<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
---- ----
Commission file number 000-22487
GREAT GUARANTY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 72-0493576
(State of Incorporation) (I.R.S. Employer
Identification Number)
175 NEW ROADS STREET
NEW ROADS, LOUISIANA 70760
(Address of principal executive offices)
(504)638-5641
(Registrant's telephone number, including area code)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 143,374 SHARES AS OF
JULY 31, 1997
<PAGE> 2
GREAT GUARANTY BANCSHARES, INC.
FORM 10-QSB
JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
REFERENCE
---------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS 1
Consolidated Balance Sheets as of June 30, 1997 1
Consolidated Statements of Income for the six
months and for the quarters ended June 30, 1997 and 1996 2
Consolidated Statements of Cash Flows for the six months ended June 30,
1997 and 1996 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 5
Material Changes in Financial Condition 5
Six Months Ended June 30, 1997 Compared with Six Months Ended
June 30, 1996 5
June 30, 1997 Compared with December 31, 1996 6
Loan Loss Provision 6
Income Taxes 6
PART II - OTHER INFORMATION 6
ITEM 1. LEGAL PROCEEDINGS 6
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 7
SIGNATURES 7
EXHIBIT INDEX 8
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GREAT GUARANTY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash and due from banks $ 2,257,923
Interest-bearing deposits with banks 396,000
Investments securities - available for sale 19,327,445
Restricted investments in equity securities 207,900
Loans, net of allowance for loan losses of $240,392 20,534,479
Properties and equipment, net 638,728
Accrued interest receivable 384,036
Other Assets 40,461
------------
TOTAL ASSETS $ 43,786,972
============
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES
Demand deposits $ 7,010,938
NOW accounts 5,401,298
Savings deposits 8,986,440
Time deposits, $1200,000 and over 1,578,569
Other time deposits 14,483,835
------------
Total deposits $ 37,461,080
Notes Payable 2,630,260
Accrued expenses and other liabilities 276,388
Federal Funds Purchased 1,250,000
------------
Total liabilities $ 41,617,728
------------
SHAREHOLDER'S EQUITY
Common stock - $7.50 par value, 500,000 shares
authorized, 143,374 shares issued and outstanding 1,075,305
Capital surplus 2,411,471
Retained deficit (1,302,314)
Unrealized gain (loss) on securities available for
sale, net of tax of ($7,839) (15,218)
------------
Total shareholders' equity $ 2,169,244
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 43,786,972
============
</TABLE>
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<PAGE> 4
GREAT GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 961,624 $ 802,518 $ 506,791 $ 406,118
Interest on investment securities 633,717 607,051 315,978 290,571
Interest on Federal Funds sold 15,834 56,412 2,958 28,438
Interest on Deposits with Banks 20,758 19,782 7,136 13,002
------------ ------------ ------------ ------------
Total interest income $ 1,631,933 $ 1,485,763 $ 832,863 $ 738,129
------------ ------------ ------------ ------------
INTEREST EXPENSE
Interest on notes payable 187,283 200,407 71,409 95,778
Interest on deposits 526,098 466,901 264,759 233,009
------------ ------------ ------------ ------------
Total interest expense $ 713,381 $ 667,308 $ 336,168 $ 328,787
------------ ------------ ------------ ------------
NET INTEREST INCOME $ 918,552 $ 818,455 $ 496,695 $ 409,342
PROVISION (CREDIT) FOR LOAN LOSSES (14,500) 0 (14,500) 0
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES $ 933,052 $ 818,455 $ 511,195 $ 409,342
NON INTEREST INCOME
Service charges on deposit accounts $ 147,381 $ 184,610 $ 66,950 $ 94,983
Other service charges and fees 5,983 6,778 4,047 5,918
Net investment securities gains (losses) 0 4,295 0 4,295
Other income 9,752 10,559 9,792 580
------------ ------------ ------------ ------------
$ 163,116 $ 206,242 $ 80,789 $ 105,776
------------ ------------ ------------ ------------
NON INTEREST EXPENSE
Salaries and employee benefits $ 451,508 $ 436,660 $ 235,320 $ 218,317
Occupancy expense 111,350 109,946 56,508 56,840
Data processing 71,294 71,957 35,926 34,982
Legal fees 66,374 61,809 60,774 27,923
Other expense 266,213 168,933 172,630 79,345
------------ ------------ ------------ ------------
$ 966,739 $ 849,305 $ 561,158 $ 417,407
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS $ 129,429 $ 175,392 $ 30,826 $ 97,711
INCOME TAX EXPENSE 39,000 59,633 4,812 33,323
------------ ------------ ------------ ------------
NET INCOME BEFORE EXTRAORDINARY
ITEMS $ 90,429 $ 115,759 $ 26,014 $ 64,388
EXTRAORDINARY ITEM-GAIN FROM LITIGATION
NET OF TAX OF $ 458,688 1,759,017 0 1,759,017 0
------------ ------------ ------------ ------------
NET INCOME $ 1,849,446 $ 115,759 $ 1,785,031 $ 64,388
============ ============ ============ ============
PER COMMON SHARE DATA:
NET INCOME $ 12.90 $ 0.81 $ 12.45 $ 0.45
------------ ------------ ------------ ------------
AVERAGE SHARES OUTSTANDING 143,374 143,374 143,374 143,374
============ ============ ============ ============
</TABLE>
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<PAGE> 5
GREAT GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
PAGE 1 OF 2
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,849,446 $ 115,759
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary item (gross amount) (2,217,705)
Depreciation 55,601 55,756
Provision for loan losses 14,500
Deferred tax 497,688 59,633
Stock dividends received (5,800) (5,800)
Net investment securities (gains) losses 1,263 (4,295)
(Increase) decrease in accrued income and other assets (18,907) (2,215)
Increase (decrease) in accrued expenses and other liabilities 107,801 (56,783)
------------ ------------
Net cash provided by (used in) operating activities $ 283,887 $ 162,055
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales/maturities of investment securities
Available for sale $ 1,311,367 $ 7,093,543
Purchase of investment securities
Available for sale (893,210) (3,487,091)
Net change in:
Interest bearing deposits with banks 892,571 (992,618)
Federal Funds Sold (1,225,000)
Loans (3,725,267) (944,924)
Purchase of equipment and building improvements (29,475) (63,919)
------------ ------------
Net cash (used in) provided by investing activities $ (2,444,014) $ 379,991
------------ ------------
</TABLE>
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<PAGE> 6
GREAT GUARANTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
PAGE 2 OF 2
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in non-interest-bearing
demand, savings and NOW accounts $ 872,417 $ 225,031
Net increase (decrease) in time deposit 354,511 (23,353)
Payments on stockholder notes payable (200,000)
Payments on other notes payable (1,546,271) (751,060)
Net change in federal funds purchased 550,000
Proceeds from litigation - extraordinary item 2,217,705
Redemption of preferred stock (237,117)
------------ ------------
Net cash provided by (used in) financing activities $ 2,011,245 $ (549,382)
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND DUE FROM BANKS (148,882) (7,336)
CASH AND DUE FROM BANKS AT BEGINNING
OF PERIOD 2,406,805 1,725,550
------------ ------------
CASH AND DUE FROM BANKS AT END
OF PERIOD $ 2,257,923 $ 1,718,214
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest $ 719,333 $ 681,091
============ ============
Income taxes $ 0 $ 0
============ ============
</TABLE>
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
MATERIAL CHANGES IN FINANCIAL CONDITION.
In connection with resolution of all pending litigation in June, 1997,
Bancshares received a cash payment of approximately $2.2 million. See
discussion of "Legal Proceedings," incorporated herein by reference, pp. 20-21
of Amendment No. 1 to Form 10-SB, which amendment was filed by Bancshares on
July 1, 1997 (the "Amendment"). Of this cash payment, $1.7 million was applied
to reduction of Bancshares' indebtedness. The balance of the cash receipt was
applied in June, 1997, to redemption of all outstanding Preferred Stock ($300
thousand), (ii) a capital contribution by Bancshares to Guaranty Bank ($127
thousand), and (iii) payment of costs related to the litigation. For a
discussion of the Preferred Stock redemption, see "Recent Sales of Unregistered
Securities," incorporated herein by reference, p. 19 of the Amendment. The
material changes in Bancshares' financial condition incident to the receipt and
application of $2.2 million in proceeds on resolution of legal proceedings are
reflected in comparative discussions below.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30,
1996.
Balance Sheet
Total Assets at June 30, 1997 were $43.7 million compared to $40.0 million
at June 30, 1996. Total loans increased to $20.5 million at June 30, 1997 from
$15.7 million at June 30, 1996, while securities increased to $19.3 million
from $16.8 million and deposits increased to $37.4 million from $35.2 million
as of those dates. Shareholders' equity in Bancshares increased to $2.2 million
at June 30, 1997 from $303 thousand at June 30, 1996, as a result of cash
receipts on resolution of litigation in June, 1997. Shareholder's equity in
Bank was $3.7 million at June 30, 1997, up from $3.1 million at June 30, 1996.
Income
The income of Bancshares is ordinarily attributable almost entirely to
dividends on earnings of Guaranty Bank. Consolidated net income of Bancshares
is generally determined by deduction of interest and expenses incurred by
Bancshares from the net income earned by Guaranty Bank. However, during June,
1997, final resolution of pending litigation provided extraordinary income to
Bancshares of approximately $2.2 million.
Income not including extraordinary items for the six months ended June 30,
1997 was $90 thousand compared to $116 thousand during the same period in 1996.
Interest income increased to $1.632 million for the six month period ended June
30, 1997 compared to $1.486 million for the same period in 1996, principally as
a result of an increase in loans. Non-interest income totaled $163 thousand for
the six month period, compared to $206 thousand for the same period in 1996.
Interest expense increased to $713 thousand during the six month period ended
June 30, 1997, up from $667 thousand during the six month period ended June 30,
1996, due primarily to increased deposits, while non-interest expense increased
to $967 thousand from $849 thousand during the same periods.
- 5 -
<PAGE> 8
JUNE 30, 1997 COMPARED WITH DECEMBER 31, 1996
Balance Sheet
Total assets increased to $43.7 million at June 30, 1997, an increase of
4.8% from $41.7 million at December 31, 1996. Total loans increased by $3.8
million, or 22.7%, to $20.5 million at June 30, 1997 compared to $16.8 million
at December 31, 1996, while securities declined $.4 million to $19.3 million at
June 30, 1997, primarily in order to fund a portion of the increased loan
volume.
Total deposits increased by $1.3 million to $37.5 million at June 30,
1997, a 3.6% increase from $36.2 million at December 31, 1996. Non-interest
bearing deposits increased at a .10% rate, compared to a 1.7% growth in
interest bearing deposits. During the first six months of 1997, shareholders'
equity in Bancshares increased to $2.2 million from $571 thousand at December
31, 1996 due primarily to the resolution of pending litigation and consequent
collection by Bancshares of approximately $2.2 million. During the same
periods, shareholders' equity in Guaranty Bank increased from $3.1 million at
year-end 1996 to $3.7 million at June 30, 1997.
LOAN LOSS PROVISION
As a result of management's assessment of the adequacy of the allowance
for possible loan losses, the Bank recorded no loan loss provision. The
allowance for possible loan losses at June 30, 1997 was $240 thousand, 1.16% of
total loans, compared to $255 thousand, or 1.49% of total loans, at December
31, 1996 and $269 thousand or 1.69% at June 30, 1996. On a monthly basis, Bank
management performs an analysis to determine the adequacy of the reserve for
possible loan losses. It is the policy of the Bank to maintain a loan loss
reserve account that is appropriate when compared to the quality of its loan
portfolio and sufficient to meet anticipated future loan losses. The loan loss
provision is calculated as of the last day of each month. A provision of 1% -
1.25% of total loans has been deemed to be adequate. In an examination in
January, 1997, the FDIC examiners concurred with the adequacy of the Bank's
loan loss reserve and discovered no losses or classifications in the Bank's
portfolio. In the event that a deficiency exists, the Bank will increase the
actual loan loss reserve to a satisfactory level.
INCOME TAXES
Bancshares has a net operating loss carryforward at December 31, 1996 of
approximately $1.9 million. In connection with resolution of pending
litigation, Bancshares received approximately $2.2 million in June, 1997
resulting in an income tax gain of $1.2 million. Net operating loss will offset
most or all of the gain for income tax purposes. Bancshares management
estimates that, beginning in 1998, Bancshares will have no net operating losses
remaining and that it will, therefore, begin to pay federal income tax during
1998.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See "Legal Proceedings", pp. 20-21 of Amendment No. 1 to Form 10-SB, which
amendment was filed July 1, 1997 by Great Guaranty Bancshares, Inc.; said
discussion of Legal Proceedings is incorporated herein by reference.
- 6 -
<PAGE> 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(4) Instrument defining the rights of Security Holders, Including
Indentures. See Exhibits 3.1 (Form of Stock Certificate for
Common Stock), 3.2 (Stock Redemption Agreement) and 3.3 (Written
Agreement with Federal Reserve Board) to Form 10-SB filed by
Great Guaranty Bancshares, Inc. April 30, 1997, as amended by
Amendment No. 1 filed July 1, 1997, which exhibits are
incorporated herein by reference.
(27) Financial Data Schedule.
(28) Information Incorporated by Reference:
(i) "Legal Proceedings", pp. 20-21 of Amendment No. 1 filed
July 1, 1997 to Form 10-SB;
(ii) "Recent Sales of Unregistered Securities", p. 19 of
Amendment No. 1 filed July 1, 1997 to Form 10-SB.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the period for which this
report is filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
GREAT GUARANTY BANCSHARES, INC.
Dated: August 14, 1997 By: /s/ Daniel R. Domingue, Jr.
--------------------------------------
Daniel R. Domingue, Jr.
Authorized Representative
of Great Guaranty Bancshares, Inc.
and President and CEO of
Guaranty Bank & Trust Company
By: /s/ Larry J. Roberts
--------------------------------------
Larry J. Roberts
Acting Chief Financial Officer
of Great Guaranty Bancshares, Inc.
and Chief Financial Officer of
Guaranty Bank & Trust Company
- 7 -
<PAGE> 10
EXHIBIT INDEX
Exhibit (27) Financial Data Schedule
Exhibit (28) Information Incorporated by Reference
(i) (i) Legal Proceedings
(ii) (ii) Recent Sales of Unregistered Securities
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,356,561
<INT-BEARING-DEPOSITS> 396,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,327,445
<INVESTMENTS-CARRYING> 19,327,445
<INVESTMENTS-MARKET> 19,327,445
<LOANS> 20,774,871
<ALLOWANCE> 240,392
<TOTAL-ASSETS> 43,786,972
<DEPOSITS> 37,461,080
<SHORT-TERM> 2,650,000
<LIABILITIES-OTHER> 276,388
<LONG-TERM> 1,230,260
0
0
<COMMON> 1,075,305
<OTHER-SE> 1,093,939
<TOTAL-LIABILITIES-AND-EQUITY> 43,786,972
<INTEREST-LOAN> 961,624
<INTEREST-INVEST> 633,717
<INTEREST-OTHER> 36,592
<INTEREST-TOTAL> 1,631,933
<INTEREST-DEPOSIT> 526,098
<INTEREST-EXPENSE> 713,381
<INTEREST-INCOME-NET> 918,552
<LOAN-LOSSES> (14,500)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 966,739
<INCOME-PRETAX> 129,429
<INCOME-PRE-EXTRAORDINARY> 90,429
<EXTRAORDINARY> 1,759,017
<CHANGES> 0
<NET-INCOME> 1,849,446
<EPS-PRIMARY> 12.90
<EPS-DILUTED> 12.90
<YIELD-ACTUAL> 0
<LOANS-NON> 26,238
<LOANS-PAST> 383,576
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 269,819
<CHARGE-OFFS> 0
<RECOVERIES> 73
<ALLOWANCE-CLOSE> 240,392
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
EXHIBIT (28) INFORMATION INCORPORATED BY REFERENCE
(28)(i) LEGAL PROCEEDINGS
Guaranty Bank is, from time to time, a party to routine litigation arising from
regular business activities incident to furnishing financial services. In
addition, Bancshares and/or Guaranty Bank were parties to the following legal
proceedings, all of which were resolved during June, 1997:
(1) H.T. Olinde, Jr., et al. v. The 400 Group, et al., 18th
Judicial District Court, Suit Number 27,859, Division "Ad Hoc". Bancshares and
Guaranty Bank were substitute plaintiffs in this action, originally filed in
May, 1993 by the shareholders of Bancshares as a derivative action against
former directors and certain others ("The 400 Group"), seeking declaration of
the amount due under promissory notes evidencing advances by The 400 Group to
or for the benefit of Bancshares in 1987-88. The total amount advanced by The
400 Group was $1 million, including $400,000 for purchase of a promissory note
made by Bancshares, on which note the principal and interest due at the time of
purchase by The 400 Group was $1.7 million. After trial on the merits in
August, 1994, the trial court awarded judgment for approximately $3.6 million
against Bancshares, including the full face amount, approximately $2.4 million,
on the promissory note purchased by The 400 Group for $400,000. The judgment
amount was paid by Bancshares in July, 1995, subject to appeal. On appeal, the
Louisiana First Circuit Court of Appeal modified the judgment and reduced the
trial court's judgment to return of the original advances, plus reasonable
interest, a total of approximately $1.8 million. On May 9, 1997, the Louisiana
Supreme Court declined to review the ruling of the First Circuit, leaving that
ruling as the final judgment in the case. Pursuant to the final judgment, on
June 4, 1997 The 400 Group paid to Bancshares a total of approximately $2.2
million in refund due in this claim, as well as for settlement of actions 2 and
3 discussed below.
(2) Team Bank and Trust Company (now known as Guaranty Bank &
Trust Company) v. Thomas R. Bryan, et al., 18th Judicial District Court, Suit
Number 28,255, Div. "D". This claim was filed by Guaranty Bank in September,
1993 against certain of its former directors for breach of fiduciary duty
incident to causing payment by Guaranty Bank of a total of approximately
$127,000 in charges by third parties for services which Guaranty Bank asserts
were for the benefit of the defendants. This claim was resolved on June 4,
1997, in connection with resolution and settlement of claims (1) and (2)
discussed herein.
(3) Thomas R. Bryan v. Guaranty Bank & Trust Company, 18th
Judicial District Court, Suit Number 28,873, Div. "A". In August, 1993 the
Bank's chief executive officer, Thomas R. Bryan, who was also the president of
The 400 Group (described above), was dismissed for his actions on behalf of The
400 Group and adverse to Guaranty Bank and Bancshares. In May, 1994, Mr. Bryan
filed suit for alleged breach of his employment agreement with Guaranty Bank.
This claim was resolved on June 4, 1997 in connection with resolution and
settlement of claims (1) and (2) discussed above.
<PAGE> 2
(4) Raymond Long, et al. v. Great Guaranty Bancshares, Inc., et
al., 18th Judicial District Court, Suit Number 23,413, Div. "C". In 1988, a
former director, Raymond Long, sued Guaranty Bank, Bancshares and the Bank's
chief executive officer at that time, Thomas R. Bryan, for $1.5 million
alleging, among other things, that Guaranty Bank wrongfully dishonored checks.
This action remained dormant for several years by agreement of the parties will
remain dormant pending final decision in the litigation with The 400 Group
described above, and was dismissed by the plaintiff in June, 1997 upon
resolution of all claims involving The 400 Group.
<PAGE> 1
Exhibit (28)(ii) RECENT SALES OF UNREGISTERED SECURITIES
In July, 1994, the directors of Bancshares loaned to Bancshares the
sum of $219,200 pursuant to convertible debentures of a form approved by the
Bancshares Board of Directors and by the Federal Reserve Board for funding of
expenses of Bancshares' ongoing litigation with its prior directors and others.
See "Legal Proceedings". The debentures stipulated interest on the principal
amount at the "prime" rate as it may from time to time exist, as published in
the Wall Street Journal, plus one (1%) percent per annum. On August 22, 1994,
by agreement of Bancshares and the holders of the debentures, the debentures
were converted into 42,896 shares of the previously authorized Series B
Preferred Stock at the conversion price of $5.11 per share, based on
information then available regarding value of Bancshares and subject to the
right of Bancshares to redeem shares of the Preferred Stock if necessary to
avoid dilution of the holders of Common Stock upon completion of pending
litigation. In furtherance of that redemption right, the holders of the
Preferred Stock granted to Bancshares the right to redeem the Preferred Shares
for the original issue price plus an amount equal to interest on the issue
price at the prime rate, plus one (1%) percent per annum, from the issue date
through the date of redemption. On December 29, 1995 Bancshares issued to
Raymond R. Long, 3,125 shares of Series B Preferred Stock in payment of
indebtedness by Bancshares to Mr. Long, subject to the right of Bancshares to
redeem said shares on terms and conditions identical to those described above.
On December 28, 1995 a total of 24,462 shares of the Series B voting Preferred
Stock were converted to shares of Series A, nonvoting Preferred Stock on a
share for share basis, on agreement of Bancshares with the holders of said
shares. The shares of Series A and Series B Preferred Stock referred to above
were issued on exemption from registration pursuant to the intrastate offering
exemption, Section 3(a)(11) of the Securities Act of 1933. The Company did not
use any underwriters in connection with the offering, and no securities sales
commissions were paid. In accordance with the right of redemption granted to
Bancshares on conversion of the debentures, all of the shares of Series A and
Series B Preferred Stock were redeemed by Bancshares on June 11, 1997. See
"Market Price of and Dividends on the Registrant's Common Equity and Other
Shareholder Matters."
