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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-A
REGISTRATION STATEMENT
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
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PINNACLE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-2326075
(State of incorporation or organization) (I.R.S. Employer
Identification No.)
110 EAST HILL STREET
THOMAS, GEORGIA 30824
TELEPHONE: (770) 595-1600
(Address, including zip code, of principal executive offices)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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<S> <C>
None None
</TABLE>
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IF THIS FORM RELATES TO THE REGISTRATION OF A CLASS OF DEBT SECURITIES AND IS
EFFECTIVE UPON FILING PURSUANT TO GENERAL INSTRUCTION A.(c)(1), PLEASE CHECK THE
FOLLOWING BOX. / /
IF THIS FORM RELATES TO THE REGISTRATION OF A CLASS OF DEBT SECURITIES AND IS TO
BECOME EFFECTIVE SIMULTANEOUSLY WITH THE EFFECTIVENESS OF A CONCURRENT
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 PURSUANT TO GENERAL
INSTRUCTION A.(c)(2), PLEASE CHECK THE FOLLOWING BOX. / /
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of class
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Common Stock, $.001 par value per share
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The authorized capital stock of Pinnacle Bancshares, Inc. (the
"Company") consists of 9,000,000 shares of common stock, $.001 par value per
share, and 1,000,000 shares of preferred stock $.001 par value per share.
Number and Election of Directors
Under the Georgia Business Corporation Code (the "GBCC"), a
corporation's board of directors must consist of one or more individuals, with a
number specified in or fixed in accordance with the corporation's articles of
incorporation or bylaws. The Company's Articles of Incorporation provide that
the number of directors shall consist of between five and twenty-five persons,
the exact number to be determined from time to time by the affirmative vote of a
majority of the entire Board of Directors. Further, the Company has a classified
Board of Directors, whereby one-third of the Directors of the Company will be
elected each year at the Company's annual meeting of shareholders.
Anti-Takeover Provisions
The Company's Articles of Incorporation require the affirmative vote or
consent of the holders of at least 80% of all of the outstanding shares entitled
to vote in elections of directors, to approve any merger, consolidation,
disposition of all or a substantial part of the assets of the Company (or a
subsidiary of the Company) or exchange of securities requiring shareholder
approval, if any person, who together with his or her affiliates and associates
owns beneficially 20% or more of all of the Company's outstanding shares (an
"Interested Person"), is a party to the transaction. In addition, the
affirmative vote or consent of the holders of at least two-thirds (66-2/3%) of
all of the outstanding shares not beneficially owned by the Interested Person is
required to approve the transaction. These "supermajority" provisions are
generally not required, however, if: (a) the consideration to be received by the
holders of the stock of the Company meets certain minimum levels determined by
formulas contained in the Articles of Incorporation (generally the highest price
paid by the Interested Person is the price he or she must offer to
shareholders), (b) there has been no reduction in the average dividend rate from
that which was paid prior to the time the Interested Person became such, and (c)
the consideration to be received by shareholders is in cash or in the same form
as the Interested Person previously paid for his or her shares of stock.
Under the GBCC, a merger generally must be approved by the affirmative
vote of the holders of the majority of all the votes entitled to be cast of each
constituent corporation. The Company's Articles of Incorporation require the
Board of Directors to use its best business judgment in determining whether or
not to accept a particular acquisition proposal. Under the Company's Articles of
Incorporation, the Board of Directors is required to consider not only the
consideration being offered in any tender offer in relation to the then current
market price of the Company's stock, but also to consider such consideration in
relation to the then current value of the Company in a freely negotiated
transaction and in relation to the Board of Directors' estimate of the future
value of the Company as an independent entity. In addition, the Articles of
Incorporation instruct the Board of Directors to consider such other factors as
it determines to be relevant, including the social and economic effects on its
employees, suppliers, customers and the communities in which it does business
and the desirability of maintaining independence from any of the Company's
customers or competitors. In the exercise of its business judgment, the Board of
Directors is to determine the relative weight to be given to each factor and the
method of determining how each factor is to be ascertained.
2
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Dividends and Dividend Rights
The shareholders of the Company will be entitled to receive dividends
when and as declared by its Board of Directors. Dividends may be paid out of
funds legally available therefor in accordance with the provisions of the GBCC.
Under the GBCC, whether or not dividends may be paid is determined by
implementing two basic tests: an equity insolvency test and a balance sheet
test. The equity insolvency test prohibits the payment of a dividend if, after
giving it effect, the corporation would not be able to pay its debts as they
become due in the usual course of business. The balance sheet test prohibits the
payment of a dividend if, after giving it effect, the corporation's total assets
would be less than the sum of its total liabilities plus the amount that would
be needed to satisfy the preferential rights upon dissolution of shareholders
whose preferential rights are superior to those receiving the dividend. In
addition, the Federal Reserve Board generally prohibits a bank holding company
from paying any dividends on its common stock if at such time its debt to equity
ratio is equal to or greater than 30%. Further, the Company's ability to pay
dividends is subject to the financial performance of its subsidiary, McDuffie
Bank & Trust (the "Bank"), which is dependent upon, among other things, the
local economy, the success of the Bank's lending activities, compliance of the
Bank with applicable regulations, investment performance and the ability to
generate fee income.
ITEM 2. EXHIBITS
The following exhibits are filed with this Registration Statement. The
exhibit numbers correspond to the exhibit numbers in the referenced document.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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<S> <C>
3.1 Articles of Incorporation dated January 31, 1997
3.2 Articles of Amendment dated April 25, 1997
3.3 Bylaws adopted January 31, 1997
4.1 Form of certificate representing shares of Common Stock of Pinnacle
Bancshares, Inc.
13.1 The Banks Annual Report on Form 10-KSB for the year ended
December 31, 1996
13.2 The Banks Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1997
27.1 Financial Data Schedule for December 31, 1996 financial statements
of the registrant's wholly-owned subsidiary, McDuffie Bank & Trust.
27.2 Financial Data Schedule for March 31, 1997 financial statements of
the registrant's wholly-owned subsidiary, McDuffie Bank & Trust.
</TABLE>
3
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
PINNACLE BANCSHARES, INC.
By: /s/ Heyward Harton, Jr.
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Heyward Horton, Jr.
Its: President and Chief Executive Officer
Date: August 10, 1997
4
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EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
PINNACLE BANCSHARES, INC.
I.
The name of the Corporation is Pinnacle Bancshares, Inc.
II.
The Corporation is organized for the following purpose or purposes:
To act as a bank holding company and, to the extent permitted under
applicable federal and state laws, now or hereafter existing, to engage in such
business as related to banks and to bank holding companies and their activities;
To acquire, own, hold, sell, exchange, assign, transfer, create security
interests in, pledge or otherwise dispose of shares, or voting trust
certificates or depository receipts for shares, or capital stock of, or any
bonds, notes debentures or other evidence of indebtedness, options, warrants or
other securities issued by any other business of any lawful character,
including, but not limited to, banks and other businesses providing goods or
services related to banking;
To acquire and hold other investment assets and to engage in any lawful
activities related thereto;
To acquire, own interest in and otherwise participate in and exercise
ownership rights in joint ventures, partnerships, limited partnerships, trusts,
corporations, unincorporated associations and other entities for the furtherance
of all corporate activities; to borrow and to lend money and to buy, sell,
guarantee and otherwise deal in the obligations of others and conduct financing,
brokerage, and discount and factoring businesses in connection with the
foregoing or otherwise;
In general, to carry on any other lawful business whatsoever, and to
have, enjoy and exercise all the rights, powers and privileges which are now or
which may hereafter be conferred upon corporations organized under the Georgia
Business Corporation Code.
III.
The corporation shall have authority to issue 10,000,000 shares of
capital stock, which shall be divided into classes and shall have the following
designations, preferences, limitations and relative rights;
A. Common Stock. One class shall consist of 9,000,000 shares of common
stock of $.001 par value, designated "Common Stock." The holders of Common Stock
shall be entitled to elect all
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of the members of the Board of Directors of the Corporation, and such holders
shall be entitled to vote as a class on all matters required or permitted to be
submitted to the shareholders of the Corporation.
B. Preferred Stock. One class shall consist of 1,000,000 shares of
preferred stock of $.001 par value, designated "Preferred Stock." The Board of
Directors of the Corporation shall be empowered to divide any and all shares of
the Preferred Stock into series and to fix and determine the relative rights and
preferences of the shares of any series so established. Before any shares of
Preferred Stock of any particular series shall be issued, the Board of Directors
shall fix and determine, and is hereby expressly empowered to fix and determine,
in the manner provided by law, the following provisions of the shares of such
series: (i) the distinctive designation of such series and the number of shares
which shall constitute such series, which number may be increased (except where
otherwise provided by the Board of Directors in creating such series) or
decreased (but not below the number of shares thereof then outstanding) from
time to time by like action of the Board of Directors; (ii) the annual rate of
dividends payable on shares of such series, whether dividends shall be
cumulative and conditions upon which and the date when such dividends shall be
accumulated on all shares of such series issued prior to the record date for the
first dividend of such series; (iii) the time or times when the price or prices
at which shares of such series shall be redeemable at the option of the holder
or of the Corporation and the sinking fund provisions, if any, for the purchase
or redemption of such shares; (iv) the amount payable on shares of such series
in the event of any liquidation, dissolution or winding up of the affairs of the
Corporation, whether all or a portion is paid before any amount is paid on the
Common Stock; (v) the rights, if any, of the holders of shares of such series to
convert such shares into, or exchange such shares for, shares of Common Stock or
shares of any other series of Preferred Stock and the terms and conditions of
such conversion or exchange; and (iv) whether the shares of such series have
voting rights and the extent of such voting rights, if any.
The Board of Directors shall have the power to reclassify any unissued
shares of any series of Preferred Stock from time to time by setting or changing
the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or conditions of
redemption, including but not limited to, but subject to the limitations
described in, the above provisions.
Any action by the Board of Directors in authorizing the issuance of
Preferred Stock and fixing and determining the provisions thereof is hereby
ratified and approved.
IV.
The street address of the registered office of the Corporation is 110
East Hill Street, Thomson, Georgia 30824 located, in McDuffie County. The
registered agent of the Corporation at such office is Heyward Horton, Jr.
V.
The mailing address of the principal office of the Corporation is 110
East Hill Street, Thomson, Georgia 30824.
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VI.
A. The number of directors of the Corporation shall be fixed from time
to time by resolution of the Board of Directors; provided, however that the
number of directors fixed by the Board of Directors shall not be less than five
(5) or more than twenty-five (25).
B. Concurrent with the adoption of these Articles of Incorporation, the
Initial Board of Directors, as set forth in Section G of this Article VI, other
than those who may be elected by the holders of preferred stock or any class or
series of stock having a preference over the common stock as to dividends or
upon liquidation or any resolution or resolutions providing for the issue of
such class or series of stock adopted by the Board, shall be classified, with
respect to the time for which they severally hold office, into three classes, as
nearly equal in number as possible: (i) one class ("Class I") of directors to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 1998, (ii) another class of directors ("Class II") to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
1999, and (iii) another class of directors ("Class III") to be originally
elected for a term expiring at the annual meeting of stockholders to be held in
2000, with each member of each class to hold office, until his successors are
elected and qualified. At each annual meeting of the stockholders of the
Corporation the date of which shall be fixed by or pursuant to these Articles,
the successors of the class of directors whose terms expire at that meeting
shall be elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
C. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
number of directors or any vacancies occurring in the board of directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall be filled by the affirmative vote of a majority of
the remaining directors then in office, although less than a quorum of the board
of directors, or by the sole remaining director. A director so chosen shall hold
office until the annual meeting of stockholders of the Corporation at which the
term of the class of directors for which he has been chosen expires. No decrease
in the number of directors constituting the board of directors shall shorten the
term of any incumbent director.
D. Notwithstanding the foregoing provisions of this Article VI, any
director whose term of office has expired shall continue to hold office until
his successor shall be elected and qualify.
E. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any director, or the entire board of directors, may be removed
from office at any time, with or without cause, and only by the affirmative vote
of the holders of at least eighty percent (80%) of the total number of votes
entitled to be cast by the holders of all of the shares of capital stock of the
Corporation then entitled to vote generally in the election of directors. The
holder of each share of capital stock entitled to vote thereon shall be entitled
to cast the same number of votes as the holder of such shares is entitled to
cast generally in the election of each director.
F. Notwithstanding any other provisions of this Certificate or the
By-laws of the Corporation (and notwithstanding the fact that some lesser
percentage may be specified by law, this Certificate or the By-laws of the
Corporation), the affirmative vote of the holders of at least eighty
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percent (80%) of the total number of votes entitled to be cast by the holders of
all of the shares of capital stock of the Corporation then entitled to vote
generally in the election of directors shall be required to amend, alter, change
or repeal, or to adopt any provision as part of this Certificate inconsistent
with, this Article VI. The holder of each share of capital stock entitled to
vote thereon shall be entitled to cast the same number of votes as the holder of
such shares is entitled to cast generally in the election of each director.
G. The number of directors constituting the initial Board of Directors
shall be nine (9) and the name and address of each member of the initial Board
of Directors is as follows:
<TABLE>
<CAPTION>
Name Address
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<S> <C>
Phillip G. Farr 110 East Hill Street
Thomson, Georgia 30824
Samuel A. Fowler, Jr. 110 East Hill Street
Thomson, Georgia 30824
Joseph D. Greene 110 East Hill Street
Thomson, Georgia 30824
Heyward Horton, Jr. 110 East Hill Street
Thomson, Georgia 30824
George O. Hughes 110 East Hill Street
Thomson, Georgia 30824
David W. Joesbury 110 East Hill Street
Thomson, Georgia 30824
James Lemley 110 East Hill Street
Thomson, Georgia 30824
Robert N. Wilson, Jr. 110 East Hill Street
Thomson, Georgia 30824
Bennye M. Young 110 East Hill Street
Thomson, Georgia 30824
</TABLE>
H. The name and address of the Incorporator of the Corporation are:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
William C. Smith, III Suite 1800, East Tower
Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
</TABLE>
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VII.
In addition to any approval of the Board of Directors or any shareholder
vote or consent required by the laws of the State of Georgia or any other
provision of these Articles of Incorporation or otherwise, the affirmative vote
or consent of the holders of not less than two-thirds (2/3) of the shares of
each class of stock of the Corporation entitled to vote in elections of
directors shall be required to authorize, adopt or approve a Covered
Transaction; however, the provisions of this Article VII shall not apply to any
Covered Transaction referred to in this Article VII with any Interested Person
if the Covered Transaction is approved by three-fourths (3/4) of the entire
membership of the Board of Directors of the Corporation, in which event the
affirmative vote of not less than a majority of the holders of each class of
stock of the Corporation entitled to vote in elections of directors shall be
required.
For the purpose of this Article VII:
1. "Affiliate" and "associate" shall have the respective meanings given
those terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, as in effect on the
date hereof.
2. A person shall be the "beneficial owner" and "beneficially owns"
shares of stock of the Corporation (other than shares of the
Corporation's stock held in its treasury) (a) which such person and
its affiliates and associates beneficially own, directly or
indirectly, whether of record or not, (b) which such person or any
of its affiliates or associates has the right to acquire, pursuant
to any agreement upon the exercise of conversion rights, warrants or
options, or otherwise, (c) which such person or any of its
affiliates or associates has the right to sell or vote pursuant to
any agreement, or (d) which are beneficially owned, directly or
indirectly, by any other person with which such first mentioned
person or any of its affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of securities of the Corporation.
3. "Covered Transaction" is:
(a) any merger or consolidation of the Corporation or any subsidiary
of the Corporation with or into any Interested Person (regardless
of the identity of the surviving corporation);
(b) any sale, lease or other disposition of all or any substantial
part (assets having an aggregate fair market value of twenty-five
percent (25%) of the total assets of the Corporation) of the
assets of the Corporation or any subsidiary of the Corporation to
any Interested Person for cash, real or personal property,
including securities, or any combination thereof;
(c) any issuance or delivery of securities of the Corporation or a
subsidiary of the Corporation (which the beneficial owner shall
have the right to vote, or to vote upon exercise, conversion or by
contract) to an Interested Person in
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consideration for or in exchange of any securities or other
property (including cash); or
(d) the liquidation of the Corporation.
4. "Interested Person" is any person which, as of the record date for
the determination of shareholders entitled to notice of any Covered
Transaction and to vote thereon or consent thereto, or as of the
date of any such vote or consent, or immediately prior to the
consummation of any Covered Transaction, beneficially owns, directly
or indirectly, five percent (5%) or more of the shares of stock of
the Corporation entitled to vote in elections of directors.
5. "Person" is any individual, partnership, corporation or other entity.
6. "Subsidiary of the Corporation" is any corporation of which fifty
percent (50%) or more of any class of stock is beneficially owned,
directly or indirectly, by the Corporation.
No amendment to these Articles of Incorporation shall amend, alter, change
or repeal any of the provisions of this Article VII, unless such amendment, in
addition to receiving any shareholder vote or consent required by the laws of
the State of Georgia in effect at the time, shall receive the affirmative vote
or consent of the holders of eighty (80%) of the outstanding shares of each
class of stock of the Corporation entitled to vote in elections of directors.
VIII.
A. In addition to any approval of the Board of Directors or any
shareholder vote or consent required by the laws of the State of Georgia or any
other provision of these Articles of Incorporation or otherwise, there shall be
required for the approval, adoption or authorization of a Business Combination
with an Interested Person the affirmative vote or consent of the holders of a
majority of the shares of each class of stock of the Corporation entitled to
vote in elections of directors considered separately for the purposes of this
Article VIII, which are not beneficially owned, directly or indirectly, by such
Interested Person; provided, however, that said majority voting requirements
shall not be applicable if all of the conditions specified in subparagraphs (1),
(2) and (3) below are met:
1. The consideration to be received per share for each class of
stock in such Business Combination by holders of the stock of the Corporation is
payable in cash or Acceptable Securities, or a combination of both, and such
consideration has a fair market value per share with respect to each class of
the Corporation's stock of not less than either:
(a) the highest price (including the highest per share brokerage
commissions, transfer tax and soliciting dealers fees) paid by said Interested
Person in acquiring any of the Corporation's stock of that class; or
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(b) a price per share obtained by multiplying the aggregate
earnings per share of stock of the Corporation (appropriately adjusted for any
subdivision of shares, stock dividend or combination of shares during the
period) for the four full consecutive fiscal quarters immediately preceding the
record date for solicitation of votes or consents on such Business Combination
by the figure obtained by dividing the highest per share price (including the
highest per share brokerage commissions, transfer tax and soliciting dealers
fees) paid by such Interested Person in acquiring any of the Corporation's stock
by the aggregate earnings per share of the Corporation for the four full
consecutive fiscal quarters immediately preceding the time when the Interested
Person shall have become the beneficial owner of five percent (5%) or more of
the outstanding stock of the Corporation entitled to vote in elections of
directors.
If any securities were issued by an Interested Person in exchange for
stock of the Corporation prior to the proposed Business Combination, the fair
market value of said securities at the time of issue shall be used in
determining the per share price paid for said stock.
2. After the Interested Person has become the beneficial owner of
five percent (5%) or more of the stock of the Corporation entitled to vote in
the election of directors and prior to the consummation of such Business
Combination, there shall have been no reduction in the rate of dividends payable
on the Corporation's stock which would result in a quarterly dividend rate per
share which is less than the average quarterly dividend rate per share for the
four full consecutive fiscal quarters immediately preceding the time when the
Interested Person shall have become the beneficial owner of said five percent
(5%) or more of the stock of the Corporation, unless such reduction in the rate
of dividends has been approved by three-fourths (3/4) of the entire membership
of the Board of Directors of the Corporation. For the purposes of this
paragraph, "quarterly dividend rate per share" for any quarterly dividend shall
be equal to the percentage said quarterly dividend per share bears to the
earnings per share for the four full fiscal quarters immediately preceding the
declaration of said quarterly dividend.
3. The consideration to be received by shareholders who are not
Interested Persons shall be in cash or in the same form as the Interested Person
has previously paid for shares of such class of stock; if the Interested Person
has paid for shares of any class of any stock with varying forms of
consideration, the form of consideration for such class of stock shall be either
cash or the form used to acquire the largest number of shares of such class of
stock previously acquired by it.
B. For the purposes of this Article VIII:
1. "Acceptable Securities" shall mean (a) securities of the same
class or series, with the same rights, powers and benefits and of the same
denomination, term and interest, or dividend, if any, as the securities issued
and delivered by the Interested Person in exchange for the majority of the stock
of the corporation acquired by the Interested Person, or (b) the class of common
stock of the Interested Person which is beneficially owned by most persons.
2. "Affiliate" and "associate" shall have the respective meanings
given those terms in Rule l2b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, as in effect on the date hereof.
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3. A person shall be the "beneficial owner" and "beneficially
own" shares of stock of the Corporation (other than shares of the Corporation's
stock held in its treasury) (a) which such person and its affiliates or
associates beneficially own, directly or indirectly, whether of record or not,
(b) which such person or any of its affiliates or associates has the right to
acquire, pursuant to any agreement upon the exercise of conversion rights,
warrants, or options, or otherwise, (c) which such person or any of its
affiliates or associates has the right to sell or vote pursuant to any
agreement, or (d) which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purposes of
acquiring, holding, voting or disposing of securities of the Corporation.
4. "Business Combination" is:
a. any merger or consolidation of the Corporation or any
subsidiary of the Corporation with or into any Interested Person (regardless of
the identity of the surviving corporation);
b. any sale, lease or other disposition of all or any substantial
part (assets having a fair market value of twenty-five percent (25%) of the
total assets of the Corporation) of the assets of the Corporation or any
subsidiary of the Corporation to any Interested Person for cash, real or
personal property, including securities, or any combination thereof; or
c. any issuance or delivery of securities of the Corporation or a
subsidiary of the Corporation (which the beneficial owner shall have the right
to vote, or to vote upon exercise, conversion or by contract) to an Interested
Person in consideration of or in exchange for any securities or other property
(including cash).
5. "Interested Person" is any person which, as of the record
date for the determination of shareholders entitled to notice of any Business
Combination and to vote thereon or consent thereto, or as of the date of any
such vote or consent, immediately prior to the consummation of any Business
Combination, beneficially owns, directly or indirectly, five percent (5%) or
more of the shares of stock of the Corporation entitled to vote in elections of
directors.
6. "Person" is an individual, partnership, corporation or other
entity.
7. "Subsidiary of the Corporation" is any corporation of which fifty
percent (50%) or more of any class of stock is beneficially owned, directly or
indirectly, by the Corporation.
C. No amendment to these Articles of Incorporation shall amend, alter,
change or repeal any of the provisions of this Article VIII, unless such
amendment, in addition to receiving any shareholder vote or consent required by
the laws of the State of Georgia in effect at the time, shall receive the
affirmative vote or consent of the holders of eighty (80%) of the outstanding
shares of each class of stock of the Corporation entitled to vote in elections
of directors.
IX.
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A. The Board of Directors of the Corporation, when evaluating any offer
of another individual, firm, corporation or other entity ("Person") (a) to make
a tender or exchange offer for any equity security of the Corporation, (b) to
merge or consolidate the Corporation with such other Person, or (c) to purchase
or otherwise acquire all or substantially all of the properties and assets of
the Corporation (such offers individually referred to as an "Acquisition
Proposal"), shall, in connection with the exercise of its business judgment in
determining what is in the best interest of the Corporation and its
Shareholders, give due consideration to all relevant factors, including without
limitation, the consideration being offered in the Acquisition Proposal in
relation to the then-current market price of the Corporation's stock, but also
in relation to the then-current value of the Corporation in a freely negotiated
transaction and in relation to the Board of Directors' then-estimate of the
future value of the Corporation as an independent entity, the social and
economic effects on the employees, customers, suppliers, and other constituents
of the Corporation and on the communities in which the Corporation operates or
is located and the desirability of maintaining independence from any other
business or business entity; provided, however, that this Article shall be
deemed solely to grant discretionary authority to the directors and shall not be
deemed to provide any constituency any right to be considered.
B. No amendment to these Articles of Incorporation shall amend, alter,
change or repeal any of the provisions of this Article IX, unless such
amendment, in addition to receiving any shareholder vote or consent required by
the laws of the State of Georgia in effect at the time, shall receive the
affirmative vote or consent of the holders of eighty percent (80%) of the
outstanding shares of each class of stock of the Corporation entitled to vote in
elections of directors.
X.
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of duty of care
or other duty as a director; provided, however, that to the extent required by
applicable law, this Article shall not eliminate or limit the liability of a
director (i) for any appropriation, in violation of his duties, of any business
opportunity of the Corporation, (ii) for acts or omissions which involve
intentional misconduct or a knowing violation of law, (iii) for the types of
liability set forth in Section 14-2-832 of the Georgia Business Corporation
Code, or (iv) for any transaction from which the director derived an improper
personal benefit. If applicable law is amended to authorize corporate action
further eliminating or limiting the liability of directors, then the liability
of each director of the Corporation shall be eliminated or limited to the
fullest extent permitted by applicable law, as amended. Neither the amendment or
repeal of this Article, nor the adoption of any provision of these Articles of
Incorporation inconsistent with this Article, shall eliminate or reduce the
effect of this Article in respect of any acts or omissions occurring prior to
such amendment, repeal or adoption of an inconsistent provision.
XI.
Except as otherwise specifically provided herein, these Articles of
Incorporation may be amended, altered, changed or repealed only by the
affirmative vote or consent of the holders of at least fifty percent (50%) of
the shares of each class of stock of the Corporation entitled to vote in
elections of directors.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Incorporation on January 31, 1997.
/s/ William C. Smith, III
-----------------------------------
William C. Smith, III
Incorporator
-10-
<PAGE> 1
EXHIBIT 3.2
ARTICLES OF AMENDMENT
OF
PINNACLE BANCSHARES, INC.
I.
The name of the Corporation is Pinnacle Bancshares, Inc.
II.
The Articles of Incorporation of the Corporation shall be amended by
deleting Section B of Article VI in its entirety and substituting the following:
"B. Concurrent with the adoption of these Articles of
Incorporation, the Initial Board of Directors, as set forth in Section
G of this Article VI, other than those who may be elected by the
holders of preferred stock or any class or series of stock having a
preference over the common stock as to dividends or upon liquidation or
any resolution or resolutions providing for the issue of such class or
series of stock adopted by the Board, shall be classified, with respect
to the time for which they severally hold office, into three classes,
as nearly equal in number as possible: (i) one class ("Class I") of
directors to be originally elected for a term expiring at the annual
meeting of stockholders to be held in 1998, (ii) another class of
directors ("Class II") to be originally elected for a term expiring at
the annual meeting of stockholders to be held in 1999, and (iii)
another class of directors ("Class III") to be originally elected for a
term expiring at the annual meeting of stockholders to be held in 2000,
with each member of each class to hold office, until his successors are
elected and qualified. At each annual meeting of the stockholders of
the Corporation the date of which shall be fixed by or pursuant to
these Articles of Incorporation, the successors of the class of
directors whose terms expire at that meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders held
in the third year following the year of their election."
III.
The Articles of Incorporation of the Corporation shall be amended by
deleting Section C of Article VI in its entirety and substituting the following:
"C. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting
from any increase in the number of directors or any vacancies occurring
in the board of directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause shall
be filled by the affirmative vote of a majority of the remaining
directors then in office, although less than a quorum of the board of
directors, or by the sole remaining director. A director so chosen
shall hold office until the next annual meeting of
<PAGE> 2
stockholders of the Corporation. No decrease in the number of
directors constituting the board of directors shall shorten the term
of any incumbent director."
IV.
The Articles of Incorporation of the Corporation shall be amended by
deleting Section F of Article VI in its entirety and substituting the following:
"F. Notwithstanding any other provisions of these Articles of
Incorporation or the By-laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, these
Articles of Incorporation or the By-laws of the Corporation), the
affirmative vote of the holders of at least eighty percent (80%) of the
total number of votes entitled to be cast by the holders of all of the
shares of capital stock of the Corporation then entitled to vote
generally in the election of directors shall be required to amend,
alter, change or repeal, or to adopt any provision as part of these
Articles of Incorporation inconsistent with, this Article VI. The
holder of each share of capital stock entitled to vote thereon shall be
entitled to cast the same number of votes as the holder of such shares
is entitled to cast generally in the election of each director."
V.
The Articles of Incorporation of the Corporation shall be amended by
deleting the last paragraph of Article VII in its entirety and substituting the
following:
"No amendment to these Articles of Incorporation shall amend,
alter, change or repeal any of the provisions of this Article VII,
unless such amendment, in addition to receiving any shareholder vote or
consent required by the laws of the State of Georgia in effect at the
time, shall receive the affirmative vote or consent of the holders of
eighty percent (80%) of the outstanding shares of each class of stock
of the Corporation entitled to vote in elections of directors."
VI.
The Articles of Incorporation of the Corporation shall be amended by
deleting Section C of Article VIII in its entirety and substituting the
following:
"C. No amendment to these Articles of Incorporation shall
amend, alter, change or repeal any of the provisions of this Article
VIII, unless such amendment, in addition to receiving any shareholder
vote or consent required by the laws of the State of Georgia in effect
at the time, shall receive the affirmative vote or consent of the
holders of eighty percent (80%) of the outstanding shares of each class
of stock of the Corporation entitled to vote in elections of
directors."
VII.
The amendments set forth in Articles II through VI of these Articles of
Amendment were adopted on April 25, 1997.
2
<PAGE> 3
VIII.
The amendments set forth in Articles II through VI of these Articles of
Amendment were duly approved by the sole Shareholder of the Corporation in
accordance with the provisions of Code Section 14-2-1003 of the Georgia Business
Corporation Code.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed by J. Harold Ward, Jr., Secretary of the Corporation,
on this 25th day of April, 1997.
PINNACLE BANCSHARES, INC.
By: /s/ J. Harold Ward, Jr.
---------------------------------
J. Harold Ward, Jr.
Secretary
3
<PAGE> 1
EXHIBIT 3.3
BY-LAWS
OF
PINNACLE BANCSHARES, INC.
<PAGE> 2
BY-LAWS
OF
PINNACLE BANCSHARES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. DEFINITIONS .................................................................................1
ARTICLE II. GENERAL PROVISIONS REGARDING NOTICES.........................................................1
Section 1. NOTICES......................................................................................1
Section 2. WAIVER OF NOTICE.............................................................................2
ARTICLE III. SHAREHOLDERS' MEETINGS.......................................................................4
Section 1. PLACE OF MEETING.............................................................................4
Section 2. ANNUAL MEETING...............................................................................4
Section 3. SPECIAL MEETINGS.............................................................................4
Section 4. NOTICE TO SHAREHOLDERS.......................................................................4
Section 5. FIXING OF RECORD DATE........................................................................5
Section 6. QUORUM AND VOTING REQUIREMENTS...............................................................6
Section 7. PROXIES......................................................................................7
Section 8. INFORMAL ACTIONS BY SHAREHOLDERS.............................................................7
ARTICLE IV. DIRECTORS....................................................................................8
Section 1. GENERAL POWERS...............................................................................8
Section 2. NUMBER, ELECTION AND TERMS...................................................................8
Section 3. VACANCIES AND NEWLY CREATED DIRECTORSHIPS....................................................8
Section 4. CONTINUANCES IN OFFICE.......................................................................8
Section 5. REMOVAL......................................................................................9
Section 6. PLACE OF MEETING.............................................................................9
Section 7. COMPENSATION.................................................................................9
Section 8. REGULAR MEETINGS.............................................................................9
Section 9. SPECIAL MEETINGS.............................................................................9
Section 10. GENERAL PROVISIONS REGARDING NOTICE AND WAIVER...............................................9
Section 11. QUORUM.......................................................................................9
Section 12. MANNER OF ACTING............................................................................10
Section 13. COMMITTEES..................................................................................10
Section 14. ACTION WITHOUT FORMAL MEETING...............................................................10
Section 15. CONFERENCE CALL MEETINGS....................................................................11
ARTICLE V. OFFICERS....................................................................................11
Section 1. GENERALLY...................................................................................11
Section 2. COMPENSATION................................................................................12
Section 3. VACANCIES...................................................................................12
Section 4. CHIEF EXECUTIVE OFFICER.....................................................................12
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 5. SECRETARY....................................................................................12
Section 6. CHIEF FINANCIAL OFFICER......................................................................13
Section 7. DEPUTY OFFICERS..............................................................................13
Section 8. ASSISTANT OFFICERS...........................................................................13
ARTICLE VI. INDEMNIFICATION..............................................................................13
Section 1. DEFINITIONS FOR INDEMNIFICATION PROVISIONS...................................................13
Section 2. MANDATORY INDEMNIFICATION AGAINST EXPENSES...................................................14
Section 3. AUTHORITY FOR PERMISSIVE INDEMNIFICATION.....................................................14
Section 4. DETERMINATION AND AUTHORIZATION OF PERMITTED
INDEMNIFICATION..............................................................................15
Section 5. SHAREHOLDER-APPROVED INDEMNIFICATION.........................................................16
Section 6. ADVANCES FOR EXPENSES........................................................................16
Section 7. INDEMNIFICATION OF OFFICERS, EMPLOYEES, AND
AGENTS.......................................................................................17
Section 8. INSURANCE....................................................................................18
Section 9. EXPENSES FOR APPEARANCE AS WITNESS...........................................................18
ARTICLE VII. REIMBURSEMENT OF NON-DEDUCTIBLE PAYMENTS TO OFFICERS
AND EMPLOYEES................................................................................19
ARTICLE VIII. FISCAL YEAR..................................................................................19
ARTICLE IX. ANNUAL STATEMENTS............................................................................19
ARTICLE X. CAPITAL STOCK................................................................................20
Section 1. FORM.........................................................................................20
Section 2. TRANSFER.....................................................................................21
Section 3. RIGHTS OF HOLDER.............................................................................21
Section 4. LOST OR DESTROYED CERTIFICATES...............................................................21
ARTICLE XI. SEAL.........................................................................................21
ARTICLE XII. REGISTERED OFFICE AND REGISTERED AGENT.......................................................21
ARTICLE XIII. AMENDMENT TO BY-LAWS.........................................................................22
Section 1. AMENDMENT OF BY-LAWS BY BOARD OF DIRECTORS...................................................22
Section 2. SUPERMAJORITY REQUIRED FOR AMENDMENT
BY SHAREHOLDERS..............................................................................22
</TABLE>
<PAGE> 4
BY-LAWS
OF
PINNACLE BANCSHARES, INC.
ARTICLE I.
DEFINITIONS
As used in these By-Laws, the terms set forth below shall have the
meanings indicated, as follows:
"Articles of Incorporation" means the Articles of Incorporation of the
Corporation, as amended from time to time.
"Board" shall mean the Board of Directors of the Corporation.
"Chief Executive Officer" shall mean the President of the Corporation,
or such other officer as shall be designated by the Board as having the duties
of the Chief Executive Officer, as described in Section 4 of Article V of these
By-Laws.
"Code" shall mean the Georgia Business Corporation Code, as amended from
time to time.
"Corporation" shall mean Pinnacle Bancshares, Inc., a Georgia
corporation.
"Secretary" shall mean the Secretary of the Corporation, or such other
officer as shall be designated by the Board as having the duties of the
corporate Secretary as described in Section 5 of Article V of these By-Laws.
"Secretary of State" shall mean the Secretary of State of Georgia.
"Voting group" shall have the meaning set forth in subsection (a) of
Section 6 of Article III of these By-Laws.
ARTICLE II.
GENERAL PROVISIONS REGARDING NOTICES
Section 1. NOTICES. Except as otherwise provided in the Articles of
Incorporation or these By-Laws, or as otherwise required by applicable law:
<PAGE> 5
(a) Any notice required by these By-Laws or by law shall be in writing
unless oral notice is reasonable under the circumstances.
(b) Notice may be communicated in person; by telephone, telegraph,
teletype, or other form of wire or wireless communication; or by mail or private
carrier. If these forms of personal notice are impracticable, notice may be
communicated by a newspaper of general circulation in the area where published,
or by radio, television, or other form of public broadcast communication.
(c) Written notice by the Corporation to any shareholder, if in a
comprehensible form, is effective when mailed, if mailed with first-class
postage prepaid and correctly addressed to the shareholder's address shown in
the Corporation's current record of shareholders; provided that if the
Corporation has more than 500 shareholders of record entitled to vote at a
meeting, it may utilize a class of mail other than first class if the notice of
the meeting is mailed, with adequate postage prepaid, not less than 30 days
before the date of the meeting.
(d) Written notice to the Corporation may be addressed to its registered
agent at its registered office or to the Corporation or its Secretary at its
principal office shown in its most recent annual registration with the Secretary
of State.
(e) Except as provided in subsection (c) of this Section 1, written
notice, if in a comprehensible form, is effective at the earliest of the
following:
(1) When received, or when delivered, properly addressed, to the
addressee's last known principal place of business or residence;
(2) Five days after its deposit in the mail, as evidenced by the
postmark, if mailed with first-class postage prepaid and
correctly addressed; or
(3) On the date shown on the return receipt, if sent by registered
or certified mail, return receipt requested, and the receipt is
signed by or on behalf of the addressee.
(f) Oral notice is effective when communicated if communicated in a
comprehensible manner.
(g) In calculating time periods for notice under these By-Laws, when a
period of time measured in days, weeks, months, years, or other measurement of
time is prescribed for the exercise of any privilege or the discharge of any
duty, the first day shall not be counted but the last day shall be counted.
Section 2. WAIVER OF NOTICE. Except as otherwise provided or required by
the Articles of Incorporation, these By-Laws or applicable law:
2
<PAGE> 6
(a) A shareholder may waive any notice required to be given to such
shareholder, before or after the date and time stated in the notice. The waiver
must be in writing, be signed by the shareholder entitled to the notice, and be
delivered to the Corporation for inclusion in the minutes or filing with the
Corporation's corporate records.
(b) A shareholder's attendance at a meeting:
(1) Waives objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the
meeting; and
(2) Waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in
the meeting notice, unless the shareholder objects to
considering the matter when it is presented.
(c) Neither the business transacted nor the purpose of the meeting need
be specified in the waiver, except that any waiver by a shareholder of the
notice of a meeting of shareholders with respect to an amendment of the Articles
of Incorporation, a plan of merger or share exchange, a sale of assets or any
other action which would entitle the shareholder to exercise statutory
dissenter's rights under the Code and obtain payment for his shares shall not be
effective unless:
(1) Prior to the execution of the waiver, the shareholder shall have
been furnished the same material that under the Code would have
been required to be sent to the shareholder in a notice of the
meeting, including notice of any applicable dissenters' rights
as provided in the Code; or
(2) The waiver expressly waives the right to receive the material
required to be furnished.
(d) A director may waive any notice required to be given to such
director by the Code, the Articles of Incorporation, or these By-Laws before or
after the date and time stated in the notice. Except as provided by subsection
(e) of this Section 2, the waiver must be in writing, signed by the director
entitled to the notice, and delivered to the Corporation for inclusion in the
minutes or filing with the Corporation's corporate records.
(e) A director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless the director 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 action taken at the meeting.
3
<PAGE> 7
ARTICLE III.
SHAREHOLDERS' MEETINGS
Section 1. PLACE OF MEETING. The Board may designate any place within or
outside the State of Georgia as the place of meeting for any annual or special
shareholders' meeting. A waiver of notice signed by all shareholders entitled to
vote at a meeting may designate any place within or outside the State of Georgia
as the place for the holding of such meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be the principal
office of the Corporation.
Section 2. ANNUAL MEETING. An annual meeting of the shareholders shall
be held on the second Tuesday in April of each year, if not a legal holiday (and
if such is a legal holiday, then on the next following day not a legal holiday),
at such time and place as the Board shall determine, at which time the
shareholders shall elect a Board and transact such other business as may be
properly brought before the meeting. Notwithstanding the foregoing, the Board
may cause the annual meeting of shareholders to be held on such other date in
any year as the Board shall determine to be in the best interests of the
Corporation, and any business transacted at that meeting shall have the same
validity as if transacted on the date designated herein.
Section 3. SPECIAL MEETINGS. Except to the extent otherwise prescribed
by statute or the Articles of Incorporation, special meetings of the
shareholders, for any purpose or purposes, may be called by the Chairman of the
Board, the Chief Executive Officer, or the Board pursuant to resolution adopted
by a majority of the board of directors.
Section 4. NOTICE TO SHAREHOLDERS.
(a) Except as otherwise specifically provided in this Section 4,
requirements with respect to the giving of notice and waiver of notice shall be
governed by the provisions of Article II of these By-Laws.
(b) The Corporation shall give notice to each shareholder entitled to
vote thereat of the date, time and place of each annual and special
shareholders' meeting no fewer than ten (10) nor more than sixty (60) days
before the meeting date.
(c) Unless otherwise required by the Code with respect to meetings at
which specified actions will be considered (including but not limited to
mergers, certain share exchanges, certain asset sales by the Corporation, and
dissolution of the Corporation), notice of an annual meeting need not contain a
description of the purpose or purposes for which the meeting is called.
(d) Notice of a special meeting must include a description of the
purpose or purposes for which the meeting is called.
4
<PAGE> 8
(e) Unless a new record date is set (or is required by law or by the
terms of these ByLaws to be set) therefor, notice of the date, time and place of
any adjourned meeting need not be given otherwise than by the announcement at
the meeting before adjournment. If a new record date for the adjourned meeting
is or must be fixed, however, notice of the adjourned meeting must be given in
accordance with these By-Laws as if such adjourned meeting were a newly-called
meeting.
(f) If any corporate action proposed to be considered at a meeting of
shareholders would or might give rise to statutory dissenters' rights under the
Code, the notice of such meeting shall state that the meeting is to include
consideration of such proposed corporate action, and that the consummation of
such action will or might give rise to such dissenters' rights, and shall
include the description of such statutory dissenters' rights required by the
Code.
(g) If any corporate action which would give rise to statutory
dissenters' rights under the Code is taken by written consent of shareholders
without a meeting, or is taken at a meeting with respect to which less than all
shareholders were entitled to receive notice, or is otherwise taken without a
vote of shareholders, the Corporation shall cause notice thereof, including the
information concerning statutory dissenters' rights contemplated by paragraph
(b) above, to be given, not more than ten (10) days after the adoption of such
action by shareholder vote at a meeting or by written consent to those
shareholders who did not execute such written consent or who were not entitled
to receive notice of such meeting, or to all shareholders if such action was
otherwise taken without a vote of shareholders.
Section 5. FIXING OF RECORD DATE.
(a) For the purpose of determining shareholders entitled to notice of or
to vote at any meeting of shareholders, or shareholders entitled to demand a
special meeting of shareholders, or shareholders entitled to take any other
action, the Board may fix in advance (but not retroactively from the date the
Board takes such action) a date as the record date for any such determination of
shareholders, such date in any case to be not more than seventy (70) days prior
to the meeting or action requiring such determination of shareholders. If no
record date is fixed for the determination of shareholders entitled to notice of
or to vote at a meeting of shareholders, the close of business on the last
business day before the first notice of such meeting is delivered to
shareholders shall be the record date. If no record date is fixed for
determining shareholders entitled to take action without a meeting, the date the
first shareholder signs the consent shall be the record date for such purpose.
If no record date is fixed for determining shareholders entitled to demand a
special meeting, or to take other action, the date of receipt of notice by the
Corporation of demand for such meeting, or the date on which such other action
is to be taken by the shareholders, shall be the record date for such purpose.
(b) A separate record date may be established for each voting group
entitled to vote separately on a matter at a meeting.
5
<PAGE> 9
(c) A determination of shareholders entitled to notice of or to vote at
a shareholders meeting is effective for any adjournment of the meeting unless
the Board fixes a new record date, which it must do if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting.
(d) For the purpose of determining shareholders entitled to a
distribution by the Corporation (other than one involving a purchase, redemption
or other acquisition of the Corporation's shares), the record date shall be the
date fixed for such purpose by the Board, or if the Board does not fix such a
date, the date on which the Board authorizes such distribution.
Section 6. QUORUM AND VOTING REQUIREMENTS.
(a) Except as otherwise provided by the Articles of Incorporation or the
Code:
(i) A "voting group" with respect to any given matter means
all shares of one or more class or series which, under the
Articles of Incorporation or the Code, are entitled to vote
and be counted together collectively on that matter, and
unless specified otherwise in the Articles of Incorporation,
the Code or these By-Laws, all shares entitled to vote on a
given matter shall be deemed to be a single voting group for
purposes of that matter.
(ii) Each outstanding share, regardless of class, is entitled to
one vote on each matter voted on at a shareholders' meeting.
(iii) A majority of the votes entitled to be cast on the matter by a
voting group constitutes a quorum of that voting group for
action on that matter.
(iv) The presence of a quorum of each voting group entitled
to vote thereon shall be the requisite for transaction of
business on a given matter.
(v) Action on a matter other than election of directors is
approved by a voting group if a quorum of such voting group
exists and the number of votes cast within such voting group
in favor of such action exceeds the number of votes cast
within such voting group against such action.
(vi) Except as otherwise provided in these By-Laws, all shares
entitled to vote for election of directors shall vote thereon
as a single voting group, and directors shall be elected by a
plurality of votes cast by shares entitled to vote in the
election in a meeting at which a quorum of such voting group
is present.
(b) Once a share is represented for any purpose other than solely to
object to holding a meeting or transacting business at the meeting, it is deemed
present for quorum purposes for
6
<PAGE> 10
the remainder of the meeting and for any adjournment of that meeting unless a
new record date is, or is required by law or these By-Laws to be, set for that
adjourned meeting.
(c) If a quorum for transaction of business shall not be present at a
meeting of shareholders, the shareholders entitled to vote thereat, present in
person or by proxy, shall have the power to adjourn the meeting from time to
time, until the requisite amount of voting stock shall be present. No notice
other than announcements at the meeting before adjournment shall be required of
the new date, time or place of the adjourned meeting, unless a new record date
for such adjourned meeting is, or is required by law or these By-Laws to be,
fixed. At such adjourned meeting (for which no new record date is, or is
required to be, set) at which a quorum shall be present in person or by proxy,
any business may be transacted that might have been transacted at the meeting
originally called.
Section 7. PROXIES. At every meeting of the shareholders, any
shareholder having the right to vote shall be entitled to vote in person or by
proxy, but no proxy shall be: (i) effective unless given in writing and signed,
either personally by the shareholder or his attorney-in-fact; or (ii) effective
until received by the Secretary or other officer or agent authorized to tabulate
votes; or valid after eleven months from its date, unless said proxy expressly
provides for a longer period.
Section 8. INFORMAL ACTIONS BY SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if written consent (which may take the form of one or more counterpart
copies), setting forth the action so taken, shall be signed by all the holders
of all the shares entitled to vote with respect to the subject matter thereof
and delivered to the Corporation for inclusion in the minutes or filing with the
corporate records. Such consent shall have the same force and effect as a
unanimous vote of the shareholders; provided, however, that no such consent
which purports to be an approval of any plan of merger, share exchange, asset
sale or other transaction (i) as to which shareholder approval is required by
the Code and (ii) with respect to which specific disclosure requirements to
voting shareholders are imposed by the Code, shall be effective unless:
(1) prior to the execution of the consent, each consenting
shareholder shall have been furnished the same material which, under
the Code, would have been required to be sent to shareholders in a
notice of a meeting at which the proposed action would have been
submitted to the shareholders for action, including notice of any
applicable dissenters' rights; or:
(2) the written consent contains an express waiver of the right to
receive the material otherwise required to be furnished.
7
<PAGE> 11
ARTICLE IV.
DIRECTORS
Section 1. GENERAL POWERS. All corporate powers of the Corporation shall
be exercised by or under the authority of, and the business and affairs of the
Corporation managed under the direction of, its Board, subject to any limitation
set forth in the Articles of Incorporation, or any amendment to these By-Laws
approved by the shareholders of the Corporation, or any otherwise lawful
agreement among the shareholders of the Corporation.
Section 2. NUMBER, ELECTION AND TERMS. The business and affairs of the
Corporation shall be managed by or under the direction of a board of directors
which, except as otherwise fixed by or pursuant to the provisions of the
Articles of Incorporation relating to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
shall consist of not less than five (5) nor more than twenty-five (25) persons.
The exact number of directors within the minimum and maximum limitations
specified in the preceding sentence shall be fixed from time to time by the
board of directors pursuant to a resolution adopted by a majority of the entire
board of directors. The directors shall be divided into three classes, as nearly
equal in number as possible, with the term of office of the first class of
directors to expire at the annual meeting of shareholders of the Corporation to
be held in 1998, the term of office of the second class of directors to expire
at the annual meeting of shareholders of the Corporation to be held in 1999, and
the term of office of the third class of directors to expire at the annual
meeting of shareholders of the Corporation to be held in 2000. At each annual
meeting of the shareholders of the Corporation, and except as otherwise so fixed
by or pursuant to the provisions of the Articles of Incorporation relating to
the rights of the holders of any series of Preferred Stock to elect additional
directors under specified circumstances, directors elected to succeed those
directors whose terms expire at such annual meeting shall be elected for a term
of office to expire at the third succeeding annual meeting of shareholders of
the Corporation after their election.
Section 3. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the
rights of the holders of any series of Preferred Stock then outstanding, newly
created directorships resulting from any increase in the number of directors or
any vacancies occurring in the board of directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
shall be filled by the affirmative vote of a majority of the remaining directors
then in office, although less than a quorum of the board of directors, or by the
sole remaining director. A director so chosen shall hold office until the next
annual meeting of shareholders of the Corporation. No decrease in the number of
directors constituting the board of directors shall shorten the term of any
incumbent director.
Section 4. CONTINUANCES IN OFFICE. Notwithstanding the foregoing
provisions of this Article IV, any director whose term of office has expired
shall continue to hold office until his successor shall be elected and qualify.
8
<PAGE> 12
Section 5. REMOVAL. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, any director, or the entire board of
directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least seventy-five percent (75%) of
the total number of votes entitled to be cast by the holders of all of the
shares of capital stock of the Corporation then entitled to vote generally in
the election of directors. The holder of each share of capital stock entitled to
vote thereon shall be entitled to cast the same number of votes as the holder of
such shares is entitled to cast generally in the election of each director.
Section 6. PLACE OF MEETING. The Board may hold its meetings at such
place or places within or without the State of Georgia as it may from time to
time determine.
Section 7. COMPENSATION. Directors may be allowed such compensation for
attendance at regular or special meetings of the Board and of any special or
standing committees thereof as may be from time to time determined by resolution
of the Board.
Section 8. REGULAR MEETINGS. A regular annual meeting of the Board shall
be held, without other notice than this By-Law, immediately after, and at the
same place as, the annual meeting of shareholders. The Board may provide, by
resolution, the time and place within or without the State of Georgia, for the
holding of additional regular meetings without other notice than such
resolution.
Section 9. SPECIAL MEETINGS. Special meetings of the Board may be called
by the Chief Executive Officer or the presiding officer of the Board, if
different from the Chief Executive Officer, on not less than two (2) days'
notice to each director by mail, telegram, cablegram or other form of wire or
wireless communication, or personal delivery or other form of communication
authorized under the circumstances by the Code, and shall be called by the Chief
Executive Officer or the Secretary in like manner and on like notice on the
written request of any two (2) or more members of the Board. Such notice shall
state the time, date and place of such meeting, but need not describe the
purpose of the meeting. Any such special meeting shall be held at such time and
place as shall be stated in the notice of the meeting.
Section 10. GENERAL PROVISIONS REGARDING NOTICE AND WAIVER. Except as
otherwise expressly provided in this Article IV, matters relating to notice to
directors and waiver of notice by directors shall be governed by the provisions
of Article II of these By-Laws.
Section 11. QUORUM. At all meetings of the Board, unless otherwise
provided in the Articles of Incorporation or other provisions of these By-Laws,
the presence of a majority of the directors shall constitute a quorum for the
transaction of business. In the absence of a quorum a majority of the directors
present at any meeting may adjourn from time to time until a quorum be had.
Notice of the time and place of any adjourned meeting need only be given by
announcement at the meeting at which adjournment is taken.
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Section 12. MANNER OF ACTING. Except as expressly otherwise provided by
the Articles of Incorporation or other provisions of these By-Laws, if a quorum
is present when a vote is taken, the affirmative vote of a majority of directors
present is the act of the Board. A director who is present at a meeting when
corporate action is taken is deemed to have assented to the action unless:
(1) He objects at the beginning of the meeting (or promptly upon his
arrival) to holding it or transacting business at the meeting;
(2) His dissent or abstention from the action taken is entered in the
minutes of the meeting; or
(3) He does not vote in favor of the action taken and delivers written
notice of his dissent or abstention to the presiding officer of the
meeting before its adjournment or to the Corporation immediately
after adjournment of the meeting.
Section 13. COMMITTEES.
(a) Except as otherwise provided by the Articles of Incorporation, the
Board may create one or more committees and appoint members of the Board to
serve on them. Each committee may have one or more members, who serve at the
pleasure of the Board.
(b) The provisions of these By-Laws and of the Code which govern
meetings, action without meetings, notice and waiver of notice, and quorum and
voting requirements of the Board, shall apply as well to committees created
under this Section 11 and their members.
(c) To the extent specified by the Articles of Incorporation, these
By-Laws and the resolution of the Board creating such committee, each committee
may exercise the authority of the Board, provided that a committee may not:
(1) Approve, or propose to shareholders for approval, action required by
the Code to be approved by shareholders;
(2) Fill vacancies on the Board or on any of its committees;
(3) Exercise any authority which the Board may have to amend the
Articles of Incorporation;
(4) Adopt, amend, or repeal by-laws; or
(5) Approve a plan of merger not requiring shareholder approval.
Section 14. ACTION WITHOUT FORMAL MEETING. Except as expressly otherwise
provided in the Articles of Incorporation, any action required or permitted to
be taken at any
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meeting of the Board or of any committee thereof may be taken without a meeting
if written consent thereto (which may take the form of one or more counterparts)
is signed by all members of the Board or of such committee, as the case may be,
and such written consent is filed with the minutes of the proceedings of the
Board or committee. A consent executed in accordance herewith has the effect of
a meeting vote and may be described as such in any document.
Section 15. CONFERENCE CALL MEETINGS. Members of the Board, or any
committee of the Board, may participate in a meeting of the Board or committee
by means of conference, telephone or similar communications equipment by means
of which all persons participating in the meeting can simultaneously hear each
other during the meeting, and participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting.
ARTICLE V.
OFFICERS
Section 1. GENERALLY. The Board shall from time to time elect or appoint
such officers as it shall deem necessary or appropriate to the management and
operation of the Corporation, which officers shall hold their offices for such
terms as shall be determined by the Board and shall exercise such powers and
perform such duties as are specified in these By-Laws or in a resolution of the
Board. Except as specifically otherwise provided in resolutions of the Board,
the following requirements shall apply to election or appointment of officers:
(a) The Corporation shall have, at a minimum, the following officers,
which offices shall bear the titles designated therefor by resolution of the
Board, but in the absence of such designation shall bear the titles set forth
below:
<TABLE>
<CAPTION>
Office Title
------ -----
<S> <C>
Chief Executive Officer Chief Executive Officer
Chief Financial Officer Treasurer
Secretary Secretary
</TABLE>
(b) All officers of the Corporation shall serve at the pleasure of the
Board, and in the absence of specification otherwise in a resolution of the
Board, each officer shall be elected to serve until the next succeeding annual
meeting of the Board and the election and qualification of his successor,
subject to his earlier death, resignation or removal.
(c) Any person may hold two or more offices simultaneously, and no
officer need be a shareholder of the Corporation.
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(d) If so provided by resolution of the Board, any officer may be
delegated the authority to appoint one or more officers or assistant officers,
which appointed officers or assistant officers shall have the duties and powers
specified in the resolution of the Board.
Section 2. COMPENSATION. The salaries of the officers of the Corporation
shall be fixed by the Board, except that the Board may delegate to any officer
or officers the power to fix the compensation of any other officer.
Section 3. VACANCIES. A vacancy in any office, because of resignation,
removal or death may be filled by the Board for the unexpired portion of the
term, or if so provided by resolution of the Board, by an officer of the
Corporation to whom has been delegated the authority to appoint the holder of
such vacated office.
Section 4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
have such title or titles designated by the Board and shall be the principal
executive officer of the Corporation. Subject to the control of the Board, the
Chief Executive Officer shall in general manage, supervise and control all of
the business and affairs of the Corporation. He shall, when present, preside at
all meetings of all of the stockholders. He may sign, individually or in
conjunction with any other proper officer of the Corporation thereunto
authorized by the Board, certificates for shares of the Corporation, any deeds,
mortgages, bonds, policies of insurance, contracts, investment certificates, or
other instruments which the Board has authorized to be executed, except in cases
where the execution thereof shall be expressly delegated by the Board or by the
By-Laws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of the Chief Executive Officer of the Corporation
and such other duties as may be prescribed by the Board from time to time.
Section 5. SECRETARY. The Secretary may be designated by any such title
as determined by resolution of the Board, but shall have the duties of the
officer denominated the "Secretary" under the Code. Such officer shall: (a)
attend and keep the Minutes of the shareholders' meetings and of the Board's
meetings in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these ByLaws or as
otherwise required by law or the provisions of the Articles of Incorporation;
(c) be custodian of the corporate records and of the seal of the Corporation and
see that the seal of the Corporation is affixed to all documents, the execution
of which on behalf of the Corporation under its seal is duly authorized; (d)
maintain, or cause an agent designated by the Board to maintain, a record of the
Corporation's shareholders in a form that permits the preparation of a list of
the names and addresses of all shareholders in alphabetical order by class of
shares, showing the number and class of shares held by each; (e) have general
charge of the stock transfer books of the Corporation or responsibility for
supervision, on behalf of the Corporation, of any agent to which stock transfer
responsibility has been delegated by the Board; (f) have responsibility for the
custody, maintenance and preservation of those corporate records which the
Corporation is required by the Code or otherwise to create, maintain or
preserve; (g) in
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general perform all duties incident to the legal office of "Secretary," as
described in the Code, and such other duties as from time to time may be
assigned to him by the Board.
Section 6. CHIEF FINANCIAL OFFICER. The Chief Financial Officer, unless
otherwise determined by the Board, shall: (a) have charge and custody of and be
responsible for all funds and securities of the Corporation; receive and give
receipts for monies due and payable to the Corporation from any source
whatsoever, and deposit all such monies in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected by the Board;
and (b) in general perform all the duties incident to the office of Chief
Financial Officer and such other duties as from time to time may be assigned by
the Board.
Section 7. DEPUTY OFFICERS. The Board may create one or more deputy
officers whose duties shall be, among any other designated thereto by the Board,
to perform the duties of the officer to which such office has been deputized in
the event of the unavailability, death or inability or refusal of such officer
to act. Deputy officers may hold such titles as designated therefor by the
Board; however, any office designated with the prefix "Vice" or "Deputy" shall
be, unless otherwise specified by resolution of the Board, automatically a
deputy officer to the office with the title of which the prefix term is
conjoined. Deputy officers shall have such other duties as prescribed by the
Board from time to time.
Section 8. ASSISTANT OFFICERS. The Board may appoint one or more
officers who shall be assistants to principal officers of the Corporation, or
their deputies, and who shall have such duties as shall be delegated to such
assistant officers by the Board or such principal officers, including the
authority to perform such functions of those principal officers in the place of
and with full authority of such principal officers as shall be designated by the
Board or (if so authorized) by such principal officers. The Board may by
resolution authorize appointment of assistant officers by those principal
officers to which such appointed officers will serve as assistants.
ARTICLE VI.
INDEMNIFICATION
Section 1. DEFINITIONS FOR INDEMNIFICATION PROVISIONS. As used in this
Article VI, the term:
(1) "Corporation" (when spelled with an initial capital letter) includes
any domestic or foreign predecessor entity of the "Corporation" (as
defined in Article I of these By-Laws) in a merger or other
transaction in which the predecessor's existence ceased upon
consummation of the transaction.
(2) "director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the
Corporation, is or was serving at the Corporation's request as a
director, officer, partner, trustee, employee, or agent
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of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise. A
director is considered to be serving an employee benefit plan at the
Corporation's request if his duties to the Corporation also impose
duties on, or otherwise involve services by, him to the plan or to
participants in or beneficiaries of the plan. Director includes,
unless the context requires otherwise, the estate or personal
representative of a director.
(3) "expenses" include attorneys' fees.
(4) "liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an
employee benefit plan), or reasonable expenses incurred with respect
to a proceeding.
(5) "party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(6) "proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
Section 2. MANDATORY INDEMNIFICATION AGAINST EXPENSES. The
Corporation shall indemnify a director who was wholly successful, on the merits
or otherwise, in the defense of any proceeding to which he was a party because
he was a director of the Corporation against reasonable expenses incurred by the
director in connection with the proceeding.
Section 3. AUTHORITY FOR PERMISSIVE INDEMNIFICATION.
(a) Except as otherwise provided in this Section, the Corporation may
indemnify an individual who is a party to a proceeding because he is or was a
director against liability incurred in the proceeding if he conducted himself in
good faith and reasonably believed, in the case of conduct in his official
capacity, that such conduct was in the best interests of the Corporation; in all
other cases, that such conduct was at least not opposed to the best interests of
the Corporation; and in the case of a criminal proceeding, that he had no
reasonable cause to believe such conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan for a
purpose he believed in good faith to be in the interests of the participants in
and beneficiaries of the plan is conduct that the director reasonably believed
was at least not opposed to the best interests of the Corporation.
(c) The termination of a proceeding by judgment, order, settlement, or
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct set
forth in subsection (a) of this Section 3.
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(d) The Corporation may not indemnify a director under this Section 3:
(1) In connection with a proceeding by or in the right of the
Corporation in which the director was adjudged liable to the
Corporation; except for reasonable expenses incurred in connection
with the proceeding if it is determined that the director has met
the relevant standard of conduct set forth in subsection (a) of this
Section 3; or
(2) In connection with any other proceeding in which he was adjudged
liable on the basis that personal benefit was improperly received by
him, whether or not involving action in his official capacity.
Section 4. DETERMINATION AND AUTHORIZATION OF PERMITTED
INDEMNIFICATION.
(a) The Corporation may not indemnify a director under Section 3 of this
Article VI unless authorized thereunder and a determination has been made in the
specific case that indemnification of the director is permissible in the
circumstances because he has met the standard of conduct set forth in subsection
(a) of such Section 3.
(b) The determination required by subsection (a) hereof shall be made:
(1) If there are two or more disinterested directors, by the Board by a
majority vote of all the disinterested directors (a majority of whom
shall for such purpose constitute a quorum) or by a majority of the
members of a committee of two or more disinterested directors
appointed by such a vote;
(2) By special legal counsel:
(A) Selected in the manner prescribed in paragraph (1)
of this subsection; or
(B) If there are fewer than two disinterested directors,
selected by the Board (in which selection directors who do not
qualify as disinterested directors may participate); or
(3) By the shareholders, but shares owned by or voted under the control
of a director who at the time does not qualify as a disinterested
director may not be voted on the determination.
(c) Authorization of indemnification or an obligation to indemnify and
evaluation as to reasonableness of expenses shall be made in the same manner as
the determination that indemnification is permissible, as set forth in
subsection (b) hereof, except that if there are fewer than two disinterested
directors or if the determination is made by special legal counsel,
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authorization of indemnification and evaluation as to reasonableness of expenses
shall be made by those entitled under subsection (b)(2)(B) of this Section 4 to
select special legal counsel.
Section 5. SHAREHOLDER-APPROVED INDEMNIFICATION.
(a) Without regard to any limitations contained in any other section of
this Article VI, the Corporation may, if authorized by its shareholders by a
majority of votes which would be entitled to be cast in a vote to amend the
Corporation's Articles of Incorporation (which authorization may take the form
of an amendment to the Articles of Incorporation or a contract, resolution or
by-law approved or ratified by the requisite shareholder vote), indemnify or
obligate itself to indemnify a director made a party to a proceeding, including
a proceeding brought by or in the right of the Corporation, but shares owned or
voted under the control of a director who at the time does not qualify as a
disinterested director with respect to any existing or threatened proceeding
that would be covered by the authorization may not be voted on the
authorization.
(b) The Corporation shall not indemnify a director under this Section 5
for any liability incurred in a proceeding in which the director is adjudged
liable to the Corporation or is subjected to injunctive relief in favor of the
Corporation:
(1) For any appropriation, in violation of his duties, of any business
opportunity of the Corporation;
(2) For acts or omissions which involve intentional misconduct or a
knowing violation of law;
(3) For any type of liability for unlawful distribution under Section
14-2-832 of the Code, or any successor statute; or
(4) For any transaction from which he received an improper personal
benefit.
(c) Where approved or authorized in the manner described in subsection
(a) of this Section 5, the Corporation may advance or reimburse expenses
incurred in advance of final disposition of the proceeding only if:
(1) The director furnishes the Corporation a written affirmation of his
good faith belief that his conduct does not constitute behavior of
the kind described in subsection (b) of this Section 5; and
(2) The director furnishes the Corporation a written undertaking,
executed personally or on his behalf, to repay any advances if it is
ultimately determined that he is not entitled to indemnification
under this Section 5.
Section 6. ADVANCES FOR EXPENSES.
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(a) The Corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding if:
(1) The director furnishes the Corporation a written affirmation of his
good faith belief that he has met the standard of conduct set forth
in subsection (a) of Section 3 of this Article VI or that the
proceeding involves conduct for which liability has been eliminated
under a provision of the Articles of Incorporation of the
Corporation as authorized by paragraph (4) of subsection (b) of Code
Section 14-202; and
(2) The director furnishes the Corporation a written undertaking to
repay any funds advanced if it is ultimately determined that he is
not entitled to indemnification under this Article.
(b) The undertaking required by paragraph (2) of subsection (a) of this
Section 6 must be an unlimited general obligation of the director but need not
be secured and may be accepted without reference to financial ability to make
repayment.
(c) Authorizations under this Section 6 shall be made:
(1) By the Board:
(A) When there are two or more disinterested directors,
by a majority vote of all the disinterested directors (a majority of
whom shall for such purpose constitute a quorum) or by a majority of
the members of a committee of two or more disinterested directors
appointed by such a vote; or
(B) When there are fewer than two disinterested
directors, by the vote necessary for action by the Board in
accordance with subsection (c) of Code Section 14-2-824, in which
authorization directors who do not qualify as disinterested
directors may participate; or
(2) By the shareholders, but shares owned or voted under the control of
a director who at the time does not qualify as a disinterested
director with respect to the proceeding may not be voted on the
authorization.
Section 7. INDEMNIFICATION OF OFFICERS, EMPLOYEES, AND AGENTS.
(a) The Corporation may indemnify and advance expenses under this part
to an officer of the Corporation who is a party to a proceeding because he is an
officer of the Corporation:
(1) To the same extent as a director; and
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(2) If he is not a director, to such further extent as may be provided
by the Articles of Incorporation, the By-Laws, a resolution of the
Board, or contract except for liability arising out of conduct that
constitutes:
(A) Appropriation, in violation of his duties, of any
business opportunity of the Corporation;
(B) Acts or omissions which involve intentional
misconduct or a knowing violation of law;
(C) The types of liability set forth in Code Section
14-2-832; or
(D) Receipt of an improper personal benefit.
(b) The provisions of paragraph (2) of subsection (a) of this Section 7
shall apply to an officer who is also a director if the sole basis on which he
is made a party to the proceeding is an act or omission solely as an officer.
(c) An officer of the Corporation who is not a director is entitled to
mandatory indemnification under Section 2, and may apply to a court under Code
Section 14-2-854 for indemnification or advances for expenses, in each case to
the same extent to which a director may be entitled to indemnification or
advances for expenses under those provisions.
(d) The Corporation may also indemnify and advance expenses to an
employee or agent who is not a director to the extent, consistent with public
policy, that may be provided by its Articles of Incorporation, By-Laws, general
or specific action of its Board, or contract.
Section 8. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of an individual who is or was a director, officer,
employee, or agent of the Corporation or who, while a director, officer,
employee, or agent of the Corporation, serves at the request of the Corporation
as a director, officer, partner, trustee, employee, or agent of another foreign
or domestic corporation, partnership, joint venture, trust, employee benefit
plan, or other entity against liability asserted against or incurred by him in
that capacity or arising from his status as a director, officer, employee, or
agent, whether or not the Corporation would have power to indemnify or advance
expenses to him against the same liability under this part.
Section 9. EXPENSES FOR APPEARANCE AS WITNESS. Nothing contained in this
Article VI shall be deemed to limit the Corporation's power to pay or reimburse
expenses incurred by a director or officer in connection with his appearance as
a witness in a proceeding at a time when he is not a party.
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ARTICLE VII.
REIMBURSEMENT OF NON-DEDUCTIBLE
PAYMENTS TO OFFICERS AND EMPLOYEES
In the event any payments to an officer or employee of the Corporation,
such as salary, commission, bonus, interest or rent expenses incurred by him, is
thereafter disallowed in whole or in part by the Internal Revenue Service as a
proper deduction for income tax purposes under Section 162 of the Internal
Revenue Code of 1986 (or disallowed under any similar statutory section which
may subsequently replace such Section 162), such disallowed payments shall be
deemed to be an obligation owed by such officer or employee to the Corporation.
Such disallowed payments shall be reimbursed by such officer or employee to the
Corporation on or before ninety (90) days following the final determination of
such disallowance by the Internal Revenue Service or entry of the final judgment
of such determination if adjudicated. It shall be the duty of the Board to
enforce reimbursement of each such amount disallowed, including the withholding
from future compensation payments to such officer or employee until the amount
owed to the Corporation has been recovered.
ARTICLE VIII.
FISCAL YEAR
The fiscal year of the Corporation shall be established by the Board or,
in the absence of Board action establishing such fiscal year, by the Chief
Executive Officer.
ARTICLE IX.
ANNUAL STATEMENTS
(a) No later than four months after the close of each fiscal year, and
in any case prior to the next annual meeting of shareholders, the Corporation
shall prepare:
(i) A balance sheet showing in reasonable detail the financial
condition of the Corporation as of the close of the fiscal year,
and
(ii) A profit and loss statement showing the results of its operation
during the fiscal year.
Upon written request, the Corporation shall mail promptly to any
shareholder of record a copy of the most recent such balance sheet and profit
and loss statement. If prepared for other purposes, the Corporation shall also
furnish upon written request a statement of sources and applications of funds
and a statement of changes in shareholders' equity for the fiscal year. If
financial statements are prepared by the Corporation on the basis of generally
accepted accounting principles, the annual financial statements must also be
prepared, and disclose that
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they are prepared, on that basis. If financial statements are prepared otherwise
than on the basis of generally accepted accounting principles, they must so
disclose and must be prepared on the same basis as other reports or statements
prepared by the Corporation for the use of others.
(b) If the annual financial statements are reported upon by a public
accountant, his report must accompany them. If not, the statements must be
accompanied by a statement of the Chief Executive Officer or the person
responsible for the Corporation's accounting records:
(1) Stating his reasonable belief whether the statements were prepared
on the basis of generally accepted accounting principles and, if
not, describing the basis of preparation; and
(2) Describing any respects in which the statements were not prepared on
a basis of accounting consistent with the statements prepared for
the preceding year.
ARTICLE X.
CAPITAL STOCK
Section 1. FORM.
(a) Except as otherwise provided for in paragraph (b) of this Section 1,
the interest of each shareholder shall be evidenced by a certificate
representing shares of stock of the Corporation, which shall be in such form as
the Board may from time to time adopt and shall be numbered and shall be entered
in the books of the Corporation as they are issued. Each certificate shall
exhibit the holder's name, the number of shares and class of shares and series,
if any, represented thereby, the name of the Corporation and a statement that
the Corporation is organized under the laws of the State of Georgia. Each
certificate shall be signed by one or more officers of the Corporation specified
by resolution of the Board, but in the absence of such specifications, shall be
valid if executed by the Chief Executive Officer or any Deputy or Assistant
thereto, and such execution is countersigned by the Secretary, or any Deputy or
Assistant thereto. Each stock certificate may but need not be sealed with the
seal of the Corporation.
(b) If authorized by resolution of the Board, the Corporation may issue
some or all of the shares of any or all of its classes or series without
certificates. The issuance of such shares shall not affect shares already
represented by certificates until they are surrendered to the Corporation.
Within a reasonable time after the issuance or transfer of any shares not
represented by certificates, the Corporation shall send to the holder of such
shares a written statement setting forth, with respect to such shares (I) the
name of the Corporation as issuer and the Corporation's state of incorporation,
(ii) the name of the person to whom such shares are issued, (iii) the number of
shares and class of shares and series, if any, and (iv) the terms of any
restrictions on transfer which, were such shares represented by a stock
certificate would be
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required to be noted on such certificate, by law, by the Articles of
Incorporation or these By-Laws, or by any legal agreement among the shareholders
of the Corporation.
Section 2. TRANSFER. Transfers of stock shall be made on the books of
the Corporation only by the person named in the certificate, or, in the case of
shares not represented by certificates, the person named in the Corporation's
stock transfer records as the owner of such shares, or, in either case, by
attorney lawfully constituted in writing. In addition, with respect to shares
represented by certificates, transfers shall be made only upon surrender of the
certificate therefor, or in the case of a certificate alleged to have been lost,
stolen or destroyed, upon compliance with the provisions of Section 4, Article X
of these By-Laws.
Section 3. RIGHTS OF HOLDER. The Corporation shall be entitled to treat
the holder of record of any share of the Corporation as the person entitled to
vote such share (to the extent such share is entitled to vote), to receive any
distribution with respect to such share, and for all other purposes and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by law.
Section 4. LOST OR DESTROYED CERTIFICATES. Any person claiming a
certificate of stock to be lost, stolen or destroyed shall make an affidavit or
affirmation of the fact in such manner as the Board may require and shall if the
Board so requires, give the Corporation a bond of indemnity in the form and
amount and with one or more sureties satisfactory to the Board, whereupon an
appropriate new certificate may be issued in lieu of the one alleged to have
been lost, stolen or destroyed.
ARTICLE XI.
SEAL
The corporate seal shall be in such form as shall be specified in the
minutes of the organizational meeting of the Corporation, or as the Board may
from time to time determine.
ARTICLE XII.
REGISTERED OFFICE AND REGISTERED AGENT
The address of the initial registered office of the corporation is 110
East Hill Street, Thomson, Georgia 30824 and the name of the initial registered
agent is Heyward Horton, Jr. The corporation may amend this Article XII at any
time to change its registered office or registered agent, without further action
of its officers or directors, by filing with the Secretary of State a notice of
such change, in accordance with Section 14-2-502 of the Code, or any successor
statute.
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The corporation may have other offices at such places within or without
the State of Georgia as the Board may from time to time designate or the
business of the corporation may require or make desirable.
ARTICLE XIII.
AMENDMENT TO BY-LAWS
Section 1. AMENDMENT OF BY-LAWS BY BOARD OF DIRECTORS. Except as
otherwise provided in the Articles of Incorporation, by applicable law or by the
provisions of this Article XIII, the board of directors may amend or repeal any
provision of the By-Laws of the Corporation or adopt any new By-Law, unless the
shareholders have adopted, amended or repealed a particular By-Law provision
and, in doing so, have expressly reserved to the shareholders the right of
amendment or repeal therefor. The board of directors may adopt, amend, alter or
repeat the By-Laws of the Corporation only by the vote of a majority of the
entire Board.
Section 2. SUPERMAJORITY REQUIRED FOR AMENDMENT BY SHAREHOLDERS.
The shareholders of the Corporation have the right, in accordance with the
voting requirements set forth in this Section 2 of Article XIII, to amend or
repeal any provision of these By-Laws, or to adopt new By-Law provisions, even
though such provisions may also be adopted, amended or repealed by the Board.
Except as may otherwise specifically be required by law, the affirmative vote of
the holders of not less than seventy-five percent (75%) of the total number of
votes entitled to be cast by the holders of all of the shares of capital stock
of the Corporation then entitled to vote generally in the election of directors
shall be required for the shareholders to adopt, amend, alter or repeal any
provision of the By-Laws of the Corporation.
22
<PAGE> 1
EXHIBIT 4.1
INCORPORATED UNDER THE LAWS OF THE
State of Georgia
NUMBER SHARES
PINNACLE BANCSHARES, INC.
Common Stock
[SPECIMEN]
This Certifies that________________________________is the owner of
Pinnacle Bancshares, Inc. fully paid and non-assessable Shares of the Capital
Stock of transferable only in the Books of the Corporation by
the holder herof in person or by duly authorized Attorney on
[SEAL] surrender of this Certificate properly enforsed.
IN WITNESS WHEREOF the duly authorized officers of this
Corporation have hereunto subscribed their names and caused the
corporate Seal to be hereto affixed at ________________________
this ________________ day of ________________________ A.D. ____
----------------------------- --------------------------------
President Secretary
Shares $.001 Par Value Each
<PAGE> 1
EXHIBIT 13.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------------
FORM 10-KSB
----------------------------------------------
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
----------------------------------------------
COMMISSION FILE NO.
---------
MCDUFFIE BANK & TRUST
INCORPORATED UNDER THE LAWS OF THE STATE OF GEORGIA
(I.R.S. EMPLOYER IDENTIFICATION NO. 58-1786015)
110 EAST HILL STREET
THOMSON, GEORGIA 30824
TELEPHONE: (706) 595-1600
- --------------------------------------------------------------------------------
Securities registered under Section 12(b) of the Securities Exchange Act: None
Securities registered under Section 12(g) of the Securities Exchange Act: Common
Stock, $5.00 Par Value
- --------------------------------------------------------------------------------
Indicate by check mark 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment of
this Form 10-KSB. [X]
Revenue for the fiscal year ended December 31, 1996: $3,345,238.
The aggregate market value of the registrant's common stock held by
nonaffiliates of the registrant (390,550 shares), computed using the book value
of the registrant's common stock as of December 31, 1996 was $4,385,877. For
purposes of this response, officers, directors and holders of 5% or more of the
registrant's common stock are considered affiliates of the registrant at that
date.
As of March 24, 1997, 635,380 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Bank commenced operations in January 1989 as an independent, locally
owned commercial bank which conducts business in McDuffie County, Georgia, with
deposits insured by the FDIC. In May 1991, the Bank opened an additional
office in McDuffie County, Georgia (the "Branch Office"). The Bank operates as
a locally-owned bank that targets the banking needs of individuals and small to
medium sized businesses in the McDuffie County area by emphasizing personal
service.
The Bank offers a full range of deposit and lending services and is a
member of an electronic banking network, which enables its customers to use the
automated teller machines of other financial institutions. In addition, the
Bank offers commercial and business credit services, as well as various
consumer credit services, including home mortgage loans, automobile loans,
lines of credit, home equity loans, home improvement loans and credit card
accounts.
In February 1995, the Bank was informed by the Georgia Department of
Banking and Finance (the "Georgia Banking Department") and the Federal Deposit
Insurance Corporation (the "FDIC") that its operations were unsatisfactory in
certain respects in that the Bank was experiencing weak credit administration
and lending practices, inadequate allocation for loan losses and high
classified assets coupled with poor earnings. Consequently, on March 10, 1995,
the Bank entered into a Memorandum of Understanding with the Georgia Banking
Department and the FDIC. To correct these problems, the Bank has recently
recruited a new Senior Loan Officer with 25 years of banking experience who
will assist in increasing the credit underwriting standards of the Bank and
reducing the level of classified assets. In addition, the Bank currently
employs a loan review consultant who aids the Bank in identifying and
monitoring problem loans. While increased underwriting standards and regular
review and monitoring are subject to uncertainties that cannot be predicted,
such expanded efforts have benefited the Bank significantly. Moreover, as a
result of these and other corrective measures, the level of the Bank's
classified assets has decreased, the Bank's earnings have increased and, on
November 19, 1996, the Memorandum of Understanding with the Georgia Banking
Department and the FDIC was terminated.
MARKET AREA AND COMPETITION
The primary service area (the "PSA") of the Bank is the County of
McDuffie and the community of Thomson, Georgia which is approximately 30 miles
west of Augusta, Georgia. The Bank encounters competition in its PSA and in
surrounding areas from two other commercial banks. These competitors offer a
full range of banking services and vigorously compete for all types of
services, especially deposits. While one of the competing financial
institutions in the Bank's PSA is headquartered in McDuffie County, some
competition also comes from banks outside of McDuffie County seeking to make
loans in the Bank's PSA. In addition, in certain aspects of its banking
business, the Bank also competes with credit unions, small loan companies,
consumer finance companies, brokerage houses, insurance companies, money market
funds, and other financial institutions which have recently been invading the
traditional banking markets.
- 1 -
<PAGE> 3
The extent to which other types of financial institutions compete with
commercial banks has increased significantly within the past few years as a
result of federal and state legislation which has, in several respects,
deregulated financial institutions. The full impact of this legislation and
subsequent laws that will continue to deregulate the financial services
industry even further cannot be fully assessed or predicted.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL
The following is a presentation of the average balance sheet of the Bank
for the years ended December 31, 1996 and 1995. This presentation includes all
major categories of interest-earning assets and interest-bearing liabilities:
- 2 -
<PAGE> 4
AVERAGE BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995
---- ----
AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/
BALANCES EXPENSE COSTS BALANCES EXPENSE COSTS
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-BEARING ASSETS
Loans, net of unearned income $21,841 2,178 9.97% $23,270 $2,351 10.10%
Investment securities 12,088 772 6.39% 10,987 672 6.12%
Interest bearing deposits in banks 363 16 4.40% 374 26 6.95%
Federal funds sold 1,611 87 5.40% 2,546 145 5.70%
------- ------- ------- ------
TOTAL INTEREST BEARING ASSETS $35,903 $ 3,053 8.50% $37,177 $3,194 8.59%
------- ------- -------
NON-INTEREST BEARING ASSETS
Cash and due from banks 1,319 1,117
Reserve for loan losses (1,165) (1,148)
Bank premises and fixed assets 1,501 1,585
Accrued interest receivable 377 352
Other assets 1,023 862
------- -------
TOTAL ASSETS $38,958 $39,945
LIABILITIES AND STOCKHOLDERS
EQUITY
INTEREST-BEARING DEPOSITS
NOW accounts $ 4,146 $ 105 2.53% $ 5,152 $ 140 2.72%
Savings 1,920 48 2.50% 2,127 59 2.77%
Money Market Accounts 2,270 59 2.60% 2,615 84 3.21%
Other time 20,569 1,172 5.70% 20,289 1,125 5.54%
------- ------- ------- ------
TOTAL INTEREST-BEARING DEPOSITS $28,905 $ 1,384 4.79% $30,183 $1,408 4.66%
OTHER INTEREST-BEARING
LIABILITIES
Funds purchased 9 1 11.70 39 3 7.69%
------- ------- ----- ------- ------ -----
TOTAL INTEREST-BEARING LIABILITIES $28,914 1,385 4.79 $30,222 $1,411 4.67%
NON-INTEREST-BEARING
LIABILITIES AND STOCKHOLDERS
EQUITY
Demand deposits $ 2,840 $ 2,717
Other liabilities 243 126
Stockholders' equity 6,961 6,880
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $38,958 $39,945
Interest rate spread 3.71% 3.92%
Net interest income 1,668 $1,783
Net interest margin 4.65% 4.80%
Average interest-earning assets to
average total assets 92.16% 93.07%
Average loans to average deposits 68.80% 70.73%
</TABLE>
- 3 -
<PAGE> 5
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The effect on interest income, interest expense and net interest income in
the periods indicated, of changes in average balance and rate from the
corresponding prior period is shown below. The effect of a change in average
balance has been determined by applying the average rate in the earlier period
to the change in average balance in the later period, as compared with the
earlier period. Changes resulting from average balance/rate variances are
included in changes resulting from rate. The balance of the change in interest
income or expense and net interest income has been attributed to a change in
average rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
COMPARED WITH
YEAR ENDED DECEMBER 31, 1995
------------------------------------
INCREASE (DECREASE) DUE TO:
VOLUME RATE TOTAL
------ ---- -----
<S> <C> <C> <C>
Interest earned on:
Tax-exempt securities . . . . . . . $ 57 $ (4) $ 53
Taxable securities . . . . . . . . (7) 54 47
---------- --------- --------
50 50 100
Federal funds sold . . . . . . . . (53) (5) (58)
Net loans . . . . . . . . . . . . . (144) (29) (173)
---------- --------- --------
Interest-bearing deposits in banks (1) (9) (10)
---------- --------- --------
Total interest income . . . . . . . . (148) (7) (141)
Interest paid on:
NOW deposits . . . . . . . . . . . (27) (8) (35)
Money market . . . . . . . . . . . (11) (14) (25)
Savings deposits . . . . . . . . . (6) (5) (11)
Time deposits . . . . . . . . . . . 16 31 47
Federal funds Purchased . . . . . . (2) -- (2)
---------- --------- --------
Total interest expense . . . . . . . (30) 4 (26)
---------- --------- --------
Change in net
interest income . . . . . . . . . . $ (118) $ 3 $ (115)
========== ========= ========
</TABLE>
- 4 -
<PAGE> 6
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
COMPARED WITH
YEAR ENDED DECEMBER 31, 1994
----------------------------------
INCREASE (DECREASE) DUE TO:
VOLUME RATE TOTAL
------ ---- -----
<S> <C> <C> <C>
Interest earned on:
Tax-exempt securities . . . . . . . $ 8 $ (1) $ 7
Taxable securities . . . . . . . . 39 37 76
------ ------ -----
47 36 83
Federal funds sold . . . . . . . . 35 44 79
Net loans . . . . . . . . . . . . . (209) 97 (112)
------- ------ ------
Interest-bearing deposits in banks (47) 6 (41)
Total interest income . . . . . . . . (174) 183 9
------- ----- ------
Interest paid on:
NOW deposits . . . . . . . . . . . (39) 12 (27)
Money market . . . . . . . . . . . (29) 8 (21)
Savings deposits . . . . . . . . . (39) -- (39)
Time deposits . . . . . . . . . . . 129 201 330
----- ----- -----
Federal funds purchased . . . . . . 2 (1) 1
Total interest expense . . . . . . . 24 220 244
----- ----- -----
Change in net
interest income . . . . . . . . . . $(198) $ (37) $(235)
===== ====== =====
</TABLE>
DEPOSITS
The Bank offers a wide range of commercial and consumer interest bearing
and non-interest bearing deposit accounts, including checking accounts, money
market accounts, negotiable order of withdrawal ("NOW") accounts, individual
retirement accounts, certificates of deposit and regular savings accounts. The
sources of deposits are residents, businesses and employees of businesses
within the Bank's market area, obtained through the personal solicitation of
the Bank's officers and directors, direct mail solicitation and advertisements
published in the local media. The Bank pays competitive interest rates on time
and savings deposits. In addition, the Bank has implemented a service charge
fee schedule competitive with other financial institutions in the Bank's market
area, covering such matters as maintenance fees on checking accounts, per item
processing fees on checking accounts, returned check charges and the like.
- 5 -
<PAGE> 7
The following table details, for the periods indicated, the average
amount of and average rate paid on each of the following deposit categories:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------- -----------------------------------
(DOLLAR AMOUNTS IN THOUSANDS) (DOLLAR AMOUNTS IN THOUSANDS)
DEPOSIT CATEGORY AVERAGE AMOUNT AVERAGE RATE PAID AVERAGE AMOUNT AVERAGE RATE PAID
---------------- -------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Non interest-bearing
demand deposits . . . . . . . . . $ 2,840 -- $ 2,717 --
NOW and money
market deposits . . . . . . . . . $ 6,416 2.56% $ 7,767 2.88%
Savings deposits . . . . . . . . . $ 1,920 2.50% $ 2,127 2.77%
Time deposits . . . . . . . . . . . $ 20,569 5.70% $20,289 5.54%
</TABLE>
The maturities of certificates of deposit and individual retirement
accounts of $100,000 or more as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Three months or less $2,141
Over three months through twelve months 2,090
Over twelve months 615
------
Total $4,846
</TABLE>
LOAN PORTFOLIO
The Bank engages in a full complement of lending activities, including
commercial, consumer/installment and real estate loans. The Bank concentrates
its lending efforts in the areas of consumer/installment and real estate loans,
particularly home mortgage lending. As of December 31, 1996, the Bank's loan
portfolio consisted of 23% commercial loans, 13% consumer/installment loans and
64% real estate loans.
Commercial lending is directed principally towards businesses whose
demands for funds fall within the Bank's legal lending limits and which are
potential deposit customers of the Bank. This category of loans includes loans
made to individual, partnership or corporate borrowers, and obtained for a
variety of business purposes. Such loans include short-term lines of credit,
short to medium-term plant and equipment loans, short to medium-term land
acquisition and development loans, construction loans and letters of credit.
The Bank's consumer loans consist primarily of residential first and
second mortgage loans, home equity loans, installment loans to individuals for
personal, family or household purposes, including automobile loans to
individuals and pre-approved lines of credit.
While risk of loss in the Bank's loan portfolio is primarily tied to
the credit quality of the various borrowers, risk of loss may also increase due
to factors beyond the Bank's control, such as
- 6 -
<PAGE> 8
local, regional and/or national economic downturns. General conditions in the
real estate market may also impact the relative risk in the Bank's real estate
portfolio.
Management of the Bank originates loans and participates with other
banks with respect to loans which exceed the Bank's lending limits. Management
of the Bank does not believe that loan participations will necessarily pose any
greater risk of loss than loans which the Bank originates.
The following table presents various categories of loans contained in
the Bank's loan portfolio as of December 31, 1996 and 1995 and the total amount
of all loans for such periods:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
---- ----
(Dollar amounts in thousands)
<S> <C> <C>
Type of Loan
------------
Commercial, financial and agricultural $ 4,794 $ 7,730
Real estate-construction 2,547 1,551
Real estate-mortgage 10,917 8,559
Installment and other loans to individuals 2,750 3,265
------- -------
Subtotal 21,008 21,105
Less:
----
Unearned income and deferred (3) (8)
loan fees
Allowance for possible loan losses (889) (1,155)
------- -------
Total (net of allowance) $20,116 $19,942
======= =======
</TABLE>
The table below presents an analysis of maturities of loans as of
December 31, 1996:
<TABLE>
<CAPTION>
Due in 1 Due in 1 to Due After
Type of Loan year or less 5 years 5 years Total
------------ ------------ ------- ------- -----
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural . . . . . . . . $ 4,435 $ 359 $ -- $ 4,794
Real estate construction . . 1,245 1,296 6 2,547
-------- ------- -------- --------
Total . . . . . . . . . . . . $ 5,680 $ 1,655 $ 6 $ 7,341
</TABLE>
- 7 -
<PAGE> 9
The following is a presentation of an analysis of sensitivities of loans to
changes in interest rates as of December 31, 1996:
<TABLE>
<S> <C>
Loans due after 1 year with
predetermined interest rates . . . . . . . . . . . . . . . . . . $7,165
Loans due after 1 year with
floating interest rates . . . . . . . . . . . . . . . . . . . . . $1,139
</TABLE>
Accrual of interest is discontinued on a loan when management of the Bank
determines upon consideration of economic and business factors affecting
collection efforts that collection of interest is doubtful. For the year ended
December 31, 1996, the Company had nine loans aggregating $143,000 accounted
for on a nonaccrual basis and eight loans aggregating $7,000 were contractually
past due 90 days or more as to principal or interest payments.
At December 31, 1996, there were no loans classified for regulatory purposes
as doubtful, substandard or special mention that have not been disclosed above
which (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity
or capital resources, or (ii) represent material credits about which management
is aware of any information which causes management to have serious doubts as
to the ability of such borrowers to comply with the loan repayment terms.
SUMMARY OF LOAN LOSS EXPERIENCE
An analysis of the Bank's loss experience is furnished in the following
table for the periods indicated.
<TABLE>
<CAPTION>
Summary of Loan Loss Experience
-------------------------------
December 31, 1996 December 31, 1995
----------------- -----------------
(In thousands)
<S> <C> <C>
Balance, beginning of year $1,155 $1,394
Charge-offs:
Commercial, financial and
agricultural (primary single
payment) (143) (283)
Consumer (primary installment) (379) (348)
Credit cards (31) (7)
------- -------
(553) (638)
Recoveries:
Commercial, financial and
agricultural (primary single
payment) 11 82
Consumer (primary installment) 212 75
Credit cards 8 2
------ ------
231 159
Net loans charge-offs 322 479
Provision for loan losses 56 240
------ ------
Balance, end of year $ 889 $1,155
====== ======
Ratio of net charge-offs during the period
to average loans outstanding during the
period 1.47% 2.06%
</TABLE>
- 8 -
<PAGE> 10
At December 31, 1996, the loan loss reserve was allocated as follows:
<TABLE>
<CAPTION>
Allowance for Loan Losses
-------------------------
Percent of loans
in each category
Amount to total loans
------ ----------------
(In thousands)
<S> <C> <C>
Commercial, financial and
agricultural $ 66 22.8%
Real estate - construction 66 12.1
Real estate - mortgage 365 52.0
Installment and other loans to individuals 46 13.1
Unallocated 346 N/A
------- -------
Total $ 889 100%
======= =======
</TABLE>
LOAN LOSS RESERVE
In considering the adequacy of the Bank's allowance for possible loan
losses, management has focused on the fact that as of December 31, 1996, 23% of
outstanding loans are in the category of commercial loans. Commercial loans
are generally considered by management as having greater risk than other
categories of loans in the Bank's loan portfolio. However, over 98% of these
commercial loans at December 31, 1996 were made on a secured basis. Management
believes that the secured condition of the preponderant portion of its
commercial loan portfolio greatly reduces any risk of loss inherently present
in commercial loans.
The Bank's consumer loan portfolio is also well secured. At December
31, 1996 the majority of the Bank's consumer loans were secured by collateral
primarily consisting of automobiles, boats and other personal property.
Management believes that these loans involve less risk than other categories of
loans.
Real estate mortgage loans constitute 52% of outstanding loans.
Approximately $6.7 million or 61% of this category represents residential real
estate mortgages. The remaining portion of this category consists of
commercial real estate loans. Risk of loss for these loans is generally higher
than residential loans.
- 9 -
<PAGE> 11
The Bank's Board of Directors monitors the loan portfolio quarterly to
enable it to evaluate the adequacy of the allowance for loan losses. The loans
are rated and the reserve established base don the assigned rating. The
provision for loan losses charged to operating expenses is based on this
established reserve. Factors considered by the Board in rating the loans
include delinquent loans, underlying collateral value, payment history and
local and general economic conditions affecting collectibility.
INVESTMENTS
As of December 31, 1996, federal funds and investment securities
comprised approximately 37% of the Bank's assets, with loans comprising
approximately 53% of the Bank's assets. The Bank invests primarily in
obligations of the United States or obligations guaranteed as to principal and
interest by the United States, mortgage backed securities and obligations,
other taxable securities and in certain obligations of states and
municipalities. The Bank also enters into federal funds transactions with its
principal correspondent banks, and primarily acts as a net seller of such
funds. The sale of federal funds amounts to a short-term loan from the Bank to
another bank.
The following table presents, for the periods indicated, the estimated
fair market value of the Bank's investment securities available for sale. The
Bank holds no investment securities to maturity.
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
---------- ----------
(In thousands)
<S> <C> <C>
Investment Securities Available for Sale
----------------------------------------
Obligations of U.S. government agencies $ 7,575 $ 4,219
U.S. Treasury notes 247 2,256
Mortgage-backed securities 2,636 3,073
State, county and municipal securities 2,145 1,441
--------- ---------
Total $ 12,603 $ 10,989
========= =========
</TABLE>
- 10 -
<PAGE> 12
The following tables present the contractual maturities and weighted
average yields of the Bank's investments:
Investment Securities Available for Sale
<TABLE>
<CAPTION>
MATURITIES OF
INVESTMENT SECURITIES
AFTER ONE AFTER FIVE
WITHIN THROUGH THROUGH AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Obligations of U.S. government agencies $ -- $ 3,120 $ 4,455 $ --
U.S. Treasury notes -- 247 -- --
Mortgage-backed securities 582 938 86 1,530
State, county and municipal securities 351 397 1,073 324
------- -------- -------- --------
Total investment securities available for sale
$ 933 $ 4,202 $ 5,614 $ 1,854
======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
YIELDS
AFTER ONE AFTER FIVE
WITHIN THROUGH THROUGH AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Obligations of U.S. government agencies - 6.45% 6.75% -
U.S. Treasury notes - 6.80% - -
Mortgage-backed securities 5.09% 6.80% 8.74% 6.50%
State, county and municipal securities 3.87% 4.37% 4.69% 4.83%
----- ----- ----- -----
Total weighted average yield 4.63% 6.31% 6.39% 6.21%
</TABLE>
With the exception of the U.S. Treasury notes and U.S. government agencies
securities shown above, the Bank did not have investments with a single issuer
exceeding, in the aggregate, 10% of the Bank's stockholders' equity.
RETURN ON EQUITY AND ASSETS
The following table presents certain profitability, return and capital ratios
as of the end of the past two fiscal years.
- 11 -
<PAGE> 13
<TABLE>
<CAPTION>
December 31,
------------
Ratio 1996 1995
- ----- ---- ----
<S> <C> <C>
Return on Assets 0.83% 0.39%
Return on Equity 4.68% 2.24%
Dividend Payout 19.69% 41.15%
Equity on Assets 18.76% 16.24%
</TABLE>
ASSET/LIABILITY MANAGEMENT
It is the objective of the Bank to manage assets and liabilities to provide a
satisfactory, consistent level of profitability within the framework of
established cash, loan investment, borrowing and capital policies. An assets
and liabilities management committee is responsible for monitoring policies and
procedures that are designed to ensure acceptable composition of the
asset/liability mix, stability and leverage of all sources of funds while
adhering to prudent banking practices. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and
corporations. Management of the Bank seeks to invest the largest portion of
the Bank's assets in commercial, consumer and real estate loans.
The Bank's asset/liability mix is monitored on a daily basis with a monthly
report reflecting interest-sensitive assets and interest-sensitive liabilities
being prepared and presented to the Bank's Board of Directors. The objective
of this policy is to control interest-sensitive assets and liabilities so as to
minimize the impact of substantial movements in interest rates on the Bank's
earnings.
CORRESPONDENT BANKING
Correspondent banking involves the provision of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint. The Bank is required to purchase correspondent services
offered by larger banks, including check collections, purchase of federal
funds, security safekeeping, investment services, coin and currency supplies,
over line and liquidity loan participations and sales of loans to or
participations with correspondent banks.
The Bank sells loan participations to correspondent banks. Management of the
Bank has established correspondent relationships with The Bankers Bank and
SunTrust Bank. As compensation for services provided by a correspondent, the
Bank maintains certain balances with such correspondent in non-interest bearing
accounts.
DATA PROCESSING
The Bank has entered into a data processing servicing agreement with ProVesa,
Inc. This servicing agreement provides for the Bank to receive a full range of
data processing services, including an automated general ledger, deposit
accounting, commercial, real estate and installment lending data processing,
central information file and ATM processing.
- 12 -
<PAGE> 14
FACILITIES
The Bank's main office is located at 110 East Hill Street in Thomson,
Georgia. The property consists of a two-story building with approximately
6,000 square feet of usable space on the first floor and approximately 2,800
square feet of unfinished space on the second floor designated for future
expansion. The building is constructed on 3.4 acres of land owned by the Bank.
In addition, the Branch Office, which is located at 1043 Washington Road, in
Thomson, Georgia, is approximately two miles north of the Bank's main office.
The Branch Office is approximately 2,600 square feet in size and is located on
1.25 acres of land.
EMPLOYEES
The Bank employs 21 persons on a full-time or part-time basis, including four
officers. The Bank will hire additional persons as needed on a full-time or
part-time basis, including additional tellers and customer service
representatives.
MONETARY POLICIES
The results of operations of the Bank are affected by credit policies of
monetary authorities, particularly the Federal Reserve Board. The instruments
of monetary policy employed by the Federal Reserve Board include open market
operations in U.S. Government securities, changes in the discount rate on
member bank borrowings, changes in reserve requirements against member bank
deposits and limitations on interest rates which member banks may pay on time
and savings deposits. In view of changing conditions in the national economy
and in the money markets, as well as the effect of action by monetary and
fiscal authorities, including the Federal Reserve Board, no prediction can be
made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of the Bank.
SUPERVISION AND REGULATION
The Bank operates in a highly regulated environment, and its business
activities are governed by statute, regulation and administrative policies. As
a state-chartered bank, the business activities of the Bank is closely
supervised by the Georgia Banking Department and the FDIC.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994, the restrictions on interstate acquisitions of banks by bank holding
companies were repealed on September 29, 1995, such that the Company and any
other bank holding company located in Georgia is able to acquire a bank located
in any other state, and a bank holding company located outside Georgia can
acquire any Georgia-based bank, in either case, subject to certain deposit
percentage and other restrictions. The legislation also provides that, unless
an individual state elects beforehand either (i) to accelerate the effective
date or (ii) to prohibit out-of-state banks from operating interstate branches
within its territory, on or after June 1, 1997, adequately capitalized and
managed bank holding companies will be able to consolidate their multistate
bank operations into a single bank subsidiary and to branch interstate through
acquisitions. De novo branching by an out-of-state bank would be permitted
only if it is expressly permitted by the laws of the host state. The authority
of a bank to establish and operate branches within a state will continue to be
subject to applicable state branching laws. Pursuant to the Riegle-Neal
Interstate Banking and Branching Efficiency Act, the
- 13 -
<PAGE> 15
State of Georgia has recently adopted an interstate banking statute that,
beginning on June 1, 1997, removes the existing restrictions on the ability of
banks to branch interstate through mergers, consolidations and acquisitions.
With respect to expansion, banks situated in the State of Georgia are
generally prohibited from establishing branch offices or facilities outside of
the county in which such main office is located, except (i) in adjacent
counties in certain situations, or (ii) by means of a merger or consolidation
with a bank which has been in existence for at least five years. In addition,
in the case of a merger or consolidation, the acquiring bank must have been in
existence for at least 24 months prior to the merger. The Georgia Legislature
recently adopted legislation which reduces the limitations imposed on banks
situated in the State of Georgia to establish branch offices. Under the new
legislation, as of July 1, 1996 and until July 1, 1998, a Georgia bank may
establish up to three new or additional branch banks, de novo, in any county
within the State of Georgia in addition to establishing branch offices or
facilities in adjacent counties by merger or consolidation (in certain
conditions). Beginning on July 1, 1998, a bank located in the State of Georgia
will be permitted to establish new or additional branch banks anywhere in the
state by relocation of the parent bank or another branch bank, or by merger,
consolidation, or purchase of assets and assumption of liabilities involving
another parent bank or branch bank.
On July 1, 1995, the State of Georgia enacted an interstate banking
statute which authorizes bank holding companies located throughout the United
States to acquire banks and bank holding companies located in Georgia under
certain conditions. Such legislation has had the effect of increasing
competition among financial institutions in the Bank's market area and in the
State of Georgia generally.
As a state-chartered bank, most of the Bank's operations are regulated
and examined by the Georgia Banking Department and the FDIC, including reserves
for loan losses and other contingencies, loans, investments, borrowings,
deposits, mergers, issuances of securities, payments of dividends, interest
rates payable on deposits, interest rates or fees chargeable on loans,
establishment of branches, consolidation or corporate reorganization, and
maintenance of books and records. The Bank is required by the Georgia Banking
Department to prepare reports on its financial condition and to conduct an
annual external audit of its financial affairs, in compliance with minimum
standards and procedures prescribed by the Georgia Banking Department. Reports
of the Bank's auditors must be filed with the Georgia Banking Department within
15 days after the Bank's receipt of any such report. The Bank is also subject
to the Georgia banking and usury laws restricting the amount of interest which
it may charge in making loans or other extensions of credit.
The Bank files reports of condition and income quarterly with the
FDIC. As a member of the FDIC, the Bank must pay an assessment semi-annually
based on its deposit levels. The Bank is also required to comply with the
reporting, insider-trading, and disclosure requirements of the Federal
Securities Exchange Act of 1934, as amended.
The Bank's loan operations are subject to certain federal laws
applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, the Equal Credit
Opportunity Act prohibiting discrimination on the basis of race, color,
religion or other prohibited factors in extending credit, the Fair Credit
Reporting Act governing the manner in which consumer debts may be collected by
collection agencies, and the rules and
-14-
<PAGE> 16
regulations of the various federal agencies charged with the responsibility of
implementing such federal laws. The deposit operations of the Bank are also
subject to the Electronic Funds Transfer Act and Regulation E issued by the
Federal Reserve to implement that act, which govern automatic deposits to and
withdrawals from deposit accounts and customers' rights and liabilities arising
from the use of automated teller machines and other electronic banking
services.
The Bank is also subject to the provision of the Community
Reinvestment Act of 1977, which requires the appropriate federal regulator, in
connection with its regular examination of a bank, to assess the bank's record
in meeting the credit needs of the community serviced by the bank, including
low-and moderate-income neighborhoods. The FDIC's assessment of a bank's
record is made available to the public. Further, such assessment is required
of any bank that has applied, among other things, to establish a new branch
office that will accept deposits, to relocate an existing office, or to merge
or consolidate with, or require the assets of or assume the liabilities of, a
federally-regulated financial institution.
The Bank is subject to regulatory capital requirements imposed by the
FDIC. In 1989, the FDIC issued new risk-based capital guidelines for banks
which make regulatory capital requirements more sensitive to differences in
risk profiles of various banking organizations. The capital adequacy
guidelines of the FDIC apply directly to state-chartered banks which are not
members of the Federal Reserve System and whose deposits are insured by the
FDIC regardless of whether they are a subsidiary of a bank holding company.
The FDIC's requirements provide that banking organizations must have capital
(as defined in the rules) equivalent to 8% of weighted risk assets. The risk
weights assigned to assets are based primarily on credit risks. Depending upon
the riskiness of a particular asset, it is assigned to a risk category. For
example, securities with an unconditional guarantee by the United States
government are assigned to the lowest risk category. A risk weight of 50% is
assigned to loans secured by owner-occupied one to four family residential
mortgages. The aggregate amount of assets assigned to each risk category is
multiplied by the risk weight assigned to that category to determine the
weighted values, which are added together to determine total risk-weighted
assets. As of December 31, 1996, the Bank's risk-based capital ratio was 29.7%
and its leverage ratio was 17.14%. These ratios are well above the minimum
standards.
The FDIC has also adopted minimum capital leverage ratios to be used
in tandem with the risk-based guidelines in assessing the overall capital
adequacy of banks and bank holding companies. Under the FDIC's rule, banking
institutions are required to maintain a ratio of 3% "Tier 1" capital to total
assets (net of goodwill). Tier 1 capital includes common stockholders' equity,
noncumulative perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries.
Both the risk-based capital guidelines and the leverage ratios are
minimum requirements, applicable only to top-rated banking institutions.
Institutions operating at or near these levels are expected to have
well-diversified risk, excellent asset quality, high liquidity, good earnings
and in general, have to be considered strong banking organizations, rated
composite 1 under the CAMEL rating system for banks. Institutions with lower
ratings and institutions with high levels of risk or experiencing or
anticipating significant growth would be expected to maintain ratios 100 to 200
basis points above the stated minimums.
The FDIC recently adopted final regulations revising its risk-based
capital guidelines to further ensure that the guidelines take adequate account
of interest rate risk. Interest rate risk is the adverse
-15-
<PAGE> 17
effect that changes in market interest rates may have on a bank's financial
condition and is inherent to the business of banking. Under the new
regulations, when evaluating a bank's capital adequacy, the FDIC's capital
standards now explicitly include a bank's exposure to declines in the economic
value of its capital due to changes in interest rates. The exposure of a
bank's economic value generally represents the change in the present value of
its assets, less the change in the value of its liabilities, plus the change in
the value of its interest rate off-balance sheet contracts. Concurrently, the
FDIC has proposed a measurement process to identify banks that have high
interest rate risk exposures. Under the proposed measurement process, the FDIC
would employ a supervisory model that focuses on the sensitivity of a bank's
economic value to changes in interest rate risk as well as various other
quantitative factors to determine the adequacy of an individual bank's capital
for interest rate risk. After gaining experience with the proposed supervisory
measurement and assessment process, the FDIC intends to propose further
regulations to establish an explicit risk-based capital charge for interest
rate risk.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"Act"), enacted on December 19, 1991, provides for a number of reforms relating
to the safety and soundness of the deposit insurance system, supervision of
domestic and foreign depository institutions and improvement of accounting
standards. One aspect of the Act involves the development of a regulatory
monitoring system requiring prompt action on the part of banking regulators
with regard to certain classes of undercapitalized institutions. While the Act
does not change any of the minimum capital requirements, it directs each of the
federal banking agencies to issue regulations putting the monitoring plan into
effect. The Act creates five "capital categories" ("well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized") which are defined in the Act and which will
be used to determine the severity of corrective action the appropriate
regulator may take in the event an institution reaches a given level of
undercapitalization. For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution's
compliance. In addition, "undercapitalized" institutions will be restricted
from paying management fees, dividends and other capital distributions.
Further, these institutions will be subject to certain asset growth
restrictions and will be required to obtain prior approval from the appropriate
regulator to open new branches or expand into new lines of business.
As an institution drops to lower capital levels, the extent of action
to be taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.
The Act also provides that banks have to meet increased safety and
soundness standards. In order to comply with the Act, the FDIC has adopted
regulations defining operational and managerial standards relating to internal
controls, loan documentation, credit underwriting, interest rate exposure,
asset growth, director and officer compensation, fees and benefits.
Both the capital standards and the safety and soundness standards
which the Act seeks to implement are designed to bolster and protect the
deposit insurance fund.
-16-
<PAGE> 18
In response to the directive issued under the Act, the FDIC adopted
regulations which, among other things, prescribe the capital thresholds for
each of the five capital categories established by the Act. The following
table reflects the proposed capital thresholds:
<TABLE>
<CAPTION>
Total Risk - Tier 1 Risk - Tier 1
Based Capital Based Capital Leverage
Ratio Ratio Ratio
------------------- ------------------- -----------
<S> <C> <C> <C>
Well capitalized(1) 10% 6% 5%
Adequately Capitalized(1) 8% 4% 4%(2)
Undercapitalized(4) < 8% < 4% < 4%(3)
Significantly Undercapitalized(4) < 6% < 3% < 3%
Critically Undercapitalized - - < 2%(5)
-
</TABLE>
- ----------------------------
(1) An institution must meet all three minimums.
(2) 3% for composite 1-rated institutions, subject to appropriate
federal banking agency guidelines.
(3) <3% for composite 1-rated institutions, subject to appropriate
federal banking agency guidelines.
(4) An institution falls into this category if it is below the
specified capital level for any of the three capital measures.
(5) Ratio of tangible equity to total assets.
The scope of regulation and permissible activities of the Bank is
subject to change by future federal and state legislation.
RECENT DEVELOPMENTS
On January 31, 1997, the Bank organized and incorporated Pinnacle
Bancshares, Inc. (the "Company"), a business corporation under the laws of the
State of Georgia. The purpose of the Company is to facilitate the
reorganization of the Bank into a bank holding company structure (the
"Reorganization"). Accordingly, the Bank has entered into a Plan of
Reorganization and Agreement to Merge (the "Plan") with the Company whereby the
Bank will become a wholly-owned subsidiary of the Company as long as the
following conditions are met: (i) the approval by the shareholders of the Bank
as required by law and subject to certain other conditions as set forth in the
Plan and (ii) the receipt of any required regulatory approvals, including
approvals from the Board of Governors of the Federal Reserve System, the FDIC
and the Georgia Banking Department. The Reorganization will be consummated as
soon as practicable after each of the preceding conditions has been satisfied.
ITEM 2. DESCRIPTION OF PROPERTY.
The Bank's main office is located at 110 East Hill Street in Thomson,
Georgia. The property consists of a two-story building with approximately
6,000 square feet of usable space on the first floor and approximately 2,800
square feet of unfinished space on the second floor designated for future
expansion. The building is constructed on 3.4 acres of land owned by the Bank.
In addition, the Branch Office, which is located at 1043 Washington Road, in
Thomson, Georgia, is approximately two miles north of the Bank's main office.
The Branch Office is approximately 2,600 square feet in size and is located on
1.25 acres of land owned by the Bank.
-17-
<PAGE> 19
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Bank is a
party or of which any of its properties are subject; nor are there material
proceedings known to the Bank to be contemplated by any governmental authority;
nor are there material proceedings known to the Bank, pending or contemplated,
in which any director, officer or affiliate or any principal security holder of
the Bank, or any associate of any of the foregoing is a party or has an
interest adverse to the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter ended December 31,
1996 to a vote of security holders of the Bank.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
A. MARKET INFORMATION
During the period covered by this report and to date, there has been
no established public trading market for the Bank's common stock.
B. HOLDERS OF COMMON STOCK
As of March 24, 1997, the number of holders of record of the Bank's
common stock was 658.
C. DIVIDENDS
The Bank paid a cash dividend of $.10 per share on its common
stock on April 2, 1996 to shareholders of record as of February 15, 1996. In
addition, the Bank paid a special cash dividend of $.10 per share on its common
stock on January 21, 1997 to shareholders of record as of January 8, 1997. The
Bank will be paying another cash dividend of $.10 per share on its common stock
on April 7, 1997 to shareholders of record as of March 12, 1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with the
"Business" and "Financial Statements" sections included elsewhere in this
Report.
-18-
<PAGE> 20
RESULTS OF OPERATIONS
1996 Compared to 1995
For year ending December 31, 1996 assets declined but earnings
improved. Total assets decreased by 10.4% from $42,450,000 in 1995 to
$38,027,000 in 1996. This decrease is exaggerated, however, because of a
significant temporary increase in public funds balances at year-end 1995. It
should be noted that average total assets decreased by only $987,000, from
$39,945,000 in 1995 to $38,958,000 in 1996. Net loans actually increased very
slightly, from $19,942,000 in 1995, to $20,116,000 in 1996 due to a reduction
in loan loss reserves from $1,142,000 to $889,000 for the same period. The
reduction in the loan loss reserve was due primarily to a significantly reduced
loan loss provision for 1996 of $56,000 compared to $240,000 in 1995. Net
charge-offs for 1996 were $309,000 compared to $547,000 in 1995, a decrease of
$238,000, or 43%. In spite of this reduction in the reserve balance, the Bank
continues to maintain a loan loss reserve ratio of 4.23% to total loans.
Deposits decreased for the same period by $4,655,000 or 13.2%, from
$35,320,000 in 1995 to $30,655,000 in 1996. The majority of the decrease was
attributable to a reduction in public funds, which changed by $3,522,000, from
$4,011,000 in 1995 to $489,000 in 1996. The Bank's investment portfolio
increased $1,607,000, or 14.6%, from $10,989,000 in 1995 to $12,596,000 in
1996. This increase, however, was off-set by a decrease in federal funds sold
from $5,950,000 in 1995 to $1,420,000 in 1996.
A further softening of loan demand is reflected in the Bank's loan to
deposit ratio of 68.8% for 1996, compared to 70.7% in 1995 which contributed to
a decrease in net interest income of $115,000 from 1995 to 1996. However, this
decrease was more than compensated for by the $184,000 reduction in the Bank's
loan loss provision. While non-interest income was the same for both periods,
non-interest expense decreased by $130,000 from $1,577,000 for 1995 to
$1,447,000 for 1996. This decrease was the result of a reduction in personnel
expenses and other overhead expenses. Consequently, net income increased
$171,000, or 111%, from $154,000 in 1995 to $325,000 in 1996.
In February 1995, the Bank was informed by the Georgia Banking
Department and the FDIC that its operations were unsatisfactory in certain
respects in that the Bank was experiencing weak credit administration and
lending practices, inadequate allocation for loan losses and high classified
assets coupled with poor earnings. Consequently, on March 10, 1995, the Bank
entered into a Memorandum of Understanding with the Georgia Banking Department
and the FDIC. To correct these problems, the Bank has recently recruited a new
Senior Loan Officer with 25 years of banking experience who will assist in
increasing the credit underwriting standards of the Bank and reducing the level
of classified assets. In addition, the Bank currently employs a loan review
consultant who aids the Bank in identifying and monitoring problem loans.
While increased underwriting standards and regular review and monitoring are
subject to uncertainties that cannot be predicted, such expanded efforts have
benefited the Bank significantly. Moreover, as a result of these and other
corrective measures, the level of the Bank's classified assets has decreased,
the Bank's earnings have increased and, on November 19, 1996, the Memorandum of
Understanding with the Georgia Banking Department and the FDIC was terminated.
-19-
<PAGE> 21
1995 Compared to 1994
As the Bank corrected a number of loan quality problems that had
developed in 1994, the year ending December 31, 1995 was a year of recovery.
Interest income increased slightly from $3,185,000 in 1994 to $3,195,000 in
1995, however, interest expense increased 20.9%, from $1,167,000 to $1,411,000.
As interest rates increased during the first quarter of 1995, there was a
substantial shift from savings accounts to higher yielding certificates of
deposits. Additionally, soft loan demand caused the average loan-to-deposit
ratio to decline from a ratio of 74.61% in 1994 to 70.73% in 1995. As a
consequence, the Bank's net interest margin decreased from 5.24% to 4.80%.
Non-interest income was down 15.8%, largely due to reduced loan fees,
while non-interest expense was up 10.4% due in part to additional costs
associated with loan collection efforts, other real estate owned, and some
extraordinary items. In 1994, a non-refundable deposit in the amount of
$10,000 was made for a possible branch site. When this additional branch did
not materialize, the deposit was expensed during the first quarter of 1995.
During the third quarter of 1995, management elected to sell a $1,000,000
government bond which had certain undesirable features. The sale of the bond
resulted in a loss of $31,595. Although significant, this action resulted in a
lost yield of only 3.2% and greatly enhanced the quality and long term yield of
the overall investment portfolio.
The loan loss provision for 1995 was $240,000 compared to $1,727,000
for 1994, resulting in a net profit of $154,000 for 1995 compared to a loss of
$508,000 for 1994. The resulting loan-loss-reserve balance of $1,210,000 for
1995 was 5.7% of outstanding loans, which equaled the 1994 ratio.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Deposit levels and the associated timing and quantity of funds flowing
into and out of a bank inherently involve a degree of uncertainty. In order to
insure that a bank is capable of meeting depositors' demands for funds, the
bank must maintain adequate liquidity. Liquid assets consisting primarily of
cash and deposits due from other banks, federal funds sold and investment
securities maturing within one year provide the source of such funds.
Insufficient liquidity may force a bank to engage in emergency measures to
secure necessary funding. Because such measures may be quite costly, earnings
will also suffer if excess liquidity is maintained. The Bank monitors its
liquidity on a monthly basis and seeks to maintain it at an optimal level.
As of year-end 1996, the Bank's liquidity ratio was 46.43% as compared
to 44.05% at year-end 1995. In addition to the liquid assets described above,
the Bank has a reserve funding source in the form of federal funds lines of
credit with The Bankers Bank and SunTrust Bank. Management is not aware of any
demands, commitments or uncertainties which could materially affect the Bank's
liquidity position. However, should an unforeseen demand for funds arise, the
Bank held readily marketable investment securities on December 31, 1996 with a
market value of $12.5 million in its available-for-sale portfolio which would
provide an additional source of liquidity.
Gap management is a conservative asset/liability strategy designed to
maximize earnings over a complete interest rate cycle while reducing or
minimizing the Bank's exposure to interest rate risk.
-20-
<PAGE> 22
Various assets and liabilities are termed to be "rate sensitive" when the
interest rate can be replaced. By definition, the "gap" is the difference
between rate sensitive assets and rate sensitive liabilities in a given time
horizon. At year-end, the Bank was slightly asset sensitive through six
months, and through one year as well. As it appears that interest rates may be
more likely to rise than to fall, the Bank will be in a position to increase
the net interest margin slightly.
The following is an analysis of rate sensitive assets and liabilities
as of December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
5 yrs
0-3 mos. 3-12 mos. 1.5 yrs. or more Total
-------- --------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
Taxable securities . . . . . . . . . . . . . $ -- $ 582 $ 3,798 $ 6,071 $10,451
Tax-exempt securities . . . . . . . . . . . . 100 251 397 1,397 2,145
Federal funds sold . . . . . . . . . . . . . 1,420 -- -- -- 1,420
Interest-bearing deposits in banks . . . . . -- -- -- 100 100
Loans . . . . . . . . . . . . . . . . . . . . 9,642 4,191 7,159 16 21,008
Total rate sensitive assets . . . . 11,162 5,024 11,354 7,584 35,124
NOW and money market deposits . . . . . . . . 2,355 4,782 -- -- 7,137
Savings deposits . . . . . . . . . . . . . . 662 1,345 -- -- 2,007
Time deposits . . . . . . . . . . . . . . . . 5,696 8,745 3,974 -- 18,415
Total rate sensitive
liabilities . . . . . . . . . . 8,713 14,872 3,974 -- 27,559
Excess of rate sensitive assets less
rate sensitive liabilities . . . . . . . . 2,449 (9,848) 7,380 7,584 7,565
Ratio of rate sensitive liabilities . . . . . 128% 34% 286% N/A 127%
Cumulative gap . . . . . . . . . . . . . . . $ 2,449 $ (7,399) $ (19) $ 7,565 N/A
</TABLE>
CAPITAL RESOURCES
The equity capital of the Bank totaled $7,133,000 at the end of 1996.
This represented an increase of $196,000 from December 31, 1995, when equity
totaled $6,937,000. The increase in equity capital was attributable to net
income of $325,000 and an increase in unrealized gains on available-for-sale
securities of $65,000. Under Statement of Financial Accounting Standard
("SFAS") No. 115, the Bank is required to recognize gains or losses in the
available-for-sale portion of the bond portfolio by making adjustments to the
equity capital account. Finally, equity capital was reduced by $64,000 from
the payment of a $0.10 per share cash dividend during the first quarter of
1996. As of December 31, 1996, shareholders' equity is a very strong 18.8% of
total assets, compared to 16.3% for 1995.
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<PAGE> 23
Management believes that the Bank's capitalization is adequate to
sustain growth which is anticipated for 1997. The following table sets forth
the applicable required capital ratios for the Company and the Bank and the
actual capital ratios for both entities as of December 31, 1996:
<TABLE>
<CAPTION>
Leverage Ratio Tier 1 Capital Risk-Based Capital
-------------------- ---------------------- ----------------------
Regulatory Regulatory Regulatory Actual
Minimum Actual Minimum Actual Minimum
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bank . . . . . . . . . . . . . . 3.0% 17.52% 4.0% 30.83% 8.0% 32.11%
</TABLE>
There are no commitments of capital resources known to management
which would have a material impact on the Bank's capital position.
ITEM 7. FINANCIAL STATEMENTS.
The following financial statements are filed with this report:
Independent Certified Public Accounts' Report
Statements of Financial Condition as of December 31, 1996 and 1995
Statement of Income (Loss) for the years ended
December 31, 1996, 1995 and 1994
Statements of Stockholders' Equity for
the years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994
Notes to Financial Statements
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<PAGE> 24
[CHERRY BEKAERTA & HOLLAND LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
McDUFFIE BANK & TRUST
Thomson, Georgia
We have audited the accompanying statements of financial condition of MCDUFFIE
BANK & TRUST as of December 31, 1996 and 1995, and the related statements of
income (loss), changes in stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996. 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 McDuffie Bank & Trust as of
December 31, 1996 and 1995, and the results of its operations, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Cherry, Bekaert & Holland, L.L.P.
Augusta, Georgia
February 7, 1997
<PAGE> 25
McDUFFIE BANK & TRUST
Statements of Financial Condition
December 31, 1996 and 1995
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash and due from banks $ 1,088 $ 2,640
Federal funds sold 1,420 5,950
Interest-bearing deposits in banks 100 198
Securities available for sale 12,603 10,989
Loans, net of allowance for loan losses 20,116 19,942
Bank premises and fixed assets 1,440 1,541
Accrued interest receivable 409 393
Foreclosed real estate, net of allowance 516 417
Deferred tax benefit 286 306
Other assets 48 74
-------- --------
TOTAL ASSETS $ 38,026 $ 42,450
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 3,096 $ 2,804
Interest-bearing:
NOW accounts 4,959 8,493
Savings 2,007 1,712
Money market accounts 2,178 2,755
Time deposits of $100,000, and over 4,746 4,790
Other time deposits 13,669 14,766
-------- --------
Total deposits 30,655 35,320
Accrued expenses and other liabilities 239 193
-------- --------
Total liabilities 30,894 35,513
======== ========
Commitments and contingent liabilities
Stockholders' equity:
Common stock, par value $5.00; 10,000,000
shares authorized; 635,380 shares issued
and outstanding 3,177 3,177
Additional paid-in capital 3,178 3,178
Retained earnings 801 540
Unrealized gain (loss) on securities available
for sale, net of tax (24) 42
-------- --------
Total stockholders' equity 7,132 6,937
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,026 $ 42,450
======== ========
</TABLE>
See notes to financial statements.
<PAGE> 26
McDUFFIE BANK & TRUST
Statements of Income (Loss)
Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,178 $ 2,351 $ 2,463
Interest on taxable securities 677 630 554
Interest on nontaxable securities 95 42 35
Interest on Federal funds sold 87 145 66
Interest on deposits in other bank 16 26 67
------- ------- -------
TOTAL INTEREST INCOME 3,053 3,194 3,185
------- ------- -------
INTEREST EXPENSE
Interest on time deposits of $100,000, or more 310 278 156
Interest on other deposits 1,074 1,130 1,009
Interest on federal funds purchased 1 3 2
------- ------- -------
TOTAL INTEREST EXPENSE 1,385 1,411 1,167
------- ------- -------
NET INTEREST INCOME 1,668 1,783 2,018
PROVISION FOR LOAN LOSSES 56 240 1,727
------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,612 1,543 291
------- ------- -------
NONINTEREST INCOME
Service charges on deposits 239 234 247
Other income 52 57 63
Net realized gain (loss), sales of available for sale
securities 1 (30) -
------- ------- -------
292 261 310
------- ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 714 769 740
Occupancy expenses 231 218 200
Other expenses 502 590 489
------- ------- -------
1,447 1,577 1,429
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES 457 227 (828)
INCOME TAX EXPENSE (BENEFIT) 132 73 (320)
------- ------- -------
NET INCOME (LOSS) $ 325 $ 154 $ (508)
======= ======= =======
NET INCOME (LOSS) PER SHARE OF COMMON STOCK $ 0.51 $ 0.24 $ (0.78)
======= ======= =======
</TABLE>
See notes to financial statements.
<PAGE> 27
McDUFFIE BANK & TRUST
Statements of Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) on
Securities
Common Stock Additional Available for Total
-------------------- Paid-in Retained Sale, Net of Stockholders'
Shares Par Value Capital Earnings Deferred Taxes Equity
------ --------- -------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 635,380 $ 3,177 $ 3,178 $ 1,021 $ -- $ 7,376
Net loss -- -- -- (508) -- (508)
Net change in unrealized
(loss) on securities available
for sale, net of taxes -- -- -- -- (253) (253)
Cash dividend of $.10 per
share - _ -- -- (64) -- (64)
------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1994 635,380 3,177 3,178 449 (253) 6,551
Net income -- -- -- 154 -- 154
Net change in unrealized (loss)
on securities available for sale,
net of taxes -- -- -- -- 295 295
Cash dividend of $.10 per
share -- -- -- (63) -- (63)
BALANCE, DECEMBER 31, 1995 635,380 3,177 3,178 540 42 6,937
Net income -- -- -- 325 -- 325
Change in unrealized gain
(loss) on securities available
for sale, net of deferred taxes -- -- -- -- (66) (66)
Cash dividend of $.10
per share -- -- -- (64) -- (64)
------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1996 635,380 $ 3,177 $ 3,178 $ 801 $ (24) $ 7,132
======= ======= ======= ======= ======= =======
</TABLE>
See notes to financial statements
<PAGE> 28
McDUFFIE BANK & TRUST
Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 325 $ 154 $ (508)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 151 119 120
Provision for loan losses 56 240 1,727
Net realized loss on available for sale securities - 30
Deferred income tax 60 73 (471)
Adjustment to foreclosed real estate 48 36 -
Other gains and losses, nets 2 7 (3)
Net decrease (increase) in accrued interest receivable (16) 52 (109)
Net decrease (increase) in other assets 26 106 (326)
Net (decrease) increase in other liabilities 46 32 (44)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 698 849 386
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-bearing deposits with banks 98 492 1,232
Net (increase) decrease in federal funds sold 4,530 (5,010) 3,123
Net (increase) decrease in loans, net (446) 3,632 (2,546)
Purchases of available for sale securities (5,360) (4,122) -
Proceeds from sales of available for sale securities 248 1,510 -
Proceeds from maturities of available for sale securities 3,382 2,625 -
Net decrease in securities to be held-to-maturity - - 4,568
Net (increase) in securities available for sale - - (6,703)
Proceeds from sale of land - - 44
Proceeds from sale of foreclosed real estate 67 - -
Net purchases of premises and equipment (40) (30) 89
------- ------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,479 (903) (371)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (4,665) 1,603 (68)
Dividends paid (64) (63) (64)
------- ------ -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (4,729) 1,540 (132)
------- ------ -------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (1,552) 1,486 (117)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 2,640 1,154 1,271
------- ------ -------
CASH AND DUE FROM BANKS AT END OF YEAR $ 1,088 $2,640 $ 1,154
======= ====== =======
</TABLE>
See notes to financial statements.
<PAGE> 29
McDUFFIE BANK & TRUST
Notes to Financial Statements
December 31, 1996 and 1995
(dollars in thousands)
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
McDuffie Bank & Trust (the "Bank") is located in Thomson, Georgia. Most of the
Bank's loans and loan commitments have been granted to customers in the
Thomson, Georgia and McDuffie County area. Many of the Bank's loan customers
are also depositors of the Bank.
The Bank is subject to the regulations of Federal and state banking agencies
and is periodically examined by them.
SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Bank conform to generally accepted
accounting principles and general practices within the banking industry.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND DUE FROM BANKS - For purposes of reporting cash flows, cash and due
from banks includes cash on hand and amounts due from banks (including cash
items in process of clearing). The Bank maintains due-from accounts with banks
primarily located in Georgia. Balances generally exceed insured amounts.
INVESTMENT SECURITIES - The Bank's investments in securities are classified and
accounted for as follows:
Securities available for sale - Securities classified as available for
sale are identified when acquired as being available for sale to meet
liquidity needs or other purposes. They are carried at fair value with
unrealized gains and losses, net of taxes, reported at a net amount as a
separate component of stockholders' equity.
Securities to be held to maturity - Securities classified as held to
maturity are those debt securities the Bank has both the intent and
ability to hold to maturity regardless of changes in market conditions,
liquidity needs or changes in general economic conditions. These
securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed by the interest method over their
contractual lives.
The Bank has not classified any securities as trading.
<PAGE> 30
McDUFFIE BANK & TRUST
Notes to Financial Statements - (Continued)
December 31, 1996 and 1995
(dollars in thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Gains and losses on the sale of available for sale securities are determined
using the specific-identification method.
LOANS AND RESERVE FOR LOAN LOSSES - Loans are stated at principal amounts
outstanding less unearned income and the allowance for loan losses. Interest
income on loans is credited to income based on the principal amount outstanding
at the respective rate of interest, except for unearned interest on discounted
loans which is recognized as income over the term of the loan using a method
that approximates a level yield.
Accrual of interest income is discontinued on loans when, in the opinion of
management, collection of such interest income becomes doubtful. Accrual of
interest on such loans is resumed when, in management's judgment, the
collection of interest and principal becomes probable. When a loan is placed on
nonaccrual status, all interest previously accrued but not collected is
reversed against current interest income. Interest income is subsequently
recognized only to the extent cash payments are received.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb estimated losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of certain specific loans and prior
loss experience. This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans and current economic conditions that
may affect the borrower's ability to pay. While management uses the best
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions.
FORECLOSED REAL ESTATE - Foreclosed real estate represents properties acquired
through foreclosure or other proceedings. The property is held for sale and is
recorded at the lower of the recorded amount of the loan or fair value of the
properties less estimated costs of disposal. Any write-down to fair value at
the time of foreclosure is charged to the allowance for loan losses. Property
is evaluated regularly to ensure the carrying amount is supported by its
current fair value. Foreclosed real estate is reported net of allowance for
losses in the Bank's financial statements.
BANK PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less
accumulated depreciation, computed by straight-line and declining balance
methods over the estimated useful lives of the assets.
<PAGE> 31
McDUFFIE BANK & TRUST
Notes to Financial Statements - (Continued)
December 31, 1996 and 1995
(dollars in thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES - Provisions for income taxes are based on amounts reported in the
statements of income after exclusion of nontaxable income, such as interest on
state and municipal securities, and include deferred taxes on temporary
differences in the recognition of income and expense for tax and financial
statement purposes. Deferred taxes are computed on the liability method.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
EARNINGS PER SHARE - Earnings per share are calculated on the basis of the
weighted average number of shares outstanding. Fully diluted earnings per share
are not presented because stock options are not materially dilutive (1996) or
are antidilutive (1995 and 1994).
FAIR VALUE OF FINANCIAL INSTRUMENTS - The financial statements include
disclosure of fair value information about the Bank's financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Accordingly, the aggregate fair value amounts
presented are not intended to and do not represent the underlying value of the
Bank.
The following methods and assumptions are used by the Bank in estimating fair
values of financial instruments:
Cash and due from banks, Federal funds sold and interest bearing deposits
in banks - Due to the short-term nature of these instruments, their
estimated fair value approximates their carrying amounts.
Available-for-sale and held-to-maturity securities - Estimated fair values
are based on quoted market prices when available. Where quoted market
prices are not available, quoted market prices of comparable instruments
or discounted cash flow methods are used to estimate fair value.
Loans - Fair values for loans are estimated by discounted cash flows using
interest rates currently being offered by the Bank for loans with similar terms
and similar credit quality.
Deposit liabilities - Due to the short-term nature of demand and savings
accounts, the estimated fair value of these instruments approximates their
carrying amounts. Fair values for certificates of deposit are estimated by
discounted cash flows using interest rates currently being offered by the Bank
on certificates.
<PAGE> 32
McDUFFIE BANK & TRUST
Notes to Financial Statements - (Continued)
December 31,1996 and 1995
(dollars in thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Commitments to extend credit and standby letters of credit are not recorded
until such commitments are funded. The value of these commitments are the fees
charged to enter into such agreements. These commitments do not represent a
significant value to the Bank until such commitments are funded. The Bank has
determined that such instruments do not have a distinguishable fair value and
no fair value has been assigned to these instruments.
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and fair values of securities owned as of December 31, are
shown below:
<TABLE>
<CAPTION>
1996
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------ --------- --------
<S> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Government and agency securities $ 7,840 $33 $ (51) $ 7,822
State, county and municipal securities 2,133 16 (4) 2,145
Mortgage-backed securities 2,668 22 (54) 2,636
------- --- ----- -------
$12,641 $71 $(109) $12,603
======= === ===== =======
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Government and agency securities $ 6,426 $49 $ - $ 6,475
State, county and municipal securities 1,432 14 (5) 1,441
Mortgage-backed securities 3,064 22 (13) 3,073
------- --- ---- -------
$10,922 $85 $(18) $10,989
======= === ==== =======
</TABLE>
The amortized cost and fair value of securities as of December 31, 1996, by
contractual maturity are shown below. Actual maturities may differ from
contractual maturities in mortgage-backed securities because the mortgages
underlying the securities may be called or prepaid without penalty. Therefore,
these securities are not included in the maturity categories in the following
maturity summary.
<PAGE> 33
McDUFFIE BANK & TRUST
Notes to Financial Statements - (Continued)
December 31,1996 and 1995
(dollars in thousands)
<TABLE>
<CAPTION>
NOTE 2 - INVESTMENT SECURITIES (CONTINUED) Securities
Available-for-Sale
---------------------
Amortized Fair
Cost Value
----------- --------
<S> <C> <C>
One year or less $ 350 $ 351
After one year through five years 3,759 3,764
After five years through ten years 5,544 5,528
After ten years 320 324
Mortgage-backed securities 2,668 2,636
------- -------
$12,641 $12,603
======= =======
</TABLE>
Securities with a carrying amount of approximately $6.5 million and $5.7
million at December 31, 1996, and 1995, respectively, were pledged to secure
public deposits and for other purposes.
Net realized gains (losses) on sales of securities available for sale were:
<TABLE>
<S> <C>
1996 $ 1
1995 (30)
1994 -
</TABLE>
The composition of interest income is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. government and agency securities $677 $630 $554
State, county and municipal securities 95 42 35
</TABLE>
NOTE 3 - LOANS
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
December 31
---------------------
1996 1995
--------- --------
<S> <C> <C>
Commercial and industrial $ 3,865 $ 7,730
Real estate - construction 2,547 1,551
Real estate - mortgage 10,917 8,559
Consumer 2,807 3,265
Federal funds sold, term 872 -
------- --------
21,008 21,105
Unearned income (3) (8)
------- --------
21,005 21,097
Allowance for loan losses (889) (1,155)
------- --------
Loans, net $20,116 $ 19,942
======= ========
</TABLE>
<PAGE> 34
McDUFFIE BANK & TRUST
Notes to Financial Statements - (Continued)
December 31, 1996 and 1995
(dollars in thousands)
NOTE 3 - LOANS (CONTINUED)
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
December 31
--------------------------
1996 1995 1994
--------------------------
<S> <C> <C> <C>
Balance, beginning of year $1,155 $1,394 $ 416
Provision charged to operations 56 240 1,727
Recoveries 231 159 59
Loans charged off (553) (638) (808)
------ ------ ------
Balance, end of year $ 889 $1,155 $1,394
====== ====== ======
</TABLE>
Loans for which the accrual of interest had been discontinued or reduced
amounted to approximately $140 thousand and $170 thousand at December 31, 1996,
and 1995, respectively. There was no significant reduction in interest income
associated with nonaccrual and renegotiated loans.
At December 31, 1996, executive officers and directors, and companies in which
they have a beneficial ownership, were indebted to the Bank in the aggregate
amount of $408 thousand. The interest rates on these loans were substantially
the same as rates prevailing at the time of the transactions, and repayment
terms are customary for the type of loan involved. Following is a summary of
transactions for 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Balance, beginning of year $573 $690
Advances 108 168
Repayments 273 285
---- ----
Balance, end of year $408 $573
==== ====
</TABLE>
NOTE 4 - FORECLOSED REAL ESTATE
A summary of foreclosed real estate is as follows:
<TABLE>
<CAPTION>
December 31
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Carrying amount of property $613 $464 $264
Less, valuation allowance 97 47 -
---- ---- ----
$516 $417 $264
==== ==== ====
</TABLE>
<PAGE> 35
McDUFFIE BANK & TRUST
Notes to Financial Statements - (Continued)
December 31, 1996 and 1995
(dollars in thousands)
NOTE 5 - BANK PREMISES AND EQUIPMENT
Bank premises and equipment consists of the following:
<TABLE>
<CAPTION>
December 31
--------------
1996 1995
---- ----
<S> <C> <C>
Land $ 475 $ 475
Building and improvements 1,248 1,248
Equipment, furniture & fixtures 750 710
------ ------
2,473 2,433
Accumulated depreciation (1,033) (892)
------ ------
Premises and equipment, net $1,440 $1,541
====== ======
</TABLE>
NOTE 6 - DEPOSITS
At December 31, 1996, the scheduled maturities of time-deposit liabilities were
as follows:
<TABLE>
<S> <C>
1997 $14,441
1998 1,671
1999 2,126
2000 147
2001 and thereafter 30
-------
$18,415
</TABLE> =======
NOTE 7 - EMPLOYEE BENEFIT PLAN
The Bank has a 401(K) salary-deferred plan covering substantially all
employees. At the discretion of the Bank's Board of Directors, the Bank may
match a percentage of the annual amounts deferred by employees. Matching
amounts are funded by the Bank as accrued. Total deferred and matching amounts
are limited to amounts that can be deducted for Federal income tax purposes.
The Bank's matching contribution for the three years ended December 31, 1996,
was approximately $10 thousand per year.
NOTE 8 - STOCKHOLDERS' EQUITY AND REGULATORY MATTERS
Banking regulations limit the amount of dividends the Bank may pay to
stockholders without prior approval of the Bank's regulatory agencies.
Approximately $160 thousand is available to be paid as dividends at December
31, 1996, without prior regulatory approval.
<PAGE> 36
McDUFFIE BANK & TRUST
Notes to Financial Statements - (Continued)
December 31, 1996 and 1995
(dollars in thousands)
NOTE 8 - STOCKHOLDERS' EQUITY AND REGULATORY MATTERS (CONTINUED)
In 1995 regulatory agencies required the Bank to enter into a Memorandum of
Understanding with the agencies requiring the Bank to comply with and implement
certain operating procedures. In 1996 the regulatory agencies released the Bank
from the Memorandum of Understanding.
The Bank is subject to various regulatory capital requirements administered by
state and 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 that as of December 31, 1996,
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the regulatory
agencies 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
institution's category.
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
Required
To Be Well
Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------- ---------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to Risk Weighted Assets) $7,156 32.1% >$1,783 >8.0% >$2,229 >10.0%
- - - -
Tier I capital
(to Risk Weighted Assets) $6,870 30.8% >$ 891 >4.0% >$1,337 > 6.0%
- - - -
Tier I capital
(to Average Assets) $6,870 17.6% >$1,557 >4.0% >$1,946 > 5.0%
- - - -
</TABLE>
<PAGE> 37
McDUFFIE BANK & TRUST
Notes to Financial Statements- (Continued)
December 31, 1996 and 1995
(dollars in thousands)
NOTE 8 - STOCKHOLDERS' EQUITY AND REGULATORY MATTERS (CONTINUED)
As of December 31, 1995, the Bank's actual regulatory capital ratios were as
follows:
<TABLE>
<S> <C>
Total capital
(to Risk Weighted Assets) 29.5%
Tier I capital
(to Risk Weighted Assets) 28.2%
Tier I capital
(to Average Assets) 17.1%
</TABLE>
At December 31, 1996, options to purchase 16 thousand shares of the Bank's
stock were outstanding. The options are non-transferrable and have exercise
prices between ten and twelve dollars per share. The options expire during the
years 2000 to 2003. No options were exercised during the three year period
ended December 31, 1996. No additional shares are available to be granted under
this plan, and the Bank has no other stock option plan.
NOTE 9 - INCOME TAXES
The total income taxes in the statements of income for the years ended December
31, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ---- -----
<S> <C> <C> <C>
Current tax (benefit) $ 72 $ - $ (1)
Deferred tax (benefit) 60 73 (319)
----- ---- ------
$ 132 $ 73 $ (320)
===== ==== ======
</TABLE>
The Bank's provision for income taxes differs from the amounts computed by
applying the Federal and state income tax statutory rates to income before
income taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory rates 38.0% 38.0% (38.0)%
Tax exempt income (8.0) (6.0) -
Nondeductible interest 1.0 1.0 -
Other, including effect of
graduated rate brackets (2.0) (1.0) -
---- ---- -----
29.0% 32.0% (38.0)%
==== ==== =====
</TABLE>
<PAGE> 38
McDUFFIE BANK & TRUST
Notes to Financial Statements - (Continued)
December 31, 1996 and 1995
(dollars in thousands)
NOTE 9 - INCOME TAXES (CONTINUED)
The primary components of deferred income taxes at December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Deferred tax assets
<S> <C> <C>
Allowance for loan losses $253 $305
Foreclosed real estate allowance 18
Unrealized loss on securities available for sale 15
Other - 26
---- ----
Deferred income tax assets 286 331
---- ----
Deferred tax liabilities
Unrealized gain on securities available for sale - 25
---- ----
Net deferred income tax asset $286 $306
==== ====
</TABLE>
Realization of deferred tax assets is dependent upon sufficient future taxable
income during the period that deductible temporary differences are expected to
be available to reduce taxable income.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank may enter into off-balance-sheet
financial instruments which are not reflected in the financial statements.
These instruments include commitments to extend credit and standby letters of
credit. Such financial instruments are recorded in the financial statements
when funds are disbursed or the instruments become payable. The Bank uses the
same credit policies for these off-balance-sheet financial instruments as it
does for other instruments that are recorded in the financial statements.
Following is an analysis of significant off-balance-sheet financial
instruments:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Commitments to extend credit $1,981 $ 958
Standby letters of credit 50 59
------ ------
$2,031 $1,017
====== ======
</TABLE>
<PAGE> 39
McDUFFIE BANK & TRUST
Notes to Financial Statements- (Continued)
December 31, 1996 and 1995
(dollars in thousands)
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitment amounts expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The credit risk involved in issuing these
financial instruments is essentially the same as that involved in extending
loans to customers. The amount of collateral obtained, if deemed necessary by
the Bank, upon extension of credit, is based on management's credit evaluation
of the customer. Collateral held varies but may include real estate and
improvements, marketable securities, accounts receivable, inventory, equipment
and personal property.
The nature of the business of the Bank is such that it ordinarily results in a
certain amount of litigation. In the opinion of management, there are no
present matters in which the outcome will have a material adverse effect on the
financial statements.
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income taxes paid $ - $ - $ 131
Interest paid $1,369 $1,362 $1,118
</TABLE>
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Bank's financial instruments for those
instruments for which the Bank's management believes estimated fair value does
not by nature approximate the instruments carrying amount are as follows at
December 31, 1996, and 1995 (in millions):
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------- -----
<S> <C> <C> <C> <C>
Loans $21.0 $20.9 $21.0 $20.0
===== ===== ===== =====
Certificates of deposit $18.4 $18.4 $19.5 $19.5
===== ===== ===== =====
</TABLE>
Estimated fair value information of investment securities is presented in Note
2 of the financial statements.
<PAGE> 40
McDUFFIE BANK & TRUST
Notes to Financial Statements - (Continued)
December 31, 1996 and 1995
(dollars in thousands)
NOTE 13 - OTHER EXPENSES
Other noninterest expenses are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995 1994
---- ----- ----
<S> <C> <C> <C>
Data processing $104 $ 91 $ 77
FDIC assessment 10 45 39
Legal and accounting 57 89 32
Printing and supplies 37 38 25
Other 294 327 316
---- ---- ----
$502 $590 $489
==== ==== ====
</TABLE>
<PAGE> 41
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
There has been no occurrence requiring a response to this item.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
PHILLIP G. FARR, age 48, founded a local certified public accounting
firm in 1975 and has been the managing principal since that time. Prior to 1975,
Mr. Farr worked in public accounting for both a regional and a national firm.
Mr. Farr served as Chairman of the Board of Directors of the Bank from 1991 to
1995.
SAMUEL A. FOWLER, JR., age 50, is currently a partner in the local law
firm of Fowler & Wills. Mr. Fowler has practiced law in McDuffie and Wilkes
Counties since 1977. Fowler & Wills serves as the Bank's principal legal
counsel.
JOSEPH D. GREENE, age 56, was employed from 1959 until 1991 with
Pilgrim Health and Life Insurance Company where he most recently held the
positions of Executive Vice President and Director. In 1991, Mr. Greene accepted
a position as Professor of Business Administration at Augusta State University.
He also previously served as a member and Chairman of the Board of Regents of
the University System of Georgia.
HEYWARD HORTON, Jr., age 50, was elected President and Chief Executive
Officer of the Bank on February 15, 1995. Prior to accepting this position, Mr.
Horton was President and Chief Executive Officer of First Gwinnett Bank in
Norcross, Georgia from 1987 to 1995. Since beginning his banking career in 1966
with Citizens & Southern National Bank in Savannah, Mr. Horton had been employed
in a number of positions including President and Chief Executive Officer of
Citizens Bank of Ashburn, Ashburn, Georgia, as well as Senior Vice President and
Senior Lending Officer at two other commercial banks.
GEORGE O. HUGHES, age 73, is Chairman of the Board of George O. Hughes
Furniture Co., Inc., a retail furniture and appliance business that he started
in 1947.
DAVID W. JOESBURY, age 47, is President of Joesbury Insurance Agency,
Inc. and, since 1971, has served in varies capacities with the company including
employee, partner, Vice President and half owner. Mr. Joesbury currently serves
as Chairman of the Board of Directors of the Bank.
ROBERT N. WILSON, JR., age 45, has served as manager and broker of
Wilson Finance Corp. d/b/a The Wilson Co. since 1982. In addition, Mr. Wilson
currently owns Wilson Ventures, Inc., which is engaged in real estate
speculation and the management of residential rental properties and the
company's real estate and insurance businesses. Mr. Wilson served as Chairman of
the Board of Directors of the Bank from 1988 until 1991.
-37-
<PAGE> 42
BENNYE M. YOUNG, age 54, taught school in DeKalb, Richmond and McDuffie
Counties from 1966 until 1980. Since that time, she has been a homemaker.
EXECUTIVE OFFICER
J. HAROLD WARD, JR., age 54, joined the Bank in April of 1995 as Senior
Vice President and Chief Financial Officer. Prior to his employment at the Bank,
from September, 1992 to April, 1995, Mr. Ward served as Senior Vice President
and Chief Financial Officer of DeKalb State Bank, Tucker, Georgia and from
March, 1987 to September, 1992, he served as Senior Vice President of First
Gwinnett Bank, Norcross, Georgia. Mr. Ward has also served as Vice President and
Senior Operations Officer of banks in Walton County and Tift County, as well as
Assistant Operations Officer of First National Bank of Atlanta. Mr. Ward holds a
BBA in Management from Georgia State University in Atlanta and has completed the
Bank Administration Institute School of Banking at the University of Wisconsin.
There are no family relationships between any director or principal
officer and any other director or principal officer of the Bank.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Bank's directors, executive officers and persons who own more than 10% of the
outstanding common stock of the Bank, to file with the Securities and Exchange
Commission reports of changes in ownership of the common stock of the Bank held
by such persons. Officers, directors and greater than 10% shareholders are also
required to furnish the Bank with copies of all forms they file under this
regulation. To the Bank's knowledge, based solely on a review of the copies of
such reports furnished to the Bank and representations that no other reports
were required, during the fiscal year ended December 31, 1996, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
shareholders were complied with.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information regarding all cash and
noncash compensation paid to the Chief Executive Officer by the Bank for the
past three fiscal years. No other executive officer received annual salary and
bonus in excess of $100,000 during the last fiscal year:
-38-
<PAGE> 43
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND SALARY
PRINCIPAL POSITION YEAR ($)
------------------ ---- ------
<S> <C> <C>
Heyward Horton, Jr.(1) 1996 115,000(2)
Chief Executive Officer 1995 98,487(2)
Luther P. Powell, Jr.
Interim Chief Executive
Officer(3) 1995 48,917
Ronald K. Bell
Chief Executive Officer(4) 1994 87,900
</TABLE>
- ------------------------------
(1) Mr. Horton was named Chief Executive Officer of the Bank on February
15, 1995.
(2) Does not include club dues, automobile allowance and insurance premiums
as such amounts do not exceed the lesser of either (i) $50,000 or (ii)
10% of Mr. Horton's total annual compensation.
(3) Mr. Powell served as Interim Chief Executive Officer of the Bank from
November 23, 1994 until February 15, 1995.
(4) Mr. Bell served as Chief Executive Officer of the Bank from the
commencement of Bank operations in 1989 until November 22, 1994.
EMPLOYMENT AGREEMENT
The Bank has entered into an employment agreement (the "Employment
Agreement") with Heyward Horton, Jr., pursuant to which Mr. Horton will serve as
President and Chief Executive Officer of the Bank. The Employment Agreement is
for a term of approximately three years. Beginning on February 26, 1996, and on
the last day of February of each succeeding calender year, the term of Mr.
Horton's employment will be automatically extended for three years, upon a
determination by the Board of Directors that the Employment Agreement should be
extended.
The Employment Agreement provides Mr. Horton with an annual base salary
of $115,000 per year. In addition, the Employment Agreement provides certain
incentive bonuses (which do not exceed 20% of Mr. Horton's annual base salary),
if specific performance goals are met. Under the Employment Agreement, Mr.
Horton is provided with an automobile as well as other customary fringe
benefits, such as insurance coverage and vacation.
Under the Employment Agreement, in the event Mr. Horton's employment is
terminated in connection with or within three years after any change in control
(as defined in the Employment Agreement) of the Bank, other than for a material
violation of a written policy of the Bank, or any dishonesty or willful
misconduct, Mr. Horton is entitled to receive either a lump sum cash amount or
monthly cash payments equal to two times the compensation received by him
immediately prior to the change in control. Further, if Mr. Horton resigns
within three years following a change of control of the Bank (i) due to a
reduction in the rate of his regular compensation to an amount below the rate of
his regular compensation as in effect immediately prior to the change in
control, or (ii) because he is required to relocate to a county other than
McDuffie County in which he was employed immediately prior to the change in
control, or (iii) due to a reduction in his duties, title, and/or
responsibilities, as were previously set prior to the change in control, Mr.
Horton will be entitled to receive either a lump sum cash amount or monthly cash
payments equal to two times the
-39-
<PAGE> 44
compensation received by him immediately prior to the change in control. The
preceding change in control provisions remain in effect for three years and
automatically renew for an additional three years on each anniversary thereof,
unless Mr. Horton is otherwise notified to the contrary thirty days prior to
such anniversary by the Bank, in which case the provisions terminate two years
from such anniversary.
The Employment Agreement provides that Mr. Horton's employment with the
Bank will terminate upon death or disability, and is terminable for "cause" (as
defined in the Employment Agreement). If employment is terminated without cause,
as liquidated damages and in lieu of all claims, Mr. Horton is entitled to a
continuation of his base salary and insurance benefits for a period of not less
than six months, or until Mr. Horton is employed in a full-time position,
whichever occurs first. The Employment Agreement also contains non-compete and
non-solicitation provisions, effective through the date of termination of
employment and for a period of one year thereafter.
J. Harold Ward, Jr., Executive Vice President and Chief Financial
Officer of the Bank, has entered into a severance agreement with the Bank on
terms substantially similar to the change of control provisions contained in Mr.
Horton's Employment Agreement. Mr. Ward, however, does not have an employment
agreement with the Bank.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 24, 1997
with respect to ownership of the outstanding common stock of the Bank by (i) all
persons known to the Bank to own beneficially more than five percent (5%) of the
outstanding common stock of the Bank, (ii) each director of the Bank, and (iii)
all directors and officers of the Bank as a group:
<TABLE>
<CAPTION>
Shares of Common Stock Percent of
Name and Address of Beneficial Owner Beneficially Owned(1) Total
------------------------------------ ---------------------- ----------
<S> <C> <C>
Susan J. Dallas........................ 50,158(2) 7.9
P.O. Box 1278
Thomson, Georgia 30824
Phillip G. Farr........................ 11,750(3) 1.8
1780 Mattox Creek Drive, N.W.
Thomson, Georgia 30824
Samuel A. Fowler, Jr................... 10,600(4) 1.7
2317 Mesena Road, N.W.
Thomson, Georgia 30824
Joseph D. Greene....................... 13,000 2.1
309 Margarets Road
Thomson, Georgia 30824
Heyward Horton, Jr..................... 3,400 *
1897 Lake Drive
Thomson, Georgia 30824
</TABLE>
-40-
<PAGE> 45
<TABLE>
<CAPTION>
Shares of Common Stock Percent of
Name and Address of Beneficial Owner Beneficially Owned(1) Total
------------------------------------ ---------------------- ----------
<S> <C> <C>
William L. Howard...................... 3,380 *
2165 Whiteoak Road
Thomson, Georgia 30824
George O. Hughes....................... 39,724(5) 6.3
626 Beechwood Drive
Thomson, Georgia 30824
David W. Joesbury...................... 11,650(6) 1.8
1601 Cedar Rock Road
Thomson, Georgia 30824
Estate of Patricia M. Lemley........... 33,500 5.3
P.O. Box 300
Thomson, Georgia 30824
J. Harold Ward, Jr..................... 2,080 *
1814 Mattox Creek Drive
Thomson, Georgia 30824
Robert N. Wilson, Jr................... 13,220(7) 2.1
P.O. Box 550
Thomson, Georgia 30824
Bennye M. Young........................ 14,400(8) 2.3
690 Chestnut Drive
Thomson, Georgia 30824
The Prime Group, Inc................... 54,508(9) 8.4
736 Jones Creek
Evans, Georgia 30809
All directors and officers
as a group (10 persons).............. 123,204 19.4
</TABLE>
- ------------------------------
* Represents less than 1%.
(1) "Beneficial Ownership" includes shares for which an individual,
directly or indirectly, has or shares voting or investment power or
both. All of the listed persons have sole voting and investment power
over the shares listed opposite their names unless otherwise indicated
in the notes below. Beneficial ownership as reported in the above table
has been determined in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934. The percentages are based upon 635,380 shares
outstanding as of March 24, 1997, except for certain parties who hold
presently exercisable options to purchase shares. The percentages for
those parties who hold presently exercisable options are based upon the
sum of 635,380 plus the number of shares subject to presently
exercisable options held by them, as indicated in the following notes.
-41-
<PAGE> 46
(2) Includes 100 shares held by Ms. Dallas as custodian for her children.
Also includes 8,500 shares held as nominee, by which Ms. Dallas
exercises voting authority, 14,202 shares held individually by Ms.
Dallas' husband in his pension and profit-sharing plans and 3,728
shares owned by Ms. Dallas' husband.
(3) Includes 200 shares owned by Mr. Farr's wife.
(4) Includes 100 shares owned by Mr. Fowler's wife. Also includes 500
shares held by the Samuel A. Fowler, Jr., Attorney at Law, P.C., a
professional corporation established by Mr. Fowler.
(5) Includes 4,914 shares owned by Mr. Hughes' wife. Also includes 5,946
shares held by G.O. Hughes Furniture Co., Inc.
(6) Includes 2,100 shares owned by Mr. Joesbury's wife. Also includes 100
shares held by Mr. Joesbury as custodian for his children.
(7) Includes 2,770 shares held by A.G. Edwards & Sons, Inc., as IRA
custodian for Mr. Wilson. Also includes 1,220 shares held by Mr. Wilson
as custodian for his children.
(8) Includes 1,700 shares held by Ms. Young as custodian for her children.
(9) Includes 16,000 shares subject to presently exercisable options. Share
ownership is based on an FDIC Form F-11 (Amendment No. 1) dated March
5, 1997 filed by the Prime Group, Inc. The Bank makes no representation
as to the accuracy or completeness of the information reported.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Bank extends loans from time to time to certain of its directors,
executive officers, their associates and members of the immediate families of
such directors and executive officers. These loans are made in the ordinary
course of business, are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with persons not affiliated with the Bank and do not involve more
than the normal risks of collectibility or present other unfavorable features.
The Bank retains the firm of Fowler & Wills as its principal legal
counsel. Samuel A. Fowler, Jr., a director of the Bank, is a partner in such
firm. The firm was paid $4,850 during the year ended December 31, 1996 in
connection with the firm's representation of the Bank.
From time to time, the Bank also retains the Havilah Group, Inc., a
local accounting firm owned by Phillip G. Farr, a director of the Bank. During
the year ended December 31, 1996, the Havilah Group, Inc. was paid $1,530 in
connection with accounting services provided by such firm.
The Bank purchases auto insurance through the Wilson Insurance Agency,
Inc., where Robert N. Wilson, Jr., a director of the Bank, serves as President.
The Bank also purchases other insurance coverage from the Joesbury Insurance
Agency, an insurance firm owned by David W. Joesbury, a director of the Bank.
During the year ended 1996, total premiums paid to these two firms did not
exceed $27,500.
The Bank believes that the terms of the foregoing transactions were no
less favorable than the Bank would be able to obtain from an unaffiliated third
party.
-42-
<PAGE> 47
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS.
The following exhibits are filed with this report:
10.1 Employment Agreement dated July 17, 1996, between
McDuffie Bank & Trust and Heyward Horton, Jr.
10.1.1 Amendment No. 1 to Employment Agreement dated March
26, 1997 between McDuffie Bank & Trust and Heyward
Horton, Jr.
10.2 Severance Agreement dated March 27, 1997 between
McDuffie Bank & Trust and J. Harold Ward, Jr.
27 Financial Data Schedule (for SEC use only).
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of
the period covered by this Report.
-43-
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Bank has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
McDuffie Bank & Trust
By: /s/ Heyward Horton. Jr. Date: August 11, 1997
---------------------------------
Heyward Horton, Jr.
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ J. Harold Ward, Jr. Date: August 11, 1997
---------------------------------
J. Harold Ward, Jr.
Sr. Vice President and
Chief Financial Officer
<TABLE>
<CAPTION>
DIRECTORS DATE DIRECTORS DATE
<S> <C> <C> <C>
/s/ Phillip G. Farr August 11, 1997 /s/ George O. Hughes August 11, 1997
- ------------------------- --------------- ------------------------- ---------------
Phillip G. Farr George O. Hughes
/s/ Samuel A. Fowler, Jr. August 11, 1997 /s/ David W. Joesbury August 11, 1997
- ------------------------- --------------- ------------------------- ---------------
Samuel A. Fowler, Jr. David W. Joesbury
/s/ Joseph D. Greene August 11, 1997 /s/ Robert N. Wilson, Jr. August 11, 1997
- ------------------------- --------------- ------------------------- ---------------
Joseph D. Greene Robert N. Wilson, Jr.
/s/ Heyward Horton, Jr. August 11, 1997 /s/ Bennye M. Young August 11, 1997
- ------------------------- --------------- ------------------------- ---------------
Heyward Horton, Jr. Bennye M. Young
</TABLE>
<PAGE> 49
MCDUFFIE BANK & TRUST
EXHIBIT INDEX
Exhibit No. Description of Exhibit
10.1 Employment Agreement dated July 17, 1996, between McDuffie
Bank & Trust and Heyward Horton, Jr.
10.1.1 Amendment No. 1 to Employment Agreement dated March 26, 1997
between McDuffie Bank & Trust and Heyward Horton, Jr.
10.2 Severance Agreement dated March 27, 1997 between McDuffie Bank
& Trust and J. Harold Ward, Jr.
27.1 Financial Data Schedule (for SEC use only).
<PAGE> 50
EXHIBIT 10.1
AGREEMENT
THIS AGREEMENT made and entered into on the 17th day of July, 1996 by
and between McDuffie Bank and Trust, Inc. Thomson, Georgia (hereinafter "Bank"),
and Heyward Horton, Jr. (hereinafter "Executive");
WITNESSETH:
WHEREAS, the Board of Directors (hereinafter the "Board") of the Bank
recognizing the experience and knowledge of the Executive in the banking
industry, desire to retain the services and business counsel of the Executive,
therefore, it being in the best interest of the Bank to arrange terms of
employment for the Executive to remain in his capacities with the Bank for the
term hereof; and
WHEREAS, Executive is willing to provide his services to the Bank in
accordance with the terms and conditions hereinafter set forth:
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT - For the Term of Employment, as hereinafter
defined, the Bank hereby employs Executive as the President and Chief Executive
Officer (CEO) of McDuffie Bank and Trust to hold the title of President and CEO,
during the term of this Agreement, and Executive agrees to accept such
employment and to perform such duties and functions as the Board may assign to
Executive from time to time, but only administrative and managerial functions
commensurate with Executive's past experience and performance level. Executive
agrees to devote such of his time and energy to the business of the Bank as is
needed, and shall perform his duties in a trustworthy and businesslike manner.
Responsibility for the supervision of the Executive shall rest with the Board of
the Bank, which shall review the Executive's performance annually. The Board of
the Bank shall also have the authority to terminate the Executive, subject to
the terms of this agreement as outlined in Paragraph 2.1 of this Agreement.
2. TERM OF EMPLOYMENT - The "Term of Employment" referred to in
Paragraph 1 hereof shall be for a period commencing as of March 1, 1995, and
continuing through December 31, 1997, unless earlier terminated pursuant to the
terms of this Agreement. After the initial term of employment, the Agreement
shall automatically renew itself for successive one year periods commencing on
the first day or January of each successive year and continuing through the last
day of December of the following year, unless specific written
1
<PAGE> 51
notice of non-renewal is given at least three (3) months prior to the end of the
then current term or until this Employment Agreement is terminated by one of the
methods provided hereinafter:
2.1 TERMINATION OF EMPLOYMENT - Notwithstanding the Term
of Employment stated above, the employment of the
Executive under this Agreement shall be terminated by
the earliest to occur of any of the following:
(A) the death of the Executive;
(B) the disability of the Executive ("Disability" as
used herein shall be defined as the inability of
the Executive whether due to physical or mental
impairment to perform his normal duties);
(C) voluntary retirement by the Executive or
mandatory retirement at age 65.
(D) the discharge of the Executive by the Bank:
(i) "For Cause": This Agreement may be
terminated by the Board of Directors of the
Bank without further obligation other than
for monies already due to be paid, for any
of the following reasons:
(a) gross negligence or willful misconduct
by the Executive which is materially
damaging to the business of the Bank;
(b) conviction of the Executive of any crime
involving breach of trust or moral
turpitude;
(c) a consistent pattern of failure by the
Executive to follow the reasonable
written instructions or policies of the
Board of Directors of the Bank; or
(d) receipt of any written notice from the
Georgia Department of Banking and
Finance or the Federal Deposit Insurance
Corporation requiring the removal of the
Executive as the
2
<PAGE> 52
President and/or the Chief Executive
Officer of the Bank.
In the event that the Bank discharges the Executive
alleging "cause" under this Paragraph 2.1(D)(i), such
notice of discharge shall be in writing and shall be
accompanied by a written description of the
circumstances alleging such "cause". The termination
of the Executive for "cause" shall entitle the Bank
to enforcement of the Post Termination Covenants as
found in Paragraph 6 of this Agreement. In the event
that the Bank discharges the Executive alleging
"cause" under this Paragraph 2.1(D)(i) and it is
subsequently determined judicially that the
termination was "without cause," then such discharge
shall be deemed a discharge "without cause" subject
to the provisions of Section 2.1(D)(ii) hereof.
(ii) "Without Cause": The Bank (subject to the
approval of a two-thirds (2/3rds) vote of the
Board of Directors of the Bank) may, upon thirty
(30) days written notice to the Executive,
terminate this Agreement without cause at any
time during the term of this Agreement, upon the
condition that Executive shall be entitled, as
liquidated damages in lieu of all claims, to not
less than six (6) months salary at the then
prevailing Base Salary level, with all insurance
benefits as identified in Paragraph 3.3 of this
Agreement to be maintained for a period of six
(6) months, or until executive is employed in a
fulltime position whichever first occurs. The
termination of Executive "without cause" shall
entitle the Bank to enforcement of the Post
Termination Covenants contained in Paragraph 6.
hereof.
(E) the voluntary termination of employment by the
Executive, whether or not due to the Bank's
Material Breach ("Bank's Material Breach" as
used herein means the material breach of the
terms of the Agreement by the Bank which remains
uncured after the expiration of 30 days
following the delivery of written notice of such
breach to the Bank by the Executive);
3
<PAGE> 53
(F) the execution of a mutual, written agreement of
the Bank and the Executive terminating
Executive's employment.
2.2 EFFECT OF TERMINATION -
(A) Executive shall have the right to receive
compensation and other benefits under paragraph
2.1(D)(ii) if terminated without cause.
(B) Executive shall have no right to receive any
compensation or other benefits under this
Agreement, if terminated;
(i) by Bank "For Cause" (as defined in
Paragraph 2.1(D)(i) "For Cause");
(ii) voluntarily by Executive in writing, if
not due to Bank's Material Breach,
(iii) by mutual, written agreement of the Bank
and the Executive, or
(iv) because of the Executive's death or
disability.
3. COMPENSATION -
3.1 BASE SALARY - During the term of employment, Executive shall be
paid an annual salary (hereinafter "Base Salary") which shall be paid in equal
installments not less frequently than monthly, and subject to such deductions as
may be required by law. Executive's annual Base Salary shall not be less than
$115,000 per year unless agreed to in writing by both parties. Base Salary will
be administered by the Board and will be determined on or before January 31st of
each year beginning January 31, 1996.
3.2 INCENTIVE BONUSES - Each year of the term of this Agreement,
the Bank shall pay to the Executive incentive bonuses not to exceed a maximum of
twenty (20%) percent of Executive's Base Salary, upon the condition that certain
goals are met based on the following:
The Bank's after tax rate of return on average assets (ROA)
(See attached exhibit "A" incorporated herein by this
reference); and
The Bank's rate of growth (See attached exhibit "B"
incorporated herein by this reference); and
4
<PAGE> 54
The Bank's asset quality
(See attached exhibit "C" incorporated herein by this
reference); and
Other intangibles as determined at the discretion of the
Board.
The monetary values assigned to Exhibits A, B, and C shall be reviewed
annually and agreed to in writing by both parties to this Agreement. It is
further acknowledged and understood by both parties that each measurement of
performance identified in these Exhibits A, B, and C, are independent of each
other and failure to meet the criteria as set forth in any one of these measures
of performance shall not act to diminish or negate any bonus earned by Executive
through any other measurement of performance.
3.3 OTHER BENEFITS - During the life of this Agreement, the Bank
shall furnish for the benefit of Executive the following benefits:
(A) Automobile - Bank shall furnish to Executive a
mutually acceptable automobile. The cost of
maintenance, fuel, insurance and upkeep to be borne
by the Bank.
(B) Life Insurance - The Bank shall provide for the
Executive term life insurance as presently exists
under the IBAA insurance plan, or like coverage under
any subsequent plan which may replace the current
plan, with the beneficiary to be designated by the
Executive.
(C) Health Insurance - The Bank shall provide for the
Executive and his dependents major medical health
insurance coverage through such insurance provider as
the Bank may choose.
(D) Long Term Disability - The Bank shall provide for the
Executive a long term disability insurance policy
providing for benefits of at least 60% of the
Executive's Base Salary.
(E) Club Dues - The Bank shall provide Executive a
membership in the Belle Meade Country Club and will
pay the monthly dues and business related charges
during the Executive's employment with the Bank. The
Bank will also provide Executive with membership into
other civic, service and professional organizations.
(F) Other Expenses - The Bank shall reimburse the
Executive for reasonable expenses incurred in
5
<PAGE> 55
promoting the business of the Bank, and continuing
his banking or professional education including
expenses for attending bank meetings, conventions and
seminars, and other reasonable expenses incurred for
continuing education, business entertainment, and
travel.
(G) Vacation - The Executive shall be entitled to two (2)
weeks paid vacation or such longer period as may be
provided by the Board or the bank's Personnel Policy
and he shall also be entitled to vacation days on all
official holidays observed by the bank.
4. STOCK OPTIONS - The Board of the Bank shall use their best
efforts to cause McDuffie Bank & Trust to grant "incentive stock options" to
Executive to purchase shares of the common stock thereof. The Board shall at
their discretion grant options on the common stock of the Bank to the Executive
as they deem appropriate, subject to any action which may require shareholder
approval. In the event any other action is required to facilitate the grant of
such options, the Board shall undertake, and use its best efforts to insure all
such actions as may be required, including shareholder approval, approval by any
regulatory agency or any other action which rightfully may be required are
completed. Any such options which are granted shall be at a price equal to the
current fair market value of the stock. Fair market value shall be the greater
of the average of all known sales within the last six (6) months or the book
value as determined from the last call report. The Executive is hereby granted
the authority to elect to receive all or any portion of any cash bonus due to
the Executive in the form of stock options. Such election shall serve to reduce
any cash bonus by a like amount and shall be considered to be payment in full
for a commensurate number of shares of common stock. Under such election no
fractional shares shall be issued. In the event of a "change in control" as
defined in Paragraph 5, of the Agreement, all options contemplated in this
Paragraph 4, which have been granted, whether exercised or not and whether fully
vested under any vesting schedule, shall be considered fully vested.
5. CHANGE IN CONTROL
(i) In the event of a "change in control" of the Bank, as defined
in this section 5(i), Executive shall be entitled, for a period of
ninety (90) days from the date of closing of the transaction effecting
such change in control and at his election, to give written notice to
the Bank of termination of this Agreement and to receive a lump sum
cash payment equal to
6
<PAGE> 56
fifty percent (50%) times Executive's then current Base Salary as
identified in paragraph 3.1 of this Agreement.
(A) In addition, if Executive elects to terminate this
Agreement pursuant to this Paragraph 5(i), Executive
shall further be entitled to exercise of any option
to which Executive is entitled, (whether or not then
fully exercisable).
(B) The severance payments provided for in this Paragraph
5(i), shall be paid by the Bank and/or the acquiring
entity not later than thirty (30) days after the date
of the notice of termination by the Executive under
this Paragraph 5(i), or thirty (30) days after the
date of the closing of the transaction effecting the
change in control, whichever is later.
(C) For purposes of this Paragraph 5(i), "change in
control" shall mean;
(i) any transaction, whether by merger,
consolidation, asset sale, tender offer, reverse
stock split or any other device which results in the
acquisition, beneficial ownership (as such term is
defined under rules and regulations promulgated under
the Securities Exchange Act of 1934, as amended) or
right to vote, by any person or entity or any group
of persons or entities acting in concert, of more
than twenty-five (25%) percent or more of the
outstanding shares of stock of the Bank or of the
Bank's parent company or holding company ordinarily
having the right to vote such shares;
(ii) In the event of a "change in control" of the Bank, as defined
in this section 5(ii), Executive shall be entitled, for a period of
ninety (90) days from the date of closing of the transaction effecting
such change in control and at is election, to give written notice to
the Bank of termination of this Agreement and to receive a lump sum
each payment equal to one hundred percent (100%) times Executive's then
current Ease Salary as identified in paragraph 3.1 of this Agreement.
(A) In addition, if Executive elects to terminate this
Agreement pursuant to this Paragraph 5(ii), Executive
shall further be entitled to, in lieu of shares of
the common stock of the Bank under option or
previously issued or issuable upon exercise of any
option to which Executive is entitled, an amount in
cash equal to the excess of the fair market value of
the common stock as of the date of
7
<PAGE> 57
closing of the transaction effecting the change in
control, over the per share exercise price of the
option held by the Executive, times the number of
shares of common stock subject to such option
(whether or not then fully exercisable). The fair
market value of the common stock shall be equal to
the higher of (i) the value as determined by the
Board of Directors of the Bank if there is no
organized trading market for the shares at the time
such determination is made, or (ii) the closing price
(or the average of the bid and asked prices if no
closing price is available) on any nationally
recognized securities exchange or association on
which the shares of common stock may be quoted or
listed, or (iii) the highest per share price actually
paid for the common stock in connection with any
change in the control of the Bank.
(B) The severance payments provided for in this Paragraph
5(ii), shall be paid by the Bank and/or the acquiring
entity not later than thirty (30) days after the date
of the notice of termination by the Executive under
this Paragraph 5(ii), or thirty (30) days after the
date of the closing of the transaction effecting the
change in control, whichever is later.
(C) For purposes of this Paragraph 5(ii), "change in
control " shall mean;
(i) any transaction, whether by merger,
consolidation, asset sale, tender offer, reverse
stock split or any other device which results in the
acquisition, beneficial ownership (as such term is
defined under rules and regulations promulgated under
the Securities Exchange Act of 1934, as amended) or
right to vote, by any person or entity or any group
of persons or entities acting in concert, of fifty
(50%) percent or more of the outstanding shares of
stock of the Bank or of the Bank's parent company or
holding company ordinarily having the right to vote
such shares;
(ii) the sale of all or substantially all of the
assets of the Bank; or
(iii) the liquidation of the Bank.
6. POST TERMINATION COVENANTS - Executive agrees that for a
period of twelve months after leaving the employment of the Bank, except as
provided in Paragraph 2.1 of this Agreement or a
8
<PAGE> 58
termination of this Agreement as provided in Paragraph 5(ii) of this Agreement,
he will adhere to the following:
(A) Executive agrees that he will not without the prior
written consent of the Bank, serve as an employee of
any bank or other financial institution in McDuffie
County, Columbia County, or Warren County.
(B) Executive agrees that he will not without the prior
written consent of the Bank, solicit directly or
indirectly any business from any of the customers of
the Bank.
7. SEVERABILITY - The Bank and Executive agree that each of the
provisions included in this Agreement is separate, distinct, and severable from
the other provisions of this Agreement, and that the invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement. Further, if
any provision of this Agreement is ruled invalid or unenforceable by a court of
competent jurisdiction because of a conflict between the provision and any
applicable law, both parties to this Agreement will make every reasonable effort
to redraw the provision so as to make the provision consistent with the original
intent of this Agreement and consistent, valid and enforceable under such law.
8. ASSIGNMENT - Neither the Bank nor Executive may assign nor
delegate this Agreement or any of its rights and obligations hereunder without
the prior written consent of the other party hereto.
9. AMENDMENT - This Agreement may only be amended in writing duly
executed by both parties hereto.
10. WAIVER - A waiver by either party of any breach of this
Agreement by the other party shall not be effective unless in writing, and no
waiver shall operate or be construed as a waiver of the same or another breach
on a subsequent occasion.
11. GOVERNING Law - This Agreement shall in all respects be
interpreted, construed and governed by and in accordance with the laws of the
State of Georgia.
9
<PAGE> 59
12. NOTICES - Any notice or other document or communication
permitted or required to be given to Executive pursuant to the terms hereof
shall be deemed given if personally delivered to Executive or sent to him
certified mail, at 1897 Lake Drive, Thomson, Georgia 30824, or any such other
address as Executive shall have notified the Bank in writing. Any notice or
other document or other communication permitted or required to be given to the
Bank pursuant to the terms hereof shall be deemed given if personally delivered
to the Bank or sent certified mail to 110 E. Hill Street, Thomson, Georgia,
30824 or at such other address as the Bank shall have notified Executive in
writing.
13. ENTIRE AGREEMENT - This Agreement including Exhibits A, B, and
C embodies the entire and final agreement of the parties on the subject matter
stated in this Agreement.
IN WITNESS WHEREOF, Bank and Executive have executed and delivered this
Agreement as of the date first shown above.
MCDUFFIE BANK & TRUST
BY: /s/ David W. Joesbury
-------------------------------------
Chairman David W. Joesbury
ATTEST: /s/ Samuel A. Fowler
-------------------------------------
Vice Chairman Samuel A. Fowler
EXECUTIVE
/s/ Heyward Horton, Jr.
----------------------------------------
Heyward Horton, Jr.
10
<PAGE> 60
EXHIBIT "A"
The purpose of this exhibit "A" is to provide one of a series of
measurements for "Incentive Bonuses" as referred to in Paragraph 3.2 of that
certain Agreement dated July 17, 1996, between McDuffie Bank & Trust (Bank) and
Heyward Horton, Jr. (Executive).
In the event the Bank achieves a rate of return on average assets (ROA)
as stipulated below, the Executive shall receive a cash bonus equal to the
percentage indicated times the Executive's prevailing Base Salary.
<TABLE>
<CAPTION>
ROA %
<S> <C>
0.00 to 0.70 0
0.71 to 0.80 1.0
0.81 to 0.90 2.0
0.91 to 1.00 3.5
1.01 to 1.10 5.0
1.11 to 1.25 7.5
1.26 to 1.50 10.0
over 1.51 15.0
</TABLE>
These values are specific values and are not cumulative in determining
percentages to be applied to Executive's Base Salary.
In rounding to determine a value, calculations shall be made to the
thousands (1/000s) percentage and then rounded to the nearest hundredth. Values
equal to or exceeding 0.005 shall be rounded up to the higher value, values less
then 0.005 shall be for the lower value.
<PAGE> 61
EXHIBIT "B"
The purpose of this Exhibit "B" is to provide one of a series of
measurements for "Incentive Bonuses" as referred to in Paragraph 3.2 of that
certain Agreement dated July 17, 1996, between McDuffie Bank & Trust (Bank) and
Heyward Horton, Jr. ("Executive").
In the event the Bank achieves a growth rate as set forth in the
schedule below, the Executive will receive a each bonus equal to the percentage
indicated times the Executive's prevailing Base Salary.
<TABLE>
<CAPTION>
GROWTH RATE %
<S> <C>
0.00 to 5.00 0.0
5.01 to 7.50 2.5
7.51 to 10.0 5.0
over 10.0% 7.5
</TABLE>
These are specific values and are not cumulative in determining
percentages to be applied to Executive's prevailing Base Salary.
The "growth rates" are to be measured from December 31st of each
calendar year to December 31st of the next calendar year using averages for each
month of measure.
In rounding, the same method as identified in exhibit "A" will be used.
<PAGE> 62
EXHIBIT "C"
The purpose of this exhibit "C" is to provide one of a series of
measurements for "Incentive Bonuses" as referred to in Paragraph 3.2 of that
certain Agreement dated July 17, 1996, between McDuffie Bank & Trust (Bank) and
Heyward Horton, Jr. (Executive).
In the event the Bank achieves a reduction in past due loans or total
classified assets as outlined in the schedules below, the Executive shall
receive a cash bonus equal to the percentage indicated times the Executive's
prevailing Base Salary.
<TABLE>
<CAPTION>
PAST DUE % %
<S> <C>
2.25 to 2.50 1.0
2.00 to 2.24 2.0
1.50 to 1.99 3.5
less than 1.50 5.0
% CLASSIFIED ASSETS %
TO TOTAL ASSETS
6.00 to 7.50 1.0
5.00 to 6.00 2.0
4.00 to 5.00 3.5
3.00 to 4.00 5.0
less then 3.00 7.5
</TABLE>
These are specific values and are not cumulative in determining
percentages to be applied to Executive's prevailing Base Salary.
For purposes of determining "past due percentages" the Bank's month-end
Past Due Report for the most recent reporting period shall be used for this
measurement.
For purposes of determining "classified assets" the most recent report
issued by the Georgia Department of Banking and Finance or FDIC shall be used,
but the FHLMC Gold CMO REMIC #1437 that previously failed the stress test shall
be removed from this calculation if included in the most recent report.
In the event rounding is necessary, the same method as identified in
exhibit "A" will be used.
<PAGE> 63
EXHIBIT 10.1.1
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Agreement is made and entered into on the 26th day of March, 1997
by and between McDuffie Bank & Trust, Thomson, Georgia, a bank chartered under
the laws of the State of Georgia, and Heyward Horton, Jr.;
WITNESSETH:
WHEREAS, McDuffie Bank & Trust and Heyward Horton, Jr. entered into an
Employment Agreement dated as of July 17, 1996 (the "Employment Agreement"); and
WHEREAS, McDuffie Bank & Trust and Heyward Horton, Jr. desire to amend
the Employment Agreement;
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants herein contained, the parties hereto agree as follows:
1. All references to defined terms as set forth in the Employment
Agreement will have the same meaning herein as in the Employment Agreement.
2. Section 2 of the Employment Agreement is hereby amended by
deleting the first paragraph thereof and replacing same in its entirety with the
following:
The term of employment of Executive under this Agreement shall
be the period commencing as of March 1, 1995 and continuing
through December 31, 1997. On February 29, 1996, and on the
last day of February of each succeeding calendar year, the
term of employment under this Agreement shall be automatically
extended to the last day of February of the third calendar
year thereafter, unless earlier terminated in accordance with
Section 2.1 of this Agreement, or unless either party shall
have elected to fix the expiration date of Executive's term of
employment hereunder. Each party to this Agreement shall have
the right, exercisable by written notice to the other, to
terminate the automatic renewal of this Agreement and thereby
fix the expiration of the term of employment under this
Section 2, provided that such notice be delivered by January
31 in any calendar year. Upon notice of termination of
automatic renewal of this Agreement, the term of employment of
Executive under this Section 2 shall continue until the end of
February of the second calendar year from the year in which
such notice is given.
3. The first clause of Section 2.1(D)(ii) of the Employment
Agreement is hereby amended to read as follows:
"The Bank, subject to the approval of a majority vote of the
Board of Directors of the Bank may" . . .
4. Section 5 of the Employment Agreement is hereby amended by
deleting Section 5 and replacing same in its entirety with the following:
<PAGE> 64
If, during the three-year period immediately following a
"change control" of the Bank, as defined in this Section 5,
Executive's employment with the Bank is terminated either: (a)
by the Bank for no reason or for any reason other than as the
result of Executive's material violation of a written policy
of the Bank, or any dishonesty or willful misconduct of
Executive, including but not limited to, theft of or other
unauthorized personal use of the Bank's funds or other
property; (b) by Executive as a result of and within thirty
(30) days following: (i) a reduction in his rate of regular
compensation from the Bank to an amount below the rate of his
regular compensation as in effect immediately prior to the
change in control; or (ii) a requirement that Executive
relocate to a county other than McDuffie County in which he
was employed immediately prior to the change in control; or
(iii) a reduction in Executive's duties, title, and/or
responsibilities, as were previously set prior to the change
in control, then the Bank shall pay Executive an amount equal
to two (2) times his Base Salary, as hereinafter defined, as
in effect immediately prior to the change in control, plus an
amount representing the "in-the-money" portion (defined as the
excess, if any, of the fair market value of the common stock
underlying Executive's stock options minus the option price)
of any unexercised stock options, whether or not then
exercisable, granted to Executive; or (c) by Executive for no
reason, then the Bank shall pay Executive an amount equal to
his Base Salary, as then in effect, plus the in-the-money
portion of any unexercised stock options whether or not then
exercisable. Such compensation shall be paid in a lump sum
within thirty (30) days after such termination.
For the purposes of this Section 5, the term "change in
control" shall mean the first to occur of any of the
following:
(A) The effective date of any transaction or series of
transactions (other than a transaction to which only
the Bank and one or more of its subsidiaries or its
parent holding company, if any, are parties) pursuant
to which the Bank becomes a subsidiary of a bank
holding company, or substantially all of the assets
of the Bank are sold to or acquired by a person,
corporation, or group of associated persons acting in
concert who are not members of the present Board of
Directors of the Bank; or
(B) The date upon which any person, corporation, or group
of associated persons acting in concert becomes a
direct or indirect beneficial owner of shares of
stock of the Bank representing an aggregate of more
than twenty-five percent (25%) of the votes then
entitled to be cast at an election of directors of
the Bank; or
(C) The date upon which the persons who were members of
the Board of Directors of the Bank as of the date of
this Agreement (the "Original Directors") cease to
constitute a majority of the Board of Directors;
provided, however, that any new director whose
nomination or selection has been approved by the
unanimous affirmative vote of the Original Directors
then in office shall also be deemed an Original
Director.
5. Section 6(A) of the Employment Agreement is hereby amended by
deleting Section 6(A) and replacing same in its entirety with the following:
-2-
<PAGE> 65
(A) Executive agrees that he will not, without the prior
written consent of the Board of Directors of the
Bank, serve as an executive officer of any bank or
other financial institution in McDuffie County,
Georgia.
6. Except as otherwise specifically set forth herein, all the
other terms and conditions of the Employment Agreement shall remain in full
force and effect as originally written without amendment or modification.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"Bank"
McDUFFIE BANK & TRUST
By: /s/ David W. Joesbury
-------------------------------------
Title: Chairman
-------------------------------------
"Executive"
/s/ Heyward, Horton Jr.
--------------------------------------------
Heyward Horton, Jr.
-3-
<PAGE> 66
EXHIBIT 10.2
SEVERANCE PROTECTION AGREEMENT
This Severance Protection Agreement ("Agreement") is made by and
between McDuffie Bank & Trust, a banking association chartered under the laws
of the State of Georgia (the "Bank"), and J. Harold Ward, Jr., an employee of
the Bank (the "Employee").
WITNESSETH:
WHEREAS, the Bank is a banking association organized under the laws of
the State of Georgia and is engaged in the banking business in McDuffie County,
Georgia; and
WHEREAS, the Employee is currently an officer of the Bank holding the
title of Senior Vice President/CFO; and
WHEREAS, the Bank and the Employee desire to provide for the payment of
severance pay to the Employee in the event of termination of his employment with
the Bank following a change in control of the Bank, on the terms and conditions
set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and conditions set forth herein, the Bank and the Employee agree
herein as follows:
1. OPERATION OF AGREEMENT. This Agreement shall be effective
immediately upon its execution, but its provisions shall not be operative unless
and until a "Change in Control" (as such term is defined in paragraph 2 hereof)
has occurred. The provisions of this Agreement shall not be operative and shall
not apply to any termination of employment, for any reason, prior to the
occurrence of a Change in Control.
2. CHANGE IN CONTROL. The term "Change in Control" as used in
this Agreement shall mean the first to occur of any of the following:
(a) The effective date of any transaction or series of
transactions (other than a transaction to which only the Bank and one or more of
its subsidiaries or its parent holding company, if any, are parties) pursuant to
which the Bank becomes a subsidiary of a bank holding company, or substantially
all of the assets of the Bank are sold to or acquired by a person, corporation
or group of associated persons acting in concert who are not members of the
present Board of Directors of the Bank.
(b) The date upon which any person, corporation, or group
of associated persons acting in concert becomes a direct or indirect beneficial
owner of shares of stock of the Bank representing an aggregate of more than 25%
of the votes then entitled to be cast at an election of directors of the Bank;
or
(c) The date upon which the persons who were members of
the Board of Directors of the Bank as of the date of this Agreement (the
"Original Directors") cease to constitute a majority of the Board of Directors;
provided, however, that any new director whose nomination or selection has been
approved by the unanimous affirmative vote of the Original Directors then in
office shall also be deemed an Original Director.
<PAGE> 67
3. SEVERANCE PAY UPON TERMINATION BY THE BANK WITHOUT CAUSE OR BY
EMPLOYEE FOR CAUSE. If, during the three year period immediately following a
Change in Control, the Employee's employment with the Bank is terminated either:
(a) by the Bank for no reason or for any reason other
than as the result of the Employee's material violation of a written policy of
the Bank, or any dishonesty or willful misconduct of the Employee, including,
but not limited to, theft of or other unauthorized personal use of the Bank's
funds or other property; or
(b) by the Employee as a result of, and within thirty
days following:
(i) a reduction in his rate of regular
compensation from the Bank to an amount
below the rate of his regular compensation
as in effect immediately prior to the Change
in Control; or
(ii) a requirement that the Employee relocate to
a county other than McDuffie County in which
he was employed immediately prior to the
Change in Control; or
(iii) a reduction in his duties, title, and/or
responsibilities, as were previously set
prior to the Change in Control,
then the Bank shall pay the Employee an amount equal to two times the rate of
his annual regular compensation (not including bonuses, benefits, grant of
options or any other compensation other than regular periodic salary payments)
as in effect immediately prior to the Change in Control. Such compensation shall
be paid in a lump sum or on a monthly basis as specified in writing by the
Employee.
4. NO SEVERANCE PAY UPON OTHER TERMINATION. Upon any termination
of Employee's employment with the Bank other than a termination specified in
paragraph 3, the sole obligation of the Bank to the Employee shall be to pay his
regular compensation up to the effective date of the termination.
5. ENTIRE OBLIGATION. Payment to the Employee pursuant to
paragraph 3 or 4 of this Agreement shall constitute the entire obligation of the
Bank to the Employee in full settlement of any claim at law or in equity that
the Employee may otherwise assert against the Bank or any of its employees,
officers or directors on account of the Employee's termination of employment.
6. NO OBLIGATION TO CONTINUE EMPLOYMENT. This Agreement does not
create any obligation on the part of the Bank to continue to employ the Employee
following a Change in Control or in the absence of a Change in Control.
7. TERM OF AGREEMENT. This Agreement shall remain in effect for a
term of three years from the date hereof and shall automatically renew for an
additional three years on each anniversary thereof, unless Employee is otherwise
notified to the contrary thirty (30) days prior to such anniversary by the Bank,
in which case this Agreement shall terminate two years from such anniversary.
-2-
<PAGE> 68
8. SEVERABILITY. Should any clause, portion or section of this
Agreement be unenforceable or invalid for any reason, such unenforceability or
invalidity shall not affect the enforceability or validity of the remainder of
this Agreement.
9. ASSIGNMENT, SUCCESSOR AND INTEREST. This Agreement being
personal to the Employee may not be assigned by him. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of the Bank and the heirs, executors and personal representatives of
the Employee.
10. WAIVER. Failure to insist upon strict compliance with any of
the terms, covenants and conditions of this Agreement shall not be deemed a
waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
IN WITNESS WHEREOF, this Agreement has been approved by the Board of
Directors of the Bank on the 12th day of February, 1997 to be effective
beginning on the 27th day of March, 1997, as executed by the undersigned duly
authorized on this 27th day of March, 1997.
THE "BANK"
MCDUFFIE BANK & TRUST
By: /s/ David W. Joesbury
---------------------------------------
Chairman of the Board
THE "EMPLOYEE"
By: /s/ J. Harold Ward, Jr.
-----------------------------------
-3-
<PAGE> 1
EXHIBIT 13.2
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[x] Quarterly Report Under Section 13 or
15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1997
[ ] Transition Report Pursuant to 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from __________________ to _________________
Commission File Number ____________.
McDUFFIE BANK & TRUST
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
GEORGIA 58-1786015
------- ----------
(State or other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
110 East Hill Street, Thomson, Georgia 30824
(Address of Principal Executive Offices)
Issuers Telephone Number (706) 595-1600
Not Applicable
--------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES NO X
------- --------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at March 31, 1997
- ----------------------------- -----------------------------
Common Stock, $5.00 Par Value 635,380 shares
Transitional Small Business Disclosure Format: Yes No X
----------- ----------
<PAGE> 2
MCDUFFIE BANK & TRUST
Form 10-QSB
Index
<TABLE>
<S> <C> <C>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheet as of March 31, 1997 1
Condensed Statements of Income for the Three Months Ended
March 31, 1997 and March 31, 1996 2
Condensed Statements of Cash Flows for the Three Months Ended
March 31, 1997 and March 31, 1996 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 5 - 7
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
Index to Exhibits 10
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCDUFFIE BANK & TRUST
CONDENSED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1997
(In Thousands)
<TABLE>
<Captiion>
ASSETS
<S> <C>
Cash and non-interest bearing balances due from banks
$ 1,542
Interest bearing deposits in other depository institutions 100
Investment securities available-for-sale 12,327
Federal funds sold 2,150
Loans, net of unearned income and allowance for loan losses 18,658
Bank premises and fixed assets 1,465
Accrued interest receivable 336
Deferred tax benefit, net of valuation allowance 322
Other assets 524
--------
TOTAL ASSETS $ 37,424
========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Demand deposits $ 3,696
Savings deposits 8,505
Time deposits 17,862
-------
Total deposits 30,063
Other liabilities 320
--------
TOTAL LIABILITIES 30,383
STOCKHOLDERS' EQUITY:
Common stock, par value $5.00; 10,000,000 shares authorized,
635,380 shares issued and outstanding 3,177
Additional paid-in capital 3,178
Retained earnings 768
Unrealized loss on securities available-for-sale, net of tax (82)
--------
Total stockholders' equity 7,041
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 37,424
========
</TABLE>
See notes to condensed financial statements.
1
<PAGE> 4
MCDUFFIE BANK & TRUST
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
---------- -----------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 505 $ 546
Interest on balances with depository institutions 3 4
Interest on investment securities:
Obligations of U.S. Government agencies 169 139
U.S. Treasury securities 3 26
Other securities 23 23
Interest on Federal funds sold 8 34
------ -----
TOTAL INTEREST INCOME 711 772
------ -----
INTEREST EXPENSE:
Interest on time deposits of $100,000 or more 62 73
Interest on other deposits
226 280
Interest on Federal funds purchased 2 -
------ -----
TOTAL INTEREST EXPENSE 290 353
------ -----
NET INTEREST INCOME 421 419
PROVISION FOR LOAN LOSSES 7 42
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ------ -----
414 377
------ -----
NONINTEREST INCOME:
Service charge on deposit accounts 55 57
Other income 13 15
Loss on sale of investment securities (4) -
------ -----
64 72
------ -----
NONINTEREST EXPENSE:
Salaries and employment benefits 185 179
Premises and equipment 39 42
Other 125 119
------ -----
349 340
------ -----
INCOME BEFORE INCOME TAXES
129 109
Income tax expense 35 33
------ -----
NET INCOME $ 94 $ 76
====== =====
NET INCOME PER SHARE OF COMMON STOCK $ 0.15 $0.12
====== =====
</TABLE>
See notes to condensed financial statements.
2
<PAGE> 5
MCDUFFIE BANK & TRUST
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 94 $ 76
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization 19 28
Gain on sale of ORE 2 -
Gain (loss) on securities (4) 69
Net increase (decrease) in provision for loan loss (4) 42
Net decrease in unearned discount (1) (1)
Net decrease in other real estate owned 79 -
Net decrease in accrued interest receivable 70 33
Net (increase) decrease in deferred tax benefit (35) 23
Net (increase) decrease in other assets (37) 2
Net increase in other liabilities 81 65
------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 264 337
------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in commercial and agricultural loans 1,716 (1,407)
Net (increase) decrease in consumer loans (252) 267
Capital expenditures (44) -
Net (increase) decrease in investment securities 219 (1,196)
------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,639 (2,336)
------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits 600 (222)
Net decrease in savings deposits (639) (4,442)
Net increase (decrease) in time deposits (553) 1,184
Cash dividend paid (127) (64)
------- ----------
NET CASH USED IN FINANCING ACTIVITIES (719) (3,544)
------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,184 (5,543)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,608 8,788
------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,792 $ 3,245
======= ==========
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 6
MCDUFFIE BANK & TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements for McDuffie Bank &
Trust (the "Bank") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
appropriate instructions for Form 10-QSB. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statement presentation. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 1997 are not necessarily
indicative of trends or results to be expected for the year ending December 31,
1997. These condensed financial statements should be read in conjunction with
the Bank's audited financial statements and notes thereto included in the
Bank's annual report for the year ended December 31, 1996.
NOTE 2 - SUBSEQUENT EVENTS
On April 28, 1997, the shareholders of the Bank duly approved (512,793 shares
in favor, 18,705 shares against) a plan of corporate reorganization (the
"Reorganization") under which the Bank will become a wholly-owned subsidiary of
a newly- formed bank holding company, Pinnacle Bancshares, Inc. (the
"Company"), which has been organized at the direction of the Bank. Pursuant to
the Reorganization, the Company will offer 635,380 shares of its $.001 par
value common stock in exchange for all the outstanding common stock of the
Bank.
The Company will have no assets prior to consummation of the Reorganization
into a bank holding company structure other than all of the common stock of
Pinnacle Interim Corp. ("Interim") and $50 initial capital. The Bank has
caused Interim to be organized, the sole purpose of which is to effect the
Reorganization. Prior to the consummation of the Reorganization, Interim will
have no assets other than $50 received from the sale of 100% of its shares of
common stock to the Company. The Reorganization is to be accomplished by
merging Interim with the Bank under the Bank's charter and with the title of
McDuffie Bank & Trust. Upon the effective date of the Reorganization, each
outstanding share of common stock of the Bank will be exchanged for one share
of common stock of the Company. As a result, the shareholders of the Bank will
become shareholders of the Company and the Bank will become a wholly-owned
subsidiary of the Company. Upon the effective date of the Reorganization, the
officers and directors of the Bank will become the officers and directors of
the Company, and the business currently carried on by the Bank will continue as
a wholly-owned subsidiary of the Company.
The Reorganization will be accounted for in a manner similar to the pooling
method of accounting as described in APB Opinion No. 16, "Accounting for
Business Combinations" as it is a transaction between companies under common
control. Under this method, all assets and liabilities will be carried forward
at their historical cost basis.
Consummation of the Reorganization is conditioned upon the receipt of any
required regulatory approvals, including approvals from the Board of Governors
of the Federal Reserve System, the Federal Deposit Insurance Corporation and
the Georgia Department of Banking and Finance.
4
<PAGE> 7
MCDUFFIE BANK & TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Bank's net income was $94,000 for the first quarter of 1997, an increase of
$18,000 (23.7%) compared to net income of $76,000 for the first quarter of
1996. Earnings per share were $0.15 for the first quarter of 1997 compared to
$0.12 for the first quarter of 1996, an increase of 25%. Total assets
decreased from December 31, 1996 by $602,000 (15.8%).
For the first quarter, the increase in net income resulted primarily from an
increase in net interest income after provision for loan losses of $37,000
(9.8%). Non-interest income decreased $8,000 (11.1%) and non-interest expense
increased $9,000 (2.6%) from the first quarter 1996. Income tax expense
increased $3,000 (9.1%) from the first quarter 1996.
The return on average assets for the Bank was .99% (annualized) for the first
quarter of 1997, compared to .76% (annualized) for the same period last year.
The return on average equity for the first quarter of 1997 was 5.31%
(annualized) compared to 4.38% (annualized) for the same period last year.
Further discussion of significant items affecting net income are discussed in
detail below.
NET INTEREST INCOME
Net interest income is the difference between the interest and fees earned on
loans, securities, and other interest- bearing assets (interest income) and the
interest paid on deposits and borrowed funds (interest expense). Higher net
interest income is a result of the relationship between the interest-earning
assets and the interest-bearing liabilities.
Net interest income increased $2,000 (0.48%) during the first quarter over the
comparable period in 1996. Net interest income for the first quarter
annualized is comparable to the year ended December 31, 1996.
INTEREST INCOME
Interest income decreased $61,000 (7.9%) for the first quarter of 1997 from the
comparable quarter in 1996. Interest income on loans decreased $41,000 (7.5%)
and interest income on investment securities decreased $19,000 (8.56%) for the
first quarter of 1997 from the comparable quarter in 1996.
INTEREST EXPENSE
Interest expense was $290,000 for the first quarter, a decrease of $63,000
(17.8%) from the comparable quarter in 1996. The decrease is the result of the
allowing for a decline in interest-bearing accounts to manage the net interest
margin because of moderate loan demand.
NON-INTEREST INCOME
Non-interest income for the first quarter decreased $8,000 (11.1%) from the
comparable quarter in 1996 as a result of decreased deposit account charges
because of the decline in interest-bearing accounts. Non-interest income also
includes a loss of $4,000 realized on the sale of an investment security.
NON-INTEREST EXPENSE
Non-interest expense totaled $349,000 for the first quarter, an increase of
$9,000 (2.6%) from the comparable quarter in 1996, primarily as a result of
increased salary and benefits expense of $6,000 (3.3%) and an increase in other
operating expenses.
INCOME TAXES
Income taxes in the first quarter of 1997 totaled $35,000, an increase of
$2,000 (6.1%) above the first quarter of 1996, primarily as a result of
increased income before income tax.
5
<PAGE> 8
MCDUFFIE BANK & TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
REVIEW OF FINANCIAL CONDITION
OVERVIEW
Management continuously monitors the financial condition of the Bank in order
to protect depositors, increase retained earnings and protect current and
future earnings. Further discussion of significant items affecting the Bank's
financial condition are discussed in detail below.
ASSET QUALITY
A major key to long-term earnings growth is the maintenance of a high-quality
loan portfolio. The Bank's directive in this regard is carried out through its
policies and procedures for extending credit to the Bank's customers. The goal
and result of these policies and procedures is to provide a sound basis for new
credit extensions and an early recognition of problem assets to allow the most
flexibility in their timely deposition.
Non-performing assets were $605,000 at March 31, 1997, compared to $659,000 at
December 31, 1996. The composition of non-performing assets for each date is
shown below.
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- --------------
<S> <C> <C>
Non-accrual loans
$153,000 $143,000
OREO, net of valuation allowance 452,000 516,000
-------- --------
$605,000 $659,000
======== ========
</TABLE>
Reduction of non-performing assets continues to be a management priority.
Loans past due 90 days or more and still accruing decreased from $7,000 to
$4,000 from the period December 31, 1996 to March 31, 1997, a 43% reduction.
Based upon information available, management believes that the value of
collateral securing each loan is sufficient to cover principal and interest.
Additions to the allowance for loan losses are made periodically to maintain
the allowance at an appropriate level based upon management's analysis of
potential risk in the loan portfolio. The amount of the loan loss provision is
determined by an evaluation of the level of loans outstanding, the level of
non-performing loans, historical loan loss experience, delinquency trends, the
amount of actual losses charged to the reserve in a given period, and
assessment of present and anticipated economic conditions. A provision for
losses in the amount of $7,000 was charged to expense for the first quarter
ended March 31, 1997. At March 31, 1997, the ratio of allowance for loan
losses to the total loans was 4.53%. At December 31, 1996, the ratio was
4.23%. Management considers the current allowance for loan losses appropriate
based upon its analysis of the potential risk in the portfolio, although there
can be no assurance that the assumptions underlying such analysis will continue
to be correct.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of an organization to meet its financial commitments
and obligations on a timely basis. These commitments and obligations include
credit needs of customers, withdrawals by depositors, and payment of operating
expenses and dividends. The Bank does not anticipate any events which would
require liquidity beyond that which is available through deposit growth,
federal funds balances, or investment portfolio maturities. The Bank actively
manages the levels, types and maturities of earning assets in relation to the
sources available to fund current and future needs to ensure that adequate
funding will be available at all times.
The Bank's liquidity remains adequate to meet operating and loan funding
requirements. The loan to deposit ratio at March 31, 1997 was 61.4%, a
decrease of 6.4% from December 31, 1996.
6
<PAGE> 9
MCDUFFIE BANK & TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Management is committed to maintaining capital at a level sufficient to protect
depositors, provide for reasonable growth, and fully comply with all regulatory
requirements. Management's strategy to achieve this goal is to retain
sufficient earnings while providing a reasonable return on equity. Federal
banking regulations establish certain capital adequacy standards required to be
maintained by banks. These regulations set minimum requirements for risk-
based capital of 4% for core capital ("Tier I"), 8% for total risk-based
capital and 3% for the leverage ratio. At March 31, 1997, the Bank's Tier I
capital was 28.6% and total risk-based capital was 31.6%, compared to 32.1% and
30.8% at year-ended December 31 1996, respectively. At March 31, the Bank's
leverage ratio was 16.9% compared to 17.4% at December 31, 1996.
The Bank does not have any commitments which it believes would reduce its
capital to levels inconsistent with the regulatory requirements of a "well
capitalized" financial institution.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Bank may, from time to time, make written or oral forward-looking
statements, including statements contained in the Bank's filings with the
Securities and Exchange Commission (the "Commission") and its reports to
stockholders. Such forward-looking statements are made based on management's
belief as well as assumptions made by, and information currently available to,
management pursuant to "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. The Bank's actual results may differ materially
from the results anticipated in these forward-looking statements due to a
variety of factors, including governmental monetary and fiscal policies, on
deposit levels, loan demand, loan collateral values, securities portfolio
values and interest rate risk management; the effects of competition in the
banking business from other commercial banks, savings and loan associations,
mortgage banking firms, consumer finance companies, credit unions, securities
brokerage firms, insurance companies, money market mutual funds and other
financial institutions operating in the Bank's market area and elsewhere,
including institutions operating through the Internet; changes in government
regulations relating to the banking industry, including regulations relating to
branching and acquisitions; failure of assumptions underlying the establishment
of reserves for loan losses, including the value of collateral underlying
delinquent loans, and other factors. The Bank cautions that such factors are
not exclusive. The Bank does not undertake to update any forward-looking
statements that may be made from time to time by, or on behalf of, the Bank.
7
<PAGE> 10
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1 - Financial Data Schedule (for SEC use only).
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
8
<PAGE> 11
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.
MCDUFFIE BANK & TRUST
By: /s/ Heyward Horton, Jr.
-----------------------------------
Heyward Horton, Jr.
President and Chief Executive Officer
(principal executive officer)
August 10, 1997 By: /s/ J. Harold Ward, Jr.
- -------------------------- -----------------------------------
Date J. Harold Ward, Jr.
Senior Vice President,
Chief Financial Officer
(principal financial and accounting
officer)
9
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description Sequential Page Number
<S> <C> <C>
27.1 Financial Data Schedule (for SEC use only). 11 - 14
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1996 10-K FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND><F1>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,088
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 1,420
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,603
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 21,005
<ALLOWANCE> 889
<TOTAL-ASSETS> 38,026
<DEPOSITS> 30,655
<SHORT-TERM> 0
<LIABILITIES-OTHER> 239
<LONG-TERM> 0
0
0
<COMMON> 3,177
<OTHER-SE> 3,955
<TOTAL-LIABILITIES-AND-EQUITY> 38,026
<INTEREST-LOAN> 2,178
<INTEREST-INVEST> 875
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,053
<INTEREST-DEPOSIT> 1,384
<INTEREST-EXPENSE> 1,385
<INTEREST-INCOME-NET> 1,668
<LOAN-LOSSES> 56
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 1,447
<INCOME-PRETAX> 457
<INCOME-PRE-EXTRAORDINARY> 325
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 325
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
<YIELD-ACTUAL> 8.45
<LOANS-NON> 143
<LOANS-PAST> 7
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,155
<CHARGE-OFFS> 553
<RECOVERIES> 231
<ALLOWANCE-CLOSE> 889
<ALLOWANCE-DOMESTIC> 889
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>
This Financial Data Schedule relates to the 1996 financial statements of the
registrant's wholly-owned subsidiary, McDuffie Bank & Trust, which financial
statements are fully set forth in such subsidiary's Form 10-KSB for the year
ended December 31, 1996 filed herewith as exhibit 13.1.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 31, 1997 10-QSB FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND><F1>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,542
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 2,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,327
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 19,543
<ALLOWANCE> 885
<TOTAL-ASSETS> 37,424
<DEPOSITS> 30,063
<SHORT-TERM> 0
<LIABILITIES-OTHER> 320
<LONG-TERM> 0
0
0
<COMMON> 3,177
<OTHER-SE> 3,864
<TOTAL-LIABILITIES-AND-EQUITY> 37,424
<INTEREST-LOAN> 505
<INTEREST-INVEST> 206
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 711
<INTEREST-DEPOSIT> 288
<INTEREST-EXPENSE> 290
<INTEREST-INCOME-NET> 421
<LOAN-LOSSES> 7
<SECURITIES-GAINS> (4)
<EXPENSE-OTHER> 349
<INCOME-PRETAX> 129
<INCOME-PRE-EXTRAORDINARY> 94
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
<YIELD-ACTUAL> 8.48
<LOANS-NON> 153
<LOANS-PAST> 4
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 889
<CHARGE-OFFS> 28
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 885
<ALLOWANCE-DOMESTIC> 885
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>
This Financial Data Schedule relates to the financial statements as of and for
the three months ended March 31, 1997 for the registrant's wholly-owned
subsidiary, McDuffie Bank & Trust, which financial statements are fully set
forth in such subsidiary's Form 10-QSB for the quarter ended March 31, 1997
filed herewith as exhibit 13.2.
</FN>
</TABLE>
