 22, 1997
- - --------------------------------------------
Robert L. Finch
/s/ James P. Kent, Jr. Director January 22, 1997
- - --------------------------------------------
James P. Kent, Jr.
/s/ Kenneth S. Tyler, Jr. Director January 22, 1997
- - --------------------------------------------
Kenneth S. Tyler, Jr.
</TABLE>
<PAGE>
INDEX TO Exhibit
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description of Exhibit Page Number
<S> <C>
1 Not Applicable.
2 Agreement and Plan of Reorganization, dated
January 22, 1997, between The First National
Bank of Altavista (the "Bank"), Pinnacle
Bankshares Corporation ("Registrant") and
Pinnacle Bank, N.A. (information), filed as
Exhibit A to the Proxy Statement/Prospectus
included in this Registration Statement.
3(i) Articles of Incorporation of the Registrant,
filed as Appendix I to Exhibit A to the
Proxy Statement / Prospectus.
3(ii) Bylaws of the Registrant.
4 See Exhibits 3(i) and 3(i) incorporated herein
by reference.
5 Form of opinion of Mays & Valentine regarding
the legality of the securities being registered and consent.
6 Not Applicable.
7 Not Applicable.
8 Form of tax opinion of Mays & Valentine regarding
the Reorganization.
9 Not Applicable.
10 None.
11 Not applicable.
12 Not applicable.
13 The financial statements (including an
executed accountants report) as contained in
the Bank's 1996 Annual Report to
Shareholders, to be delivered with the Proxy
Statement / Prospectus related to the 1997
Annual Meeting of Shareholders of the Bank.
14 Not Applicable.
15 Not Applicable.
16 Not Applicable.
17 Not Applicable.
18 Not Applicable.
II-4
<PAGE>
19 Not Applicable.
20 Not Applicable.
21 None.
22 Not Applicable.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Mays & Valentine (included as part
of Exhibit 5).
25 Not Applicable.
26 Not Applicable.
27 Not Applicable.
28 Not Applicable.
99.1 The manually signed report, dated January 8, 1997,
of KPMG Peat Marwick LLP as accountants for the Bank
(see Exhibit 13 above).
99.2 Form of proxy of the Bank
</TABLE>
II-5
EXHIBIT 3(ii)
BYLAWS
OF
PINNACLE BANKSHARES CORPORATION
(Adopted January 22, 1997)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - SHARES 1
Section 1. Certificates................................................................1
Section 2. Signatures ................................................................1
Section 3. Duplicate Certificates......................................................1
Section 4. Transfer of Shares..........................................................1
Section 5. Restrictions on Transfer....................................................1
ARTICLE II - SHAREHOLDERS 2
Section 1. Holders of Shares...........................................................2
Section 2. Meetings Generally..........................................................2
Section 3. Annual Meetings.............................................................2
Section 4. Special Meetings............................................................2
Section 5. Notice ............................................................... 2
Section 6. Waiver of Notice............................................................3
Section 7. Action Without Meeting......................................................3
Section 8. Determination of Shareholders of Record.....................................3
Section 9. Conduct of Meetings.........................................................3
Section 10. Proxies ............................................................... 3
Section 11. Procedure at Meetings.......................................................4
Section 12. Quorum and Voting...........................................................4
Section 13. Adjournments................................................................4
ARTICLE III - DIRECTORS 4
Section 1. General Powers..............................................................4
Section 2. Number and Qualifications...................................................4
Section 3. Regular Meetings............................................................5
Section 4. Special Meetings............................................................5
Section 5. Notice ............................................................... 5
Section 6. Waiver of Notice............................................................5
Section 7. Action Without Meeting......................................................5
Section 8. Conduct of Meetings.........................................................5
Section 9. Procedure at Meetings.......................................................5
Section 10. Participation by Conference Telephone.......................................6
Section 11. Quorum ............................................................... 6
Section 12. Committees ............................................................... 6
Section 13. Staggered Terms.............................................................6
Section 14. Removal ............................................................... 6
Section 15. Vacancies ............................................................... 6
Section 16. Nominations of Director Candidates..........................................7
Section 17. Shareholder Proposals.......................................................7
Section 18. Resignation ................................................................8
Section 19. Conflicts of Interest.......................................................8
ARTICLE IV - OFFICERS 8
Section 1. Generally ................................................................8
Section 2. President ................................................................9
Section 3. Vice Presidents.............................................................9
Section 4. Secretary ................................................................9
Section 5. Treasurer ................................................................9
Section 6. Delegation of Power.........................................................9
Section 7. Term of Office.............................................................10
Section 8. Resignation ...............................................................10
Section 9. Removal ...............................................................10
Section 10. Execution of Instruments...................................................10
Section 11. Proxies ...............................................................10
ARTICLE V - SEAL ...............................................................10
ARTICLE VI - AMENDMENTS 11
</TABLE>
-2-
<PAGE>
BYLAWS
OF
PINNACLE BANKSHARES CORPORATION
ARTICLE I
SHARES
zz
Section 1. Certificates. All shares issued by the Corporation shall,
when fully paid, be represented by certificates in such form as may be required
by law and approved by the Board of Directors. Share certificates shall, subject
to the provisions of Section 2 of this Article, be signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary or any other officer authorized by resolution of the
Board of Directors. Each share certificate may, but need not, be sealed with the
seal of the Corporation or a facsimile thereof.
Section 2. Signatures. The signatures of the officers upon a share
certificate may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the Corporation itself or an
employee of the Corporation. If any person who signed, either manually or by
facsimile, a share certificate no longer holds office when such certificate is
issued, the certificate is nevertheless valid.
Section 3. Duplicate Certificates. In case of the loss, mutilation
or destruction of a share certificate, a duplicate may be issued upon such
terms, and bearing such legend, if any, as the Board of Directors may lawfully
prescribe.
Section 4. Transfer of Shares. A transfer of shares shall be made on
the share transfer books of the Corporation only upon surrender of the
certificates representing the shares transferred, endorsed or accompanied by a
written assignment signed by the holder of record or by his duly authorized
attorney-in-fact. The Board of Directors may from time to time make such
reasonable regulations governing the transfer of shares as it may deem necessary
or proper.
Section 5. Restrictions on Transfer. A transfer of shares shall be
made only in accordance with any provision of the articles of incorporation or
these bylaws or an agreement among the shareholders or between the shareholders
and the Corporation that imposes restrictions on the transfer of shares.
<PAGE>
ARTICLE II
SHAREHOLDERS
Section 1. Holders of Shares. Only shareholders of record on the
share transfer books of the Corporation shall be entitled to be treated by the
Corporation as the holders of the shares standing in their respective names,
and, except to the extent, if any, required by law, the Corporation shall not be
obligated to recognize any equitable or other claim to or interest in any share
on the part of any other person, whether or not it shall have express or other
notice hereof.
Section 2. Meetings Generally. Meetings of shareholders shall be
held at the registered office or the principal office of the Corporation or at
such other place, within or without the Commonwealth of Virginia, as the Board
of Directors may designate from time to time. At least ten days before each
meeting, the officer or agent having charge of the share transfer books of the
Corporation shall prepare a complete list of the shareholders entitled to vote
at such meeting or any adjournment thereof, with the address and number of
shares held by each, arranged by voting group and within each voting group by
class or series of shares. For a period of ten days prior to the meeting the
list of shareholders kept on file at the registered office or the principal
office of the Corporation or at the office of its transfer agent or registrar
shall be subject to inspection by any shareholders at any time during usual
business hours. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting for the purposes thereof.
Section 3. Annual Meetings. An annual meeting of the shareholders
shall be held on the second Tuesday in March of each year, or on such other date
set by the Board of Directors, for the purpose of electing directors and
transacting such other business as may properly come before the meeting.
Section 4. Special Meetings. A special meeting of the
shareholders shall be held on the call of the Chairman of the Board of
Directors, the President or the Board of Directors.
Section 5. Notice. Written notice of the date, time and place of the
meeting and, in the case of a special meeting (or if required by law, the
articles of incorporation or these bylaws), the purpose or purposes for which
the meeting is called shall be given to each shareholder entitled to vote at the
meeting. Such notice shall be given either by personal delivery or by mail, by
or at the direction of the officer or persons calling the meeting, not more than
60 days nor less than ten days before the date of the meeting (except that such
notice shall be given to each shareholder, whether or not entitled to vote, not
less than 25 days before a meeting called to act on an amendment to the articles
of incorporation, a plan of merger or share exchange, a proposed sale, lease,
exchange or other disposition of all, or substantially all, of the property of
the Corporation other than in the usual and regular course of business, or the
dissolution of the Corporation, which notice shall be accompanied by a copy of
the proposed amendment, plan of merger or share exchange, agreement of sale or
plan of dissolution, as the case may be). Notice to a shareholder shall be
deemed given when mailed postage prepaid, correctly addressed, to the
shareholder at his address as shown in the current record of shareholders of the
Corporation.
A shareholder's attendance at a meeting waives objection to: (i)
lack of notice or defective notice of the meeting, unless at the beginning of
the meeting he objects to holding the meeting or transacting business at the
meeting; and (ii) consideration of a particular matter at the meeting that is
not within the purpose or purposes described in the notice of the meeting,
unless he objects to considering the matter when it is presented.
Section 6. Waiver of Notice. Notice of any meeting may be waived
before or after the date and time of the meeting in a writing signed by the
shareholder entitled to notice and delivered to the Secretary for inclusion in
the minutes of the meeting or filing with the corporate records.
Section 7. Action Without Meeting. Any action required or permitted
by law to be taken at a shareholders' meeting may be taken without a meeting if
the action is taken by all of the shareholders entitled to vote on the action.
The action shall be evidenced by one or more written consents describing the
action taken, signed by all the shareholders entitled to vote thereon and
delivered to the Secretary for inclusion in the minutes or filing with the
corporate records.
Section 8. Determination of Shareholders of Record. The share
transfer books may be closed by order of the Board of Directors for not more
than 70 days for the purpose of determining shareholders entitled to notice of
or to vote at any meeting of the shareholders or any adjournment thereof (or
entitled to receive any distribution or in order to make a determination of
shareholders for any other purpose). In lieu of closing such books, the Board of
Directors may fix in advance as the record date for any such determination a
date not more than 70 days before the date on which such meeting is to be held
(or such distribution made or other action requiring such determination is to be
taken). If the books are not thus closed or the record date is not thus fixed,
the record date shall be the close of business on the day before the effective
date of the notice to shareholders.
Section 9. Conduct of Meetings. The President shall act as chairman
of and preside over meetings of the shareholders. In the absence of the
President, the meeting shall elect a chairman. The Secretary, or in his absence
the Assistant Secretary, shall act as the secretary of such meetings. If no such
officer is present, the chairman shall appoint a secretary of the meeting. The
order of business at the annual meeting of shareholders and as far as is
practicable at any other meetings of the shareholders shall be determined by the
chairman.
Section 10. Proxies. A shareholder may appoint a proxy to vote or
otherwise act for him by signing and dating an appointment form, either
personally or by his attorney-in-fact. No appointment of proxy shall be valid
after the expiration of 11 months from the date of its execution, unless
otherwise provided therein. Every appointment of proxy shall be revocable by the
shareholder executing it, unless the appointment form conspicuously states that
it is irrevocable and that it is coupled with an interest in accordance with
law.
Section 11. Procedure at Meetings. The procedure at meetings of the
shareholders shall be determined by the chairman, and (subject to the provisions
of Section 9 of this Article) the vote on all questions before any meeting shall
be taken in such manner as the chairman prescribes. However, upon the demand of
the holders in the aggregate of at least twenty percent of all the votes
entitled to be cast on any issue proposed to be considered at the meeting, such
vote shall be by ballot.
Section 12. Quorum and Voting. A quorum at any meeting of
shareholders shall be a majority of the votes entitled to be cast, represented
in person or by proxy. If a quorum exists, action on a matter is approved by a
majority of the votes cast within the voting group, unless a greater vote is
required by law or the articles of incorporation (except that in elections of
directors those receiving the greatest number of votes shall be elected even
though less than a majority).
Section 13. Adjournments. A majority of the votes entitled to be
cast at any meeting, represented in person or by proxy, even though less than a
quorum, may adjourn the meeting to a fixed time and place. If a meeting of the
shareholders is adjourned to a date more than 120 days after the date fixed for
the original meeting, notice of the adjourned meeting shall be given as in the
case of the original meeting. If a meeting is adjourned for less than 120 days,
no notice of the date, time or place of the adjourned meeting or, in the case of
a special meeting, the purpose or purposes for which the meeting is called, need
be given other than by announcement at the meeting at which the adjournment is
taken, prior to such adjournment. If a quorum shall be present at any adjourned
meeting, any business may be transacted which might have been transacted if a
quorum had been present at the meeting as originally called.
ARTICLE III
DIRECTORS
Section 1. General Powers. Except as expressly provided in the
articles of incorporation or these bylaws, all corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation managed under the direction of, the Board of Directors.
Section 2. Number and Qualifications. The Board of Directors shall
consist of a minimum of 3 and a maximum of 15 individuals. No director may be
nominated for election or elected if on the date of his election he has or would
have attained the age of 70 years. Directors need not be residents of Virginia
or shareholders of the Corporation. Directors shall be elected at each annual
meeting of the shareholders and may be elected at any special meeting of the
shareholders.
Section 3. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at the registered office or principal
office of the Corporation or at such other place, within or without the
Commonwealth of Virginia, as the Board of Directors may designate from time to
time. A regular meeting of the Board of Directors shall be held as soon as
practicable after each annual meeting of the shareholders for the purpose of
appointing officers and transacting such other business as may properly come
before the meeting.
Section 4. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the President or any 2 of the directors.
Section 5. Notice. Written notice of the date, time and place of
special meetings shall be given to each director either by personal delivery or
by mail, by or at the direction of the officer or directors calling the meeting,
to the address of such director as it appears in the records of the Corporation
not less than ten days before the date of the meeting. Neither the business to
be transacted at, nor the purpose of, any meeting of the Board of Directors need
be specified in the notice or any waiver of notice of such meeting.
A director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless he at the beginning of the meeting
or promptly upon his arrival objects to holding the meeting or transacting
business at the meeting and does not thereafter vote for or assent to the action
taken at the meeting.
Section 6. Waiver of Notice. Notice of any meeting may be waived
before or after the date and time of the meeting in a writing signed by the
director entitled to notice and delivered to the Secretary of the Corporation
for inclusion in the minutes of the meeting or filing with the corporate
records.
Section 7. Action Without Meeting. Any action required or permitted
by law to be taken at a meeting of the Board of Directors may be taken without a
meeting if the action is taken by all of the members of the Board of Directors.
The action shall be evidenced by one or more written consents stating the action
taken, signed by each director either before or after the action taken, and
included in the minutes or filed with the corporate records reflecting the
action taken.
Section 8. Conduct of Meetings. The President shall act as chairman
of and preside over meetings of the Board of Directors. If no such officer is
present, the meeting shall elect a chairman. The Secretary, or in his absence
the Assistant Secretary, shall act as secretary of such meetings. If no such
officer is present, the chairman shall appoint a secretary of the meeting.
Section 9. Procedure at Meetings. The procedure at meetings of the
Board of Directors shall be determined by the chairman, and (subject to the
provisions of Section 17 of this Article) the vote on all matters before any
meeting shall be taken in such manner as the chairman may prescribe.
Section 10. Participation by Conference Telephone. The Board of
Directors may permit any or all directors to participate in a meeting of the
directors by, or conduct the meeting through the use of, conference telephone or
any other means of communication by which all directors participating may
simultaneously hear each other during the meeting. A director participating in a
meeting by such means shall be deemed to be present in person at the meeting.
Section 11. Quorum. A quorum at any meeting of the Board of
Directors shall be a majority of the number of directors fixed or prescribed by
these bylaws or, if no number is prescribed, the number of directors in office
immediately before the meeting begins. The affirmative vote of the majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
Section 12. Committees. The Board of Directors may create one or
more committees and appoint two or more members of the board to serve on them at
the pleasure of the Board of Directors. Any such committee, to the extent
specified by the Board of Directors, may exercise the authority that may be
exercised by the Board of Directors except to the extent prohibited or
restricted by law, the articles of incorporation or these bylaws.
The provisions of Sections 3 through 11 of this Article, which
provide for, among other things, meetings, action without meetings, notice and
waiver of notice, quorum and voting requirements of the Board of Directors,
shall apply to committees and their members as well.
Section 13. Staggered Terms. 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 in number as possible.
Section 14. Removal. 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 15. Vacancies. 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 shareholders. In such event, the
successor elected by the shareholders 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.
Section 16. Nominations of Director Candidates. The Board of
Directors may nominate directors by resolution at any time prior to solicitation
of proxies for the annual meeting of shareholders. Any shareholder entitled to
vote in the election of directors generally may nominate one or more persons for
election as directors at a meeting, but only if written notice of such
shareholder's intent to make such nomination(s) has been given, either by
personal delivery or by United States mail, postage prepaid, to the Secretary of
the Corporation not less than thirty (30) days prior to the first anniversary
date of the initial notice given to shareholders of record on the record date
for the previous annual meeting by or at the direction of the Board of
Directors, provided, however, that such notice shall not be required to be given
more than ninety (90) days prior to the annual meeting of shareholders. Each
such notice of a shareholder's intention to make nomination(s) shall set forth:
(a) the name and address of the shareholder who intends to make the nomination
of the person(s) and of the person(s) to be nominated; (b) a representation that
the shareholder is the owner of stock of the Corporation entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
nominate the person(s) specified in the notice; (c) a description of all
arrangements or understandings between the shareholder and each nominee for
director and any other person(s) (naming such person(s)) pursuant to which the
nomination(s) are to be made by the shareholder; (d) such other information
regarding such nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, had the nominee been nominated, or intended
to be nominated, by the Board of Directors, including, but not limited to, the
amount and nature of his beneficial ownership of the Corporation's securities,
his principal occupation for the past five years and his age; and (e) the
written consent of each nominee to serve as a director of the Corporation if so
elected. The presiding officer at any meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing sentence.
Section 17. Shareholder Proposals. (a) Eligible shareholders shall
submit proposals for inclusion in the proxy materials for consideration at
annual meetings of the Corporation in accordance with the rules and regulations
of the Securities and Exchange Commission as set forth in the Securities
Exchange Act of 1934 (the "1934 Act"). A proponent may submit no more than one
proposal that, with a supporting statement, shall not exceed in the aggregate
500 words. At the time of submitting any such proposal, the proponent shall set
forth his name and address and shall be a record or beneficial owner of at least
1% or $1,000 in market value of securities entitled to be voted at the meeting.
The proponent shall have held such securities for at least one year, and he
shall continue to own such securities through the date on which the meeting is
held. At the time of submission of the proposal, the Corporation shall receive
from the proponent documentary evidence which supports such beneficial ownership
in the form prescribed under Rule 14a-8 of the 1934 Act, as amended, or any
successor statute or regulation.
(b) Such proposal must be by written notice, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Corporation not less than one hundred twenty (120) days prior to the first
anniversary date of the initial notice given to shareholders of record on the
record date for the previous annual meeting by or at the direction of the Board
of Directors, provided, however, that if the annual meeting has been changed by
more than 30 days from the date contemplated at the time of the previous year's
proxy statement, such notice shall be required to be given not less than ninety
(90) days nor more than one hundred twenty (120) days prior to the date set for
such annual meeting of shareholders.
(c) The Corporation shall not be required to include the proposal in
its proxy statement or form of proxy unless the proponent has complied with the
requirements of the 1934 Act and this section. In addition, the presiding
officer at the meeting may refuse to acknowledge the proposal by any person that
is not made in compliance with the foregoing.
Section 18. Resignation. A director may resign at any time by
delivering written notice to the Board of Directors, the President or the
Secretary. A resignation shall be effective when delivered, unless the notice
specifies a later effective date.
Section 19. Conflicts of Interest. No transaction with the
Corporation in which a director has a direct or indirect personal interest shall
be void or voidable solely because of the director's interest in the transaction
if: (i) the material facts of the transaction and the director's interest are
disclosed or known to the Board of Directors or a committee of the Board of
Directors, and the transaction was authorized, approved or ratified by the
affirmative vote of a majority of the directors on the Board of Directors, or on
the committee, who have no direct or indirect personal interest in the
transaction; provided, however, that a transaction shall not be authorized,
approved or ratified by a single director; or (ii) the material facts of the
transaction and the director's interest are disclosed to the shareholders
entitled to vote, and the transaction is authorized, approved or ratified by the
vote of a majority of the shares other than shares owned by or voted under the
control of a director who has a direct or indirect interest in the transaction;
or (iii) the transaction is fair to the Corporation.
ARTICLE IV
OFFICERS
Section 1. Generally. The officers of the Corporation shall be a
President, such Vice Presidents or Assistant Vice Presidents as the Board of
Directors may appoint, a Secretary and a Treasurer, each of whom shall be
appointed by the Board of Directors at a regular meeting of the directors held
as soon as may be practicable after each annual meeting of the shareholders or,
if a vacancy shall exist in any such office, at a special meeting of the
directors held as soon as may be practicable after the resignation, death or
removal of the officer theretofore holding the same. The Board of Directors may
from time to time, appoint other officers and assistant officers and fill any
vacancy that may exist in any such office as a result of the resignation, death
or removal of the officer theretofore holding the same. Any officer may hold
more than one office and may, but need not, be a director. Each officer shall
have the authority and perform the duties which pertain to the office held by
him, or as set forth in these bylaws or, to the extent consistent with these
bylaws, such duties as may be prescribed by the Board of Directors, the Chairman
of the Board of Directors or the President.
Section 2. President. The President shall be the chief executive
officer of the Corporation. The President shall have general supervision over,
responsibility for and control of the other officers, agents and employees of
the Corporation. The President shall act as chairman of and preside over
meetings of the shareholders and directors, unless the Board appoints another
director to be chairman, and shall perform, to the extent consistent with these
bylaws, such duties as may be required of, or conferred upon, him by the Board
of Directors.
Section 3. Vice Presidents. Each Vice President shall perform, to
the extent consistent with these bylaws, such duties as may be prescribed by the
Board of Directors or the President. In the event of and during the absence,
disqualification or inability to act of the President, the Vice Presidents, in
the order designated by the Board of Directors, shall have the authority and
perform the duties of the President.
Section 4. Secretary. The Secretary shall have the responsibility
for preparing and maintaining custody of minutes of meetings of the shareholders
and directors in a book or books kept for that purpose and the responsibility
for authenticating records of the Corporation. The Secretary shall maintain a
record of shareholders of the Corporation, giving the names and addresses of all
shareholders and the numbers, classes and series of the shares held by each and,
unless otherwise prescribed by the Board of Directors, shall maintain the share
transfer books of the Corporation.
Section 5. Treasurer. The Treasurer shall be the chief financial
officer of the Corporation. The Treasurer shall have the custody of all moneys
and securities of the Corporation and shall deposit the same in the name and to
the credit of the Corporation in such depositories as may be designated by the
Board of Directors and, unless otherwise prescribed by the Board of Directors or
the President, shall maintain the books of account and financial records.
Section 6. Delegation of Power. In the event of and during the
absence, disqualification or inability to act of any officer other than the
President, such other officers or employees as may be designated by the Board of
Directors or by the President shall have the authority and perform the duties of
such officer.
Section 7. Term of Office. Each officer shall be appointed to hold
office until the first regular meeting of the Board of Directors held after each
annual meeting of the shareholders, or for such longer or shorter term as the
Board of Directors may specify, and until his successor shall have been
appointed or such earlier time as he shall resign, die or be removed.
Section 8. Resignation. An officer may resign at any time by
delivering written notice to the Board of Directors, the President or the
Secretary. A resignation shall be effective when delivered unless the notice
specifies a later effective date.
Section 9. Removal. Any officer may be removed, with or without
cause, at any time by the Board of Directors and any officer or assistant
officer, if appointed by another officer, may likewise be removed by such
officer.
Section 10. Execution of Instruments. Checks, drafts, notes and
orders for the payment of money shall be signed by such officer or officers or
such other individual or individuals as the Board of Directors may from time to
time authorize, and any endorsement of such paper in the ordinary course of
business shall be similarly made, except that any officer or assistant officer
of the Corporation may endorse checks, drafts or notes for collection or deposit
to the credits of the Corporation. The signature of any such officer or other
individual may be a facsimile when authorized by the Board of Directors.
Section 11. Proxies. Unless otherwise prescribed by the Board of
Directors, the President may from time to time himself, by such proxy or
proxies, attorney or attorneys, agent or agents of the Corporation as he shall
designate in the name and on behalf of the Corporation, cast the votes to which
the Corporation may be entitled as a shareholder or otherwise in any other
corporation, at meetings, or consent in writing to any action by any such other
corporation; and he may instruct the individual or individuals so appointed as
to the manner of casting such votes or giving such consent, and execute or cause
to be executed on behalf of the Corporation such written proxies, consents,
waivers or other instruments as he may deem necessary or desirable.
ARTICLE V
SEAL
The seal of the Corporation shall be a flat-face circular die
containing the name of the Corporation, of which there may be any number of
counterparts or facsimiles, in such form as the Board of Directors shall from
time to time adopt.
ARTICLE VI
AMENDMENTS
These bylaws may be amended or repealed by the Board of Directors
except to the extent that: (i) this power is reserved exclusively to the
shareholders by law or the articles of incorporation; or (ii) the shareholders
in adopting or amending particular bylaws provide expressly that the Board of
Directors may not amend or repeal the same. These bylaws may be amended or
repealed by the shareholders even though the same also may be amended or
repealed by the Board of Directors.
ADOPTED: January 22, 1997
EXHIBITS 5 & 23.2
[Mays & Valentine, L.L.P. Letterhead]
(804) 697-1265 14679.002
January 24, 1997
Pinnacle Bankshares Corporation
622 Broad Street
Altavista, Virginia 24517
Gentlemen:
You propose to file today with the Securities and
Exchange Commission a registration statement on Form S-4 (the "Registration
Statement") relating to 719,025 shares of Pinnacle Bankshares Corporation Common
Stock, $3.00 par value (the "Common Stock"), to be issued pursuant to the
Agreement and Plan of Reorganization between Pinnacle Bankshares Corporation,
The First National Bank of Altavista (the "Bank") and Pinnacle Bank, N.A., dated
as of January 22, 1997(the "Agreement"), by which the Bank will be reorganized
under a one-bank holding company structure (the "Reorganization"). Under the
Agreement, the Company will issue shares of its stock on a three-for-one
exchange basis on the Effective Date of the Reorganization.
We have been requested to furnish an opinion regarding
certain legal matters to be included as an exhibit to the Registration
Statement. The opinion set out below is rendered as of the date hereof and its
applicability on any future date is conditioned upon the nonoccurrence of any
event which would affect the validity of the issuance of Common Stock covered by
the Registration Statement.
In connection with this opinion, we have examined such
records and documents as we have deemed relevant and necessary in order to
render this opinion.
We are of the opinion that:
The shares of Common Stock that may be issued under the
Reorganization and that are the subject of the Registration Statement, when
issued for the consideration provided for and in the manner and under the
conditions set forth in the Agreement and the instruments under which they are
granted, will be validly issued, fully paid and nonassessable; and
We consent to the filing of this opinion as an exhibit
to the Registration Statement.
Very truly yours,
/s/ Mays & Valentine
FORM OF TAX OPINION
[MAYS & VALENTINE, L.L.P.
LETTERHEAD]
EXHIBIT 8
(804) 697-1265 14679.002
February __, 1997
Pinnacle Bankshares Corporation &
The First National Bank of Altavista
622 Broad Street
Altavista, VA 24517
Reorganization of The First National Bank of Altavista
into a One-Bank Holding Company Structure
Gentlemen:
You have requested our opinion as to certain federal
income tax consequences with respect to the consummation of the proposed merger
of The First National Bank of Altavista, a national banking corporation (the
"Bank"), into Pinnacle Bank, N.A., an interim nationally chartered bank recently
organized (the "Interim Bank"), pursuant to the terms and conditions of the
Agreement and Plan of Reorganization, dated as of January 22, 1997, (the
"Agreement"), by and among the Bank, the Interim Bank, and Pinnacle Bankshares
Corporation, a proposed bank-holding company organized under the laws of
Virginia (the "Holding Company").
I. The Transaction
Pursuant to the Agreement and subject to various
regulatory approvals, the Bank will be merged with and into the Interim Bank
under the charter of the latter and in accordance with the provisions of, and
the National Banking Act and regulations promulgated thereunder with the effect
provided therein (the "Reorganization"). The bank resulting from the
Reorganization will be a wholly-owned subsidiary of the Holding Company and will
conduct its business in substantially the same manner as the Bank had done
before the Reorganization.
At the effective date of the Reorganization, each
outstanding share of common stock of the Bank ("Bank Stock") will be exchanged
for and converted into three shares of common stock of the Holding Company
("Holding Company Stock").
II. Examination
In connection with the preparation of this opinion, we
have examined such documents concerning the Reorganization as we have deemed
necessary. We have based our conclusions on the Internal Revenue Code of 1986,
as amended (the "Code") and the regulations promulgated pursuant thereto, each
as amended from time to time and existing on the date hereof, as well as
existing judicial and administrative interpretations thereof.
As to various questions of fact material to our opinion,
we have relied upon the representations made in the Agreement and in the
Proxy Statement/Prospectus of the Bank, dated as of February __, 1997, furnished
to the stockholders of the Bank in connection with the solicitation of proxies
to be used at the stockholders' meeting called to approve the Agreement, as well
as the representations recited in Section III hereof.
III. Additional Representations
In connection with the proposed Reorganization, the
following additional representations have been made:
A. The fair market value of Holding Company
Stock to be received by the Bank's stockholders will be approximately equal
to the fair market value of Bank Stock surrendered in exchange therefor.
B. To the best knowledge of the management of
the Bank, there is no plan or intention on the part of the Bank's stockholders
to sell or otherwise dispose of Holding Company Stock to be received by them in
the Reorganization that will reduce their holdings thereof to a number of shares
having in the aggregate a fair market value of less than 50 percent of the fair
market value of all the Bank Stock held by Bank stockholders on the effective
date of the Reorganization.
C. In the proposed Reorganization, the Bank will
transfer to the Interim Bank assets representing at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market value
of the gross assets held by the Bank immediately prior to the Reorganization.
For purposes of this representation, payment of reorganization expenses and
payment of interest on the loan for the Interim Bank's initial capitalization
that are made out of the assets of the Bank will be treated as assets held by
the Bank immediately prior to the Reorganization that are not transferred to the
Interim Bank.
D. There is no plan or intention to sell or otherwise
dispose of any of the assets of the Bank to be transferred to the Interim
Bank in the proposed Reorganization, except for dispositions made in the
ordinary course of business.
E. Each party to the Reorganization will pay its own
expenses, if any, incurred in connection with the transaction.
F. After consummation of the Reorganization, the bank
resulting from the Reorganization will conduct its business operations in
substantially the same manner as the Bank had done before the Reorganization,
but as a wholly-owned subsidiary of the Holding Company.
G. There is no plan or intention for the Holding
Company to liquidate the Interim Bank, to merge the Interim Bank into
another corporation, or to sell or otherwise dispose of the stock in the Interim
Bank, nor is there any plan or intention for the Holding Company to redeem or
otherwise acquire any of its stock to be issued in the proposed transaction.
H. There is no plan or intention for the Interim Bank
to issue additional shares of its stock that would result in Holding Company
losing control of Interim Bank within the meaning of Section 368(c)(1) of the
Code.
I. The liabilities of the Bank to be assumed by the
Interim Bank in the proposed transaction were incurred in the ordinary course
of business and are associated with the assets to be transferred.
J. There is no intercorporate indebtedness existing
between or among the Holding Company, the Bank and the Interim Bank that was
issued, acquired, or will be settled at a discount.
K. The fair market value and adjusted basis of the
assets of the Bank to be transferred to the Interim Bank will each equal or
exceed the sum of the liabilities to be assumed by the Interim Bank plus the
amount of liabilities to which the assets are subject.
L. No dividends or other distributions will be made
with respect to any Bank Stock before the proposed Reorganization, except
for regular, normal distributions.
M. None of the shares of Holding Company stock and no
other property received by a shareholder-employee in exchange for Bank Stock
pursuant to the Reorganization is compensation for services rendered. In
addition, any compensation paid to any shareholder-employee will be for services
actually rendered and bargained for at arm's length, or commensurate with a
third party arm's length negotiation.
N. No two parties to the Reorganization are
investment companies as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code.
IV. Opinion
Based upon the foregoing, and assuming no change in the
laws or facts underlying this transaction between the date of this opinion and
the date the Reorganization is completed, we are of the opinion that for federal
income tax purposes:
1. The Reorganization will constitute and
qualify as a reorganization within the
meaning of the Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code;
2. No gain, loss or other income will be
recognized by the Holding Company or the
Bank as a result of the Reorganization;
3. No gain, loss or other income will be
recognized by (or be includable in the
gross income of) the stockholders of the
Bank upon the receipt by them of Holding
Company Stock in exchange for their shares
of Bank Stock;
4. The tax basis of Holding Company Stock
received by the stockholders of the Bank
will be the same as the tax basis of the
Bank Stock surrendered and exchanged
therefor; and
5. The holding period of the Holding Company
Stock to be received by the stockholders of
the Bank will include the period during
which the Bank Stock surrendered in exchange
therefor was held as a capital asset,
provided such Bank Stock was held as a
capital asset on the date of the exchange.
This opinion is made in connection with the
Reorganization and is solely for the benefit of the Holding Company, the Interim
Bank, the Bank and the Bank's stockholders. It may not be relied upon in any
other manner or by any other person.
Very truly yours,
THE FIRST NATIONAL BANK OF ALTAVISTA
Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Table of Contents
December 31, 1996 and 1995
================================================================================
Page
Independent Auditors' Report ................................................ 1
Balance Sheets .............................................................. 2
Statements of Income ........................................................ 3
Statements of Changes in Stockholders' Equity ............................... 4
Statements of Cash Flows .................................................... 5
Notes to Financial Statements ............................................... 7
================================================================================
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
The First National Bank of Altavista:
We have audited the accompanying balance sheets of The First National Bank of
Altavista as of December 31, 1996 and 1995, and the related statements of
income, changes in stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First National Bank of
Altavista as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Roanoke, Virginia
January 8, 1997
1
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Balance Sheets
December 31, 1996 and 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
Assets 1996 1995
- - ------------------------------------------------------------------------------------------------------------
<S> <C>
Cash and cash equivalents:
Cash and due from banks (note 2) $ 3,159 2,576
Federal funds sold 2,585 3,589
- - ------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 5,744 6,165
Securities (note 3):
Available-for-sale, at fair value 23,861 23,269
Held-to-maturity, at amortized cost 11,905 11,378
Federal Reserve Bank stock, at cost 75 75
Federal Home Loan Bank Stock, at cost 403 -
Loans, net (notes 4, 9 and 10) 79,842 75,484
Bank premises and equipment, net (note 5) 1,216 1,247
Other real estate owned 156 158
Accrued income receivable 1,066 1,002
Other assets (note 8) 683 602
- - ------------------------------------------------------------------------------------------------------------
Total assets $ 124,951 119,380
- - ------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- - ------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits (note 6):
Demand 9,830 8,395
Savings and NOW accounts 36,322 36,554
Time 65,052 61,729
- - ------------------------------------------------------------------------------------------------------------
Total deposits 111,204 106,678
Accrued interest payable 537 507
Other liabilities (note 7) 553 486
- - ------------------------------------------------------------------------------------------------------------
Total liabilities 112,294 107,671
- - ------------------------------------------------------------------------------------------------------------
Stockholders' equity (note 11):
Common stock, $2 par value. Authorized 350,000 shares, issued
and outstanding 239,675 shares in 1996 and 1995 479 479
Capital surplus 2,016 2,016
Retained earnings 10,174 9,016
Unrealized gains (losses) on available-for-sale securities, net of
deferred income tax (expense) benefit of $6 and $(102) in
1996 and 1995, respectively (notes 3 and 8) (12) 198
- - ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 12,657 11,709
Commitments, contingencies and other matters (notes 5, 7, 9, 10 and 11)
- - ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 124,951 119,380
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Statements of Income
Years Ended December 31, 1996 and 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
1996 1995
- - --------------------------------------------------------------------------------------------------------
<S> <C>
Interest income:
Interest and fees on loans $ 7,128 6,716
Interest on securities:
U.S. Treasury 226 215
U.S. Government agencies 1,264 1,398
Corporate 167 156
States and political subdivisions (tax exempt) 557 405
Interest on federal funds sold 167 161
- - --------------------------------------------------------------------------------------------------------
Total interest income 9,509 9,051
- - --------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits:
Savings and NOW accounts 1,113 1,148
Time - other 3,098 2,842
Time - $100,000 and over 549 673
- - --------------------------------------------------------------------------------------------------------
Total interest expense 4,760 4,663
- - --------------------------------------------------------------------------------------------------------
Net interest income 4,749 4,388
Provision for loan losses (note 4) 205 240
- - --------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 4,544 4,148
- - --------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 255 210
Net gain (loss) on calls and sales of securities (note 3) 12 (101)
Other operating income 111 83
- - --------------------------------------------------------------------------------------------------------
Total noninterest income 378 192
- - --------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits (note 7) 1,570 1,413
Occupancy expense 95 94
Furniture and equipment 304 294
FDIC assessment 118 141
Other operating expenses 677 770
- - --------------------------------------------------------------------------------------------------------
Total noninterest expense 2,764 2,712
- - --------------------------------------------------------------------------------------------------------
Income before income tax expense 2,158 1,628
Income tax expense (note 8) 573 438
- - --------------------------------------------------------------------------------------------------------
Net income $ 1,585 1,190
- - --------------------------------------------------------------------------------------------------------
Net income per share $ 6.61 4.97
- - --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Statements of Changes in Stockholders' Equity
Years Ended December 31, 1996 and 1995
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Common Stock
--------------------------------- Capital Retained
Shares Par Value Surplus Earnings
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Balances, December 31, 1994 239,675 $ 479 2,016 8,229
Net income - - - 1,190
Cash dividends declared ($1.68
per share) - - - (403)
Change in unrealized losses on
available-for-sale securities,
net of deferred income tax
expense of $375 - - - -
- - ----------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1995 239,675 479 2,016 9,016
Net income - - - 1,585
Cash dividends declared ($1.78
per share) - - - (427)
Change in unrealized gains on
available-for-sale securities,
net of deferred income tax
benefit of $108 - - - -
- - ----------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1996 239,675 $ 479 2,016 10,174
- - ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- - --------------------------------------------------------------------------
Unrealized
Gains
(losses) on
Available-
for-Sale
Securities Total
- - -------------------------------------------------------------------------
<S> <C>
Balances, December 31, 1994 (530) 10,194
Net income - 1,190
Cash dividends declared ($1.68
per share) - (403)
Change in unrealized losses on
available-for-sale securities,
net of deferred income tax
expense of $375 728 728
- - -------------------------------------------------------------------------
Balances, December 31, 1995 198 11,709
Net income - 1,585
Cash dividends declared ($1.78
per share) - (427)
Change in unrealized gains on
available-for-sale securities,
net of deferred income tax
benefit of $108 (210) (210)
- - -------------------------------------------------------------------------
Balances, December 31, 1996 (12) 12,657
- - -------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Statements of Cash Flows
Years Ended December 31, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
1996 1995
- - --------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net income $ 1,585 1,190
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of bank premises and equipment 202 194
Write-down of other real estate owned -- 15
Amortization of core deposit premium 18 21
Amortization of net unearned fees (102) (87)
Net amortization (accretion) of premiums and
discounts on securities (2) (19)
Provision for loan losses 205 240
Provision for deferred income taxes (33) (95)
Net (gain) loss on calls and sales of securities (12) 101
Net (increase) decrease in:
Accrued income receivable (64) (66)
Other assets 51 111
Net increase (decrease) in:
Accrued interest payable 30 91
Other liabilities 67 24
- - --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,945 1,720
- - --------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of held-to-maturity securities (1,961) (2,350)
Purchases of available-for-sale securities (5,959) (10,640)
Proceeds from maturities and calls of held-to-maturity
securities 1,437 6,611
Proceeds from sales, maturities and calls of available-for-sale
securities 5,061 7,365
Purchase of Federal Home Loan Bank stock (403) --
Net increase in loans (4,614) (2,794)
Recoveries on loans charged off 144 161
Purchases of bank premises and equipment (172) (191)
Addition of other real estate owned -- (17)
Rent payments on other real estate owned 2 --
- - --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,465) (1,855)
- - --------------------------------------------------------------------------------------------------------
(Continued)
</TABLE>
5
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
1996 1995
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from financing activities:
Net increase (decrease) in demand, savings and NOW deposits $ 1,203 (2,449)
Net increase in time deposits 3,323 4,175
Dividends paid (427) (403)
- - ---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,099 1,323
- - ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (421) 1,188
Cash and cash equivalents, beginning of year 6,165 4,977
- - ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 5,744 6,165
- - ---------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flows information: Cash paid during the year
for:
Income taxes $ 628 609
- - ---------------------------------------------------------------------------------------------------------------------
Interest $ 4,730 4,572
- - ---------------------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing and financing activities:
Transfer of loans to repossessed properties $ 9 60
- - ---------------------------------------------------------------------------------------------------------------------
Loans charged against the allowance for loan
losses $ 298 340
- - ---------------------------------------------------------------------------------------------------------------------
Transfers of securities from held-to-maturity to
available-for-sale $ - 11,553
- - ---------------------------------------------------------------------------------------------------------------------
Unrealized gains (losses) on available-for-sale
securities $ (318) 1,103
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
December 31, 1996 and 1995
================================================================================
(In thousands, except share and per share data)
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of The First National Bank of
Altavista (Bank) conform to generally accepted accounting principles and
general practices within the banking industry. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of
the balance sheet and revenues and expenses for the year. Actual results
could differ from those estimates.
The following is a summary of the more significant accounting policies:
Securities
The Bank classifies its securities in three categories: (1) debt
securities that the Bank has the positive intent and ability to hold to
maturity are classified as "held-to-maturity securities" and reported at
amortized cost; (2) debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are
classified as "trading securities" and reported at fair value, with
unrealized gains and losses included in net income; and (3) debt and
equity securities not classified as either held-to-maturity securities or
trading securities are classified as "available-for-sale securities" and
reported at fair value, with unrealized gains and losses excluded from
net income and reported in a separate component of stockholders' equity.
Held-to-maturity securities are stated at cost, adjusted for amortization
of premiums and accretion of discounts on a basis which approximates the
level yield method. The Bank does not maintain trading account
securities. Gains or losses on disposition are based on the net proceeds
and adjusted carrying values of the securities called or sold, using the
specific identification method. A decline in the market value of any
available-for-sale or held-to-maturity security below cost that is deemed
other than temporary is charged to net income, resulting in the
establishment of a new cost basis for the security.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, reduced by unearned
income and fees on loans, and an allowance for loan losses. Income is
recognized over the terms of the loans using methods which approximate
the level yield method. The allowance for loan losses is a valuation
allowance consisting of the cumulative effect of the provision for loan
losses, plus any amounts recovered on loans previously charged off, minus
loans charged off. The provision for loan losses charged to operating
expenses is the amount necessary in management's judgment to maintain the
allowance for loan losses at a level it believes
(Continued)
7
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(1) (Continued)
sufficient to cover losses in the collection of its loans. Management
determines the adequacy of the allowance based upon reviews of individual
credits, recent loss experience, delinquencies, current economic
conditions, the risk characteristics of the various categories of loans
and other pertinent factors. Loans are charged against the allowance for
loan losses when management believes the collectibility of the principal
is unlikely. While management uses available information to recognize
losses on loans, future additions to the allowance for loan losses may be
necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies
may require the Bank to recognize additions to the allowance for loan
losses based on their judgments about information available to them at
the time of their examinations.
Interest related to nonaccrual loans is recognized on the cash basis.
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.
Impaired loans are required to be presented in the financial statements
at the present value of the expected future cash flows or at the fair
value of the loan's collateral. Homogeneous loans such as real estate
mortgage loans, individual consumer loans, home equity loans and bankcard
loans, which are evaluated collectively for impairment. Management,
considering current information and events regarding the borrowers
ability to repay their obligations, considers a loan to be impaired when
it is probable that the Bank will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Impairment
losses are included in the allowance for loan losses through a charge to
the provision for loan losses. Cash receipts on impaired loans receivable
are applied first to reduce interest on such loans to the extent of
interest contractually due and any remaining amounts are applied to
principal.
Loan Origination and Commitment Fees and Certain Related Direct Costs
Loan origination and commitment fees and certain direct loan origination
costs charged by the Bank are deferred and the net amount amortized as an
adjustment of the related loan's yield. The Bank is amortizing these net
amounts over the contractual life of the related loans or, in the case of
demand loans, over the estimated life. Net fees related to standby
letters of credit are recognized over the commitment period.
(Continued)
8
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(1) (Continued)
Bank Premises and Equipment
Bank premises and equipment are stated at cost, net of accumulated
depreciation. Depreciation on buildings and equipment is computed by the
straight-line and declining-balance methods over the estimated useful
lives of the assets. The cost of assets retired and sold and the related
accumulated depreciation are eliminated from the accounts and the
resulting gains or losses are included in determining net income.
Expenditures for maintenance and repairs are charged to expense as
incurred, and improvements and betterments are capitalized.
Other Real Estate Owned
Other real estate owned consists of properties acquired through
foreclosure or deed in lieu of foreclosure. These properties are carried
at the lower of cost or fair value less estimated selling costs. Losses
from the acquisition of property in full or partial satisfaction of debt
are charged against the allowance for loan losses. Subsequent
write-downs, if any, are charged to expense. Gains and losses on the
sales of other real estate owned are recorded in net income in the year
of the sale.
Pension Plan
The Bank maintains a noncontributory defined benefit pension plan which
covers substantially all of its employees. The net periodic pension
expense includes a service cost component, interest on the projected
benefit obligation, a component reflecting the actual return on plan
assets, the effect of deferring and amortizing certain actuarial gains
and losses, and the amortization of any unrecognized net transition
obligation on a straight-line basis over the average remaining service
period of employees expected to receive benefits under the plan. The
Bank's funding policy is to make annual contributions in amounts
necessary to satisfy the Internal Revenue Service's funding standards and
to the extent that they are tax deductible.
Income Taxes
Income taxes are accounted for under the asset and liability method,
whereby deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in net income in the period that includes the enactment date.
(Continued)
9
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(1) (Continued)
Net Income Per Share
Net income per share of common stock is computed based on the weighted
average number of shares outstanding for the year. The weighted average
number of common stock shares outstanding was 239,675 for 1996 and 1995.
Statements of Cash Flows
For purposes of the statements of cash flows, cash and cash equivalents
include cash on hand, amounts due from banks (with original maturities of
three months or less), and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
Recent Accounting Developments
The FASB has issued Statement of Financial Accounting Standards (SFAS)
No. 119, Disclosure about Derivative Financial Instruments and Fair Value
of Financial Instruments. This Standard requires disclosures about
derivative financial instruments - futures, forward, swap and option
contracts, and other financial instruments with similar characteristics.
It also amends existing requirements of SFAS No. 105, Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk, and SFAS No.
107, Disclosures about Fair Value of Financial Instruments. The Bank
currently does not engage in derivative transactions.
The FASB has issued SFAS No. 121, Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of, which
requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An estimate of the future cash flows expected to
result from the use of the asset and its eventual disposition should be
performed during a review for recoverability. An impairment loss (based
on the fair value of the asset) is recognized if the sum of the expected
future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset. Additionally, Standard No. 121
requires that long-lived assets and certain identifiable intangibles to
be disposed of be reported at the lower of carrying amount or fair value
less cost to sell, except for certain assets. These assets will continue
to be reported at the lower of carrying amount or net realizable value.
Implementation of this Standard by the Bank during 1996 did not have a
material effect on net income of the Corporation.
(Continued)
10
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(1) (Continued)
The FASB has issued SFAS No. 122, Accounting for Mortgage Servicing
Rights, which requires that a mortgage banking enterprise recognize as
separate assets the rights to service mortgage loans for others, however,
those servicing rights are acquired. A mortgage banking enterprise that
acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage
loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values if it is
practicable to estimate those fair values. If it is not practicable to
estimate the fair values of the mortgage servicing rights and the
mortgage loans (without the mortgage servicing rights), the entire cost
of purchasing or originating the loans should be allocated only to the
mortgage loans without the mortgage servicing rights. Additionally, this
Standard requires that a mortgage banking enterprise periodically assess
its capitalized mortgage servicing rights for impairment based on the
fair value of those rights. This statement is effective for years
beginning after December 15, 1995. As the Bank does not presently service
any mortgage loans, SFAS No. 122 did not have a material effect on the
financial statements.
The FASB has also issued Standard No. 123, Accounting for Stock-Based
Compensation, which requires that the fair value of employee stock-based
compensation plans be recorded as a component of compensation expense in
the statement of income as of the date of grant of awards related to such
plans or that the impact of such fair value on net income and earning per
share be disclosed on a pro forma basis in a footnote to financial
statements for awards granted after December 15, 1994, if the accounting
for such awards continues to be in accordance with Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25).
The Bank will continue such accounting under the provisions of APB 25.
This Standard is required for fiscal years beginning after December 15,
1995. The Bank does not currently have any stock-based compensation
plans.
(2) Restrictions on Cash
To comply with Federal Reserve regulations, the Bank is required to
maintain certain average reserve balances. The daily average reserve
requirements were approximately $540 and $482 for the weeks including
December 31, 1996 and 1995, respectively.
(Continued)
11
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(3) Securities
The amortized costs, gross unrealized gains, gross unrealized losses
and fair values for securities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996
------------ --------------------------------- ------------
Gross Gross
Amortized Unrealized Unrealized Fair
Available-for-Sale Costs Gains Losses Values
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C>
U.S. Treasury securities and obligations
of U.S. Government corporations
and agencies $ 11,834 46 (102) 11,778
Obligations of states and political
subdivisions 4,194 98 (32) 4,260
Mortgage-backed securities - Government 7,028 53 (96) 6,985
Other securities 50 - - 50
Corporate securities 773 15 - 788
- - -----------------------------------------------------------------------------------------------------------------------
Totals $ 23,879 212 (230) 23,861
- - -----------------------------------------------------------------------------------------------------------------------
Held-to-Maturity
- - -----------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations
of U.S. Government corporations
and agencies $ 3,635 17 (11) 3,641
Obligations of states and political
subdivisions 8,253 79 (57) 8,275
Mortgage-backed securities - private 17 - - 17
- - -----------------------------------------------------------------------------------------------------------------------
Totals $ 11,905 96 (68) 11,933
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Available-for-Sale Costs Gains Losses Values
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C>
U.S. Treasury securities and obligations
of U.S. Government corporations
and agencies $ 10,579 143 (23) 10,699
Obligations of states and political
subdivisions 3,969 156 (24) 4,101
Mortgage-backed securities - Government 7,621 77 (49) 7,649
Other securities 50 - - 50
Corporate securities 750 22 (2) 770
- - -----------------------------------------------------------------------------------------------------------------------
Totals $ 22,969 398 (98) 23,269
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
12
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(3) (Continued)
<TABLE>
<CAPTION>
1995
------------ --------------------------------- ------------
Gross Gross
Amortized Unrealized Unrealized Fair
Held-to-Maturity Costs Gains Losses Values
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C>
U.S. Treasury securities and obligations
of U.S. Government corporations
and agencies $ 5,027 51 (7) 5,071
Obligations of states and political
subdivisions 6,327 130 (33) 6,424
Mortgage-backed securities - private 24 - - 24
- - -----------------------------------------------------------------------------------------------------------------------
Totals $ 11,378 181 (40) 11,519
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized costs and fair values of available-for-sale and
held-to-maturity securities at December 31, 1996, by contractual
maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
Available-for-Sale Held-to-Maturity
-----------------------------------------------------------
Amortized Fair Amortized Fair
Costs Values Costs Values
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Due in one year or less $ - - 969 973
Due after one year through five years 10,049 10,055 5,741 5,785
Due after five years through ten years 4,695 4,762 3,780 3,768
Due after ten years 2,107 2,059 1,398 1,390
- - -----------------------------------------------------------------------------------------------------------------------
16,851 16,876 11,888 11,916
Mortgage-backed securities 7,028 6,985 17 17
- - -----------------------------------------------------------------------------------------------------------------------
Totals $ 23,879 23,861 11,905 11,933
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of available-for-sale securities during 1995
were approximately $4,646 and proceeds from sales of
held-to-maturity securities during 1995 were approximately $105. No
securities were sold in 1996. Sales of held-to-maturity securities
during 1995 occurred near enough to the securities' maturity dates
to be considered as maturities under Statement 115. Gross gains of
$12 were realized in 1996 on calls of securities. Gross gains of
approximately $10 and gross losses of approximately $111 were
realized in 1995.
(Continued)
13
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(3) (Continued)
On December 18, 1995, the Bank transferred securities from
held-to-maturity to available-for-sale with unamortized costs of
approximately $11,553, gross unrealized gains of approximately $265 and
gross unrealized losses of approximately $43, in accordance with a
one-time provision for implementation of Statement 115.
Securities with amortized costs of approximately $3,801 and $3,247
(market values of $3,807 and $3,299, respectively) as of December 31,
1996 and 1995, respectively, were pledged as collateral for public
deposits.
(4) Loans
A summary of loans at December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
- - ------------------------------------------------------------------------------------------- ---------------------------
<S> <C>
Real estate loans:
Residential $ 37,184 36,626
Other 7,903 7,713
Loans to individuals for household, family
and other consumer expenditures 28,902 25,340
Commercial and industrial loans 6,363 6,270
All other loans 634 783
- - -----------------------------------------------------------------------------------------------------------------------
Total loans, gross 80,986 76,532
Less unearned income and fees (470) (425)
- - -----------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income and fees 80,516 76,107
Less allowance for loan losses (674) (623)
- - -----------------------------------------------------------------------------------------------------------------------
Loans, net $ 79,842 75,484
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Nonaccrual loans amounted to approximately $80 and $80 at December 31,
1996 and 1995, respectively. Interest income that would have been earned
on nonaccrual loans if they had been current in accordance with their
original terms and the recorded interest that was included in income on
these loans was not significant for 1996 and 1995. There were no
commitments to lend additional funds to customers whose loans were on
nonaccrual at December 31, 1996.
In the normal course of business, the Bank has made loans to executive
officers and directors. At December 31, 1996, loans to executive officers
and directors were approximately $837 compared to $970 at December 31,
1995. During 1996, new loans to executive officers and directors amounted
to approximately $207 and repayments amounted to approximately $340.
Loans to companies in which executive officers and directors have
(Continued)
14
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(4) (Continued)
an interest amounted to approximately $1,330 and $1,322 at December 31,
1996 and 1995, respectively. In addition, dealer loans purchased from
companies owned by certain directors, and against whom the bank has
recourse, amounted to approximately $2,153 and $2,000 at December 31,
1996 and 1995, respectively.
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Balances, beginning of year $ 623 562
Provision for loan losses 205 240
Loans charged off (298) (340)
Loan recoveries 144 161
- - -----------------------------------------------------------------------------------------------------------------------
Balances, end of year $ 674 623
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995, the recorded investment in loans for which
an impairment has been identified totaled approximately $144 and $223,
respectively. Of this amount, approximately $40 and $40 related to loans
with no valuation allowance and $104 and $183 related to loans with
corresponding valuation allowances of approximately $65 and $55 at
December 31, 1996 and 1995, respectively. The average recorded investment
in impaired loans receivable during 1996 and 1995 was approximately $184
and $242. Interest income recognized on impaired loans during 1996 and
1995 was $9 and $28, including approximately $6 and $12, respectively,
recognized on a cash basis.
(5) Bank Premises and Equipment
A summary of bank premises and equipment at cost, less accumulated
depreciation, at December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
- - ------------------------------------------------------------------------------------------- ---------------------------
<S> <C>
Land improvements $ 110 110
Buildings 1,056 979
Equipment, furniture and fixtures 1,828 1,705
- - -----------------------------------------------------------------------------------------------------------------------
2,994 2,794
Less accumulated depreciation (2,204) (2,002)
- - -----------------------------------------------------------------------------------------------------------------------
790 792
Land 341 308
Construction-in-progress 85 147
- - -----------------------------------------------------------------------------------------------------------------------
$ 1,216 1,247
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
15
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(6) Deposits
A summary of deposits at December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Noninterest bearing:
Demand deposits $ 9,830 8,395
Interest bearing:
Savings 23,380 24,073
NOW accounts 12,942 12,481
Time deposits 54,683 51,509
Time deposits greater than $100,000 10,369 10,220
- - -----------------------------------------------------------------------------------------------------------------------------
$ 111,204 106,678
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(7) Pension Plan
The Bank maintains a noncontributory defined benefit pension plan which
covers substantially all of its employees. Benefits are computed based on
employees' average final compensation and years of credited service. The
Bank's funding policy is to make annual contributions in amounts
necessary to satisfy the Internal Revenue Service's funding standards and
to the extent that they are tax deductible. Pension expense amounted to
approximately $92 and $92 in 1996 and 1995, respectively. Contributions
of $73 and $19 were made to the Plan in 1996 and 1995, respectively.
The funded status of the pension plan at September 30, 1996 and 1995
(most recent information available) is as follows:
<TABLE>
<CAPTION> 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Fair value of plan assets $ 1,144 982
- - ----------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits 691 585
Nonvested benefits 14 10
- - ----------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 705 595
Effect of projected future salary increases 554 595
- - ----------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation 1,259 1,190
- - ----------------------------------------------------------------------------------------------------------------------------
Plan assets less than projected benefit obligation (115) (208)
Unrecognized net gain (446) (343)
Unrecognized net transition obligation 55 59
Unrecognized prior service cost 70 75
- - ----------------------------------------------------------------------------------------------------------------------------
Accrued pension cost included in other liabilities $ (436) (417)
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
16
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(7) (Continued)
Pension cost under the plan is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Service cost $ 94 86
Interest cost 89 80
Actual return on plan assets (88) (76)
Net amortization (accretion) (3) 2
- - -----------------------------------------------------------------------------------------------------------------------
Net pension cost $ 92 92
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The expected long-term rate of return on plan assets was 9 percent for
1996 and 1995. The discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation at September 30, 1996 and 1995 were 7.5
and 6.0 percent, respectively. Plan assets consisted of cash equivalents,
U.S. Government securities, mortgage-backed securities, corporate bonds
and equities securities in a pooled pension fund administered by the
Virginia Bankers Association.
(8) Income Taxes
Total income taxes for the years ended December 31, 1996 and 1995 are
allocated as follows:
<TABLE>
<CAPTION>
1996 1995
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Income $ 573 438
Stockholders' equity for unrealized gains
(losses) on available-for-sale
securities recognized for financial
reporting purposes (108) 375
- - -----------------------------------------------------------------------------------------------------------------------
Total $ 465 813
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Income tax expense (benefit) attributable to income before income
tax expense is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Current $ 606 533
Deferred (33) (95)
- - -----------------------------------------------------------------------------------------------------------------------
Total $ 573 438
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
17
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(8) (Continued)
Included in income tax expense were tax expenses of approximately $4 and
tax benefits of approximately $34 for the years ended December 31, 1996
and 1995, respectively, related to net realized gains and losses on the
calls and sales of securities.
Income tax expense for the years ended December 31, 1996 and 1995
differed from the amounts computed by applying the U.S. Federal income
tax rate of 34 percent to income before income tax expense as a result of
the following:
<TABLE>
<CAPTION>
1996 1995
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Computed "expected" income tax expense $ 734 554
Increase (reduction) in income tax expense
resulting from:
Tax-exempt interest (190) (139)
Disallowance of interest expense 28 21
Other 1 2
- - -----------------------------------------------------------------------------------------------------------------------
Total $ 573 438
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Deferred tax assets:
Loans, principally due to allowance for
loan losses $ 133 116
Accrued pension, due to accrual for financial
reporting purposes in excess of actual
pension contributions 148 142
Loans, due to net unearned fees 112 120
Net unrealized losses on available-for-sale
securities 6 -
Other 18 16
- - -----------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 417 394
Less valuation allowance - -
- - -----------------------------------------------------------------------------------------------------------------------
Net deferred tax assets 417 394
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
18
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(8) (Continued)
<TABLE>
<CAPTION>
1996 1995
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Deferred tax liabilities:
Bank premises and equipment, due to
differences in depreciation $ 55 70
Prepaid expenses, due to capitalization
for financial reporting purposes 2 3
Net unrealized gains on available-for-sale
securities - 102
- - -----------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 57 175
- - -----------------------------------------------------------------------------------------------------------------------
Net deferred tax asset, included in other assets $ 360 219
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Bank has determined that a valuation allowance for the gross deferred
tax assets is not necessary at December 31, 1996 and 1995, since
realization of the entire gross deferred tax assets can be supported by
the amounts of taxes paid during the carryback periods available under
current tax laws.
(9) Financial Instruments with Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. These instruments may involve, to
varying degrees, credit risk in excess of the amount recognized in the
balance sheets. The contract amounts of these instruments reflect the
extent of involvement the Bank has in particular classes of financial
instruments.
Credit risk is defined as the possibility of sustaining a loss because
the other parties to a financial instrument fail to perform in accordance
with the terms of the contract. The Bank's maximum exposure to credit
loss under commitments to extend credit and standby letters of credit is
represented by the contractual amount of these instruments. The Bank uses
the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
The Bank requires collateral to support financial instruments when it is
deemed necessary. The Bank evaluates such customers' creditworthiness on
a case-by-case basis. The amount of collateral obtained upon extension of
credit is based on management's credit evaluation of the counterparty.
Collateral may include deposits held in financial institutions, U.S.
Treasury securities, other marketable securities, real estate, accounts
receivable, inventory, and property, plant and equipment.
(Continued)
19
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(9) (Continued)
Financial instruments whose contract amounts represent credit risk:
<TABLE>
<CAPTION>
Contract Amounts at
December 31,
------------------------
1996 1995
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Commitments to extend credit $ 7,419 5,785
- - -----------------------------------------------------------------------------------------------------------------------
Standby letters of credit $ 737 754
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. These
guarantees are primarily issued to support public and private borrowing
arrangements, including bond financing and similar transactions. Unless
renewed, substantially all of the Bank's credit commitments at December
31, 1996 will expire within one year. Management does not anticipate any
material losses as a result of these transactions. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.
(10) Concentrations of Credit Risk
The Bank grants commercial, residential, consumer and agribusiness loans
to customers in the central Virginia area. The Bank has a diversified
loan portfolio which is not dependent upon any particular economic
sector. As a whole, the portfolio could be affected by general economic
conditions in the central Virginia region.
The Bank's commercial loan portfolio is diversified, with no significant
concentrations of credit. The real estate loan portfolio consists
principally of 1-4 family residential property. The installment loan
portfolio consists of consumer loans primarily for automobiles and other
personal property. These loans are generally collateralized by the
related property. Overall, the Bank's loan portfolio is not concentrated
within a single industry or group of industries, the loss of any one or
more of which would generate a materially adverse impact on the business
of the Bank.
(Continued)
20
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(10) (Continued)
The Bank has established operating policies relating to the credit
process and collateral in loan originations. Loans to purchase real and
personal property are generally collateralized by the related property.
Credit approval is principally a function of collateral and the
evaluation of the creditworthiness of the borrower based on available
financial information.
(11) Dividend Restrictions and Capital Requirements
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 retained net profits for the two preceding years. At December 31,
1996, retained net profits which were free of such restriction
approximated $1,945.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). Management believes, as of
December 31, 1996, that the Bank meets all capital adequacy requirements
to which it is subject.
As of December 31, 1996, the most recent notification from Office of the
Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in
the table below. There are no conditions or events since that
notification that management believes have changed the Bank's category.
(Continued)
21
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(11) (Continued)
The Bank's actual capital amounts and ratios are also presented in the
table below.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------- ---------------------- ------------------------------
Amount Ratio Amount Ratio Amount Ratio
- - ----------------------------------------------------------------------------- ------------------------------
<S> <C>
As of December 31, 1996:
Total Capital (Greater than or (Greater than or
(to Risk Weighted Assets) $13,233 16.63% 6,365 equalled to) 8.0% 7,957 equalled to) 10.0%
Tier I Capital (Greater than or (Greater than or
(to Risk Weighted Assets) 12,559 15.79% 3,183 equalled to) 4.0% 4,774 equalled to) 6.0%
Tier I Capital (Leverage) (Greater than or (Greater than or
(to Average Assets) 12,559 10.14% 4,954 equalled to) 4.0% 6,192 equalled to) 5.0%
As of December 31, 1995:
Total Capital (Greater than or (Greater than or
(to Risk Weighted Assets) $12,006 15.88% 6,048 equalled to) 8.0% 7,560 equalled to) 10.0%
Tier I Capital (Greater than or (Greater than or
(to Risk Weighted Assets) 11,383 15.06% 3,024 equalled to) 4.0% 4,536 equalled to) 6.0%
Tier I Capital (Leverage) (Greater than or (Greater than or
(to Average Assets) 11,383 9.63% 4,728 equalled to) 4.0% 5,909 equalled to) 5.0%
</TABLE>
(12) Disclosures About Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments, requires the Bank to disclose
estimated fair values of its financial instruments.
The following methods and assumptions were used to estimate the
approximate fair value of each class of financial instrument for which it
is practicable to estimate that value.
Cash and Due from Banks
The carrying amount is a reasonable estimate of fair value.
Federal Funds Sold
The carrying amount is a reasonable estimate of fair value.
(Continued)
22
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(12) (Continued)
Securities
The fair value of securities, except certain state and municipal
securities, is estimated based on bid prices published in financial
newspapers or bid quotations received from securities dealers. The fair
value of certain state and municipal securities is not readily available
through market sources other than dealer quotations, so fair value
estimates are based on quoted market prices of similar instruments,
adjusted for differences between the quoted instruments and the
instruments being valued.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, real
estate - residential, real estate - other, loans to individuals and other
loans. Each loan category is further segmented into fixed and adjustable
rate interest terms.
The fair value of loans is calculated by discounting scheduled cash flows
through the estimated maturity using estimated market discount rates that
reflect the credit and interest rate risk inherent in the loan as well as
estimates for operating expenses and prepayments. The estimate of maturity
is based on the Bank's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of
current economic and lending conditions.
Deposits
The fair value of demand deposits, NOW accounts and savings deposits is
the amount payable on demand. The fair value of fixed maturity time
deposits and certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit
The only amounts recorded for commitments to extend credit and standby
letters of credit are the deferred fees arising from these unrecognized
financial instruments. These deferred fees are not deemed significant at
December 31, 1996 and 1995, and as such, the related fair values have not
been estimated.
(Continued)
23
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except share and per share data)
================================================================================
(12) (Continued)
The carrying amounts and approximate fair values of the Bank's financial
instruments are as follows at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31,
1996
--------------------------------
Carrying Approximate
Amounts Fair Values
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Financial assets:
Cash and due from banks $ 3,159 3,159
Federal funds sold 2,585 2,585
Securities:
Available-for-sale 23,861 23,861
Held-to-maturity 11,905 11,933
Federal Reserve Bank Stock 75 75
Federal Home Loan Bank Stock 403 403
Loans, net of unearned income and fees 80,516 80,675
- - -----------------------------------------------------------------------------------------------------------------------
Total financial assets $ 122,504 122,691
- - -----------------------------------------------------------------------------------------------------------------------
Financial liabilities:
Deposits 111,204 111,755
- - -----------------------------------------------------------------------------------------------------------------------
Total financial liabilities $ 111,204 111,755
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31,
1995
--------------------------------
Carrying Approximate
Amounts Fair Values
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Financial assets:
Cash and due from banks 2,576 2,576
Federal funds sold 3,589 3,589
Securities:
Available-for-sale 23,269 23,269
Held-to-maturity 11,378 11,519
Federal Reserve Bank Stock 75 75
Loans, net of unearned income and fees 76,107 76,653
- - -----------------------------------------------------------------------------------------------------------------------
Total financial assets $ 116,994 117,681
- - -----------------------------------------------------------------------------------------------------------------------
Financial liabilities:
Deposits 106,678 106,888
- - -----------------------------------------------------------------------------------------------------------------------
Total financial liabilities $ 106,678 106,888
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
24
<PAGE>
THE FIRST NATIONAL BANK OF ALTAVISTA
Notes to Financial Statements
(In thousands, except per share data)
================================================================================
(12) (Continued)
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Bank's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Bank's financial instruments, fair value
estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets that are not
considered financial assets include deferred tax assets and bank premises
and equipment and other real estate owned. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have not
been considered in the estimates.
================================================================================
25
Exhbit 23.1
ACCOUNTANT'S CONSENT
The Board of Directors
The First National Bank of Altavista
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Roanoke, Virginia /s/ KPMG Peat Marwick LLP
Peat Marwick LLP
January 24, 1997
EXHIBIT 99.2
THE FIRST NATIONAL BANK OF ALTAVISTA
Solicited on Behalf of the Board of Directors
Claude N. Woodson, Edward Bell, Jr., and or any of
them, with power of substitution to each, are hereby authorized to represent the
undersigned and vote all shares of The First National Bank the Altavista (the
"Bank") standing in the name of the undersigned at the Annual Meeting of
Shareholders of the Bank., to 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 or any adjournment thereof, on each of the following
matters.
1. Proposal to approve the Agreement and Plan of Reorganization dated as of
January 22, 1997, 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 subsidiary of Pinnacle Bankshares Corporation, a
Virginia corporation formed to serve as the holding company for the Bank.
__________ FOR __________ AGAINST __________ ABSTAIN
2. This proxy will be voted for the election of the nominees to the Board of
Directors listed below, unless the word "no" is inserted at the end of
this sentence. ____. You may withhold authority to vote for any nominee
by lining through or otherwise striking out his or her name below or
otherwise cumulate votes for a specific nominee as you indicate below.
_____
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.
3. The transaction of any other business which may properly come before
the Meeting. Management at present knows of no other business to be
presented at the Meeting.
-------------------------------------------
This proxy, when properly executed, will be voted in the manner
directed by the undersigned shareholder. If no direction is made, this proxy
will be voted FOR the proposal in Item 1, FOR the directors listed in Item 2,
and as the proxies see fit in any matters that may come up in Item 3.
When signing as attorney, executor, administrator, trustee or
guardian, please give full title. If more than one fiduciary, all should sign.
All joint owners MUST sign.
Date:
-----------------------------------
- - --------------------------------- ----------------------------------------
Signature Signature if held jointly
PLEASE MARK, DATE, SIGN AND PROMPTLY RETURN
