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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-1
GEORGIA-CAROLINA BANCSHARES, INC
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(Name of Registrant as Specified in Its Charter)
Not Applicable
--------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computer
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
------------------------------------------------
4) Date Filed:
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[GEORGIA-CAROLINA BANCSHARES, INC. LETTERHEAD]
February __, 1998
Dear Shareholder:
Your Board of Directors and Management have worked for several months to
evaluate strategic alternatives for the Bank and its parent holding company.
After thoughtful consideration, the Board decided that expanding into the
Augusta, and Columbia County markets afforded the best opportunity for the
future. Subsequently, the Board formed a strategic alliance with a group of
prominent Augusta businessmen, and employed Patrick Blanchard, a well known
banker in the Augusta market, to spearhead the opening of two new offices in the
Augusta and Columbia County area.
As our plans have progressed, certain issues regarding the name of the
Bank and the holding company surfaced. The possibility of future expansion into
South Carolina caused the Board to re-evaluate the name Pinnacle Bancshares,
Inc., and to change the Company's name to Georgia-Carolina Bancshares, Inc.,
which we believe better reflects our new market. Simultaneously, the Board
agreed that a change of the Bank's name would be appropriate to reflect the new
regional nature of the Bank. The name chosen for the Bank is First Bank of East
Georgia. We will continue to use the name McDuffie Bank & Trust as our trade
name in McDuffie County, and anticipate using the trade names First Bank of
Augusta and First Bank of Columbia County for the two new offices.
You are cordially invited to attend a Special Meeting of Shareholders of
Georgia-Carolina Bancshares, Inc., which will be held on ___________________,
February ___, 1998, at 4:30 p.m. at the Company's main office, 110 East Hill
Street, Thomson, Georgia 30824. The purpose of the meeting will be to discuss
and vote on a public offering of approximately $10,000,000 of new capital to
support projected growth of the Bank in these new markets and to act on such
other matters as may come before the Special Meeting.
I hope you will plan to attend this important meeting and hear our plans
for the future. However, whether or not you plan to attend the meeting in
person, it is important that your shares be represented and voted. After reading
the enclosed notice and proxy statement, please complete, sign, date and return
the enclosed proxy at your earliest convenience. Returning the signed proxy card
will not prevent you from voting in the person at the meeting, should you later
decide to do so.
Sincerely,
David W. Joesbury, Sr.
Chairman
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GEORGIA-CAROLINA BANCSHARES, INC.
110 EAST HILL STREET
THOMSON, GEORGIA 30824
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY__, 1998
TO OUR SHAREHOLDERS:
Notice is hereby given that a Special Meeting of Shareholders (the
"Special Meeting") of Georgia-Carolina Bancshares, Inc. (the "Company") will be
held on __________, February __, 1998, at 4:30 p.m., at the main office of the
Company, 110 East Hill Street, Thomson, Georgia 30824, for the following
purposes:
(1) To consider and vote upon the proposed registered public
offering of a minimum of 518,519 shares and a maximum of 740,741 shares
of the Company's common stock, $.001 par value per share (the "Common
Stock") at an offering price of $13.50 per share; and
(2) To conduct such other business as may lawfully come before
the Special Meeting or any adjournments or postponements thereof.
Only shareholders of record at the close of business on January __,
1998 are entitled to notice of, and to vote at, said meeting and any
adjournments thereof.
Your attention is directed to the attached Proxy Statement. Shareholders
are cordially invited to attend the Special Meeting. Whether or not you expect
to attend the meeting in person, you are requested to complete, sign and date
the enclosed proxy and return it as promptly as possible in the accompanying
postage paid envelope. If you attend the meeting, you may, if you wish, withdraw
your proxy and vote in person.
By Order of The Board of Directors
J. Harold Ward, Jr.
Secretary
February __, 1998
Thomson, Georgia
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN
THE ENCLOSED PROXY IN THE ACCOMPANYING POSTAGE PAID ENVELOPE. IF YOU
ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN
PERSON.
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GEORGIA-CAROLINA BANCSHARES, INC.
110 EAST HILL STREET
THOMSON, GEORGIA 30824
SPECIAL MEETING OF SHAREHOLDERS
FEBRUARY __, 1998
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PROXY STATEMENT
--------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Georgia-Carolina Bancshares, Inc. (the
"Company") for a Special Meeting of Shareholders (the "Special Meeting") to be
held on _________, February __, 1998, and any adjournment thereof, at the time
and place and for the purposes set forth in the accompanying notice of the
meeting. The Company is the parent of McDuffie Bank & Trust (the "Bank"), a
state-chartered, full service commercial bank conducting business in Thomson,
Georgia. On November 17, 1997, the Company changed its name from Pinnacle
Bancshares, Inc. to Georgia-Carolina Bancshares, Inc. In addition, the Bank has
determined to change its name from McDuffie Bank & Trust to First Bank of East
Georgia. The Bank will continue using the trade name McDuffie Bank & Trust for
offices located in McDuffie County. The expense of this solicitation, including
the cost of preparing and mailing this Proxy Statement, will be paid by the
Company. In addition to solicitations by mail, officers and regular employees of
the Company, at no additional compensation, may assist in soliciting proxies by
telephone. This Proxy Statement and the accompanying proxy are first being
mailed to shareholders on or about February __, 1998. The address of the
principal executive offices of the Company is 110 East Hill Street, Thomson,
Georgia 30824, and the Company's telephone number is (706) 595-1600.
Any proxy given pursuant to this solicitation may be revoked by any
shareholder who attends the meeting and gives oral notice of his or her election
to vote in person, without compliance with any other formalities. In addition,
any proxy given pursuant to this solicitation may be revoked prior to the
meeting by delivering to the Secretary of the Company an instrument revoking it
or a duly executed proxy for the same shares bearing a later date. Proxies which
are returned properly executed and not revoked will be voted in accordance with
the shareholder's directions specified thereon. Where no direction is specified,
proxies will be voted FOR the proposed registered public offering of a minimum
of 518,519 shares and a maximum of 740,741 shares of the Company's common stock,
$.001 par value per share (the "Common Stock") at an offering price of $13.50
per share. The items enumerated herein constitute the only business which the
Board of Directors intends to present or knows will be presented at the meeting.
However, the proxy confers discretionary authority upon the persons named
therein, or their substitutes, with respect to any other business which may
properly come before the meeting. Abstentions and broker non-votes will not be
counted as votes either in favor of or against the matter with respect to which
the abstention or broker non-vote relates.
The record of shareholders entitled to vote at the Special Meeting was
taken on January __, 1998. On that date, the Company had outstanding and
entitled to vote 635,380 shares of Common Stock, with each share entitled to one
vote. A majority (317,691) of the outstanding shares of Common Stock entitled to
vote must be present, in person or by proxy, to constitute a quorum.
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AGENDA ITEM ONE
APPROVAL OF REGISTERED PUBLIC OFFERING
THE PROPOSED OFFERING
BACKGROUND OF THE PROPOSED OFFERING
During the first half of 1996, the Board of Directors of the Bank
initiated a program to assess the Bank's long range goals and opportunities. To
assist it, the Board of Directors of the Bank retained the services of The
Robinson-Humphrey Company, LLC, 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 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
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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. 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 Company 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, if approved, will be conducted on a best efforts basis and may last
for a period of 360 days, 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 -- Directors, Appointed
Directors and Executive Officers of the Company and the Bank -- 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
"MANAGEMENT -- 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.
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 Bank will continue using the trade name McDuffie Bank
& Trust for offices located in McDuffie County and anticipates using the trade
names First Bank of Augusta and First Bank of Columbia County for the two new
offices.
TERMS OF THE PROPOSED OFFERING
GENERAL
Subject to approval by the Company's shareholders at the Special
Meeting and certain other conditions as detailed below, the Company will offer
740,741 shares of Common Stock for cash at a price
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of $13.50 per share. A minimum subscription of 100 shares will be required for
each subscription. 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
Company's outstanding Common Stock 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 will be subject to acceptance by the Board of Directors of the
Company, and the Company will reserve 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 will reserve the right to cancel the
offering at any time prior to the time the Company withdraws funds from the
Subscription Escrow Account, for any reason whatsoever.
CONDITIONS OF THE PROPOSED OFFERING
The proposed offering will be expressly conditioned upon fulfillment of
the following conditions (the "Offering Conditions") on or prior to 360 days
after the registration statement registering the Common Stock to be offered
thereunder becomes effective (the "Expiration Date"). The Offering Conditions,
which may not be waived, are as follows:
(a) The Company shall have received approval from its shareholders of
the proposed offering at the Special Meeting.
(b) Not less than $7,000,006 shall have been deposited with an escrow
agent (the "Escrow Agent"); and
(c) The Company shall not have canceled the offering prior to the time
funds are withdrawn from the Escrow Agent.
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 Escrow Agent. Pending disposition of the
Subscription Escrow Account, the Escrow Agent will be 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.
In the event the Offering Conditions are not met by the Expiration
Date, the Escrow Agent will 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.
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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.
DETERMINATION OF OFFERING PRICE
General
Because there has been no established public market for the shares of
the Common Stock prior to the proposed 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, a copy of which is attached as Exhibit A
to this Proxy Statement, 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 the proposed offering or elsewhere.
In arriving at its opinion, Robinson-Humphrey performed a variety of
financial analyses and reviewed and analyzed: (i) the Registration Statement on
Form SB-2 filed with the Securities and Exchange Commission in connection with
the proposed offering and this Proxy Statement; (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
Proxy Statement.
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 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 worked with 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 expense, 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
proposed 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 then worked with 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 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 the proposed
offering was completed at various per share prices. The resulting percentage
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 that at the offering price of $13.50 per share, the
projected near term dilution in earnings per share resulting from the offering
could potentially be recovered in later 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, the relative contributions of estimated equity, gross loans,
total deposits, total assets and net income in each period were compared with
the pro forma ownership of the Company's existing shareholders after the
proposed offering. These contributions in each period were compared with the
percentage ownership sold in the offering. At the offering price of $13.50 per
share, particularly in later periods, the percentage of the Company sold
compared favorably with the percentage contribution of the Proposed Expansion in
each category.
Internal Rate of Return Analysis: Robinson-Humphrey examined from the
Company's point of view the estimated internal rate of return of a theoretical
investment in the Proposed Expansion. This analysis takes into account an
initial investment in the Proposed Expansion, estimated net income from the
project and a theoretical dividend stream assuming a 40.0% payout ratio. It is
then assumed that the Proposed Expansion could theoretically be sold at December
31, 2001 at various exit price to earnings ratios. Robinson-Humphrey then
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. The
potential internal rates of return for the Proposed Expansion were within our
range of acceptability.
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. 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 years 1997, 1998, 1999, 2000 and 2001. 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 found that the offering price of $13.50 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 Proxy Statement 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 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 proposed offering
over $7,000,000, payable at the consummation of the proposed 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
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customers; however, Robinson-Humphrey does not make a market in the equity
securities of the Company.
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
and other purposes. The Company's Board of Directors retained Robinson-Humphrey
based on its experience as a financial advisor to financial institutions.
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 Proxy Statement. The Appointed Directors have indicated that they will
subscribe, in the aggregate, for a minimum of 82,222 shares in the proposed
offering. See "MANAGEMENT -- 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 the proposed 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
proposed 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.
USE OF PROCEEDS
The gross proceeds from the sale of shares of Common Stock proposed to
be 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, then the offering will terminate and all funds received from subscribers
will be promptly refunded. See "Terms of the Proposed Offering." The net
proceeds of the proposed 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.
-6-
<PAGE> 10
Proceeds from the proposed 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 the offering during the Company's escrow period.
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
proposed offering.
<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.
-7-
<PAGE> 11
(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.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 9,000,000
shares of Common Stock 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. The holders of Common Stock are
entitled to elect the members of the Board of Directors of the Company 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.
-8-
<PAGE> 12
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 Senior Vice President and
Chief 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 PROPOSED OFFERING--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 proposed offering is
completed, all of the Appointed Directors 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
-9-
<PAGE> 13
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,
(iii) the Appointed Directors and (iv) 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.
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 1878. 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 Grovetowne, 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.
-10-
<PAGE> 14
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 Exeuctive 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.
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 has 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.
-11-
<PAGE> 15
There are no family relationships between any director (or Appointed
Director) or executive officer and any other director (or Appointed Director) or
executive officer of the Company or the Bank.
-12-
<PAGE> 16
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
-13-
<PAGE> 17
(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 owned by the Estate of Patricia M. Lemley (the
"Estate"). Dr. Lemley is a Co-Executor of the Estate and shares voting and
investment power with respect to these shares. Dr. Lemley's address is 1603
Mattox Creek 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.
(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.
-14-
<PAGE> 18
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.
-15-
<PAGE> 19
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 $100,000 during the last completed fiscal
year.
SUMMARY COMPENSATION TABLE*
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------- ------------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) 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.
-16-
<PAGE> 20
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.
-17-
<PAGE> 21
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 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
-18-
<PAGE> 22
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.
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. 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.
-19-
<PAGE> 23
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.
INTEREST OF CERTAIN PERSONS IN THE PROPOSED OFFERING
Certain persons have an interest in the proposed offering that is in
addition to any interests they may have as shareholders or proposed shareholders
of the Company. Specifically, this interest relates to the possible termination
of self-executing resignations signed by the Appointed Directors pursuant to the
Agreement. If the minimum offering amount of $7,000,006 is obtained by June 30,
1998, the self-executing resignations signed by the Appointed Directors will
terminate and the Appointed Directors will continue to serve as directors of the
Company and the Bank pursuant to applicable Georgia law and the respective
Articles of Incorporation and Bylaws of the Company and the Bank. See
"MANAGEMENT--Appointed Directors of the Company and the Bank."
The Company knows of no other director (or Proposed Director) or officer
of the Company or the Bank who may be deemed to have any substantial interest,
direct or indirect, in the proposed offering.
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 filing fees ($3,500).
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 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. However, 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 September 30, 1996 to 5.12% for the nine month period ended
September 30, 1997.
-20-
<PAGE> 24
(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 September 30, 1997 was $857,000 as
compared to $941,000 at September 30, 1996. The allowance for loan losses, as a
percentage of gross loans, increased from 4.3% at December 31, 1996 to 4.6% at
September 30, 1997. Management considers the allowance for loan losses 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 December 31, 1996 assets declined but earnings improved.
Total assets decreased by 10.4% from $42,450,000 in 1995 to $38,027,000 in 1996.
This decrease is exaggerated, however, because of a significant temporary
increase in public funds balances at year-end 1995. It should be noted that
average total assets decreased by only $987,000, from $39,945,000 in 1995 to
$38,958,000 in 1996. Net loans actually increased very slightly, from
$19,942,000 in 1995, to $20,116,000 in 1996 due to a reduction in loan loss
reserves from $1,142,000 to $889,000 for the same period. The reduction in the
loan loss reserve was due primarily to a significantly reduced loan loss
provision for 1996 of $56,000 compared to $240,000 in 1995. Net charge-offs for
1996 were $309,000 compared to $547,000 in 1995, a decrease of $238,000, or 43%.
In spite of this reduction in the reserve balance, the Bank 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
-21-
<PAGE> 25
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 November 19, 1996, the Memorandum of Understanding with the
Georgia Banking Department and the FDIC was rescinded.
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.
-22-
<PAGE> 26
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.
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>
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 September 30, 1996. As of year-end 1996, the Bank's
liquidity ratio was 46.43% as compared to 44.05% at
-23-
<PAGE> 27
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 December
31, 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 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.
CAPITAL ADEQUACY
There are currently two primary measures of capital adequacy for banks:
(i) risk-based capital guidelines and (ii) the leverage ratio. 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.
-24-
<PAGE> 28
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Cherry, Bekaert & Holland, L.L.P., the Company's
independent public accountants, are expected to be present at the Special
Meeting to respond to shareholders' questions and will have an opportunity to
make any statements they consider appropriate.
SHAREHOLDERS' PROPOSALS FOR 1998 ANNUAL MEETING
Shareholders may submit proposals appropriate for shareholders action
at the Company's 1998 Annual Meeting, consistent with the regulations of the
Securities and Exchange Commission. Proposals by shareholders intended to be
presented at the 1998 Special Meeting must be received by the Company no later
than January 7, 1998, in order to be included in the Company's proxy materials
for that meeting. Such proposals should be directed to Georgia-Carolina
Bancshares, Inc., Attention: Corporate Secretary, P.O. Box 1560, Thomson,
Georgia 30824.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the Special Meeting. However, if other matters should come before the Special
Meeting, it is the intention of the persons named in the enclosed form of Proxy
to vote the Proxy in accordance with their judgment of what is in the best
interest of the Company.
By Order of The Board of Directors
J. Harold Ward, Jr.
Secretary
Thomson, Georgia
February __, 1998
-25-
<PAGE> 29
EXHIBIT A
[FORM OF FAIRNESS OPINION]
[THE ROBINSON HUMPHREY COMPANY, L.C.C. LETTERHEAD]
[Date]
Georgia-Carolina Bancshares, Inc.
110 East Hill Street
Thomson, Georgia 30824
Ladies and Gentlemen:
We understand that Georgia-Carolina Bancshares, Inc. (the "Company")
intends to raise a minimum of $7,000,000 up to a maximum of $10,000,000 on a
"best efforts" basis (the "Offering") in order to fund its expansion into the
Augusta / Richmond County market (the "Proposed Transaction"). The terms and
conditions of the Offering and the Proposed Transaction are set forth in more
detail in the Company's Registration Statement on Form SB-2 (the "Registration
Statement").
We have been requested by the Company to render our opinion with
respect to the fairness, from a financial point of view, to the Company's
stockholders of the issue price of the Company's common stock which is to be
issued upon completion of the Offering.
In arriving at our opinion, we reviewed and analyzed: (1) the
Registration Statement, (2) all of the Company's publicly available documents,
(3) financial and operating information with respect to the business,
operations and prospects of the Company furnished to us by the Company, (4) a
trading history, to the extent available, of the Company's common stock, (5) a
comparison of the historical financial results and present financial condition
of the Company with those of other companies which we deemed relevant, and (6)
the Company's business plans with respect to its expansion into the Augusta /
Richmond County markets. In addition, we have 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 we deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our opinion without
independent verification. With respect to the financial forecasts/projections
of the Company and its expansion plans, we have assumed that such
forecasts/projections have been reasonably prepared on bases
<PAGE> 30
Georgia-Carolina Bancshares, Inc.
[Date]
Page 2
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 our opinion, we have not conducted a
physical inspection of the properties and facilities of the Company
and have not made nor obtained any evaluations or appraisals of the
assets or the liabilities of the Company. In addition, you have not
authorized us to solicit, and we have 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. Our opinion is necessarily based
upon market, economic and other conditions as they exist on, and can
be evaluated as of, the date of this letter.
We have acted as financial advisor to the Company in
connection with the Proposed Transaction and will receive a fee for
our services which is contingent upon the consummation of the Proposed
Transaction. In addition, the Company has agreed to indemnify us for
certain liabilities arising out of the rendering of this opinion. We
have also performed various investment banking services for the
Company in the past and have received customary fees for such
services. In the ordinary course of our business, we trade in the
equity securities of the Company for the accounts of our customers.
Based upon and subject to the foregoing, we are of the
opinion as of the date hereof that, from a financial point of view the
issue price of the Offering is fair to the stockholders of the
Company.
<PAGE> 31
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> 32
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> 33
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> 34
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> 35
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> 36
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> 37
[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> 38
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> 39
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> 40
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
Additional Available for Total
Common Stock 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> 41
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> 42
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> 43
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 Statement 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> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
APPENDIX A
GEORGIA-CAROLINA BANCSHARES, INC.
REVOCABLE PROXY
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
GEORGIA-CAROLINA BANCSHARES, INC. FOR THE SPECIAL MEETING OF SHAREHOLDERS.
The undersigned hereby appoints _______________, ________________, and
________________, the Proxy Committee, or either of them, with power of
substitution to each, the proxies of the undersigned to vote all shares of
common stock of Georgia-Carolina Bancshares, Inc., $.001 par value per share
(the "Common Stock") which the undersigned would be entitled to vote if
personally present at the Special Meeting of Shareholders of Georgia-Carolina
Bancshares, Inc. (the "Company") to be held on ______, February __, 1998 at
4:30 p.m. at the Company's main office, 110 East Hill Street, Thomson, Georgia,
or at any adjournments or postponements thereof upon the following:
1. The proposal to approve the registered public offering of a minimum of
518,519 shares and a maximum of 740,741 shares of the Company's Common
Stock at an offering price of $13.50 per share.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To conduct such other business as may lawfully come before the Special
Meeting or any adjournments or postponements thereof.
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" THE ABOVE PROPOSAL AND UNLESS
INSTRUCTIONS TO THE CONTRARY ARE INDICATED IN THE SPACE PROVIDED, THIS PROXY
WILL BE SO VOTED.
IF ANY OTHER BUSINESS IS PRESENTED AT THE SPECIAL MEETING, THIS PROXY WILL BE
VOTED BY THOSE NAMED HEREIN AS DETERMINED BY A MAJORITY OF THE BOARD OF
DIRECTORS OF THE COMPANY
Please date and sign this Proxy exactly as
name(s) appears on the mailing label.
___________________________________________
Stockholder sign above
___________________________________________
Co-holder (if any) sign above
Print Name(s):_____________________________
NOTE: When signing as an attorney, trustee,
executor, administrator or guardian, please
give your title as such. If a corporation
or partnership, give full name by
authorized officer. In the case of joint
tenants, each joint owner must sign.
Dated:_____________________________________
I plan to attend the Special Meeting. Yes__________ No__________
