<PAGE> 1
PROSPECTUS Filed Pursuant to Rule 424(b)(1)
Registration No. 333-41547
518,519 SHARES (MINIMUM)
740,741 SHARES (MAXIMUM)
COMMON STOCK
GEORGIA-CAROLINA BANCSHARES, INC.
(FORMERLY PINNACLE BANCSHARES, INC.)
A BANK HOLDING COMPANY FOR
FIRST BANK OF EAST GEORGIA
Georgia-Carolina Bancshares, Inc., a Georgia corporation (the
"Company"), hereby offers for sale a minimum of 518,519 shares and a maximum of
740,741 shares of its common stock, $.001 par value per share (the "Common
Stock"), at an offering price of $13.50 per share. The shares are offered on a
best-efforts, 518,519 share minimum basis by certain directors and executive
officers of the Company, who will receive no commissions for such sales. All
subscription funds tendered will be deposited in an interest-bearing escrow
account with The Bankers Bank, Atlanta, Georgia (the "Escrow Agent") pending
completion, termination or cancellation of the offering. The offering, unless
extended, will be terminated and all subscription funds, together with any
interest earned thereon, will be promptly returned if 518,519 shares have not
been subscribed by May 20, 1998. The Company may, at its sole discretion, extend
the offering for three consecutive 90-day periods without notice to
subscribers. As a result, if the minimum offering is not attained before then,
investor funds may be held in escrow until February 14, 1999. Subscriptions
obtained in the offering may be accepted or rejected in whole or in part by the
Company for any reason. Once a subscription has been accepted by the Company it
may not be withdrawn for any reason. See "TERMS OF THE OFFERING."
All subscription funds tendered prior to fulfillment of the Offering
Conditions (as defined herein) will be deposited in an interest-bearing escrow
account with The Bankers Bank, Atlanta, Georgia (the "Escrow Agent") pending
satisfaction of the Offering Conditions or termination or cancellation of the
offering prior to the satisfaction of the Offering Conditions. If the Offering
Conditions are not satisfied, all subscription funds that have been placed with
the Escrow Agent will be returned, together with any interest earned thereon,
promptly to subscribers. Once all of the Offering Conditions are met, the Escrow
Agent will release all subscription funds, and any profits thereon, to the
Company. The subscription funds of any person who subscribes for shares
following satisfaction of the Offering Conditions will not be placed in escrow,
but will be immediately available to the Company. See "TERMS OF THE OFFERING
- -- Escrow of Subscription Funds."
Prior to this offering, there has been no established public market for
the Common Stock, and there can be no assurance that an established market for
such stock will develop. There are, however, occasional transactions in the
Common Stock as a result of private negotiations. The Company presently does not
intend to seek to list the Common Stock on a national securities exchange or to
qualify the Common Stock for inclusion on the Nasdaq Stock Market. INVESTMENT IN
THE SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 2
FOR INFORMATION THAT SHOULD BE CONSIDERED BY EACH PROSPECTIVE INVESTOR.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS
OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
Price Underwriting
to Discounts and Proceeds to
Public Commissions(1) the Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share(3) $ 13.50 $0 $ 13.50
- --------------------------------------------------------------------------------
Total Minimum(4) $ 7,000,006 $0 $ 7,000,006
- --------------------------------------------------------------------------------
Total Maximum(4) $10,000,004 $0 $10,000,004
================================================================================
</TABLE>
(1) The securities offered hereby will be sold on a best-efforts, 518,519 share
minimum basis by certain directors and executive officers of the Company and
no commissions will be paid on such sales. See "TERMS OF THE OFFERING."
(2) Before deducting offering expenses, estimated to be $144,450 including
registration fees, legal and accounting fees, printing and other
miscellaneous expenses. See "USE OF PROCEEDS."
(3) The offering price is based on a fairness opinion issued by The
Robinson-Humphrey Company, LLC as of February 19, 1998, which states that
the offering price is within the range that is fair to existing
shareholders. See "DETERMINATION OF OFFERING PRICE."
(4) These securities are offered on a best-efforts, 518,519 share minimum basis.
If payment in cash for 518,519 shares is not received prior to the
Expiration Date (May 20, 1998, unless extended to a date not later than
February 14, 1999, which is 270 days after the initial offering period) the
offering will terminate and all subscription funds, together with any
interest earned thereon, will be promptly returned to subscribers. See "RISK
FACTORS," "TERMS OF THE OFFERING," and "MANAGEMENT."
The Company reserves the unqualified right to terminate the offering to the
public at any time during its pendency for any reason whatsoever.
The date of this Prospectus is February 19, 1998.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary .................................................... 1
Risk Factors .......................................................... 2
The Company ........................................................... 5
Determination of Offering Price ....................................... 7
Terms of The Offering ................................................. 8
Use of Proceeds ....................................................... 11
Dividend Policy ....................................................... 12
Management's Discussion And Analysis of Financial
Condition And Results of Operations ................................ 14
Average Balance Sheets
Nine Months Ended September 30, 1997 and 1996...................... 18
Year Ended December 31, 1996 and 1995.............................. 19
Business of The Company ............................................... 20
Business of The Bank .................................................. 20
Supervision and Regulation ............................................ 30
Management ............................................................ 35
Certain Transactions .................................................. 45
Description of Capital Stock .......................................... 45
Legal Proceedings ..................................................... 48
Legal Matters ......................................................... 48
Experts ............................................................... 48
Incorporation of Certain Documents by Reference ....................... 48
Available Information ................................................. 49
Index to Financial Statements ......................................... F-1
</TABLE>
Appendix A - Escrow Agreement
Appendix B - Subscription Materials
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT
RELATES, OR ANY OFFER OF SUCH SHARES OF COMMON STOCK TO ANY PERSON IN ANY STATE
OR OTHER JURISDICTION IN WHICH SUCH OFFER IS UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ANY OF THE DATES AS OF WHICH INFORMATION IS FURNISHED HEREIN
OR THE DATE HEREOF. HOWEVER, DURING THE PERIOD IN WHICH OFFERS OR SALES ARE
BEING MADE HEREUNDER, THE COMPANY IS REQUIRED TO UPDATE THE PROSPECTUS TO
REFLECT ANY FACTS OR EVENTS ARISING AFTER THE EFFECTIVE DATE OF THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WHICH REPRESENT A
FUNDAMENTAL CHANGE IN THE INFORMATION SET FORTH IN THE REGISTRATION STATEMENT.
UNTIL MAY 20, 1998 (90 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
-i-
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
THE COMPANY
Georgia-Carolina Bancshares, Inc. (the "Company") was incorporated under
the laws of the State of Georgia on January 31, 1997 for the purpose of
operating as a bank holding company pursuant to the federal Bank Holding Company
Act of 1956, as amended. The Company intends to use the net proceeds of this
offering to expand its banking presence by branching its wholly-owned
subsidiary, First Bank of East Georgia, formerly McDuffie Bank & Trust (the
"Bank"), into Augusta and Columbia County, Georgia. Subscriptions obtained in
the offering may be accepted or rejected in whole or in part by the Company for
any reason. Once a subscription has been accepted by the Company it may not be
withdrawn. The Bank operates as a full service commercial bank with primary
emphasis upon high quality service that meets the financial needs of its
customers. The Bank is currently located in Thomson, McDuffie County, Georgia.
The Company's mailing address is P.O. Box 1560, Thomson, Georgia 30824 and its
telephone number is (706) 595-1600.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered................ 740,741 shares. A minimum of 518,519 shares are required to
be sold in this offering. See "TERMS OF THE OFFERING."
Common Stock to be Outstanding
After this Offering................. Minimum - 518,519 shares(1)
Maximum - 740,741 shares(1)
Price............................... $13.50 per share
Conditions of the Offering.......... The offering is expressly conditioned upon fulfillment of the
following conditions: (a) not less than $7,000,006 shall have
been deposited with the Escrow Agent, (b) the Company shall
have received shareholder approval for the issuance of the
Common Stock at a Special Meeting of Shareholders called for
that purpose to be held on March 9, 1998, and (c) the Company
shall not have canceled this offering prior to the time funds
are withdrawn from the Subscription Escrow Account.
Use of Proceeds..................... The proceeds of this offering shall be used to expand the
Company's banking presence by branching the Bank into
Augusta and Columbia County, Georgia. See "USE OF
PROCEEDS."
Expiration of this Offering......... This offering shall expire at 5:00 p.m. Eastern Time on
May 20, 1998 but may be extended for up to three consecutive
90-day periods. See "TERMS OF THE OFFERING."
Risk Factors........................ The securities offered hereby may be deemed to be speculative
and involve certain risks. See "RISK FACTORS."
</TABLE>
- --------------------
(1) Prior to this offering there has been no established market for the
shares of Common Stock. There can be no assurance that an established
public market will develop for such securities upon completion of this
offering or whether substantial trading actively will occur for several
years, if at all. See "RISK FACTORS."
<PAGE> 4
RISK FACTORS
Certain statements contained or incorporated by reference in this
Prospectus, such as statements relating to financial results, plans for future
business development activities, capital spending or financing sources, capital
structure and the effects of regulation and competition are prospective in
nature. Such statements are subject to risks, uncertainties and other factors
which could cause actual results to differ materially from future results
expressed or implied by such forward looking statements. Potential risks and
uncertainties include, but are not limited to, economic conditions, competition
and other uncertainties set forth in this Prospectus, and particularly in this
"Risk Factors" Section, as well as risks and uncertainties detailed from time to
time in the Company's filings with the U.S. Securities and Exchange Commission
(the "SEC").
INTENSE COMPETITION
The Bank is a full service commercial bank in Thomson, McDuffie County,
Georgia. Competition among financial institutions in the Bank's market area, as
well as the market area in which the Bank intends to expand, is intense.
Further, the Bank competes with other state and national banks, savings and loan
associations, consumer financial companies, credit unions, money market mutual
funds, and other financial institutions which have far greater financial
resources than those available to the Bank. The Bank's size may impact its
ability to compete effectively with larger institutions in offering other
services. If the Bank is unable to compete for deposits effectively in its
primary service area, such inability would likely have an adverse effect on the
Bank's potential for growth and profitability.
NO ESTABLISHED PUBLIC MARKET
Presently, there is no established public market for the Common Stock.
There can be no assurance that an established public market will develop for
such securities upon completion of this offering or whether substantial trading
activity will occur for several years, if at all. As a result, investors who may
need or wish to dispose of all or part of their investment in the Common Stock
may not be able to do so except by private, direct negotiations with third
parties. Furthermore, it is unlikely that an established public market will
develop for such securities upon completion of this offering because the Company
does not presently intend to seek to list the Common Stock on a national
securities exchange or to qualify such Common Stock for inclusion on the Nasdaq
Stock Market.
ABSENCE OF PREEMPTIVE RIGHTS
No holder of the Common Stock has preemptive rights with respect to the
issuance of shares of that or any other class of Common Stock, and no holder of
the Common Stock is entitled to cumulative voting rights with respect to the
election of directors. The authorized Common Stock consists of 9,000,000 shares,
$.001 par value per share. The Company's directors could from time to time
determine to issue additional shares of Common Stock in addition to the shares
offered hereby and, in such event, the ownership interest of the subscribers in
this offering would be diluted. See "DESCRIPTION OF CAPITAL STOCK."
-2-
<PAGE> 5
UNPREDICTABLE ECONOMIC CONDITIONS
Commercial banks and other financial institutions are affected by
economic and political conditions, both domestic and international, and by
governmental monetary policies. Conditions such as inflation, recession,
unemployment, high interest rates, short money supply, scarce natural resources,
international disorders and other factors beyond the control of the Company may
adversely affect its profitability.
GOVERNMENT REGULATION AND LEGISLATION
The Company and the Bank operate in a highly regulated environment and
are subject to supervision by several governmental regulatory agencies,
including the Board of Governors of the Federal Reserve Board, the Federal
Deposit Insurance Corporation and the Georgia Department of Banking and Finance.
The Company and the Bank are vulnerable to future legislation and government
policy, including bank deregulation and interstate expansion, which could
severely affect the banking industry as a whole including the operations of the
Company and the Bank. See "SUPERVISION AND REGULATION."
NO FIRM UNDERWRITING OF THIS OFFERING; ABILITY TO EXTEND OFFERING
This offering is being made without the benefit of a "firm"
underwriting. Sales will be solicited on a "best efforts" basis by certain
directors and executive officers of the Company. Accordingly, there can be no
assurance that any of the securities offered hereby will be sold or that the
minimum offering amount will be obtained. The Company may extend the offering,
without notice to subscribers, for three consecutive periods of 90 days.
DIVIDENDS
Georgia law restricts the Company's payment of dividends if, after such
payment, the Company would be unable to meet its obligations as they mature or
the Company's liabilities would exceed its assets. The Company's ability to pay
dividends is dependent upon the Bank's ability to provide funds to the Company
through the payment of dividends. Pursuant to the Financial Institutions Code of
Georgia, the Bank may pay dividends only when and if the Bank is not insolvent
or when the payment of such dividends would not render the Bank insolvent or
when the declaration or payment would not be contrary to any restrictions
contained in the Bank's Articles of Incorporation. Dividends may also not be
declared or paid at any time when the Bank does not have paid-in capital and
appropriated retained earnings which, in combination, equal at least 20% of the
Bank's capital stock and, further, dividends may not be paid by the Bank without
the prior approval of the Georgia Department of Banking and Finance (the
"Georgia Banking Department"), if the dividends are in excess of specified
amounts fixed by the Georgia Banking Department. Therefore, future dividend
policy will depend on the Bank's earnings, capital requirements, financial
condition and other factors considered relevant by the Board of Directors of the
Company. Prior to the reorganization of the Bank into a holding company
structure, 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 paid another cash dividend of $.10 per share on its common stock on April
7, 1997 to shareholders of record as of March 12, 1997. Although the Company
has never paid a cash dividend on its Common Stock, based upon the Bank's
current earnings, capital requirements and financial condition, management
anticipates that its dividend policy will be generally similar to the
distribution of the Bank's dividends prior to the reorganization. See
"DIVIDEND POLICY."
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation contain provisions requiring
supermajority shareholder approval to effect certain extraordinary corporate
transactions which are not approved by the Company's Board of Directors. These
provisions make it more difficult to effect a merger, sale of control, or other
similar transaction involving the Company even though a majority of the
Company's shareholders may vote in favor of such transaction. In addition, the
Company's Articles of Incorporation authorize the issuance of up to 1,000,000
shares of preferred stock, issuable in series, the relative rights and
preferences of which may be designated by the Company's Board of Directors. The
effect of these provisions is to make it more
-3-
<PAGE> 6
difficult to effect a change in control of the Company through the acquisition
of a large block of the Common Stock. See "DESCRIPTION OF CAPITAL STOCK."
DEPENDENCE ON SENIOR MANAGEMENT
The success of the Company's and the Bank's operations is substantially
dependent on the banking and management expertise of Patrick G. Blanchard,
President and Chief Executive Officer of the Company and of Heyward Horton, Jr.,
President and Chief Executive Officer of the Bank. The death, disability or
resignation of Mr. Blanchard or Mr. Horton may have a material adverse impact on
the Company and its future operations. The Company presently does not have a
"key man" insurance policy on either Mr.Blanchard or Mr. Horton. The Company
has entered into employment agreements with Mr. Blanchard and Mr. Horton. See
"MANAGEMENT - Employment Agreements."
-4-
<PAGE> 7
THE COMPANY
BACKGROUND
The Company was incorporated at the direction of the Bank on January 31,
1997 for the purpose of acquiring 100% of the issued and outstanding capital
stock of the Bank. The Bank, which is the only subsidiary of the Company, was
chartered under the laws of the State of Georgia in 1988 as an independent,
locally-owned, full service commercial bank with deposits insured by the Federal
Deposit Insurance Corporation (the "FDIC"). The Bank opened for business in 1989
and presently has two offices in Thomson, McDuffie County, Georgia.
The Bank quickly became profitable by earning its first net profit in
the year ending December 31, 1990. However, during 1994, the Board of Directors
of the Bank began addressing certain asset quality problems which had become
apparent during the latter part of that year. Due primarily to these asset
quality problems, the Bank recorded a loss of $508,000 for the year ending
December 31, 1994. This loss, coupled with the resignation of the President and
Chief Executive Officer of the Bank, lead the Board of Directors of the Bank in
early 1995 to hire a new and experienced management team charged with correcting
the Bank's poor operating performance and returning the Bank to profitability.
Due to the Bank's poor performance, the Bank entered into a Memorandum of
Understanding with the Georgia Department of Banking and Finance (the "Georgia
Banking Department") and the FDIC in March 1995. During 1995, the Bank's new
management team made significant progress in addressing the Bank's asset quality
problems and returned the Bank to profitability by earning $154,000 for that
year. In November 1996, the Memorandum of Understanding with the Georgia Banking
Department and the FDIC was rescinded.
The Bank's return to profitability, as well as the successful
resolution of a number of the asset quality problems experienced during 1994 and
1995, allowed Bank management and the Board of Directors of the Bank during the
first part of 1996 to focus their attention on long range goals and
opportunities for the Bank. To assist it, the Board of Directors of the Bank
retained the services of The Robinson-Humphrey Company, L.L.C., Atlanta, Georgia
("Robinson-Humphrey"), a well-known and highly regarded regional investment
banking and brokerage firm. The Board of Directors of the Bank imposed no
restrictions on the scope of Robinson-Humphrey's evaluation of strategic
alternatives for the Bank. In April 1996, Robinson-Humphrey made a report to the
Board of Directors of the Bank regarding its evaluation. After extensive
discussions with management of the Bank, internal deliberations and after
reviewing and considering the report of Robinson- Humphrey, the Board of
Directors of the Bank concluded that it was unlikely that an effort to sell the
Bank at that time would yield acceptable returns to shareholders. This
conclusion was primarily due to the Bank's over-capitalization, its marginal
profitability and the slow growth market in which it was operating. Accordingly,
the Board of Directors of the Bank adopted strategies designed to generate
growth, improve profitability and increase liquidity for the owners of the
Bank's common stock. These strategies included, but were not limited to, (i)
continuing to focus on increasing the earnings of the Bank and profitably
growing its loan portfolio; (ii) reorganizing the Bank into a holding company
structure; (iii) implementing a stock repurchase plan; (iv) increasing employee
stock ownership by forming an employee stock option plan and (v) reviewing new
markets for potential expansion either by de novo branching or by the
acquisition of additional banks or branches. The strategies adopted by the Board
of Directors of the Bank did not preclude the consideration of unsolicited
offers to acquire the Bank.
In August 1996, the Bank received an unsolicited offer from a bank
holding company located in a different Georgia market from that of the Bank. The
Board of Directors of the Bank once again retained the services of
Robinson-Humphrey to assist it in evaluating this offer. The offer was received
very soon after the Bank's major competitor in the McDuffie County market,
Allied Bancshares, Inc. ("Allied"), announced
-5-
<PAGE> 8
that it had reached an agreement to be acquired by Regions Bank, Birmingham,
Alabama ("Regions"). The Board of Directors of the Bank, relying upon
Robinson-Humphrey's analysis and taking into account the possibility that the
acquisition of Allied by Regions would accelerate the growth of the Bank and its
profitability, rejected the offer.
FORMATION OF BANK HOLDING COMPANY
In January 1997, the Board of Directors of the Bank, following up on its
April 1996 strategic initiatives, began to move forward with the preparation and
filing of the necessary regulatory applications to reorganize the Bank into a
holding company structure. Shareholders of the Bank were scheduled to vote on
the Bank's reorganization (the "Reorganization") at the Bank's Annual Meeting of
Shareholders in April 1997 in order that the Reorganization could be consummated
by early summer.
On January 31, 1997, the Company was incorporated under the laws of the
State of Georgia to operate as a bank holding company pursuant to the Federal
Bank Holding Company Act of 1956, as amended, and to purchase 100% of the issued
and outstanding capital stock of the Bank. The Company was organized at the
direction of the Board of Directors of the Bank based on its belief that the
Reorganization could substantially strengthen the Bank's competitive position.
For example, under the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994, the Company is able to expand its operations outside the State of
Georgia, if such expansion is deemed to be in the best interest of the Company.
See "SUPERVISION AND REGULATION." On April 28, 1997, the shareholders of the
Bank, at the Bank's Annual Meeting of Shareholders, duly approved and authorized
the Reorganization and, after receipt of final regulatory approvals, the
Reorganization was consummated on June 6, 1997.
EXPANSION INTO AUGUSTA AND COLUMBIA COUNTY, GEORGIA
While Bank management and the Board of Directors of the Bank were
pursuing the Reorganization, in late February 1997, the Bank was contacted by
certain Augusta businessmen who were interested in chartering a new bank that
would serve the markets of Augusta and Columbia County, Georgia. These Augusta
businessmen posed the prospect of making the new bank a subsidiary of the
Company. Further, they also offered to assist the Company in locating investors
to purchase newly issued Common Stock to finance the expansion of the Company's
banking operations. This group of Augusta businessmen ultimately included Ray
Brown, Arthur J. Gay, Jr., J. Randal Hall, George H. Inman, John W. Lee, A.
Montague Miller and Julian W. Osbon (collectively, the "Augusta Group").
Discussions with the Augusta Group continued until October 7, 1997, when an
agreement (the "Agreement") was entered into whereby, subject to approval by the
Company's shareholders and certain other conditions as detailed below, the
Company has agreed to register certain shares of its Common Stock for sale to
the public and to use the proceeds of such sale to expand the Bank, through the
establishment of offices, into Augusta and Columbia County, Georgia. Pursuant to
the Agreement, Patrick G. Blanchard has been appointed President and Chief
Executive Officer of the Company. In addition, certain members or
representatives of the Augusta Group have been appointed to the Board of
Directors of the Company and the Board of Directors of the Bank. Although the
offering will be conducted on a best-efforts basis and may be extended by the
Company without notice to subscribers for up to three consecutive 90-day
periods, or not later than February 14, 1999, if the minimum offering amount of
$7,000,006 is not obtained by June 30, 1998, those directors appointed to the
Board of Directors of the Company and the Board of Directors of the Bank will,
pursuant to self-executing resignations, resign. See "MANAGEMENT -- Appointed
Directors of the Company and the Bank." Further, subject to certain conditions
and exceptions, the Agreement requires, that certain members of the Augusta
Group purchase an amount of Common Stock in the offering having an aggregate
value greater than or equal to $560,000. This purchase must be made no later
than June 30, 1998. In June 1997, certain members of the Augusta Group, in
anticipation of reaching a final agreement with the Company, purchased an
aggregate of 51,058 shares of Common Stock from certain shareholders of the
Company, which amounted to 8% of the then-outstanding shares of the Company's
Common Stock. See "SECURITY OWNERSHIP OF MANAGEMENT, APPOINTED MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS." The June 1997 purchase will not be counted toward
the requirement that certain members of the Augusta Group purchase an aggregate
amount of Common Stock in the offering of at least $560,000.
-6-
<PAGE> 9
In preparation of the Company's and the Bank's expanded banking
operations, on November 17, 1997, the Company changed its name from Pinnacle
Bancshares, Inc. to Georgia-Carolina Bancshares, Inc. In addition, on January
23, 1998, the name of the Bank was changed from McDuffie Bank & Trust to First
Bank of East Georgia. The mailing address of the Company is Post Office
Box 1560, Thomson, Georgia 30824 and its telephone number is 706-595-1600.
DETERMINATION OF OFFERING PRICE
General
Because there has been no established public market for the shares of
the Common Stock prior to this offering, pursuant to the Agreement, the Company
retained Robinson-Humphrey to render to the Board of Directors of the Company an
opinion that the price of the Common Stock to be sold in the offering is fair
from a financial point of view to the current shareholders of the Company.
Robinson-Humphrey's opinion is written solely to the existing
shareholders of the Company. Robinson-Humphrey's opinion expressly does not
constitute a recommendation to existing or prospective shareholders to purchase
the equity securities of the Company in this offering or elsewhere.
In arriving at its opinion, Robinson-Humphrey performed a variety of
financial analyses reviewed and analyzed: (i) the Registration Statement on Form
SB-2 filed with the Securities and Exchange Commission in connection with the
offering; (ii) the Company's publicly available documents; (iii) financial and
operating information with respect to the business, operations and prospects of
the Company furnished to Robinson-Humphrey by the Company; (iv) the recent
trading history of the Common Stock, to the extent available, as supplied by
management; (v) a comparison of the historical financial results and present
financial condition of the Company with those of other companies which
Robinson-Humphrey deemed relevant; and (vi) the Company's business plans with
respect to its expansion into the Augusta and Columbia County, Georgia markets.
In addition, Robinson-Humphrey had discussions with the management of the
Company concerning its business, operations, assets, present condition and
future prospects and undertook such other studies, analyses and investigations
as Robinson-Humphrey deemed appropriate. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances, and therefore, such an opinion is not readily susceptible to
summary description.
Robinson-Humphrey assumed and relied upon the accuracy and completeness
of the financial and other information used by it in arriving at its opinion
without independent verification. With respect to the financial
forecasts/projections of the Company and its expansion plans, Robinson-Humphrey
has assumed that such forecasts/projections have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company.
In arriving at its opinion, Robinson-Humphrey has not conducted a physical
inspection of the properties and facilities of the Company and has not made or
obtained any evaluations or appraisals of the assets or the liabilities of the
Company. In addition, Robinson-Humphrey has not been authorized to solicit, and
it has not solicited, any indications of interest from any third party with
respect to the purchase of all or a part of the Company's business.
Robinson-Humphrey's opinion is necessarily based upon market, economic and other
conditions as they existed on, and can be evaluated as of, the date of this
Prospectus.
Valuation Methodologies
In connection with its opinion and presentation of that opinion to the
Company's Board of Directors, Robinson-Humphrey performed several analyses with
respect to the Company including: (i) a five year projection model with respect
to the Company's current financial operations ("Standalone Operations"); (ii) a
five year projection model with respect only to the Company's proposed expansion
plans into the Augusta and Columbia County markets ("Proposed Expansion"); (iii)
a dilution analysis; (iv) a contribution analysis; (v) an internal rate of
return analysis; and (vi) a comparable company trading analysis.
Projection Model of Standalone Operations: In performing this analysis,
Robinson-Humphrey assisted the Company's management to estimate: (i) ending
and average balance sheets, including various investment, loan, reserve for loan
losses, property, plant, equipment, and non-earning asset categories, and (ii)
income statements, including interest income, interest expenses, provision for
loan losses, non-interest income and non-interest expense categories for the
years ending 1997, 1998, 1999, 2000 and 2001.
Projection Model of Proposed Expansion: In performing this analysis,
Robinson-Humphrey assumed that the proceeds from the proposed offering were used
to capitalize the Company's proposed expansion into the Augusta and Columbia
County, Georgia markets. Robinson-Humphrey examined various scenarios under
which the Company raised gross proceeds of $7,000,000 and $10,000,000 from the
offering. Robinson-Humphrey assisted the Company's management in order to
establish the estimated startup costs and timing of the proposed expansion into
the Augusta and Columbia County, Georgia markets. Additionally,
Robinson-Humphrey and the Company's management estimated: (i) ending and
average balance sheets, including various investment, loan, reserve for loan
losses, property, plant, equipment and non-earning asset categories, and (ii)
income statements, including interest income, interest expense, provision for
loan losses, non-interest income, and non-interest expense categories for the
years ending 1997, 1998, 1999, 2000 and 2001.
Dilution Analysis: Robinson-Humphrey combined the estimated net after
tax earnings of the Standalone Operations and Proposed Expansion for the years
1997, 1998, 1999, 2000 and 2001. Robinson-Humphrey assumed that a $7,000,000
offering was completed at various per share prices. The resulting increases or
decreases in estimated pro forma earnings per share, when compared to the
Standalone Operations model for the years 1999, 2000 and 2001 were examined. It
was determined for valuations of $13.00 per share or greater, that the Proposed
Expansion would be dilutive to earnings per share in 1999 but then could add
approximately $0.30 to earnings per share over and above earnings per share that
had been estimated for the year ended December 31, 2000 and for subsequent
periods, assuming management forecasts are reasonably accurate.
Contribution Analysis: Robinson-Humphrey combined the balance sheet
estimates for the Standalone Operations and the Proposed Expansion and examined,
at September 30, 1997 and December 31, 1997, 1998, 1999, 2000 and 2001, the
relative contributions of the Standalone Operations and the Proposed Expansion.
In particular, at September 30, 1997, $7,000,000 of new equity capital in the
Company represented approximately 49% of book value on a pro forma basis. By the
end of the second full calendar year of operations, December 31, 2000, according
to management's projections and assuming $7,000,000 of new equity capital, the
Proposed Expansion could represent approximately 73% of gross loans, 71% of
total deposits, 68% of total assets, and 63% of net income on a pro forma basis.
These relative contributions of management's estimations of equity, gross loans,
total deposits, total assets and net income for the year ended December 31, 2000
and in the other periods were compared with the pro forma ownership of the
Company's existing shareholders after the offering. At the offering price of
$13.50 per share, and assuming a $7,000,000 offering, the existing shareholders
would represent approximately 55% of the pro forma shares outstanding after the
offering.
Internal Rate of Return Analysis: Robinson-Humphrey examined from the
Company's point of view the estimated internal rate of return to the Company of
a theoretical investment of $7,000,000 to fund the Proposed Expansion. The
analysis takes into account an initial investment in the Proposed Expansion
(including start-up costs), estimated net income and estimated cash flow from
the project. A terminal value was calculated by assuming that the Proposed
Expansion could theoretically be sold at December 31, 2001 at various exist
price to earnings ratios. The internal rate of return to the Company was
calculated using the estimated cash flow and the estimated terminal value.
Robinson-Humphrey performed a sensitivity analysis varying the exit
price/earnings multiple from 8.00 times to 20.00 times December 31, 2001
earnings and assuming that the Proposed Expansion earned 50.00% to 150.00% of
its estimated net income. At the mid point of this sensitivity analysis,
assuming management's estimates are reasonably correct, this analysis yielded
approximately a 40% internal rate of return (a 40% compound annual return to the
Company) for the Proposed Expansion assuming a $7,000,000 offering. It should be
noted that this internal rate of return analysis is the internal rate of return
that the Company could potentially earn, assuming management's estimates are
reasonably correct, from an investment in the Proposed Expansion and is
specifically not a rate of return that can be expected to be earned by current
or prospective shareholders.
Comparable Company Trading Analysis: Robinson-Humphrey examined banks
in the Southeast with total assets of less than $500 million and for which there
was a publicly quoted market price. This group was comprised of 46 banks. These
institutions traded at an average of 2.05 times book value, 2.09 times tangible
book value, and 18.61 times last 12 months earnings per share. Furthermore,
these institutions had an average equity/asset ratio of 10.23% and earned 1.22%
on average assets and 12.52% on average equity for the most recently reported
quarter. These trading multiples and operating ratios were compared to the
estimated operating ratios of the Standalone Operations, the Proposed Expansion
and for the pro forma combination of the Standalone Operations and the Proposed
Expansion for the nine months ended September 30, 1997 and the years ending
December 31, 1997, 1998, 1999, 2000 and 2001.
Specifically, an offering price of $13.50 per share, assuming a
$7,000,000 offering, represents approximately 1.19 times September 30, 1997
book value per share and approximately 1.10 times September 30, 1997 pro forma
book value per share after the offering. An offering price of $13.50 per share,
assuming a $7,000,000 offering, represents approximately 1.19 times September
30, 1997 tangible book value per share and approximately 1.10 times September
30, 1997 pro forma tangible book value per share after the offering. An
offering price of $13.50 per share represents approximately 30.68 times last
twelve months earnings per share as of September 30, 1997. The offering price
as a multiple of book value per share and tangible book value is relatively low
when compared with other comparable companies because the Company had an
equity to asset ratio of approximately 18.89% at September 30, 1997 compared to
10.23% for the comparable companies. The offering price as a multiple of last
twelve months earnings as of September 30, 1997 is significantly higher than
other comparable companies reflecting the fact that the Company, at September
30, 1997, was not as profitable as the comparable companies. No company used in
the comparable company trading analysis is identical to the Company.
Accordingly, an analysis of the foregoing necessarily involves complex
considerations and judgements, as well as other factors that affect the public
trading value of the Company. It was therefore found that offering prices
ranging from $13.00 to $14.50 per share compared favorably with this group.
Based upon and subject to the foregoing, Robinson-Humphrey is of the
opinion, as of the date of this Prospectus that, from a financial point of view,
the issue price of the offering is fair to the existing shareholders of the
Company.
Compensation of Robinson-Humphrey
Robinson-Humphrey has acted as financial advisor to the Company in
connection with the Company's plans to expand into the Augusta and Columbia
County, Georgia markets and will receive a fee for its services, a portion of
which is contingent upon the consummation of such expansion. Pursuant to an
engagement letter dated December 18, 1997 between the Company and
Robinson-Humphrey, the Company has agreed to pay Robinson-Humphrey $70,000 at
the time it issues its fairness opinion and then 1.00% of any amounts raised in
the offering over $7,000,000, payable at the consummation of the offering. In
addition, the Company has agreed to indemnify Robinson-Humphrey for certain
liabilities arising out of the rendering of its opinion.
Robinson-Humphrey has performed various investment banking services
for the Company in the past and received customary fees for such services. In
the ordinary course of its business, Robinson-Humphrey has arranged trades in
the equity securities of the Company for the accounts of its customers; however,
Robinson-Humphrey does not make a market in the equity securities of the
Company.
-7-
<PAGE> 10
As part of its investment banking business, Robinson-Humphrey is
regularly engaged in the valuation of securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
ant other purposes. The Company's Board of Directors retained
Robinson-Humphrey based on its experience as a financial advisor to financial
institutions.
TERMS OF THE OFFERING
GENERAL
Subject to approval by the Company's shareholders and certain other
conditions as detailed below, the Company is offering hereunder 518,519 shares
of Common Stock for cash at a price of $13.50 per share. A minimum subscription
of 100 shares is required for each subscription hereunder. No subscriber may
subscribe to an amount of shares that would cause such subscriber's holdings of
Common Stock to be greater than 5% of the outstanding Common Stock of the
Company upon completion of the minimum offering. The purchase price of $13.50
per share shall be paid in full upon execution and delivery of a subscriber's
subscription agreement. All subscriptions tendered by investors are subject to
acceptance by the Board of Directors of the Company, and the Company reserves
the absolute and unqualified right to reject or reduce any subscription for any
reason prior to acceptance. Subscriptions which are rejected by the Company will
be returned to the subscriber without interest. Investors whose subscription is
reduced by the Company may withdraw their subscription within 10 days after
being notified of such reduction by the Company. The Company reserves the right
to cancel this offering at any time prior to the time the Company withdraws
funds from the Subscription Escrow Account (as defined below), for any reason
whatsoever.
CONDITIONS OF THE OFFERING
This offering will expire at 5:00 p.m. Eastern Time, on May 20, 1998,
(the "Expiration Date"), unless such date is extended by the Company. The
Expiration Date may be extended by the Company without notice to subscribers for
up to three consecutive 90-day periods, or not later than February 14, 1999. The
offering is expressly conditioned upon fulfillment of the following conditions
(the "Offering Conditions") on or prior to the Expiration Date, as extended. The
Offering Conditions, which may not be waived, are as follows:
(a) The Company shall have received approval from its shareholders of
the offering at a special meeting of shareholders of the Company called for such
purpose. The affirmative vote of the holders of a majority of the shares of
Common Stock represented at the special meeting at which a quorum is present is
required for approval of the offering.
(b) Not less than $7,000,006 shall have been deposited with the Escrow
Agent (as defined below) in the Subscription Escrow Account; and
(c) The Company shall not have canceled this offering prior to the time
funds are withdrawn from the Subscription Escrow Account.
All required regulatory approvals are expected to be completed by
February, 1998. Any regulatory approvals received should not be taken as an
endorsement or recommendation of this offering. Moreover, any regulatory
approval received will reflect only the conclusion that the transaction does not
contravene applicable competitive standards imposed by law and that the
transaction is consistent with regulatory policies relating to safety and
soundness.
-8-
<PAGE> 11
ESCROW OF SUBSCRIPTION FUNDS
Until the Offering Conditions have been met, all subscription funds and
documents tendered by investors will be placed in an escrow account (the
"Subscription Escrow Account") with The Bankers Bank, Atlanta, Georgia (the
"Escrow Agent"). Pursuant to the terms of the Escrow Agreement, the form of
which is attached to this Prospectus as Appendix"A," if all of the Offering
Conditions are met, the Company may certify such fact to the Escrow Agent and
the Escrow Agent will release all subscription funds, and any profits thereon,
to the Company. Subscription funds are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency.
Pending disposition of the Subscription Escrow Account under the Escrow
Agreement, the Escrow Agent is authorized, upon instructions to be given by
David W. Joesbury, Sr., Chairman of the Company, to invest subscription funds in
direct obligations of the United States Government, in short-term insured
certificates of deposit, in short-term federal funds, and/or in money market
management trusts for short-term obligations of the United States Government,
with maturities not to exceed 90 days. The Company will invest the subscription
funds in a similar manner after breaking escrow and prior to the time that the
Company expands its banking operations. See "USE OF PROCEEDS."
In the event the Offering Conditions are not met by the Expiration Date,
as extended, the Escrow Agent shall promptly return to the subscribers their
subscription funds, together with their allocated share of profits, if any,
earned on the investment of the Subscription Escrow Account. Each subscriber's
proportionate share of Subscription Escrow Account earnings shall be that
fraction (i)the numerator of which is the dollar amount of such subscriber's
tendered subscription multiplied by the number of days between the date of
acceptance of the investor's subscription and the date of the offering
termination, inclusive (the subscriber's "Time Subscription Factor"), and
(ii)the denominator of which is the aggregate Time Subscription Factors of all
investors depositing subscription funds in the Subscription Escrow Account.
NO ASSURANCE CAN BE GIVEN THAT SUBSCRIPTION FUNDS CAN OR WILL BE
INVESTED AT THE HIGHEST RATE OF RETURN AVAILABLE OR THAT ANY PROFITS WILL BE
REALIZED FROM THE INVESTMENT OF SUBSCRIPTION FUNDS.
If all Offering Conditions are satisfied, and the Company withdraws the
subscription funds from the Subscription Escrow Account, all profits and
earnings on such account shall belong to the Company.
The Bankers Bank, Atlanta, Georgia, by accepting appointment as Escrow
Agent under the Escrow Agreement, in no way endorses the purchase of the
Company's securities by any person.
-9-
<PAGE> 12
PURCHASES BY APPOINTED DIRECTORS
Pursuant to the Agreement, seven additional members or representatives
of the Augusta Group have been appointed to the Board of Directors of the
Company and eight additional members or representatives have been appointed to
the Board of Directors of the Bank (collectively, the "Appointed Directors").
The Appointed Directors of the Company and the Bank are currently serving in
their respective positions and are named in the "MANAGEMENT -- Directors,
Appointed Directors and Executive Officers of the Company and the Bank" Section
of this Prospectus. The Appointed Directors have indicated that they will
subscribe, in the aggregate, for a minimum of 82,222 shares in this offering.
See "SECURITY OWNERSHIP OF MANAGEMENT, APPOINTED MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS." Further, certain members of the Augusta Group, pursuant to
the Agreement and subject to certain conditions designed to ensure that no
individual member purchases an amount of shares that would result in such person
owning more than 5% of the outstanding Common Stock of the Company upon
completion of this offering, shall subscribe for not less than 3,704 shares. Any
purchases of shares by the Appointed Directors or members of the Augusta Group
will be subject to affiliate resale limitations of the Securities Act of 1933,
as amended (the "Securities Act"), and will be made on the same terms as those
made by other investors. Further, the Appointed Directors and the members of the
Augusta Group who may make any purchases in the offering have represented to the
Company that any such purchases will be made for investment purposes only and
not with a view to resell such shares.
OTHER TERMS AND CONDITIONS/HOW TO SUBSCRIBE
The Company may cancel this offering for any reason at any time prior to
the release of subscription funds from the Subscription Escrow Account, and
accepted subscriptions are subject to cancellation in the event that the Company
elects to cancel the offering in its entirety.
Shares of the Common Stock will be marketed on a best-efforts basis
exclusively through certain directors and executive officers of the Company,
none of whom will receive any commissions or other form of remuneration based on
the sale of the shares. In the event that the Offering Conditions have not been
satisfied by the Expiration Date, this offering will be terminated and
subscription funds promptly returned to the subscribers, together with their
allocated share of profits, if any, earned on the investment of the Subscription
Escrow Account as described above. See "-Escrow of Subscription Funds."
As soon as practicable, but no more than 10 business days after receipt
of a subscription, the Company will accept or reject such subscription.
Subscriptions not rejected by the Company within this 10 day period shall be
deemed accepted. Once a subscription is accepted by the Company, it cannot be
withdrawn by the subscriber. Payment from any subscriber for shares in excess of
the number of shares allocated to such subscriber will be refunded by mail,
without interest, within 10 days of the date of rejection.
Certificates representing shares of Common Stock, duly authorized and
fully paid, will be issued as soon as practicable after subscription funds are
released to the Company from the Subscription Escrow Account.
Subscriptions to purchase shares of Common Stock can be made by
completing the Subscription Agreement attached to this Prospectus and delivering
the same to the Company at P.O. Box 1560, Thomson, Georgia 30824 or mailing the
same in the enclosed self-addressed, stamped envelope. Full payment of the
purchase price must accompany the subscription. Failure to pay the full
subscription price shall entitle the Company to disregard the subscription. No
Subscription Agreement is binding until accepted by the
-10-
<PAGE> 13
Company, which may, in its sole discretion, refuse to accept any subscription
for shares, in whole or in part, for any reason whatsoever. After a subscription
is accepted and proper payment received, the Company shall not cancel such
subscription unless all accepted subscriptions are canceled. Unless otherwise
agreed by the Company, all subscription amounts must be paid in United States
currency by check, bank draft or money order payable to "The Bankers Bank,
Escrow Agent for Georgia-Carolina Bancshares, Inc." A subscription will be
accepted in writing by the Company in the Form of Acceptance attached to this
Prospectus.
USE OF PROCEEDS
The gross proceeds from the sale of shares of Common Stock offered by
the Company are estimated to be $7,000,006, assuming the sale of 518,519 shares.
However, if 518,519 shares are not sold prior to the Expiration Date as defined
herein, then the offering will terminate and all funds received from subscribers
will be promptly refunded. See "TERMS OF THE OFFERING." The net proceeds of this
offering will be used by the Company primarily to expand the Company's and the
Bank's banking operations, through the establishment of offices, into Augusta
and Columbia County, Georgia.
A portion of the net proceeds of this offering in excess of the minimum
may be retained by the Company for the purpose of funding any required additions
to the capital of the Bank. Since the Bank is regulated with respect to the
ratio that its total assets may bear to its total capital, if the Bank
experiences greater growth than anticipated, it may require the infusion of
additional capital to support that growth. Management of the Company
anticipates, however, that the Bank currently has sufficient capital to support
the Bank's immediate capital needs and will seek, if necessary, long- and
short-term debt financing to support any additional needs. Management, however,
can give no assurance that such financing, if needed, will be available or if
available will be on terms acceptable to management.
Proceeds from this offering will be applied as follows:
<TABLE>
<CAPTION>
Proceeds Proceeds
Assuming Sale Assuming Sale
of 518,519 of 740,741
Shares Shares
------------- -------------
<S> <C> <C>
Expansion and operating of the Bank.............. $ 6,855,556 $ 6,855,556
Expenses of offering............................. 144,450 144,450
Working capital and funds available
for other corporate purposes (1)............... -- 2,999,998
------------- -------------
$ 7,000,006 $ 10,000,004
============= =============
</TABLE>
- --------------------
(1) Amounts indicated do not include interest earned on investment of net
proceeds from this offering during the Company's escrow period.
-11-
<PAGE> 14
The following is a schedule of estimated expansion and operating
expenditures of the Bank to be made by the Company out of the proceeds from the
sale of the Common Stock.
<TABLE>
<S> <C>
Pre-opening expenses of two Bank offices (includes
salaries)............................................................. $ 132,100*
Purchases of land, construction and
improvements of facilities(1)......................................... 1,700,000*
Bank office premises - net occupancy expense(2).......................... 131,800+
Salaries and benefits(3)................................................. 503,400+
General and administrative expense, comprised primarily of
data processing, marketing and advertising, telephone
and casualty and deposit insurance(4)................................. 101,800+
Furniture, fixtures and equipment(5)..................................... 303,000*
Working capital.......................................................... 3,983,456
----------
$6,855,556
</TABLE>
- ---------------
* Represents expenses which will be incurred prior to commencement of
operations of the Bank's two proposed offices.
+ Represents operating expenses of the Bank's two proposed offices which
will be incurred during the first 12 months of operations.
(1) Cost for construction and improvements of individual office sites is
based on management's previous banking experience. The cost of the
construction and improvements including site work, paving, and
landscaping are expected to be approximately $900,000. The Bank's
proposed offices will be owned by the Bank and constructed on land owned
by the Bank. See "BUSINESS OF THE BANK - PREMISES."
(2) Salaries and benefits are based on management's estimates of the number
and types of employees which will be required during the first 12 months
of operation of the Bank's two proposed offices. It is presently
anticipated that the two proposed offices will initially employ 11
persons on a full-time basis.
(3) These expenses are based on the experiences of similar size banks in
Georgia and on management's previous banking experience.
(4) Furniture and equipment cost is based on the Bank's estimates and upon
information from suppliers of bank equipment of the costs required to
furnish and equip the Bank's two proposed branches for the expected
level of operations.
The above described expenses are estimates only and assume the Bank's
two proposed offices will commence operations in June, 1998, or as soon
thereafter as practicable. Actual expenses may exceed these amounts. A portion
of these expenses will be offset by revenues generated by the proposed offices
during their first year of operation.
DIVIDEND POLICY
Prior to the Reorganization, 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
-12-
<PAGE> 15
dividend of $.10 per share on its common stock on January21, 1997 to
shareholders of record as of January8, 1997. The Bank paid another cash
dividend of $.10 per share on its common stock on April7, 1997 to shareholders
of record as of March 12, 1997. Although the Company has never paid a cash
dividend on its Common Stock, management anticipates that its dividend policy
will be generally similar to the distribution of the Bank's dividends prior to
the Reorganization.
Any dividends paid by the Company will depend on the Bank's earnings,
capital requirements, financial condition and other factors considered relevant
by the Company Board. Pursuant to the Financial Institutions Code of Georgia,
the Bank may pay dividends only when and if the Bank is not insolvent or when
the payment of such dividends would not render the Bank insolvent or when the
declaration or payment would not be contrary to any restrictions contained in
the Bank's Articles of Incorporation. Dividends may also not be declared or paid
at any time when the Bank does not have paid-in capital and appropriated
retained earnings which, in combination, equal at least 20% of the Bank's
capital stock and, further, dividends may not be paid by the Bank without the
prior approval of the Georgia Banking Department, if the dividends are in excess
of specified amounts fixed by the Georgia Banking Department.
-13-
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's and the Bank's financial
condition and results of operations should be read in conjunction with the
Company's and the Bank's financial statements, related notes and statistical
information included elsewhere herein. The following discussions relate to (i)
the Company's financial condition and (ii) the Bank's financial condition.
THE COMPANY
As of September 30, 1997, the Company had funded its start-up and
organizational costs through $17,500 in advances obtained through a line of
credit from The Bankers Bank, Atlanta, Georgia as well as a $35,000 dividend
from the Bank. Total organizational expenses as of September 30, 1997 amounted
to approximately $51,600. These expenses include legal and accounting fees
($48,100) and regulatory fees ($3,500).
The plan of operations for the Company and the Bank is described
elsewhere in this Prospectus. See "THE COMPANY" and "BUSINESS OF THE BANK."
THE BANK
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996
Net income for the nine month period ended September 30, 1997 amounted
to $247,000 or $.39 per share. These results equal the Bank's September 30, 1996
net income of $247,000 or $.39 per share. The major components of the Bank's net
income for the nine month period ended September 30, 1997 are discussed below.
(a) Net interest income, which represents the difference between
interest received on interest earning assets and interest paid
on interest bearing liabilities, has increased from $1,254,000
for the nine month period ended September 30, 1996 to $1,292,000
for the same period one year later. In addition, the net
interest margin, which represents the net interest income
divided by average earning assets, increased from 4.63% for the
nine month period ended September30, 1996 to 5.12% for the nine
month period ended September 30, 1997.
(b) Non-interest income for the nine month periods ended September
30, 1997 and 1996 amounted to $197,000 and $217,000,
respectively. The majority of the decline in 1997 as compared
to 1996 can be attributed to a decrease in the volume of
returned checks. Non-interest expense for the nine month
periods ended September 30, 1997 and 1996 amounted to
$1,124,000 and $1,062,000, respectively. This increase in
non-interest expense from 1996 to 1997 can be attributed to
increases in salaries and employee benefits as a result of the
hiring of additional personnel and increases in repair and
maintenance costs as well as increases in depreciation
estimates.
The allowance for loan losses at September30, 1997 was $857,000 as
compared to $941,000 at September30, 1996. The allowance for loan losses, as a
percentage of gross loans, increased from 4.3% at December 31, 1996 to 4.6% at
September30, 1997. Management considers the allowance for loan losses
-14-
<PAGE> 17
to be adequate to absorb possible future losses. There can be no assurance,
however, that charge-offs in future periods will not exceed the allowance for
loan losses or that additional provisions to the allowance will not be required.
The Bank is not aware of any current recommendation by any regulatory
authorities which, if implemented, would have a material effect on the Bank's
liquidity, capital resources or results of operations.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
For year ending December31, 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 continued 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 Board of Directors of the Bank
hired a new and experienced management team charged with correcting the Bank's
poor operating performance and returning the Bank to profitability. During 1995,
the Bank's new management team made significant progress in addressing the
Bank's asset quality problems and returned the Bank to profitability that year.
As a result, on November19, 1996, the Memorandum of Understanding with the
Georgia Banking Department and the FDIC was rescinded.
-15-
<PAGE> 18
Year Ended December 31, 1995 Compared to Year Ended December 31, 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 expended 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
In order to insure that a bank is capable of meeting depositors' demands
for funds, a 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 September 30, 1997, the Bank's liquidity ratio was 56.0% as
compared to 42.0% for September30, 1996. 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, Atlanta,
Georgia and SunTrust Bank, Atlanta, Georgia. 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 December31, 1996, with a
market value of $12.5 million in its available-for-sale portfolio which were
already carried at fair market value which provide an additional source of
liquidity.
Interest rate sensitivity refers to the responsiveness of
interest-bearing assets and liabilities to changes in market interest rates. The
rate sensitive position, or "gap," is the difference between rate sensitive
assets and rate sensitive liabilities in a given time horizon. The general
objective of gap management is to actively manage rate sensitive assets and
liabilities so as to reduce the impact of interest rate fluctuations on the net
interest margin. However, since all interest rates and yields do not adjust at
the same velocity, the gap is only a general indicator of interest rate
sensitivity. Management generally attempts to maintain a balance between
interest rate sensitive assets and liabilities as the exposure period is
lengthened to minimize the Bank's overall
-16-
<PAGE> 19
interest rate risks. Accordingly, the asset mix of the balance sheet is
continually evaluated using general variables including: yield, credit quality,
appropriate funding sources and liquidity. At September 30, 1997, the Bank was
slightly liability sensitive through six months, and through one year as well.
As it appears that interest rates may be more likely to fall than to rise, the
Bank will be in a position to increase the net interest margin slightly. See
"BUSINESS OF THE BANK - Loan Portfolio - Maturities and Sensitivities of Loans
to Changes in Interest Rates."
CAPITAL ADEQUACY
There are currently two primary measures of capital adequacy for banks:
(i) risk-based capital guidelines and (ii) the leverage ratio. See "SUPERVISION
AND REGULATION." As of September 30, 1997, the Bank's risk-based capital ratio
was 33% and its leverage ratio was 19%. These ratios are well above the minimum
standards and indicate that the Bank's equity position is sound.
-17-
<PAGE> 20
AVERAGE BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
1997 1996
------------------------------------- --------------------------------------
AVERAGE INCOME/ YIELDS AVERAGE INCOME/ YIELDS/
BALANCES EXPENSE / COSTS BALANCES EXPENSE COSTS
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS
Loans, net of unearned income $ 20,306 $ 1,513 7.45% $ 22,593 $1,632 7.22%
Investment securities 11,654 571 4.90% 11,927 574 4.81%
Interest bearing deposits in banks 281 9 3.20% 485 15 3.09%
Federal funds sold 3,346 96 2.87% 1,273 76 5.97%
-------- ------- -------- ------
TOTAL INTEREST EARNING ASSETS $ 35,587 $ 2,189 6.15% $ 36,278 $2,297 6.33%
-------- ------- -------- ------
NON-INTEREST EARNING ASSETS
Cash and due from banks $ 1,226 $ 1,923
Reserve for loan losses (1,024) (1,059)
Bank premises and fixed assets 1,470 1,539
Accrued interest receivable 343 366
Other assets 917 932
-------- --------
TOTAL ASSETS $ 38,519 $ 39,979
LIABILITIES AND STOCKHOLDERS
EQUITY
INTEREST-BEARING DEPOSITS
NOW accounts $ 4,461 $ 69 1.55% $ 4,215 $ 85 2.02%
Savings 1,804 35 1.94% 2,044 36 1.76%
Money Market Accounts 2,495 61 2.44% 2,297 45 1.96%
Other time 19,075 730 3.83% 21,225 877 4.13%
-------- ------- -------- ------
TOTAL INTEREST-BEARING DEPOSITS $ 27,835 $ 895 3.22% $ 29,781 $1,043 3.50%
OTHER INTEREST-BEARING
LIABILITIES
Funds purchased 5 2 40.00 155 -- --%
-------- ------- ----- -------- ------ ----------
TOTAL INTEREST-BEARING LIABILITIES $ 27,840 897 3.22 $ 29,936 $1,043 3.48%
NON-INTEREST-BEARING
LIABILITIES AND STOCKHOLDERS
EQUITY
Demand deposits $ 3,313 $ 2,939
Other liabilities 289 189
Stockholders' equity 7,077 6,915
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,519 $ 39,979
Interest rate spread 2.93% 2.85%
Net interest income $ 1,292 $1,254
Net interest margin 3.63% 3.46%
Average interest-earning assets to
average total assets 92.39% 90.71%
Average loans to average deposits 65.19% 69.05%
</TABLE>
-18-
<PAGE> 21
AVERAGE BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED 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-EARNING 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 EARNING ASSETS $35,903 $ 3,053 8.50% $37,177 $ 3,194 8.59%
------- ------- ------- -------
NON-INTEREST EARNING 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>
-19-
<PAGE> 22
BUSINESS OF THE COMPANY
GENERAL
In connection with the Reorganization, the Company was incorporated by
the Bank under the laws of the State of Georgia on January 31, 1997 for the
purpose of purchasing 100% of the outstanding capital stock of the Bank. The
Company was organized as a mechanism to enhance the Bank's ability to serve its
future customers' requirements for financial services. The holding company
structure provides flexibility for expansion of the Company's banking business
through acquisition of other financial institutions and provision of additional
banking-related services which the traditional commercial bank may not provide
under present laws. For example, banking regulations require that the Bank
maintain a minimum ratio of capital to assets. In the event that the Bank's
growth is such that this minimum ratio is not maintained, the Company may borrow
funds, subject to the capital adequacy guidelines of the Federal Reserve Board,
and contribute them to the capital of the Bank and otherwise raise capital in a
manner which is unavailable to the Bank under existing banking regulations. See
"THE COMPANY - Formation of Bank Holding Company."
PREMISES
The Company and the Bank share a main office 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. See "BUSINESS OF THE BANK-Premises."
BUSINESS OF THE BANK
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. See "BUSINESS OF THE
COMPANY-Premises." 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 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 Board of Directors of the Bank
hired a new and experienced management team charged with correcting the Bank's
poor operating performance and returning the Bank to profitability. During 1995,
the Bank's new management team made
-20-
<PAGE> 23
significant progress in addressing the Bank's asset quality problems and
returned the Bank to profitability that year. As a result, on November 19, 1996,
the Memorandum of Understanding with the Georgia Banking Department and the FDIC
was rescinded.
PREMISES
The main office of the Bank 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 Bank has a branch office, which is
located at 1043 Washington Road, in Thomson, Georgia. The branch office is
approximately two miles north of the Bank's main office, and is approximately
2,600 square feet in size and is located on 1.25 acres of land.
With respect to the Bank's proposed office in Augusta, Georgia, the
Company has entered into a contract to purchase .78 acres of land. The proposed
address for this site is 2805 Wrightsboro Rd., in Augusta, Georgia. The Company
expects to purchase property in Columbia County, Georgia in the near future.
The proposed offices will be relatively similar to the Bank's current branch
office located on Washington Road.
MARKET AREA AND COMPETITION
The primary service area (the "PSA") of the Bank is currently McDuffie
County 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 three other commercial banks. These competitors offer a
full range of banking services and vigorously compete for all types of services,
especially deposits. 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 traditional
banking markets. The competition between these types of financial institutions
and 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.
The market area of the Bank's two proposed offices includes Augusta and
Columbia County, Georgia. This geographic area represents a diverse segment of
established and new residential neighborhoods, both small and large commercial
and retail businesses, and headquarter locations of major companies. Further,
these new markets represent some of the fastest growing counties in the State of
Georgia in terms of population and commercial business growth. The economies of
the Augusta and Columbia County, Georgia area are strong and stable and are
driven by a diversified assemblage of manufacturers, including heavy and light
industry, a growing service sector, a university-supported health care
community, as well as sports and recreation enterprises. In addition, Augusta
was listed on the top 10 list of the best southern cities for business by
Entrepreneur Magazine and as the best place to live in the State of Georgia
(outside of Atlanta) by Macmillan's Places Rated Almanac.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The following presentation illustrates the effect of changes in the
Bank's average balances and rates on the Bank's interest income, interest
expense and net interest income for the years therein indicated.
-21-
<PAGE> 24
RATE/VOLUME VARIANCE ANALYSIS
(Dollar amount in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
Increase (Decrease) Increase (Decrease)
------------------- -------------------
Due to Due to
--------------------------- --------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Investment securities $ 9 23 $ 32 $ 29 93 $ 122
Loans receivable (143) (30) (173) (128) 16 (122)
----- --- ----- ----- --- -----
Total interest income (134) ( 7) (141) (99) 109 10
===== === ===== ===== === =====
Interest expense:
NOW accounts (26) ( 9) (35) (33) 7 (26)
Money market demand (10) (15) (25) (33) 12 (21)
Passbook savings (5) (6) (11) (40) 1 (39)
Certificates of deposit
other than Jumbos (20) 35 15 95 112 207
Jumbos 42 (10) 32 47 75 122
Borrowed funds (3) 1 ( 2) -- 1 1
--- ----- ----- --- -----
Total interest expense (22) (4) (26) 36 208 244
===== === ===== ===== === =====
Change in net interest
income (112) (3) (115) (135) (99) (234)
===== === ===== ===== === =====
</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.
-22-
<PAGE> 25
The following table details the average balances of various types of
deposit accounts for the past two years.
Interest-Bearing Deposits
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------
Percent
Average of Total Average
Balance Total Interest Cost
------- ----- -------- ----
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
NOW $ 4,146 14.35% $ 105 2.53%
Money Market 2,270 7.85% 59 2.60%
Savings 1,920 6.64% 48 2.50%
Time Deposits 20,569 71.16% 1,172 5.70%
------- ------ ------ ----
Total interest-bearing deposits $28,905 100.00% $1,384 4.79%
</TABLE>
Interest-Bearing Deposits
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------
Percent
Average of Total Average
Balance Total Interest Cost
------- ----- -------- ----
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
NOW $ 5,152 17.07% $ 140 2.72%
Money Market 2,615 8.66% 84 3.21%
Savings 2,127 7.05% 59 2.77%
Time Deposits 20,289 67.22% 1,125 5.54%
------- ------ ------ ----
Total interest-bearing deposits $30,183 100.00% $1,408 4.66%
</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>
-23-
<PAGE> 26
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.
As of September 30, 1997, the Bank's loan portfolio consisted of 17% commercial
and agricultural loans, 15% consumer/installment loans and 68% real estate loans
(26% construction and 74% mortgage).
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 which are 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 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. Although the Bank has a
diversified portfolio, a substantial portion of the Bank's borrowers' ability to
repay their loans is dependent upon economic conditions in the Bank's PSA and
the Atlanta metropolitan area, where many of the Bank's real estate-construction
loans are originated.
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 necessarily pose any
greater risk of loss than loans which the Bank originates. See "Correspondent
Banking."
Major classifications of loans as of December 31, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
Amount % Total Loans Amount % Total Loans
------ ------------- ------ ------------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Commercial and agricultural $ 4,794 22.82% $ 7,630 36.18%
Real estate-construction 2,547 12.12% 1,551 7.35%
Real estate-mortgage 10,917 51.96% 8,850 41.97%
Consumer 2,750 13.10% 3,057 14.50%
------- ------ ------- ------
21,008 100.00% 21,088 100.00%
Unearned income and deferred
loan fees (3) (4)
Reserve for loan losses (889) (1,142)
------- -------
Loans, net $20,116 $19,942
</TABLE>
-24-
<PAGE> 27
Maturities and Sensitivities of Loans to Changes in Interest Rates
The table below presents the maturities and repricing schedule of loans
outstanding as of December 31, 1996 and 1995. At maturity, loans periodically
may be renewed with principal reductions at interest rates appropriate at the
time of renewal.
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Fixed rate loans with a remaining maturity of:
Three months or less $ 3,927 $ 2,171
Over three months through twelve months 4,101 4,257
Over one year through five years 7,149 9,697
Over five years 16 56
------- -------
Total fixed rate loans 15,193 16,181
Floating rate loans with a repricing frequency of:
Quarterly or more frequently 5,625 4,735
Annually or more frequently, but less frequently
than quarterly 47 --
Total floating rate loans 5,672 4,735
------- -------
Total loans $20,865 $20,916
</TABLE>
Non-Accrual and Past Due Loans
The following table details non-performing assets by category as of the
end of each of the past two years.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995
----- ----
(In thousands)
<S> <C> <C>
Loans past due ninety days or more $ 7 $251
Non-accrual loans 143 172
Other real estate owned, net 516 417
----- ----
Total $ 666 $840
</TABLE>
Unless the Board of Directors of the Bank approves otherwise, it is the
policy of the Bank that loans past due 90 days or more, or those involved in
bankruptcy proceedings, be placed in non-accrual status. In order to receive the
Board of Directors' approval not to place a loan in non-accrual status, the loan
must be well secured by readily marketable collateral with sufficient
liquidation value to protect the Bank from loss and the loan must be in the
process of collection. There were no loans restructured for 1996 or 1995.
-25-
<PAGE> 28
Summary of Loan Loss Experience
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Balance, beginning of year $1,142 $1,449
Charge-offs:
Commercial, financial and
agricultural (Primarily Single
Payment) 143 334
Consumer (Primarily Installment) 368 363
Credit Cards 29 10
------ ------
540 707
Recoveries:
Commercial, financial and
agricultural (Primarily Single
Payment) 11 82
Consumer (Primarily Installment) 212 75
Credit Cards 8 3
------ ------
231 160
Net loans charged off 309 547
Provision for loan losses 56 240
------ ------
Balance, end of year $ 889 $1,142
Ratio of net charge-offs during the year
to average loans outstanding during the year 1.4% 2.5%
</TABLE>
Allocation of the Allowance for Loan Losses
In considering the adequacy of the Bank's allowance for possible loan
losses, management has focused on the fact that as of September 30, 1997, 17% of
outstanding loans are in the category of commercial loans, which includes
commercial real estate loans and agricultural loans. Commercial loans are
generally considered by management as having greater risk than most other
categories of loans in the Bank's loan portfolio. However, over 97% of these
commercial loans as of September 30, 1997 were made on a secured basis.
Management believes that the secured condition of the preponderant portion of
its commercial loan portfolio greatly reduces the risk of loss inherently
present in commercial loans.
The Bank's consumer loan portfolio, which comprised 15% of the Bank's
total loan portfolio as of September 17, 1997, is also well secured. As of
September 30, 1997, the majority of the Bank's consumer loans were secured by
collateral primarily consisting of automobiles, and other personal property.
Management believes that these loans involve less risk than other categories of
loans.
Construction loans are generally considered by management as having the
greatest amount of risk. Comprising 26% of the Bank's real estate loan portfolio
as of September 30, 1997, construction loans represent a relatively small
proportion of the total Bank's loan portfolio. All of the Bank's construction
loans
-26-
<PAGE> 29
are made on a secured basis. Management believes that the secured condition of
these loans mitigates the risk of loss inherent in construction loans.
Real estate mortgage loans constituted 74% of the Bank's real estate
loan portfolio as of September 30, 1997. All loans in this category represent
real estate mortgages where the amount of the original loan generally does not
exceed 80% of the appraised value of the collateral. These loans are considered
by management to be well secured with a low risk of loss.
The Board of Directors of the Bank 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 based on the assigned
rating. The provision for loan losses charged to operating expenses is based on
this established reserve. Factors considered by the Board of Directors of the
Bank in rating the loans include delinquent loans, underlying collateral value,
payment history and local and general economic conditions affecting
collectibility.
As of December 31, 1996, the loan loss reserve was allocated as
follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Commercial, financial and
agricultural (Primarily Single Payment) $ 78
Consumer (Primarily Installment) 522
Credit cards 2
Unallocated 287
-------
Total $ 889
</TABLE>
INVESTMENTS
As of September 30, 1997, federal funds and investment securities
comprised approximately 43% of the Bank's assets, with loans comprising
approximately 47% 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.
-27-
<PAGE> 30
The amortized cost and estimated market values of investments in debt
securities as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Securities
Available for Sale
------------------
December 31, 1996 December 31, 1995
----------------- -----------------
Estimated Percent Estimated Percent
Market of Market of
Value Total Value Total
--------- ------- ---------- -------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Obligations of U.S.
government agencies $ 7,575 60.14% $ 4,219 38.39%
U.S. Treasury Notes 247 1.96% 2,256 20.53%
Mortgage-backed securities 2,629 20.87% 3,073 27.97%
State, county and municipal
securities 2,145 17.03% 1,441 13.11%
------- ------ ------- ------
Total $12,596 100.00% $10,989 100.00%
</TABLE>
The amortized cost and estimated market value of debt securities at
December 31, 1996, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
The following is summary of maturities of securities available-for-sale
as of December 31, 1996:
<TABLE>
<CAPTION>
Securities
Available for Sale
-------------------
Amortized Fair Average
Maturity Cost Value Yields
-------- --------- ----- -------
(Dollar amounts in thousands)
<S> <C> <C> <C>
One year or less $ 935 $ 933 5.481%
After one year through
five years 4,191 4,195 6.537%
After five years through
ten years 5,625 5,615 6.380%
After ten years 1,885 1,853 6.215%
------- ------- -----
Total $12,636 $12,596 6.131%
</TABLE>
-28-
<PAGE> 31
As of December 31, 1996, the Bank had not identified any of its
securities as held to maturity. In addition, and with the exception of the U.S.
Treasury 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.
<TABLE>
<CAPTION>
Years ended 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>
SHORT TERM BORROWINGS
There was no category of short term borrowings for which the average
balance outstanding during the past two years exceeded 30% of stockholders'
equity.
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. As of September 30, 1997, federal funds and investment
securities comprised approximately 43% of the Bank's assets, with loans
comprising approximately 47% of the Bank's assets. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION Liquidity and Interest Rate Sensitivity" and
"Investments."
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.
-29-
<PAGE> 32
The Bank participates in loans with correspondent banks. Management of
the Bank has established correspondent relationships with The Bankers Bank,
Atlanta, Georgia and SunTrust Bank, Atlanta, Georgia. As compensation for
services provided by a correspondent, the Bank maintains certain balances with
such correspondent in non-interest bearing accounts.
EMPLOYEES
The Bank currently employs 24 persons on a full-time or part-time
basis, including six officers. The Bank anticipates that approximately 11
additional persons will be required on a full-time basis, including additional
tellers and customer service representatives, to fully staff the Bank's two
proposed office locations.
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 Company and the Bank operate in a highly regulated environment, and
their business activities are governed by statute, regulation and administrative
policies. The business activities of the Company and the Bank are closely
supervised by a number of federal regulatory agencies, including the Board of
Governors of the Federal Reserve Board (the "Federal Reserve Board"), the
Georgia Banking Department and the FDIC.
The Company is regulated by the Federal Reserve Board under the federal
Bank Holding Company Act of 1956, as amended, which requires every bank holding
company to obtain the prior approval of the Federal Reserve Board before
acquiring more than 5% of the voting shares of any bank or all or substantially
all of the assets of a bank, and before merging or consolidating with another
bank holding company. The Federal Reserve Board (pursuant to regulation and
published policy statements) has maintained that a bank holding company must
serve as a source of financial strength to its subsidiary banks. In adhering to
the Federal Reserve Board policy, the Company may be required to provide
financial support to a subsidiary bank at a time when, absent such Federal
Reserve Board policy, the Company may not deem it advisable to provide such
assistance.
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-
-30-
<PAGE> 33
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 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.
A bank holding company is generally prohibited from acquiring control of
any company which is not a bank and from engaging in any business other than the
business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to be
so closely related to banking as to be a proper incident thereto and thus
permissible for bank holding companies, including the following activities:
acting as investment or financial advisor to subsidiaries and certain outside
companies; leasing personal and real property or acting as a broker with respect
thereto; providing management consulting advice to nonaffiliated banks and
nonbank depository institutions; operating collection agencies and credit
bureaus; acting as a futures commission merchant; providing data processing and
data transmission services; acting as an insurance agent or underwriter with
respect to limited types of insurance; performing real estate appraisals;
arranging commercial real estate equity financing; providing securities
brokerage services; and underwriting and dealing in obligations of the United
States, the states and their political subdivisions. In determining whether an
activity is so closely related to banking as to be permissible for bank holding
companies, the Federal Reserve Board is required to consider whether the
performance of such activities by a bank holding company or its subsidiaries can
reasonably be expected to produce such benefits to the public as greater
convenience, increased competition or gains in efficiency that outweigh such
possible adverse effects as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices.
Generally, bank holding companies are required to obtain prior approval of the
Federal Reserve Board to engage in any new activity not previously approved by
the Federal Reserve Board.
The Company is also regulated by the Georgia Banking Department under
the Georgia Bank Holding Company Act, which requires every Georgia bank holding
company to obtain the prior approval of the Commissioner of Banking before
acquiring more than 5% of the voting shares of any bank or all or substantially
all of the assets of a bank, and before merging or consolidating with any other
bank holding company. A Georgia bank holding company is generally prohibited
from acquiring ownership or control of 5% or more of the voting shares of any
bank unless the bank being acquired is either a bank for purposes of the federal
Bank Holding Company Act, or a federal or state savings and loan association or
a federal savings bank whose deposits are insured by the Federal Savings and
Loan Insurance Corporation, and such bank has been in existence and continuously
operating as a bank for a period of five years or more prior to the date of
application to the Commissioner for approval of such acquisition.
As a state bank, the Bank is subject to the supervision of the Georgia
Banking Department and the FDIC. In addition, the Bank, as a subsidiary of the
Company, will be subject to restrictions under federal law in dealing with the
Company and other affiliates, if any. These restrictions apply to extensions of
credit to an affiliate, investments in the securities of an affiliate and the
purchase of assets from an affiliate.
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
-31-
<PAGE> 34
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.
Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the FDIC. In 1989, both
the Federal Reserve Board and the FDIC issued new risk-based capital guidelines
for bank holding companies and banks which make regulatory capital requirements
more sensitive to differences in risk profiles of various banking organizations.
The capital adequacy guidelines issued by the Federal Reserve Board are applied
to bank holding companies on a consolidated basis with the banks owned by the
holding company. The FDIC's risk-based capital guidelines 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. Both agencies' requirements (which are
substantially similar) provide that banking organizations must have capital (as
defined in the rules) equivalent to 8% of risk-weighted 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 September 30,
1997, the Bank's risk-based capital ratio was 33% and its leverage ratio was
19%. These ratios are well above the minimum standards.
Both the Federal Reserve Board and the FDIC have 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 Federal Reserve Board's rule, banking institutions are required to
maintain a ratio of 3% "Tier1" capital to total assets (net of goodwill).
Tier1 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. 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 Federal Reserve Board and the FDIC recently adopted final
regulations revising their risk-based capital guidelines to further ensure that
the guidelines take adequate account of interest rate risk. Interest rate risk
is the adverse 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,
-32-
<PAGE> 35
the agencies' 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 banking agencies have proposed a measurement process to
identify banks that have high interest rate risk exposures. Under the proposed
measurement process, the agencies 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 agencies intend
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 December19, 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. Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., holding companies) must guarantee compliance with the
plan until the institution has been adequately capitalized for four consecutive
calendar quarters. The liability of the holding company is limited to the lesser
of 5% of the institution's total assets or the amount which is necessary to
bring the institution into compliance with all capital standards. 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 Federal Reserve Board
and the FDIC issued a Notice of Proposed Rulemaking on November 18, 1993, which
institutes regulations defining operational and managerial standards relating to
internal controls, loan documentation, credit underwriting, interest rate
exposure, asset growth, director and officer compensation, asset quality,
earnings and stock valuation.
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.
In response to the directive issued under the Act, the Federal Reserve
Board and the FDIC have 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 these capital thresholds:
-33-
<PAGE> 36
<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.
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.
As a bank holding company, the Company is required to file with the
Federal Reserve Board an annual report of its operations at the end of each
fiscal year and such additional information as the Federal Reserve Board may
require pursuant to the Act. The Federal Reserve Board may also make
examinations of the Company and each of its subsidiaries.
The scope of regulation and permissible activities of the Company and
the Bank is subject to change by future federal and state legislation.
-34-
<PAGE> 37
MANAGEMENT
DIRECTORS, APPOINTED DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND THE
BANK
The Company's directors, Appointed Directors and executive officers,
as well as the Bank's directors and executive officers, are named below:
<TABLE>
<CAPTION>
NAME POSITION WITH COMPANY POSITION WITH BANK
- ---- --------------------- ------------------
<S> <C> <C>
Patrick G. Blanchard President, Chief Executive Vice Chairman
Officer and Class III Director
Larry DeMeyers* None Director
Phillip G. Farr Class I Director Director
Samuel A. Fowler, Jr. Class I Director Vice Chairman
Arthur J. Gay, Jr.* Class I Director Director
Joseph E. Gore Executive Vice President and Executive Vice President and
Senior Credit Officer Senior Loan Officer
Joseph D. Greene Class I Director Director
J. Randal Hall* Class II Director Director
Hugh L. Hamilton, Jr.* Class I Director Director
William G. Hatcher* Class I Director Director
Heyward Horton, Jr. Class II Director President, Chief Executive
Officer and Director
George O. Hughes Class II Director Director
George H. Inman* Class II Director Director
David W. Joesbury, Sr. Chairman, Class III Director Director
John W. Lee* Class III Director Chairman
James L. Lemley, M.D. Class II Director Director
Julian W. Osbon* Class II Director Director
J. Harold Ward, Jr. Senior Vice President and Chief Senior Vice President and
Financial Officer Chief Financial Officer
Robert N. Wilson, Jr. Class III Director Director
Bennye M. Young None Director
</TABLE>
- --------------------
* Appointed Director
Each of the above persons has been a director of the Company since
February 1997, with the exception of the Appointed Directors and Mr. Blanchard
who, pursuant to the Agreement, was named President, Chief Executive Officer and
a Class III Director on October 8, 1997. See "THE COMPANY - Expansion into
Augusta and Columbia County, Georgia." The Company has a classified Board of
Directors whereby one-third of the members is elected each year at the Company's
Annual Meeting of Shareholders. Upon such election, each director of the Company
serves for a term of three years. The Company's officers are appointed by the
Board of Directors of the Company (the "Company Board") and hold office at the
will of the Company Board. Assuming the Offering Conditions are fulfilled, each
Appointed Director of the Company will stand for election at the Company's next
Annual Meeting of Shareholders and, if elected, will hold office until the
Annual Meeting of Shareholders at which the term of the class of directors for
which he has been chosen expires.
The Board of Directors of the Bank (the "Bank Board") presently
consists of 18 directors. The Bank's Articles of Incorporation and Bylaws
provide for a single class of directors, ranging in number from five to 25
members, the precise number to be determined from time to time by resolution of
the shareholders at any annual or special meeting of the shareholders. Each of
the above Bank directors has served on the Bank Board since it was organized in
April 1988, with the exception of (i) Mr. Horton, who has served on the Bank
Board since joining the Bank as President and Chief Executive Officer in 1995,
(ii) Dr. Lemley who was elected to the Bank Board by the shareholders of the
Bank at the Bank's 1997 Annual Meeting of Shareholders, and (iii) Mr. Blanchard
who was named, pursuant to the Agreement, to the Bank Board on October 8, 1997.
Each Bank director serves for a term of one year and is elected at the Bank's
annual meeting of shareholders. The Bank's officers are appointed by the Bank
Board and hold office at the pleasure of the Bank Board.
-35-
<PAGE> 38
PATRICK G. BLANCHARD, age 54, was elected President and Chief Executive
Officer of the Company on October 8, 1997. Prior to accepting this position, Mr.
Blanchard had served as President of Georgia Bank & Trust Company of Augusta
since 1988. Mr. Blanchard began his banking career in 1966 and, since that time,
has organized two state banks. Mr. Blanchard has also been employed in a number
of senior banking positions including President of the Columbia County Division
of Georgia Railroad Bank & Trust Company until its acquisition by First Union
Corporation in 1988 and President of Georgia State Bank, Martinez, Georgia for
11 years until its merger with Georgia Railroad Bank & Trust Company in 1985.
LARRY DEMEYERS, age 51, has served as President, Chief Operating
Officer and as a director of Bankers First Corporation and its successor,
SouthTrust Bank, Augusta prior to his resignation from these positions
effective November 1997. Mr. DeMeyers had been associated with Bankers First
Corporation in various positions for over twenty years. Mr. Demeyers is
currently retired and is associated with several local charitable
organizations. Mr. DeMeyers is an Appointed Director.
PHILLIP G. FARR, age 49, 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 Bank Board from 1991 to 1995.
SAMUEL A. FOWLER,JR., age 51 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.
ARTHUR J. GAY, JR., age 50, is President and Chief Executive Officer
of T and T Associates, Inc., a land development and consulting firm that he
founded in 1996. From 1970-1996, Mr. Gay was employed as Corporate Vice
President of Bankers First Corporation and Executive Vice President of Bankers
First Savings Bank, FSB in Augusta, Georgia. Mr. Gay is an Appointed Director.
JOSEPH D. GREENE, age 57, 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.
J. RANDAL HALL, age 39, is an attorney at law with the firm J. Randal
Hall, P.C., which he founded in Augusta, Georgia in 1996. From 1985 to 1996,
Mr. Hall served as Corporate Vice President and Legal Counsel of Bankers First
Corporation in Augusta, Georgia. Mr. Hall is an Appointed Director.
HUGH L. HAMILTON, JR., age 43, has served as General and Operations
Manager of Intertape Polymer Group, an Evans, Georgia manufacturing firm, since
1996. Mr. Hamilton previously served as President of Augusta Bag Co. Mr.
Hamilton is an Appointed Director.
WILLIAM G. HATCHER, age 72, is Chief Executive Officer and principal
shareholder of MAU, Inc., a personnel services company he founded in Augusta,
Georgia in 1973. Mr. Hatcher is an Appointed Director.
HEYWARD HORTON, JR., age 51, 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, Georgia, Mr. Horton has been
employed in a number of senior banking 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 74, is Chairman of the Board of George O. Hughes
Furniture Co., Inc., a retail furniture and appliance business that he founded
in 1947.
GEORGE H. INMAN, age 65, retired in May 1997 as Chairman of Club Car,
Inc., a manufacturer of golf cars and utility vehicles in Augusta, Georgia. Mr.
Inman had been employed by Club Car, Inc. since 1978. Mr. Inman is an Appointed
Director.
DAVID W. JOESBURY, SR., age 48, is President of Joesbury Insurance
Agency, Inc. and, since 1971, has served in various capacities with that
company. Mr. Joesbury currently serves as Chairman of the Company Board.
JOHN W. LEE, age 59, retired in 1995 as a consultant to GIW
Industries, Inc., a manufacturing firm located in Grovetown, Georgia. From 1986
to 1993, Mr. Lee served as President and Chief Operating Officer of GIW
Industries Inc. Mr. Lee is an Appointed Director and currently serves as
Chairman of the Bank Board.
JAMES L. LEMLEY, M.D., age 38, has practiced family medicine in
Thomson, Georgia since 1988. Dr. Lemley is on the active medical staff at
McDuffie County Hospital, serves on the courtesy staff at University Hospital in
Augusta, Georgia and is an affiliate faculty member of the Medical College of
Georgia's Schools of Nursing, Medicine and Allied Health.
JULIAN W. OSBON, age 57, is President and Chief Executive Officer of
Charter Management d/b/a Osbon & Associates, a consulting and management firm
he founded in Augusta, Georgia in 1997. Prior to 1997, Mr. Osbon was President
and Chief Executive Officer of Osbon Medical Systems. Mr. Osbon is an Appointed
Director.
ROBERT N. WILSON,JR., age 46, 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 engages in real estate speculation
and manages residential rental properties as well as the company's real estate
and insurance businesses. Mr.Wilson served as Chairman of the Bank Board from
1988 until 1991.
BENNYE M. YOUNG, age 54, taught school in DeKalb, Richmond and McDuffie
Counties, Georgia from 1966 until 1980. Since that time, she has been a
homemaker.
EXECUTIVE OFFICERS
J. HAROLD WARD, JR., age 55, joined the Bank in April of 1995 as Senior
Vice President and Chief Financial Officer. Mr. Ward also serves as Senior Vice
President and Chief Financial Officer of the Company, a position he has held
since the commencement of operations in February 1997. Prior to his employment
with 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.
JOSEPH E. GORE, age 49, joined the Bank in April of 1997 as Executive
Vice President and Senior Lending Officer. Mr. Gore also serves as Executive
Vice President and Senior Lending Officer of the Company, a position he has held
since joining the Bank. Prior to his employment with the Bank, from April, 1996
to April, 1997, Mr. Gore served as President and Chief Executive Officer of The
Bank of Spalding County, Griffin, Georgia. From March, 1994 to April, 1996, he
served as President and Chief Executive Officer of Pineland State Bank, Metter,
Georgia. From September, 1987 to March, 1994, he served as Executive Vice
President of The Bank of Spalding County, Griffin, Georgia. Mr. Gore has also
served as Senior Lending Officer of banks in Houston and Coweta Counties and as
an officer of two regional bank affiliates. Mr. Gore holds a Bachelor of Science
in Industrial Management from the Georgia Institute of Technology in Atlanta and
has graduated from the School of Banking of the South at Louisiana State
University and from the National Graduate Compliance School at The University of
Oklahoma.
-36-
<PAGE> 39
APPOINTED DIRECTORS OF THE COMPANY AND THE BANK
Pursuant to the Agreement, on October 8, 1997, the size of each of the
Company Board and the Bank Board was increased by one member to accommodate the
hiring of Mr. Blanchard as President and Chief Executive Officer of the Company
and his election to the Company Board and Bank Board. On December 16, 1997,
seven additional members or representatives of the Augusta Group were named to
the Company Board and eight additional members or representatives of the Augusta
Group were named to the Bank Board (collectively, the "Appointed Directors"). As
a result, the size of each of the Company Board and the Bank Board was increased
by seven members and eight members, respectively. However, if the minimum
offering amount of $7,000,006 is not obtained by June 30, 1998, the Appointed
Directors will, pursuant to self-executing resignations, resign and the number
of members constituting the Company Board and the Bank Board will be reduced
accordingly.
-37-
<PAGE> 40
SECURITY OWNERSHIP OF MANAGEMENT, APPOINTED MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS
Except as otherwise noted below, the following table sets forth
certain information regarding the beneficial ownership of the Common Stock as
of January 1, 1998, and as adjusted to reflect the completion of the proposed
offering, by (i) each person known by the Company to beneficially own 5% or
more of the outstanding Common Stock; (ii) each of the Company's directors,
Appointed Directors and executive officers; and (iii) all directors, Appointed
Directors and executive officers of the Company as a group. Except as otherwise
noted below, each of the holders listed below has sole voting and investment
power with respect to the shares shown as beneficially owned.
<TABLE>
<CAPTION>
MINIMUM
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED PRIOR TO SHARES TO BE OWNED AFTER MINIMUM
OFFERING(1) PURCHASED OFFERING(1)
----------------------- ------------ --------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ---- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Patrick G. Blanchard................. -- * 824 824 *
Larry DeMeyers(+)(o).................. -- * 3,704 3,704 *
Phillip G. Farr(2).................... 11,750 1.8% -- 11,750 1.0%
Samuel A. Fowler, Jr.(3).............. 10,600 1.7% -- 10,600 *
Arthur J. Gay, Jr.(+)................. -- * 3,704 3,704 *
Joseph E. Gore........................ -- * -- -- *
Joseph D. Greene...................... 13,000 2.1% -- 13,000 1.1%
J. Randal Hall(+)..................... -- * 3,704 3,704 *
Hugh L. Hamilton, Jr.(+).............. -- * 18,518 18,518 1.6%
William G. Hatcher(+)................. -- * 18,518 18,518 1.6%
Heyward Horton, Jr.................... 3,400 * -- 3,400 *
George O. Hughes(4)................... 39,724 6.3% -- 39,724 3.4%
George H. Inman(+)(5)................. 10,212 1.6% -- 10,212 *
David W. Joesbury, Sr.(6)............. 11,650 1.8% -- 11,650 1.0%
John W. Lee(+)(7)..................... 10,211 1.6% 14,815 25,026 2.2%
James L. Lemley, M.D(8)............... 33,800 5.3% -- 33,800 2.9%
Julian W. Osbon(+)(9)................. 10,211 1.6% 19,259 29,470 2.6%
J. Harold Ward, Jr.................... 2,080 * -- 2,080 *
Robert N. Wilson, Jr.(10)............. 13,220 2.1% -- 13,220 1.1%
Bennye M. Young (o)(11)............... 14,400 2.3% -- 14,400 1.2%
The Augusta Group(12)................. 51,058 8.0% 41,482 92,540 8.0%
The Prime Group, Inc.(13)............. 54,508 8.4% -- 54,508 4.7%
All directors, Appointed
Directors and executive officers
as a group (20 persons)............ 184,258 29.0% 83,046 267,304 23.2%
</TABLE>
- -----------------------------
* Represents less than 1%
+ Appointed Director
o Bank Director only
-38-
<PAGE> 41
(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, as amended. The percentages are based
upon 635,380 shares outstanding before the offering and 1,153,899
shares outstanding after the minimum offering of 518,519 shares,
except for the Prime Group, Inc. which holds presently exercisable
stock options to purchase shares. The percentages for the Prime Group,
Inc. are based upon the sum 635,380 or 1,153,899 shares, as the case
may be, plus the number of shares the Prime Group, Inc. holds subject
to presently exercisable stock options, as indicated in note 13 below.
(2) Includes 200 shares owned by Mr. Farr's wife, with whom Mr. Farr
shares voting and investment power with respect to such shares.
(3) Includes 100 shares owned by Mr. Fowler's wife, with whom Mr. Fowler
shares voting and investment power with respect to such shares. Also
includes 500 shares held by the Samuel A. Fowler, Jr., Attorney At
Law, P.C., a professional corporation established and managed by Mr.
Fowler.
(4) Includes 4,914 shares owned by Mr. Hughes' wife, with whom Mr. Hughes
shares voting and investment power with respect to such shares. Also
includes 5,946 shares held by G.O. Hughes Furniture Co., Inc., to
which Mr. Hughes has sole voting and investment power. Mr. Hughes'
address is 626 Beechwood Drive, Thomson, Georgia 30824.
(5) Does not include 40,846 shares (6.4% of the currently outstanding
shares of the Common Stock) presently owned by certain members of the
Augusta Group, as to which Mr. Inman disclaims beneficial ownership.
Mr. Inman does not have or share voting and/or investment power with
respect to these shares.
(6) Includes 2,100 shares owned by Mr. Joesbury's wife, with whom Mr.
Joesbury shares voting and investment power with respect to such
shares. Also includes 100 shares held by Mr. Joesbury as custodian for
his children, for whom he exercises voting and investment power with
respect to such shares.
(7) Does not include 40,847 shares (6.4% of the currently outstanding
shares of the Common Stock) presently owned by certain members of the
Augusta Group, as to which Mr. Lee disclaims beneficial ownership. Mr.
Lee does not have or share voting and/or investment power with respect
to these shares.
(8) Includes 33,500 shares held by the Patricia M. Lemley Trust (the
"Trust"). James L. Lemley is a Co-Trustee of the Trust and shares
voting and investment power with respect to these shares. James L.
Lemley's brother, Robert K. Lemley, M.D., serves as the other
Co-Trustee of the Trust. Accordingly, Robert K. Lemley may also be
deemed to beneficially own the 33,500 shares held by the Trust. James
L. Lemley's address is P.O. Box 1898, Thomson, Georgia 30824. Robert K.
Lemley's address is 1286 Wolf Pen Drive, Thomson, Georgia 30824.
(9) Does not include 40,847 shares (6.4% of the currently outstanding
shares of the Common Stock) presently owned by certain members of the
Augusta Group, as to which Mr. Osbon disclaims beneficial ownership.
Mr. Osbon does not have or share voting and/or investment power with
respect to these shares.
(10) Includes 2,770 shares held by A.G. Edwards & Sons, Inc., as IRA
custodian for Mr. Wilson. Mr. Wilson has sole voting and investment
power with respect to such shares. Also includes 1,220 shares held by
Mr. Wilson as custodian for his children, for whom he exercises voting
and investment power with respect to such shares.
(11) Includes 1,700 shares held by Ms. Young as custodian for her children,
for whom she exercises voting and investment power with respect to such
shares.
(12) Includes 10,212 shares beneficially owned by George H. Inman; 10,211
shares beneficially owned by John W. Lee; 10,212 shares beneficially
owned by A. Montague Miller; 10,211 shares beneficially owned by
Julian W. Osbon; and 10,212 shares beneficially owned by RDB Family
Limited Partnership. Each of the foregoing individuals and entities
disclaims beneficial ownership of the shares owned by any other member
of the Augusta Group as such individuals do not have or share voting
and/or investment power with respect to such shares. The business
address of The Augusta Group is P.O. Box 1463, Augusta, Georgia 30903.
-39-
<PAGE> 42
(13) 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. prior to the consummation of
the Reorganization. The business address of the Prime Group, Inc. is
736 Jones Creek, Evans, Georgia 30809. The Company makes no
representation as to the accuracy or completeness of the information
reported.
COMPENSATION OF DIRECTORS
During fiscal 1997, directors of the Bank received director's fees of $200
per regular board meeting attended and $25 per committee meeting attended.
Directors of the Company currently do not receive any compensation for services
provided to the Company.
EXECUTIVE COMPENSATION
The following table sets forth information regarding all cash and noncash
compensation paid to the Chief Executive Officer during the last three completed
fiscal years. No other executive officer of the Bank or the Company received
annual salary and bonus in excess of $100,000 during the last completed fiscal
year.
-40-
<PAGE> 43
SUMMARY COMPENSATION TABLE*
---------------------------
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ------------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) COMPENSATION($) OPTIONS
------------------ ---- --------- --------------- -------
<S> <C> <C> <C> <C>
Patrick G. Blanchard (1) 1997 29,000(2) -- --
Chief Executive Officer
Heyward Horton, Jr.(3) 1997 115,000(4) 3,450(5) 5,000
Chief Executive Officer 1996 115,000(4) 1,760(5) --
1995 98,487(4) 863(5) --
Luther P. Powell, Jr. 1995 48,917 -- --
Interim Chief Executive
Officer(6)
</TABLE>
- -------------------------
* All compensation was paid by the Bank.
(1) Mr. Blanchard was named Chief Executive Officer of the Company on October
8, 1997.
(2) Only covers the period from October 8, 1997 through December 31, 1997. Does
not include automobile allowance and insurance premiums as such amounts do
not exceed the lesser of either (i) $50,000 or (ii) 10% of Mr. Blanchard's
total annual compensation.
(3) Mr. Horton was named Chief Executive Officer of the Bank on February 15,
1995 and continues to serve in that capacity. Mr. Horton served as Chief
Executive Officer of the Company from the commencement of operations in
February 1997 until October 8, 1997. See "MANAGEMENT -- Directors,
Appointed Directors and Executive Officers of the Company and the Bank."
(4) 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.
(5) Represents deferred compensation paid during the fiscal year. Mr. Horton's
deferred compensation consists of matching contributions to the Bank's
401(k) Plan implemented April 1, 1994. All full-time employees of the Bank
are eligible to participate in the 401(k) Plan after one year of service
and having attained the age 21. A one-time open enrollment for all
full-time employees was permitted on the semi-annual enrollment of July 1,
1995. The Bank matches 50% of the employee contribution up to a maximum of
3% of the employee's annual salary. In addition to the 6% of annual salary
for which the Bank provides the match, the employee may elect to contribute
up to an additional 9% of annual salary (total 15%). Income taxes are
deferred on both the employee's and the Bank's contributions. Vesting on
the Bank's contribution is based on a graduated scale, and full vesting
occurring after completion of six years of participation in the 401(k)
Plan. Credit toward vesting requirements was given for all prior service to
all eligible employees upon implementation of the 401(k) Plan.
(6) Mr. Powell served as Interim Chief Executive Officer of the Bank from
November 23, 1994 until February 15, 1995.
-41-
<PAGE> 44
EMPLOYMENT AGREEMENTS
On October 6, 1997, the Company and the Bank entered into an employment
agreement with Patrick G. Blanchard, pursuant to which Mr. Blanchard serves as
President and Chief Executive Officer of the Company and Vice Chairman of the
Bank. Mr. Blanchard's employment agreement is for a term of approximately three
years. Beginning on February 28, 1998 and on the last day of February of each
succeeding calendar year, the term of Mr. Blanchard's employment agreement will
be automatically extended for three years, upon a determination by the Company
and the Bank Boards that Mr. Blanchard's employment agreement should be
extended.
Mr. Blanchard's employment agreement provides Mr. Blanchard with an
annual base salary of $120,000 per year. In addition, Mr. Blanchard's employment
agreement provides an incentive bonus of $12,000 if the Bank meets specific
performance goals. Stock options are also provided under Mr.Blanchard's
employment agreement. Mr.Blanchard will be granted options to purchase a number
of shares of Common Stock equal to 2.5% of the number of shares sold in the
offering at an exercise price of $13.50 per option subject, however, to a
vesting schedule based principally on certain performance criteria of the Bank.
The vesting schedule is as follows: 25% upon the closing of the offering, 25% at
the end of the calendar year when the Bank's average assets exceed $100 million,
25% at the end of the calendar year when the Bank's average assets exceed $150
million and 25% at the end of the calendar year when the Bank's average assets
exceed $200 million. Each stock option expires on the tenth anniversary of the
date of grant; provided, however, that in the event Mr.Blanchard's employment
is terminated, Mr.Blanchard shall have 90 days to exercise those options which
have vested pursuant to the vesting schedule previously described. Mr. Blanchard
is also provided with an automobile as well as other customary fringe benefits,
such as insurance coverage and vacation.
Under Mr. Blanchard's employment agreement, in the event Mr. Blanchard's
employment is terminated in connection with or within three years after any
"change of control" (as defined in Mr. Blanchard's employment agreement) of the
Company, other than for "cause" (as is also defined in Mr.Blanchard's
employment agreement), Mr. Blanchard is entitled to receive either a lump sum
cash amount or monthly cash payments equal to two times the annual compensation
received by him for the preceding year prior to the change in control plus an
amount representing the "in the money" portion of any unexercised stock options
(defined as the excess, if any, of the fair market value of the Common Stock
underlying Mr. Blanchard's stock options (if any) minus the option price)
whether or not then exercisable, granted to Mr. Blanchard. Further, if Mr.
Blanchard resigns within three years following a change in control of the
Company (i) due to the 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 Richmond (Augusta), Columbia or McDuffie County, Georgia, in which he
was employed immediately prior to the change in control, or (iii) due a
reduction in his duties, title and/or responsibilities, as were previously set
prior to the change in control, Mr. Blanchard will be entitled to receive either
a lump sum cash amount or monthly cash payments equal to two times the annual
compensation received by him for the preceding year prior to the change in
control plus an amount representing the in the money portion of any unexercised
stock options whether or not then exercisable, granted to Mr. Blanchard. If
Mr.Blanchard resigns for no reason within three years following a change in
control of the Company, Mr.Blanchard will be entitled to receive a lump sum
cash amount equal to the annual compensation received by him for the preceding
year prior to the change in control, plus the in the money portion of any
unexercised stock options whether or not then exercisable. The proceeding change
in control provisions remain in effect for three years and automatically renew
for an additional three years on each anniversary thereof, unless Mr. Blanchard
is otherwise notified to the contrary 30 days prior to such anniversary by the
Company, in which case the provisions terminate two years from such anniversary.
Mr. Blanchard's employment agreement further provides that Mr.
Blanchard's employment with the Company will terminate upon death or disability,
and is terminable for cause. If Mr. Blanchard's employment
-42-
<PAGE> 45
is terminated without cause, as liquidated damages and in lieu of all claims,
Mr. Blanchard is entitled to a continuation of his base salary and insurance
benefits for a period of one year, or until Mr. Blanchard is employed in a
full-time position, whichever occurs first. Mr. Blanchard's 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.
The Company also has an employment agreement with Heyward Horton, Jr.,
pursuant to which Mr. Horton serves as President and Chief Executive Officer of
the Bank. Mr. Horton's employment agreement is for a term of approximately three
years. On the last day of February of each year, the term of Mr. Horton's
employment agreement is automatically extended for three years, upon a
determination by the Company and Bank Boards that Mr. Horton's employment
agreement should be extended.
Mr. Horton's employment agreement provides Mr. Horton with an annual
base salary of $115,000 per year. In addition, Mr. Horton's employment agreement
provides certain incentive bonuses (which do not exceed 20% of Mr. Horton's
annual base salary), if the Bank meets specific performance goals. 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 Mr. Horton's 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 Mr. Horton's employment agreement) of the
Company, other than for a material violation of a written policy of the Company,
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 plus an
amount representing the "in the money" portion of any unexercised stock options
(defined as the excess, if any, of the fair market value of the Common Stock
underlying Mr. Horton's stock options (if any) minus the option price) whether
or not then exercisable, granted to Mr. Horton. Further, if Mr. Horton resigns
within three years following a change of control of the Company (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, Georgia 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 annual compensation received by him for the
preceding year prior to the change in control, plus an amount representing the
in the money portion of any unexercised stock options whether or not then
exercisable, granted to Mr. Horton. If Mr.Horton resigns for no reason within
three years following a change in control of the Company, Mr.Horton will be
entitled to receive a lump sum cash amount equal to the compensation received by
him for the preceding year prior to the change in control, plus the in the money
portion of any unexercised stock options whether or not then exercisable. 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 30 days prior to such
anniversary by the Company, in which case the provisions terminate two years
from such anniversary.
Mr. Horton's employment agreement provides that Mr. Horton's employment
with the Company will terminate upon death or disability, and is terminable for
"cause" (as defined in Mr. Horton's employment agreement). If Mr. Horton's
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. Mr. Horton's
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.
-43-
<PAGE> 46
SEVERANCE AGREEMENTS
J. Harold Ward, Jr., Senior Vice President and Chief Financial Officer
of the Company as well as Joseph E. Gore, Executive Vice President and Senior
Credit Officer of the Company, have entered into severance agreements with the
Company on terms substantially similar to the change of control provisions
contained in Messrs. Blanchard's and Horton's employment agreements. Messrs.
Ward and Gore, however, do not have employment agreements with the Company.
STOCK OPTION PLAN
Prior to the consummation of the Reorganization, on February 12, 1997,
the Bank Board adopted the 1997 Stock Option Plan (the "Plan") for eligible
directors, officers, and key employees of the Bank. On April 28, 1997, the
shareholders of the Bank, at the Bank's Annual Meeting of Shareholders, duly
approved and authorized the Plan. Pursuant to the Reorganization, the Company
adopted the Plan and shares of Bank common stock reserved for issuance under the
Plan became shares of Company Common Stock. The Plan provides for the grant of
both incentive and nonqualified stock options. The purpose of the Plan is to
encourage and enable participating directors, officers and key employees to
remain in the employ of, and to give a greater effort on behalf of, the Company
and the Bank. The shares of Common Stock available for issuance under the Plan
may, at the election of the Company Board, be either treasury shares or shares
originally issued for such purpose. The maximum number of shares which shall be
reserved and made available for sale under the Plan is 100,000. Any shares
subject to an option which for any reason expires or is terminated may again be
subject to an option under the Plan. Under the Plan, options may be granted only
to directors, officers, key employees and consultants or advisors of the Company
and the Bank who are in a position to contribute significantly to the effective
management and operation of the Company and the Bank. Only officers and
employees of the Company and the Bank, however, are eligible to receive
incentive stock options under the Plan. The Plan is administered by the Company
Board or by a committee comprised of no fewer than two members appointed by the
Company Board from among its members (the "Committee"). Members of the Committee
are "Non- Employee Directors" as such term is defined under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "1934 Act"). Subject to the
provisions of the Plan, and with the exception of certain nonqualified options
granted to Non-Employee Directors, the Company Board or the Committee has the
authority to determine the individuals to whom options shall be granted and to
determine exercise prices, vesting requirements, the term of and the number of
shares covered by each option.
The following table presents information regarding grants to the named
person of options to purchase shares of the Common Stock as of December 31,
1997.
OPTIONS GRANTS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
-------------------------- ----------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES
OPTIONS AS OF EXERCISE EXPIRATION
NAME GRANTED 12/31/97 PRICE DATE 5% 10%
- ------------------------ ------- -------- ------- ------ ---- ----
<S> <C> <C> <C> <C> <C> <C>
Heyward Horton, Jr. 5,000(2) 59% $12.10 6/11/07 $38,047 $96,421
</TABLE>
- ------------------------------------
(1) The dollar amounts under these columns represent the potential
realizable value of each option assuming that the market price of
the common stock appreciates in value from the date of grant for
the full 10 year term at the 5% and 10% annualized rates prescribed
by regulation and therefore are not intended to forecast possible
future appreciation, if any, of the price of the common stock.
(2) The indicated options expire ten years from date of grant and become
exercisable as to 40% after three years of employment with the Bank
(February 1998) and at the rate of 20% per annum thereafter.
-44-
<PAGE> 47
The following table provides certain information concerning each
exercise of stock options under the Plan as of December 31, 1997, by the named
person and the December 31, 1997 value of unexercised options held by such
person:
AGGREGATED OPTION EXERCISES AS OF
DECEMBER 31, 1997 AND VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS
AS OF 12/31/97 AS OF 12/31/97
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE(1)
---- ------------- ----------------
<S> <C> <C>
Heyward Horton, Jr. 0/5,000 $0/$0
</TABLE>
- ------------------------------------
(1) Dollar values calculated by determining the difference between the
estimated fair market value of the Company's Common Stock at December 31,
1997 ($11.47) and the exercise price of such options. Because no organized
trading market exists for the Common Stock of the Company, the fair market
value was computed by reference to the book value of the Common Stock as of
December 31, 1997.
CERTAIN 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.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 9,000,000 shares
of Common Stock, $.001 par value of which 635,380 shares are presently issued
and outstanding and 1,000,000 shares of preferred stock, $.001 par value of
which no shares are presently issued and outstanding.
-45-
<PAGE> 48
COMMON STOCK
The holders of Common Stock are entitled to elect the members of the
Company Board and such holders are entitled to vote as a class on all matters
required or permitted to be submitted to the shareholders of the Company. No
holder of any class of stock of the Company has preemptive rights with respect
to the issuance of shares of that or any other class of stock and the Common
Stock is not entitled to cumulative voting rights with respect to the election
of directors.
The holders of Common Stock are entitled to dividends and other
distributions if, as, and when declared by the Company Board out of assets
legally available therefor. Upon the liquidation, dissolution or winding up of
the Company, the holder of each share of Common Stock will be entitled to share
equally in the distribution of the Company's assets. The holders of Common Stock
are not entitled to the benefit of any sinking fund provision. The shares of
Common Stock are not subject to any redemption provisions, nor are they
convertible into any other security or property of the Company. All outstanding
shares of each class of Common Stock are, and the shares to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of preferred
stock. The Company Board has the power, without further action by the
shareholders, to divide any and all shares of preferred stock into series and to
fix and determine the relative rights and preferences of the preferred stock,
such as the designation of series and the number of shares constituting such
series, dividend rights, redemption and sinking fund provisions, liquidating and
dissolution preferences, conversion or exchange rights and voting rights, if
any. Issuances of preferred stock by the Company Board may result in such shares
having senior dividend and/or liquidation preferences to the holders of shares
of Common Stock and may dilute the voting rights of such holders. Issuances of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
adversely affect the voting rights of holders of the Common Stock. In addition,
the issuance of preferred stock could make it more difficult for a third party
to acquire a majority of the outstanding voting stock. Accordingly, the issuance
of preferred stock may be used as an "anti-takeover" device without further
action on the part of the shareholders of the Company. See " - Certain
Anti-Takeover Provisions in Articles of Incorporation." No shares of preferred
stock have been issued and the Company has no present plans to issue any shares
of preferred stock.
CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS
Classified Board of Directors. The Company Board presently consists of
10 directors. The directors are divided into three classes, designated Class I,
Class II and Class III. Each class consists, as nearly as may be possible, of
one-third of the total number of directors constituting the entire Company
Board. The term of the Company's initial Class I directors expires at the
Company's first Annual Meeting of Shareholders; the term of the Company's
initial Class II directors expires at the Company's second Annual Meeting of
Shareholders; and the term of the Company's initial Class III directors expires
at the Company's third Annual Meeting of Shareholders. At each Annual Meeting of
Shareholders, successors to the class of directors whose term expires at the
Annual Meeting will be elected for a three-year term. If the number of directors
is changed, an increase or decrease will be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class elected to fill a vacancy resulting
from an increase in such class will hold office until the next Annual Meeting of
Shareholders, but in no event will a decrease in the number of directors shorten
the term of any incumbent director. Except in the case of removal from office,
any vacancy on the Company Board, will be filled by a majority vote of the
remaining directors then in office.
-46-
<PAGE> 49
Because the Company has a classified Board of Directors, as many as two
consecutive Annual Meetings of Shareholders may be required to replace a
majority of the number of directors on the Company Board and thus gain control
of the Company. As a consequence, the classified Board of Directors makes it
more difficult for a person, entity or group to effect a change in control of
the Company through the acquisition of a large block of the Company's voting
stock.
Requirement for Supermajority Approval of Transactions. The Company's
Articles of Incorporation contain provisions requiring supermajority approval to
effect certain extraordinary corporate transactions which are not approved by
the Company Board. The Articles of Incorporation require the affirmative vote or
consent of the holders of at least two-thirds (662/3%) of the shares of each
class of stock of the Company 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, exchange of securities
requiring shareholder approval or liquidation of the Company, if any person who
together with his affiliates and associates owns beneficially 5% or more of any
voting stock of the Company ("Interested Person") is a party to the transaction;
provided that such approval is not required if three-fourths (75%) of the entire
Company Board has approved the transaction. In addition, the Articles of
Incorporation require the separate approval by the holders of at least a
majority (50%) of the shares of each class of stock of the Company entitled to
vote in elections of directors which are not beneficially owned, directly or
indirectly, by an Interested Person, of 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 ("Business
Combination"), if an Interested Person is a party to such transaction; provided,
that such approval is not required if (a) the consideration to be received by
the holders of the stock of the Company meets certain minimum levels determined
by a formula contained in the Articles of Incorporation (generally the highest
price paid by the Interested Person for any shares which he has acquired), (b)
there has been no reduction in the average dividend rate from that which
obtained prior to the time the Interested Person became such, and (c) the
consideration to be received by shareholders who are not Interested Persons
shall be paid in cash or in the same form as the Interested Person previously
paid for shares of such class of stock. These provisions of the Company's
Articles of Incorporation may be amended, altered or repealed only by the
affirmative vote or consent of the holders of not less than eighty percent (80%)
of the shares of each class of stock of the Company entitled to vote in
elections of directors.
Constituency Considerations. The Company's Articles of Incorporation
provide for the right of the Company Board to consider the interests of various
constituencies, including employees, customers, suppliers and creditors of the
Company as well as the communities in which the Company is located, in addition
to the interests of the Company and its shareholders, in discharging its duties
in determining what is in the Company's best interests.
The effect of the above provisions is to make it more difficult for a
person, entity or group to effect a change in control of the Company through the
acquisition of a large block of the Company's voting stock.
Limitation of Directors' Liability. The Company's Articles of
Incorporation eliminate, subject to certain exceptions, the personal liability
of directors to the Company or its shareholders for monetary damages for
breaches of such directors' duty of care or other duties as a director. The
Articles of Incorporation do not provide for the elimination of or any
limitation on the personal liability of a director for (i) any appropriation, in
violation of the director's duties, of any business opportunity of the Company,
(ii) acts or omissions that involve intentional misconduct or a knowing
violation of law, (iii) unlawful corporate distributions or (iv) any transaction
from which the director received an improper benefit. In addition, the Company's
Bylaws provide broad indemnification rights to directors and officers so long as
the director or officer acted in a manner believed in good faith to be in, or
not opposed to, the best interests of the Company, and with respect to criminal
proceedings, if the director had no reasonable cause to believe his or her
conduct was unlawful. These provisions of the Articles of Incorporation and
Bylaws generally limit the remedies available to a shareholder who is
dissatisfied with a decision by the Company protected by these provisions.
Insofar as indemnification
-47-
<PAGE> 50
for liability arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or
the Bank is a party or of which any of their properties are subject; nor are
there material proceedings known to the Company to be contemplated by any
governmental authority; nor are there material proceedings known to the Company,
pending or contemplated, in which any director, officer or affiliate or any
principal security holder of the Company, or any associate of any of the
foregoing is a party or has an interest adverse to the Company or the Bank.
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock
offered hereby have been passed upon for the Company by Smith, Gambrell &
Russell, LLP, Atlanta, Georgia, counsel to the Company.
EXPERTS
The financial statements of the Bank as of December 31, 1996 and 1995
included herein and elsewhere in the Registration Statement have been included
herein and in the Registration Statement in reliance upon the report of Cherry,
Bekaert & Holland, L.L.P., independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission (File
No. 0-22981) pursuant to the 1934 Act are hereby incorporated in this Prospectus
by reference:
1. The Company's Registration Statement on Form 8-A dated August 14,
1997;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997; and
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the 1934 Act subsequent to the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the respective dates of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified and superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the information that has been incorporated by reference in this
Prospectus (excluding exhibits unless such exhibits are specifically
incorporated by reference
-48-
<PAGE> 51
into such documents). Please direct such requests to the Secretary,
Georgia-Carolina Bancshares, Inc., P.O. Box 1560, Thomson, Georgia30824,
telephone number (706) 595-1600.
AVAILABLE INFORMATION
The Company is subject to certain informational requirements of the
1934 Act and, in accordance therewith, files reports and other information with
the Securities and Exchange Commission (the "SEC"). Such reports and other
information can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the SEC's regional offices located at Seven World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be
obtained at prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. The SEC also maintains a World Wide Web site, containing such reports,
proxy and information statements and other information regarding the Company, at
http://www.sec.gov.
The Company has filed a Registration Statement on Form SB-2 (together
with all amendments and exhibits filed or to be filed in connection therewith,
the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Statements
contained herein concerning the provisions of documents are necessarily
summaries of such documents, and each statement is qualified in its entirety by
reference to the copy of the applicable document filed with the SEC.
-49-
<PAGE> 52
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GEORGIA-CAROLINA BANCSHARES, INC. PAGE NO.
- --------------------------------- --------
<S> <C>
Condensed Consolidated Balance Sheet as of September 30, 1997............................................... F-2
Condensed Consolidated Statements of Income
for the Three Months Ended September 30, 1997 and 1996,
and the Nine Months Ended September 30, 1997 and 1996....................................................... F-3
Condensed Consolidated Statement of Cash Flows,
for the Nine Months Ended September 30, 1997 and 1996....................................................... F-4
Notes to Condensed Consolidated Financial Statements........................................................ F-5
MCDUFFIE BANK & TRUST
- ---------------------
Report of Cherry, Bekaert & Holland, L.L.P., Independent
Certified Public Accountants........................................................................ F-7
Statements of Financial Condition as of December 31, 1996 and 1995.......................................... F-8
Statement of Income (Loss) for the years ended
December 31, 1996, 1995 and 1994.................................................................... F-9
Statements of Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994...................................................................... F-10
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994............................................................................ F-11
Notes to Financial Statements............................................................................... F-12
</TABLE>
F-1
<PAGE> 53
GEORGIA-CAROLINA BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
(dollars in thousands)
<TABLE>
<S> <C>
ASSETS
Cash and due from banks $ 1,132
Federal funds sold 5,080
Interest-bearing deposits in banks 199
Securities available for sale 11,219
Loans, net of allowance for loan losses of $883 17,887
Bank premises and fixed assets 1,439
Accrued interest receivable 308
Foreclosed real estate, net of allowance 452
Deferred tax benefit 261
Other assets 100
-------
TOTAL ASSETS $38,077
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Non-interest bearing $ 3,786
Interest-bearing:
NOW accounts 4,776
Savings 1,688
Money market accounts 2,720
Time deposits of $100,000, and over 4,681
Other time deposits 12,900
-------
Total deposits 30,551
Accrued expenses and other liabilities 334
-------
TOTAL LIABILITIES 30,885
-------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.001; 1,000,000 shares authorized; none issued --
Common stock, par value $.001; 9,000,000 shares authorized;
635,380 shares issued and outstanding 1
Additional paid-in capital 6,355
Retained earnings 879
Unrealized loss on securities available-for-sale, net of tax (43)
-------
TOTAL STOCKHOLDERS' EQUITY 7,192
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $38,077
=======
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE> 54
GEORGIA-CAROLINA BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Nine Three Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1997 1997 1996 1996
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 494 $1,513 $ 556 $1,632
Interest on taxable securities 161 504 181 503
Interest on nontaxable securities 21 67 24 71
Interest on Federal funds sold 57 96 19 76
Interest on deposits in other banks 4 9 7 15
------ ------ ------- ------
TOTAL INTEREST INCOME 737 2,189 787 2,297
------ ------ ------- ------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 73 206 87 204
Interest on other deposits 234 689 260 839
Interest on Federal funds purchased -- 2 -- --
------ ------ ------- ------
TOTAL INTEREST EXPENSE 307 897 347 1,043
------ ------ ------- ------
NET INTEREST INCOME 430 1,292 440 1,254
PROVISION FOR LOAN LOSSES 3 15 6 53
------ ------ ------- ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 427 1,277 434 1,201
------ ------ ------- ------
NONINTEREST INCOME
Service charges on deposits 51 162 64 179
Other income 13 33 17 37
Net realized gain (loss), sales of available-for-sale securities 2 2 (7) 1
------ ------ ------- ------
66 197 74 217
------ ------ ------- ------
NONINTEREST EXPENSE
Salaries and employee benefits 213 602 179 538
Occupancy expenses 42 121 68 157
Other expenses 191 453 129 367
------ ------ ------- ------
446 1,176 376 1,062
------ ------ ------- ------
INCOME BEFORE INCOME TAXES 47 298 132 356
INCOME TAX EXPENSE 13 93 41 109
------ ------ ------- ------
NET INCOME $ 34 $ 205 $ 91 $ 247
====== ====== ======= ======
NET INCOME PER SHARE OF COMMON STOCK $ .05 $ .32 $ .14 $ .39
====== ====== ======= ======
DIVIDENDS PER SHARE OF COMMON STOCK $ -- $ .20 $ -- $ .10
====== ====== ======= ======
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE> 55
GEORGIA-CAROLINA BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
-----------------------
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 205 $ 247
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 62 90
Provision for loan loss 15 53
Deferred income tax 32 104
Adjustment to foreclosed real estate 5 2
Net decrease in accrued interest receivable 101 14
Net (increase) decrease in other assets (52) 12
Net increase in other liabilities 95 59
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 463 581
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold (3,660) 5,950
Net increase in interest-bearing deposits with banks (99) (398)
Net (increase) decrease in loans, net 2,085 (1,272)
Purchases of available for sale securities (1,726) (5,360)
Proceeds from sales and maturities of available-for-sale securities 3,085 3,204
Net purchases of premises and equipment (61) (41)
Proceeds from sale of foreclosed real estate 188 --
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (188) 2,083
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in federal funds purchased -- 270
Net decrease in deposits (104) (2,783)
Dividends paid (127) (63)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (231) (2,576)
------- -------
NET INCREASE IN CASH AND DUE FROM BANKS 44 88
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 1,088 2,640
------- -------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 1,132 $ 2,728
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE> 56
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Georgia-Carolina
Bancshares, Inc. (the "Company") and its wholly-owned subsidiary, McDuffie Bank
& Trust (the "Bank"). Significant intercompany transactions and accounts are
eliminated in consolidation.
The financial statements as of and for the three and nine months ended September
30, 1997 and 1996 are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Bank's annual report for the year ended
December 31, 1996.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary to a fair presentation of the financial position and results for
interim periods.
NOTE 2 - REORGANIZATION OF THE BUSINESS
On June 6, 1997, the Bank's plan of corporate reorganization (the
"Reorganization"), under which the Bank became a wholly-owned subsidiary of the
Company was consummated. Consummation of the Reorganization was conditioned upon
(i) the approval by the shareholders of the Bank as required by law and (ii) 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.
The Reorganization was accomplished by merging Pinnacle Interim Corp.
("Interim") with the Bank under the Bank's charter and with the title of
McDuffie Bank & Trust. On June 6, 1997, each outstanding share of common stock
of the Bank was effectively exchanged for one share of common stock of the
Company. As a result, the shareholders of the Bank became shareholders of the
Company and the Bank became a wholly-owned subsidiary of the Company. Further,
the officers and directors of the Bank became the officers and directors of the
Company.
NOTE 3 - EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average number of
shares outstanding in accordance with Accounting Principles Board "APB" Opinion
No. 15. Fully diluted earnings per share are not presented because stock options
outstanding are not materially dilutive and did not effect presented earnings
per share.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard "SFAS" No. 128, "Earnings Per Share". This Statement
provides for changes in the calculation and presentation of earnings per share
information and is effective for interim and annual financial statements of
periods ending after December 15, 1997. Management of the Company has not yet
determined the effect of the adoption of this Statement on the consolidated
financial statements.
F-5
<PAGE> 57
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
NOTE 4 - STOCK OPTION PLAN
On April 28, 1997, at the Annual Meeting of shareholders of the Bank, the Bank's
shareholders adopted an employee stock option plan (the "Plan") that provides
incentive stock options and nonqualified stock options to directors and key
employees of the Bank. On the effective date of the Reorganization, the Plan was
transferred to the Company and was renamed the "Pinnacle Bancshares, Inc. 1997
Stock Option Plan". During the quarter ended September 30, 1997, options on
8,500 shares of stock were granted to key employees of the Bank and the Company.
The Company has adopted SFAS 123, "Accounting for Stock-Based Compensation".
SFAS 123 establishes a "fair-value" based method of accounting for stock-based
compensation plans. SFAS 123 encourages entities to adopt the fair-value method
in place of the intrinsic value method currently in effect under the provisions
of APB Opinion No. 25.
Under the fair value method of accounting, all arrangements under which
employees receive shares of stock or other equity instruments or under which
employers incur liabilities to employees in amounts based on the price of its
stock result in the measurement of compensation cost at the grant date of the
award which is recognized over the service period, usually the vesting period.
Under the intrinsic value method, compensation cost is measured by the excess of
the quoted market price of the stock, if any, over the amount the employee must
pay to acquire the stock.
As permitted by SFAS 123, the Company has elected to continue its current method
of using the intrinsic value method. However, the Company will be required to
present pro forma disclosures of net income and earnings per share as if the
Company had adopted the recognition provisions of SFAS 123 beginning with the
1997 Form 10-KSB and related financial statements.
F-6
<PAGE> 58
[LETTERHEAD OF CHERRY, BEKAERT & HOLLAND, L.L.P.]
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.
/s/ Cherry, Bekaert & Holland, L.L.P.
Augusta, Georgia
February 7, 1997
F-7
<PAGE> 59
MCDUFFIE BANK & TRUST
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
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 at fair value 12,603 10,989
Loans, net of unearned income and reserve 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 516 417
Deferred tax benefit, net of valuation allowance 286 306
Other assets 47 74
------- -------
TOTAL ASSETS $38,026 $42,450
======= =======
LIABILITIES AND SHAREHOLDERS' 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 over $100,000 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.
F-8
<PAGE> 60
MCDUFFIE BANK & TRUST
STATEMENTS OF INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(dollars in thousands)
<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 banks 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 520 590 489
------ ------ ------
1,447 1,577 1,429
------ ------ ------
INCOME (LOSS) BEFORE INCOME TAXES 457 227 (828)
INCOME TAX BENEFIT (EXPENSE) 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.
F-9
<PAGE> 61
MCDUFFIE BANK & TRUST
STATEMENTS OF SHAREHOLDERS' 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 Shareholders'
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.
F-10
<PAGE> 62
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, net 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)
Purchase 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.
F-11
<PAGE> 63
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 include 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.
Gains and losses on the sale of available-for-sale securities are determined
using the specific-identification method.
F-12
<PAGE> 64
MCDUFFIE BANK & TRUST
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996 AND 1995
(dollars in thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS AND RESERVE FOR LOAN LOSSES - Loans are 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 when a loan becomes 90 days past due
as to principal and interest or when in management's judgment, the interest will
not be collectible in the normal course of business. 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.
Effective January 1, 1995, the Bank prospectively adopted Statement of Financial
Accounting Standard (SFAS) No. 114, "Accounting by Creditors for the Impairment
of a Loan", and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosures; an amendment to SFAS No. 114." These
Statements apply to all loans of the Bank that are identified for evaluation
except for smaller-balance homogenous residential mortgage and consumer
installment loans that are collectively evaluated by management for impairment.
A loan is impaired when, based on current information and events, it is probable
that the Bank will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Management of the Bank evaluates the
borrower's ability to pay, the value of any collateral, and other factors in
determining when a loan is impaired. Management does not consider a loan to be
impaired during a period of delay in payment if it is expected that the Bank
will collect all amounts due including interest accrued at the contractual
interest rate for the period of the delay.
Interest payments on impaired loans are applied to the remaining principal
balance until the balance is fully recovered. Once principal is recovered, cash
payments received are recorded as recoveries to the extent of any principal
previously charged-off, and then as interest income.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans, including impaired 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 makes 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 at 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.
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 taxes 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).
F-13
<PAGE> 65
MCDUFFIE BANK & TRUST
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996 AND 1995
(dollars in thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-14
<PAGE> 66
MCDUFFIE BANK & TRUST
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996 AND 1995
(dollars in thousands)
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and fair values of securities owed 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 mortgaged-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.
<TABLE>
<CAPTION>
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
Mortgaged-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.
F-15
<PAGE> 67
MCDUFFIE BANK & TRUST
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996 AND 1995
(dollars in thousands)
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
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>
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. There were no loans
identified as impaired under SFAS 114 at December 31, 1996 or 1995.
F-16
<PAGE> 68
MCDUFFIE BANK & TRUST
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996 AND 1995
(dollars in thousands)
NOTE 3 - LOANS (CONTINUED)
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>
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>
F-17
<PAGE> 69
MCDUFFIE BANK & TRUST
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996 AND 1995
(dollars in thousands)
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.
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.
F-18
<PAGE> 70
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, 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
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
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>
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 and 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>
<S> <C> <C> <C>
Current tax (benefit) $ 72 $ -- $ (1)
Deferred tax (benefit) 60 73 (319)
---- ----- -----
$132 $ 73 $(320)
==== ===== =====
</TABLE>
F-19
<PAGE> 71
MCDUFFIE BANK & TRUST
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996 AND 1995
(dollars in thousands)
NOTE 9 - INCOME TAXES (CONTINUED)
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>
The primary components of deferred income taxes at December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets
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.
F-20
<PAGE> 72
MCDUFFIE BANK & TRUST
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1996 AND 1995
(dollars in thousands)
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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>
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 obtain, 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.
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 dues
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.
F-21
<PAGE> 73
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>
F-22
<PAGE> 74
APPENDIX "A"
Georgia-Carolina Bancshares, Inc.
P. O. Box 1560
Thomson, Georgia 30326
January 22, 1998
The Bankers Bank
2410 Paces Ferry Road
600 Paces Summit
Atlanta, Georgia 30339-4098
Attention: William R. Burkett
Gentlemen:
(1) Georgia-Carolina Bancshares, Inc., a Georgia corporation (the
"Company"), proposes to offer for sale up to 740,741 shares of its $.001 par
value common stock (the "Common Stock"), which shares shall be registered under
the Securities Act of 1933, as amended, by the filing of a Registration
Statement on Form SB-2 with the Securities and Exchange Commission. Shares will
be offered at a price of $13.50 each. The minimum subscription per subscriber is
100 shares.
(2) The Company hereby appoints and designates you as Escrow Agent for
the purposes set forth herein. By your signature hereto, you acknowledge and
accept said appointment and designation. The Company understands that you, by
accepting said appointment and designation, in no way endorse the merits of the
offering of the shares described herein. The Company agrees to notify any person
acting on its behalf that your position as Escrow Agent does not constitute such
an endorsement, and to prohibit said persons from the use of your name as an
endorser of such offering. The Company further agrees to allow you to review any
sales literature in which your name appears and which is used in connection with
such offering.
(3) The Company shall deliver all payments received in purchase of the
shares (the "Subscription Funds") to you in the form in which they are received
by noon of the next business day after their receipt by the Company, and the
Company shall deliver to you within five (5) calendar days copies of written
acceptances of the Company for shares in the Company for which the Subscription
Funds represent payment. Upon receipt of such written acceptance by the Company,
the Escrow Agent shall deposit such funds into an escrow account (the "Escrow
Account"). The Company shall also deliver to you a copy of the completed
Subscription Agreement for each subscriber, along with such subscriber's name,
address, number of shares subscribed and social security or taxpayer
identification number.
(4) Subscription Funds shall be held and disbursed by you in accordance
with the terms of this Agreement.
A-1
<PAGE> 75
The Bankers Bank
January 22, 1998
Page 2
(5) In the event any Subscription Funds are dishonored for payment for
any reason, you agree to orally notify the Company immediately thereof and to
confirm same in writing and to return the dishonored Subscription Funds to the
Company in the form in which they were delivered to you.
(6) Should the Company elect to accept a subscription for less than the
number of shares shown in the purchaser's Subscription Agreement, by indicating
such lesser number of shares on the written acceptance of the Company
transmitted to you, you shall deposit such payment in the Escrow Account and
then remit within ten (10) days after such deposit to such subscriber at the
address shown in his Subscription Agreement that amount of his Subscription
Funds in excess of the amount which constitutes full payment for the number of
subscribed shares accepted by the Company as shown in the Company's written
acceptance, without interest or diminution. Said address shall be provided by
the Company to you as requested.
(7)(a) As used herein, the term "Total Receipts" shall mean the sum of
all Subscription Funds delivered to you pursuant to Paragraph (3) hereof, less
all Subscription Funds returned pursuant to Paragraphs (5) and (6) hereof and
Subscription Funds which have not been paid by the financial institution upon
which they are drawn.
(b) As used herein, the term "Expiration Date" shall mean May 20, 1998;
provided, however, in the event that you are given oral notification, followed
in writing, by the Company that it has elected to extend the offering for an
additional period of 90 days after the initial period, then the Expiration Date
shall mean the date which marks the 180th day after the date of the Prospectus;
provided further, in the event that you are given oral notification, followed
in writing, by the Company that it has elected to extend the offering for an
additional period of 90 days after the first extension, then the Expiration
Date shall mean the date which marks the 270th day after the date of the
Prospectus; provided, further, in the event that you are given oral
notification, followed in writing, by the Company that it has elected to extend
the offering for an additional period of 90 days after the second extension,
then the Expiration Date shall mean the date which marks the 360th day after
the date of the Prospectus.
(c) If Total Receipts are greater than or equal to $7,000,006 on or
before the Expiration Date, you shall, upon receipt of 24-hour written
instructions from the Company, no later than 2:00 P.M., Eastern Time on the
Closing Date (as that term is defined herein), remit all amounts representing
Subscription Funds, plus any profits or earnings thereon after deducting your
fees, if any, held by you pursuant hereto in accordance with such instructions.
(8) If (i) Total Receipts are less than $7,000,006 as of 5:00 P.M.,
Eastern Time on the Expiration Date, or (ii) the offering is canceled by the
Company at any time prior to the Expiration Date, then you shall promptly remit
to each subscriber at the address set forth in his Subscription Agreement an
amount equal to the amount of his Subscription Funds thereunder, adjusted for
his allocated share (weighted by time on deposit and amount) of any profits or
earnings earned on the investment of the Subscription Funds. The Company hereby
agrees to provide to you in writing the specific allocations of any profits or
earnings attributable to each subscriber hereunder.
A-2
<PAGE> 76
The Bankers Bank
January 22, 1998
Page 3
(9) Pending disposition of the Subscription Funds under this
Agreement, and unless and until otherwise authorized by oral instructions,
followed in writing, given by David W. Joesbury, Sr., you are authorized, by
means of a "Sweep" or other automatic investment program, to invest the
Subscription Funds in blocks of $10,000 in federal funds. Interest and other
earnings shall start accruing on such funds as soon as such funds would be
deemed to be available for access under applicable banking laws and pursuant to
your own banking policies. Upon oral instructions, followed in writing, given
by David W. Joesbury, Sr., you shall invest the Subscription Funds in
short-term direct obligations of the United States government, in short-term
FDIC or FSLIC insured certificates of deposit, and/or in the Fidelity
Institutional U.S. Treasury Cash Portfolio, for short-term obligations of the
United States government, but in any case with maturities of 90 days or less.
For purposes of Paragraph 8 above, the specific allocations of net
profits attributable to each subscriber shall be determined by the Company as
follows: each subscriber's allocated share of earnings on the Subscription
Funds, after deducting your fees, if any, shall be that fraction (i) the
numerator of which is the dollar amount of such subscriber's accepted
subscription multiplied by the number of days between the date of acceptance of
the purchaser's subscription and the date of the offering's termination,
inclusive (the subscriber's "Time Subscription Factor"), and (ii) the
denominator of which is the aggregate Time Subscription Factors of all
purchasers depositing Subscription Funds in the Escrow Account.
(10) Your obligations as Escrow Agent hereunder shall terminate upon
your transferring all funds you hold hereunder pursuant to the terms of
Paragraphs (7) or (8) herein, as applicable.
(11) As used herein, "Closing Date" shall mean the date of receipt by
you of (i) written notification from the Company that the shareholders of the
Company have approved the offering, (ii) Total Receipts aggregating $7,000,006,
and (iii) executed Subscription Agreements and copies of written acceptances of
the Company in connection therewith.
(12) You shall be protected in acting upon any written notice, request,
waiver, consent, certificate, receipt, authorization, or other paper or document
which you believe to be genuine and what it purports to be.
(13) You shall not be liable for anything which you may do or refrain
from doing in connection with this Escrow Agreement, except your own gross
negligence or willful misconduct.
(14) You may confer with legal counsel in the event of any dispute or
question as to the construction of any of the provisions hereof, or your duties
hereunder, and you shall incur no liability and you shall be fully protected in
acting in accordance with the opinions and instructions of such counsel. Any and
all expenses and legal fees in this regard are payable from the Subscription
Funds unless paid by the Company.
(15) In the event of any disagreement between the Company and any other
person resulting in adverse claims and demands being made in connection with any
Subscription Funds involved herein or affected hereby, you shall be entitled to
refuse to comply with any such claims or demands as long as such disagreement
may continue, and in so refusing, shall make no delivery or other disposition of
any Subscription Funds then held by you under this Agreement, and in so doing
you shall be entitled to continue to refrain from acting until (a) the right of
adverse claimants shall have been finally settled by binding arbitration or
finally adjudicated in a court assuming and having jurisdiction of the
Subscription Funds involved herein or affected hereby or (b) all differences
shall have been adjusted by agreement and you shall have been notified in
writing of such agreement signed by the parties hereto. In the event of such
disagreement, you may, but need not, tender into the registry or custody of any
court of competent jurisdiction all money or property in your hands under the
terms of this Agreement, together with such legal proceedings as you deem
appropriate and thereupon to be discharged from all further duties under this
Escrow Agreement. The filing of any such legal proceeding shall not deprive you
of your compensation earned prior to such filing. You shall have no obligation
to take any legal action in connection with this Agreement or towards its
enforcement, or to appear in, prosecute or defend any action or
A-3
<PAGE> 77
The Bankers Bank
January 22, 1998
Page 4
legal proceeding which would or might involve you in any cost, expense, loss or
liability unless indemnification shall be furnished.
(16) You may resign for any reason, upon thirty (30) days written notice
to the Company. Upon the expiration of such thirty (30) day notice period, you
may deliver all Subscription Funds and Subscription Agreements in your
possession under this Escrow Agreement to any successor Escrow Agent appointed
by the Company, or if no successor Escrow Agent has been appointed, to any court
of competent jurisdiction. Upon either such delivery, you shall be released from
any and all liability under this Escrow Agreement. A termination under this
paragraph shall in no way change the terms of paragraphs 15 and 17 affecting
reimbursement of expenses, indemnity and fees. You shall have the right to
deduct from the Subscription Funds transferred to any successor Escrow Agent any
outstanding and unpaid expenses or fees.
(17) You agree to charge your customary and normal fee for your services
hereunder. A copy of the current schedule is attached hereto. The fee schedule
may be modified from time to time. The acceptance fee and expenses shall be paid
in advance or at closing by the Company. Any subsequent fees and expenses will
be paid by the Company upon receipt of invoice.
(18) All notices and communications hereunder shall be in writing and
shall be deemed to be duly given if sent by overnight delivery service or
registered or certified mail, return receipt requested, to the respective
addresses set forth herein. You shall not be charged with knowledge of any fact,
including but not limited to performance or non-performance of any condition,
unless you have actually received written notice thereof from the Company or its
authorized representative clearly referring to this Escrow Agreement.
(19) The rights created by this Escrow Agreement shall inure to the
benefit of, and the obligations created hereby shall be binding upon the
successors and assigns of you and the parties hereto. Notwithstanding the
foregoing, the Company may not assign its rights hereunder without your prior
written consent.
(20) This Escrow Agreement shall be construed and enforced according to
the laws of the State of Georgia.
(21) This Escrow Agreement shall terminate and you shall be discharged
of all responsibility hereunder at such time as you shall have completed your
duties hereunder.
(22) This Escrow Agreement may be executed in several counterparts,
which taken together shall constitute a single document.
(23) This Escrow Agreement constitutes the entire understanding and
agreement of the parties hereto with respect to the transactions described
herein and supersedes all prior agreements or understandings, written or oral,
between the parties with respect thereto. Further, this Escrow Agreement may
only be amended by a written amendment signed by the parties hereto.
(24) If any provision of this Escrow Agreement is declared by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way.
(25) The Company shall provide you with its Employer Identification
Number as assigned by the Internal Revenue Service. Additionally, the Company
shall complete and return to you any and all tax forms or reports
A-4
<PAGE> 78
The Bankers Bank
January 22, 1998
Page 5
required to be maintained or obtained by you. In the event that Subscription
Funds are returned to subscribers pursuant to paragraph 8 hereof, you shall,
based upon the information available to you, file with the Internal Revenue
Service and send to each subscriber a Form 1099-INT with respect to
contributions of interest to subscribers. All interest or other income earned
under this Escrow Agreement which is payable to the Company pursuant to
paragraph 7 hereof shall be allocated and paid as directed by the Company and
reported to the Internal Revenue Service as having been so allocated and paid.
(26) Your signature hereto is your consent that a signed copy hereof may
be filed with the various regulatory authorities of the State of Georgia and
with any Federal Government agencies or regulatory authorities.
[The Rest of This Page Intentionally Left Blank]
A-5
<PAGE> 79
The Bankers Bank
January 22, 1998
Page 5
Please indicate your acceptance of this Agreement by executing a copy of
this letter and returning it to the undersigned.
Very truly yours,
GEORGIA-CAROLINA BANCSHARES, INC.
By: /s/ J. Harold Ward, Jr.
-------------------------------------
J. Harold Ward, Jr.
Senior Vice President and Chief
Financial Officer
Attest:
Joseph E. Gore
- ------------------------
Executive Vice President
(CORPORATE SEAL)
ACCEPTED AND AGREED:
THE BANKERS BANK
By: /s/ William R. Burkett
-------------------------------------
Title: Senior Vice President
----------------------------------
A-6
<PAGE> 80
FEE SCHEDULE
Pursuant to Paragraph 17 of the Escrow Agreement (the "Escrow Agreement")
between Georgia-Carolina Bancshares, Inc. (the "Company") and The Bankers Bank
(the "Escrow Agent"), this schedule, if agreed to by the Company and the Escrow
Agent shall become an integral part of the Escrow Agreement.
FEE OF ESCROW AGENT
The Company shall pay the Escrow Agent a fee of $2,000 for its services
hereunder. The Escrow Account (as defined in the Escrow Agreement) will accrue
a service charge of $15.00 per month. In addition, a $20.00 per check fee will
be charged if the Escrow Account is refunded due to a subscriber's failure to
properly complete a subscription. These fees are payable upon the release of
the Subscription Funds (as defined in the Escrow Agreement) pursuant to Section
7 of the Escrow Agreement and the Escrow Agent is authorized to deduct such
fees from the Subscription Funds prior to any release thereof.
Agreed to this 22nd day of January, 1998 by:
<TABLE>
<S> <C>
GEORGIA-CAROLINA BANCSHARES, INC. (Company) THE BANKERS BANK (as Escrow Agent)
By: /s/ J. Harold Ward, Jr. By: /s/ William R. Burkett
---------------------------------------------- -------------------------------
J. Harold Ward, Jr., Senior Vice President and Title: Senior Vice President
Chief Financial Officer ---------------------------
</TABLE>
A-7
<PAGE> 81
APPENDIX "B"
GEORGIA-CAROLINA BANCSHARES, INC.
SUBSCRIPTION AGREEMENT
To: Georgia-Carolina Bancshares, Inc.
P. O. Box 1560
Thomson, Georgia 30824
Gentlemen:
You have informed me that Georgia-Carolina Bancshares, Inc. (formerly
Pinnacle Bancshares, Inc.), a Georgia corporation (the "Company"), is offering
740,741 shares of its $.001 par value common stock (the "Common Stock") at a
price of $13.50 per share as described in and offered pursuant to the Prospectus
furnished to the undersigned herewith (the "Prospectus"). In addition, you have
informed me that the minimum subscription is 100 shares.
1. SUBSCRIPTION. Subject to the terms and conditions hereof, the
undersigned hereby tenders this subscription, together with payment in United
States currency by check, bank draft or money order payable to "The Bankers
Bank, Escrow Agent for Georgia-Carolina Bancshares, Inc." or any other
consideration satisfactory to the Company (the "Funds"), representing the
payment of $13.50 per share for the number of shares of the Common Stock
indicated below.
2. ACCEPTANCE OF SUBSCRIPTION. It is understood and agreed that the
Company shall have the right to accept or reject this subscription in whole or
in part, for any reason whatsoever. The Company shall reject this subscription,
if at all, in writing within ten (10) business days after receipt of this
subscription. The Company may reduce the number of shares for which the
undersigned has subscribed, indicating acceptance of less than all of the shares
subscribed on its written form of acceptance.
3. ACKNOWLEDGMENTS. The undersigned hereby acknowledges that he or she has
received a copy of the Prospectus and agrees to be bound by the terms of this
Agreement and the Escrow Agreement.
4. REVOCATION. The undersigned agrees that once this Subscription
Agreement is accepted by the Company, it may not be withdrawn by him or her.
Therefore, until the earlier of the expiration of five (5) business days after
receipt by the Company of this Subscription agreement or acceptance of this
Subscription Agreement by the Company, the undersigned may withdraw his or her
subscription and receive a full refund of the subscription price. The
undersigned agrees that, except as provided in this Section 4, he or she shall
not cancel, terminate or revoke this Subscription Agreement or any agreement of
the undersigned made hereunder and that this Subscription Agreement shall
survive the death or disability of the undersigned.
BY EXECUTING THIS SUBSCRIPTION AGREEMENT, THE SUBSCRIBER IS NOT WAIVING ANY
RIGHTS HE OR SHE MAY HAVE UNDER FEDERAL SECURITIES LAWS, INCLUDING THE
SECURITIES ACT OF 1933, AS AMENDED AND THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
Please fill in the information requested below, make your check payable to
"The Bankers Bank, Escrow Agent for Georgia-Carolina Bancshares, Inc.," and mail
this Subscription Agreement, the Stock Certificate Registration Instructions and
check to the attention of Patrick G. Blanchard, President and Chief Executive
Officer, Georgia-Carolina Bancshares, Inc., P. O. Box 1560, Thomson, Georgia
30824.
<TABLE>
<S> <C>
- ---------------------------------------------- Phone Number:
No. of Shares Subscribed ---------------------------------------------
$ (Home)
- ----------------------------------------------
Funds Tendered ($13.50 per share subscribed) ---------------------------------------------
- ---------------------------------------------- (Office)
(Signature of Subscriber) Residence Address:
----------------------------------------------
- ---------------------------------------------- ----------------------------------------------
Name (Please Print or Type) ----------------------------------------------
Date: City, State and Zip Code
- ---------------------------------------------- ----------------------------------------------
Social Security Number or other
Taxpayer Identification Number
</TABLE>
B-1
<PAGE> 82
STOCK CERTIFICATE REGISTRATION INSTRUCTIONS
- --------------------------------------------------------------------------------
NAME
- --------------------------------------------------------------------------------
ADDITIONAL NAME IF TENANT IN COMMON OR JOINT TENANT
MAILING ADDRESS:
----------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SOCIAL SECURITY NUMBER OR OTHER TAXPAYER IDENTIFICATION NUMBER
-----------------
NUMBER OF SHARES TO BE REGISTERED IN ABOVE NAME(S):
-----------------------------
LEGAL FORM OF OWNERSHIP:
<TABLE>
<S> <C>
------ Joint Tenants with Rights of
- ------ Individual Survivorship
- ------ Tenants in Common ------ Uniform Gift to Minors
- ------ Other ---------------------------
</TABLE>
B-2
<PAGE> 83
FORM OF ACCEPTANCE
GEORGIA-CAROLINA BANCSHARES, INC.
P. O. BOX 1560
THOMSON, GEORGIA 30824
To:
Dear Subscriber:
Georgia-Carolina Bancshares, Inc. (the "Company") acknowledges receipt of
your subscription for __________ shares of its $.001 par value Common Stock and
your check for $________.
The Company hereby accepts your subscription for the purchase of
________ shares of its Common Stock, at $13.50 per share, for an aggregate of
$____________, effective as of the date of this letter.
Your stock certificate(s) representing shares of Common Stock duly
authorized and fully paid will be issued to you as soon as practicable after all
Subscription Funds are released to the Company from the Subscription Escrow
Account, all as described in the Subscription Agreement executed by you and in
the Prospectus furnished to you. In the event that (i) the offering is not
approved by the shareholders of the Company, (ii) the minimum number of
subscriptions (518,519 shares) is not obtained, or (ii) the offering is
canceled, your Subscription Funds will be returned to you, adjusted for net
profits from the investment of such funds, if any, as described in the
Prospectus.
If this acceptance is for a lesser number of shares than that number
subscribed by you as indicated in your Subscription Agreement, your payment for
shares of Common Stock in excess of the number of shares accepted hereby will be
refunded to you by mail, without interest, within ten (10) days of the date
hereof.
Very Truly Yours,
GEORGIA-CAROLINA BANCSHARES, INC.
By:
--------------------------------------
Patrick G. Blanchard
President and Chief Executive Officer
