File No. ___________
As filed with the Securities and Exchange Commission on _________, 1999.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
GB&T BANCSHARES, INC.
(Exact name of issuer as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
GEORGIA 6712 58-2400756
(State or other jurisdiction of (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
incorporation or organization) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
500 JESSE JEWELL PARKWAY, S.E.
GAINESVILLE, GEORGIA 30501
(770) 532-1212
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RICHARD A. HUNT
GB&T BANCSHARES, INC.
500 JESSE JEWELL PARKWAY, S.E., GAINESVILLE, GEORGIA 30501
(770) 532-1212
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<CAPTION>
<S> <C> <S>
Gilbert Davis F. Sheffield Hale Samuel L. Oliver
Sims, Moss, Kline & Davis Kilpatrick Stockton LLP Hulsey, Oliver & Mahar, LLC
1000 Abernathy Road, N.E. 1100 Peachtree Street, Suite 2800 200 E. Butler Parkway
400 Northpark Town Center, Suite 310 Atlanta, Georgia 30309-4530 Gainesville, Georgia 30503
Atlanta, Georgia 30328 (404) 815-6500 (770) 532-6312
(770) 481-7200
</TABLE>
----------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: The exchange of the Registrant's shares for shares of Common Stock of
UB&T Financial Services Corporation will take place upon consummation of the
merger of UB&T Financial Services Corporation into the Registrant.
----------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| _____
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| ____________________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price per Share Aggregate Offering Price Registration Fee
- --------------------------- ---------- ------------------------ ------------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock, par value 712,038 <F1> <F2> <F2> $1,327.10
$5.00 per share
================================================================================================================================
<FN>
<F1> The number of shares of GB&T Bancshares, Inc. common stock being registered
hereunder is based upon the anticipated maximum number of such shares required
to consummate the proposed merger of UB&T Financial Services Corporation into
the Registrant. The Registrant will remove from registration by means of a
post-effective amendment any shares being registered that are not issued in
connection with such merger.
<F2> In accordance with Rule 457(f)(2), the registration fee is based upon the
maximum number of shares of common stock of UB&T Financial Services Corporation
that may be received by the Registrant pursuant to the merger (426,370 shares)
multiplied by the book value per share of UB&T Financial Services Corporation as
of September 30, 1999 ($11.79).
</FN>
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
PROPOSED MERGER OF UB&T FINANCIAL SERVICES CORPORATION AND GB&T BANCSHARES, INC.
Dear Shareholder:
The Boards of Directors of UB&T Financial Services Corporation and GB&T
Bancshares, Inc. have agreed on a merger transaction that will result in the
combination of UB&T and GB&T. The UB&T shareholders are being asked to approve
the merger. The GB&T shareholders, while not required to approve the merger
under Georgia law, are required under NASDAQ listing rules to approve the
issuance of shares of GB&T stock since the proposed issuance may exceed 20% of
GB&T's outstanding stock.
If the merger is approved, UB&T shareholders will receive, for each
share of UB&T common stock they own, that multiple of a share of GB&T common
stock equal to $30.00 divided by a base period trading price equal to the
average daily last sale prices for GB&T common stock for the 60 consecutive
calendar days preceding the closing of the merger on which the GB&T shares were
traded. The merger agreement provides, however, that for the purpose of the
conversion, if the base period trading price is greater than $30.00, it will be
deemed to be $30.00, and if it is less than $18.00, the base period trading
price will be deemed to be $18.00. The effect of this limitation is to create a
range of exchange ratios of between 1 and 1.67 shares of GB&T stock for each
share of UB&T stock. GB&T shareholders will continue to hold their existing
shares of GB&T common stock. On ________, the day prior to the mailing of this
proxy statement, the average of the 60 day period was _______, which would have
created an exchange ratio of _______ shares of GB&T stock for each share of UB&T
stock if the merger occurred on that date. Based upon 426,370 shares of UB&T
currently outstanding, GB&T expects to issue between 426,370 and 712,038 shares
of its common stock in connection with the merger, or approximately 20% to 34%
of the GB&T stock that will be outstanding after the merger. GB&T common stock
is traded on the NASDAQ National Market System under the symbol "GBTB."
AFTER CAREFUL CONSIDERATION, THE BOARDS OF DIRECTORS OF GB&T AND UB&T
HAVE DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THEIR RESPECTIVE
SHAREHOLDERS. THE UB&T BOARD UNANIMOUSLY RECOMMENDS VOTING FOR APPROVAL OF THE
MERGER AGREEMENT AND THE GB&T BOARD UNANIMOUSLY RECOMMENDS VOTING FOR APPROVAL
OF THE GB&T STOCK ISSUANCE. YOUR VOTE IS VERY IMPORTANT BECAUSE WE CANNOT
COMPLETE THE MERGER UNLESS THE SHAREHOLDERS OF UB&T APPROVE THE MERGER AGREEMENT
AND THE GB&T SHAREHOLDERS APPROVE THE ISSUANCE OF GB&T COMMON STOCK PURSUANT TO
THE MERGER AGREEMENT.
We have each scheduled special meetings for our shareholders to vote on
their respective issues. Whether or not you plan to attend the shareholder
meeting, please take the time to vote by completing and mailing the enclosed
proxy card to us. If you sign, date, and mail your proxy card without indicating
how you want to vote, your proxy will be counted as a vote in favor of the
transaction. If you do not return your card, the effect will be a vote against
the proposed transaction. If your shares are held by a broker in "street name,"
you must instruct your broker to be able to vote. The date, time, and place of
the special meeting are as follows:
For GB&T shareholders: [_________________], 2000, at [______].m.
500 Jesse Jewell Parkway, S.E., Gainesville, Georgia
For UB&T shareholders: [_________________], 2000, at [______].m.
129 East Elm Street, Rockmart, Georgia
The document accompanying this letter contains additional information
regarding the merger agreement, the proposed merger, and the two companies. WE
ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT CAREFULLY, INCLUDING A DISCUSSION OF
THE "RISK FACTORS" BEGINNING ON PAGE ___. The UB&T and GB&T Boards of Directors
strongly support this strategic combination between GB&T and UB&T and appreciate
your prompt attention to this very important matter.
- ----------------------------- -----------------------------------
F. Abit Massey Dan Forsyth
Chairman, Board of Directors Chairman, Board of Directors
GB&T Bancshares, Inc. UB&T Financial Services Corporation
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE. SHARES OF THE COMMON STOCK OF GB&T
BANCSHARES, INC. ARE EQUITY SECURITIES AND ARE NOT SAVINGS ACCOUNTS OR DEPOSITS.
INVESTMENT IN SHARES OF GB&T COMMON STOCK IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS __________, 1999, AND IT IS
EXPECTED TO BE FIRST MAILED TO SHAREHOLDERS ON OR ABOUT ____________, 1999.
<PAGE>
GB&T Bancshares, Inc.
500 Jesse Jewell Parkway, S.E.
Gainesville, Georgia 30501
-----------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _______________, 2000
-----------------------------------------------------
A special meeting of shareholders of GB&T Bancshares, Inc. will be held
at the offices of Gainesville Bank & Trust on _______________________, 2000, at
_______ __.m., at 500 Jesse Jewell Parkway, S.E., Gainesville, Georgia, for the
following purposes:
(1) to vote on the issuance of between 426,370 and 712,038 shares
of common stock, par value $5.00 per share, of GB&T in
connection with the Agreement and Plan of Reorganization,
pursuant to which UB&T Financial Services Corporation, a
Georgia corporation, will merge with and into GB&T Bancshares,
Inc., a Georgia corporation, as more particularly described in
the enclosed proxy statement; and
(2) to transact other business as may properly come before the
special meeting or any adjournments of the meeting.
The GB&T Board of Directors unanimously recommends that GB&T
shareholders vote for the proposal to approve and adopt the merger agreement and
the stock issuance.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS DOCUMENT.
THIS INFORMATION IS AVAILABLE WITHOUT CHARGE TO ALL SHAREHOLDERS UPON WRITTEN OR
ORAL REQUEST MADE TO: SAMUEL L. OLIVER, CORPORATE SECRETARY, P.O. BOX 2760,
GAINESVILLE, GEORGIA 30503-2760, TELEPHONE NUMBER (770) 532-1212. TO OBTAIN
TIMELY DELIVERY, YOU MUST REQUEST THE INFORMATION NO LATER THAN [5 BUSINESS DAYS
BEFORE VOTE]_____________.
Only shareholders of record of GB&T common stock at the close of
business on __________, 1999, will be entitled to vote at the special meeting or
any adjournments thereof.
A form of proxy and a proxy statement are enclosed. The approval of the
issuance of GB&T common stock requires the approval of the holders of a majority
of the GB&T stock entitled to vote at the special meeting. To assure
representation at the special meeting, you are requested to sign, date, and
return the proxy promptly in the enclosed, stamped envelope. If you attend the
special meeting, you may revoke your proxy at that time simply by requesting the
right to vote in person. You may withdraw a previously submitted proxy by
notifying Samuel L. Oliver, Corporate Secretary, in writing or by submitting an
executed, later-dated proxy prior to the special meeting to GB&T: P.O. Box 2760,
Gainesville, Georgia 30503-2760. If you properly sign and return the proxy and
do not revoke it, your proxy will be voted at the special meeting in the manner
that you specify in the proxy.
By Order of the Board of Directors,
Samuel L. Oliver, Corporate Secretary
_______________, 1999
Gainesville, Georgia
<PAGE>
UB&T Financial Services Corporation
129 East Elm Street
Rockmart, Georgia 30153
-----------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _______________, 2000
-----------------------------------------------------
A special meeting of shareholders of UB&T Financial Services
Corporation will be held at the offices of United Bank & Trust Company on
_______________________, 2000, at _______ __.m., at 129 East Elm Street,
Rockmart, Georgia, for the following purposes:
(1) to vote on an Agreement and Plan of Reorganization and related
matters, pursuant to which UB&T Financial Services
Corporation, a Georgia corporation, will merge with and into
GB&T Bancshares, Inc., a Georgia corporation, as more
particularly described in the enclosed proxy statement; and
(2) to transact other business as may properly come before the
special meeting or any adjournments of the meeting.
The UB&T Board of Directors unanimously recommends that UB&T
shareholders vote for the proposal to approve and adopt the merger agreement.
If you approve the merger, UB&T will be merged into GB&T. UB&T
shareholders will receive, for each share of UB&T common stock they own, that
multiple of a share of GB&T common stock equal to $30.00 divided by a base
period trading price equal to the average daily last sale prices for GB&T common
stock for the 60 consecutive calendar days preceding the closing of the merger
on which the GB&T shares were traded. If the base period trading price is
greater than $30.00, it will be deemed to be $30.00 for the purpose of the
conversion, and if it is less than $18.00, the base period trading price will be
deemed to be $18.00 for the purpose of the conversion. The effect of this
limitation is to create a range of exchange ratios between 1.00 and 1.67 shares
of GB&T stock for each share of UB&T stock. Only shareholders of record of UB&T
common stock at the close of business on __________, 1999, will be entitled to
vote at the special meeting or any adjournments thereof.
If the merger is completed, UB&T shareholders who dissent will be
entitled to be paid the "fair value" of their shares in cash if they follow
certain statutory provisions regarding the rights of dissenting shareholders,
all as more fully explained under "The Proposed Merger -- Rights of Dissenting
Shareholders" (page ___) and in Appendix D to the attached proxy statement.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS DOCUMENT.
THIS INFORMATION IS AVAILABLE WITHOUT CHARGE TO ALL SHAREHOLDERS UPON WRITTEN OR
ORAL REQUEST MADE TO: MELISSA Y. DEEMS, CORPORATE SECRETARY, POST OFFICE BOX
485, ROCKMART, GEORGIA 30153-0681, TELEPHONE NUMBER (770) 684-8888. TO OBTAIN
TIMELY DELIVERY, YOU MUST REQUEST THE INFORMATION NO LATER THAN [5 BUSINESS DAYS
BEFORE VOTE]_____________.
A form of proxy and a proxy statement are enclosed. The approval of the
merger requires the approval of the holders of at least a majority of the UB&T
stock entitled to vote at the special meeting. To assure representation at the
special meeting, you are requested to sign, date, and return the proxy promptly
in the enclosed, stamped envelope. If you attend the special meeting, you may
revoke your proxy at that time simply by requesting the right to vote in person.
You may withdraw a previously submitted proxy by notifying Melissa Y. Deems,
Corporate Secretary, in writing or by submitting an executed, later-dated proxy
prior to the special meeting to UB&T: Post Office Box 485, Rockmart, Georgia
30153-0681. If you properly sign and return the proxy and do not revoke it, it
will be voted at the special meeting in the manner that you specify in the
proxy.
By Order of the Board of Directors,
Melissa Y. Deems, Corporate Secretary
_______________, 1999
Rockmart, Georgia
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
GB&T and UB&T are subject to the information requirements of the
Securities Exchange Act of 1934, which means that GB&T and UB&T are required to
file reports, proxy statements, and other information at the Public Reference
Section of the Securities and Exchange Commission at Room 1024, 450 Fifth
Street, NW, Washington, D.C. 20549. You may also obtain copies of the reports,
proxy statements, and other information from the Public Reference Section of the
SEC, at prescribed rates, by calling 1-800-SEC-0330. The SEC maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains reports,
proxy, and information statements, registration statements, and other
information regarding registrants that file electronically with the SEC through
the EDGAR system.
GB&T filed a registration statement on Form S-4 to register with the
SEC the GB&T common stock to be issued to the UB&T shareholders in the merger.
This proxy statement/prospectus is a part of that registration statement and
constitutes a prospectus of GB&T in addition to being a proxy statement of UB&T
and GB&T for the special meeting of UB&T shareholders to be held on ___________,
2000, and the special meeting of GB&T shareholders to be held on ______________,
2000, as described herein. As allowed by the SEC's rules, this proxy
statement/prospectus does not contain all of the information you can find in the
registration statement or the exhibits to the registration statement. This proxy
statement/ prospectus summarizes some of the documents that are exhibits to the
registration statement, and you should refer to the exhibits for a more complete
description of the matters covered by those documents.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This document incorporates important business and financial information
about GB&T and UB&T which is not included in or delivered with this proxy
statement/prospectus. The following documents previously filed by GB&T and UB&T
under the Securities Exchange Act of 1934 are incorporated by reference into
this proxy statement/prospectus:
(a) GB&T's annual report on Form 10-KSB for the fiscal year ended
December 31, 1998;
(b) UB&T's annual report on Form 10-KSB and Form 10-KSB/A for the
fiscal year ended December 31, 1998;
(c) GB&T's Definitive Proxy Statement on Form 14A dated April 14, 1999;
(d) UB&T's Definitive Proxy Statement on Form 14A dated April 29, 1999;
and
(e) All other reports filed by GB&T and UB&T pursuant to sections 13(a)
or 15(d) of the Exchange Act since December 31, 1998, prior to the date the
merger is completed.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Some of the statements made in this proxy statement/prospectus (and in
other documents to which we refer) are "forward-looking statements." When used
in this document, the words "anticipate," "believe," "estimate," and similar
expressions generally identify forward-looking statements. These statements are
based on the beliefs, assumptions, and expectations of GB&T's and UB&T's
management, and on information currently available to those members of
management. They are expressions of historical fact, not guarantees of future
performance. Forward-looking statements include information concerning possible
or assumed future results of operations of GB&T after the proposed merger.
Forward-looking statements involve risks, uncertainties, and assumptions, and
certain factors could cause actual results to differ from results expressed or
implied by the forward-looking statements, including:
-i-
<PAGE>
1. economic conditions (both generally and in the markets where GB&T
and UB&T operate);
2. competition from other companies that provide financial services
similar to those offered by GB&T and UB&T;
3. government regulation and legislation;
4. changes in interest rates;
5. unexpected changes in the financial stability and liquidity of
GB&T's and UB&T's credit customers; and
6. unexpected complications related to the Year 2000 issues for
GB&T, UB&T, and their suppliers, customers, and governmental
agencies.
We believe these forward-looking statements are reasonable. You should
not, however, place undue reliance on these forward-looking statements, because
the future results and shareholder values of GB&T following completion of the
merger may differ materially from those expressed or implied by these
forward-looking statements.
-ii-
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: UB&T SHAREHOLDERS: UB&T shareholders will receive, for each share of
UB&T common stock they own, that multiple of a share of GB&T common stock equal
to $30.00 divided by a base period trading price equal to the average daily last
sale prices for GB&T common stock for the 60 consecutive calendar days preceding
the closing of the merger on which the GB&T shares were traded. If the base
period trading price is greater than $30.00, it will be deemed to be $30.00 for
the purpose of the conversion, and if it is less than $18.00, the base period
trading price will be deemed to be $18.00 for the purpose of the conversion. The
effect of this limitation is to create a range of exchange ratios between 1.00
and 1.67 shares of GB&T stock for each share of UB&T stock. GB&T will not issue
fractional shares in the merger. Instead, UB&T shareholders will receive a
cash payment, without interest, for the value of any fraction of a share of
GB&T common stock that they would otherwise be entitled to receive based upon
$30.00 a share of GB&T common stock. FOR EXAMPLE: If you own 110 shares of UB&T
common stock and the 60 day average price is $22.00, then the multiple used to
convert the shares of stock is 1.36 ($30 / 22). In the merger you would
receive 149 shares of GB&T common stock (110 shares of UB&T x 1.36) and a
check for $9.00 (.60 x $30.00). On _________, 1999, the 60 day average of GB&T
common stock was $_________.
GB&T SHAREHOLDERS: GB&T shareholders will retain their current
ownership of shares of GB&T stock.
Q: WHAT AM I BEING ASKED TO APPROVE?
A: UB&T SHAREHOLDERS: You are being asked to vote upon the proposed merger
of UB&T into GB&T. Approval of the proposal requires the affirmative vote of
more than 50% of the outstanding shares of UB&T stock.
GB&T SHAREHOLDERS: You are being asked to approve the issuance of GB&T
common stock to UB&T shareholders pursuant to the merger agreement. Approval of
the issuance requires the affirmative vote of more than 50% of the outstanding
shares of UB&T and GB&T common stock. GB&T shareholders must approve the
issuance of between 426,370 and 712,038 shares of GB&T common stock pursuant to
the merger agreement because the amount of GB&T common shares issued may be in
excess of 20% of the outstanding shares of GB&T common stock. The rules of the
NASDAQ which lists GB&T's stock require shareholder approval for a stock
issuance that exceeds 20% of the company's current outstanding shares.
THE UB&T AND GB&T BOARDS OF DIRECTORS HAVE UNANIMOUSLY APPROVED AND
ADOPTED THE AGREEMENT AND PLAN OF REORGANIZATION. THE UB&T BOARD IS RECOMMENDING
THAT ITS SHAREHOLDERS VOTE FOR APPROVAL OF THIS MERGER AGREEMENT AND THE GB&T
BOARD IS RECOMMENDING THAT ITS SHAREHOLDES APPROVE THE ISSUANCE OF GB&T COMMON
STOCK PURSUANT TO THE MERGER AGREEMENT.
Q: WHAT SHOULD I DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and
mail it in the enclosed envelope as soon as possible, so that your shares will
be represented at the meeting. If you sign and send in your proxy and do not
indicate how you want to vote, your proxy will be voted in favor of the proposal
to approve and adopt the Agreement and Plan of Reorganization. Special
shareholder meetings will be held to vote upon the proposal.
UB&T SHAREHOLDERS: The UB&T special shareholders meeting will take
place at ______ __.m. on ______________, 2000, at 129 East Elm Street, Rockmart,
Georgia.
GB&T SHAREHOLDERS: The GB&T special shareholders meeting will take
place at ______ __.m. on ______________, 2000, at 500 Jesse Jewell Parkway,
S.E., Gainesville, Georgia.
-iii-
<PAGE>
You may attend your meeting and vote your shares in person, rather than
voting by proxy. In addition, you may withdraw your proxy up to and including
the day of your shareholders' meeting by notifying the Secretary prior to the
meeting, in writing, or by submitting an executed later-dated proxy to:
GB&T SHAREHOLDERS:
Samuel L. Oliver, Corporate Secretary
GB&T Bancshares, Inc.
Post Office Box 2760
Gainesville, Georgia 30503-2760
UB&T SHAREHOLDERS:
Melissa Y. Deems, Corporate Secretary
UB&T Financial Services Corporation
Post Office Box 485
Rockmart, Georgia 30153-0681
Q: WHAT RISKS SHOULD I CONSIDER?
A: You should carefully consider the "Risk Factors" beginning on page
__. You should also review the factors considered by each company's Board of
Directors discussed in "The Proposed Merger - Background of and Reasons for the
Merger" beginning on page __.
Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A: We plan to complete the merger during the first quarter of 2000.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: UB&T SHAREHOLDERS: We expect that the exchange of shares by UB&T
shareholders generally will be tax-free to UB&T shareholders for federal income
tax purposes. UB&T shareholders will, however, have to pay taxes on cash
received for fractional shares. To review the tax consequences to UB&T
shareholders in greater detail, see "Material Federal Income Tax Consequences of
the Merger and Opinion of Tax Counsel" beginning on page __.
GB&T SHAREHOLDERS: There will be no federal income tax consequences for
GB&T shareholders.
YOUR TAX CONSEQUENCES WILL DEPEND ON YOUR PERSONAL SITUATION. YOU
SHOULD CONSULT YOUR TAX ADVISER FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES
OF THE MERGER TO YOU.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: Your broker will vote your shares of common stock only if you provide
instructions on how to vote. Following the directions your broker provides, you
should instruct your broker how to vote your shares. If you do not provide
instructions to your broker, your shares will not be voted, and this will have
the effect of a vote against the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: UB&T SHAREHOLDERS: No. After the merger is completed, we will send
written instructions to UB&T shareholders for exchanging your UB&T common stock
certificates for GB&T common stock certificates.
GB&T SHAREHOLDERS: Because GB&T shareholders will not be exchanging
their shares of common stock, GB&T shareholders should NOT remit their stock
certificates.
-iv-
<PAGE>
SUMMARY
This summary highlights information from this document, and it may not
contain all of the information that is important to you as you consider the
proposed merger, the stock issuance, and related matters. For a more complete
description of the terms of the proposed merger, you should carefully read the
entire document and the documents to which we have referred you. The Agreement
and Plan of Reorganization, which is the legal document that governs the
proposed merger, is incorporated into this document and attached as Appendix A.
THE COMPANIES
UB&T FINANCIAL SERVICES CORPORATION
129 EAST ELM STREET
ROCKMART, GEORGIA 30153
(404) 684-8888
UB&T is a one-bank holding company based in Rockmart, Georgia. All of
UB&T's activities are conducted through its wholly-owned subsidiary, United Bank
& Trust Company, a full-service commercial bank with its main office located in
Rockmart, Georgia, and one branch located in Cedartown, Georgia. United Bank &
Trust Company provides customary types of banking services such as checking
accounts, savings accounts, and time deposits. It also engages in commercial and
consumer lending, makes secured and unsecured loans, and provides other
financial services. At September 30, 1999, UB&T had total consolidated assets of
approximately $45.1 million, total consolidated loans of approximately $34.1
million, total consolidated deposits of approximately $36.0 million, and total
consolidated shareholders' equity of approximately $5.0 million. We have
attached to this proxy statement/prospectus as Exhibit B the UB&T Form 10-KSB
for the year ended December 31, 1998, and Form 10-QSB for the nine-month period
ended September 30, 1999.
GB&T BANCSHARES, INC.
500 JESSE JEWELL PARKWAY, S.E.
GAINESVILLE, GEORGIA 30501
(770) 532-1212.
GB&T is a one-bank holding company based in Gainesville, Georgia. All
of GB&T's activities are conducted through its wholly-owned subsidiary,
Gainesville Bank & Trust, a full-service commercial bank with its main office in
Gainesville, Georgia. At September 30, 1999, GB&T had total consolidated assets
of approximately $237.8 million, total consolidated loans of approximately
$180.7 million, total consolidated deposits of approximately $191.7 million, and
total consolidated shareholders' equity of approximately $16.4 million.
Gainesville Bank & Trust Company provides customary types of banking services
such as checking accounts, savings accounts, and time deposits. It also engages
in commercial and consumer lending, makes secured and unsecured loans, and
provides other financial services. We have attached to this proxy
statement/prospectus as Exhibit C the GB&T Form 10-KSB for the year ended
December 31, 1998, and Form 10-QSB for the nine-month period ended September 30,
1999.
THE TERMS OF THE MERGER
If the merger is approved, UB&T will be merged with and into GB&T, GB&T
will be the surviving company, and United Bank & Trust Company will become a
subsidiary of GB&T. As a result of the merger, UB&T shareholders will receive,
for each share of UB&T common stock they own on the effective date of the
merger, that multiple of a share of GB&T common stock equal to $30.00 divided by
the average daily last sale prices for GB&T common stock for the 60 consecutive
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calendar days preceding the closing of the merger on which GB&T stock was
traded. In no event, however, will the average daily last sales price be greater
than $30.00 or less than $18.00, and as a consequence, the range of the exchange
ratio is between 1.0 and 1.67 shares of GB&T stock for each share of UB&T stock.
UB&T shareholders will also receive a cash payment for any fractional shares in
an amount equal to the fraction multiplied by $30.00.
THE REASONS MANAGEMENT OF BOTH COMPANIES SUPPORT THE MERGER
The Boards of Directors of UB&T and GB&T support the merger based upon
the following reasons. First, the Board of Directors of UB&T believes the merger
is in the best interest of UB&T's shareholders because the merger will permit
them to exchange their ownership interest in UB&T for an equity interest in
GB&T, which has greater financial resources than UB&T. Second, both Boards
believe the terms of the merger are fair and equitable. Third, both Boards
believe the size of the combined organization, approximately $283 million in
consolidated assets as of September 30, 1999, is sufficiently large to take
advantage over time of significant economies of scale, but is still small enough
to maintain the competitive advantages of community-oriented banks. The Board of
Directors of GB&T believes that UB&T provides GB&T with an expansion opportunity
into an attractive new market area. For a more detailed discussion, see
"Background of and Reasons for the Merger" beginning on page ______.
THE SPECIAL MEETING OF SHAREHOLDERS
The special meeting of UB&T will be held on ___________________, 2000,
at ________ __.m., at the offices of United Bank & Trust Company, 129 East Elm
Street, Rockmart, Georgia, for the purpose of voting on the merger. The special
meeting of GB&T shareholders will be held on ___________________, 2000, at
________ __.m., at the offices of Gainesville Bank & Trust, 500 Jesse Jewell
Parkway, S.E., Gainesville, Georgia, for the purpose of approving the issuance
of GB&T common stock to UB&T shareholders.
RECORD DATE
You are entitled to vote at the shareholders meetings if you owned
shares of UB&T or GB&T common stock on ____________________, 1999.
VOTE REQUIRED
Approval by holders of a majority of the UB&T common stock outstanding
on __________, 1999, is required to approve the merger. Approval by holders of a
majority of GB&T common stock outstanding on __________, 1999, is required for
the issuance of the common stock pursuant to the merger.
FAIRNESS OPINION TO SHAREHOLDERS OF UB&T
T. Stephen Johnson & Associates, Inc. has rendered an opinion to UB&T
that, based upon and subject to the procedures, matters, and limitations
described in its opinion and other matters it considered relevant, as of the
date of its opinion, the terms of the merger are fair from a financial point of
view to the shareholders of UB&T. T. Stephen Johnson & Associates' opinion is
attached as Appendix E to this Proxy Statement/Prospectus. Shareholders of UB&T
are encouraged to read the opinion. For a more detailed discussion of the
opinion, see "fairness opinion" beginning on page __. T. Stephen Johnson &
Associates will be paid approximately $15,000 for its advice and for providing
its formal opinion.
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<PAGE>
CONDITIONS, TERMINATION, AND EFFECTIVE DATE
The merger will not occur unless certain conditions are met, and GB&T
or UB&T can terminate the merger if specified events occur or fail to occur. The
merger must be approved by UB&T shareholders, the Board of Governors of the
Federal Reserve System, and the Department of Banking and Finance of the State
of Georgia. We have received approval from the Federal Reserve and the
Department of Banking and Finance.
The closing of the merger will occur after the merger agreement is
approved by UB&T shareholders and the issuance of the stock is approved by the
GB&T shareholders and after the articles of merger are filed as required under
Georgia law.
RIGHTS OF DISSENTING SHAREHOLDERS
If the merger is completed, UB&T shareholders who dissent will be
entitled to be paid the "fair value" of their shares in cash if they follow
certain statutory provisions regarding the rights of dissenting shareholders.
GB&T SHAREHOLDERS ARE NOT ENTITLED TO DISSENTER'S RIGHTS. For a more detailed
discussion of dissenter's rights, see "Rights of Dissenting Shareholders"
beginning on page __.
FEDERAL INCOME TAX CONSEQUENCES
UB&T has received an opinion from Hulsey, Oliver & Mahar, LLP stating
that, assuming the merger is completed as currently anticipated, neither UB&T
nor the shareholders of UB&T who receive GB&T stock in connection with the
merger will recognize any gain or loss for federal income tax purposes. Neither
GB&T nor UB&T has requested a ruling to that effect from the Internal Revenue
Service. Any cash UB&T shareholders receive as payment for any fractional
interests or as payment after exercising their right to dissent will be treated
as amounts distributed in redemption of their UB&T common stock, and that amount
will be taxable under the Internal Revenue Code as either ordinary income or
capital gain or loss, depending upon their particular circumstances. For a more
detailed discussion of the merger's tax consequences, see "Material Federal
Income Tax Consequences of the Merger and Opinion of Tax Counsel" beginning on
page __.
ACCOUNTING TREATMENT
The merger is expected to be accounted for as a pooling of interests,
which means that UB&T and GB&T will be treated as if they had always been
combined for accounting and financial reporting purposes.
MARKETS FOR CAPITAL STOCK
GB&T's common stock began trading on January 5, 1999, on the NASDAQ
National Securities Market under the symbol "GBTB." The following table sets
forth the high and low sale prices per share of GB&T common stock on the NASDAQ
National Market for the indicated periods.
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1999 HIGH LOW
First Quarter $33.00 $23.00
Second Quarter $26.00 $24.50
Third Quarter $25.00 $20.00
Fourth Quarter $21.00 $18.8125
(through November 30, 1999)
Management of GB&T is aware of approximately 32 trades of GB&T common
stock during 1998, ranging from a block of 100 shares to a block of 22,750
shares, at prices ranging from $17.59 to $23.00, and approximately 18 trades of
GB&T common stock during 1997, ranging from a block of 250 shares to a block of
15,000 shares, at prices ranging from $8.70 to $16.00. As of November 30, 1999,
there were 2,117,146 shares of GB&T common stock outstanding and 593 holders of
GB&T common stock.
UB&T's common stock is not traded on an established public trading
market and, therefore, no specific market sales can be reported. From January 1,
1999, through September 30, 1999, management of UB&T is aware of 25 trades
totaling 25,621 shares of UB&T common stock, ranging from a block of 10 shares
to a block of 6,549 shares, at prices ranging from $13.00 to $16.50 per share.
Management of UB&T is aware of 21 trades of UB&T common stock during 1998,
ranging from 1 share to a block of 6,100 shares with prices ranging from $14.00
to $17.00 per share, and 51 trades of UB&T common stock during 1997, ranging
from a block of 5 shares to a block of 4,100 shares each at a price of $14.00.
As of November 30, 1999, there were 426,370 shares of UB&T common stock
outstanding and 563 holders of UB&T common stock. The market value of GB&T's
common stock as of August 1, 1999, the date of the announcement of the merger,
was $24.00 per share. The price of UB&T stock ranged between $13.00 and $16.50
per share during 1999. Based on the price range at the time of the announcement
and the effect of the exchange ratio, the resulting equivalent pro forma price
per share of UB&T common stock was $30.00. The equivalent per share price of a
share of UB&T common stock at each specified date represents the last reported
sale price of a share of GB&T common stock on such date multiplied by the base
period trading price. We can give you no assurance that the price ranges
represent the actual market value for UB&T common stock.
DIVIDENDS
GB&T declared a cash dividend of $0.06 per share in the first quarter,
$0.06 in the second quarter, and $0.065 in the third quarter of 1999. GB&T paid
aggregate cash dividends of $0.16 per share in 1998 and $0.18 per share in 1997.
Although GB&T intends to continue paying cash dividends, the amount and
frequency of cash dividends will be determined by GB&T's Board of Directors
after consideration of earnings, capital requirements, and the financial
condition of GB&T. Cash dividends may not be declared in the future.
Additionally, GB&T's ability to pay cash dividends will depend on cash dividends
paid to it by its subsidiary banks. The ability of those subsidiaries to pay
dividends to GB&T is restricted by certain regulatory requirements.
UB&T paid a cash dividend of $0.25 per share to its shareholders in
1999. UB&T paid a per share cash dividend of $0.25 in 1998, and a per share cash
dividend of $0.20 in 1997. UB&T is prohibited under the merger agreement from
paying dividends prior to the closing of the transaction without the prior
written consent of GB&T.
Whether the UB&T and GB&T shareholders approve the merger agreement and
regardless of whether the merger is completed, the future dividend policy of
GB&T and UB&T will depend upon each company's respective earnings, financial
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condition, appropriate legal restrictions, and other factors relevant at the
time the respective Boards of Directors considers whether to declare dividends.
THERE ARE SOME DIFFERENCES IN SHAREHOLDERS' RIGHTS BETWEEN UB&T AND GB&T
If the merger occurs, UB&T shareholders, whose rights are governed by
UB&T's Articles of Incorporation and Bylaws, will automatically become GB&T
shareholders, and their rights as GB&T shareholders will be governed by GB&T's
Articles of Incorporation and Bylaws. The rights of UB&T shareholders and GB&T
shareholders are different in certain ways. See "Comparison of the Rights of
UB&T and GB&T Shareholders" (page __).
INTERESTS OF DIRECTORS AND OFFICERS OF UB&T IN THE MERGER
There are no directors or executive officers of UB&T that have
interests in the merger as employees or directors that are different from, or in
addition to, those of UB&T shareholders, except that if the merger takes place,
it is anticipated that one director of UB&T will be elected to serve on GB&T's
Board of Directors.
There are 863,466 shares, or 40.78 %, of GB&T common stock held by its
directors, executive officers, and their affiliates, all of which are entitled
to vote on the merger. There are 112,960 shares, or 26.59%, of UB&T common stock
held by its directors, executive officers, and their affiliates, all of which
are entitled to vote on this merger. All of the directors and officers of UB&T
have agreed to vote their shares in favor of the merger.
RECENT DEVELOPMENTS OF GB&T
On June 16, 1999, GB&T purchased a 4.99% interest in First National
Bank of Johns Creek for $483,730. On September 7, 1999, GB&T Bancshares
purchased a 4.99% interest in Alliance National Bank, in Dalton, Georgia, for
$433,710.
RECENT DEVELOPMENTS OF UB&T
During the fourth quarter of calendar year 1999, management began an
extensive review of UB&T's loan portfolio. This review was initiated by new
management due to increasing past due loans, increases in bankruptcies and to
gain an understanding of the loan portfolio and customer relationships. As a
result of the review, which is still in process, UB&T has identified
approximately $140,000 in loan losses to be charged-off prior to year end. As a
result of the charge-offs and other identified problem loans, UB&T will make an
additional provision for the loan losses of approximately $325,000 prior to
December 31, 1999. After this additional provision, the ratio of the allowance
for loan losses to total loans will be 1.84% and the net charge-off to average
loans ratio will be 1.06%. Management believes that the allowance for loan
losses will then be adequate to absorb any potential loan losses in the loan
portfolio. The significant increases in charge-offs is partly attributable to
changes in management philosophy in the past year. During the past twelve
months, UB&T has replaced its president and senior lending officer. New loan
administration policies and procedures are being developed and will include
strict guidelines which include immediate recognition of losses on loans which
contain known deficiencies, such as bankruptcies.
RISK FACTORS
You should carefully consider the risks described below before voting
on the merger agreement.
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THE FINANCIAL INSTITUTION INDUSTRY IS VERY COMPETITIVE, AND WE MAY NOT BE ABLE
TO CONTINUE TO COMPETE SUCCESSFULLY.
GB&T's profitability will depend on Gainesville Bank & Trust's and
United Bank & Trust Company's ability to compete successfully in the highly
competitive banking business. Gainesville Bank & Trust and United Bank & Trust
Company compete with numerous other lenders and deposit-takers, including other
commercial banks, thrift institutions, credit unions, finance companies, check
cashing companies, mutual funds, insurance companies, and brokers and investment
banking firms. They compete primarily with other financial institutions in the
Gainesville, Rockmart, and Cedartown markets, but may also compete with internet
banks and financial institutions located throughout the United States.
OUR COMPUTER SYSTEMS, OR THOSE OF OUR SERVICE PROVIDERS, SUPPLIERS, OR
CUSTOMERS, MAY NOT OPERATE PROPERLY ON YEAR 2000-SENSITIVE DATES.
The year 2000 problem, if not corrected, could disrupt our operations
and the operations of financial institutions in general. Banks are particularly
sensitive to these disruptions because they are heavily dependent on complex
computer systems for most phases of their operations. The year 2000 issue common
to most corporations concerns the inability of certain software and databases to
recognize the year 2000 and other year 2000-sensitive dates. These disruptions
could include events ranging from electrical or water failure to computer
failure, with any of these events potentially resulting in a cessation of our
activities until the problem is resolved.
Gainesville Bank & Trust and United Bank & Trust Company rely on
software and hardware developed by independent third parties to provide the
information systems used by them. As a result, they depend on the efforts of
those vendors to ensure that their data processing systems accommodate year 2000
information, and cannot verify independely that any of the equipment they have
or will obtainin the future is year 2000 compliant. Additionally, year 2000
problems experienced by others (including customers, service providers, vendors,
customers' vendors, correspondent banks, government agencies, and the financial
services industry in general) could adversely affect them. If, for example, a
major borrower is unable to conduct its operations as a result of a year 2000
problem, that borrower could be unable to maintain its cash flow and could
therefore default on its loan. Loan defaults would lead to loan losses for
Gainesville Bank & Trust and United Bank & Trust Company. Consequently, if we,
Gainesville Bank & Trust, United Bank & Trust Company, or any of our service
providers, correspondents, vendors, or customers experience a disruption of
business resulting from a year 2000 problem, then our financial condition,
results of operations, and liquidity could be materially adversely affected.
DEPARTURES OF OUR KEY PERSONNEL OR DIRECTORS MAY HARM OUR ABILITY TO OPERATE
SUCCESSFULLY.
If we lose the services of our Board of Directors or executive
officers, we may not be able to grow or operate profitably. Our directors'
community involvement and local business relationships are therefore important
to our success. In addition, our success may depend largely on the continued
service of our executive officers. Richard A. Hunt, GB&T's President and Chief
Executive Officer, is the key management official in charge of daily business
operations. GB&T has not entered into an employment agreement with Mr. Hunt,
and, therefore, we cannot be assured of his continued service.
GOVERNMENT REGULATION MAY IMPAIR OUR PROFITABILITY AND RESTRICT OUR GROWTH.
State and federal banking laws and regulations could limit our ability
to achieve profitability and to grow. Bank holding companies and banks are
subject to extensive state and federal government supervision and regulation.
These and other restrictions limit the manner in which we may conduct our
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business and obtain financing, including Gainesville Bank & Trust's and United
Bank & Trust Company's ability to attract deposits, make loans, and achieve
satisfactory interest spreads. Many of these regulations are intended to protect
depositors, the public, and the FDIC, rather than shareholders. In addition, the
burden imposed by federal and state regulations may place Gainesville Bank &
Trust and United Bank & Trust Company at a competitive disadvantage compared to
competitors who are less regulated. Applicable laws, regulations,
interpretations, and enforcement policies have been subject to significant
changes in recent years, may be subject to significant future changes, and may
be retroactively applied.
IF GB&T'S DIRECTORS AND OFFICERS EXERCISE THEIR WARRANTS AND STOCK OPTIONS, YOUR
PROPORTIONATE INTEREST WILL BE DILUTED AND WE MAY NOT BE ABLE TO RAISE
ADDITIONAL CAPITAL ON THE MOST FAVORABLE TERMS.
GB&T's organizers, officers, and employees may exercise warrants or
options to purchase common stock, which would result in the dilution of your
proportionate interest in us. The organizers, officers, and employees will have
the opportunity to profit from any rise in the market value of the common stock
or any increase in GB&T's net worth. There are currently 268,087 options to
purchase GB&T's common stock outstanding, and there are an additional 146,663
shares available for grant under GB&T's 1997 Stock Incentive Plan.
The exercise of the warrants or options also could adversely affect the
terms on which we can obtain additional capital. For instance, the holders of
the warrants or options could exercise the warrants or options when we could
obtain capital by offering additional securities on terms more favorable to us
than those provided for by the warrants or options.
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COMPARATIVE SHARE DATA
The following table shows selected comparative unaudited per share data
for GB&T on a historical basis, for UB&T on a historical basis, for GB&T and
UB&T on a pro forma basis assuming the merger had been effective for the periods
indicated, and for UB&T on a pro forma equivalent basis. The merger will be
accounted for as a "pooling of interests" transaction in accordance with
generally accepted accounting principles.
Equivalent earnings per share amounts for UB&T have been calculated by
multiplying the pro forma combined earnings per share by the exchange ratio (for
purposes of this calculation, we assumed 1.36 shares of GB&T common stock for
each share of UB&T common stock based on an average base period trading price of
$22.00 per share of GB&T common stock). The UB&T pro forma equivalent cash
dividends per common share represent historical dividends declared by GB&T
multiplied by the applicable exchange ratio. The purpose of the pro forma
equivalent per-share amounts is for informational purposes only to show the pro
forma net earnings that would have been earned for each share of UB&T had the
merger been completed for the periods indicated. This data should be read
together with the historical financial statements of UB&T and GB&T, including
the respective notes thereto included in Exhibits B and C attached hereto.
<TABLE>
<CAPTION>
As of and for the
Nine Months Ended As of the Year Ended
September 30, 1999 December 31,
------------------ ------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
NET EARNINGS PER COMMON SHARE (BASIC)
GB&T Historical $.77 $.80 $.81 $.83
UB&T Historical .75 .62 .78 .46
GB&T and UB&T Pro Forma Combined (a) .72 .72 .76 .72
UB&T Pro Forma Equivalent (b) .98 .98 1.03 .98
NET EARNINGS PER COMMON SHARE (DILUTED)
GB&T Historical $.72 $.75 $.81 $.83
UB&T Historical .75 .62 .78 .46
GB&T and UB&T Pro Forma Combined (a) .69 .69 .76 .72
UB&T Pro Forma Equivalent (b) .94 .94 1.03 .98
CASH DIVIDENDS PER COMMON SHARE
GB&T Historical $.12 $.16 $.18 $.15
UB&T Historical .25 .25 .20 .15
GB&T and UB&T Pro Forma Combined (a)(c) .12 .16 .18 .15
UB&T Pro Forma Equivalent (d) .16 .22 .24 .20
BOOK VALUE PER COMMON SHARE (PERIOD END)
GB&T Historical $7.73 $7.29 $6.59 $5.90
UB&T Historical 11.79 11.54 11.36 10.50
GB&T and UB&T Pro Forma Combined (a) 7.80 7.42 6.86 6.18
UB&T Pro Forma Equivalent (b) 10.61 10.09 9.33 8.40
(a) Computed giving effect to the merger.
(b) Computed based on the UB&T per share exchange ratio of 1.36 shares of
GB&T common stock for each share of UB&T common stock designated for
purposes of this computation.
(c) Represents historical dividends paid by GB&T, and assumes GB&T will not
change its dividend policy as a result of the merger.
(d) Represents historical dividends paid per share by GB&T multiplied by the
exchange ratio of 1.36 shares of GB&T common stock for each share of UB&T
common stock designated for purposes of this computation.
</TABLE>
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following tables present certain selected historical financial
information for GB&T and UB&T. The data should be read in conjunction with the
historical financial statements, including the notes thereto, and other
financial information concerning GB&T and UB&T incorporated by reference in this
proxy statement/prospectus in Exhibits B and C. Interim unaudited data for the
nine months ended September 30, 1999 and 1998, of GB&T and UB&T reflect, in the
opinion of the respective management of GB&T and UB&T, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of that data. Results for the nine months ended September 30, 1999,
are not necessarily indicative of results which may be expected for any other
interim period or for the year as a whole.
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<TABLE>
<CAPTION>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Nine Months
Ended September 30, As of and for the Year Ended December 31,
------------------ -------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
- --------------------------------------
GB&T BANCSHARES, INC. AND SUBSIDIARY |
- --------------------------------------
INCOME STATEMENT
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 6,866 5,665 7,736 6,807 5,729 5,020 4,356
Provision for loan losses 315 378 378 348 150 270 218
Noninterest income 1,084 1,129 1,496 949 814 717 542
Noninterest expense 5,215 4,554 6,428 4,819 3,678 3,182 3,038
Income taxes 793 602 753 886 977 828 567
Net income $ 1,627 1,260 1,673 1,703 1,738 1,457 1,075
PER COMMON SHARE
Net income - basic $ .77 .60 .80 .81 .83 .70 .51
Net income - diluted .72 .57 .75 .81 .83 .70 .51
Cash dividends declared .12 .10 .16 .18 .15 .12 .10
Book value $ 7.73 7.14 7.29 6.59 5.90 5.30 4.61
Basic average shares outstanding 2,108 2,095 2,096 2,093 2,092 2,092 2,092
Diluted average shares outstanding 2,259 2,195 2,224 2,098 2,095 2,094 2,092
PERIOD END
Loans $180,681 129,364 138,223 121,210 93,094 76,116 73,894
Earning assets 219,895 177,080 179,414 156,979 119,984 108,025 95,860
Assets 237,797 192,379 196,162 172,998 131,980 116,178 103,758
Deposits 191,727 172,279 176,447 155,611 117,007 102,569 91,952
Stockholders' equity $ 16,366 14,966 15,306 13,801 12,348 11,080 9,653
Common shares outstanding 2,117 2,095 2,099 1,676 837 837 837
AVERAGE BALANCES
Loans $159,037 122,563 125,769 108,203 81,967 76,162 63,795
Earning assets 197,536 163,723 166,464 138,737 109,996 100,895 86,297
Assets 211,735 176,557 179,848 149,582 119,498 109,451 94,461
Deposits 178,824 157,804 160,814 133,129 105,550 97,040 83,758
PERFORMANCE RATIOS
Return on average assets 1.02% .95% .93% 1.14% 1.45% 1.31% 1.14%
Return on average stockholders' 13.78% 11.73% 11.55% 12.99% 14.95% 13.96% 11.52%
equity
Average equity to average assets 7.43% 8.12% 8.05% 8.76% 9.72% 9.41% 9.88%
Average loans to average deposits 88.93% 77.67% 78.21% 81.28% 77.66% 78.49% 76.17%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended September 30, As of and for the Year Ended December 31,
------------------ -------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
- ----------------------------------------------------
UB&T FINANCIAL SERVICES CORPORATION AND SUBSIDIARY |
- ----------------------------------------------------
INCOME STATEMENT
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 1,708 1,353 1,840 1,705 1,536 1,312 1,151
Provision for loan losses 245 52 292 93 52 36 13
Noninterest income 344 321 481 409 322 243 187
Noninterest expense 1,323 1,258 1,640 1,528 1,517 1,250 984
Income taxes 167 100 108 141 81 81 14
Net income 317 264 281 352 208 188 327
PER COMMON SHARE
Basic earnings $ .75 .59 .62 .78 .46 .42 .73
Diluted earnings .75 .59 .62 .78 .46 .42 .73
Cash dividends declared .25 .25 .25 .20 .15 -- --
Book value $ 11.79 11.78 11.54 11.36 10.50 10.41 9.67
Basic average shares outstanding 423 451 451 451 451 451 451
Diluted average shares outstanding 423 451 451 451 451 451 451
AT PERIOD END
Loans $34,095 26,838 29,915 22,744 17,929 16,334 16,753
Earning assets 42,006 39,186 39,956 38,233 34,663 30,979 24,206
Assets 45,118 42,568 43,216 41,474 38,664 34,533 26,808
Deposits 35,966 36,159 36,624 35,850 30,980 26,853 21,648
Stockholders' equity $ 5,026 5,316 4,956 5,127 4,736 4,698 4,363
Common shares outstanding 426 451 430 451 451 451 451
AVERAGE BALANCES
Loans 31,668 23,730 24,499 20,171 17,516 16,279 15,292
Earning assets 39,854 38,663 38,574 36,007 32,814 25,660 22,653
Assets 43,328 42,078 42,317 39,928 36,937 28,704 25,172
Deposits 37,653 36,299 36,413 32,319 28,747 22,956 20,253
Stockholders' equity 5,291 5,161 5,216 4,803 4,529 4,581 4,299
PERFORMANCE RATIOS
Return on average assets .98% .84% .66% .88% .56% .65% 1.30%
Return on average stockholders' 7.99% 6.82% 5.38% 7.32% 4.59% 4.10% 7.61%
equity
Average equity to average assets 12.21% 12.27% 12.32% 12.03% 12.26% 15.96% 17.08%
Average loans to average deposits 84.10% 65.37% 67.28% 70.17% 60.93% 70.91% 75.50%
</TABLE>
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SELECTED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data gives effect to the
acquisition of UB&T as of the date or at the beginning of the period indicated,
assuming the acquisition is accounted for as a pooling of interests. The pro
forma balance sheet information has been prepared as if the acquisition had been
completed on September 30, 1999. The pro forma operating data has been prepared
as if the acquisition had been completed on January 1, 1996. The unaudited pro
forma financial data is presented for informational purposes only and is not
necessarily indicative of the combined financial position or results of
operation which actually would have occurred if the transaction had been
completed at the date and for the periods indicated or which may be obtained in
the future.
<TABLE>
<CAPTION>
SELECTED PRO FORMA FINANCIAL DATA
(Dollars in Thousands, Except Per Share Amounts)
As of and for the For the Year Ended
Nine Months Ended September 30, December 31,
------------------------------- ----------------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets $282,915 $234,947 $239,378 $214,472 $170,644
Federal funds sold 4,448 15,592 9,808 12,146 3,735
Investment securities 41,963 42,368 38,842 38,487 38,631
Loans, net of allowance
for loan losses 212,236 154,071 166,006 142,208 109,638
Deposits 227,693 208,438 213,071 191,461 147,987
Other borrowings 8,604 3,913 3,599 1,430 3,476
Federal Home Loan Bank
Advances 22,180 -- -- -- --
Stockholders' equity $21,042 19,932 19,912 18,578 16,734
EARNINGS DATA
Interest income $15,897 $13,924 $18,809 $16,560 $13,473
Interest expense 7,322 6,906 9,234 8,048 6,208
Net interest income 8,575 7,018 9,575 8,512 7,265
Provision for loan losses 560 430 670 441 202
Non-interest income 1,427 1,450 1,977 1,358 1,136
Non-interest expense 6,538 5,812 8,068 6,347 5,195
Income taxes 960 702 860 1,027 1,058
Net income 1,944 1,524 1,954 2,055 1,946
Basic earnings per share .72 .56 .72 .76 .72
Diluted earnings per share .69 .54 .69 .76 .72
Cash dividends per share $.12 .10 .16 .18 .15
</TABLE>
-16-
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheet as of
September 30, 1999, and the unaudited pro forma consolidated statements of
income for the nine months ended September 30, 1999 and 1998, and for each of
the three years in the period ended December 31, 1998, combine the historical
financial statements of GB&T with UB&T after giving effect to the merger using
the pooling of interests method of accounting. Pro forma adjustments to the
balance sheet are computed as if the transaction occurred at September 30, 1999,
while the pro forma adjustments to the statements of earnings are computed as if
the transaction occurred on January 1, 1996, the earliest period presented. In
addition, the following financial statements do not reflect any anticipated cost
savings, which may be realized by GB&T after completion of the merger.
The pro forma information is not intended to represent what GB&T's and
UB&T's combined results of operations actually would have been if the merger had
occurred on January 1, 1996. The information has been prepared assuming that the
merger will be accounted for under the pooling of interests accounting method
and is based on the historical consolidated financial statements of GB&T and
UB&T.
In the merger, GB&T will exchange for each share of UB&T common stock
owned by UB&T shareholders, that multiple of a share of GB&T common stock equal
to $30.00 divided by the average daily last sale prices for GB&T common stock
for the 60 consecutive calendar days preceding the closing of the merger, but in
no event greater than $30.00 or less than $18.00. UB&T had 426,370 shares of
common stock outstanding at September 30, 1999, which will be exchanged for
approximately 426,370 to 712,038 shares of GB&T common stock.
In connection with the merger, GB&T and UB&T expect to incur pre-tax
merger related charges of approximately $350,000.
-17-
<PAGE>
<TABLE>
<CAPTION>
GB&T BANCSHARES, INC. AND UB&T FINANCIAL SERVICES CORPORATION
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
UB&T
GB&T FINANCIAL PRO FORMA
BANCSHARES, SERVICES ADJUSTMENTS PRO FORMA
INC. CORPORATION DEBIT (CREDIT) COMBINED
--------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Assets
------
Cash and due from banks $ 10,274 $ 1,138 $ 0 $ 11,412
Interest-bearing deposits in banks 302 412 0 714
Federal funds sold 2,845 1,603 0 4,448
Securities available-for-sale 36,067 5,896 0 41,963
Loans 180,681 34,095 0 214,776
Less allowance for loan losses 2,043 497 0 2,540
--------- -------- -------- ---------
Loans, net 178,638 33,598 $ 0 212,236
--------- -------- -------- ---------
Premises and equipment 4,736 1,855 0 6,591
Other assets 4,935 616 0 5,551
--------- -------- -------- ---------
Total assets $ 237,797 $ 45,118 $ 0 $ 282,915
========= ======== ======== =========
Deposits
Noninterest-bearing $ 24,264 $ 3,820 $ 0 $ 28,084
Interest-bearing demand 17,939 8,650 0 26,589
Savings 36,218 4,012 0 40,230
Time deposits 113,306 19,484 0 132,790
--------- -------- -------- ---------
Total deposits 191,727 35,966 0 227,693
Federal Home Loan Bank advances 19,180 3,000 0 22,180
Other borrowings 8,223 381 0 8,604
Other liabilities (c) 2,301 745 (350) 3,396
--------- -------- -------- ---------
Total liabilities 221,431 40,092 (350) 261,873
--------- -------- -------- ---------
Common stock (a) 10,585 2,256 (302) 13,143
Capital surplus (a) (b) 338 2,187 709 1,816
Retained earnings (c) 5,831 1,051 350 6,532
Accumulated other comprehensive income (loss) (388) (61) 0 (449)
Less treasury shares (b) (407) (407) 0
--------- -------- -------- ---------
16,366 5,026 350 21,042
--------- -------- -------- ---------
Total liabilities and stockholders' equity $ 237,797 $ 45,118 $ 0 $ 282,915
========= ======== ======== =========
</TABLE>
See Notes to Pro Forma Combined Financial Statements
-18-
<PAGE>
<TABLE>
<CAPTION>
GB&T BANCSHARES, INC. AND UB&T FINANCIAL SERVICES CORPORATION
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
UB&T
GB&T FINANCIAL PRO FORMA
BANCSHARES, SERVICES ADJUSTMENTS PRO FORMA
INC. CORPORATION DEBIT (CREDIT) COMBINED
--------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income $ 13,162 $ 2,735 $ 0 $15,897
Interest expense 6,296 1,026 0 7,322
---------- -------- ---------- ---------
Net interest income 6,866 1,709 0 8,575
Provision for loan losses 315 245 0 560
---------- -------- ---------- ---------
Net interest income after provision for loan losses 6,551 1,464 0 8,015
---------- -------- ---------- ---------
Other income 1,084 343 0 1,427
---------- -------- ---------- ---------
Other expenses 5,215 1,323 0 6,538
---------- -------- ---------- ---------
Income before income taxes 2,420 484 0 2,904
Income tax expense 793 167 0 960
---------- -------- ---------- ---------
Net income $ 1,627 $ 317 $ 0 $ 1,944
========== ======== ========== =========
Basic earnings per share of common stock $ 0.77 $ 0.75 $ 0.74
========== ======== =========
Diluted earnings per share of common stock $ 0.72 $ 0.75 $ 0.70
========== ======== =========
Average shares outstanding (basic) 2,108,281 423,031 2,615,918
========= ======= =========
Average shares outstanding (diluted) 2,259,240 423,031 2,766,877
========= ======= =========
See Notes to Pro Forma Combined Financial Statements.
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
GB&T BANCSHARES, INC. AND UB&T FINANCIAL SERVICES CORPORATION
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
UB&T
GB&T FINANCIAL PRO FORMA
BANCSHARES, SERVICES ADJUSTMENTS PRO FORMA
INC. CORPORATION DEBIT (CREDIT)+ COMBINED
--------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income $ 11,388 $ 2,536 $ 0 $ 13,924
Interest expense 5,723 1,183 6,906
---------- -------- ---------- ----------
Net interest income 5,665 1,353 0 7,018
Provision for loan losses 378 52 0 430
---------- -------- ---------- ----------
Net interest income after provision for loan losses 5,287 1,301 0 6,588
---------- -------- ---------- ----------
Other income 1,129 321 0 1,450
---------- -------- ---------- ----------
Other expenses 4,554 1,258 0 5,812
---------- -------- ---------- ----------
Income before income taxes 1,862 364 0 2,226
Income tax expense 602 100 0 702
---------- -------- ---------- ----------
Net income $ 1,260 $ 264 $ 0 $ 1,524
========== ======== ========== ==========
Basic earnings per share of common stock $ 0.60 $ 0.59 $ 0.58
========== ======== ==========
Diluted earnings per share of common stock $ 0.57 $ 0.59 $ 0.56
========== ========= ==========
Average shares outstanding (basic) 2,095,171 451,105 2,636,497
========= ======= =========
Average shares outstanding (diluted) 2,194,800 451,105 2,736,126
========= ======= =========
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
-20-
<PAGE>
<TABLE>
<CAPTION>
GB&T BANCSHARES, INC. AND UB&T FINANCIAL SERVICES CORPORATION
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
UB&T
GB&T Financial Pro Forma
Bancshares, Services Adjustments Pro Forma
Inc. Corporation Debit (Credit) Combined
--------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income $ 15,412 $ 3,397 $ 0 $ 18,809
Interest expense 7,677 1,557 9,234
---------- -------- ---------- --------
Net interest income 7,735 1,840 0 9,575
Provision for loan losses 378 292 0 670
---------- -------- ---------- --------
Net interest income after provision for loan losses 7,357 1,548 0 8,905
---------- -------- ---------- --------
Other income 1,496 481 0 1,977
---------- -------- ---------- --------
Other expenses 6,428 1,640 0 8,068
---------- -------- ---------- --------
Income before income taxes 2,425 389 0 2,814
Income tax expense 752 108 0 860
---------- -------- ---------- --------
Net income $ 1,673 $ 281 $ 0 $ 1,954
========== ======== ========== ========
Basic earnings per share of common stock $ 0.80 $ 0.62 $ 0.72
========== ======== ========
Diluted earnings per share of common stock $ 0.75 $ 0.62 $ 0.69
========== ========= ========
Average shares outstanding (basic) 2,095,661 450,633 2,708,522
========= ======= =========
Average shares outstanding (diluted) 2,223,598 450,633 2,836,459
========= ======= =========
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
-21-
<PAGE>
<TABLE>
<CAPTION>
GB&T BANCSHARES, INC. AND UB&T FINANCIAL SERVICES CORPORATION
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
UB&T
GB&T Financial Pro Forma
Bancshares, Services Adjustments Pro Forma
Inc. Corporation Debit (Credit) Combined
--------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income $ 13,338 $ 3,222 $ 0 $ 16,560
Interest expense 6,531 1,517 0 8,048
---------- -------- ---------- ---------
Net interest income 6,807 1,705 0 8,512
Provision for loan losses 348 93 0 441
---------- -------- ---------- ---------
Net interest income after provision for loan losses 6,459 1,612 0 8,071
---------- -------- ---------- ---------
Other income 949 409 0 1,358
---------- -------- ---------- ---------
Other expenses 4,819 1,528 0 6,347
---------- -------- ---------- ---------
Income before income taxes 2,589 493 0 3,082
Income tax expense 886 141 0 1,027
---------- -------- ---------- ---------
Net income $ 1,703 $ 352 $ 0 $ 2,055
========== ======== ========== =========
Basic earnings per share of common stock $ 0.81 $ 0.78 $ 0.76
========== ======== =========
Diluted earnings per share of common stock $ 0.81 $ 0.78 $ 0.76
========== ======== =========
Average shares outstanding (basic) 2,093,489 451,105 2,706,992
========= ======= =========
Average shares outstanding (diluted) 2,098,385 451,105 2,711,888
========= ======= =========
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
-22-
<PAGE>
GB&T BANCSHARES, INC. AND UB&T FINANCIAL SERVICES CORPORATION
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
UB&T PRO FORMA
GB&T FINANCIAL ADJUSTMENTS
BANCSHARES, SERVICES DEBIT PRO FORMA
INC. CORPORATION (CREDIT) COMBINED
------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Interest income $ 10,549 $ 2,924 $ 0 $ 13,473
Interest expense 4,820 1,388 6,208
---------- ---------- -------- ----------
Net interest income 5,729 1,536 0 7,265
Provision for loan losses 150 52 0 202
---------- ---------- -------- ----------
Net interest income after provision for loan losses 5,579 1,484 0 7,063
---------- ---------- -------- ----------
Other income 814 322 0 1,136
---------- ---------- -------- ----------
Other expenses 3,678 1,517 0 5,195
---------- ---------- -------- ----------
Income before income taxes 2,715 289 0 3,004
Income tax expense 977 81 0 1,058
---------- ---------- -------- ----------
Net income $ 1,738 $ 208 $ 0 $ 1,946
========== ========== ======== ==========
Basic earnings per share of common stock $ 0.83 $ 0.46 $ 0.72
========== ========== ==========
Diluted earnings per share of common stock $ 0.83 $ 0.46 $ 0.72
========== ========== ==========
Average shares outstanding (basic) 2,092,450 451,105 2,705,953
========== ========== ==========
Average shares outstanding (diluted) 2,095,118 451,105 2,708,620
========== ========== ==========
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
-23-
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
PRO FORMA ADJUSTMENTS
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
a Common Stock 643
Capital Surplus 643
(Adjustment of Common Stock for New Shares Issued)
b Capital Surplus 407
Treasury Shares 407
(Retirement of treasury stock)
c Retained Earnings 350
Other Liabilities 350
(Combined Merger Expenses)
-24-
<PAGE>
THE PROPOSED MERGER
BACKGROUND OF AND REASONS FOR THE MERGER
From time to time, UB&T received inquiries from other financial
institutions about the possibility of being acquired. UB&T was in the process of
assessing its strategic alternatives and had been contacted by a number of
potential merger partners when, on July 2, 1999, Richard A. Hunt, President and
Chief Executive Officer of GB&T, and Greg Hamby, Senior Vice President and Chief
Financial Officer of GB&T, contacted Dan Forsyth, Chairman of the Board of UB&T,
and the UB&T Executive Committee to explore the possibility of combining UB&T
and GB&T. Later in July, Mr. Forsyth extended an invitation to Mr. Hunt to meet
with him and members of the UB&T Board of Directors to discuss the proposal in
greater detail.
Mr. Hunt and other members of GB&T's senior management team presented a
financial analysis of the proposed transaction to members of GB&T's Board of
Directors on July 12, 1999, prior to meeting with Mr. Forsyth and the UB&T Board
of Directors on July 22, 1999. At that same meeting, the Board of Directors of
GB&T considered the business, operations, and asset quality of UB&T as well as
the attractiveness of the UB&T franchise, its management team, and the
compatibility of that franchise with the operations of GB&T. After that
consideration, GB&T's Board of Directors approved the execution of the Agreement
and Plan of Reorganization, subject to satisfactory completion of a due
diligence investigation of UB&T. This analysis included the pro forma financial
impact of the merger at a range of prices. The Board of Directors authorized Mr.
Hunt to proceed with negotiations. Mr. Hunt then met with Mr. Forsyth and
members of the UB&T Board of Directors and presented a general overview of the
proposed transaction on July 22, 1999.
On July 23, 1999, Mr. Forsyth informed Mr. Hunt by phone that the Board
had agreed unanimously to approve the proposal in concept, but were unwilling to
sign the letter of intent until preliminary due diligence had been completed.
On July 28 and 29, 1999, on-site due diligence was conducted by
representatives of GB&T. Subsequently, both companies undertook additional due
diligence and discussions with legal counsel and financial advisors.
Following a report by Mr. Hunt to Mr. Forsyth that the preliminary due
diligence appeared satisfactory, at a Board of Directors meeting held on July
30, 1999, the Board of UB&T considered a number of factors in evaluating the
merger, including a review of the terms of the merger with UB&T's financial
advisor. Without assigning any relative or specific weights to the factors, in
approving the merger on July 30, 1999, the Board of Directors of UB&T considered
the following material factors:
(a) the alternatives to the merger, including remaining an
independent institution in light of the current economic
condition of the market and its competitive disadvantages as
compared to the larger financial institutions operating in the
market;
(b) the value of the consideration to be received by UB&T
shareholders relative to the book value and earnings per share
of UB&T's common stock;
(c) certain information concerning the financial condition,
results of operations, and business prospects of GB&T;
(d) the financial terms of recent business combinations in the
financial services industry and a comparison of the multiples
of selected combinations with the terms of the proposed
transaction with GB&T;
-25-
<PAGE>
(e) the marketability of UB&T's common stock and the potential for
greater liquidity of GB&T's common stock;
(f) the competitive and regulatory environment for financial
institutions generally;
(g) the fact that the merger would enable UB&T shareholders to
exchange their shares of UB&T's common stock, in a tax-free
transaction, for shares of common stock of a larger company;
(h) GB&T's ability to provide more comprehensive financial
services through United Bank & Trust Company to the Polk
County market;
(i) the likelihood of the merger being approved by applicable
regulatory authorities without undue conditions or delay; and
(j) the potential effect of the future elimination of the pooling
of interests method of accounting might have upon the market
price of UB&T's common stock.
The Board of Directors of UB&T believes the merger is in the best
interest of its shareholders because the merger will permit the shareholders to
exchange their ownership interest in UB&T for an equity interest in GB&T, which
has greater financial resources than UB&T. The Board of Directors of UB&T also
believes that the terms of the merger, including the basis of exchange, which
was determined through arms-length negotiations between GB&T and the Board of
Directors of UB&T, are fair and equitable and take into account the relative
earning power of GB&T and UB&T, historic and anticipated operations, the
economies of scale to be achieved through the merger, the trading prices of the
stocks of the respective companies, and other pertinent factors. The exchange
ratio of 1.36 shares of GB&T's common stock for each share of UB&T's common
stock (assuming the base period trading price 60 day average of GB&T stock on
the closing date is $22.00) represents a multiple of 1.87 times UB&T's book
value as of September 30, 1999, and 11.22 times trailing twelve months earnings
per share. On __________, 1999, the 60 day average of GB&T common stock was
$_______.
The Boards of Directors of UB&T and GB&T believe that the size of the
combined organization, approximately $282.9 million in total consolidated assets
as of September 30, 1999, is sufficiently large to take advantage over time of
significant economies of scale, but is still small enough to maintain the
competitive advantages management believes are afforded community-oriented banks
over the larger regional and super-regional banks. It has become increasingly
apparent to the management of UB&T and GB&T that in the current regulatory and
competitive environment, larger organizations with greater economies of scale,
including the ability to spread largely fixed regulatory compliance costs over a
larger gross income base and the ability to attract management talent able to
compete in a more sophisticated financial-services environment, will be more
successful than smaller organizations, such as UB&T or GB&T, will be separately.
Management of GB&T and UB&T believe that there is a future for community banks
in the banking industry, but that community banks will be required to achieve a
critical size to maintain above-average economic performance. The Board of
Directors of GB&T also viewed UB&T as offering a solid franchise in an
attractive market giving GB&T an opportunity to diversify geographically from
the Gainesville market area.
On August 2, 1999, GB&T and UB&T issued a joint press release
describing the transaction, and on October 14, 1999, the Agreement and Plan of
Reorganization was executed by both parties.
THE AGREEMENT AND PLAN OF REORGANIZATION
The material features of the Agreement and Plan of Reorganization are
summarized below.
-26-
<PAGE>
EFFECTIVE DATE. The merger agreement provides that the merger will be
effective on the date and at the time the Certificate of Merger reflecting this
merger becomes effective with the Secretary of State of the State of Georgia.
The merger also is subject to approval by the Board of Governors of the Federal
Reserve System and the Department of Banking and Finance of the State of
Georgia, which approval has been received. Management of GB&T and UB&T
anticipate that the merger will become effective during the first quarter of
2000.
TERMS OF THE MERGER. UB&T shareholders will receive, for each share of
UB&T common stock they own, that multiple of a share of GB&T common stock equal
to $30.00 divided by a base period trading price equal to the average daily last
sale prices for GB&T common stock for the 60 consecutive calendar days preceding
the closing of the merger on which the GB&T shares were traded. If the base
period trading price is greater than $30.00, it will be deemed to be $30.00 for
the purpose of the conversion, and if it is less than $18.00, the base period
trading price will be deemed to be $18.00 for the purpose of the conversion. The
effect of this limitation is to create a range of exchange ratios of between
1.00 and 1.67 shares of GB&T stock for each share of UB&T stock. GB&T
shareholders will continue to hold their existing shares of GB&T common stock.
If, prior to the closing, the outstanding shares of GB&T common stock are
increased through a stock dividend, stock split, subdivision, recapitalization,
or reclassification of shares, or are combined into a lesser number of shares by
reclassification, recapitalization, or reduction of capital, the number of
shares of GB&T common stock to be delivered pursuant to the merger in exchange
for a share of UB&T common stock will be proportionately adjusted.
GB&T will not issue a fractional share certificate of GB&T common stock
in connection with the merger, and an outstanding fractional share interest will
not entitle the owner thereof to vote, to receive dividends, or to any rights of
a shareholder of GB&T with respect to that fractional interest. Instead of
issuing any fractional shares of GB&T common stock, GB&T will pay in cash an
amount (computed to the nearest cent) equal to that fraction multiplied by
$30.00 per share.
If the merger is completed, shareholders of UB&T will become
shareholders of GB&T, and UB&T will be merged with and into GB&T. Following the
merger, the Articles of Incorporation, Bylaws, corporate identity, and existence
of GB&T will not be changed, and UB&T will cease to exist as a separate entity.
TERMINATION AND CONDITIONS OF CLOSING. The merger agreement and the
Acquisition Agreement may be terminated and the merger abandoned at any time
either before or after approval of the merger agreement by the shareholders of
UB&T and GB&T, but not later than the effective date of the merger:
o by mutual consent of the Boards of Directors of UB&T and GB&T;
o by either party, if the other party has a material adverse
change in its financial condition or business;
o by either party, if the other party materially breaches any of
the representations or warranties or any covenant or agreement
it made under the Acquisition Agreement which cannot be or has
not been cured within 30 days after receipt of notice;
o by either party, if any consent of any regulatory authority
that is required for consummation of the merger is not
obtained;
o by either party, if the merger is not completed by
February 28, 2000;
-27-
<PAGE>
o by either party, if the UB&T shareholders do not approve the
merger agreement or if the GB&T shareholders do not approve
the issuance of GB&T common stock pursuant to the merger
agreement; or
The following are some of the required conditions of closing:
o the accuracy of the representations and warranties of all
parties contained in the Acquisition Agreement and related
documents as of the date when made and the effective date;
o the performance of all agreements and conditions required by
the Acquisition Agreement;
o the delivery of officers' certificates, resolutions, and legal
opinions to UB&T and GB&T;
o approval of the merger by the UB&T shareholders and approval
of the issuance of GB&T common stock by the GB&T shareholders;
o receipt of all necessary authorizations of governmental
authorities, and the expiration of any regulatory waiting
periods;
o effectiveness of the registration statement of GB&T relating
to the shares of GB&T common stock to be issued to UB&T
shareholders in the merger, of which this document forms a
part;
o the receipt by UB&T of the opinion of Hulsey, Oliver & Mahar,
LLP as to the tax consequences to UB&T shareholders;
o the receipt by GB&T of an opinion of Mauldin & Jenkins LLC
that the merger will be accounted for as a `pooling of
interests';
o the issuance of a certificate of merger by the Secretary of
State of Georgia; and
o the receipt by UB&T of a fairness opinion from UB&T's
financial advisor which remains in effect as of the date of
closing.
SURRENDER OF CERTIFICATES. Shortly after the effective date of the
merger, each holder of UB&T common stock (as of that date) will be required to
deliver his or her shares of UB&T common stock to GB&T's transfer agent,
Reliance Trust Company, Atlanta. After delivering those shares, the holder will
receive a stock certificate for the number of shares of GB&T common stock that
the holder is entitled to receive under the merger agreement, and a cash payment
for any fractional interest in GB&T common stock. Until a holder delivers his or
her shares of UB&T common stock to Reliance Trust, he or she will not receive
payment of any dividends or other distributions on shares of GB&T common stock
into which his shares of UB&T common stock have been converted, and will not
receive any notices sent by GB&T to its shareholders with respect to, or to
vote, those shares. After delivering the shares to Reliance Trust, the holder
will then be entitled to receive any dividends or other distributions (without
interest) which became payable after the merger but prior to the holder's
delivery of the certificates to Reliance Trust.
REQUIRED SHAREHOLDER APPROVAL
The holders of a majority of the outstanding shares of UB&T common
stock entitled to vote at the special meeting must approve the merger agreement
and holders of a majority of the outstanding shares of GB&T common stock must
-28-
<PAGE>
approve the issuance of GB&T common stock pursuant to the merger agreement for
the merger to be completed. Abstentions from voting and broker non-votes will be
included in determining whether a quorum is present and will have the effect of
a vote against the merger agreement.
On _____________, 1999, the record date for determining the
shareholders entitled to notice of, and to vote at, the special meeting, the
outstanding voting securities of UB&T and GB&T consisted of 426,370 shares of
UB&T common stock, with registered holders thereof being entitled to one vote
per share, and 2,117,146 shares of GB&T common stock, with registered holders
thereof being entitled to one vote per share. Certain executive officers and
members of UB&T's Board of Directors, who have entered into agreements with GB&T
to vote their shares of UB&T common stock in favor of the merger, own or control
112,960 shares, approximately 26.49% of the outstanding shares, of UB&T common
stock.
EXPENSES
GB&T will pay all of its expenses incurred in connection with the
authorization, preparation, execution, and performance of the Agreement and Plan
of Reorganization, including all fees and expenses of its agents,
representatives, counsel, and accountants and the fees and expenses related to
filing regulatory applications with state and federal authorities in connection
with the transactions contemplated thereby and the cost of reproducing and
mailing this proxy statement/prospectus. UB&T will pay all of its expenses
incurred in connection with the authorization, preparation, execution, and
performance of the Agreement and Plan of Reorganization, including all fees and
expenses of agents, representatives, counsel, and accountants for UB&T.
FAIRNESS OPINION
T. Stephen Johnson & Associates, Inc. is an investment banking and
financial services firm located in Atlanta, Georgia. As part of its investment
banking business, T. Stephen Johnson & Associates engages in the review of the
fairness of bank acquisition transactions from a financial perspective and in
the valuation of banks and other businesses and their securities in connection
with mergers, acquisitions and other transactions. Neither T. Stephen Johnson &
Associates nor any of its affiliates has a material financial interest in UB&T
or GB&T. T. Stephen Johnson & Associates was selected to advise UB&T's board of
directors based upon its familiarity with UB&T, GB&T, the regional community
banking industry and its knowledge of the banking industry as a whole. No
instructions were given or limitations imposed by UB&T's board of directors upon
T. Stephen Johnson & Associates regarding the scope of its investigation or the
procedures it followed in rendering its opinion.
T. Stephen Johnson & Associates has rendered its opinion to the board
of directors of UB&T that the consideration to be received by the holders of
UB&T common stock under the Merger Agreement is fair to such shareholders from a
financial point of view. A copy of the fairness opinion, which sets forth
certain assumptions made, matters considered and limitations on the review
undertaken, is attached as Appendix E to this Proxy Statement and should be read
in its entirety. The summary of the fairness opinion set forth herein is
qualified in its entirety by reference to the text of the fairness opinion. T.
Stephen Johnson & Associates has been paid a fee of $15,000 for rendering this
opinion.
In arriving at its fairness opinion, T. Stephen Johnson & Associates
performed merger analyses described below. T. Stephen Johnson & Associates also
reviewed certain publicly available business and financial information relating
to UB&T and GB&T. T. Stephen Johnson & Associates also considered certain
financial and stock market data of UB&T and GB&T, compared that data with
similar data for certain other publicly-held banks and bank holding companies
and considered the financial terms of certain other recent comparable community
bank acquisition transactions in the southeastern United States, as further
discussed below. T. Stephen Johnson & Associates also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria that it deemed relevant. In connection with its
review, T. Stephen Johnson & Associates did not independently verify the
foregoing information and relied on such information as being complete and
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accurate in all material respects. Financial forecasts prepared by UB&T's
management and submitted to T. Stephen Johnson & Associates were based on
assumptions believed by T. Stephen Johnson & Associates to be reasonable and to
reflect currently available information, but T. Stephen Johnson & Associates did
not independently verify such information. T. Stephen Johnson & Associates did
not make an independent evaluation or appraisal of the assets of UB&T or GB&T.
In connection with rendering the fairness opinion, T. Stephen Johnson &
Associates performed a variety of financial analyses, including those summarized
below. The summary set forth below does not purport to be a complete description
of the analyses performed by T. Stephen Johnson & Associates in this regard. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, notwithstanding the
separate factors summarized below, T. Stephen Johnson & Associates believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the evaluation process underlying
its opinion. In performing its analyses, T. Stephen Johnson & Associates made
numerous assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond UB&T's or GB&T's control.
The analyses performed by T. Stephen Johnson & Associates are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses. No company or transaction
considered as a comparison in the analyses is identical to UB&T, GB&T or the
Merger. Accordingly, an analysis of the results of such comparisons is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of companies
and other factors that could affect the public trading value of the companies
involved in such comparisons. In addition, the analyses do not purport to be
appraisals or reflect the process by which or the prices at which businesses
actually may be sold or the prices at which any securities may trade at the
present time or at any time in the future.
MERGER ANALYSIS: The merger consideration to be received by UB&T
Shareholders is based on the defined Exchange Ratio for GB&T common shares. The
value of the shares to be received is the Average closing price during the last
sixty calendar days of GB&T common shares. During the sixty days from October
10, 1999 to December 8, 1999, GB&T traded on eight days with an average closing
price of $20.00. Based on this average closing price the transaction value would
equal $30.00 per share. This transaction value equals 2.545 times September 30,
1999 book value and 38.297 times last twelve months earnings per share. The
purchase price was calculated to equal 28.35 percent of assets and 35.56 percent
of deposits as of September 30, 1999.
COMPARABLE TRANSACTIONS ANALYSIS: T. Stephen Johnson & Associates
reviewed the merger as of November 8, 1999, for the purpose of determining
purchase premiums that could be used in comparing the Merger with other
announced transactions. T. Stephen Johnson & Associates reviewed the purchase
premiums paid in all twelve transactions that were announced since September
30,1998 involving selling institutions with total assets less than $200 million,
headquartered in Georgia. A listing of these transactions is included with the
fairness opinion. On average, the comparable transactions reported an announced
deal price to book value of 2.5845 times, an announced deal price to earnings of
20.25 times, a purchase as a percent of assets of 31.60 percent and a purchase
price as a percent of deposits of 35.04 percent. The Merger ranks well within
the range of the comparable transactions.
DIVIDEND ANALYSIS: T. Stephen Johnson & Associates reviewed the
historical dividend payouts at UB&T in an effort to equate such payouts to the
current dividend payout at GB&T. The UB&T shareholders received $.25 per common
share during 1999. Assuming the current GB&T dividend payout of $0.065 per
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quarter or $0.26 per share, the UB&T shareholders would receive the equivalent
of $0.38 per current UB&T share, based on the Exchange Ratio of 1.50 to 1.
CONDUCT OF BUSINESS OF UB&T PENDING CLOSING
The Agreement and Plan of Reorganization provides that, pending
consummation of the merger, UB&T will, except with the written consent of GB&T:
o operate its business in the usual, regular, and ordinary
course;
o preserve intact its business organization and assets;
o maintain its rights and franchises; and
o use its reasonable efforts to cause its representatives and
warranties to be correct at all times.
The Agreement and Plan of Reorganization provides that, pending
consummation of the merger, UB&T will not, except with the written consent of
GB&T:
(a) amend its Articles of Incorporation, Bylaws, or other governing
instruments;
(b) incur any additional debt obligation or other obligation for
borrowed money in excess of an aggregate of $50,000;
(c) repurchase, redeem, issue, sell, pledge, encumber, adjust, split,
combine, reclassify, or otherwise acquire, exchange, or transfer (other than
exchanges in the ordinary course under employee benefit plans or pursuant to the
exercise of outstanding stock options), directly or indirectly, any shares, or
any securities convertible into any shares, of its capital stock or the capital
stock of United Bank & Trust Company, or declare or pay any dividend or make any
other distribution in respect of UB&T's capital stock;
(d) purchase any securities or make any material investment in any
entity or otherwise acquire direct or indirect control over any entity other
than in connection with (i) foreclosures in the ordinary course of business, or
(ii) acquisitions of control in its fiduciary capacity;
(e) grant any increase in compensation or benefits to any of its
employees whose annual salary exceeds $35,000, except in accordance with past
practice or previously approved by its Board of Directors; pay any severance or
termination pay or any bonus other than pursuant to written policies or written
contracts; enter into or amend any severance agreements with its officers; grant
any general increase in compensation to all employees; grant any increase in
fees or other increases in compensation or other benefits to its directors; or
voluntarily accelerate the vesting of any stock options or other stock-based
compensation or employee benefits;
(f) enter into or amend any employment contract between it and any
person (unless such amendment is required by law) that it does not have the
unconditional right to terminate without liability;
(g) adopt any new employee benefit plan or make any material change in
or to any existing employee benefit plans other than any such change that is
required by law or that, in the opinion of counsel, is necessary or advisable to
maintain the tax qualified status of any such plan;
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(h) make any significant change in any tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to conform
to changes in tax laws or regulatory accounting requirements or GAAP;
(i) commence any litigation other than in accordance with past
practice, settle any litigation involving any liability for money damages in
excess of $50,000 or which imposes material restrictions upon its operations;
(j) except in the ordinary course of business, modify, amend, or
terminate any material contract or waive, release, compromise, or assign any
material rights or claims; or
(k) take any action that would reasonably be expected to:
(1) adversely affect its ability or GB&T's ability to
obtain any consents required to consummate the
merger; or
(2) adversely affect in any material respect its ability
or GB&T's ability to perform their covenants and
agreements regarding the merger.
INTEREST OF MANAGEMENT IN THE TRANSACTION; CONDUCT OF BUSINESS AFTER THE MERGER
Except as set forth below, no director or officer of UB&T, or any of
their associates, has any direct or indirect material interest in the merger,
except that those persons may own shares of UB&T common stock which will be
converted in the merger into GB&T common stock. The directors of GB&T currently
anticipate that after the merger, one director of UB&T will be elected to serve
on GB&T's Board of Directors. GB&T and UB&T do not anticipate that the merger
will result in any material change in compensation to employees of UB&T.
There are 863,466 shares of GB&T common stock held by GB&T directors,
executive officers, and their affiliates, all of which are entitled to vote on
this merger. There are 112,960 shares of UB&T common stock held by its
directors, executive officers, and their affiliates, all of which are entitled
to vote on this merger.
GB&T has agreed in the Agreement and Plan of Reorganization to provide
employee benefits to UB&T employees that are substantially similar to those GB&T
currently provides to its employees and to indemnify each person entitled to
indemnification by UB&T or United Bank & Trust Company for liabilities arising
from acts or omissions arising prior to the effective date.
COMPARISON OF THE RIGHTS OF UB&T AND GB&T SHAREHOLDERS
Upon completion of the merger, holders of UB&T common stock (other than
dissenting shareholders) will become shareholders of GB&T. The following is a
summary of material differences between the rights of holders of GB&T common
stock and holders of UB&T common stock. Since GB&T and UB&T are both organized
under the laws of Georgia, any differences arise from differing provisions of
the corporations' respective articles of incorporation and bylaws.
PREEMPTIVE RIGHTS.
GB&T: The GB&T Articles of Incorporation provide that GB&T
shareholders are entitled to preemptive rights under Georgia law. Preemptive
rights allow a shareholder to acquire proportional amounts of GB&T's unissued or
treasury shares upon the decision of the Board of Directors to issue stock. This
means that the shareholders have the opportunity to maintain their percentage
ownership in GB&T. The preemptive rights are subject to certain limitations. No
shareholder of GB&T common stock has any preemptive right with respect to shares
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of any other class which may be issued or sold by GB&T. There are no preemptive
rights to (i) shares issued as a share dividend; (ii) fractional shares; (iii)
shares issued to effect a merger or share exchange; (iv) shares issued as
compensation to directors, officers, agents, or employees of the corporation,
its subsidiaries, or its affiliates upon terms and conditions approved or
ratified by the affirmative vote of the holders of a majority of the shares
entitled to vote thereon; (v) shares issued to satisfy conversion or option
rights created to provide compensation to directors, officers, agents, or
employees of the corporation, its subsidiaries, or its affiliates upon terms and
conditions approved or ratified by the affirmative vote of the holders of a
majority of the shares entitled to vote thereon; (vi) shares authorized in
articles of incorporation that are issued within one year from the effective
date of incorporation; (vii) shares issued under a plan of reorganization
approved in a proceeding under any applicable act of Congress relating to the
reorganization of corporations; (viii) shares sold otherwise than for money,
deemed by the board of directors in good faith to be advantageous to the
corporation's business; (ix) shares released by waiver from the preemptive
rights by the affirmative vote or written consent of the holders of two-thirds
of the shares of the class to be issued; and (x) shares which have been offered
to shareholders to satisfy their preemptive rights, but not purchased by them
within the prescribed time and which are thereafter issued or sold to any other
person or persons at a price not less than the price at which they were offered
to such shareholders. The effect of these provisions is that GB&T must offer its
shareholders the right to acquire proportional amounts of its shares, option
rights, or securities, upon the decision of the Board of Directors to issue them
in exchange for cash consideration.
UB&T: The UB&T Articles of Incorporation do not provide for preemptive
rights.
ELIMINATION OF LIABILITY.
UB&T: The UB&T Articles of Incorporation provide that a UB&T director
shall not be personally liable to UB&T or its shareholders for monetary damages
for breaches of duty of care or other duty as a director, except in certain
circumstances.
GB&T: The GB&T Articles of Incorporation do not provide for
elimination of director liability to GB&T or its shareholders.
ACCOUNTING TREATMENT
GB&T will account for the merger as a "pooling of interests"
transaction in accordance with generally accepted accounting principles. Under
this accounting method, the assets and liabilities of UB&T will be carried
forward at their recorded amounts and GB&T will restate its operating results to
include UB&T's operating results as if the companies had always been combined.
The unaudited pro forma financial information contained in this proxy
statement/prospectus has been prepared using the pooling of interests accounting
method to account for the merger.
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RESALES OF GB&T STOCK BY DIRECTORS AND OFFICERS OF UB&T
Although GB&T has registered the GB&T common stock to be issued in the
merger under the Securities Act of 1933, the directors, officers, and
shareholders of UB&T who are deemed to be affiliates of UB&T may not resell the
GB&T common stock received by them unless those sales are made pursuant to an
effective registration statement under the Securities Act, or under Rules 144
and 145 of the Securities Act, or another exemption from registration under the
Securities Act. Rules 144 and 145 limit the amount of GB&T common stock or other
equity securities of GB&T that those persons may sell during any three month
period, and they require that certain current public information with respect to
GB&T be available and that the GB&T common stock be sold in a broker's
transaction or directly to a market maker in the GB&T common stock.
REGULATORY APPROVALS
The Board of Governors of the Federal Reserve System has approved the
merger. In determining whether to grant that approval, the Federal Reserve
considered the effect of the merger on the financial and managerial resources
and future prospects of the companies and banks concerned and the convenience
and needs of the communities served.
The Department of Banking and Finance of the State of Georgia also has
approved the merger. THE DEPARTMENT OF BANKING AND FINANCE'S REVIEW OF THE
APPLICATION DID NOT INCLUDE AN EVALUATION OF THE PROPOSED TRANSACTION FROM THE
FINANCIAL PERSPECTIVE OF THE INDIVIDUAL SHAREHOLDERS OF UB&T. FURTHER, NO
SHAREHOLDER SHOULD CONSTRUE AN APPROVAL OF THE APPLICATION BY THE DEPARTMENT OF
BANKING AND FINANCE TO BE A RECOMMENDATION THAT THE SHAREHOLDERS VOTE TO APPROVE
THE PROPOSAL. EACH SHAREHOLDER ENTITLED TO VOTE SHOULD EVALUATE THE PROPOSAL TO
DETERMINE THE PERSONAL FINANCIAL IMPACT OF THE COMPLETION OF THE PROPOSED
TRANSACTION. SHAREHOLDERS NOT FULLY KNOWLEDGEABLE IN SUCH MATTERS ARE ADVISED TO
OBTAIN THE ASSISTANCE OF COMPETENT PROFESSIONALS IN EVALUATING ALL ASPECTS OF
THE PROPOSAL INCLUDING ANY DETERMINATION THAT THE COMPLETION OF THE PROPOSED
TRANSACTION IS IN THE BEST FINANCIAL INTEREST OF THE SHAREHOLDER.
RIGHTS OF DISSENTING SHAREHOLDERS
Any shareholder of record of UB&T common stock who objects to the
merger and who complies with Section 14-2-1301 ET SEQ. of the Georgia Business
Corporation Code will be entitled to demand and receive payment in cash of an
amount equal to the fair value of all, but not less than all, of his or her
shares of UB&T common stock if the merger is completed. GB&T SHAREHOLDERS ARE
NOT ENTITLED TO DISSENTER'S RIGHTS. A shareholder of record must exercise his
dissenter's rights as to all of the shares he owns except for shares registered
in a shareholders name but beneficially owned by another person. In such a case,
he may assert dissenters rights for less than all of the shares registered in
his name if he notifies UB&T in writing of the name and address of each person
on whose behalf he asserts dissenter's rights. For the purpose of determining
the amount to be received in connection with the exercise of statutory
dissenter's rights under the Georgia Business Corporation Code, the fair value
of a dissenting shareholder's UB&T common stock equals the value of the shares
immediately before the effective date of the merger, excluding any appreciation
or depreciation in anticipation of the merger.
Any UB&T shareholder desiring to receive payment of the fair value of
his or her shares of UB&T common stock in accordance with the requirements of
the Georgia Business Corporation Code:
(a) must deliver to UB&T, prior to the time the shareholder vote on
the merger agreement is taken, a written notice of his or her intent to demand
payment for his or her shares if the merger is completed;
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(b) must not vote his or her shares in favor of the merger agreement;
and
(c) must demand payment and deposit stock certificates representing
his or her UB&T common stock in accordance with the terms of a notice which will
be sent to the shareholder by UB&T no later than ten days after the merger is
completed.
A filing of the written notice of intent to dissent with respect to the
merger agreement should be sent to: Melissa Y. Deems, Corporate Secretary, UB&T
Financial Services Corporation, 129 East Elm Street, Rockmart, Georgia 30153. A
VOTE AGAINST THE MERGER AGREEMENT ALONE WILL NOT SATISFY THE REQUIREMENTS FOR
THE SEPARATE WRITTEN NOTICE OF INTENT TO DISSENT TO THE MERGER, THE SEPARATE
WRITTEN DEMAND FOR PAYMENT OF THE FAIR VALUE OF SHARES OF UB&T COMMON STOCK, AND
THE DEPOSIT OF THE STOCK CERTIFICATES, WHICH ARE REFERRED TO IN CONDITIONS (A)
AND (C) ABOVE. RATHER, A DISSENTING SHAREHOLDER MUST SEPARATELY COMPLY WITH ALL
OF THOSE CONDITIONS.
Within ten days of the later of the effective date or receipt of a
payment demand by a shareholder who deposits his or her stock certificates in
accordance with UB&T's dissenter's notice sent to those shareholders who
notified UB&T of their intent to dissent, described in (c) above, UB&T must
offer to pay to each dissenting shareholder the amount UB&T estimates to be the
fair value of the dissenting shareholder's shares, plus accrued interest. That
notice and offer must be accompanied by:
(a) UB&T's balance sheet as of the end of a fiscal year ending not more
than 16 months before the date of making an offer, an income statement for that
year, a statement of changes in shareholders' equity for that year, and the
latest available interim financial statements, if any;
(b) an explanation of how the interest was calculated;
(c) a statement of the dissenting shareholder's right to demand payment
of a different amount under Section 14-2-1327 of the Georgia Business
Corporation Code; and
(d) a copy of the dissenter's rights provisions of the Georgia Business
Corporation Code.
If the dissenting shareholder accepts UB&T's offer by written notice to
UB&T within 30 days after UB&T's offer, or is deemed to have accepted the offer
by not responding to that offer within that 30-day period, UB&T must make
payment for his or her shares within 60 days after the making of the offer or
the effective date, whichever is later. Upon payment of the agreed value, the
dissenting shareholder will cease to have any interest in his or her shares of
UB&T common stock.
If within 30 days after UB&T offers payment for the shares of a
dissenting shareholder, the dissenting shareholder does not accept the estimate
of fair value of his or her shares and interest due thereon and demands payment
of his or her own estimate of the fair value of the shares and interest due
thereon, then UB&T, within 60 days after receiving the payment demand of a
different amount from a dissenting shareholder, must file an action in the
superior court in Polk County, Georgia, requesting that the fair value of those
shares be determined. UB&T must make all dissenting shareholders whose demands
remain unsettled parties to the proceeding. If UB&T does not commence the
proceeding within that 60-day period, it will be required to pay each dissenting
shareholder whose demand remains unsettled the amount demanded by the dissenting
shareholder.
UB&T urges its shareholders to read all of the dissenter's rights
provisions of the Georgia Business Corporation Code, which are reproduced in
full in Appendix D to this proxy statement/prospectus and which are incorporated
by reference into this proxy statement/prospectus.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND OPINION OF TAX
COUNSEL
UB&T has received an opinion from Hulsey, Oliver & Mahar, LLP to the
effect that, assuming the merger is completed in accordance with the terms of
the Agreement and Plan of Reorganization:
(a) The merger of UB&T into GB&T and the issuance of shares of GB&T
common stock, as described herein and in the merger agreement, will constitute a
tax-free reorganization under Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended.
(b) Holders of UB&T common stock will not recognize any gain or loss
upon the exchange of that stock for GB&T common stock as a result of the merger.
(c) Holders of UB&T common stock will recognize gain or loss pursuant
to Section 302 of the Internal Revenue Code upon their receipt of cash instead
of fractional shares of GB&T common stock and upon their receipt of cash
pursuant to their exercise of dissenter's rights.
(d) UB&T will not recognize any gain or loss as a result of the merger.
(e) The aggregate tax basis of the GB&T common stock received by
shareholders of UB&T pursuant to the merger will be the same as the tax basis of
the shares of UB&T common stock exchanged therefor, decreased by any portion of
that tax basis allocated to fractional shares of GB&T common stock that are
treated as redeemed by GB&T.
(f) The holding period of the shares of GB&T common stock received by
the shareholders of UB&T will include the holding period of the shares of UB&T
common stock exchanged therefor, provided that the UB&T common stock is held as
a capital asset on the date of completion of the merger.
No ruling will be requested from the Internal Revenue Service with
respect to any Federal income tax consequences of the merger.
THE FOREGOING TAX OPINION AND THE PRECEDING DISCUSSION RELATE TO THE
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO UB&T SHAREHOLDERS.
UB&T SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS AS TO ANY STATE,
LOCAL, OR OTHER TAX CONSEQUENCES OF THE MERGER.
INFORMATION ABOUT UB&T FINANCIAL SERVICES CORPORATION
DESCRIPTION OF BUSINESS
UB&T is a one-bank holding company which, through its subsidiary,
United Bank & Trust Company, provides banking services through its two
full-service banking offices in Rockmart, Georgia, and Cedartown, Georgia.
UB&T's executive office is located at 129 East Elm Street, Rockmart, Georgia
30153, and its telephone number is (770) 684-8888. Through United Bank & Trust
Company, it offers a broad range of customary banking services including
commercial, mortgage, and consumer loans; checking, savings, and time deposit
accounts; wire transfers; and rental of safety deposit boxes.
As of September 30, 1999, UB&T had total consolidated assets of
approximately $45.1 million, total consolidated deposits of approximately $36.0
million, and total consolidated shareholders' equity of approximately $5.0
million. For more information about UB&T, see Exhibit B which includes the 1998
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Annual Report filed with the SEC and the latest quarterly report filed with the
SEC for the period ended September 30, 1999.
UB&T was incorporated on May 28, 1998, as a Georgia business
corporation. On September 1, 1998, UB&T acquired all of the shares of common
stock of United Bank & Trust Company, which was organized as a Georgia banking
corporation on October 27, 1988. As of November 30, 1999, United Bank & Trust
Company had 27 full-time employees and 4 part-time employees. UB&T has no
employees. United Bank & Trust Company is not a party to any collective
bargaining agreement, and, in the opinion of management, it believes that it
enjoys satisfactory relations with its employees.
UB&T's corporate office and United Bank & Trust Company's main office
are located at 129 East Elm Street near downtown Rockmart, Georgia. The main
office is in an office building owned by United Bank & Trust Company and
contains approximately 8,000 square feet of finished space. The building has
drive-in facilities and an automated teller machine with 24 hour access.
In July of 1995, United Bank & Trust Company opened a branch office in
Cedartown, Georgia, located at 632 N. Main Street. The Cedartown office is also
owned by United Bank & Trust Company and contains approximately 4,700 square
feet of finished space. It also has drive-in facilities and an automated teller
machine with 24 hour access.
RECENT DEVELOPMENTS
During the fourth quarter of calendar year 1999, management began an
extensive review of UB&T's loan portfolio. This review was initiated by new
management due to increasing past due loans, increases in bankruptcies and to
gain an understanding of the loan portfoio and customer relationships. As a
result of the review, which is still in process, UB&T has identified
approximately $140,000 in loan losses to be charged-off prior to year end. As a
result of the charge-offs and other identified problem loans, UB&T will make an
additional provision for loan losses of approximately $325,000 prior to December
31, 1999. After this additional provision, the ratio of the allowance for loan
losses to total loans will be 1.84% and the net charge-off to average loans
ratio will be 1.06%. Management believes that the allowance for loan losses will
then be adequate to absorb any potential loan losses in the loan portfolio. The
significant increases in charge-offs is partly attributable to changes in
management philosophy in the past year. During the past twelve months, UB&T has
replaced its president and senior lending officer. New loan administration
policies and procedures are being developed and will include strict guidelines
which include immediate recognition of losses on loans which contain known
deficiencies, such as bankruptcies.
COMPETITION
United Bank & Trust Company competes in the Polk County, Georgia market
with three commercial banks and one credit union. In addition, United Bank &
Trust Company competes with insurance companies and brokerage firms. United Bank
& Trust Company competes directly for deposits in its market area with other
commercial banks, thrifts, credit unions, brokerage firms, agencies issuing
United States government securities, and all other organizations and
institutions engaged in money market transactions. In its lending activities,
United Bank & Trust Company competes with other financial institutions as well
as consumer finance companies, mortgage companies, insurance companies, and
other lenders engaged in the business of extending credit in its market area.
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VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The following lists each shareholder of record that directly or
indirectly owned, controlled, or held with power to vote 5% or more of the
426,370 outstanding shares of UB&T common stock as of November 30, 1999, and the
amount of UB&T common stock held by each executive officer and director of UB&T.
Unless otherwise indicated, each person has sole voting and investment powers
over the indicated shares. Information relating to beneficial ownership of the
UB&T common stock is based upon "beneficial ownership" concepts set forth in
rules issued under the Exchange Act. Under those rules, a person is deemed to be
a "beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of that security, or
"investment power," which includes the power to dispose or to direct the
disposition of that security. Under the rules, more than one person may be
deemed to be a beneficial owner of the same securities.
<TABLE>
<CAPTION>
NAME AND ADDRESS<F1> NUMBER OF SHARES BENEFICIALLY OWNED PERCENT OF CLASS (%)
---------------- ----------------------------------- --------------------
<S> <C> <C>
Estate of Ray Sewell<F2> 36,275 8.50
Jimmy Lester<F3> 28,652 6.64
Bruce B. Albea<F4> 10,350 2.54
David Lee Cummings 9,130 2.14
Dan Forsyth<F5> 8,450 1.98
William D. Heath, Jr. 6,728 1.58
Jay W. LeGrande<F6> 15,950 3.74
William L. Lundy, Jr. <F7> 1,200 0.52
Elmo Peppers 9,500 2.23
Frank Shelley <F8> 13,100 3.07
Dan B. Simon, III <F9> 9,700 2.27
Melissa Y. Deems 200 0.09
<FN>
<F1> Unless otherwise indicated, the address of the persons named above is care
of United Bank & Trust Company, 129 East Elm Street, Rockmart, Georgia
30153.
<F2> The address for the Estate is Post Office Box 518, Bremen, Georgia 30110.
<F3> Includes 20,000 shares owned directly by J. L. Lester & Son, as to which
Mr. Lester shares the power to direct voting and disposition, and 8,335
shares that are held jointly by Mr. Lester and his wife. Mr. Lester's
address is 129 East Elm Street, Rockmart, Georgia 30153.
<F4> Includes 3,500 shares of common stock owned by Mr. Albea's wife.
<F5> The indicated shares are held jointly by Mr. Forsyth and his wife.
<F6> Includes 1,800 shares owned jointly with Mr. LeGrande's wife as custodians
for their grandchildren, for which Mr. LeGrande disclaims beneficial
ownership.
<F7> The indicated shares are held jointly by Mr. Lundy and his wife.
<F8> Includes 550 shares of common stock owned by Mr. Shelley as custodian for
his daughter and 50 shares of common stock owned by Mr. Shelley's wife.
<F9> Includes 2,375 shares owned jointly with Mr. Simon's wife, and 500 shares
owned individually by Mr. Simon's wife.
</FN>
</TABLE>
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<PAGE>
INFORMATION ABOUT GB&T BANCSHARES, INC.
DESCRIPTION OF BUSINESS
GB&T was incorporated under the laws of the state of Georgia in 1998.
All of GB&T's activities are currently conducted through its wholly-owned
subsidiary, Gainesville Bank & Trust, which was organized as a Georgia banking
corporation in 1987.
At September 30, 1999, GB&T had total consolidated assets of
approximately $237.8 million, total loans of approximately $180.7 million, total
deposits of approximately $191.7 million, and shareholders' equity of $16.4
million. For more information about GB&T, see Exhibit C which contains the 1998
Annual Report and the September 30, 1999 quarterly report filed with the SEC.
RECENT DEVELOPMENTS
ACQUISITION OF SHARES OF FIRST NATIONAL BANK OF JOHNS CREEK. On June
16, 1999, GB&T acquired a 4.99% interest in First National Bank of Johns Creek
for $483,730.
ACQUISITION OF SHARES OF ALLIANCE NATIONAL BANK, DALTON, GEORGIA. On
September 7, 1999, GB&T acquired a 4.99% interest in Alliance National Bank for
$433,710.
DESCRIPTION OF SECURITIES
The following is a summary of material provisions of GB&T's common
stock:
GENERAL. The authorized capital stock of GB&T consists of 10,000,000
shares of common stock, $5.00 par value per share. As of November 30, 1999,
2,117,146 shares of common stock were issued and outstanding. Additionally,
there are presently exercisable options to acquire 69,126 shares of GB&T's
common stock issued and outstanding.
COMMON STOCK. All voting rights are vested in the holders of the common
stock. Each holder of common stock is entitled to one vote per share on any
issue requiring a vote at any meeting. The shares do not have cumulative voting
rights. All shares of GB&T common stock are entitled to share equally in any
dividends that GB&T's Board of Directors may declare on GB&T's common stock from
sources legally available for distribution. The determination and declaration of
dividends is within the discretion of GB&T's Board of Directors. Upon
liquidation, holders of GB&T's common stock will be entitled to receive on a pro
rata basis, after payment or provision for payment of all debts and liabilities
of GB&T, all assets of GB&T available for distribution, in cash or in kind.
GB&T's Articles grant preemptive rights to the holders of GB&T common stock.
The outstanding shares of GB&T common stock are, and the shares of GB&T
common stock to be issued by GB&T in connection with the merger will be, duly
authorized, validly issued, fully paid and nonassessable.
TRANSFER AGENT AND REGISTRAR. The Transfer Agent and Registrar for
GB&T's common stock is Reliance Trust, Atlanta, Peachtree Road, Atlanta, Georgia
30309.
LEGAL OPINIONS
Hulsey, Oliver & Mahar, LLP counsel to GB&T, will provide an opinion as
to the (a) legality of the GB&T common stock to be issued in connection with the
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<PAGE>
merger and (b) the income tax consequences of the merger. As of the date of this
proxy statement/prospectus, members of Hulsey, Oliver & Mahar own an aggregate
of 84,792 shares of GB&T common stock.
EXPERTS
The audited consolidated financial statements of GB&T and its
subsidiaries included or incorporated by reference in this proxy
statement/prospectus and elsewhere in the registration statement have been
audited by Mauldin & Jenkins, LLC, independent certified public accountants, as
indicated in their related audit reports, and are included on the authority of
that firm as experts in giving those reports.
The audited consolidated financial statements of UB&T as of and for the
year ended December 31, 1998, included in this proxy statement/prospectus and
elsewhere in the registration statement have been audited by Mauldin & Jenkins,
LLC, independent certified public accountants, as indicated in their related
audit reports, and are included on the authority of that firm as experts in
giving those reports.
The audited consolidated financial statements of UB&T as of and for
the year ended December 31, 1997, have been incorporated by reference herein and
in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
OTHER MATTERS
Management of UB&T and GB&T know of no other matters which may be
brought before the special shareholders' meeting. If any matter other than the
proposed merger or related matters should properly come before the special
meeting, however, the persons named in the enclosed proxies will vote proxies in
accordance with their judgment on those matters.
By Order of the Boards of Directors,
Samuel L. Oliver Melissa Y. Deems
Corporate Secretary Corporate Secretary
GB&T Bancshares, Inc. UB&T Financial Services Corporation
December ___, 1999 December ___, 1999
Gainesville, Georgia Rockmart, Georgia
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<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of October 14, 1999 by and between GB&T Bancshares, Inc.
("GB&T"), a corporation organized and existing under the laws of the State of
Georgia, with its principal office located in Gainesville, Georgia, and UB&T
Financial Services Corporation ("Financial Services"), a corporation organized
and existing under the laws of the State of Georgia, with its principal office
located in Rockmart, Georgia.
Preamble
The Boards of Directors of GB&T and Financial Services are of the opinion
that the transactions described herein are in the best interests of the parties
and their respective shareholders. This Agreement provides for the merger of
Financial Services with and into GB&T, with GB&T being the surviving corporation
of the merger. At the effective time of such merger, the outstanding shares of
capital stock of Financial Services will be converted into the right to receive
shares of capital stock of GB&T. As a result, shareholders of Financial Services
will become shareholders of GB&T, and the wholly-owned subsidiary of Financial
Services, United Bank & Trust, will continue to conduct its business and
operations as a wholly-owned subsidiary of GB&T. The transactions described in
this Agreement are subject to the approvals of the Boards of Directors of both
GB&T and Financial Services, the shareholders of GB&T and Financial Services,
the Board of Governors of the Federal Reserve System, the Georgia Department of
Banking and Finance and the satisfaction of certain other conditions described
in this Agreement. It is the intention of the parties to this Agreement that the
merger(i) for federal income tax purposes shall qualify as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code and (ii) for
accounting purposes shall be accounted for as a "pooling of interests."
As a condition and inducement to GB&T's willingness to consummate the
transactions contemplated by this Agreement, each of the directors of Financial
Services will execute and deliver to GB&T an agreement (a "Support Agreement")
within ten (10) calendar days of the date of this Agreement, in substantially
the form of Exhibit 6 to this Agreement.
Certain terms used in this Agreement are defined in Section 11.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the receipt and
legal sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time, Financial Services shall be merged with and into GB&T in
accordance with the provisions of Section 14-2-1101, 14-2-1103, and 14-2-1105 of
the GBCC and with the effect provided in Section 14-2-1106 of the GBCC (the
"Merger"). GB&T shall be the Surviving Corporation resulting from the Merger.
The Merger shall be consummated pursuant to the terms of this Agreement, which
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<PAGE>
has been approved and adopted by the respective Boards of Directors of GB&T and
Financial Services.
1.2 Time and Place of Closing. The Closing will take place at 10:00
a.m. on the date that the Effective Time occurs (or the immediately preceding
day if the Effective Time is earlier than 10:00 a.m.), or at such other time as
the Parties, acting through their Designated Officers may mutually agree. The
place of Closing shall be at the offices of Hulsey, Oliver & Mahar, LLP,
Gainesville, Georgia, or such other place as may be mutually agreed upon by the
Parties.
1.3 Effective Time. The Merger and the other transactions contemplated
by this Agreement shall become effective on the date and at the time the
Articles of Merger reflecting the Merger shall become effective with the
Secretary of State of the State of Georgia (the "Effective Time"). Subject to
the terms and conditions hereof, unless otherwise mutually agreed upon in
writing by the Designated Officer of each Party, the Parties shall use their
reasonable efforts to cause the Effective Time to occur on the last business day
of the month in which occurs the last to occur of (a) the effective date
(including expiration of any applicable waiting period) of the last required
Consent of any Regulatory Authority having authority over and approving or
exempting the Merger, (b) the date on which the shareholders of Financial
Services approve this Agreement to the extent such approval is required by
applicable Law;(c) the date on which the Shareholders of GB&T approve this
Agreement to the extent such approval is required; or such later date as may be
mutually agreed upon in writing by the chief executive officer of each Party.
1.4 Execution of Support Agreements. Within ten (10) calendar days of the
execution of this Agreement and as a condition hereto, each of the directors of
Financial Services will execute and deliver to GB&T a Support Agreement, in
substantially the form of Exhibit 6 to this Agreement.
ARTICLE II
TERMS OF MERGER
2.1 Articles of Incorporation. The Articles of Incorporation of GB&T in
effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation from and after the Effective Time
until otherwise amended or repealed.
2.2 Bylaws. The Bylaws of GB&T in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation from and after the
Effective Time until otherwise amended or repealed.
2.3 Directors and Officers.
(a) The officers and directors of the Surviving Corporation from and
after the Effective Time shall consist of the officers and directors of GB&T
immediately preceding the Effective Time, together with a director from the
present Financial Services board to be selected by the GB&T Board. Such officers
and directors shall serve in accordance with the Articles of Incorporation and
Bylaws of the Surviving Corporation.
(b) The directors of GB&T Bank from and after the Effective Time shall
consist of the directors of GB&T Bank immediately preceding the Effective Time.
2
<PAGE>
Such directors shall serve in accordance with the Articles of Incorporation and
Bylaws of GB&T Bank.
(c) The directors of United Bank & Trust from and after the Effective
Time shall consist of the directors of United Bank & Trust immediately preceding
the Effective time. Such directors shall serve in accordance with the Articles
of Incorporation and Bylaws of United Bank & Trust.
ARTICLE III
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of this Article 3, at
the Effective Time, by virtue of the Merger and without any action on the part
of GB&T or Financial Services, or the shareholders of either of the foregoing,
the shares of the constituent corporations shall be converted as follows:
(a) Each share of GB&T Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.
(b) Each share of Financial Services Common Stock (excluding shares
held by GB&T or Financial Services or any of their respective Subsidiaries, in
each case other than in a fiduciary capacity or as a result of debts previously
contracted) issued and outstanding at the Effective Time shall cease to be
outstanding and shall be converted into and exchanged for the right to receive
that multiple of a share of GB&T common stock (the "Exchange Ratio") by dividing
$30.00 by the Base Period Trading Price. "Base Period Trading Price" shall mean
the average of the daily last sale prices for the shares of Common Stock for the
sixty (60) consecutive calendar days on which such shares are actually traded as
over-the-counter securities and quoted on NASDAQ (as reported by The Wall Street
Journal or, if not reported thereby, any other authoritative source) ending at
the close of trading on the fifth trading day immediately preceding the Closing;
provided, however, that in no event shall the Base Period Trading Price be
greater than $30.00 or less than $18.00.
3.2 Anti-Dilution Provisions. In the event GB&T or Financial Services
changes the number of shares of GB&T Common Stock or Financial Services Common
Stock, respectively, issued and outstanding prior to the Effective Time as a
result of a stock split, stock dividend or similar recapitalization with respect
to such stock and the record date therefor (in the case of a stock dividend) or
the effective date therefor (in the case of a stock split or similar
recapitalization) shall be after the date hereof and prior to the Effective
Time, the Exchange Ratio shall be proportionately adjusted.
3.3 Shares Held by GB&T or Financial Services. Each of the shares of
Financial Services Common Stock held by any GB&T Company or by any Financial
Services Company, in each case other than in a fiduciary capacity or as a result
of debts previously contracted, shall be canceled and retired at the Effective
Time and no consideration shall be issued in exchange therefor.
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3.4 Conversion of Stock Options; Restricted Stock.
Deliberately Omitted
3.5 Dissenting Shareholders. Any holder of shares of Financial Services
Common Stock who perfects such holder's dissenters' rights of appraisal in
accordance with and as contemplated by Article 13 of the GBCC shall be entitled
to receive the value of such shares in cash as determined pursuant to such
provision of the GBCC; provided, that no such payment shall be made to any
dissenting shareholder unless and until such dissenting shareholder has complied
with the applicable provisions of the GBCC and has surrendered to GB&T the
certificate or certificates representing shares for which payment is being made.
In the event that after the Effective Time a dissenting shareholder of Financial
Services fails to perfect, or effectively withdraws or loses, such holder's
right to appraisal and of payment for such holder's shares, GB&T shall issue and
deliver the consideration to which such holder of shares of Financial Services
Common Stock is entitled under this Article III (without interest) upon
surrender by such holder of the certificate or certificates representing shares
of Financial Services Common Stock held by such holder.
3.6 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of Financial Services Common Stock exchanged
pursuant to the Merger, or of options to purchase shares of Financial Services
Common Stock, who would otherwise have been entitled to receive a fraction of a
share of GB&T Common Stock (after taking into account all certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of GB&T Common Stock multiplied
by $30.00. No such holder will be entitled to dividends, voting rights, or any
other rights as a stockholder in respect of any fractional shares.
ARTICLE IV
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective Time, GB&T and
Financial Services shall cause the exchange agent selected by GB&T (the
"Exchange Agent") to mail to the former holders of Financial Services Common
Stock appropriate transmittal materials (which shall specify that delivery shall
be effected, and risk of loss and title to the certificates theretofore
representing shares of Financial Services Common Stock shall pass, only upon
proper delivery of such certificates to the Exchange Agent). After the Effective
Time, each holder of shares of Financial Services Common Stock (other than
shares to be canceled pursuant to Section 3.3 of this Agreement or shares as to
which dissenters' rights have been perfected as provided in Section 3.5 of this
Agreement) issued and outstanding at the Effective Time, shall surrender the
certificate or certificates representing such shares to the Exchange Agent and
shall promptly upon surrender thereof receive in exchange therefor the
consideration provided in Section 3.1 and 3.6 of this Agreement, together with
all undelivered dividends or distributions in respect of such shares (without
interest thereon)pursuant to Section 4.2 of this Agreement. Neither GB&T nor the
Exchange Agent shall be obligated to deliver the consideration to which any
former holder of Financial Services Common Stock is entitled as a result of the
Merger until such holder surrenders his or her certificate or certificates
representing the shares of Financial Services Common Stock for exchange, as
provided in this Section 4.1 or appropriate affidavits and indemnity agreements
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<PAGE>
in the event such share certificates have been lost, mutilated, or destroyed.
The certificate or certificates of Financial Services Common Stock so
surrendered shall be duly endorsed as GB&T may require. Any other provision of
this Agreement notwithstanding, neither GB&T nor the Exchange Agent shall be
liable to a holder of Financial Services Common Stock for any amounts paid or
property delivered in good faith to a public official pursuant to any applicable
abandoned property Law.
4.2 Rights of Former Financial Services Shareholders. The stock transfer
books of Financial Services shall be closed as to holders of Financial Services
Common Stock immediately prior to the Effective Time and no transfer of
Financial Services Common Stock by any such holder shall thereafter be made or
recognized. Until surrendered for exchange in accordance with the provisions of
Section 4.1 of this Agreement, each certificate theretofore representing shares
of Financial Services Common Stock (other than shares to be canceled pursuant to
Section 3.3 or shares as to which dissenters' rights have been perfected as
provided in Section 3.5 of this Agreement) shall from and after the Effective
Time represent for all purposes only the right to receive the consideration
provided in Section 3.1 and 3.6 of this Agreement in exchange therefor. To the
extent permitted by Law, former holders of record of Financial Services Common
Stock shall be entitled to vote after the Effective Time at any meeting of GB&T
shareholders the number of whole shares of GB&T Common Stock into which their
respective shares of Financial Services Common Stock are converted, regardless
of whether such holders have exchanged their certificates representing Financial
Services Common Stock for certificates representing GB&T Common Stock in
accordance with the provisions of this Agreement. Whenever a dividend or other
distribution is declared by GB&T on the GB&T Common Stock, the record date for
which is at or after the Effective Time, the declaration shall include dividends
or other distributions on all shares issuable pursuant to this Agreement, but no
dividend or other distribution payable to the holders of record of GB&T Common
Stock as of any time subsequent to the Effective Time shall be delivered to the
holder of any certificate representing shares of Financial Services Common Stock
issued and outstanding at the Effective Time until such holder surrenders such
certificate for exchange as provided in Section 4.1 of this Agreement. However,
upon surrender of such Financial Services Common Stock certificate, both GB&T
Common Stock certificate (together with all such undelivered dividends or other
distributions without interest) and any undelivered cash payments to be paid for
fractional share interests (without interest) shall be delivered and paid with
respect to each share represented by such certificate.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF Financial Services
Financial Services hereby represents and warrants to GB&T as follows:
5.1 Organization, Standing, and Power. Financial Services is a corporation
duly organized, validly existing, and in good standing under the Laws of the
State of Georgia and is duly registered as a bank holding company under the BHC
Act. Financial Services has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its Assets. Financial
Services is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
5
<PAGE>
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Financial Services.
5.2 Authority; No Breach By Agreement.
(a) Financial Services has the corporate power and authority necessary
to execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of Financial
Services, subject to the approval of this Agreement by the holders of a majority
of the outstanding shares of Financial Services Common Stock, which is the only
shareholder vote required for approval of this Agreement and consummation of the
Merger by Financial Services. Subject to such requisite shareholder approval,
this Agreement represents a legal, valid and binding obligation of Financial
Services, enforceable against Financial Services in accordance with its terms
(except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting
the enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by Financial
Services, nor, except as described in Section 5.2 of the Financial Services
Disclosure Memorandum, the consummation by Financial Services of the
transactions contemplated hereby, nor compliance by Financial Services with any
of the provisions hereof will (i) conflict with or result in a breach of any
provision of Financial Services's Articles of Incorporation or Bylaws, or (ii)
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of any Financial Services
Company under, any Contract or Permit of any Financial Services Company, where
such Default or Lien, or any failure to obtain such Consent, is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Financial Services, or (iii) subject to receipt of the requisite approvals
referred to in Section 9.1 (b) of this Agreement, violate any Law or Order
applicable to any Financial Services Company or any of their respective Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NASDAQ, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
and other than Consents, filings or notifications which, if not obtained or
made, are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Financial Services, no notice to, filing with, or
Consent of any public body or authority is necessary for the consummation by
Financial Services of the Merger and the other transactions contemplated in this
Agreement.
5.3 Common Stock.
(a) The authorized common stock of Financial Services consists of
10,000,000 shares of Financial Services Common Stock, of which 426,370 shares
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<PAGE>
are issued and outstanding as of the date of this Agreement and not more than
426,370 shares will be issued and outstanding at the Effective Time. All of the
issued and outstanding shares of capital stock of Financial Services are duly
and validly issued and outstanding and are fully paid and nonassessable under
the GBCC. None of the outstanding shares of capital stock of Financial Services
have been issued in violation of any preemptive rights of the current or past
shareholders of Financial Services.
(b) Except as set forth in Section 5.3 of this Agreement, or as
disclosed in Section 5.3 of the Financial Services Disclosure Memorandum, there
are no shares of capital stock or other equity securities of Financial Services
outstanding and no outstanding Rights relating to the capital stock of Financial
Services.
5.4 Financial Services Subsidiaries. Financial Services has disclosed
in Section 5.4 of the Financial Services Disclosure Memorandum all of the
Financial Services Subsidiaries as of the date of this Agreement. Except as
disclosed in Section 5.4 of the Financial Services Disclosure Memorandum,
Financial Services or one of its Subsidiaries owns all of the issued and
outstanding shares of capital stock of each Financial Services Subsidiary. No
equity securities of any Financial Services Subsidiary are or may become
required to be issued (other than to another Financial Services Company) by
reason of any Rights, and there are no Contracts by which any Financial Services
Subsidiary is bound to issue (other than to another Financial Services Company)
additional shares of its capital stock or Rights, or by which any Financial
Services Company is or may be bound to transfer any shares of the capital stock
of any Financial Services Subsidiary (other than to another Financial Services
Company). There are no Contracts relating to the rights of any Financial
Services Company to vote or to dispose of any shares of the capital stock of any
Financial Services Subsidiary. All of the shares of capital stock of each
Financial Services Subsidiary held by a Financial Services Company are fully
paid and nonassessable under the applicable Law of the jurisdiction in which
such Subsidiary is incorporated or organized and are owned by a Financial
Services Company free and clear of any Lien. Each Financial Services Subsidiary
is either a bank, a savings association or a corporation and is duly organized,
validly existing, and (as to corporations) in good standing under the Laws of
the jurisdiction in which it is organized and has the corporate power and
authority necessary for it to own, lease and operate its Assets and to carry on
its business as now conducted. Each Financial Services Subsidiary is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Financial Services. Each
Financial Services Subsidiary that is a depository institution is an "insured
institution" as defined in the Federal Deposit Insurance Act and applicable
regulations thereunder, and the deposits in which are insured by the Bank
Insurance Fund or the Savings Association Insurance Fund, as appropriate.
5.5 Financial Statements. Financial Services has included in Section
5.5 of the Financial Services Disclosure Memorandum copies of all Financial
Services Financial Statements for periods ended prior to the date hereof and
will deliver to GB&T copies of all Financial Services Financial Statements
prepared subsequent to the date hereof. The Financial Services Financial
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Statements (as of the dates thereof and for the periods covered thereby) (a)
are, or if dated after the date of this Agreement will be, in accordance with
the books and records of the Financial Services Companies, which are or will be,
as the case may be, complete and correct and which have been or will have been,
as the case may be, maintained in accordance with good business practices, and
(b) present or will present, as the case may be, fairly the consolidated
financial position of the Financial Services Companies as of the dates indicated
and the consolidated results of operations, changes in shareholders' equity, and
cash flows of the Financial Services Companies for the periods indicated, in
accordance with GAAP (subject to any exceptions as to consistency specified
therein or as may be indicated in the notes thereto or, in the case of interim
financial statements, to normal recurring year-end adjustments that are not
material in amount or effect).
5.6 Absence of Undisclosed Liabilities. No Financial Services Company has
any Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Financial Services except Liabilities
which are accrued or reserved against in the consolidated balance sheets of
Financial Services as of June 30, 1999, included in the Financial Services
Financial Statements or reflected in the notes thereto. No Financial Services
Company has incurred or paid any Liability since June 30, 1999, except for such
Liabilities incurred or paid in the ordinary course of business consistent with
past business practice and which are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on Financial Services.
5.7 Absence of Certain Changes or Events. Since June 30, 1999, except as
disclosed in Section 5.7 of the Financial Services Disclosure Memorandum, (a)
there have been no events, changes or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Financial Services, and (b) the Financial Services Companies have not
taken any action, or failed to take any action, prior to the date of this
Agreement, which action or failure, if taken after the date of this Agreement,
would represent or result in a material breach or violation of any of the
covenants and agreements of Financial Services provided in Article VII of this
Agreement.
5.8 Tax Matters.
(a) All Tax returns required to be filed by or on behalf of any of the
Financial Services Companies have been timely filed or requests for extensions
have been timely filed, granted, and have not expired, except to the extent that
all such failures to file, taken together, are not reasonably likely to have a
Material Adverse Effect on Financial Services and all returns filed are complete
and accurate to the Knowledge of Financial Services. All Taxes shown on filed
returns have been paid. As of the date of this Agreement, there is no audit
examination, deficiency or refund Litigation with respect to any Taxes that is
reasonably likely to result in a determination that would have, individually or
in the aggregate, a Material Adverse Effect on Financial Services, except as
reserved against in the Financial Services Financial Statements delivered prior
to the date of this Agreement or as disclosed in Section 5.8(a) of the Financial
Services Disclosure Memorandum. All Taxes and other Liabilities due with respect
to completed and settled examinations or concluded Litigation have been paid.
(b) Except as disclosed in Section 5.8(b) of the Financial Services
Disclosure Memorandum, none of the Financial Services Companies has executed an
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extension or waiver of any statute of limitations on the assessment or
collection of any Tax due that is currently in effect, and no unpaid tax
deficiency has been asserted in writing against or with respect to any Financial
Services Company, which deficiency is reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Financial Services.
(c) Adequate provision for any Taxes due or to become due for any of
the Financial Services Companies for the period or periods through and including
the date of the respective Financial Services Financial Statements has been made
and is reflected on such Financial Services Financial Statements.
(d) Deferred Taxes of the Financial Services Companies have been
provided for in accordance with GAAP.
(e) Each of the Financial Services Companies is in compliance with,
and its records contain all information and documents (including, without
limitation, properly completed IRS Forms W-9) necessary to comply with, all
applicable information reporting and Tax withholding requirements under federal,
state and local Tax Laws, and such records identify with specificity all
accounts subject to backup withholding under Section 3406 of the Internal
Revenue Code, except for such instances of noncompliance and such omissions as
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Financial Services.
5.9 Allowance for Possible Loan Losses. The allowance for possible loan or
credit losses (the "Allowance") shown on the consolidated balance sheets of
Financial Services included in the most recent Financial Services Financial
Statements dated prior to the date of this Agreement was, and the Allowance
shown on the consolidated balance sheets of Financial Services included in the
Financial Services Financial Statements as of dates subsequent to the execution
of this Agreement will be, as of the dates thereof, adequate (within the meaning
of GAAP and applicable regulatory requirements or guidelines) to provide for
losses relating to or inherent in the loan and lease portfolios (including
accrued interest receivables) of the Financial Services Companies and other
extensions of credit (including letters of credit and commitments to make loans
or extend credit) by the Financial Services Companies as of the dates thereof
except where the failure of such Allowance to be so adequate is not reasonably
likely to have a Material Adverse Effect on Financial Services.
5.10 Assets. Except as disclosed in Section 5.10 of the Financial
Services Disclosure Memorandum or as disclosed or reserved against in the
Financial Services Financial Statements, the Financial Services Companies have
good and marketable title, free and clear of all Liens, to all of their
respective Assets indicated as owned by the respective Company as of the date of
the respective Financial Services Statement. All material tangible properties
used in the businesses of the Financial Services Companies are in good
condition, reasonable wear and tear excepted, and are usable in the ordinary
course of business consistent with Financial Services's past practices. All
Assets which are material to the business of the Financial Services Companies
and held under leases or subleases by any of the Financial Services Companies
are held under valid Contracts enforceable in accordance with their respective
terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other Laws affecting the enforcement
of creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
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of the court before which any proceedings may be brought), and each such
Contract is in full force and effect. The policies of fire, theft, liability and
other insurance maintained with respect to the Assets or businesses of the
Financial Services Companies provide adequate coverage under current industry
practices against loss or Liability, and the fidelity and blanket bonds in
effect as to which any of the Financial Services Companies is a named insured
are reasonably sufficient. The Assets of the Financial Services Companies
include all assets required to operate the business of the Financial Services
Companies as presently conducted.
5.11 Environmental Matters. Except as disclosed in Section 5.11 of the
Financial Services Disclosure Memorandum:
(a) To the Knowledge of Financial Services, each Financial Services
Company, its Participation Facilities and its Loan Properties are, and have
been, in compliance with all Environmental Laws, except for noncompliance which
is not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Financial Services.
(b) There is no Litigation pending or to the Knowledge of Financial
Services threatened before any court, governmental agency or authority or other
forum in which any Financial Services Company or any of its Loan Properties or
Participation Facilities has been or, with respect to threatened Litigation, may
be named as a defendant or potentially responsible party (i) for alleged
noncompliance with any Environmental Law or (ii) relating to the Release into
the Environment of any Hazardous Material, whether or not occurring at, on,
under or involving a site owned, leased or operated by any Financial Services
Company or any of its Loan Properties or Participation Facilities, except for
such Litigation pending or threatened the resolution of which is not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Financial Services, and to the Knowledge of Financial Services, there is no
reasonable basis for any such Litigation.
(c) To the Knowledge of Financial Services, there have been no
releases of Hazardous Material in, on, under or affecting any Participation
Facility or Loan Property, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Financial
Services.
5.12 Compliance with Laws. Financial Services is duly registered as a bank
holding company under the BHC Act and under Georgia law. Each Financial Services
Company has in effect all Permits necessary for it to own, lease or operate its
Assets and to carry on its business as now conducted, except for those Permits
the absence of which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Financial Services, and there has
occurred no Default under any such Permit, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Financial Services. Except as disclosed in Section 5.12 of the
Financial Services Disclosure Memorandum, no Financial Services Company:
(a) is in violation of any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for violations which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Financial Services; and
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(b) as received any notification or communication from any agency or
department of federal, state, or local government or any Regulatory Authority or
the staff thereof (i) asserting that any Financial Services Company is not in
compliance with any of the Laws or Orders which such governmental authority or
Regulatory Authority enforces, where such noncompliance is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Financial
Services, (ii) threatening to revoke any Permits, the revocation of which is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Financial Services, or (iii) requiring any Financial Services Company
to enter into or consent to the issuance of a cease and desist order, formal
agreement, directive, commitment or memorandum of understanding, or to adopt any
Board resolution or similar undertaking, which restricts materially the conduct
of its business, or in any manner relates to its capital adequacy, its credit or
reserve policies, its management, or the payment of dividends.
5.13 Labor Relations. No Financial Services Company is the subject of any
Litigation asserting that it or any other Financial Services Company has
committed an unfair labor practice (within the meaning of the National Labor
Relations Act or comparable state law) or seeking to compel it or any other
Financial Services Company to bargain with any labor organization as to wages or
conditions of employment, nor is there any strike or other labor dispute
involving any Financial Services Company, pending or, to its Knowledge,
threatened, nor, to its Knowledge, is there any activity involving any Financial
Services Company's employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
5.14 Employee Benefit Plans.
(a) Financial Services has disclosed in Section 5.14 of the Financial
Services Disclosure Memorandum and delivered or made available to GB&T prior to
the execution of this Agreement copies in each case of all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plans, all other written
employee programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including, without limitation, "employee benefit
plans" as that term is defined in Section 3(3) of ERISA, currently adopted,
maintained by, sponsored in whole or in part by, or contributed to by any
Financial Services Company or Affiliate thereof for the benefit of employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, the "Financial Services Benefit Plans"). Any of the
Financial Services Benefit Plans which is an "employee pension benefit plan," as
that term is defined in Section 3(2) of ERISA, is referred to herein as a
"Financial Services ERISA Plan." Each Financial Services ERISA Plan which is
also a "defined benefit plan" (as defined in Section 414(j) of the Internal
Revenue Code) is referred to herein as a "Financial Services Pension Plan." No
Financial Services Pension Plan is or has been a multi-employer plan within the
meaning of Section 3(37) of ERISA.
(b) All Financial Services Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other applicable
Laws the breach or violation of which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Financial
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Services. Each Financial Services ERISA Plan which is intended to be qualified
under Section 401(a) of the Internal Revenue Code has received a favorable
determination letter from the Internal Revenue Service, and Financial Services
is not aware of any circumstances likely to result in revocation of any such
favorable determination letter. To the Knowledge of Financial Services, no
Financial Services Company nor any other party has engaged in a transaction with
respect to any Financial Services Benefit Plan that, assuming the taxable period
of such transaction expired as of the date hereof, would subject any Financial
Services Company to a tax or penalty imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA in amounts which are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Financial Services.
(c) Neither Financial Services nor any ERISA Affiliate of
Financial Services maintains an "employee pension benefit plan," within the
meaning of Section 3(2) of ERISA that is or was subject to Title IV of ERISA.
(d) Neither Financial Services nor any ERISA Affiliate of Financial
Services has any past, present or future obligation or liability to contribute
to any multi-employer plan, as defined in Section 3(37) of ERISA.
(e) Except as disclosed in Section 5.14(e) of the Financial Services
Disclosure Memorandum, (i) no Financial Services Company has any obligations for
retiree health and life benefits under any of the Financial Services Benefit
Plans, except as required by Section 601 of ERISA and Section 4980B of the Code;
(ii)there are no restrictions on the rights of any Financial Services Company to
amend or terminate any such Plan; and (iii) any amendment or termination of any
such Plan will not cause any Financial Services Company to incur any Liability
that is reasonably likely to have a Material Adverse Effect on Financial
Services.
(f) Except as disclosed in Section 5.14(f) of the Financial Services
Disclosure Memorandum, neither the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any director or any employee of
any Financial Services Company from any Financial Services Company under any
Financial Services Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable under any Financial Services Benefit Plan, or (iii) result in
any acceleration of the time of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including, without limitation, entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of any Financial Services Company and their respective
beneficiaries have been fully reflected on the Financial Services Financial
Statements to the extent required by and in accordance with GAAP.
(h) Financial Services and each ERISA Affiliate of Financial Services
has complied with the continuation of coverage requirements of Section 1001 of
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and
ERISA Sections 601 through 608 in a manner that will not cause any Financial
Services Company to incur any Liability that is reasonably likely to have a
Material Adverse Effect on Financial Services.
(i) Except as disclosed in Section 5.14(i) of the Financial Services
Disclosure Memorandum, neither Financial Services nor any ERISA Affiliate of
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Financial Services is obligated, contingently or otherwise, under any agreement
to pay any amount which would be treated as a "parachute payment," as defined in
Section 280G(b) of the Internal Revenue Code (determined without regard to
Section 280G(b)(2)(A)(ii) of the Internal Revenue Code).
(j) Other than routine claims for benefits, to the Knowledge of
Financial Services, there are no actions, audits, investigations, suits or
claims pending against any Financial Services Benefit Plan, any trust or other
funding agency created thereunder, or against any fiduciary of any Financial
Services Benefit Plan or against the assets of any Financial Services Benefit
Plan.
5.15 Material Contracts. Except as disclosed in Section 5.15 of the
Financial Services Disclosure Memorandum or otherwise reflected in the Financial
Services Financial Statements, none of the Financial Services Companies, nor any
of their respective Assets, businesses or operations, is a party to, or is bound
or affected by, or receives benefits under, (a) any employment, severance,
termination, consulting or retirement Contract providing for aggregate payments
to any Person in any calendar year in excess of $25,000, excluding "at will"
employment arrangements, (b) any Contract relating to the borrowing of money by
any Financial Services Company or the guarantee by any Financial Services
Company of any such obligation (other than Contracts evidencing deposit
liabilities, purchases of federal funds, Federal Home Loan Bank advances,
fully-secured repurchase agreements, trade payables, and Contracts relating to
borrowings or guarantees made in the ordinary course of business), (c) any
Contracts between or among Financial Services Companies, and (d) any other
Contract (excluding this Agreement) or amendment thereto that is required to be
filed as an exhibit to a Form 10-KSB or Form 10-QSB filed by Financial Services
with the SEC as of the date of this Agreement if Financial Services were
required to file a Form 10-KSB or 10-QSB with the SEC (together with all
Contracts referred to in Sections 5.10 and 5.14(a) of this Agreement, the
"Financial Services Contracts"). None of the Financial Services Companies is in
Default under any Financial Services Contract, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Financial Services. All of the indebtedness of any Financial Services
Company for money borrowed is prepayable at any time by such Financial Services
Company without penalty or premium.
5.16 Legal Proceedings. Except as disclosed in Section 5.16 of the
Financial Services Disclosure Memorandum, there is no Litigation instituted or
pending, or, the Knowledge of Financial Services, threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against any Financial Services
Company, or against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Financial Services, nor are there any Orders of any Regulatory
Authorities, other governmental authorities, or arbitrators outstanding against
any Financial Services Company, that are reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on Financial Services.
5.17 Reports. Since June 30, 1999, each Financial Services Company has
timely filed all reports and statements, together with any amendments required
to be made with respect thereto, that it was required to file with (a) the
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Regulatory Authorities, and (b) any applicable federal and state securities or
banking authorities (except, in the case of state securities authorities,
failures to file which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Financial Services). As of their
respective dates, each of such reports and documents, including the financial
statements, exhibits, and schedules thereto, complied in all material respects
with all applicable Laws. As of its respective date, each such report and
document to Financial Services's Knowledge did not, in any material respect,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
5.18 Statements True and Correct. No statement, certificate, instrument
or other writing furnished or to be furnished by any Financial Services Company
or any Affiliate thereof to GB&T pursuant to this Agreement or any other
document, agreement or instrument referred to herein contains or will contain
any untrue statement of material fact or will omit to state a Material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the information supplied or to be
supplied by any Financial Services Company or any Affiliate thereof for
inclusion in the Registration Statement to be filed by GB&T with the SEC will,
when the Registration Statement becomes effective, be false or misleading with
respect to any Material fact, or omit to state any Material fact necessary to
make the statements therein not misleading. None of the information supplied or
to be supplied by any Financial Services Company or any Affiliate thereof for
inclusion in the Proxy Statement to be mailed to Financial Services's
shareholders in connection with the Financial Services Shareholders' Meeting,
and any other documents to be filed by a Financial Services Company or any
Affiliate thereof with the SEC or any other Regulatory Authority in connection
with the transactions contemplated hereby, will, at the respective time such
documents are filed, and with respect to the Proxy Statement, when first mailed
to the shareholders of Financial Services, be false or misleading with respect
to any Material fact, or omit to state any Material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, in the case of the Proxy Statement or any amendment thereof
or supplement thereto, at the time of the Financial Services Shareholders'
Meeting, be false or misleading with respect to any Material fact, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for the Financial
Services Shareholders' Meeting. All documents that any Financial Services
Company or any Affiliate thereof is responsible for filing with any Regulatory
Authority in connection with the transactions contemplated hereby will comply as
to form in all Material respects with the provisions of applicable Law.
5.19 Accounting, Tax and Regulatory Matters. No Financial Services Company
or, to the knowledge of any Affiliate thereof has taken any action, or agreed to
take any action, or has any Knowledge of any fact or circumstance that is
reasonably likely to (a) prevent the transactions contemplated hereby, including
the Merger, from qualifying for pooling-of-interests accounting treatment or
treatment as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, or (b) materially impede or delay receipt of any Consents
of Regulatory Authorities referred to in Section 9.1(b) of this Agreement or
result in the imposition of a condition or restriction of the type referred to
in the second sentence of such Section. To the Knowledge of Financial Services,
there exists no fact, circumstance, or reason why the requisite Consents
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referred to in Section 9.1(b) of this Agreement cannot be received in a timely
manner without the imposition of any condition or restriction of the type
described in the second sentence of such Section 9.1(b).
5.20 Charter Provisions. Each Financial Services Company has taken all
action so that the entering into of this Agreement and the consummation of the
Merger and the other transactions contemplated by this Agreement do not and will
not result in the grant of any rights to any Person under the Articles of
Incorporation, Bylaws or other governing instruments of any Financial Services
Company or restrict or impair the ability of GB&T to vote, or otherwise to
exercise the rights of a shareholder with respect to, shares of any Financial
Services Company that may be acquired or controlled by it.
5.21 State Anti-Takeover Laws. Each Financial Services Company has
taken all necessary action to exempt the transactions contemplated by this
Agreement from any applicable "moratorium," "control share," "fair price,"
"business combination," or other anti-takeover laws and regulations of the State
of Georgia including those laws contained within Sections 14-2-1110 et seq. and
14-2-1131 et seq. of the GBCC.
5.22 Millennium Compliance. Financial Services represents and warrants that
each Financial Services Company has tested and assessed its software, hardware,
and other computer equipment to ensure that there will not be a Year 2000
Problem. Financial Services further represents and warrants that each Financial
Services Company has prepared and implemented a written plan of action to ensure
that the software, hardware, and other computer equipment owned, licensed, or
used by each Financial Services Company will not be the subject of a failure in
any such software, hardware, or other computer equipment as a result of a Year
2000 Problem. Financial Services further represents and warrants that each
Financial Services Company has contacted and received assurances from all key
suppliers of goods and services to each Financial Services Company, including
but not limited to suppliers of computer software, computer hardware, and other
computer equipment, that each of the software, hardware, and other computer
equipment owned, licensed, or used by such suppliers will not be the subject of
failures in any such software, hardware, or other computer equipment as a result
of a Year 2000 Problem.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF GB&T
GB&T hereby represents and warrants to Financial Services as follows:
6.1 Organization, Standing, and Power. GB&T is a corporation duly
organized, validly existing, and in good standing under the Laws of the State of
Georgia, and is duly registered as a bank holding company under the BHC Act.
GB&T has the corporate power and authority to carry on its business as now
conducted and to own, lease and operate its Assets. GB&T is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on GB&T.
6.2 Authority; No Breach By Agreement.
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(a) Subject to the actions required for listing by NASDAQ of
the shares to be issued to Financial Services shareholders, GB&T has the
corporate power and authority necessary to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein, including the Merger, have
been duly and validly authorized by all necessary corporate action in respect
thereof on the part of GB&T. This Agreement represents a legal, valid and
binding obligation of GB&T, enforceable against GB&T in accordance with its
terms (except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting
the enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding may be brought).
(b) Except as described in Section 6.2 of the GB&T Disclosure
Memorandum, neither the execution and delivery of this Agreement by GB&T, nor
the consummation by GB&T of the transactions contemplated hereby, nor compliance
by GB&T with any of the provisions hereof will (i) conflict with or result in a
breach of any provision of GB&T's Articles of Incorporation or Bylaws, or (ii)
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of any GB&T Company under, any
Contract or Permit of any GB&T Company, where such Default or Lien, or any
failure to obtain such Consent, is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on GB&T, or (iii) subject to receipt of
the requisite approvals referred to in Section 9.1(b) of this Agreement, violate
any Law or Order applicable to any GB&T Company or any of their respective
Assets.
(c) Other than in connection or compliance with the provisions
of the Securities Laws, applicable state corporate and securities Laws, and
rules of the NASDAQ, and other than Consents required from Regulatory
Authorities, and other than notices to or filings with the Internal Revenue
Service or the Pension Benefit Guaranty Corporation with respect to any employee
benefit plans, and other than Consents, filings or notifications which, if not
obtained or made, are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on GB&T, no notice to, filing with, or
Consent of, any public body or authority is necessary for the consummation by
GB&T of the Merger and the other transactions contemplated in this Agreement.
6.3 Capital Stock.
(a) The authorized capital stock of GB&T consists of 10,000,000 shares
of GB&T Common Stock, of which 2,113,176 shares were issued and outstanding as
of the date of this Agreement. All of the issued and outstanding shares of GB&T
Common Stock are, and all of the shares of GB&T Common Stock to be issued in
exchange for shares of Financial Services Common Stock upon consummation of the
Merger, when issued in accordance with the terms of this Agreement, will be,
duly and validly issued and outstanding and fully paid and nonassessable under
the GBCC. None of the outstanding shares of GB&T Common Stock have been, and
none of the shares of GB&T Common Stock to be issued in exchange for shares of
Financial Services Common Stock upon consummation of the Merger will be, issued
in violation of any preemptive rights of the current or past shareholders of
GB&T.
(b) [Reserved]
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(c) Except as set forth in Sections 6.3(a) and 6.3(b) of this
Agreement, or as disclosed in Section 6.3(c) of the GB&T Disclosure Memorandum,
there are no other shares of capital stock or other equity securities of GB&T
outstanding and no outstanding Rights relating to the capital stock of GB&T.
6.4 GB&T Subsidiaries. GB&T has disclosed in Section 6.4 of the GB&T
Disclosure Memorandum all of the GB&T Subsidiaries as of the date of this
Agreement. Except as disclosed in Section 6.4 of the GB&T Disclosure Memorandum,
GB&T or one of its Subsidiaries owns all of the issued and outstanding shares of
capital stock of each GB&T Subsidiary. No equity securities of any GB&T
Subsidiary are or may become required to be issued (other than to another GB&T
Company) by reason of any Rights, and there are no Contracts by which any GB&T
Subsidiary is bound to issue (other than to another GB&T Company) additional
shares of its capital stock or Rights, or by which any GB&T Company is or may be
bound to transfer any shares of the capital stock of any GB&T Subsidiary (other
than to another GB&T Company). There are no Contracts relating to the rights of
any GB&T Company to vote or to dispose of any shares of the capital stock of any
GB&T Subsidiary. All of the shares of capital stock of each GB&T Subsidiary held
by a GB&T Company are fully paid and nonassessable under the applicable Law of
the jurisdiction in which such Subsidiary is incorporated or organized. Each
GB&T Subsidiary is either a bank, a savings association, a corporation or a
limited liability company and is duly organized, validly existing, and (as to
corporations) in good standing under the Laws of the jurisdiction in which it is
organized and has the corporate power and authority necessary for it to own,
lease and operate its Assets and to carry on its business as now conducted. Each
GB&T Subsidiary is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on GB&T. Each GB&T Subsidiary that is a depository institution is an
"insured institution" as defined in the Federal Deposit Insurance Act and
applicable regulations thereunder, and the deposits in which are insured by the
Bank Insurance Fund or the Savings Association Insurance Fund, as appropriate.
6.5 Financial Statements. GB&T has included in Section 6.5 of the GB&T
Disclosure Memorandum copies of all GB&T Financial Statements for periods ended
prior to the date hereof and will deliver to Financial Services copies of all
GB&T Financial Statements prepared subsequent to the date hereof. The GB&T
Financial Statements (as of the dates thereof and for the periods covered
thereby) (a) are, or if dated after the date of this Agreement will be, in
accordance with the books and records of the GB&T Companies, which are or will
be, as the case may be, complete and correct and which have been or will have
been, as the case may be, maintained in accordance with good business practices,
and (b) present or will present, as the case may be, fairly the consolidated
financial position of the GB&T Companies as of the dates indicated and the
consolidated results of operations, changes in shareholders' equity, and cash
flows of the GB&T Companies for the periods indicated, in accordance with GAAP
(subject to exceptions as to consistency specified therein or as may be
indicated in the notes thereto or, in the case of interim financial statements,
to normal recurring year-end adjustments that are not material in amount or
effect).
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6.6 Absence of Undisclosed Liabilities. No GB&T Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on GB&T, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of GB&T as of
December 31, 1998, included in the GB&T Financial Statements or reflected in the
notes thereto. No GB&T Company has incurred or paid any Liability since December
31,1998, except for such Liabilities incurred or paid in the ordinary course of
business consistent with past business practice and which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
GB&T.
6.7 Absence of Certain Changes or Events. Since December 31, 1998, except
as disclosed in Section 6.7 of the GB&T Disclosure Memorandum, (a) there have
been no events, changes or occurrences which have had, or are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on GB&T,
and (b) the GB&T Companies have not taken any action, or failed to take any
action, prior to the date of this Agreement, which action or failure, if taken
after the date of this Agreement, would represent or result in a material breach
or violation of any of the covenants and agreements of GB&T provided in Article
VII of this Agreement.
6.8 Tax Matters.
(a) All Tax returns required to be filed by or on behalf of
any of the GB&T Companies have been timely filed or requests for extensions have
been timely filed, granted, and have not expired, except to the extent that all
such failures to file, taken together, are not reasonably likely to have a
Material Adverse Effect on GB&T, and all returns filed are complete and accurate
to the Knowledge of GB&T. All Taxes shown on filed returns have been paid. As of
the date of this Agreement, there is no audit examination, deficiency or refund
Litigation with respect to any Taxes that is reasonably likely to result in a
determination that would have, individually or in the aggregate, a Material
Adverse Effect on GB&T, except as reserved against in the GB&T Financial
Statements delivered prior to the date of this Agreement or as disclosed in
Section 6.8(a) of the GB&T Disclosure Memorandum. All Taxes and other
Liabilities due with respect to completed and settled examinations or concluded
Litigation have been paid.
(b) Except as disclosed in Section 6.8(b) of the GB&T Disclosure
Memorandum, none of the GB&T Companies has executed an extension or waiver of
any statute of limitations on the assessment or collection of any Tax due that
is currently in effect, and no unpaid tax deficiency has been asserted in
writing against or with respect to any GB&T Company, which deficiency is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on GB&T.
(c) Adequate provision for any Taxes due or to become due for any of
the GB&T Companies for the period or periods through and including the date of
the respective GB&T Financial Statements has been made and is reflected on such
GB&T Financial Statements.
(d) Deferred Taxes of the GB&T Companies have been provided for in
accordance with GAAP.
(e) Each of the GB&T Companies is in compliance with, and its
records contain all information and documents (including, without limitation,
properly completed IRS Forms W-9) necessary to comply with, all applicable
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information reporting and Tax withholding requirements under federal, state and
local Tax Laws, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Internal Revenue Code, except
for such instances of noncompliance and such omissions as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
GB&T.
6.9 Allowance for Possible Loan Losses. The Allowance shown on the
consolidated balance sheets of GB&T included in the most recent GB&T Financial
Statements dated prior to the date of this Agreement was, and the Allowance
shown on the consolidated balance sheets of GB&T included in the GB&T Financial
Statements as of dates subsequent to the execution of this Agreement will be, as
of the dates thereof, adequate (within the meaning of GAAP and applicable
regulatory requirements or guidelines) to provide for losses relating to or
inherent in the loan and lease portfolios (including accrued interest
receivables) of the GB&T Companies and other extensions of credit (including
letters of credit and commitments to make loans or extend credit) by the GB&T
Companies as of the dates thereof except where the failure of such Allowance to
be so adequate is not reasonably likely to have a Material Adverse Effect on
GB&T.
6.10 Assets. Except as disclosed in Section 6.10 of the GB&T Disclosure
Memorandum or as disclosed or reserved against in the GB&T Financial Statements,
the GB&T Companies have good and marketable title free and clear of all Liens,
to all of their respective Assets indicated as owned by the respective GB&T
Company as of the date of the respective GB&T statement. All material tangible
properties used in the businesses of the GB&T Companies are in good condition,
reasonable wear and tear excepted and are usable in the ordinary course of
business consistent with GB&T's past practices. All Assets which are material to
the business of the GB&T Companies and held under leases or subleases by any of
the GB&T Companies are held under valid Contracts enforceable in accordance with
their respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought), and
each such Contract is in full force and effect. The policies of fire, theft,
liability any other insurance maintained with respect to the Assets or
businesses of the Companies provide adequate coverage under current industry
practices against loss or Liability, and the fidelity and blanket bonds in
effect as to which any of the Companies is a named insured are reasonably
sufficient. The Assets of the Companies include all assets required to operate
the business of the Companies as presently conducted.
6.11 Environmental Matters. Except as disclosed in Section 6.10 of the GB&T
Disclosure Memorandum:
(a) To the Knowledge of GB&T, each GB&T Company, its Participation
Facilities and its Loan Properties are, and have been, in compliance with all
Environmental Laws, except for noncompliance which is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on GB&T.
(b) There is no Litigation pending or to the Knowledge of GB&T
threatened before any court, governmental agency or authority or other forum in
which any GB&T Company or any of its Loan Properties or Participation Facilities
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as been or, with respect to threatened Litigation, may be named as a defendant
or potentially responsible party (i) for alleged noncompliance with any
Environmental Law or (ii) relating to the Release into the Environment of any
Hazardous Material, whether or not occurring at, on, under or involving a site
owned, leased or operated by any GB&T Company or any of its Loan Properties or
Participation Facilities, except for such Litigation pending or threatened the
resolution of which is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on GB&T or to the Knowledge of GB&T, there
is no reasonable basis for any such Litigation.
(c) To the Knowledge of GB&T, there have been no releases of Hazardous
Material in, on, under or affecting any Participation Facility or Loan Property,
except such as are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on GB&T.
6.12 Compliance with Laws. GB&T is duly registered as a bank holding
company under the BHC Act and under Georgia law. Each GB&T Company has in effect
all Permits necessary for it to own, lease or operate its Assets and to carry on
its business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on GB&T, and there has occurred no Default under any such Permit,
other than Defaults which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on GB&T. Except as disclosed in Section
6.11 of the GB&T Disclosure Memorandum, no GB&T Company:
(a) is in violation of any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for violations which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on GB&T; and
(b) has received any notification or communication from any agency or
department of federal, state, or local government or any Regulatory Authority or
the staff thereof (i) asserting that any GB&T Company is not in compliance with
any of the Laws or Orders which such governmental authority or Regulatory
Authority enforces, where such noncompliance is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on GB&T, (ii)
threatening to revoke any Permits, the revocation of which is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on GB&T, or
(iii) requiring any GB&T Company to enter into or consent to the issuance of a
cease and desist order, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any Board resolution or similar undertaking, which
restricts materially the conduct of its business, or in any manner relates to
its capital adequacy, its credit or reserve policies, its management, or the
payment of dividends.
6.13 Labor Relations. No GB&T Company is the subject of any Litigation
asserting that it or any other GB&T Company has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other GB&T Company to bargain with any
labor organization as to wages or conditions of employment, nor is there any
strike or other labor dispute involving any GB&T Company, pending or, to its
Knowledge, threatened, nor, to its Knowledge, is there any activity involving
any GB&T Company's employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
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6.14 Employee Benefit Plans.
(a) GB&T has disclosed in Section 6.14 of the GB&T Disclosure
Memorandum and delivered or made available to Financial Services prior to the
execution of this Agreement copies in each case of all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plans, all other written
employee programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including, without limitation, "employee benefit
plans" as that term is defined in Section 3(3) of ERISA, currently adopted,
maintained by, sponsored in whole or in part by, or contributed to by any GB&T
Company or Affiliate thereof for the benefit of employees, retirees, dependents,
spouses, directors, independent contractors, or other beneficiaries and under
which employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries are eligible to participate (collectively,
the "GB&T Benefit Plan"). Any of the GB&T Benefit Plans which is an "employee
pension benefit plan," as that term is defined in Section 3(2) of ERISA, is
referred to herein as a "GB&T ERISA Plan." Each GB&T ERISA Plan which is also a
"defined benefit plan" (as defined in Section 414(j) of the Internal Revenue
Code) is referred to herein as a GB&T Pension Plan." No GB&T Pension Plan is or
has been a multi-employer plan within the meaning of Section 3(37) of ERISA.
(b) All GB&T Benefit Plans are in compliance with the applicable terms
of ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Financial Services. Each GB&T ERISA Plan
which is intended to be qualified under Section 401(a) of the Internal Revenue
Code has received a favorable determination letter from the Internal Revenue
Service, and GB&T is not aware of any circumstances likely to result in
revocation of any such favorable determination letter. To the Knowledge of GB&T,
no GB&T Company nor any other party has engaged in a transaction with respect to
any GB&T Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject any GB&T Company to a tax or
penalty imposed by either Section 4975 of the Internal Revenue Code or Section
502(i) of ERISA in amounts which are reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on GB&T.
(c) Neither GB&T nor any ERISA Affiliate of GB&T maintains an
"employee pension benefit plan," within the meaning of Section 3(2) of ERISA
that is or was subject to Title IV of ERISA.
(d) Neither nor any ERISA Affiliate of GB&T has any past, present or
future obligation or liability to contribute to any multi-employer plan, as
defined inSection 3(37) of ERISA.
(e) Except as disclosed in Section 6.14(e) of the GB&T Disclosure
Memorandum, (i) no GB&T Company has any obligations for retiree health and live
benefits under any of the GB&T Benefit Plans, except as required by Section 601
of ERISA and Section 4980B of the Code; (ii) there are no restrictions on the
rights of any GB&T Company to amend or terminate any such Plan; and (iii) any
amendment or termination of any such Plan will not cause any GB&T Company to
incur any Liability that is reasonably likely to have a Material Adverse Effect
on GB&T.
(f) Except as disclosed in Section 6.14(f) of the GB&T Disclosure
Memorandum, neither the execution and delivery of this Agreement or the
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consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any director or any employee of
any GB&T Company from any GB&T Company under any GB&T Benefit Plan or otherwise,
(ii) increase any benefits otherwise payable under any GB&T Benefit Plan, or
(iii) result in any acceleration of the time of payment or vesting of any such
benefit.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including, without limitation, entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of any GB&T Company and their respective beneficiaries have
been fully reflected on the GB&T Financial Statements to the extent required by
and in accordance with GAAP.
(h) GB&T and each ERISA Affiliate of GB&T has complied with the
continuation of coverage requirements of Section 1001 of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, and ERISA Sections 601
through 608 in a manner that will not cause any GB&T Company to incur any
Liability that is reasonably likely to have a Material Adverse Effect on GB&T.
(i) Except as disclosed in Section 6.14(i) of the GB&T Disclosure
Memorandum, neither GB&T nor any ERISA Affiliate of GB&T is obligated,
contingently or otherwise, under any agreement to pay any amount which would be
treated as a "parachute payment," as defined in Section 280G(b) of the Internal
Revenue Code (determined without regard to Section 280G(b) (2) (A) (ii) of the
Internal Revenue Code).
(j) Other than routine claims for benefits, to the Knowledge
of GB&T, there are no actions, audits, investigations, suits or claims pending
against any GB&T Benefit Plan, any trust or other funding agency created
thereunder, or against any fiduciary of any GB&T Benefit Plan or against the
assets of any GB&T Benefit Plan.
6.15 Material Contracts. Except as disclosed in Section 6.13 of the GB&T
Disclosure Memorandum or otherwise reflected in the GB&T Financial Statements,
none of the GB&T Companies, nor any of their respective Assets, businesses or
operations, is a party to, or is bound or affected by, or receives benefits
under, (a) any Contract relating to the borrowing of money by any GB&T Company
or the guarantee by any GB&T Company of any such obligation (other than
Contracts evidencing deposit liabilities, purchases of federal funds, Federal
Home Loan Bank advances, fully-secured repurchase agreements, trade payables,
and Contracts relating to borrowings or guarantees made in the ordinary course
of business), and (b) any other Contract (excluding this Agreement) or amendment
thereto that is required to be filed as an exhibit to a Form 10-K or Form 10-Q
filed by GB&T with the SEC as of the date of this Agreement that has not been
filed as an exhibit to any GB&T Form 10-K or 10-Q filed with the SEC (the "GB&T
Contracts"). None of the GB&T Companies is in Default under any GB&T Contract,
other than Defaults which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on GB&T.
6.16 Legal Proceedings. Except as disclosed in Section 6.14 of the GB&T
Disclosure Memorandum, there is no Litigation instituted or pending, or, to the
Knowledge of GB&T, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
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an unfavorable outcome) against any GB&T Company, or against any Asset,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on GB&T, nor are
there any Orders of any Regulatory Authorities, other governmental authorities,
or arbitrators outstanding against any GB&T Company, that are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on GB&T.
6.17 Reports. Since December 31, 1998, each GB&T Company has timely filed
all reports and statements, together with any amendments required to be made
with respect thereto, that it was required to file with (a) the SEC, including,
but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K, and Proxy Statements, (b)
other Regulatory Authorities, and (c) any applicable state securities or banking
authorities (except, in the case of state securities authorities, failures to
file which are not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on GB&T). As of their respective dates, each of such
reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respect with all applicable Laws. As
of its respective date, each such report and document to GB&T's Knowledge did
not, in any material respects, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
6.18 Statements True and Correct. No statement, certificate, instrument or
other writing furnished or to be furnished by any GB&T Company or any Affiliate
thereof to Financial Services pursuant to this Agreement or any other document,
agreement or instrument referred to herein contains or will contain any untrue
statement of Material fact or will omit to state a Material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by any
GB&T Company or any Affiliate thereof for inclusion in the Registration
Statement to be filed by GB&T with the SEC, will, when the Registration
Statement becomes effective, be false or misleading with respect to any Material
fact, or omit to state any Material fact necessary to make the statements
therein not misleading. None of the documents to be filed by any GB&T Company or
any Affiliate thereof with the SEC or any other Regulatory Authority in
connection with the transactions contemplated hereby, will, at the respective
time such documents are filed, be false or misleading with respect to any
Material fact, or omit to state any Material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All documents that any GB&T Company or any Affiliate thereof is
responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all Material respects
with the provisions of applicable Law.
6.19 Accounting, Tax and Regulatory Matters. No GB&T Company or any
Affiliate thereof has taken any action, or agreed to take any action, or has any
Knowledge of any fact or circumstance that is reasonably likely to (a) prevent
the transactions contemplated hereby, including the Merger, from qualifying for
pooling-of-interests accounting treatment or treatment as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, or (b)
materially impede or delay receipt of any Consents of Regulatory Authorities
referred to in Section 9.1(b) of this Agreement. To the Knowledge of GB&T, there
exists no fact, circumstance, or reason why the requisite Consents referred to
in Section 9.1(b) of this Agreement cannot be received in a timely manner
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without the imposition of any condition or restriction of the type described in
the second sentence of such Section 9.1(b).
6.20 Charter Provisions. Each GB&T Company has taken all action so that the
entering into of this Agreement and the consummation of the Merger and the other
transactions contemplated by this Agreement do not and will not result in the
grant of any rights to any Person under the Articles of Incorporation, Bylaws or
other governing instruments of any GB&T Company or restrict or impair the
ability of GB&T to vote, or otherwise to exercise the rights of a shareholder
with respect to, shares of any GB&T Company that may be acquired or controlled
by it.
6.21 Millennium Compliance. GB&T represents and warrants that each GB&T
Company has tested and assessed its software, hardware, and other computer
equipment to ensure that there will not be a Year 2000 Problem. GB&T further
represents and warrants that each GB&T Company has prepared and implemented a
written plan of action designed to ensure that the software, hardware, and other
computer equipment owned, licensed, or used by each GB&T Company will not be the
subject of a failure in any such software, hardware, or other computer equipment
as a result of a Year 2000 problem. GB&T further represents and warrants that
each GB&T Company has contacted and received assurances from all key suppliers
of goods and services, including but not limited to suppliers of computer
software, computer hardware, and other computer equipment, that each of the
software, hardware, and other computer equipment owned, licensed, or used by
such supplier will not be the subject of failures in any such software,
hardware, or other computer equipments as a result of a Year 2000 Problem.
ARTICLE VII
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of Financial Services. Unless the prior written
consent of GB&T shall have been obtained, and except as otherwise contemplated
herein or disclosed in the Financial Services Disclosure Memorandum, Financial
Services shall, and shall cause each of its Subsidiaries, from the date of this
Agreement until the Effective Time or termination of this Agreement: (a) to
operate its business in the usual, regular and ordinary course; (b) to preserve
intact its business organization and Assets and maintain its rights and
franchises; (c) to use its reasonable efforts to cause its representations and
warranties to be correct at all times; and (d) to take no action which would
reasonably be expected to (i) adversely affect the ability of any Party to
obtain any Consents required for the transactions contemplated hereby without
imposition of a condition or restriction of the type referred to in the last
sentence of Section 9.1(b) or 9.1(c) of this Agreement or (ii) adversely affect
in any Material respect the ability of either Party to perform its covenants and
agreements under this Agreement.
7.2 Negative Covenants of Financial Services. Except as disclosed in the
Financial Services Disclosure Memorandum, from the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement,
Financial Services covenants and agrees that it will not do or agree or commit
to do, or permit any of its Subsidiaries to do or agree or commit to do, any of
the following without the prior written consent of the chief executive officer
of GB&T, which consent shall not be unreasonably withheld:
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(a) amend the Articles of Incorporation, Bylaws or other governing
instruments of any Financial Services Company, or
(b) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of a Financial Services Company to
another Financial Services Company) in excess of an aggregate of $50,000 (for
the Financial Services Companies on a consolidated basis) except in the ordinary
course of the business of the Financial Services Companies consistent with past
practices (which shall include, for any of its Subsidiaries, creation of deposit
liabilities, purchases of federal funds, advances from the Federal Reserve Bank
or Federal Home Loan Bank, and entry into repurchase agreements fully secured by
U.S. government or agency securities), or impose, or suffer the imposition, on
any Asset of any Financial Services Company of any Lien or permit any such Lien
to exist (other than in connection with deposits, repurchase agreements, bankers
acceptances, Federal Home Loan Bank advances, "treasury tax and loan" accounts
established in the ordinary course of business, the satisfaction of legal
requirements in the exercise of trust powers, and Liens in effect as of the date
hereof that are disclosed in the Financial Services Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of any Financial Services Company, or declare or pay any dividend
or make any other distribution in respect of Financial Services's capital stock;
or
(d) except for this Agreement, or pursuant to the exercise of stock
options outstanding as of the date hereof and pursuant to the terms thereof in
existence on the date hereof, or as disclosed in Section 7.2(d) of the Financial
Services Disclosure Memorandum, issue, sell, pledge, encumber, authorize the
issuance of or enter into any Contract to issue, sell, pledge, encumber, or
authorize the issuance of or otherwise permit to become outstanding, any
additional shares of Financial Services Common Stock or any other capital stock
of any Financial Services Company, or any stock appreciation rights, or any
option, warrant, conversion, or other right to acquire any such stock, or any
security convertible into any such stock; or
(e) except as disclosed in Section 7.2(e) of the Financial Services
Disclosure Memorandum, adjust, split, combine or reclassify any capital stock of
any Financial Services Company or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of Financial Services
Common Stock or sell, lease, mortgage or otherwise dispose of or otherwise
encumber (i) any shares of capital stock of any Financial Services Subsidiary
(unless any such shares of stock are sold or otherwise transferred to another
Financial Services Company) or (ii) any Asset having a book value in excess of
$25,000 other than in the ordinary course of business for reasonable and
adequate consideration; or
(f) except for purchases of U.S. Treasury securities or U.S.
Government agency securities or securities of like maturity or grade or general
obligations of states and municipalities, purchase any securities or make any
material investment, either by purchase of stock or securities, contributions to
capital, Asset transfers, or purchase of any Assets, in any Person other than a
wholly-owned Financial Services Subsidiary; or otherwise acquire direct or
indirect control over any Person, other than in connection with (i) foreclosures
in the ordinary course of business, or (ii) acquisitions of control in its
fiduciary capacity; or
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(g) grant any increase in compensation or benefits to any employees
whose annual salary exceeds $35,000 of any Financial Services Company (including
such discretionary increases as may be contemplated by existing employment
agreements), except in accordance with past practice or previously approved by
the Board of Directors of Financial Services, in each case as disclosed in
Section 7.2(g) of the Financial Services Disclosure Memorandum or as required by
Law; pay any severance or termination pay or any bonus other than pursuant to
written policies or written Contracts in effect on the date of this Agreement
and disclosed in Section 7.2(g) of the Financial Services Disclosure Memorandum;
enter into or amend any severance agreements with officers of any Financial
Services Company; grant any general increase in compensation to all employees;
grant any increase in fees or other increases in compensation or other benefits
to directors of any Financial Services Company; or voluntarily accelerate the
vesting of any stock options or other stock-based compensation or employee
benefits; or
(h) enter into or amend any employment Contract between any Financial
Services Company and any Person (unless such amendment is required by Law) that
the Financial Services Company does not have the unconditional right to
terminate without Liability (other than Liability for services already
rendered), at any time on or after the Effective Time; or
(i) adopt any new employee benefit plan of any Financial Services
Company or make any material change in or to any existing employee benefit plans
of any Financial Services Company other than any such change that is required by
Law or that, in the opinion of counsel, is necessary or advisable to maintain
the tax qualified status of any such plan; or
(j) make any significant change in any Tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to conform
to changes in Tax Laws or regulatory accounting requirements or GAAP; or
(k) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of any Financial
Services Company for money damages in excess of $50,000 or which imposes
material restrictions upon the operations of any Financial Services Company;
(l) except in the ordinary course of business, modify, amend or
terminate any material Contract or waive, release, compromise or assign any
material rights or claims; or
(m) [Reserved]
7.3 Affirmative Covenants of GB&T. Unless the prior written consent of
Financial Services shall have been obtained, and except as otherwise
contemplated herein or as disclosed in the GB&T Disclosure Memorandum, GB&T
shall, and shall cause each of its Subsidiaries to, from the date of this
Agreement until the Effective Time or termination of this Agreement: (a) operate
its business in the usual, regular and ordinary course; (b) preserve intact its
business organization and Assets and maintain its rights and franchises; (c) use
its reasonable efforts to cause its representations and warranties to be correct
at all times; and (d) take no action which would reasonably be expected to (i)
adversely affect the ability of any Party to obtain any Consents required for
the transactions contemplated hereby without imposition of a condition or
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restriction of the type referred to in the last sentence of Section 9.1(b) or
9.1(c) of this Agreement or (ii) adversely affect in any Material respect the
ability of either Party to perform its covenants and agreements under this
Agreement.
7.4 Adverse Changes in Condition. Each Party agrees to give written notice
promptly to the other Party upon becoming aware of the occurrence or impending
occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (a) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (b) is reasonably likely to cause
or constitute a material breach of any of its representations, warranties, or
covenants contained herein, and to use its reasonable efforts to prevent or
promptly to remedy the same.
7.5 Reports. Each Party and its Subsidiaries shall file all reports
required to be filed by it with Regulatory Authorities between the date of this
Agreement and the Effective Time and shall deliver to the other Party copies of
all such reports promptly after the same are filed.
ARTICLE VII
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Shareholder Approval.
(a) As soon as reasonably practicable after execution of this
Agreement, GB&T shall file the Registration Statement with the SEC, and shall
use its reasonable efforts to cause the Registration Statement to become
effective under the 1933 Act and take any action required to be taken under the
applicable state Blue Sky or securities Laws in connection with the issuance of
the shares of GB&T Common Stock upon consummation of the Merger. Financial
Services shall furnish all information concerning it and the holders of its
capital stock as GB&T may reasonably request in connection with such action.
(b) Financial Services shall call a Shareholders' Meeting, to be held
as soon as reasonably practicable after the Registration Statement is declared
effective by the SEC, for the purpose of voting upon approval of this Agreement
and such other related matters as Financial Services deems appropriate.
(c) GB&T shall call a Shareholders' Meeting, to be held as soon as
reasonably practicable after the Registration Statement is declared effective by
the SEC, for the purpose of voting upon approval of this Agreement and such
other related matters as GB&T deems appropriate.
(d) In connection with both the Financial Services and GB&T
Shareholders' Meetings, (i) GB&T shall prepare and file with the SEC on their
joint behalf a Proxy Statement (which shall be included in the Registration
Statement) and mail it to both Financial Services's and GB&T's shareholders,
(ii) the Parties shall furnish to each other all information concerning them
that they may reasonably request in connection with such Proxy Statement, (iii)
the Boards of Directors of Financial Services and GB&T shall recommend (subject
to compliance with the fiduciary duties of the members of the Boards of
Directors as advised by counsel) to their shareholders the approval of this
Agreement and (iv) the Boards of Directors and officers of both Financial
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Services and GB&T shall use their reasonable efforts to obtain such
shareholders' approval (subject to compliance with their fiduciary duties as
advised by counsel).
8.2 Exchange Listing. GB&T shall list, as of the Effective Time, on the
NASDAQ the shares of GB&T Common Stock to be issued to the holders of Financial
Services Common Stock pursuant to the Merger.
8.3 Applications. GB&T shall promptly prepare and file, and Financial
Services shall cooperate in the preparation and, where appropriate, filing of,
applications with the Board of Governors of the Federal Reserve System and the
Georgia Department of Banking and Finance seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement.
8.4 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, GB&T shall execute and file the Certificate of
Merger with the Secretary of State of the State of Georgia in connection with
the Closing.
8.5 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable Laws, as promptly as practicable so as to permit
consummation of the Merger at the earliest possible date and to otherwise enable
consummation of the transactions contemplated hereby and shall cooperate fully
with the other Party hereto to that end (it being understood that any amendments
to the Registration Statement filed by GB&T in connection with the GB&T Common
Stock to be issued in the Merger shall not violate this covenant), including,
without limitation, using its reasonable efforts to lift or rescind any Order
adversely affecting its ability to consummate the transactions contemplated
herein and to cause to be satisfied the conditions referred to in Article 9 of
this Agreement. Each Party shall use, and shall cause each of its Subsidiaries
to use, its reasonable efforts to obtain all Consents necessary or desirable for
the consummation of the transactions contemplated by this Agreement.
8.6 Investigation and Confidentiality.
(a) Prior to the Effective Time, each Party will keep the other Party
advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of the other Party.
(b) Each Party shall, and shall cause its advisers and agents to,
maintain the confidentiality of all information furnished to it by the other
Party concerning its and its Subsidiaries' businesses, operations, and financial
positions and shall not use such information for any purpose except in
furtherance of the transactions contemplated by this Agreement. If this
Agreement is terminated prior to the Effective Time, each Party shall promptly
return or certify the destruction of all documents and copies thereof and all
work papers containing information received from the other Party.
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(c) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence relating to
the other Party which it has discovered through the course of its investigation
and which represents, or is reasonably likely to represent, either a material
breach of any representation, warranty, covenant or agreement of the other Party
or which has had or is reasonably likely to have a Material Adverse Effect on
the other Party.
8.7 Press Releases. Prior to the Effective Time, GB&T and Financial
Services shall agree with each other as to the form and substance of any press
release or other public disclosure materially related to this Agreement or any
other transaction contemplated hereby; provided, however, that nothing in this
Section 8.7 shall be deemed to prohibit any Party from making any disclosure
which its counsel deems necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by Law.
8.8 Acquisition Proposals. Except with respect to this Agreement and the
transactions contemplated hereby, neither Financial Services nor any Affiliate
thereof nor any investment banker, attorney, accountant or other representative
(collectively, "Representatives") retained by Financial Services shall directly
or indirectly solicit any Acquisition Proposal by any Person. Except to the
extent necessary to comply with the fiduciary duties of Financial Services's
Board of Directors as advised by counsel, neither Financial Services nor any
Affiliate or Representative thereof shall furnish any non-public information
that it is not legally obligated to furnish, negotiate with respect to, or enter
into any Contract with respect to, any Acquisition Proposal, but Financial
Services may communicate information about such an Acquisition Proposal to its
shareholders if and to the extent that it is required to do so in order to
comply with its legal obligations as advised by counsel. Financial Services
shall promptly notify GB&T orally and in writing in the event that it receives
any inquiry or proposal relating to any such transaction. Unless the prior
written consent of GB&T is obtained, Financial Services shall (a) immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any Persons conducted heretofore with respect to any of the
foregoing, and (b) direct and use its reasonable efforts to cause all of its
Representatives not to engage in any of the foregoing.
8.9 Accounting and Tax Treatment. Each of the Parties undertakes and agrees
to use its reasonable efforts to cause the Merger to qualify, and to take no
action which would cause the Merger not to qualify, for treatment as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code for federal income tax purposes. Each of the Parties further undertakes and
agrees to use its reasonable best efforts to cause the Merger to be eligible,
and to take no action which would cause the Merger not to be accounted for as a
"pooling of interests."
8.10 Agreement of Affiliates. Financial Services has disclosed in Section
8.10 of the Financial Services Disclosure Memorandum all Persons whom it
reasonably believes is an "affiliate" of Financial Services for purposes of Rule
145 under the 1933 Act. Financial Services shall use its reasonable efforts to
cause each such Person to deliver to GB&T and Financial Services, not later than
thirty (30) days after the date of this Agreement, a written agreement,
substantially in the form of Exhibit 1, providing that such Person will not
sell, pledge, transfer or otherwise dispose of the shares of Financial Services
Common Stock held by such Person except as contemplated by such agreement or by
this Agreement and will not sell, pledge, transfer or otherwise dispose of the
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shares of GB&T Common Stock to be received by such Person upon consummation of
the Merger except in compliance with applicable provisions of the 1933 Act and
the rules and regulations thereunder. GB&T shall be entitled to place
restrictive legends upon certificates for shares of GB&T Common Stock issued to
Affiliates of Financial Services pursuant to this Agreement to enforce the
provisions of this Section 8.10. GB&T shall not be required to maintain the
effectiveness of the Registration Statement under the 1933 Act for the purposes
of resale of GB&T Common Stock by such Affiliates.
8.11 Employee Benefits and Contracts.
(a) Following the Effective Time, GB&T shall provide generally to
officers and employees of the Financial Services Companies who continue
employment with GB&T or its Subsidiaries following the Effective Time employee
benefits under employee benefit plans, on terms and conditions which when taken
as a whole are substantially similar to those currently provided by the GB&T
Companies to their similarly situated officers and employees. For purposes of
participation under such employee benefit plans, the service of the employees of
the Financial Services Companies prior to the Effective Time shall be treated as
service with a GB&T Company participating in such employee benefit plans,
provided that, with respect to any employee benefit plan where the benefits are
funded through insurance, the granting of such benefits shall be subject to the
consent of the appropriate insurer and may be conditioned upon an employee's
participation in a Financial Services Benefit Plan of the same type immediately
prior to the Effective Time.
(b) GB&T and its Subsidiaries also shall honor in accordance with
their terms all employment, severance, consulting and other compensation
Contracts disclosed in Section 8.11 of the Financial Services Disclosure
Memorandum to GB&T between any Financial Services Company and any current or
former director, officer, or employee thereof and all provisions for vested
benefits accrued through the Effective Time under the Financial Services Benefit
Plans.
8.12 [Reserved]
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The respective obligations of
each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 11.6 of
this Agreement:
(a) Shareholder Approval. The shareholders of each of Financial
Services and GB&T shall have approved this Agreement, and the consummation of
the transactions contemplated hereby, including the Merger, as and to the extent
required by Law, NASDAQ or by the provisions of any governing instruments.
(b) Regulatory Approvals. All Consents of, filings and registrations
with, and notifications to all Regulatory Authorities required for consummation
of the Merger shall have been obtained or made and shall be in full force and
effect and all waiting periods required by Law shall have expired. No Consent
obtained from any Regulatory Authority which is necessary to consummate the
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30
transactions contemplated hereby shall be conditioned or restricted in a manner
(including, without limitation, requirements relating to the raising of
additional capital or the disposition of Assets) which in the reasonable
judgment of the Board of Directors of either Party would so materially adversely
impact the economic or business benefits of the transactions contemplated by
this Agreement as to render inadvisable the consummation of the Merger.
(c) Consents and Approvals. Each Party shall have obtained any and all
Consents required for consummation of the Merger (other than those referred to
in Section 9.1(b) of this Agreement) or for the preventing of any Default under
any Contract or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on such Party. No Consent so obtained which is necessary to consummate
the transactions contemplated hereby shall be conditioned or restricted in a
manner which in the reasonable judgment of the Board of Directors of either
Party would so materially adversely impact the economic or business benefits of
the transactions contemplated by this Agreement as to render inadvisable the
consummation of the Merger.
(d) Registration Statement. The Registration Statement shall be
effective under the 1933 Act, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
Laws or the 1933 Act or 1934 Act relating to the issuance or trading of the
shares of GB&T Common Stock issuable pursuant to the Merger shall have been
received.
(e) Exchange Listing. The shares of GB&T Common Stock issuable
pursuant to the Merger shall have been approved for listing on the NASDAQ.
(f) Tax Matters. GB&T and Financial Services shall have received a
written opinion of counsel from Hulsey, Oliver & Mahar, LLP, in form reasonably
satisfactory to them (the "Tax Opinion"), to the effect that for federal income
tax purposes (i) the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code, (ii) the exchange in the Merger
of Financial Services Common Stock for GB&T Common Stock will not give rise to
gain or loss to the shareholders of Financial Services with respect to such
exchange (except to the extent of any cash received), and (iii) neither GB&T nor
Financial Services will recognize gain or loss as a consequence of the Merger
(except for income and deferred gain recognized pursuant to Treasury regulations
issued under Section 1502 of the Internal Revenue Code). In rendering such Tax
Opinion, counsel shall be entitled to rely upon representations of officers of
GB&T and Financial Services reasonably satisfactory in form and substance to
such counsel.
(g) Affiliate Agreements. The Parties shall have received from each
affiliate of Financial Services the affiliates letter referred to in Section
8.10 hereof.
(h) Pooling Letter. The Parties shall have received a letter from
Mauldin & Jenkins, LLC, dated as of the Effective Time, to the effect that the
Merger will qualify for pooling-of-interests accounting treatment under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with this Agreement.
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9.2 Conditions to Obligations of GB&T. The obligations of GB&T to perform
this Agreement and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions, unless
waived by GB&T pursuant to Section 11.6(a) of this Agreement:
(a) Representations and Warranties. For purposes of this Section
9.2(a), the accuracy of the representations and warranties of Financial Services
set forth or referred to in this Agreement shall be assessed as of the date of
this Agreement and as of the Effective Time with the same effect as though all
such representations and warranties had been made on and as of the Effective
Time (provided that representations and warranties which are confined to a
specified date shall speak only as of such date). The representations and
warranties of Financial Services set forth in Section 5.3 of this Agreement
shall be true and correct (except for inaccuracies which are de minimis in
amount). The representations and warranties of Financial Services set forth in
Section 5.19, Section 5.20 and Section 5.21 of this Agreement shall be true and
correct in all Material respects. There shall not exist inaccuracies in the
representations and warranties of Financial Services set forth in this Agreement
(excluding the representations and warranties set forth in Sections 5.3, 5.19,
5.20 and 5.21) such that the aggregate effect of such inaccuracies would have,
or is reasonably likely to have, a Material Adverse Effect on Financial
Services; provided that, for purposes of this sentence only, those
representations and warranties which are qualified by references to "Material"
or "Material Adverse Effect" shall be deemed not to include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Financial Services to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby prior to
the Effective Time shall have been duly performed and complied with in all
Material respects.
(c) Certificates. Financial Services shall have delivered to GB&T (i)
a certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
conditions of its obligations set forth in Sections 9.2(a) and 9.2(b) of this
Agreement have been satisfied, and (ii) certified copies of resolutions duly
adopted by Financial Services's Board of Directors and shareholders evidencing
the taking of all corporate action necessary to authorize the execution,
delivery and performance of this Agreement, and the consummation of the
transactions contemplated hereby, all in such reasonable detail as GB&T and its
counsel shall request.
(d) Opinion of Counsel. Financial Services shall have delivered to
GB&T an opinion of Sims, Moss, Kline, and Davis, LLP, counsel to Financial
Services, dated as of the Effective Time, in form reasonably satisfactory to
GB&T, as to the matters set forth in Exhibit 2 hereto.
(e) Claims/Indemnification Letters. Each of the directors and officers
of Financial Services shall have executed and delivered to GB&T letters in
substantially the form of Exhibit 3 hereto.
(f) Litigation. No preliminary or permanent injunction or other order
by any federal or state court which prevents the consummation of the Merger
shall have been issued and shall remain in effect, nor any action therefor
initiated which, in the good faith judgment of the Board of Directors of GB&T,
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it is not in the best interests of the shareholders of GB&T to contest; and
there shall not have been instituted or be pending any action or proceeding by
any United States federal or state government or governmental agency or
instrumentality (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or seeking material damages in connection with the
Merger; or (ii) seeking to prohibit GB&T's or the Surviving Corporation's
ownership or operation of all or a material portion of GB&T's or Financial
Services' business or assets, or compel GB&T or the Surviving Corporation to
dispose of or hold separate all or a material portion of GB&T's or Financial
Services' business or assets as a result of the Merger, which, in any case, in
the reasonable judgment of GB&T based upon a legal opinion from legal counsel,
could result in the relief sought being obtained.
(g) Support Agreements. Within ten (10) calendar days of the execution
of this Agreement, each of the directors of Financial Services shall have
executed and delivered to GB&T a Support Agreement substantially in the form of
Exhibit 6 to this Agreement.
9.3 Conditions to Obligations of Financial Services. The obligations of
Financial Services to perform this Agreement and consummate the Merger and the
other transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by Financial Services pursuant to Section
11.6(b) of this Agreement:
(a) Representations and Warranties. For purposes of this Section
9.3(a), the accuracy of the representations and warranties of GB&T set forth or
referred to in this Agreement shall be assessed as of the date of this Agreement
and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective Time
(provided that representations and warranties which are confined to a specified
date shall speak only as of such date). The representations and warranties of
GB&T set forth in Section 6.17 and Section 6.18 of this Agreement shall be true
and correct in all material respects. There shall not exist inaccuracies in the
representations and warranties set forth in this Agreement (excluding the
representations and warranties set forth in Sections 6.17 and 6.18) such that
the aggregate effect of such inaccuracies would have, or is reasonably likely to
have a Material Adverse Effect on GB&T; provided that, for purposes of this
sentence only, those representations and warranties which are qualified by
reference to "Material" or "Material Adverse Effect" shall be deemed not to
include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of GB&T to be performed and complied with pursuant to
this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all material
respects.
(c) Certificates. GB&T shall have delivered to Financial Services (i)
a certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
conditions of its obligations set forth in Section 9.3(a) and 9.3(b) of this
Agreement have been satisfied, and (ii) certified copies of resolutions duly
adopted by GB&T's Board of Directors evidencing the taking of all corporate
action necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, all in
such reasonable detail as Financial Services and its counsel shall request.
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(d) Opinion of Counsel. GB&T shall have delivered to Financial
Services an opinion of Hulsey, Oliver & Mahar, LLP, counsel to GB&T, dated as of
the Effective Time, in form reasonably acceptable to Financial Services, as to
matters set forth in Exhibit 4 hereto.
(e) Financial Services Fairness Opinion. Financial Services shall have
received from T. Stephen Johnson & Associates, Inc. a letter, dated not more
than five (5) business days prior to the date of the Proxy Statement, to the
effect that, in the opinion of such firm, the consideration to be paid to
Financial Services shareholders in connection with the Merger is fair, from a
financial point of view, to the shareholders of Financial Services.
(f) Litigation. No preliminary or permanent injunction or other order
by any federal or state court which prevents the consummation of the Merger
shall have been issued and shall remain in effect, nor any action therefor
initiated which, in the good faith judgment of the Board of Directors of
Financial Services, it is not in the best interests of the shareholders of
Financial Services to contest; and there shall not have been instituted or be
pending any action or proceeding by any United States federal or state
government or governmental agency or instrumentality (i) challenging or seeking
to restrain or prohibit the consummation of the Merger or seeking material
damages in connection with the Merger; or (ii) seeking to prohibit GB&T's or the
Surviving Corporation's ownership or operation of all or a material portion of
GB&T's or Financial Services's business or assets, or compel GB&T or the
Surviving Corporation to dispose of or hold separate all or a material portion
of GB&T's or Financial Services's business or assets as a result of the Merger,
which, in any case, in the reasonable judgment of Financial Services based upon
a legal opinion from legal counsel, could result in the relief sought being
obtained.
ARTICLE X
TERMINATION
10.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the shareholders of
Financial Services, or GB&T this Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) By mutual consent of the Board of Directors of Financial Services
and the Board of Directors of GB&T; or
(b) By the Board of Directors of either Party (provided that the
terminating Party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in Section
9.2(a) of this Agreement in the case of Financial Services and Section 9.3(a) in
the case of GB&T or in Material breach of any covenant or agreement contained in
this Agreement) in the event of a material breach by the other Party of any
representation or warranty contained in this Agreement which cannot be or has
not been cured within thirty (30) days after the giving of written notice to the
breaching Party of such breach and which breach would provide the non-breaching
Party the ability to refuse to consummate the Merger under the standard set
forth in Section 9.2(a) of this Agreement in the case of GB&T and Section 9.3(a)
of this Agreement in the case of Financial Services; or
(c) By the Board of Directors of either Party (provided that the
terminating Party is not then in breach of any representation or warranty
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contained in this Agreement under the applicable standard set forth in Section
9.2(a) of this Agreement in the case of Financial Services and Section 9.3(a) in
the case of GB&T or in the Material breach of any covenant or other agreement
contained in this Agreement) in the event of a Material breach by the other
Party of any covenant or agreement contained in this Agreement which cannot be
or has not been cured within thirty (30) days after the giving of written notice
to the breaching Party of such breach; or
(d) By the Board of Directors of either Party in the event (provided
that the terminating Party is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard set forth in
Section 9.2(a) of this Agreement in the case of Financial Services and Section
9.3(a) in the case of GB&T or in the material breach of any covenant or
agreement contained in this Agreement) (i) any Consent of any Regulatory
Authority required for consummation of the Merger and the other transactions
contemplated hereby shall have been denied by final nonappealable action of such
authority or if any action taken by such authority is not appealed within the
time limit for appeal, or (ii) if the shareholders of Financial Services fail to
vote their approval of this Agreement and the transactions contemplated hereby
as required by the GBCC at the Shareholders' Meeting where the transactions were
presented to such shareholders for approval and voted upon; or
(e) By the Board of Directors of either Party in the event that the
Merger shall not have been consummated on or before February 28, 2000, but only
if the failure to consummate the transactions contemplated hereby on or before
such date is not caused by any breach of this Agreement by the Party electing to
terminate pursuant to this Section 10.1(e); or
(f) By the Board of Directors of either Party (provided that the
terminating Party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in Section
9.2(a) of this Agreement in the case of Financial Services and Section 9.3(a) in
the case of GB&T or in the material breach of any covenant or other agreement
contained in this Agreement) in the event that any of the conditions precedent
to the obligations of such Party to consummate the Merger (other than as
contemplated by Section 10.1(d) of this Agreement) cannot be satisfied or
fulfilled by the date specified in Section 10.1(e) of this Agreement; or
(g) By the Board of Directors of either Party on or before two (2)
business days following the business day of receipt of the Disclosure Memorandum
of the other Party (which receipt shall not be later than October 7,1999 in the
event that such Party, after a review of the Disclosure Memorandum provided by
the other Party, determines not to proceed with the Merger.
10.2 Effect of Termination. In the event of the termination and abandonment
of this Agreement pursuant to Section 10.1 of this Agreement, this Agreement
shall become void and have no effect, except that the provisions of this Section
10.2 and Article 11 and Section 8.6(b) of this Agreement shall survive any such
termination and abandonment.
10.3 Non-Survival of Representations and Covenants. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except for this Section 10.3 and
Articles 2, 3, 4 and 11 and Sections 8.10, 8.11 and 8.12 of this Agreement.
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ARTICLE XI
MISCELLANEOUS
11.1 Definitions. Except as otherwise provided herein, the capitalized
terms set forth below (in their singular and plural forms as applicable) shall
have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Acquisition Proposal" shall mean any tender offer or exchange offer or any
proposal for a merger (other than the Merger), acquisition of all of the stock
or Assets of, or other business combination involving Financial Services or any
of its Subsidiaries or the acquisition of a substantial equity interest in, or a
substantial portion of the Assets of Financial Services or any of its
Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner, or
direct or indirect beneficial owner of any 10% or greater equity or voting
interest of such Person; or (iii) any other Person for which a Person described
in clause (ii) acts in such capacity.
"Agreement" shall mean this Agreement and Plan of Reorganization, including
the Exhibits delivered pursuant hereto and incorporated herein by reference.
"Allowance" shall have the meaning provided in Section 5.9 of this
Agreement.
"Assets" of a Person shall mean all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or contingent,
or otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the books and records
of such Person, and whether or not owned in the name of such Person or any
Affiliate of such Person and wherever located.
"BHC Act" shall mean the federal Bank Holding Company Act of 1956, as
amended.
"Closing" shall mean the closing of the transactions contemplated
hereby, as described in Section 1.2 of this Agreement.
"Closing Date" shall mean the date on which the Closing occurs.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease, obligation,
plan, practice, restriction, understanding or undertaking of any kind or
character, or other document to which any Person is a party or that is binding
on any Person or its capital stock, Assets or business.
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"Default" shall mean (a) any breach or violation of or default under any
Contract, Order or Permit, (b) any occurrence of any event that with the passage
of time or the giving of notice or both would constitute a breach or violation
of or default under any Contract, Order or Permit, or (c) any occurrence of any
event that with or without the passage of time or the giving of notice would
give rise to a right to terminate or revoke, change the current terms of, or
renegotiate, or to accelerate, increase, or impose any Liability under, any
Contract, Order or Permit.
"Designated Officer" shall be the officer of GB&T and Financial Services
who is designated by their respective Boards of Directors to make such decisions
as are specified herein.
"Effective Time" shall mean the date and time at which the Merger becomes
effective as defined in Section 1.3 of this Agreement.
"Environment" shall have the meaning specified in the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. (S) 9601(8).
"Environmental Laws" shall mean all Laws pertaining to pollution or
protection of the environment and which are administered, interpreted or
enforced by the United States Environmental Protection Agency and state and
local agencies with primary jurisdiction over pollution or protection of the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. (S) 9601 et. seq., the
Resource, Conservation and Recovery Act, 42 U.S.C. (S) 6901 et. seq., the Toxic
Substance Control Act, 15 U.S.C. (S) 2601, et. seq., and all implementing
regulations and state counterparts of such acts.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall refer to a relationship between entities such that
the entities would, now or at any time in the past, constitute a "single
employer" within the meaning of Section 414 of the Internal Revenue Code.
"ERISA Plan" shall have the meaning provided in Section 5.14 of this
Agreement.
"Exchange Ratio" shall have the meaning provided in Section 3.1 of this
Agreement.
"Exhibits" 1 through 6, inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof and may be referred to
in this Agreement and any other related instrument or document without being
attached hereto.
"Financial Services Benefit Plans" shall have the meaning set forth in
Section 5.14 of this Agreement.
"Financial Services Common Stock" shall mean the $5.00 value common stock
of Financial Services.
"Financial Services Companies" shall mean, collectively, Financial Services
and all Financial Services Subsidiaries.
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"Financial Services Disclosure Memorandum" shall mean the written
information entitled "Financial Services Disclosure Memorandum" delivered on or
prior to October 7, 1999 to GB&T describing in reasonable detail the matters
contained therein, specifically referencing each Section of this Agreement under
which such disclosure is being made.
"Financial Services Financial Statements" shall mean (a) the consolidated
balance sheets (including related notes and schedules, if any) of Financial
Services as of December 31, 1998, and December 31, 1997 and 1996, and the
related statements of income, changes in shareholders' equity, and cash flows
(including related notes and schedules, if any) for each of the three fiscal
years ended December 31, 1998, 1997 and 1996, included in the Financial Services
Disclosure Memorandum, and (b)the consolidated balance sheets (including related
notes and schedules, if any) of Financial Services and related statements of
income, changes in shareholders' equity, and cash flows (including related notes
and schedules, if any) with respect to periods ended subsequent to December 31,
1998.
"Financial Services Options" shall have the meaning set forth in Section
3.4 of this Agreement, if any such options exist.
"Financial Services Stock Plans" shall mean the existing stock option and
other stock-based compensation plans of Financial Services disclosed in Section
5.14 of the Financial Services Disclosure Memorandum.
"Financial Services Subsidiaries" shall mean the subsidiaries of Financial
Services.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"GBCC" shall mean the Georgia Business Corporation Code.
"GB&T Bank" shall mean Gainesville Bank & Trust, a Georgia state-chartered
bank and a GB&T Subsidiary.
"GB&T Common Stock" shall mean the $5.00 par value common stock of GB&T.
"GB&T Companies" shall mean, collectively, GB&T and all GB&T Subsidiaries.
"GB&T Disclosure Memorandum" shall mean the written information entitled
"GB&T Disclosure Memorandum" delivered on or prior to October 7, 1999 to
Financial Services describing in reasonable detail the matters contained therein
and, with respect to each disclosure made therein, specifically referencing each
Section of this Agreement under which such disclosure is being made.
"GB&T Financial Statements" shall mean (a) the consolidated balance sheets
(including related notes and schedules, if any) of GB&T as of December 31, 1998,
1997 and 1996, and the related statements of income, changes in shareholders'
equity, and cash flows (including related notes and schedules, if any) for each
of the three years ended December 31, 1998, 1997 and 1996, and (b) the
consolidated balance sheets (including related notes and schedules, if any) of
GB&T and related statements of income, changes in shareholders' equity, and cash
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flows (including related notes and schedules, if any) included in SEC Documents
filed with respect to periods ended subsequent to December 31, 1998.
"GB&T Stock Plans" shall mean the existing stock option and other
stock-based compensation plans of GB&T.
"GB&T Subsidiaries" shall mean the Subsidiaries of GB&T at the Effective
Time.
"Georgia Certificate of Merger" shall mean the Certificate of Merger to be
executed by GB&T and filed with the Secretary of State of the State of Georgia
relating to the Merger as contemplated by Section 1.1 of this Agreement.
"Hazardous Material" shall mean any substance which is a "hazardous
substance"or "toxic substance" as defined in the Comprehensive Environment
Response, Compensation, and Liability Act, 42 U.S.C. (S)9601 et seq., or any
other substance or material defined, designated, classified or regulated as
hazardous or toxic under any Environmental Law, specifically including asbestos
requiring abatement, removal or encapsulation pursuant to the requirements of
Environmental Laws of polychlorinated biphenyls, and petroleum and petroleum
products).
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a Person shall mean the knowledge after
due inquiry of the Chairman, President, Chief Financial Officer, Chief
Accounting Officer, Chief Credit Officer, or any Senior or Executive Vice
President of such Person.
"Law" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a Person or its Assets,
Liabilities or business, including, without limitation, those promulgated,
interpreted or enforced by any of the Regulatory Authorities.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including,
without limitation, costs of investigation, collection and defense), claim,
deficiency, guaranty or endorsement of or by any Person (other than endorsements
of notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, easement, encroachment,
encumbrance, hypothecation, infringement, lien, mortgage, pledge, reservation,
restriction, security interest, title retention or other security arrangement,
or any adverse right or interest, charge, or claim of any nature whatsoever on,
or with respect to, any property or property interest, other than (i) Liens for
current property Taxes not yet due and payable; (ii) for depository institution
Subsidiaries of a Party, pledges to secure deposits and (iii) other Liens
incurred in the ordinary course of the banking business.
"Litigation" shall mean any action, arbitration, cause of action, claim,
complaint, criminal prosecution, demand letter, governmental or other
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examination or investigation, hearing, inquiry, administrative or other
proceeding, or notice (written or oral) by any Person alleging potential
Liability or requesting information relating to or affecting a Party, its
business, its Assets (including, without limitation, Contracts related to it),
or the transactions contemplated by this Agreement, but shall not include
regular, periodic examinations of depository institutions and their Affiliates
by Regulatory Authorities other than the violations of law section from such
reports.
"Loan Property" shall mean any property owned by the Party in question or
by any of its Subsidiaries or in which such Party or Subsidiary holds a security
interest, and, where required by the context, includes the owner or operator of
such property, but only with respect to such property.
"Material" for purposes of this Agreement shall be determined in light of
the facts and circumstances of the matter in question; provided that any
specific monetary amount stated in this Agreement shall determine materiality in
that instance.
"Material Adverse Effect" on a Party shall mean an event, change or
occurrence which has a material adverse impact on (a) the financial position,
business, or results of operations of such Party and its Subsidiaries, taken as
a whole, or (b) the ability of such Party to perform its obligations under this
Agreement or to consummate the Merger or the other transactions contemplated by
this Agreement, provided that "material adverse impact" shall not be deemed to
include the impact of (w) changes in banking and similar Laws of general
applicability or interpretations thereof by courts or governmental authorities,
(x) changes in GAAP or regulatory accounting principles generally applicable to
banks and their holding companies, (y) actions and omissions of a Party (or any
of its Subsidiaries) taken with the prior informed consent of the other Party in
contemplation of the transactions contemplated hereby, or (z) the Merger and
compliance with the provisions of this Agreement on the operating performance of
the Parties.
"Merger" shall mean the merger of Financial Services with and into GB&T
referred to in Section 1.1 of this Agreement.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency or Regulatory Authority.
"Participation Facility" shall mean any facility or property in which the
Party in question or any of its Subsidiaries participates in the management
(including any property or facility held in a joint venture) and, where required
by the context, said term means the owner or operator of such facility or
property, but only with respect to such facility or property.
"Party" shall mean either GB&T or Financial Services, and "Parties" shall
mean both GB&T and Financial Services.
"Permit" shall mean any federal, state, local, and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit, or right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its securities, Assets,
Liabilities, or business.
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"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in a
representative capacity.
"Proxy Statement" shall mean the proxy statement used by Financial Services
to solicit the approval of its shareholders of the transactions contemplated by
this Agreement which shall be included in the prospectus of GB&T relating to
shares of GB&T Common Stock to be issued to the shareholders of Financial
Services.
"Registration Statement" shall mean the Registration Statement on Form S-4,
or other appropriate form, filed with the SEC by GB&T under the 1933 Act with
respect to the shares of GB&T Common Stock to be issued to the shareholders of
Financial Services in connection with the transactions contemplated by this
Agreement and which shall include the Proxy Statement.
"Regulatory Authorities" shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice, the Board of the Governors
of the Federal Reserve System, the Office of Thrift Supervision (including its
predecessor, the Federal Home Loan Bank Board), the Office of the Comptroller of
the Currency, the Federal Deposit Insurance Corporation, all state regulatory
agencies having jurisdiction over the Parties and their respective Subsidiaries,
the NASD and the SEC.
"Rights" shall mean all arrangements, calls, commitments, Contracts,
options, rights to subscribe to, scrip, understandings, warrants or other
binding obligations of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital stock of a
Person or by which a Person is or may be bound to issue additional shares of its
capital stock or other Rights.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC Documents" shall mean all forms, proxy statements, registration
statements, reports, schedules and other documents filed, or required to be
filed, by a Party or any of its Subsidiaries with any Regulatory Authority
pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the Investment
Company Act of 1940, as amended, the Investment Advisors Act of 1940, as
amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
"Shareholders' Meeting" shall mean the meeting of the shareholders of
Financial Services to be held pursuant to Section 8.1 of this Agreement,
including any adjournment or adjournments thereof.
"Subsidiaries" shall mean all those corporations, banks, associations or
other entities of which the entity in question owns or controls 50% or more of
the outstanding equity securities either directly or through an unbroken chain
of entities as to each of which 50% or more of the outstanding equity securities
is owned directly or indirectly by its parent; provided, however, there shall
not be included any such entity acquired through foreclosure or any such entity
the equity securities of which are owned or controlled in a fiduciary capacity.
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"Support Agreements" shall mean the various Support Agreements, each in
substantially the form of Exhibit 6 to this Agreement.
"Surviving Corporation" shall mean GB&T as the surviving corporation
resulting from the Merger.
"Tax" or "Taxes" shall mean any federal, state, county, local or foreign
income, profits, franchise, gross receipts, payroll, sales, employment, use,
property, withholding, excise, occupancy and other taxes, assessments, charges,
fares or impositions, including interest, penalties and additions imposed
thereon or with respect thereto.
"United Bank & Trust" shall mean United Bank & Trust Company, a Georgia
state-chartered bank and a Financial Services Subsidiary.
"Year 2000 Problem" shall mean any problem affecting the ability of any
Party or its Subsidiaries to continue operation as an ongoing business or to
provide the usual and customary services of any Party or its Subsidiaries,
relating to the failure of software, hardware or other computer equipment to:
(a) store all date-related information and process all data interfaces involving
dates in a manner that unambiguously identifies the century, for all date values
before, during or after the Year 2000; (b) calculate, sort, report and otherwise
operate correctly and in a consistent manner for all date information processed
by any software, hardware or other computer equipment, whether before, during or
after the Year 2000; (c) calculate, sort, report and otherwise operate
correctly, in a consistent manner and without interruption regardless whether
the date on which the software, hardware or other computer equipment is operated
or executed is before, during or after the Year 2000; (d) report and display all
dates with a four-digit date so that the century is unambiguously identified;
and (e) handle all leap years, including but not limited to the Year 2000 leap
year, correctly.
Any singular term in this Agreement shall be deemed to include the plural, and
any plural term the singular. Whenever the words "include," "includes," or
"including" are used in this Agreement, they shall be deemed followed by the
words "without limitation."
11.2 Expenses.
(a) Except as otherwise provided in this Section 11.2, each of the
Parties shall bear and pay all direct costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
filing, registration and application fees, printing fees, and fees and expenses
of its own financial or other consultants, investment bankers, accountants and
counsel, except that each of the Parties shall bear and pay (i) one-half of the
filing fees payable in connection with the Registration Statement and the
applications filed with other Regulatory Authorities, and (ii) one-half of the
costs incurred in connection with the printing or copying of the Proxy
Statements.
(b) Notwithstanding the provisions of Section 11.2(a) of this
Agreement, if for any reason this Agreement is terminated pursuant to Sections
10.1(b) or 10.1(c) of this Agreement, the breaching Party agrees to pay the
non-breaching Party an amount equal to the reasonable and documented fees and
expenses incurred by such non-breaching Party in connection with the examination
and investigation of the breaching Party, the preparation and negotiation of
this Agreement and related agreements, regulatory filings and other documents
42
<PAGE>
related to the transactions contemplated hereunder, including, without
limitation, fees and expenses of investment banking consultants, accountants,
attorneys and other agents. Final settlement with respect to payment of such
fees and expenses shall be made within thirty (30) days after the termination of
this Agreement. This Section 11.2(b) shall be the non-breaching Party's sole and
exclusive remedy for actionable breach by the breaching Party under this
Agreement.
11.3 Brokers and Finders. Each of the Parties represents and warrants that
neither it nor any of its officers, directors, employees or Affiliates has
employed any broker or finder or incurred any Liability for any financial
advisory fees, investment bankers' fees, brokerage fees, commissions, or
finders' fees in connection with this Agreement or the transactions contemplated
hereby, other than as identified in Section 11.3 of each party's Disclosure
Memorandum. In the event of a claim by any broker or finder based upon his or
its representing or being retained by or allegedly representing or being
retained by GB&T or Financial Services, each of GB&T and Financial Services, as
the case may be, agrees to indemnify and hold the other Party harmless of and
from any Liability in respect of any such claim.
11.4 Entire Agreement. Except as otherwise expressly provided herein, this
Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement
expressed or implied, is intended to confer upon any Person, other than the
Parties or their respective successors, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, other than as provided in
Section 8.10 of this Agreement.
11.5 Amendments. To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the Parties upon the approval
of the Boards of Directors of each of the Parties; provided, however, that after
any such approval by the holders of Financial Services Common Stock, there shall
be made no amendment that pursuant to the GBCC requires further approval by such
shareholders without the further approval of such shareholders.
11.6 Waivers.
(a) Prior to or at the Effective Time, GB&T, acting through its Board
of Directors, chief executive officer or other authorized officer, shall have
the right to waive any Default in the performance of any term of this Agreement
by Financial Services, to waive or extend the time for the compliance or
fulfillment by Financial Services of any and all of its obligations under this
Agreement, and to waive any or all of the conditions precedent to the
obligations of GB&T under this Agreement, except any condition which, if not
satisfied, would result in the violation of any Law. No such waiver shall be
effective unless in writing and signed by a duly authorized officer of GB&T.
(b) Prior to or at the Effective Time, Financial Services, acting
through its Board of Directors, chief executive officer or other authorized
officer, shall have the right to waive any Default in the performance of any
term of this Agreement by GB&T, to waive or extend the time for the compliance
or fulfillment by GB&T of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of
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Financial Services under this Agreement, except any condition which, if not
satisfied, would result in the violation of any Law. No such waiver shall be
effective unless in writing and signed by a duly authorized officer of Financial
Services.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
11.7 Assignment. Except as expressly contemplated hereby, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the Parties and their respective successors and assigns.
11.8 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, or by courier or overnight carrier, to the persons at
the addresses set forth below (or at such other address as may be provided
hereunder), and shall be deemed to have been delivered as of the date so
delivered:
GB&T: GB&T Bancshares, Inc.
P. O. Box 2760
500 Jesse Jewell Parkway
Gainesville, GA 30501
Telecopy No: 770-532-3663
Attn: Richard A. Hunt
President
Copy to Counsel: Hulsey, Oliver & Mahar, LLP
200 E. E. Butler Parkway
P. O. Box 1457
Gainesville, GA 30503
Telecopy No: 770-531-9230
Attention: Samuel L. Oliver, Esq.
Financial Services: UB&T Financial Services Corporation
129 E. Elm Street
P. O. Box 485
Rockmart, GA 30153
Attention: Dan Forsyth
Chairman of the Board
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Copy to Counsel: Sims Moss Kline & Davis, LLP
Suite 310
400 Northpark Town Center
1000 Abernathy Road
Atlanta, GA 30328
Telecopier No: 770-481-7210
Attention: Gilbert H. Davis, Esq.
11.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Georgia, without regard to any
applicable conflicts of Laws, except to the extent that the federal laws of the
United States may apply to the Merger.
11.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.11 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.12 Enforcement of Agreement. The Parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
11.13 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
GB&T BANCSHARES, INC.
By:____________________________________
Richard A. Hunt
President & CEO
Attest: ___________________________________
Secretary
UB&T FINANCIAL SERVICES CORPORATION
By:___________________________________
Dan Forsyth
Chairman of the Board
Attest: __________________________________
Secretary
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APPENDIX B
UB&T Financial Services Corporation Form 10-KSB for the year ended December
31, 1998, Form 10-KSB/A for the year ended December 31, 1998, and Form 10-QSB
for the nine months ended September 30, 1999.
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 000-24899
UB&T FINANCIAL SERVICES CORPORATION
(Exact name of small business issuer as specified in its charter)
Georgia 58-2378257
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification)
129 East Elm Street, Rockmart, Georgia 30153
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 770-684-8888
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$5.00 par value per share
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
---- ----
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $3,878,000
The aggregate market value of the common equity held by non-affiliates computed
by reference to the price at which the common equity was sold, or the average
bid and ask price of such common equity, as of a specified date within the past
60 days: $4,370,448 at March 15, 1999 based on private trades at $16.00 per
share, although there is no established trading market.
There were 426,370 shares of Registrant's common stock outstanding at March 15,
1999.
Documents Incorporated By Reference: Portions of Registrant's 1998 Annual Report
to Shareholders are incorporated by reference into Part II of this Report and
portion's of Registrant's definitive Proxy Statement for its 1999 Annual Meeting
of Shareholders are incorporated by reference into Part III of this Report.
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
<PAGE>
TABLE OF CONTENTS
PAGE
PART I
ITEM 1: Description of Business 3
ITEM 2: Description of Properties 9
ITEM 3: Legal Proceedings 9
ITEM 4: Submission of Matters to a Vote of Security Holders 9
PART II
ITEM 5: Market for Common Equity and Related Stockholder Matters 9
ITEM 6: Management's Discussion and Analysis or Plan of Operation 10
ITEM 7: Financial Statements 24
ITEM 8: Changes in and Disagreements with Accountants on Accounting 24
and Financial Disclosure
PART III
ITEM 9: Directors, Executive Officers, Promoters and Control Persons: 25
Compliance with Section 16(a) of the Exchange Act
ITEM 10: Executive Compensation 26
ITEM 11: Security Ownership of Certain Beneficial Owners and Management 26
ITEM 12: Certain Relationships and Related Transactions 26
ITEM 13: Exhibits and Reports on Form 8-K 26
SIGNATURES
2
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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains statements that constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things, trends affecting the Company's financial condition or
results of operations and the Company's business and growth strategies.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the forward-looking
statements as a result of various factors. These factors include the following:
(a) competitive pressure in the banking industry and the Bank's market area; (b)
changes in the interest rate environment; (c) the fact that general economic
conditions may be less favorable in the Bank's market area than we expect; and
(d) changes in our regulatory environment. The accompanying information
contained in this Report, including, without limitation, the information set
forth under the headings "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as in the Company's
Securities Act filings, identifies important additional factors that could
adversely affect actual results and performance. Prospective investors are urged
to carefully consider such factors.
All forward-looking statements attributable to the Company are expressly
qualified in their entirety by the foregoing cautionary statements.
PART I
Item 1. Description of Business.
(a) Business Development
UB&T Financial Services Corporation (the "Company"), a Georgia corporation, was
organized on May 28, 1998 for the purpose of acquiring all of the issued and
outstanding common stock of United Bank & Trust (the "Bank") and becoming the
bank holding company for the Bank. Pursuant to an Agreement and Plan of
Reorganization approved by the Bank's shareholders in May 1998, each outstanding
share of common stock of the Bank was converted into and exchanged for one share
of the $5.00 par value common stock of the Company ("Company Common Stock"), the
shareholders of the Bank became shareholders of the Company, and the Bank became
a wholly owned subsidiary of the Company effective September 1, 1998. The
Company is registered and regulated as a bank holding company pursuant to the
Bank Holding Company Act of 1956, as amended.
The Bank is a financial institution which was organized under the laws of the
State of Georgia on October 27, 1988 and completed its initial offering of
451,105 shares of its common stock at a price of $10.00 per share on December
20, 1989. On January 16, 1990, the Bank received Bank Insurance Fund insurance
of its accounts from the Federal Deposit Insurance Corporation ("FDIC") and its
permit to begin business as a commercial bank under the laws of the State of
Georgia from the Georgia Department of Banking and Finance (the "Department").
On July 10, 1995, the Bank opened a full-service branch in Cedartown, Polk
County, Georgia.
The headquarters of the Company and the Bank are located at 129 East Elm Street
in Rockmart, Polk County, Georgia.
(b) Business of Issuer
The Company does not currently have any subsidiaries other than the Bank or
conduct independent business operations. The Bank's operations are primarily
retail and commercial oriented and are targeted at individuals and small to
medium-sized businesses located within its market area. The Bank considers its
primary market area to be Polk County, the area within a five-mile radius of
Taylorsville located half in Polk County and half in Bartow County, and nearby
areas of Floyd, Paulding, Haralson and Carroll Counties. While the Bank provides
most traditional commercial and consumer banking services, its principal
activities are the taking of demand and time deposits and the making of secured
and unsecured consumer and business loans, including, but not limited to: (i)
working capital loans; (ii) long-term fixed asset purchase or expansion loans;
(iii) consumer for automobiles, appliances and household equipment ; (iv)
residential real
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estate loans and home improvement loans; (v) residential construction loans;
(vi) industrial and agricultural equipment loans; (vii) educational loans; and
(viii) county and city development authority loans. The Bank also acts as an
issuing agent for U.S. Savings Bonds, travelers checks, money orders and
cashiers checks. The Bank does not presently provide trust services.
Competition
Consistent with its community banking approach, the Bank's loan and deposit
customers are located primarily in Polk County and surrounding areas. The Bank
competes directly for deposits in its market area with other commercial banks,
thrifts, credit unions, brokerage firms, agencies issuing United States
government securities and all other organizations and institutions engaged in
money market transactions. In its lending activities, the Bank competes with
other financial institutions as well as consumer finance companies, mortgage
companies, insurance companies and other lenders engaged in the business of
extending credit in its market area. Interest rates, both on loans and deposits,
and prices of services are highly competitive among financial institutions
generally. Office location, types and quality of services and products, office
hours, customer service, community reputation and continuity of personnel are
also important competitive factors.
The Company and Bank may compete with numerous other companies and financial
institutions engaged in similar lines of business, such as other bank holding
companies, leasing companies and insurance companies. Many of these other
financial institutions and companies will have far greater resources than either
the Bank or the Company.
On September 29, 1994, the "Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994" (the "Interstate Banking Act") was enacted. In general,
the Interstate Banking Act, among other matters, permits bank holding companies,
upon receipt of appropriate regulatory approvals, (i) to merge their multi state
bank subsidiaries into a single bank by June 1, 1997, unless the state
legislatures act to "opt-out" of this provision; and (ii) to acquire banks in
any state one year after the effective date of the Interstate Banking Act. It
also permits banks, upon receipt of appropriate regulatory approvals, to
establish de novo branches across state lines, so long as the individual states
into which the potential entrant proposes to branch specifically pass
legislation to "opt-in" and allow out of state banks to branch in that state on
a de novo basis.
The Bank, as a state chartered bank, is permitted to branch to the extent that
banks are permitted to branch under Georgia law. In 1996, the Georgia
legislature passed a bill designed to eliminate Georgia's current branching
restrictions by allowing banks in Georgia, with prior approval of the Department
(and the appropriate Federal regulatory authority), to establish up to three new
branches to be located in any county in the state. Effective July 1, 1998,
Georgia banks may establish an unlimited number of branches in any county in the
state, upon receipt of appropriate regulatory approvals.
The United States Congress and the Georgia General Assembly have periodically
considered and adopted legislation that has resulted in, and could further
result in, deregulation of both banks and other financial institutions. Such
legislature could further eliminate geographic restrictions on banks and bank
holding companies and current prohibitions against banks engaging in certain
nonbanking activities. Such legislative changes could place the Bank in more
direct competition with other financial institutions, including mutual funds,
securities brokerage firms, insurance companies, and investment banking firms.
The effect of any such legislation on the business of the Bank cannot be
accurately predicted. The Bank cannot predict what other legislation might be
enacted or what other regulations might be adopted and, if enacted or adopted,
the effect thereof.
As a result of the enactment of such statutes, the competitive environment in
which financial institutions must conduct their business, and the potential for
competition among financial institutions of all types has increased
significantly. Management of the Company and the Bank believes that there is a
need and demand in its market area for locally owned and operated financial
institutions such as the Bank. However, there is no assurance that the Bank can
remain an effective competitor in such a deregulated financial services
environment.
4
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Employees
As of December 31, 1998, the Bank had 26 full-time and 3 part-time employees.
The Company has no employees. Neither the Company nor the Bank is a party to any
collective bargaining agreement, and, in the opinion of management, the Bank
enjoys satisfactory relations with its employees.
Supervision and Regulation
Regulation of the Bank. The operations of the Bank are subject to state and
federal statutes applicable to state chartered banks whose deposits are insured
by the FDIC and the regulations of the Department and the FDIC. Such statutes
and regulations relate to, among other things, required reserves, investments,
loans, mergers and consolidations, issuances of securities, payment of
dividends, establishment of branches and other aspects of the Bank's operations.
Under the provisions of the Federal Reserve Act, the Bank is subject to certain
restrictions on any extensions of credit to the Company or, with certain
exceptions, other affiliates, and on the taking of such stock or securities as
collateral on loans to any borrower. In addition, the Bank is prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit or the providing of any property or service.
The Bank, as a state chartered bank, is permitted to branch only to the extent
that banks are permitted to branch under Georgia law. In January 1996, the
Georgia legislature passed a bill designed to eliminate Georgia's current
intra-county branching restrictions. The legislation provided that effective
after July 1, 1996, banks in Georgia, with prior approval of the Department (and
the appropriate federal regulatory authority), may establish additional branches
in up to three new counties in the state per year. On July 1, 1998, full
statewide branching went into effect as Georgia banks may establish new branches
in any county in the state with prior approval of the appropriate regulatory
authorities.
The FDIC adopted final risk-based capital guidelines for all FDIC insured state
chartered banks that are not members of the Federal Reserve System effective
December 31, 1990. As of December 31, 1992, all banks are required to maintain a
minimum ratio of total capital to risk weighted assets of 8 percent (of which at
least 4 percent must consist of Tier 1 capital). Tier 1 capital of state
chartered banks (as defined in regulations) generally consists of (i) common
stockholders equity; (ii) noncumulative perpetual preferred stock and related
surplus; and (iii) minority interests in the equity accounts of consolidated
subsidiaries.
In addition, the FDIC adopted a minimum ratio of Tier 1 capital to total assets
of banks. This capital measure is generally referred to as the leverage capital
ratio. The FDIC has established a minimum leverage capital ratio of 3 percent if
the FDIC determines that the institution is not anticipating or experiencing
significant growth and has well-diversified risk, including no undue interest
rate exposure, excellent asset quality, high liquidity, good earnings and, in
general, is considered a strong banking organization, rated Composite 1 under
the Uniform Financial Institutions Rating System. Other financial institutions
are expected to maintain leverage capital at least 100 to 200 basis points above
the minimum level. Banking regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations, including a proposal
to add an interest rate risk component to risk-based capital requirements.
The Federal Deposit Insurance Corporation Improvement Act of 1991, enacted in
December 1991 ("FDICIA"), specifies, among other things, the following five
capital standard categories for depository institutions: (i) well capitalized,
(ii) adequately capitalized, (iii) undercapitalized, (iv) significantly
undercapitalized and (v) critically undercapitalized. FDICIA imposes
progressively more restrictive constraints on operations, management and capital
distributions depending on the category in which an institution is classified.
Each of the federal banking agencies has issued final uniform regulations that
became effective December 19, 1992, which, among other things, define the
capital levels described above. Under the final regulations, a bank is
considered "well capitalized" if it (i) has a total risk-based capital ratio of
10% or greater, (ii) has a Tier 1 risk-based capital ratio of 6% or greater,
(iii) has a leverage ratio of 5% or greater, and (iv) is not subject to any
order or written directive to meet and maintain a specific capital level for any
capital measure. An "adequately capitalized" bank is defined as one that has (i)
a total risk-based capital ratio for 8% or greater, (ii) a Tier 1 risk-based
capital ratio of 4% or greater and (iii) a leverage ratio of 4% or greater. An
"undercapitalized" bank is defined as one that has (i) a total risk-based
capital ratio of less than 8%, (ii) a Tier I risk-based capital ratio of less
than 4% or (iii) a leverage ratio of less than 3%. A "significantly
undercapitalized" bank is defined as one that has a total risk-based capital
ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3% or a
leverage ratio of less than 3% and a bank is "critically undercapitalized" if
the bank has a leverage ratio equal to
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or less than 2%. The applicable federal regulatory agency for a bank that is
"well capitalized" may reclassify it as "adequately capitalized" or
"undercapitalized" and subject the institution to the supervisory actions
applicable to the next lower capital category, if it determines that the Bank is
in an unsafe or unsound condition or deems the bank to be engaged in an unsafe
or unsound practice and not to have corrected the deficiency. As of December 31,
1998, the Bank met the definition of a "well capitalized" institution.
"Undercapitalized" depository institutions, among other things, are subject to
growth limitations, are prohibited, with certain exceptions, from making capital
distributions, are limited in their ability to obtain funding from a Federal
Reserve Bank and are required to submit a capital restoration plan. The federal
banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to succeed
in restoring the depository institution's capital. In addition, for a capital
restoration plan to be acceptable, the depository institution's parent holding
company must guarantee that the institution will comply with such capital
restoration plan and provide appropriate assurances of performance. If a
depository institution fails to submit an acceptable plan, including if the
holding company refuses or is unable to make the guarantee described in the
previous sentence, it is treated as if it is "significantly undercapitalized".
Failure to submit or implement an acceptable capital plan also is grounds for
the appointment of a conservator or a receiver. "Significantly undercapitalized"
depository institutions may be subject to a number of additional requirements
and restrictions such as orders to sell sufficient voting stock to become
adequately capitalized, requirements to reduce total assets and cessation of
receipt of deposits from correspondent banks. "Critically undercapitalized"
institutions, among other things, are prohibited from making any payments of
principal and interest on subordinated debt, and are subject to the appointment
of a receiver or conservator.
Under FDICIA, the FDIC is permitted to provide financial assistance to an
insured bank before appointment of a conservator or receiver only if (i) such
assistance would be the least costly method of meeting the FDIC's insurance
obligations, (ii) grounds for appointment of a conservator or a receiver exist
or are likely to exist, (iii) it is unlikely that the bank can meet all capital
standards without assistance and (iv) the bank's management has been competent,
has complied with applicable laws, regulations, rules and supervisory directives
and has not engaged in any insider dealing, speculative practice or other
abusive activity.
The Bank is subject to FDIC deposit insurance assessments for the Bank Insurance
Fund ("BIF"). The FDIC has implemented a risk-based assessment system whereby
banks are assessed on a sliding scale depending on their placement in nine
separate supervisory categories. Recent legislation provides that BIF insured
institutions, such as the Bank, will share the Financial Corporation ("FICO")
bond service obligation. Previously, only Savings Association Insurance Fund
("SAIF") insured institutions were obligated to contribute to the FICO bond
service. The BIF deposit insurance premium will be less than $.02 per $100 of
BIF insured deposits for the highest-rated institutions.
On April 19, 1995, the federal bank regulatory agencies adopted uniform
revisions to the regulations promulgated pursuant to the Community Reinvestment
Act (the "CRA"), which are intended to set standards for financial institutions.
The revised regulation contains three evaluation tests: (a) a lending test which
will compare the institution's market share of loans in low and moderate income
areas to its market share of loans in its entire service area and the percentage
of a bank's outstanding loans to low and moderate income areas or individuals,
(b) a services test which will evaluate the provision of services that promote
the availability of credit to low and moderate income areas, and (c) an
investment test, which will evaluate an institution's record of investments in
organizations designed to foster community developments, small and minority
owned businesses and affordable housing lending, including state and local
government housing or revenue bonds. The regulation is designed to reduce the
paperwork requirements of the current regulations and provide regulatory
agencies, institutions, and community groups with a more objective and
predictable manner with which to evaluate the CRA performance of financial
institutions. The rule became effective on January 1, 1996 when evaluation under
streamlined procedures began for institutions with total assets of less than
$250 million that are owned by a holding company with total assets of less than
$1 billion.
Congress and various federal agencies (including, in addition to the bank
regulatory agencies, the Department of Housing and Urban Development, the
Federal Trade Commission and the Department of Justice (collectively, the
"Federal Agencies") responsible for implementing the nation's fair lending laws
have been increasingly concerned that the prospective home buyers and other
borrowers are experiencing discrimination in their efforts to obtain loans. The
Justice Department filed suit against financial institutions which it determined
had discriminated, seeking fines and
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restitution for borrowers who allegedly suffered from discriminatory practices.
Most, if not all, of these suites have been settled (some for substantial sums)
without a full adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to clarify what constitutes
discrimination in lending and to specify the factors the agencies will consider
in determining if lending discrimination exists, announced a joint policy
statement detailing specific discriminatory practices prohibited under the Equal
Credit Opportunity Act and the Fair Housing Act. In the policy statement, three
methods of establishing discrimination in lending were identified: (a) overt
evidence of discrimination, when a lender blatantly discriminates on a
prohibited basis, or (b) where there is no showing that the treatment was
motivated by intent to discriminate against a person, and (c) evidence of
disparate impact, when a lender applies a practice uniformly to all applicants,
but the practice has a discriminatory effect on a protected class, even where
such practices are neutral on their face and are applied equally, unless the
practice can be justified on the basis of business necessity.
Regulation of the Company. The Company is a bank holding company within the
meaning of the Federal Bank Holding Company Act (the "Act") and the Georgia bank
holding company law (the "Georgia Act"). As a bank holding company, the Company
is required to file with the Federal Reserve Board (the "Board") an annual
report and such additional information as the Board may require pursuant to the
Act. The Board may also make examinations of the Company and each of its
subsidiaries. Bank holding companies are required by the Act to obtain approval
from the Board prior to acquiring, directly or indirectly, ownership or control
of more than 5% of the voting shares of a bank. The Act also prohibits bank
holding companies, with certain exceptions, from acquiring more than 5% of the
voting shares of any company that is not a bank and from engaging in any
nonbanking business (other than a business closely related to banking as
determined by the Board) or from managing or controlling banks and other
subsidiaries authorized by the Act or furnishing services to, or performing
services for, its subsidiaries without the prior approval of the Board. The
Board is empowered to differentiate between activities that are initiated de
novo by a bank holding company or a subsidiary and activities commenced by
acquisition of a going concern. The Company has no present intention to engage
in nonbanking activities. As a bank holding company, the Company is subject to
capital adequacy guidelines as established by the Board. The Board established
risk based capital guidelines for bank holding companies effective March 15,
1989. Beginning on December 31, 1992, the minimum required ratio for total
capital to risk weighted assets became 8 percent (of which at least 4 percent
must consist of Tier 1 capital). Tier 1 capital (as defined in regulations of
the Board) consists of common and qualifying preferred stock and minority
interests in equity accounts of consolidated subsidiaries, less goodwill and
other intangible assets required to be deducted under the Board's guidelines.
The Board's guidelines apply on a consolidated basis to bank holding companies
with total consolidated assets of $150 million or more. For bank holding
companies with less than $150 million in total consolidated assets (such as the
Company), the guidelines will be applied on a bank only basis, unless the bank
holding company is engaged in nonbanking activity involving significant leverage
or has significant amount of debt outstanding that is held by the general
public. The Board has stated that risk based capital guidelines establish
minimum standards and that bank holding companies generally are expected to
operate well above the minimum standards. The Company is also a bank holding
company within the meaning of the Georgia Act, which provides that, without the
prior approval of the Department, it is unlawful (i) for any bank holding
company to acquire direct or indirect ownership or control of more than 5% of
the voting shares of any bank, (ii) for any bank holding company or subsidiary
thereof, other than a bank, to acquire all or substantially all of the assets of
a bank, or (iii) for any bank holding company to merge or consolidate with any
other bank holding company. It also is unlawful for any company to acquire
direct or indirect ownership or control of more than 5% of the voting shares of
any bank in Georgia unless such bank has been in existence and continuously
operating or incorporated as a bank for a period of five years or more prior to
the date of application to the Department for approval of such acquisition. Bank
holding companies themselves are prohibited from acquiring another bank until
the initial bank in the bank holding company has been incorporated for a period
of twenty-four months. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act"), subject to certain
restrictions, allows adequately capitalized and managed bank holding companies
to acquire existing banks across state lines, regardless of state statutes that
would prohibit acquisitions by out-of-state institutions. Further, effective
June 1, 1997, a bank holding company may consolidate interstate bank
subsidiaries into branches and a bank may merge with an unaffiliated bank across
state lines to the extent that the applicable states have not "opted out" of
interstate branching prior to such effective date. Some states may elect to
permit interstate mergers prior to June 1, 1997. The Interstate Banking Act
generally prohibits an interstate acquisition (other than the initial entry into
a state by a bank holding company) that would result in either the control of
more than (i) 10% of the total amount of insured deposits in the United States,
or (ii) 30% of the total insured deposits in the home state of the target bank,
unless such 30% limitation is waived by the home state on a basis which does not
discriminate against out-of-state institutions. As
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a result of this legislation, the Company may become a candidate for acquisition
by, or may itself seek to acquire, banking organizations located in other
states. The Riegle Community Development and Regulatory Improvement Act of 1994
(the "Improvement Act") provides for the creation of a community development
financial institutions' fund to promote economic revitalization in community
development. Banks and thrift institutions are allowed to participate in such
community development banks. The Improvement Act also contains (i) provisions
designed to enhance small business capital formation and to enhance disclosure
with regard to high cost mortgages for the protection of consumers, and (ii)
more than 50 regulatory relief provisions that apply to banks and thrift
institutions, including the coordination of examinations by various federal
agencies, coordination of frequency and types of reports financial institutions
are required to file and reduction of examinations for well capitalized
institutions.
Bank holding companies may be compelled by bank regulatory authorities to invest
additional capital in the event a subsidiary bank experiences either significant
loan losses or rapid growth of loans or deposits. In addition, the Company may
be required to provide additional capital to any additional banks it acquires as
a condition to obtaining the approvals and consents of regulatory authorities in
connection with such acquisitions.
The Company and the Bank are subject to the Federal Reserve Act, Section 23A,
which limits a bank's "covered transactions" (generally, any extension of
credit) with any single affiliate to no more than 10% of a bank's capital and
surplus. Covered transactions with all affiliates combined are limited to no
more than 20% of a bank's capital and surplus. All covered and exempt
transactions between a bank and its affiliates must be on terms and conditions
consistent with safe and sound banking practices, and a bank and its
subsidiaries are prohibited from purchasing low quality assets from the bank's
affiliates. Finally, Section 23A requires that all of a bank's extensions of
credit to an affiliate be appropriately secured by collateral. The Company and
the Bank are also subject to Section 23B of the Federal Reserve Act, which
further limits transactions among affiliates. Sections 22(g) and 22(h) of the
Federal Reserve Act and implementing regulations also prohibit extensions of
credit by a state non-member bank (such as the Bank) to its directors, officers
and controlling shareholders on terms which are more favorable than those
afforded other borrowers, and impose limits on the amounts of loans to
individual affiliates and all affiliates as a group.
The United States Congress and the Georgia General Assembly periodically
consider and adopt legislation that results in, and could further result in,
deregulation, among other matters, of banks and other financial institutions.
Such legislation could modify or eliminate geographic restrictions on banks and
bank holding companies and current prohibitions with other financial
institutions, including mutual funds, securities brokerage firms, insurance
companies, banks from other states and investment banking firms. The effect of
any such legislation on the business of the Company or the Bank cannot be
accurately predicted. The Company cannot predict what legislation might be
enacted or what other implementing regulations might be adopted, and if enacted
or adopted, the effect thereof.
Monetary Policy
The earnings of the Bank are affected by domestic and foreign economic
conditions, particularly by the monetary and fiscal policies of the United
States Government and its agencies.
The Federal Reserve has had, and will continue to have, an important impact on
the operating results of commercial banks through its power to implement
national monetary policy in order, among other things, to mitigate recessionary
and inflationary pressures by regulating the national money supply.
The techniques used by the Federal Reserve include setting the reserve
requirements of member banks and establishing the discount rate on member banks'
borrowings. The Federal Reserve also conducts open market transactions in United
States Government securities.
Periodically, bills are pending before the United States Congress which contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. Among such bills are
proposals to prohibit banks and bank holding companies from conducting certain
types of activities, to subject banks to increased disclosure and reporting
requirements, to eliminate on a regional or other basis the present restriction
on interstate expansion by banks or bank holding companies, to alter the
statutory separation of commercial and investment banking and to alter the
powers of thrift institutions and other competitors of banks. It cannot be
predicted whether or in what form any of these proposals will be adopted or the
extent to which the business of the Company may be affected thereby.
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Item 2. Properties.
The Company's corporate office and the Bank's main office is located at 129 East
Elm Street near downtown Rockmart, Georgia. The site is adjacent to Rockmart's
central business district. The main office is accessible directly from East Elm
Street and Slate Street. In July 1995, the Bank opened a branch office in
Cedartown, Georgia located at 632 N.Main Street.
The main office is an office building owned by the Bank and contains
approximately 8,000 square feet of finished space used for Bank offices,
operations, storage, teller windows and the Bank lobby. The Bank building also
has drive-in facilities and an automated teller machine with 24-hour access. The
total cost of constructing the building, including site improvements, was
approximately $1.0 million. Furnishings, including vault, teller facilities,
safe deposit boxes, drive-up windows, one automated teller machine and other
necessary furniture, fixtures and equipment, cost approximately $785,000.
The Cedartown office is an office building owned by the Bank and contains
approximately 4,700 square feet of finished space used for Bank offices,
storage, computer back-up site, teller windows, and the Bank lobby. The Bank
building also has drive-in facilities and an automated teller machine with
24-hour access. The total cost of constructing the building, including site
improvements, was approximately $750,000. Furnishings, including vault, teller
facilities, safe deposit boxes, drive-up windows, one automated teller machine,
and other necessary furniture, fixtures, and equipment, cost approximately
$268,000.
Item 3. Legal Proceedings.
The Company and the Bank are not parties to, nor is any of their property the
subject of, any material pending legal proceedings, other than ordinary routine
litigation incidental to their business, and no such proceedings are known to be
contemplated by governmental authorities. There are no material legal
proceedings to which any director, officer, affiliate or more than 5%
shareholder is a party adverse to or that has a material interest adverse to the
Company or the Bank.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of shareholders of the Company during the
fourth quarter ended December 31, 1998.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The stock of the Company (and of the Bank prior to September 1, 1998) has not
been traded publicly and no specific market sales prices can be quoted. The
Company and the Bank have maintained partial records of share prices based upon
actual transactions disclosed. However, these records are incomplete since they
do not reflect prices for all transactions in the common stock of the Company or
the Bank. To the extent such information has been disclosed to the Company or
the Bank, the share prices of the common stock of the Company and the Bank are
as follows:
Year/Quarter High Selling Price Low Selling Price
------------ ------------------ -----------------
1997
First Quarter $14.00 $ 14.00
Second Quarter $14.00 $ 14.00
Third Quarter $14.00 $ 14.00
Fourth Quarter $14.00 $ 14.00
1998
First Quarter $15.00 $ 14.00
Second Quarter $16.00 $ 14.00
Third Quarter $17.00 $ 16.00
Fourth Quarter $17.00 $ 16.00
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During the period covered by this report and to date, sales not reported to
management may have occurred at share prices not reflected in this table.
As of March 1, 1999, the Company had 569 shareholders of record.
Under the Georgia Business Corporation Code, the Company may from time to time
make distributions, including the payment of dividends, to its shareholders in
money, indebtedness or other property (except its own shares) unless, after
giving effect to such distribution, the Company would not be able to pay its
debts as they become due in the usual course of business or the Company's total
assets would be less than the sum of its total liabilities, plus the amount that
would be needed, if the Company were to be dissolved at the time of the
distribution, to satisfy any preferential rights of shareholders upon
dissolution. The Company may also distribute its shares pro rata and without
consideration to its shareholders or to the shareholders of one or more classes
or series, which constitutes a share dividend.
However, the only current source of funds with which the Company can pay
dividends is from amounts received as dividends from the Bank. The Board of
Directors of the Bank is limited in its ability to pay cash dividends on the
outstanding capital stock of the Bank without regulatory approval. The Georgia
Financial Institutions Code provides that dividends may be declared and paid
only from a bank's cumulative retained earnings which have not been appropriated
as permanent capital. Approval from the Department is required prior to the
payment of dividends by a bank under certain circumstances. Generally, a bank
may declare and pay dividends without the prior approval of the Department so
long as (i) a bank's ratio of equity capital to adjusted total assets equals or
exceeds 6%, (ii) the aggregate amount of dividends declared or anticipated to be
declared by a bank in the calendar year does not exceed 50% of such bank's net
profits after taxes but before dividends for the prior calendar year, and (iii)
the total classified assets at the most recently completed and delivered
examination of the bank do not exceed 80% of the equity capital reflected at
such examination. The Bank will be governed by the aforementioned restrictions
with regard to the payment of dividends to the Company which, in turn, may serve
as a limitation on any future dividend payments by the Company to its
shareholders.
On February 18, 1997, the Company declared a cash dividend of $0.20 per share
payable to shareholders of record as of February 18, 1997. On January 20, 1998,
the Company declared a cash dividend of $0.25 per share payable to shareholders
of record as of January 20, 1998. On February 16, 1999, the Company declared a
cash dividend of $0.25 per share payable to shareholders of record as of
February 16, 1999. In addition, the information set forth in Note 11 of the
Notes to Consolidated Financial Statements included in the Company's 1998 Annual
Report to Shareholders' for the year ended December 31, 1998 (the "Annual
Report") is incorporated by reference herein in partial answer to Item 5 of this
Form 10-KSB.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company (including the notes thereto) contained
elsewhere in this Report. The following discussion compares results of
operations for the years ended December 31, 1998 and 1997.
The following is a discussion of the financial condition of the Company and
subsidiary at December 31, 1998 and 1997 and the results of operations for the
years ended December 31, 1998 and 1997. The purpose of this discussion is to
focus on information about the Company's financial condition and results of
operations which are not otherwise apparent from the audited consolidated
financial statements. Reference should be made to those statements and the
selected financial data presented elsewhere in this report for an understanding
of the following discussion and analysis.
Overview
The Company has had steady growth in earning assets and deposits since
inception. Net income had steadily increased until 1998. The decrease in net
income from 1997 to 1998 was a direct result of an increase in the provision for
loan loss. The table below summarizes the growth in average earning assets,
deposits and net income for the previous five years:
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1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(dollars in thousands)
Average Earning assets $38,574 36,007 32,814 25,660 22,653
Deposits 36,624 35,850 30,980 26,853 21,648
Net income 281 351 208 188 327
Following is a summary of the Company's balance sheets for the periods indicated
December 31 Increase/(Decrease)
1998 1997 Amount Percent
------- ------ ------ -------
(dollars in thousands)
Cash and due from banks $ 1,166 895 271 30.28%
Interest-bearing deposits in banks
federal funds sold 2,444 1,907 537 28.17
Securities 7,597 13,582 (5,985) (44.06)
Loans, net 29,555 22,432 7,123 31.75
Premises and equipment 1,953 2,051 (98) ( 4.78)
Other assets 501 607 (106) (17.47)
------- ------ ------- -------
$43,216 41,474 1,742 4.20%
------- ------ ------- -------
Deposits 36,624 35,850 774 2.15
Other borrowings 1,181 -- 1,181 100.00
Other liabilities 455 498 ( 43) 8.63
Shareholders' equity 4,956 5,126 (170) 3.31
------- ------ ------- ------
$43,216 41,474 1,742 4.20
------- ------ ------- ------
FINANCIAL CONDITION AT DECEMBER 31, 1998 AND 1997
As indicated in the above table, the Company's assets increased 4.2% during
1998. The growth was due primarily to the increase in loan demand which was
funded by the decrease in investment securities. Investment securities decreased
as a result of the declining rates in the bond market. The decrease was
comprised of $12,873,000 in calls, maturities and sales net of $6,861,000 in
purchases. The loan to deposit ratio of the Company increased from 63.44% in
1997 to 81.68% in 1998. Other borrowings increased due to the additional loan
demand and the Company had advances on its line of credit totaling $356,000 to
purchase 21,549 shares of treasury stock. The minimal increase in deposits from
1997 to 1998 in comparison to the other years noted is a result of lower
interest rates offered by the Bank.
There were $113,000 in dividends declared during 1998, therefore net earnings of
$168,000 were retained by the Company.
The Company has a significant concentration in loans secured by real estate
located in the Company's primary market area of Polk County. The Company's
real estate mortgage and construction portfolio consists of loans collateralized
by one to four family residential properties, multi-family residential
properties and nonresidential properties. The Company generally requires that
the loan values not exceed 75% to 85% of the collateral values for these types
of real estate lending.
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The primary risk associated with the Company's real estate portfolio is that a
downturn in the economy could negatively impact the values of the real estate
which is held as collateral for these loans. Also, an economic downturn could
also increase unemployment rates in the Company's market area. These risks could
affect the borrower's ability to repay the loans as well as the Company's
ability to recover its investment if repayment is dependent upon the liquidation
of the collateral. The Company reduces these risks not only by adherence to loan
to value guidelines, but also by evaluating the creditworthiness of the borrower
and monitoring the borrower's financial position. Currently, real estate values
and employment trends in the Company's market area are stable with no
indications of a significant downturn in the general economy. In addition, the
Company monitors the loan portfolio make up and limits concentrations in any one
type of loan based on exposure and economic conditions.
Liquidity and Capital Resources
The purpose of liquidity management is to ensure that there are sufficient cash
flows to satisfy demands for credit, deposit withdrawals and other needs of the
Company. Traditional sources of liquidity include asset maturities and growth in
core deposits. A company may achieve its desired liquidity objectives from the
management of assets and liabilities, and through funds provided by operations.
Funds invested in short-term marketable instruments and the continuous maturing
of other earning assets are sources of liquidity from the asset perspective. The
liability base provides sources of liquidity through deposit growth and the
access to various other borrowing arrangements.
Scheduled loan payments are a relatively stable source of funds, but loan
payoffs and deposit flows fluctuate significantly, being influenced by interest
rates and general economic conditions and competition. The Company attempts to
price its deposits to meet its asset/liability objective consistent with local
market conditions.
The liquidity and capital resources of the Company are monitored on a periodic
basis by State and Federal regulatory authorities. As determined under
guidelines established by those regulatory authorities and internal policy, the
Company's liquidity is considered adequate.
At December 31, 1998, the Company had loan commitments and letters of credit
outstanding of $2,299,000 and $35,000, respectively. Because these commitments
generally have fixed expiration dates and many will expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. If needed, the Bank has the ability on a short-term basis, to
borrow and purchase Federal funds from other financial institutions. At December
31, 1998, the Bank has arrangements with commercial banks for additional
short-term advances of approximately $7,500,000.
At December 31, 1998, the subsidiary Bank's capital ratios were considered
adequate based on regulatory minimum capital requirements. The Company's equity
increased due to the retention of net earnings of $168,000. For regulatory
purposes, the net unrealized gains on securities available for sale of $28,000,
net of taxes are not considered in the computation of the capital ratios.
The primary source of funds available to the Company is the payment of dividends
by its subsidiary Bank and the line of credit of $500,000 from The Bankers Bank.
Banking regulations limit the amount of the dividends that may be paid without
prior approval of the Bank's regulatory agency. Approximately $152,000 are
available to be paid as dividends by the Bank at December 31, 1998.
The minimum capital requirements to be considered well-capitalized under prompt
corrective action regulatory guidelines and the actual capital ratios for the
subsidiary bank as of December 31, 1998 are as follows:
Regulatory
Actual Requirement
------ -----------
Leverage capital ratio 12.22% 5.00%
Risk-based capital ratios:
Core capital 17.21% 6.00%
Total capital 18.39% 10.00%
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The Company is not aware of any known trends, events or uncertainties that will
have or that are reasonably likely to have a material effect on its liquidity,
capital resources or operations. The Company is also not aware of any current
recommendations by the regulatory authorities which, if they were implemented,
would have such an effect.
Effects of Inflation
The impact of inflation on banks differs from its impact on non-financial
institutions. Banks, as financial intermediaries, have assets which are
primarily monetary in nature and which tend to fluctuate in concert with
inflation. A bank can reduce the impact of inflation if it can manage its rate
sensitivity gap. This gap represents the difference between rate sensitive
assets and rate sensitive liabilities. The Company attempts to structure the
assets and liabilities and manage the rate sensitivity gap, thereby seeking to
minimize the potential effects of inflation. For information on the management
of the Company's interest rate sensitive assets and liabilities, see the
"Asset/Liability Management" section.
Results of Operations for the Years Ended December 31, 1998 and 1997
Following is a summary of the Company's operations for the periods indicated.
Years ended December 31, Increase/(Decrease)
1998 1997 Amount Percent
------- ----- ------ -------
(dollars in thousands)
Interest income and fees $ 3,397 3,222 175 5.43%
Interest expense 1,557 1,517 40 2.64
Net interest income 1,840 1,705 135 7.92
Provision for loan losses 292 93 199 213.98
Other income 481 409 72 17.60
Other expense 1,640 1,528 112 7.33
Pretax income 389 493 (104) (21.10)
Income taxes 108 141 ( 33) (23.40)
------- ----- ----- -------
Net income $ 281 352 ( 71) (20.17)
------- ----- ----- -------
INTEREST INCOME
The Company's results of operations are determined by its ability to effectively
manage interest income and expense, to minimize loan and investment losses, to
generate non-interest income and to control operating expenses. Since interest
rates are determined by market forces and economic conditions beyond the control
of management, the Company's ability to generate net interest income is
dependent upon its ability to obtain an adequate net interest spread between the
rate paid on interest-bearing liabilities and the rate earned on
interest-earning assets.
The increase in interest income and net interest income is a result of the
increase in average loans of $4,328,000 from December 31, 1997 to December 31,
1998. Average loans increased 21.46% in 1998 compared to an increase of 15.16%
in 1997.
The yield on interest earning assets was 8.81% in 1998 compared to 8.95% in
1997. Yields on loans decreased to 10.41% in 1998 compared to 10.86% in 1997.
This decrease was consistent with decreases in the yields of securities, federal
funds sold and deposits in banks. Average interest-earning assets increased
overall by $2,567,000 or 7.13%.
13
<PAGE>
Average interest-bearing liabilities increased by $1,619,000 or 5.12%, while the
overall cost of funds decreased from 4.80% in 1997 to 4.68% in 1998.
Provision for Loan Losses
The provision for loan losses increased by $199,000 during 1998 or 213.98%. The
allowance for loan loss amounted to $359,429 or 1.20% of total loans outstanding
at December 31, 1998 as compared to $312,519 or 1.37% of total loans outstanding
at December 31, 1997. The increase in the allowances for loan losses was due to
the 32% growth in net loans for the year 1998. Although the allowance increased
as a total, it represented a smaller percentage of total loans. This percentage
decline was due to the charge off of 29 loans resulting in net loan losses of
$245,340 for the year 1998 as compared to $20,277 for 1997. Nonaccrual loans
totaled $124,000 at December 31, 1998. Based upon management's evaluation of the
loan portfolio, management believes the allowance for loan losses is adequate to
absorb possible losses on existing loans that may become uncollectible. This
evaluation considers past loan loss experience, past due and classified loans,
underlying collateral values and current economic conditions which may affect
the borrower's ability to pay.
Other Income
Other income increased from $408,871 in 1997 to $481,072 in 1998. The increase
in other income is due to the gain on the sale of investment securities
available for sale which totalled $74,788. Other income consists principally of
service charges on deposit accounts which increased in 1998 from $389,210 to
$392,473.
Other Expenses
The increase in other expenses was due primarily to the growth in the Company
which resulted in increased other expenses of $112,000 in 1998 or 7.34%.
Salaries and employee benefits and other operating expenses are the primary
components of other expense. Salaries and employee benefits increased to
$868,000 in 1998 from $824,000 in 1997. This increase is attributable to the
increases in the average wages paid to employees and other related benefits.
Other operating expenses increased to $508,000 in 1998 from $425,000 in 1997 and
is due to an increase of $15,000 in service charges paid to correspondent banks
and $22,000 of Year 2000 related expenses.
Income Taxes
Income taxes, as a percentage of pre-tax income, remained stable in 1998 and
1997 at approximately 28%.
Asset/Liability Management
It is the Company's objective to manage assets and liabilities to provide a
satisfactory, consistent level of profitability within the framework of
established cash, loan, investment, borrowing and capital policies. Certain
officers are charged with the responsibility for monitoring policies and
procedures that are designed to ensure an acceptable composition of the
asset/liability mix. It is the overall philosophy of management to support asset
growth primarily through growth of core deposits of all categories made by local
individuals, partnerships and corporations.
The Company's asset/liability mix is monitored on a regular basis with a report
reflecting the interest rate sensitive assets and interest rate sensitive
liabilities being prepared and presented to the Board of Directors of the Bank
on a quarterly basis. The objective of this policy is to monitor interest rate
sensitive assets and liabilities so as to minimize the impact of substantial
movements in interest rates on earnings. An asset or liability is considered to
be interest rate-sensitive if it will reprice or mature within the time period
analyzed, usually one year or less. The interest rate-sensitivity gap is the
difference between the interest-earning assets and interest-bearing liabilities
scheduled to mature or reprice within such time period. A gap is considered
positive when the amount of interest rate-sensitive assets exceeds the amount of
interest rate-sensitive liabilities. A gap is considered negative when the
amount of interest rate-sensitive liabilities exceeds the interest
rate-sensitive assets. During a period of rising interest rates, a negative gap
would tend to adversely affect net interest income, while a positive gap would
tend to result in an increase in net interest income. Conversely, during a
period of falling interest rates, a negative gap would tend to result in an
increase in net interest income, while a positive gap would tend to adversely
affect net interest income. If the Company's assets
14
<PAGE>
and liabilities were equally flexible and move concurrently, the impact of any
increase or decrease in interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate indicator
of how net interest income will be affected by changes in interest rates.
Accordingly, the Company also evaluates how the repayment of particular assets
and liabilities is impacted by changes in interest rates. Income associated with
interest-earning assets and costs associated with interest-bearing liabilities
may not be affected uniformly by changes in interest rates. In addition, the
magnitude and duration of changes in interest rates may have a significant
impact on net interest income. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Interest rates on
certain types of assets and liabilities fluctuate in advance of changes in
general market rates, while interest rates on other types may lag behind changes
in general market rates. In addition, certain assets, such as adjustable rate
mortgage loans, have features (generally referred to as 'interest rate caps and
floors") which limit changes in interest rates. Prepayment and early withdrawal
levels also could deviate significantly from those assumed in calculating the
interest rate gap. The ability of many borrowers to service their debts also may
decrease during periods of rising interest rates.
Changes in interest rates also affect the Company's liquidity position. The
Company currently prices deposits in response to market rates and it is
management's intention to continue this policy. If deposits are not priced in
response to market rates, a loss of deposits could occur which would negatively
affect the Company's liquidity position.
The Company's cumulative gap ratio was 50% as of December 31, 1998 which is
considered by management to be highly liability sensitive. This is primarily a
result of lower interest rates and the consumer time deposits remaining in short
term maturities (6 to 12 months). Management did include the Now accounts and
savings accounts in the gap calculation; even though, these are considered to be
our core deposits that are less interest rate sensitive.
Selected Financial Information and Statistical Data
The tables and schedules on the following pages set forth certain significant
financial information and statistical data with respect to: the distribution of
assets, liabilities and shareholders' equity of the Company, the interest rates
and interest differentials experienced by the Company; the investment portfolio
of the Company; the loan portfolio of the Company, including types of loans,
maturities and sensitivitities of loans to changes in interest rates and
information on nonperforming loans; summary of the loan loss experience and
allowance for loan losses of the company; types of deposits of the Company and
the return on equity and assets for the Company.
15
<PAGE>
The following table sets forth the amount of the Company's interest income and
interest expense for each category of interest-earning assets and
interest-bearing liabilities and the average interest rate for total
interest-earning assets and total interest-bearing liabilities, net interest
spread and net yield on average interest-earning assets.
I: Distribution of Assets, Liabilities and Shareholders' Equity
Interest Rates and Interest Differentials
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Year ended December 31, 1997
Average Income/ Yield/ Average Income/ Yield/
balance expense rate balance expense rate
----------- --------- ------ ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans, net $24,498,823 2,550,972 10.41% 20,171,106 2,190,029 10.86%
Investments 11,525,227 711,589 6.17% 15,055,238 982,411 6.53%
Federal funds 955,168 52,945 5.54% 357,359 20,062 5.61%
Deposits w/other banks 1,594,741 81,416 5.11% 423,375 29,436 6.95%
----------- --------- ---------- ---------
Total interest-
earning assets 38,573,959 3,396,922 8.81% 36,007,018 3,221,938 8.95%
Noninterest-earning
assets-other assets 3,743,044 3,920,926
----------- -----------
Total assets $42,317,003 $39,928,004
----------- -----------
LIABILITIES AND
SHAREHOLDERS'
EQUITY:
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 7,480,253 217,801 2.91% 5,746,712 164,317 2.86%
Savings deposits 5,093,360 162,541 3.19% 5,212,792 185,905 3.57%
Time deposits 20,594,628 1,171,577 5.69% 18,403,922 1,031,042 5.60%
Federal funds purchased
& other borrowed
funds 81,833 4,913 6.00% 2,234,932 135,429 6.06%
----------- --------- ------ ----------- --------- ------
Total interest-
bearing liabilities $33,250,074 1,556,832 4.68% 31,598,358 1,516,692 4.80%
----------- --------- ----------- ---------
NONINTEREST BEARING
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Noninterest-bearing demand
deposits 3,244,708 2,955,350
Other liabilities 606,700 570,812
Shareholders' equity 5,215,521 4,803,484
----------- -----------
$42,317,003 $39,928,004
----------- -----------
Interest rate differential 4.13% 4.15%
Net interest income 1,840,090 1,705,246
Net interest margin 4.77% 4.74%
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
Average interest-earning
assets to average total assets 91.15% 90.18%
Average loans to average deposits 67.28% 62.41%
</TABLE>
The following table presents the changes in the Bank's net interest income as a
result of changes in volume and rate of its earning assets and interest-bearing
liabilities from 1998 to 1997.
1998 vs 1997
--------------
Net
Volume(1) Rate(1) Change
--------- ------- ------
(dollars in thousands)
Interest income:
Loans, net $ 454 (93) 361
Investment securities (220) (51) (271)
Federal funds sold 33 -- 33
Interest-bearing deposits
in other banks 62 (10) 52
----- ---- -----
Total interest income 329 (154) 175
----- ---- -----
Interest expense:
Interest-bearing demand 50 3 53
Savings deposits ( 4) ( 19) ( 23)
Time deposits 124 16 140
Federal funds purchased
and other borrowed funds (129) (1) (130)
----- ----- -----
Total interest expense 41 (1) 40
Net interest income $ 288 (153) 135
----- ----- -----
11. Investment Portfolio
The amortized cost and estimated fair values of investment securities
available-for-sale are summarized as follows:
December 31, 1998
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
------------ ---------- ---------- ---------
U. S. Treasury and U. S.
government agencies $ 3,644,490 17,070 ( 10) 3,661,550
Mortgage-backed securities 2,835,807 20,560 (15,227) 2,841,140
State and municipal 695,000 20,518 - 715,518
Federal Home Loan Bank stock 379,500 - - 379,500
------------ ------ -------- ---------
$ 7,554,797 58,148 (15,237) 7,597,708
------------ ------ -------- ---------
17
<PAGE>
December 31, 1997
U. S. Treasury and U. S.
government agencies $ 7,492,422 41,290 ( 7,934) 7,525,778
Mortgage-backed securities 3,785,845 7,700 (73,003) 3,720,542
State and municipal 1,907,505 54,100 ( 5,761) 1,955,844
Federal Home Loan Bank stock 379,500 - - 379,500
----------- ------- -------- ----------
$13,565,272 103,090 (86,698) 13,581,664
----------- ------- -------- ----------
The Bank has no investment securities held-to-maturity at December 31, 1998 and
1997.
The following table sets forth maturities of investment securities other than
Federal Home Loan Bank stock and the weighted average yields of such securities
as of December 31, 1998.
Maturing
--------
After one After five
Within but within but within After
one year five years 10 years 10 years
Amount Yield Amount Yield Amount Yield Amount Yield
(1) (1) (1) (1)
(dollars in thousands)
State and municipal -- -- $ 522 4.29% 193 4.70% -- --
U. S. Treasury -- -- -- -- -- -- -- --
U. S. Government
Agencies 3,156 5.86% 506 6.03%
Mortgage-backed
securities $26 5.47% 402 6.25% 487 5.54% 1,926 5.81%
--- ----- ----- ----- ----- ----- ----- -----
$26 5.47% 4,080 5.70% 1,186 6.21% 1,926 5.81%
--- ----- ----- ----- ----- ----- ----- -----
(1) The maturities of mortgage-backed securities have been estimated based
upon contractual principal payments on the underlying mortgage loans. Actual
maturities may vary.
III. Loan Portfolio
The following is a summary of loans by type at December 31, 1998 and 1997. The
disclosure of loans by type and by the required maturity classifications (1) one
year or less, (2) after one year through five years and (3) after five years is
not available and would involve undue burden and expense to the Company.
1998 1997
---- ----
Commercial, financial, and agricultural $ 12,174,000 9,327,200
Real estate - construction 2,437,000 1,035,643
Real estate - mortgage 9,111,000 7,211,810
Consumer 6,208,105 5,182,407
------------ ------------
$ 29,930,105 $ 22,757,060
------------ ------------
18
<PAGE>
The following table shows the amount of loans outstanding as of December 31,
1998 that, based on remaining scheduled repayments of principal, are due in the
periods indicated.
Fixed Variable
rate rate Total
-------- ------- -------
One year or less $ 11,591 $ 2,158 $13,749
After one year through five years 15,885 -- 15,885
After five years 296 -- 296
-------- ------- -------
$ 27,772 2,158 29,930
IV. Summary of Loan Loss Experience
The following table summarizes the changes in the allowance for loan losses
arising from loans charged off and recoveries on loans previously charged off by
loan category, and additions to the allowance which have been charged to
operations.
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997
---- ----
(dollars in thousands)
<S> <C> <C>
Average loans, net of unearned income $ 24,499 20,171
Allowance for loan losses at beginning of year 313 240
Loans charged off:
Commercial, financial and agricultural 151 6
Real estate 60 --
Consumer installment 46 26
------------ ----------
Total loans charged off 257 32
Recoveries on loans previously charged off:
Commercial, financial, and agricultural 5 2
Real estate -- 2
Consumer installment 7 8
------------ ----------
Total recoveries on loans previously charged off 12 12
------------ ----------
Net loans charged off 245 20
Additions to allowance for loan losses charged to income 292 93
------------ ----------
Allowance for loan losses at end of year $ 360 313
------------ ----------
Ratio of net loans charged off to average loans outstanding,
net of unearned income 1.00% 10%
------------ ----------
Allowance for loan losses to average loans, net of unearned
income at end of year 1.47% 1.55%
------------ ----------
</TABLE>
19
<PAGE>
The following table shows that amounts of the Bank's nonaccrual, past due and
restructured loans as of December 31, 1998 and 1997.
December 31,
1998 1997
---- ----
(dollars in thousands)
Nonaccrual loans 124 46
Accruing past due 90 days or more 291 230
Restructured loans -- --
---- ---
$415 276
---- ---
The table below provides information concerning nonperforming loans,
nonperforming assets, and certain asset quality ratios for each of the last two
years.
December 31,
1998 1997
---- ----
(dollars in thousands)
Total loans, net of unearned income 29,915 22,744
----------- ----------
Nonperforming loans (nonaccrual loans) $ 124 46
Real estate acquired through foreclosure
and other repossessed assets -- --
----------- ----------
Nonperforming assets 124 46
----------- ----------
Allowance for loan losses 360 313
----------- ----------
Asset quality ratios:
Nonperforming loans to total loans, net of
unearned income .41% .20%
----------- ----------
Nonperforming assets to total loans,
net of unearned income .41% .20%
----------- ----------
Allowance for loan losses to loans,
net of unearned income at year-end 1.20% 1.38%
----------- ----------
Allowance for loan losses to nonperforming loans 2.90x 6.80x
----------- ----------
At December 31, 1998, loans with a total balance of $318,246 were considered
potential problem loans compared to $208,115 at December 31, 1997. Potential
problem loans are those loans for which management has doubts as to the ability
of borrowers to comply with the present loan repayment terms. Such loans have
been classified as substandard, doubtful or loss in the Bank's internal loan
classification system. Management believes that the Bank's risk of ultimate loss
on these loans has been reduced by the underlying collateral which is securing
the loans and other circumstances relating to such loans. Nonaccruals totaled
$124,000 and 46,000 at December 31, 1998 and 1997, respectively.
The Bank has allocated the allowance for loan losses according to the amount
deemed to be reasonably necessary to provide for the possibility of losses being
incurred within the categories of loans set forth in the table below. The
allocation is based on management's evaluation of the loan portfolio under
current economic conditions, past loan loss experience, adequacy and nature of
collateral, and such factors which, in the judgment of management, deserve
recognition in estimating loan losses. Regulatory agencies, as an integral part
of their examination process, periodically
20
<PAGE>
review the Bank's allowances for losses on loans and real estate acquired
through foreclosure and other repossessed assets. Such agencies may require the
Bank to recognize additions to the allowances based on their judgments about
information available to them at the time of their examination. Because the
allocation is based on estimates and subjective judgment, it is not necessarily
indicative of the specific amounts or loan categories in which charge-offs may
occur. The amount of such components of the allowance for loan losses and the
ratio of each loan category to total loans outstanding are presented below.
December 31,
------------
1998 1997
---- ----
% of % of
% of loan % of loan
Allowance total type (1) Allowance total type (1)
--------- ----- -------- --------- ------ --------
Commercial, financial
and agricultural $ 107,828 30.0% 40.7% 104,069 33.3% 41.0%
Real Estate 125,800 35.0% 38.6% 145,946 46.7% 36.2%
Consumer installment
and single payment
individual 125,800 35.0% 20.7% 62,504 20.0% 22.8%
--------- ------ ------ --------- ------ ------
Total $ 359,428 100.0% 100.0% $ 312,519 100.0% 100.0%
--------- ------ ------ --------- ------ ------
(1) Amount in each category expressed as a percentage of total loans
outstanding.
V. Deposits
The following table summarizes average daily balances of deposits and rates paid
on such deposits for the periods indicated:
Year ended December 31,
-----------------------
1998 1997
---- ----
Amount Rate Amount Rate
------ ---- ------ ----
(dollars in thousands)
Noninterest-bearing demand deposits $ 3,245 --% $ 2,955 --%
Interest-bearing demand deposits 7,480 2.91% 5,747 2.86
Savings 5,093 3.19% 5,212 3.57
Time 20,595 5.69% 18,404 5.60
Maturities of time deposits of $ 100,000 and over as of December 31, 1998 (in
thousands) were as follows:
Under 3 months $1,499
3 to 6 months 215
6 to 12 months 938
Over 12 months 800
------
$3,452
------
21
<PAGE>
VI. Return on Equity and Assets
The ratio of net income to average shareholders' equity and to average total
assets, and certain other ratios, were as follows for the indicated periods:
Year ended December 31,
1998 1997
----- -----
Net income to average shareholders' equity 5.38% 7.32%
Net income to average total assets .66% .88%
Average shareholders' equity to
average total assets 12.32% 12.03%
Dividend payout ratio 40.32% 25.64%
Year 2000 Readiness Disclosure
Like many financial institutions, the Company and its subsidiary rely upon
computers for the daily conduct of their business and for data processing
generally. There is concern among industry experts that commencing on January 1,
2000, computers will be unable to "read" the new year and that there may be
widespread computer malfunctions. Management of the Company has assessed the
electronic systems, programs, applications, and other electronic components used
in the operations of the Company and believes that the hardware and software
used by the Company and the Bank have been programmed to be able to accurately
recognize the year 2000, and that significant additional costs will not be
incurred in connection with the year 2000 issue, although there can be no
assurances in this regard.
The Federal Financial Institutions Examination Council (FFIEC), an oversight
authority for financial institutions, has issued several interagency statements
on Year 2000 project awareness. These statements require financial institutions
to, among other things, examine the Year 2000 implications of their reliance on
vendors, determine the potential impact of the Year 2000 issue on their
customers, suppliers and borrowers, and to survey its exposure, measure its risk
and prepare a plan to address the Year 2000 issue. In addition, federal banking
regulators have issued safety and soundness guidelines to be followed by
financial institutions to assure resolution of any Year 2000 problems. The
federal banking agencies have asserted that Year 2000 testing and certification
is a key safety and soundness issue in conjunction with regulatory examinations,
and the failure to appropriately address the Year 2000 issue could result in
supervisory action, including the reduction of the institution's supervisory
ratings, the denial of applications for mergers or acquisitions, or the
imposition of civil monetary penalties.
The Company is utilizing a three-phase plan for achieving Year 2000 readiness.
The Assessment Phase was intended to determine which computers, operating
systems and applications require remediation and prioritizing those remediation
efforts by identifying mission critical systems. The Assessment Phase has been
completed except for the on-going assessment of new systems. The Remediation and
Testing Phase addressed the correction or replacement of any non-compliant
hardware and software related to the mission critical systems and testing of
those systems. Since most of the Bank's information technology systems are
off-the-shelf software, remediation efforts have focused on obtaining Year 2000
compliant application upgrades. The Bank's core banking system, which runs
loans, deposits and the general ledger, has been upgraded to the Year 2000
compliant version and has been forward date tested and to ensure proper
functioning. The Year 2000 releases for all of the Bank's other internal mission
critical systems have also been received and forward date tested. The next step
of this phase, testing mission critical service providers, is anticipated to be
substantially completed by March 31, 1999. During the final phase, the
Implementation Phase, remediated and validated code will be tested in interfaces
with customers, business partners, government institutions, and others. It is
anticipated that the Implementation Phase will be substantially completed by
June 30, 1999.
The Company may be impacted by the Year 2000 compliance issues of governmental
agencies, businesses and other entities who provide data to, or receive data
from, the Company, and by entities, such as borrowers, vendors, customers, and
business partners, whose financial condition or operational capability is
significant to the Company. Therefore, the Company's Year 2000 project also
includes assessing the Year 2000 readiness of certain customers, borrowers,
vendors, business partners, counterparties, and governmental entities. In
addition to assessing the readiness of these external
22
<PAGE>
parties, the Company is developing contingency plans which will include plans to
recover operations and alternatives to mitigate the effects of counterparties
whose own failure to properly address Year 2000 issues may adversely impact the
Company's ability to perform certain functions. These contingency plans are
currently being developed and are expected to be substantially completed by June
30, 1999.
If Year 2000 issues are not adequately addressed by the Company and significant
third parties, the Company's business, results of operations and financial
position could be materially adversely affected. Failure of certain vendors to
be Year 2000 compliant could result in disruption of important services upon
which the Company depends, including, but not limited to, such services as
telecommunications, electrical power and data processing. Failure of the
Company's loan customers to properly prepare for the Year 2000 could also result
in increases in problem loans and credit losses in future years. It is not,
however, possible to quantify the potential impact of any such losses at this
time. Notwithstanding the Company's efforts, there can be no assurance that the
Company or significant third party vendors or other significant third parties
will adequately address their Year 2000 issues. The Company is continuing to
assess the Year 2000 readiness of third parties but does not know at this time
whether the failure of third parties to be Year 2000 compliant will have a
material effect on the Company's results of operations, liquidity and financial
condition.
The Company currently estimates that its total cost for the Year 2000 project
will approximate $55,000. As of December 31, 1998, the Company has incurred
$40,000 in charges related to its Year 2000 remediation effort and expects to
incur $15,000 in 1999. Charges include the cost of external consulting and the
cost of accelerated replacement of hardware, but do not include the cost of
internal staff redeployed to the Year 2000 project. The Company does not believe
that the redeployment of internal staff will have a material impact on its
financial condition or results of operations.
The foregoing paragraphs contain a number of forward-looking statements. These
statements reflect Management's best current estimates, which were based on
numerous assumptions about future events, including the continued availability
of certain resources, representations received from third party service
providers and other factors. There can be no guarantee that these estimates,
including Year 2000 costs, will be achieved, and actual results could differ
materially from those estimates. A number of important factors could cause
Management's estimates and the impact of the Year 2000 issue to differ
materially from what is described in the forward-looking statements contained in
the above paragraphs. Those factors include, but are not limited to, the
availability and cost of programmers and other systems personnel, inaccurate or
incomplete execution of the phases, results of Year 2000 testing, adequate
resolution of Year 2000 issues by the Company's customers, vendors, competitors,
and counterparties, and similar uncertainties.
The forward-looking statements made in the foregoing Year 2000 discussion speak
only as of the date on which such statements are made, and the Company
undertakes no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for all entities for
reporting comprehensive income and its components in financial statements. This
statement requires that all items which are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is equal to net income plus the
change in "other comprehensive income," as defined by SFAS No. 130. The only
component of other comprehensive income currently applicable to the Company is
the net unrealized gain or loss on available-for-sale investments. SFAS No. 130
requires that an entity: (a) classify items of other comprehensive income by
their nature in a financial statement, and (b) report the accumulated balance of
other comprehensive income separately from common stock and retained earnings in
the equity section of the balance sheet. This statement is effective for
financial statements issued for fiscal years beginning after December 15, 1997
and was adopted by the Company as of January 1, 1998. See "Item 7. Financial
Statements and Supplementary Data--Note 1 to the Consolidated Financial
Statements--Comprehensive Income."
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
publicly held entities to follow in reporting information about operating
segments in annual financial statements and requires that those entities also
report selected information about operating
23
<PAGE>
segments in interim financial statements. This statement also establishes
standards for related disclosures about products and services, geographic areas
and major customers. This statement is effective for financial statements issued
for periods beginning after December 15, 1997 and was adopted by the Company as
of December 31, 1998.
SFAS No. 132, "Statement on Employers' Disclosures about Pensions and Other
Post-Retirement Benefits" was issued by the FASB in February 1998. This
statement is effective for financial statements issued for fiscal years
beginning after December 15, 1997. The Company does not have a pension plan or
provide for other post-retirement benefits for employees, and thus this
statement does not have a material impact on the Company's consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The statement is effective for
fiscal quarters of fiscal years beginning after June 15, 1999. The Company
expects to adopt this statement on January 1, 2000. The Company has not yet
determined the impact of its adoption on the Company's consolidated financial
statements.
In October 1998, FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise." SFAS No. 134 amends SFAS No. 65, "Accounting for
Certain Mortgage Banking Activities," which establishes accounting and reporting
standards for certain activities of mortgage banking enterprises and other
enterprises that conduct operations that are substantially similar. SFAS No. 134
requires that after the securitization of mortgage loans held for sale, the
resulting mortgage-backed securities and other retained interests should be
classified in accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," based on the company's ability and intent to
sell or hold those investments. SFAS No. 134 is effective for the first fiscal
quarter beginning after December 15, 1998. The Company does not expect the
adoption of this statement to have a material impact on the Company's
consolidated financial statements.
Item 7. Financial Statements.
The financial statements required by this Item are included in the portions of
the Company's 1998 Annual Report to Shareholders filed as Exhibit 13 to this
Report and incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On September 1, 1998, the Company completed the reorganization pursuant to which
it became the parent holding company of the Bank. The Bank currently is the sole
operating subsidiary of the Company. The Bank had previously retained KPMG Peat
Marwick LLP, Atlanta, Georgia ("KPMG"), as its certifying accountants with
respect to its financial statements for the period from its organization and
through December 31, 1997.
After approval by the Company's Board of Directors, on September 24, 1998, the
Company retained Mauldin & Jenkins, LLC, Atlanta, Georgia ("M&J"), and dismissed
KPMG as the certifying accountant for the Company's and the Bank's financial
statements. The reports of KPMG on the financial statements of the Company as of
and for the years ended December 31, 1997 and 1996 contained no adverse opinion
or disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. In connection with its audits for the two
years ended December 31, 1997, and the subsequent interim period through
September 24, 1998, there were no disagreements with KPMG on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
KPMG, would have caused KPMG to make reference thereto in their report on the
financial statements for such period. The Company has requested that KPMG
furnish it with a letter addressed to the Commission stating whether or not it
agrees with the above statements. A copy of such letter, dated October 1, 1998,
was filed as Exhibit 16 to the Company's Current Report on Form 8-K filed on
October 6, 1998.
The Company had not previously retained or consulted M&J with respect to the
application of accounting principles to any transaction, the type of audit
opinion that might be rendered on the Company's financial statements, or as to
any matter that was either the subject of a disagreement on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, or a reportable event (as described in paragraph (a)(1)(iv)
of Item 304 of Regulation S-B).
24
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
Directors
The information set forth under the heading "Proposal One -- Election of
Directors - General" and " - Compliance with Section 16(a)" in the Company's
definitive Proxy Statement for its 1999 Annual Meeting of Shareholders (the
"Proxy Statement") is incorporated by reference herein in answer to Item 9 of
this Form 10-KSB.
Principal Officers
The principal officers of the Company and the Bank are elected annually by the
respective Boards of Directors. The names, ages as of December 31, 1998 and
positions of the Bank's principal officers, defined as those persons who have
major policy-making functions with respect to the Bank, who are not also
directors are set forth below.
<TABLE>
<CAPTION>
Name Age Positions and Business Experience
<S> <C> <C>
Melissa Y. Deems 31 Mrs. Deems joined the Bank as its Vice President and Chief
Financial Officer in April 1994 and became the Senior Vice
President, Chief Financial Officer and Secretary of the Company
upon its organization. She was previously with First
Community Bank & Trust of Cartersville, Georgia from May
1992 through April 1994 as their Chief Financial Officer and
Controller. From July 1989 through April 1992, she was with
KPMG LLP as a Senior Auditor.
H. Sue Harris 63 Mrs. Harris has been with the Company since 1989 as their Vice
President and Consumer Lending Officer. She began her banking
career in 1965 with The Taylorsville Bank, now The Calhoun First
National Bank, where she served as Vice President and a Director
until January 1989.
Richard L. Long, Sr. 39 Mr. Long joined the Company as its Senior Vice President and
City Manager of the Cedartown Office in June 1998. Prior to
joining the Company, he was employed with SunTrust Bank of
Northwest Georgia where he served in various capacities for
twenty years. He was their Cedartown, Georgia Branch
Manager/Business Development officer & Vice President when
he resigned in May 1998.
Sharon R. Presley 37 Mrs. Presley has held various positions with the Company since
her initial employment in December 1989, prior to being named
an officer in 1995. She is currently the Vice President & Chief
Operations Officer. Mrs. Presley began her banking career in 1981
with Monroe County Bank in Forsyth, Georgia where she held
the position of Banking Officer and Head Bookkeeper.
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C>
Dewey R. Weaver 56 Mr. Weaver joined the Bank as its Vice President and Senior
Lending Officer in December 1991. Prior to joining the
Company, he was employed in various capacities with First
National Bank of Polk County from 1972 through 1991 and was
a Vice President and Branch Manager when he left to join the
Bank. Mr. Weaver left the Bank in January 1999.
</TABLE>
None of the executive officers of the Bank or Company were selected pursuant to
any arrangement or understanding, other than with the directors and executive
officers of the Bank, acting within their capacities as such. There are no
family relationships between the directors and executive officers of the Company
or the Bank and none of the directors or executive officers of the Company or
the Bank serve as directors of any company which has a class of securities
registered under, or which is subject to the periodic reporting requirements of
the Securities Exchange Act of 1934 or any investment company registered under
the Investment Company Act of 1940.
Item 10. Executive Compensation.
The information set forth under the heading "Proposal One -- Election of
Directors - Executive Compensation and Benefits" in the Company's definitive
Proxy Statement for its 1999 Annual Meeting of Shareholders (the "Proxy
Statement") is incorporated by reference herein in answer to Item 10 of this
Form 10-KSB.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information set forth under the headings "Proposal One -- Election of
Directors - Ownership of Common Stock by Certain Beneficial Owners and
Management" in the Company's Proxy Statement is incorporated by reference herein
in answer to Item 11 of this Form 10-KSB.
Item 12. Certain Relationships and Related Transactions.
The information set forth under the headings "Proposal One -- Election of
Directors - Compensation of Directors and Attendance at Meetings," " - Certain
Transactions" and " - Compliance with Section 16(a)" in the Company's Proxy
Statement is incorporated by reference herein in answer to Item 12 of this Form
10-KSB.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit Numbers
2 Agreement and Plan of Reorganization and Merger, dated as of
March 16, 1998, by and among the Bank, Interim and the Company.*
3.1 Articles of Incorporation of the Company.*
3.2 Bylaws of the Company.*
13 1998 Annual Report to Shareholders
21 Subsidiaries of the Company.*
27.1 Financial data schedule.
* Incorporated by reference to the correspondingly numbered exhibit to
Registrant's Current Report on Form 8-K dated September 1, 1998 and filed
September 21, 1998.
26
<PAGE>
(b) Reports on Form 8-K
On October 6, 1998, Registrant filed a Current Report on Form 8-K pursuant
to Item 4 with respect to the dismissal of KPMG LLP, Atlanta, Georgia, and
the retention of Mauldin & Jenkins, LLC, Atlanta, Georgia, as its
certifying accountants.
27
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
UB&T FINANCIAL SERVICES CORPORATION
Date: March 25, 1999 By: /s/ Sumter R. Nelson
-------------------------------
Sumter R. Nelson, President
In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated on
the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Sumter R. Nelson
- ------------------------- President and Director March 25, 1999
Sumter R. Nelson (Principal Executive Officer
/s/ Melissa Y. Deems
- ------------------------- Senior Vice President and Chief Financial March 25, 1999
Melissa Y. Deems Officer (Principal Financial and
Accounting Officer
/s/ Bruce B. Albea
- ------------------------- Director March 25, 1999
Bruce B. Albea
/s/ Lee Cummings
- ------------------------- Director March 25, 1999
Lee Cummings
/s/ Dan Forsyth
- ------------------------- Director March 25, 1999
Dan Forsyth
/s/ William D. Heath, Jr.
- ------------------------- Director March 25, 1999
William D. Heath, Jr.
/s/ J. W. LeGrande
- ------------------------- Director March 25, 1999
J. W. LeGrande
/s/ James L. Lester
- ------------------------- Director March 25, 1999
James L. Lester
/s/ William L. Lundy, Jr.
- ------------------------- Director March 25, 1999
William L. Lundy, Jr.
/s/ Elmo Peppers
- ------------------------- Director March 25, 1999
Elmo Peppers
/s/ William Frank Shelley
- ------------------------- Director March 25, 1999
William Frank Shelley
/s/ Daniel B. Simon, III
- ------------------------- Director March 25, 1999
Daniel B. Simon, III
</TABLE>
28
<PAGE>
Exhibits 13 and 27.1
29
<PAGE>
UB & T FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1998
<PAGE>
UB & T FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
Page
-------
INDEPENDENT AUDITOR'S REPORT........................ 1
FINANCIAL STATEMENTS
Consolidated balance sheets....................... 2
Consolidated statements of income................. 3
Consolidated statements of comprehensive income... 4
Consolidated statements of shareholders' equity... 5
Consolidated statements of cash flows............. 6 and 7
Notes to consolidated financial statements........ 8-28
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
To the Board of Directors
UB & T Financial Services Corporation and Subsidiary
Rockmart, Georgia
We have audited the accompanying consolidated balance sheet of UB & T
Financial Services Corporation and Subsidiary as of December 31, 1998, and the
related consolidated statements of income, comprehensive income, shareholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements of United Bank and Trust Company for the year ended
December 31, 1997 were audited by other auditors whose report, dated February
20, 1998, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of UB & T
Financial Services Corporation and Subsidiary as of December 31, 1998, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ MAULDIN & JENKINS, LLC
Atlanta, Georgia
February 10, 1999
<PAGE>
UB & T FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1998 1997
------ ------------------ -----------------
<S> <C> <C>
Cash and due from banks $ 1,165,932 $ 895,370
Interest-bearing deposits in banks 2,327,741 286,505
Federal funds sold 115,518 1,621,174
Securities available-for-sale 7,597,708 13,581,664
Loans 29,915,035 22,743,923
Less allowance for loan losses 359,429 312,519
------------------ -----------------
Loans, net 29,555,606 22,431,404
Premises and equipment 1,952,996 2,051,439
Other assets 500,996 606,907
------------------ -----------------
Total assets $ 43,216,497 $ 41,474,463
================== =================
Liabilities and Shareholders' Equity
------------------------------------
Deposits
Noninterest-bearing demand $ 3,491,057 $ 2,968,293
Interest-bearing demand 7,673,165 8,313,266
Savings 4,905,736 5,357,270
Time, $100,000 and over 3,452,463 3,326,836
Other time 17,102,070 15,884,254
------------------ -----------------
Total deposits 36,624,491 35,849,919
Federal funds purchased 825,000 -
Note payable 356,000 -
Other liabilities 454,639 497,884
------------------ -----------------
Total liabilities 38,260,130 36,347,803
------------------ -----------------
Commitments and Contingent Liabilities
--------------------------------------
Shareholders' equity
Common stock, par value $5; 10,000,000 shares
authorized; 451,105 issued 2,255,525 2,255,525
Capital surplus 2,187,292 2,187,292
Retained earnings 841,007 673,099
Accumulated other comprehensive income 28,102 10,744
------------------ -----------------
5,311,926 5,126,660
Less cost of 21,549 shares of treasury stock (355,559) -
------------------ -----------------
Total shareholders' equity 4,956,367 5,126,660
------------------ -----------------
Total liabilities and shareholders' equity 43,216,497 41,474,463
================== =================
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
UB & T FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---------- ----------
Interest income
Loans $2,550,972 $2,190,029
Taxable securities 629,684 881,476
Nontaxable securities 81,905 100,935
Federal funds sold 52,945 20,062
Deposits in other banks 81,416 29,436
---------- ----------
Total interest income 3,396,922 3,221,938
---------- ----------
Interest expense
Deposits 1,551,919 1,381,263
Borrowings 4,913 135,429
---------- ----------
Total interest expense 1,556,832 1,516,692
---------- ----------
Net interest income 1,840,090 1,705,246
Provision for loan losses 292,250 93,050
---------- ----------
Net interest income after provision
for loan losses 1,547,840 1,612,196
---------- ----------
Other income
Service charges on deposit accounts 392,473 389,210
Gain on sale of securities available-for-sale 74,788 6,554
Other operating income 13,811 13,107
---------- ----------
Total other income 481,072 408,871
---------- ----------
Other expenses
Salaries and employee benefits 867,597 823,985
Occupancy expenses 87,430 91,298
Equipment expenses 177,073 187,559
Other operating expenses 508,157 425,140
---------- ----------
Total other expenses 1,640,257 1,527,982
---------- ----------
Income before income taxes 388,655 493,085
Income tax expense 107,971 141,540
---------- ----------
Net income $ 280,684 $ 351,545
========== ==========
Basic earnings per common share $ 0.62 $ 0.78
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
UB & T FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net income $ 280,684 $ 351,545
--------- ---------
Other comprehensive income:
Unrealized gains on securities available-for-sale:
Unrealized holding gains arising during period,
net of taxes of $34,370 and $69,001, respectively 66,718 133,943
Reclassification adjustment for gains realized
in net income, net of taxes of
$25,428 and $2,228, respectively (49,360) (4,326)
--------- ---------
Other comprehensive income 17,358 129,617
--------- ---------
Comprehensive income $ 298,042 $ 481,162
========= =========
See Notes to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
UB & T FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock
---------------------- Capital
Shares Par Value Surplus
-------- ---------- ----------
<S> <C> <C> <C>
Balance, December 31, 1996 451,105 $2,255,525 $2,187,292
Net income - - -
Cash dividends declared,
$.20 per share - - -
Other comprehensive income - - -
-------- ---------- ----------
Balance, December 31, 1997 451,105 2,255,525 2,187,292
Net income - - -
Cash dividends declared, $.25 per share - - -
Purchase of treasury stock - - -
Other comprehensive income - - -
-------- ---------- ----------
Balance, December 31, 1998 451,105 $2,255,525 $2,187,292
======== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Accumulated
Other Treasury Stock Total
Retained Comprehensive ------------------ Shareholders'
Earnings Income Shares Amount Equity
- -------------- ------------- ------- ------ ------------
<S> <C> <C> <C> <C>
$ 411,775 $ (118,873) - $ - $ 4,735,719
351,545 - - - 351,545
(90,221) - - - (90,221)
- 129,617 - - 129,617
- -------------- -------------- ------- --------- ------------
673,099 10,744 - - 5,126,660
280,684 - - - 280,684
(112,776) - - - (112,776)
- - 21,549 (355,559) (355,559)
- 17,358 - - 17,358
- -------------- -------------- ------- --------- ------------
$ 841,007 $ 28,102 21,549 $(355,559) $ 4,956,367
============== ============== ======= ========= ============
</TABLE>
<PAGE>
UB & T FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 280,684 $ 351,545
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 148,993 158,686
Provision for loan losses 292,250 93,050
Gain on sale of securities available-for-sale (74,788) (6,554)
Deferred income taxes (12,417) (6,909)
Loss on disposal of premises and equipment 14,923 -
(Increase) decrease in interest receivable 100,592 (20,763)
Increase in interest payable 59,885 70,353
Other operating activities (94,336) 79,194
----------- ----------
Net cash provided by operating activities 715,786 718,602
----------- ----------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (6,862,475) (7,141,307)
Proceeds from sale of securities available-for-sale 2,791,436 5,705,770
Proceeds from maturities of securities available-for-sale 10,156,083 2,968,916
Net (increase) decrease in interest-bearing deposits in banks (2,041,236) 596,537
Net (increase) decrease in Federal funds sold 1,505,656 (686,174)
Net increase in loans (7,416,452) (4,777,283)
Purchase of premises and equipment (65,473) (49,930)
----------- ----------
Net cash used in investing activities (1,932,461) (3,383,471)
----------- ----------
FINANCING ACTIVITIES
Proceeds from note payable 390,000 -
Repayment of note payable (34,000) -
Net increase in Federal funds purchased 825,000 -
Net increase in deposits 774,572 4,870,314
Repayment of FHLB advances - (2,600,000)
Purchase of treasury stock (355,559) -
Dividends paid (112,776) (90,221)
----------- ----------
Net cash provided by financing activities 1,487,237 2,180,093
----------- ----------
Net increase (decrease) in cash and due from banks 270,562 (484,776)
Cash and due from banks at beginning of year 895,370 1,380,146
----------- ----------
Cash and due from banks at end of year $ 1,165,932 $ 895,370
=========== ==========
</TABLE>
<PAGE>
UB & T FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
1998 1997
---- ----
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $1,496,947 $1,446,339
Income taxes $ 206,326 $ 52,141
NONCASH TRANSACTION
Unrealized gains on securities available-for-sale $ (26,300) $ (196,390)
Financing of sales of other real estate $ - $ 57,469
See Notes to Consolidated Financial Statements.
7
<PAGE>
UB&T FINANCIAL SERVICES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
UB & T Financial Services Corporation (the "Company") is a bank
holding company whose business is conducted by its wholly-owned
subsidiary, United Bank & Trust Company (the "Bank"). The Bank is a
commercial bank located in Rockmart, Polk County, Georgia. The Bank
provides a full range of banking services in its primary market area
of Polk County and surrounding counties.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiary. Significant intercompany transactions
and accounts are eliminated in consolidation.
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 disclosures of contingent assets and liabilities at
the date of the consolidated 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
Cash on hand, cash items in process of collection, and amounts due
from banks are included in cash and due from banks.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
Securities
Securities are classified based on management's intention on the
date of purchase. Securities which management has the intent and
ability to hold to maturity would be classified as held-to-maturity
and reported at amortized cost. All other debt securities are
classified as available-for-sale and carried at fair value with net
unrealized gains and losses included in shareholders' equity, net of
tax. Equity securities without a readily determinable fair value are
carried at cost.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities (Continued)
Interest and dividends on securities, including amortization of
premiums and accretion of discounts, are included in interest
income. Realized gains and losses from the sale of securities are
determined using the specific identification method.
Loans
Loans are carried at their principal amounts outstanding less
deferred loan fees and the allowance for loan losses. Interest
income on loans is credited to income based on the principal amount
outstanding.
Loan origination fees and certain direct loan origination costs are
deferred and recognized over the life of the loan using a method
which approximates the level yield method.
The allowance for loan losses is maintained at a level that
management believes to be adequate to absorb potential losses in the
loan portfolio. Management's determination of the adequacy of the
allowance is based on an evaluation of the portfolio, past loan loss
experience, current economic conditions, volume, growth, composition
of the loan portfolio, and other risks inherent in the portfolio.
This evaluation is inherently subjective as it requires material
estimates that are susceptible to significant change including the
amounts and timing of future cash flows expected to be received on
impaired loans. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowance for loan losses, and may require the Company to record
additions to the allowance based on their judgment about information
available to them at the time of their examinations.
The accrual of interest on loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. Interest income is subsequently recognized only to
the extent cash payments are received.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
A loan is considered to be impaired when it is probable the Company
will be unable to collect all principal and interest payments due in
accordance with the terms of the loan agreement. Individually
identified impaired loans are measured based on the present value of
payments expected to be received, using the contractual loan rate as
the discount rate. Alternatively, measurement may be based on
observable market prices or, for loans that are solely dependent on
the collateral for repayment, measurement may be based on the fair
value of the collateral. If the recorded investment in the impaired
loan exceeds the measure of fair value, a valuation allowance is
established as a component of the allowance for loan losses. Changes
to the valuation allowance are recorded as a component of the
provision for loan losses.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally over the
estimated useful lives of the assets using the straight-line method.
Other Real Estate Owned
Other real estate owned represents properties acquired through
foreclosure. Other real estate owned is held for sale and is carried
at the lower of the recorded amount of the loan or fair value of the
properties less estimated selling costs. Any write-down to fair
value at the time of transfer to other real estate owned is charged
to the allowance for loan losses. Subsequent gains or losses on sale
and any subsequent adjustment to the value are recorded in other
operating income or expenses.
Profit-Sharing Plan
Profit-sharing plan costs are based on a percentage of individual
employee's salary, not to exceed the amount that can be deducted for
Federal income tax purposes.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Income tax expense consists of current and deferred taxes. Current
income tax provisions approximate taxes to be paid or refunded for
the applicable year. Deferred income tax assets and liabilities are
determined using the balance sheet method. Under this method, the
net deferred tax asset or liability is determined based on the tax
effects of the differences between the book and tax bases of the
various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
Recognition of deferred tax balance sheet amounts is based on
management's belief that it is more likely than not that the tax
benefit associated with certain temporary differences, tax operating
loss carryforwards, and tax credits will be realized. A valuation
allowance is recorded for those deferred tax items for which it is
more likely than not that realization will not occur in the near
term.
The Company and the Bank file a consolidated income tax return. Each
entity provides for income taxes based on its contribution to income
taxes (benefits) of the consolidated group.
Earnings Per Common Share
Basic earnings per common share are computed by dividing net income
by the weighted-average number of shares of common stock
outstanding. Diluted earnings per share would be computed by
dividing net income by the sum of the weighted-average number of
shares of common stock outstanding and potential common shares.
There were no potential common shares outstanding at December 31,
1998 or 1997. The weighted average number of shares outstanding for
the years ended December 31, 1998 and 1997 was 450,633 and 451,105,
respectively.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income
In 1998, the Company adopted Statement of Financial Standards No.
130 ("SFAS No. 130"), "Reporting Comprehensive Income". This
statement establishes standards for reporting and display of
comprehensive income and its components in the financial statements.
This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed in
equal prominence with the other financial statements. The Company
has elected to report comprehensive income in a separate financial
statement titled "Consolidated Statements of Comprehensive Income".
SFAS No. 130 describes comprehensive income as the total of all
components of comprehensive income including net income. This
statement uses other comprehensive income to refer to revenues,
expenses, gains and losses that under generally accepted accounting
principles are included in comprehensive income but excluded from
net income. Currently, the Company's other comprehensive income
consists of items previously reported directly in equity under SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". As required by SFAS No. 130, the financial statements
for the prior year have been reclassified to reflect application of
the provisions of this statement. The adoption of this statement did
not affect the Company's financial position, results of operations
or cash flows.
Recent Developments
In June 1998, Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities". This
statement is required to be adopted for fiscal years beginning after
June 15, 1999. However, the statement permits early adoption as of
the beginning of any fiscal quarter after its issuance. The Company
expects to adopt this statement effective January 1, 2000. SFAS No.
133 requires the Company to recognize all derivatives as either
assets or liabilities in the balance sheet at fair value. For
derivatives that are not designated as hedges, the gain or loss must
be recognized in earnings in the period of change. For derivatives
that are designated as hedges, changes in the fair value of the
hedged assets, liabilities, or firm commitments must be recognized
in earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings, depending on the nature of
the hedge. The ineffective portion of a derivative's change in fair
value must be recognized in earnings immediately.
Management has not yet determined what effect the adoption of SFAS
No. 133 will have on the Company's earnings or financial position.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Securities Available-for-Sale
December 31, 1998:
U. S. Government and agency
securities $3,644,490 $17,070 $ (10) $3,661,550
Mortgage-backed securities 2,835,807 20,560 (15,227) 2,841,140
State and municipal 695,000 20,518 - 715,518
securities
Equity securities 379,500 - - 379,500
----------- ------- -------- -----------
$ 7,554,797 $58,148 $(15,237) $ 7,597,708
=========== ======= ======== ===========
December 31, 1997:
U. S. Government and agency
securities $ 7,492,422 $ 41,290 $ (7,934) $ 7,525,778
State and municipal 1,907,505 54,100 (5,761) 1,955,844
securities
Mortgage-backed securities 3,785,845 7,700 (73,003) 3,720,542
Equity securities 379,500 - - 379,500
----------- -------- -------- -----------
$13,565,272 $103,090 $(86,698) $13,581,664
=========== ======== ======== ===========
</TABLE>
The amortized cost and fair value of securities as of December 31,
1998 by contractual maturity are shown below. Maturities may differ
from contractual maturities in mortgage-backed securities because
the mortgages underlying the securities may be called or prepaid
with or without penalty. Therefore, these securities and equity
securities are not included in the maturity categories in the
following summary.
<TABLE>
<CAPTION>
Securities Available-for-Sale
-------------------------------------------
Amortized Fair
Cost Value
------------------- -------------------
<S> <C> <C>
Due from one to five years $3,654,490 $3,677,708
Due from five to ten years 685,000 699,360
Mortgage-backed securities 2,835,807 2,841,140
Equity securities 379,500 379,500
---------- ----------
$7,554,797 $7,597,708
========== ==========
</TABLE>
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2. SECURITIES (Continued)
Securities with a carrying value of $506,344 and $-0- at December 31,
1998 and 1997, respectively, were pledged to secure public deposits
and for other purposes.
Gains and losses on sale of securities available-for-sale consist of
the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
Gross gains $ 89,091 $16,012
Gross losses (14,303) (9,458)
-------- --------
Net realized gains $ 74,788 $ 6,554
======== ========
</TABLE>
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
Commercial, financial, and agricultural $12,174,000 $ 9,327,200
Real estate - construction 2,437,000 1,035,643
Real estate - mortgage 9,111,000 7,211,810
Consumer 6,208,105 5,182,407
----------- -----------
29,930,105 22,757,060
Deferred loan fees (15,070) (13,137)
Allowance for loan losses (359,429) (312,519)
----------- -----------
Loans, net $29,555,606 $22,431,404
=========== ===========
</TABLE>
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Changes in the allowance for loan losses for the years ended December
31 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Balance, beginning of year $ 312,519 $239,747
Provision for loan losses 292,250 93,050
Loans charged off (257,410) (31,905)
Recoveries of loans previously charged off 12,070 11,627
--------- --------
Balance, end of year $ 359,429 $312,519
========= ========
</TABLE>
The total recorded investment in impaired loans was $124,594 and
$45,304, respectively, at December 31, 1998 and 1997. None of these
loans had a specific allowance for loan losses at December 31, 1998
and 1997, determined in accordance with generally accepted accounting
principles. The average recorded investment in impaired loans for
1998 and 1997 was $93,000 and $53,000, respectively. Interest income
recognized by the Company on impaired loans was not significant.
The Company has granted loans to certain related parties including
directors, executive officers, and their related entities. The
interest rates on these loans were substantially the same as rates
prevailing at the time of the transaction and repayment terms are
customary for the type of loan involved. Changes in related party
loans for the year ended December 31, 1998 are as follows:
Balance, beginning of year $ 1,312,626
Advances 1,073,932
Repayments (1,019,134)
-----------
Balance, end of year $ 1,367,424
===========
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
-----------------------------------
1998 1997
-------------- -------------
Land $ 448,506 $ 448,506
Buildings 1,352,085 1,352,085
Furniture and equipment 1,004,129 1,071,059
---------- ----------
2,804,720 2,871,650
Accumulated depreciation (851,724) (820,211)
---------- ----------
$1,952,996 $2,051,439
========== ==========
NOTE 5. DEPOSITS
At December 31, 1998, the scheduled maturities of time deposits are as
follows:
1999 $15,687,387
2000 3,246,943
2001 1,099,920
2002 284,244
2003 236,039
-----------
$20,554,533
===========
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. NOTE PAYABLE
Note payable consists of the following line of credit:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Note payable to bank with interest due quarterly at
prime less .50%, or 7.75% at December 31, 1998,
collateralized by 451,105 shares of common stock of
the Bank. Principal is due in ten annual instalments
beginning January 1, 2001. $356,000 $ -
======== ========
</TABLE>
Principal maturities as of December 31, 1998 are summarized as
follows:
2001 $ 35,600
2002 35,600
2003 35,600
Thereafter 249,200
--------
$356,000
========
NOTE 7. INCOME TAXES
Income tax expense consists of the following:
December 31,
--------------------------------------
1998 1997
--------------- -------------
[C] [C]
Current $111,446 $148,449
Deferred (12,417) (6,909)
Change in valuation allowance 8,942 -
-------- --------
Income tax expense $107,971 $141,540
======== ========
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. INCOME TAXES (Continued)
The Company's income tax expense differs from the amounts computed by
applying the Federal income tax statutory rates to income before
income taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1998 1997
---------------------------------- ---------------------------------
Amount Percent Amount Percent
-------------- -------------- --------------- -----------
<S> <C> <C> <C> <C>
Income taxes at statutory rate $132,143 34 % $167,649 34 %
Tax-exempt interest (28,020) (7) (29,134) (6)
Other items, net 3,848 1 3,025 1
-------- --- -------- ---
Income tax expense $107,971 28 % $141,540 29 %
======== === ======== ===
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997
--------------- ----------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $100,624 $102,719
Organizational costs 10,161 -
State tax credit carryforwards 24,873 16,715
Less valuation allowance (15,915) (6,973)
-------- --------
119,743 112,461
-------- --------
Deferred tax liabilities:
Securities available-for-sale 14,590 5,648
Depreciation 55,819 52,012
-------- --------
70,409 57,660
-------- --------
Net deferred tax assets $ 49,334 $ 54,801
======== ========
</TABLE>
NOTE 8. STOCK OPTIONS
In 1990, the Board of Directors approved a stock option plan reserving
7,500 shares of common stock for the granting of options to key
employees. Option prices reflect the fair market value of the
Company's common stock on the dates the options are granted. The
options may be exercised over a period of ten years. The stock option
plan will terminate on April 2, 2000. No stock options have been
granted under the 1990 stock option plan and all 7,500 shares of
common stock reserved for grants under the plan remain available for
grants.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. 401(K) PROFIT SHARING PLAN
The Company has a contributory 401(k) profit sharing plan covering all
employees, subject to certain minimum age and service requirements.
Contributions to the plan charged to expense for the years ended
December 31, 1998 and 1997 amounted to $10,121 and $1,750,
respectively.
NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into off-
balance sheet financial instruments which are not reflected in the
financial statements. These financial instruments include commitments
to extend credit and standby letters of credit. Such financial
instruments are included in the financial statements when funds are
disbursed or the instruments become payable. These instruments
involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments. A summary of the Company's
commitments is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Commitments to extend credit $2,299,000 $2,317,000
Standby letters of credit 35,000 30,500
---------- ----------
$2,334,000 $2,347,500
========== ==========
</TABLE>
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future
cash requirements. The credit risk involved in issuing these
financial instruments is essentially the same as that involved in
extending loans to customers. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit,
is based on management's credit evaluation of the customer.
Collateral held varies but may include real estate and improvements,
crops, marketable securities, accounts receivable, inventory,
equipment, and personal property.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loans
to customers. Collateral held varies as specified above and is
required in instances which the Company deems necessary.
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management, any liability
resulting from such proceedings would not have a material effect on
the Company's financial statements.
Year 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year.
Systems that do not properly recognize the year "2000" could generate
erroneous data or cause systems to fail. The Company is heavily
dependent on computer processing and telecommunication systems in the
daily conduct of business activities. In addition, the Company must
rely on intermediaries, vendors and customers to appropriately modify
their systems in order that all may continue normal operations and
operate without significant disruptions. The Company has conducted a
review of its computer systems to identify the systems that could be
affected by the Year 2000 issue. The Company presently believes that,
with modifications to its computer systems and conversions to new
systems, the Year 2000 issue will not pose significant operational
problems for the Company or have a material adverse effect on future
operating results. However, absolute assurance cannot be given that;
(1) the modifications and conversions will remedy all deficiencies,
(2) failure of any of the Company's systems will not have a material
impact on operations, or (3) failure of any other companies' systems
with whom the Company conducts business will not have a material
impact on operations.
NOTE 11. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and consumer
loans to customers in Polk County and surrounding counties. The
ability of the majority of the Company's customers to honor their
contractual loan obligations is dependent on the economy in the
Company's primary market area.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. CONCENTRATIONS OF CREDIT (Continued)
Sixty-three percent of the Company's loan portfolio is concentrated in
loans secured by real estate of which a substantial portion is secured
by real estate in the Company's primary market area. Accordingly, the
ultimate collectibility of the loan portfolio is susceptible to
changes in market conditions in the Company's primary market area.
The other significant concentrations of credit by type of loan are set
forth in Note 3.
The Company, as a matter of policy, does not generally extend credit
to any single borrower or group of related borrowers in excess of 25%
of statutory capital, or approximately $1,100,000.
NOTE 12. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends
that may be declared without prior regulatory approval. At December
31, 1998, approximately $152,000 of retained earnings were available
for dividend declaration without regulatory approval.
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and Bank must meet
specific capital guidelines that involve quantitative measures of the
assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Company's and 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 Company and the Bank to maintain minimum amounts
and ratios of Total and Tier I capital to risk-weighted assets and of
Tier I capital to average assets. Management believes, as of December
31, 1998, the Company and the Bank meet all capital adequacy
requirements to which they are subject.
As of December 31, 1998, the most recent notification from the FDIC
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 following
table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. REGULATORY MATTERS (Continued)
The Company and the Bank's actual capital amounts and ratios are
presented in the following table.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
-------------------------- --------------------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- --------- ----------- -------- ---------- ---------
(Dollars in Thousands)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets)
Consolidated $5,287 17.32% $2,442 8 % $3,053 10 %
Bank $5,604 18.39% $2,438 8 % $3,048 10 %
Tier I Capital
(to Risk Weighted Assets)
Consolidated $4,928 16.15% $1,221 4 % $1,831 6 %
Bank $5,245 17.21% $1,219 4 % $1,829 6 %
Tier I Capital
(to Average Assets)
Consolidated $4,928 11.47% $1,719 4 % $2,148 5 %
Bank $5,245 12.22% $1,717 4 % $2,146 5 %
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets)
Bank $5,429 20.36% $2,133 8 % $2,666 10 %
Tier I Capital
(to Risk Weighted Assets)
Bank $5,116 19.19% $1,064 4 % $1,560 6 %
Tier I Capital
(to Average Assets)
Bank $5,116 12.17% $1,682 4 % $2,103 5 %
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expense in excess of 1% of gross income
for the respective years are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Expenses
Legal and professional fees $43,974 $45,152
Stationery and supplies 49,862 43,267
Director fees 47,800 42,700
</TABLE>
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments. In
cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flow models. Those models
are significantly affected by the assumptions used, including the
discount rates 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. The use of different
methodologies may have a material effect on the estimated fair value
amounts. Also, the fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1998
and 1997. Such amounts have not been revalued for purposes of these
financial statements since those dates and, therefore, current
estimates of fair value may differ significantly from the amounts
presented herein.
Cash and Due From Banks, Interest-bearing Deposits in Banks, and
Federal Funds Sold:
The carrying amounts of cash and due from banks, interest-bearing
deposits in banks, and Federal funds sold approximate their fair
value.
Fair values for securities are based on available quoted market
prices. The carrying values of equity securities with no readily
determinable fair value approximate fair values.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Loans:
For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. For other loans, the fair values are estimated using
discounted cash flow models, using current market interest rates
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using
discounted cash flow models or based on the fair value of the
underlying collateral.
Deposits:
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair values.
Fair values for fixed-rate certificates of deposit are estimated
using discounted cash flow models, using current market interest
rates offered on certificates with similar remaining maturities.
Federal Funds Purchased and Note Payable
The carrying amounts of the Company's Federal funds purchased and
note payable approximate their fair value.
Accrued Interest:
The carrying amounts of accrued interest approximate their fair
values.
Off-Balance Sheet Instruments:
Fair values of the Company's off-balance sheet financial instruments
are based on fees charged to enter into similar agreements. However,
commitments to extend credit and standby letters of credit do not
represent a significant value to the Company until such commitments
are funded. The Company has determined that these instruments do not
have a distinguishable fair value and no fair value has been
assigned.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------------- ----------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- ------------ --------------- --------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from
banks, interest-bearing
deposits in banks, and
Federal funds sold $ 3,609 $ 3,609 $ 2,803 $ 2,803
Securities available-for-sale 7,598 7,598 13,582 13,582
Loans 29,556 29,710 22,431 22,207
Accrued interest receivable 334 334 435 435
Financial liabilities:
Deposits 36,624 37,100 35,850 35,918
Federal funds purchased 825 825 - -
Note payable 356 356 - -
Accrued interest payable 421 421 361 361
</TABLE>
NOTE 15. BUSINESS COMBINATION
On September 1, 1998, the Company acquired all of the outstanding
common stock of the Bank in exchange for 451,105 shares of $5 par
value common stock. The acquisition has been accounted for as a
pooling of interests, and, accordingly, all prior financial statements
have been restated to reflect the combination. Income of the
subsidiary prior to acquisition on September 1, 1998 was $234,503,
which is included in the consolidated statement of income.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheet,
statement of income, and cash flows of UB & T Financial Services
Corporation as of December 31, 1998 and for the period from inception
through December 31, 1998.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
Assets
Cash $ 24,376
Investment in subsidiary 5,274,237
Other assets 14,320
----------
Total assets $5,312,933
==========
Note payable 356,000
Other liabilities 566
Shareholders' equity $4,956,367
----------
Total liabilities and shareholders' equity $5,312,933
==========
</TABLE>
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
<S> <C> <C>
Income
Dividends from subsidiary $ 62,996
--------
Expense
Interest on note payable 2,107
Other expense 36,270
--------
Total expense 38,377
--------
Income before income tax and
equity in undistributed income of subsidiary 24,619
Income tax benefit 13,070
--------
Income before equity in undistributed
income of subsidiary 37,689
Equity in undistributed income of subsidiary 8,492
--------
Net income $ 46,181
========
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C>
Operating Activities
Net income $ 46,181
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed income of subsidiary (8,492)
Other operating activities (13,754)
---------
Net cash provided by operating activities 23,935
---------
Financing Activities
Purchase of treasury stock (355,559)
Proceeds from note payable 390,000
Repayment of note payable (34,000)
---------
Net cash provided by financing activities 441
---------
Net increase in cash 24,376
Cash at beginning of period -
---------
Cash at end of year $ 24,376
=========
</TABLE>
28
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 000-24899
UB&T FINANCIAL SERVICES CORPORATION
(Exact name of small business issuer as specified in its charter)
Georgia 58-2378257
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification)
129 East Elm Street, Rockmart, Georgia 30153
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 770-684-8888
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$5.00 par value per share
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
---- ----
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $3,878,000
The aggregate market value of the common equity held by non-affiliates computed
by reference to the price at which the common equity was sold, or the average
bid and ask price of such common equity, as of a specified date within the past
60 days: $4,370,448 at March 15, 1999 based on private trades at $16.00 per
share, although there is no established trading market.
There were 426,370 shares of Registrant's common stock outstanding at March 15,
1999.
Documents Incorporated By Reference: Portions of Registrant's 1998 Annual Report
to Shareholders are incorporated by reference into Part II of this Report and
portion's of Registrant's definitive Proxy Statement for its 1999 Annual Meeting
of Shareholders are incorporated by reference into Part III of this Report.
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
UB&T FINANCIAL SERVICES CORPORATION
Date: March 25, 1999 By: /s/ Sumter R. Nelson
-------------------------------
Sumter R. Nelson, President
In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated on
the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
/s/ Sumter R. Nelson
<S> <C> <C>
- ------------------------- President and Director March 25, 1999
Sumter R. Nelson (Principal Executive Officer
/s/ Melissa Y. Deems
- ------------------------- Senior Vice President and Chief Financial March 25, 1999
Melissa Y. Deems Officer (Principal Financial and
Accounting Officer
/s/ Bruce B. Albea
- ------------------------- Director March 25, 1999
Bruce B. Albea
/s/ Lee Cummings
- ------------------------- Director March 25, 1999
Lee Cummings
/s/ Dan Forsyth
- ------------------------- Director March 25, 1999
Dan Forsyth
/s/ William D. Heath, Jr.
- ------------------------- Director March 25, 1999
William D. Heath, Jr.
/s/ J. W. LeGrande
- ------------------------- Director March 25, 1999
J. W. LeGrande
/s/ James L. Lester
- ------------------------- Director March 25, 1999
James L. Lester
/s/ William L. Lundy, Jr.
- ------------------------- Director March 25, 1999
William L. Lundy, Jr.
/s/ Elmo Peppers
- ------------------------- Director March 25, 1999
Elmo Peppers
/s/ William Frank Shelley
- ------------------------- Director March 25, 1999
William Frank Shelley
/s/ Daniel B. Simon, III
- ------------------------- Director March 25, 1999
Daniel B. Simon, III
</TABLE>
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
United Bank and Trust Company:
We have audited the accompanying balance sheet of United Bank and Trust Company
(the Company) as of December 31, 1997, and the related statements of income,
comprehensive income, shareholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the over all financial statement
presentation. We believe that our audit provides 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 United Bank and Trust Company
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
KPMG LLP
Atlanta, Georgia
February 20, 1998
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Mark One
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
-------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from to
---------------- --------------
COMMISSION FILE NUMBER: 000-24899
UB & T FINANCIAL SERVICES CORP.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
GEORGIA 58-2378257
- ------------------------------- ---------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification)
129 E. ELM STREET
ROCKMART, GEORGIA 30153
----------------------------------------
(Address of principal executive offices)
(770) 684-8888
---------------------------
(Issuer's telephone number)
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report date)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of November 10, 1999: 426,370 shares; $5 par value
Transitional Small Business Disclosure Format (Check One) Yes No X
----- -----
<PAGE>
UB & T FINANCIAL SERVICES CORP.
INDEX
PART I: FINANCIAL INFORMATION Page
ITEM 1:
Consolidated Balance Sheet - September 30, 1999 3
Consolidated Statements of Income and Comprehensive Income -
Three and nine months ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows - Nine months
ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
ITEM 2:
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II: OTHER INFORMATION
ITEM 6:
Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
PART 1: FINANCIAL INFORMATION
UB&T FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 1999
(Unaudited)
ASSETS
1999
-----------
Cash and due from banks $ 1,137,482
Federal funds sold 1,603,241
Interest bearing deposits with other banks 412,042
Investment securities available for sale 5,895,982
Loans 34,095,077
Less: Allowance for loan losses (497,089)
-----------
Loans, net 33,597,988
Premises and equipment, net 1,854,848
Other assets 616,354
-----------
Total assets $45,117,938
===========
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits:
Demand deposits 3,819,976
Interest-bearing deposits 8,649,680
Savings 4,012,418
Time, $100,000 and over 3,156,040
Other time 16,328,060
-----------
Total deposits 35,966,174
Federal Home Loan Bank advances 3,000,000
Note payable 381,000
Other liabilities 744,756
-----------
Total liabilities 40,091,930
-----------
Shareholders' equity:
Common stock, $5 par value, authorized
10,000,000 shares; 451,105 shares issued 2,255,525
Surplus 2,187,292
Retained earnings 1,050,909
Accumulated other comprehensive losses (61,184)
-----------
5,432,542
Less cost of 24,735 shares of treasury stock (406,534)
-----------
Total shareholders' equity 5,026,008
-----------
Total liabilities and shareholders' equity $45,117,938
===========
The accompanying notes are an integral part of these financial statements.
Page 3
<PAGE>
UB&T FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three and Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
-------- ------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $818,649 663,013 2,337,767 1,852,882
Investment securities 88,856 171,701 285,684 585,383
Deposits with other banks 10,638 26,503 46,578 59,569
Federal funds sold 22,830 15,790 65,191 38,072
-------- ------- --------- ---------
Total interest income 940,973 877,007 2,735,220 2,535,906
-------- ------- --------- ---------
Interest expense:
Deposits 306,426 397,785 974,216 1,180,678
Borrowings 37,149 1,086 52,321 2,352
-------- ------- --------- ---------
Total interest expense 343,575 398,871 1,026,537 1,183,030
-------- ------- --------- ---------
Net interest income 597,398 478,136 1,708,683 1,352,876
Provision for loan losses 55,800 30,500 244,733 52,250
-------- ------- --------- ---------
Net interest income after provision
for loan losses 541,598 447,636 1,463,950 1,300,626
-------- ------- --------- ---------
Other income:
Service charges on deposit accounts 89,896 92,932 280,147 245,518
Other operating income 16,569 41,407 63,508 76,157
-------- ------- --------- ---------
Total other income 106,465 134,339 343,655 321,675
-------- ------- --------- ---------
Other expenses:
Salaries and employee benefits 252,147 231,128 703,176 659,730
Net occupancy and equipment expense 74,536 66,327 219,869 205,231
Other operating expense 120,034 147,403 399,952 393,125
-------- ------- --------- ---------
Total other expense 446,717 444,858 1,322,997 1,258,086
-------- ------- --------- ---------
Income before income taxes 201,346 137,117 484,608 364,215
Applicable taxes 74,115 41,195 167,312 99,973
-------- ------- --------- ---------
Net income $127,231 95,922 317,296 264,242
======== ======= ========= =========
Other comprehensive income:
Unrealized (losses) gains on securities available-
for-sale arising during period, net of tax (17,933) 34,228 (89,287) 56,238
Less: Reclassification adjustment for gains
included in net income, net of tax 0 18,043 0 18,261
-------- ------- --------- ---------
Total other comprehensive income (17,933) 16,185 (89,287) 37,977
Comprehensive income $109,298 112,107 228,009 302,219
======== ======= ========= =========
Basic and diluted earnings per common share $ 0.30 0.21 0.75 0.59
======== ======= ========= =========
Weighted average outstanding shares 426,370 451,105 423,031 451,105
======== ======= ========= =========
Cash dividends per common share $ 0.00 0.00 0.25 0.25
======== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4
<PAGE>
UB&T FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 317,296 264,242
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion 128,327 111,690
Provision for loan losses 244,733 52,250
Gain on sale of investment securities available for sale - (27,668)
(Increase) decrease in other assets (69,362) 64,627
Increase in accrued expenses and
other liabilities 290,116 9,675
----------- ----------
Net cash provided by operating activities 911,110 474,816
----------- ----------
INVESTING ACTIVITIES
Purchases of investment securities-available for sale - (5,864,031)
Purchases of investment securities-held to maturity (20,000)
Proceeds from sale of securities available-for-sale - 2,062,858
Proceeds from calls/maturities of investment securities-
available for sale 749,498 6,494,774
Net increase in interest bearing deposits with
other banks (296,524) (1,579,421)
Net decrease in Federal funds sold 724,500 1,588,759
Payments on mortgage-backed securities 838,235 508,004
Net increase in loans (4,287,115) (4,101,353)
Purchases of premises and equipment (31,472) (59,516)
----------- ----------
Net cash used in investing activities (3,052,376) (949,926)
----------- ----------
FINANCING ACTIVITIES
Proceeds from Federal Home Loan Bank advance 3,000,000 -
Proceeds from note payable 25,000 30,000
Net (decrease) increase in deposits (658,318) 308,954
Net (decrease) increase in Federal funds purchased (825,000) 555,000
Purchase of treasury stock (50,975) -
Dividends paid (107,389) (112,776)
----------- ----------
Net cash provided by financing activities 1,383,318 781,178
----------- ----------
Net increase (decrease) in cash and cash equivalents (757,948) 306,068
Cash and cash equivalents at beginning of period 1,165,932 895,370
----------- ----------
Cash and cash equivalents at end of period $ 407,984 1,201,438
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5
<PAGE>
UB & T FINANCIAL SERVICES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the three and nine month periods ended September
30, 1999 are not necessarily indicative of the results to be expected for the
full year.
NOTE 2. CURRENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The effective
date of this statement has been deferred by SFAS No. 137 until fiscal years
beginning after June 15, 2000. However, the statement permits early adoption as
of the beginning of any fiscal quarter after its issuance. The Company expects
to adopt this statement effective January 1, 2001. SFAS No. 133 requires the
Company to recognize all derivatives as either assets or liabilities in the
balance sheet at fair value. For derivatives that are not designated as hedges,
the gain or loss must be recognized in earnings in the period of change. For
derivatives that are designated as hedges, changes in the fair value of the
hedged assets, liabilities, or firm commitments must be recognized in earnings
or recognized in other comprehensive income until the hedged item is recognized
in earnings, depending on the nature of the hedge. The ineffective portion of a
derivative's change in fair value must be recognized in earnings, depending on
the nature of the hedge. The ineffective portion of a derivative's change in
fair value must be recognized in earnings immediately. Management has not yet
determined what effect the adoption of SFAS No. 133 will have on the Company's
earnings or financial position.
There are no other recent accounting pronouncements that have had, or are
expected to have a material effect on the Company's financial statements.
NOTE 3: BUSINESS COMBINATION
On October 14, 1999, UB&T Financial Services Corporation signed an Agreement and
Plan of Reorganization with GB&T Bancshares, Inc. This agreement provides for
the merger of Financial Services with and into GB&T, with GB&T being the
surviving corporation of the merger.
Page 6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the financial position and operating results of the
Company and its bank subsidiary, United Bank & Trust ("Bank") during the periods
included in the accompanying consolidated financial statements.
FORWARD-LOOKING STATEMENT
This quarterly report contains certain forward-looking statements which are
based on certain assumptions and describe future plans, strategies and our
expectations. These forward-looking statements are generally identified by use
of the words "believe," "intend," "anticipate," "estimate," "project," or
similar expressions. Our ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse effect on our operations include, but are not limited to,
changes in interest rates, general economic conditions, legislation and
regulation, monetary and fiscal policies of the U. S. government, including
policies of the U. S. Treasury and the Federal Reserve Board, the quality or
composition of our loan or investment portfolios, demand for loan products,
deposit flows, competition, demand for financial services in our market area and
accounting principles and guidelines. You should consider these risks and
uncertainties in evaluating forward-looking statements, and should not place
undue reliance on such statements. We will not publicly release the result of
any revisions which may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
FINANCIAL CONDITION
The Company's total assets increased $1,901,000 or 4.4%, for the nine months
ended September 30, 1999. Total loans increased by $4,402,000 or 13.7% for the
nine months ended September 30, 1999. Loans have been funded by Federal Home
Loan Bank advances and the funds provided by the calls, maturities and payments
of investment securities. The loan to deposit ratio as of September 30, 1999 was
94.8% as compared to 74.2% at September 30, 1998. The increase in the loan to
deposit ratio is due to the continuing increase in loan demand combined with the
decrease in higher paying deposits. As noted above, the increase in loans has
been funded by Federal Home Loan Bank advances. Total deposits decreased by
$658,000 or 1.8% for the nine months ended September 30, 1999.
LIQUIDITY
As of September 30, 1999, the liquidity ratio was 20.3% compared to 26.7% at
September 30, 1999. These ratios are within the Bank's target ratio range of 20%
to 30%. Liquidity is measured by the ratio of net cash, Federal funds sold and
securities to net deposits and short-term liabilities. The decrease in the
liquidity ratio is related to the decrease in liquid assets due to the increase
in loan demand, as discussed above, and the increase in pledged deposits since
December 31, 1998. The Bank has lines of credit available to meet any unforseen
liquidity needs. Also, the Bank has a relationship with the Federal Home Loan
Bank of Atlanta which provides a line of credit up to $4,000,000 on an as needed
basis. As of September 30, 1999, the bank had outstanding Federal Home Loan Bank
advances totaling $3,000,000.
Page 7
<PAGE>
CAPITAL
The minimum capital requirements for banks and bank holding companies require a
leverage capital to total assets ratio of at least 4% , core capital to
risk-weighted assets ratio of at least 4% and total capital to risk-weighted
assets of at least 8%.
At September 30, 1999, the capital ratios of the Company and the Bank were
adequate based on regulatory minimum capital requirements. The actual capital
ratios for the Company and the Bank are as follows:
UB&T United
Financial Bank &
Services, Inc. Trust
-------------- ------
Leverage capital ratio 11.9% 11.1%
Risk-based capital ratios:
Core capital 16.5% 15.5%
Total capital 17.8% 16.7%
RESULTS OF OPERATIONS
Net interest income increased $119,000 or 24.9% for the three months ended
September 30, 1999 compared to the same period in 1998. The net increase consist
of an increase in interest income of $64,000 or 7.3% plus a decrease in interest
expense of $55,000 or 13.9% for the three month period. The increase in interest
income is due primarily to the growth in total interest-earning assets of
$1,492,000 from June 30, 1999 to September 30, 1999 compared to a decrease of
$96,000 in interest-earning assets for the same time period in 1998.
Net interest income increased $356,000 or 26.3% for the nine months ended
September 30, 1999 compared to the same period in 1998. The net increase
consists of an increase in interest income of $199,000 or 7.9% plus a decrease
in interest expense of $156,000 or 13.2% for the nine month period. The increase
in interest income for the nine month period ended September 30, 1999 is due
primarily to the growth in total interest-earning assets of $2,050,000 compared
to an increase of $956,000 for the same period during 1998. For the nine month
periods ended September 30, 1999 and 1998, the net interest margins were 5.68%
and 4.67%, respectively. This increase in the net interest margin is a direct
result of the increase in interest earning assets as noted in the above
paragraph.
Page 8
<PAGE>
The Bank's provision for loan losses increased by $25,000 or 82.9% during the
three months ended September 30, 1999 as compared to the same period in 1998.
The Bank's provision for loan losses increased by $192,000 or 368.4% during the
nine months ended September 30, 1999 as compared to the same period in 1998. The
allowance for loan losses at September 30, 1999 was $497,000 or 1.46% of total
loans compared to 1.2% at September 30, 1998.
The increase in the provision for loan losses for the three and nine month
periods ended September 30, 1999 as compared to 1998 is primarily due to an
increase of $84,000 in net charge-offs in 1999 as compared to 1998 The majority
of the net charge-offs for the nine month period ended September 30, 1999 was
made up of loans to two borrowers totaling $91,000. The remaining amount
consisted of a number of smaller consumer loans which all were identified during
1999. The allowance for loan losses is evaluated monthly and adjusted to reflect
the risk in the portfolio. Based on management's evaluation, the allowance is
adequate to absorb any potential loan losses at September 30, 1999.
The following table summarizes the allowance for loan losses for the nine month
periods ended September 30, 1999 and 1998,
1999 1998
------- ------
(Dollars in thousands)
Average loans outstanding $31,668 23,764
------- ------
Balance, beginning of period $ 359 312
------- ------
Less Charge-offs
Commercial loans (37) (13)
Consumer loans (107) (20)
Plus Recoveries
Commercial loans 30 4
Consumer loans 7 6
------- ------
Net charge-offs (107) (23)
Plus Provision for loan losses 245 52
------- ------
Balance, end of period $ 497 341
------- ------
Charge-offs as a percent of average loans .45% .14%
------- ------
Page 9
<PAGE>
As noted in the table below, the decrease in nonaccrual loans is a result of the
nonaccrual loans totaling $155,000 that were charged off in December 1998.
Considering the collateral position of the eight remaining nonaccrual loans, the
Bank does not anticipate incurring any significant losses. As of September 30,
1999, the majority of nonaccurals were to two borrowers totaling $28,000.
The increase in loans past due 90 days increased $151,000 or 1.07% for the nine
month period ended September 30, 1999 as compared to the same period in 1998.
The past due loans as of September 30, 1999 consisted of 58 consumer loans with
an average balance of $5,000 compared to 20 loans with an average balance of
$7,000 for the same period in 1998. Based on management's evaluation and
continued efforts in collections, the allowance is adequate to cover any
potential losses. As noted above, management adjust the allowance monthly to
reflect the risk in the loan portfolio.
The following table is a summary of nonaccrual and past due loans.
<TABLE>
<CAPTION>
September 30, 1999
------------------------------------------
Past due 90
Nonaccrual days still Restructured
Loans Accruing Loans
---------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Real estate loans $ 11 $ 42 -0-
Commercial loans -0- 40 -0-
Consumer loans 36 181 -0-
---- ---- ---
Total $ 47 $263 -0-
---- ---- ---
<CAPTION>
September 30, 1998
------------------------------------------
Past due 90
Nonaccrual days still Restructured
Loans Accruing Loans
---------- ----------- ------------
(Dollars in thousands)
Real estate loans $ 23 $ 7 -0-
Commercial loans 49 95 -0-
Consumer loans 134 40 -0-
---- ---- ---
Total $206 $142 -0-
---- ---- ---
</TABLE>
The Company's policy is to discontinue the accrual of interest income when, in
the opinion of management, collection of such interest becomes doubtful. This
status is determined when; (1) there is significant deterioration in the
financial condition of the borrower and full repayment of principal and interest
is not expected; and (2) the principal or interest is more than ninety days past
due, unless the loan is both well-secured and in the process of collection.
Accrual of interest on such loans is resumed when, in management's judgement,
the collection of interest and principal become probable.
Page 10
<PAGE>
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity or capital resources.
These classified loans do not represent material credits which causes management
to have serious doubts as to the ability of such borrowers to comply with the
loan repayment terms.
Other income for the three months ended September 30, 1999 decreased by $28,000
or 20.8% compared to the same period in 1998. This decrease was due to the gain
on sale of securities totaling $28,000 as of September 30, 1998. Other income
for the nine months ended September 30, 1999 increased by $22,000 or 6.8%
compared to the same period in 1998. The increase in other income is primarily
due to the increase in service charges on deposit accounts which is directly
related to the increase in demand deposits during the nine month period.
Other expenses increased approximately $2,000 or 0.42% for the three month
period ended September 30, 1999 compared to the same period in 1998. Other
expenses increased by approximately $65,000 or 5.2% for the nine months ended
September 30, 1999 compared to the same period in 1998. The increase is partly
due to an increase in salaries and other employee benefits.
Income tax expense increased by $33,000 for the three months ended September 30,
1999 compared to the three months ended September 30, 1998. Income tax expense
increased by $67,000 for the nine months ended September 30, 1999 compared to
the nine months ended September 30, 1998. The effective tax rate for the nine
month period in 1999 was 34% compared to 27% for the same period in 1998.
Net income increased for the three months ended September 30, 1999 by $31,000
compared to the same period in 1998. Net income increased for the nine months
ended September 30, 1999 by $53,000 compared to the same period in 1998. The
increase in net income for the three and nine month periods ended September 30,
1999 is attributable to the increase in net interest income.
The Company is not aware of any other known trends, events or uncertainties,
other than the effect of events as described above, that will have or that are
reasonable likely to have a material effect on its liquidity, capital resources
or operations. The Company is also not aware of any current recommendations by
the regulatory authorities which, if they were implemented, would have such an
effect.
YEAR 2000 READINESS DISCLOSURE
Like many financial institutions, the Company and its subsidiary rely upon
computers for the daily conduct of their business and for data processing
generally. There is concern among industry experts that commencing on January 1,
2000, computers will be unable to "read" the new year and that there may be
widespread computer malfunctions. Management of the Company has assessed the
electronic systems, programs, applications, and other electronic components used
in the operations of the Company and believes that the hardware and software
used by the Company and the Bank have been programmed to be able to accurately
recognize the year 2000, and that significant additional costs will not be
incurred in connection with the year 2000 issue, although there can be no
assurances in this regard.
Page 11
<PAGE>
The Federal Financial Institutions Examination Council (FFIEC), an oversight
authority for financial institutions, has issued several interagency statements
on Year 2000 project awareness. These statements require financial institutions
to, among other things, examine the Year 2000 implications of their reliance on
vendors, determine the potential impact of the Year 2000 issue on their
customers, suppliers and borrowers, and to survey its exposure, measure its risk
and prepare a plan to address the Year 2000 issue. In addition, federal banking
regulators have issued safety and soundness guidelines to be followed by
financial institutions to assure resolution of any Year 2000 problems. The
federal banking agencies have asserted that Year 2000 testing and certification
is a key safety and soundness issue in conjunction with regulatory examinations,
and the failure to appropriately address the Year 2000 issue could result in
supervisory action, including the reduction of the institution's supervisory
ratings, the denial of applications for mergers or acquisitions, or the
imposition of civil monetary penalties.
The Company is utilizing a three-phase plan for achieving Year 2000 readiness.
The Assessment Phase was intended to determine which computers, operating
systems and applications require remediation and prioritizing those remediation
efforts by identifying mission critical systems. The Assessment Phase has been
completed except for the on-going assessment of new systems. The Remediation and
Testing Phase addressed the correction or replacement of any non-compliant
hardware and software related to the mission critical systems and testing of
those systems. Since most of the Bank's information technology systems are
off-the-shelf software, remediation efforts have focused on obtaining Year 2000
compliant application upgrades. The Bank's core banking system, which runs
loans, deposits and the general ledger, has been upgraded to the Year 2000
compliant version and has been forward date tested and to ensure proper
functioning. The Year 2000 releases for all of the Bank's other internal mission
critical systems have also been received and forward date tested. The next step
of this phase, testing mission critical service providers, was substantially
completed as of March 31, 1999. During the final phase, the Implementation
Phase, remediated and validated codes were tested in interfaces with customers,
business partners, government institutions, and others. The Implementation Phase
was substantially completed as of June 30, 1999.
The Company may be impacted by the Year 2000 compliance issues of governmental
agencies, businesses and other entities who provide data to, or receive data
from, the Company, and by entities, such as borrowers, vendors, customers, and
business partners, whose financial condition or operational capability is
significant to the Company. Therefore, the Company's Year 2000 project also
includes assessing the Year 2000 readiness of certain customers, borrowers,
vendors, business partners, counter parties, and governmental entities. In
addition to assessing the readiness of these external parties, the Company is
developing contingency plans which will include plans to recover operations and
alternatives to mitigate the effects of counter parties whose own failure to
properly address Year 2000 issues may adversely impact the Company's ability to
perform certain functions. These contingency plans were completed as of June 30,
1999.
If Year 2000 issues are not adequately addressed by the Company and significant
third parties, the Company's business, results of operations and financial
position could be materially adversely affected. Failure of certain vendors to
be Year 2000 compliant could result in disruption of important services upon
which the Company depends, including, but not limited to, such services as
telecommunications, electrical power and data processing. Failure of the
Company's loan customers to properly prepare for the Year 2000 could also result
in increases in problem loans and credit losses in future years. It is not,
however, possible to quantify the potential impact of any such losses at this
Page 12
<PAGE>
time. Notwithstanding the Company's efforts, there can be no assurance that the
Company or significant third party vendors or other significant third parties
will adequately address their Year 2000 issues. The Company is continuing to
assess the Year 2000 readiness of third parties but does not know at this time
whether the failure of third parties to be Year 2000 compliant will have a
material effect on the Company's results of operations, liquidity and financial
condition.
The Company originally estimated that its total cost for the Year 2000 project
would approximate $55,000. As of September 30, 1999, the Company has incurred
$16,000 in charges related to its Year 2000 remediation effort. Charges include
the cost of external consulting and the cost of accelerated replacement of
hardware, but do not include the cost of internal staff redeployed to the Year
2000 project. The Company does not believe that the redeployment of internal
staff will have a material impact on its financial condition or results of
operations.
The foregoing paragraphs contain a number of forward-looking statements. These
statements reflect Management's best current estimates, which were based on
numerous assumptions about future events, including the continued availability
of certain resources, representations received from third party service
providers and other factors. There can be no guarantee that these estimates,
including Year 2000 costs, will be achieved, and actual results could differ
materially from those estimates. A number of important factors could cause
Management's estimates and the impact of the Year 2000 issue to differ
materially from what is described in the forward-looking statements contained in
the above paragraphs. Those factors include, but are not limited to, the
availability and cost of programmers and other systems personnel, inaccurate or
incomplete execution of the phases, results of Year 2000 testing, adequate
resolution of Year 2000 issues by the Company's customers, vendors, competitors,
and counter parties, and similar uncertainties.
The forward-looking statements made in the foregoing Year 2000 discussion speak
only as of the date on which such statements are made, and the Company
undertakes no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events.
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
None.
Page 13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UB & T FINANCIAL SERVICES CORP.
DATE: November 8, 1999 BY: /s/ J. Steven Walraven
---------------- --------------------------
J. Steven Walraven
President & CEO
DATE: November 8, 1999 BY: /s/ Melissa Y. Deems
---------------- --------------------------
Melissa Y. Deems
Vice President and CFO
Page 14
<PAGE>
I APPENDIX C
GB&T Bancshares, Inc. Form 10-KSB for the year ended
December 31, 1998, and Form 10-QSB for the nine months ended September 30, 1999
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 000-24203
GB&T Bancshares, Inc.
(Exact name of Registrant as specified in its Charter)
Georgia 58-2400756
(State of Incorporation) (I.R.S. Employer Identification No.)
500 Jesse Jewell Parkway, S.E.
Gainesville, Georgia 30501
(Address of principal office, including zip code)
(770) 532-1212
(Registrant's telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act; None
Securities Registered pursuant to Section 12(g) of the Act: Common
Stock, par value $5.00
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. YES X NO
---- ----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statement incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ]
The total revenues for the year ended December 31, 1998 was
$16,908,000.
The aggregate market value of the voting stock and non-voting
common equity held by nonaffiliates of the Registrant at March 1,
1999, was $31,996,000 based on $25 per share, the average of the bid
and asked prices for the Registrant's Common Stock on The Nasdaq
National Market on March 1, 1999.
The number of shares of the Registrant's Common Stock outstanding
at March 11, 1999, was 2,105,537 shares.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
December 31, 1998, are incorporated by reference into Parts I and II
of this report.
Portions of the Proxy Statement for the 1999 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission
within 120 days of the Registrant's 1998 fiscal year end are
incorporated by reference into Part III of this report.
<PAGE>
TABLE OF CONTENTS
-----------------
ITEM NO. CAPTION
- ----------------------
PART I
1. Description of Business
2. Description of Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II
5. Market for Common Equity and Related Stockholder Matters
6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
7. Financial Statements
8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
PART III
9. Directors and Executive Officers
10. Executive Compensation
11. Security Ownership of Certain Beneficial Owners and Management
12. Certain Relationships and Related Transactions
13. Exhibits and Reports on Form 8-K
<PAGE>
PART I
-----
ITEM 1. BUSINESS
THE COMPANY
GB&T Bancshares, Inc. (the "Company") was formed in 1998 as a
bank holding company existing under the laws of the State of Georgia.
On April 24, 1998, GB&T Bancshares, Inc. acquired all of the
outstanding common stock of Gainesville Bank & Trust in exchange for
1,676,160 shares of $5 par value common stock. The acquisition was
accounted for as a pooling of interests, and, accordingly, all prior
financial statements reflect the combination. At December 31, 1998,
the Company had one wholly-owned subsidiary, Gainesville Bank & Trust
(the "Bank").
The Company operates as a one bank holding company. At
December 31, 1998 there were no other investments held by the Company.
The Company's plans include investments in de novo banks in Georgia
and exploring opportunities through mergers and acquisitions.
Currently, there are no employees of the Company.
The Company's principal executive offices are located at 500
Jesse Jewell Parkway, S.E., Gainesville, Georgia 30501, and its
telephone number is (770) 532-1212.
GAINESVILLE BANK & TRUST
Gainesville Bank & Trust, located in Gainesville, Georgia,
was incorporated under the laws of the State of Georgia on July 20,
1987 and commenced operations as a Georgia State-Chartered Bank on
February 1, 1988.
The Bank conducts business from its main office facility at
500 Jesse Jewell Parkway, Gainesville, Hall County, Georgia, which is
owned equally by the Bank and one of its directors. The Bank
currently occupies sixty-five percent of this facility. The remainder
of this facility is available for lease and approximately 10,000
square feet in the building is currently under lease to five tenants
unrelated to the Bank. The Bank currently operates three branches in
Gainesville, Georgia and one branch in Oakwood, Georgia.
The Bank provides a full range of banking services to
customers within its primary market area of Hall County. It offers
checking accounts, money market accounts, savings and time deposits,
commercial, small business, real estate mortgage, consumer, home
equity, automobile and credit card loans. The Bank also offers a
variety of other traditional banking services to its customers,
including drive-up and night depository facilities, 24-hour automated
teller machines, PC banking, and limited trust services.
The Bank has grown from its initial capital base of $7
million to a total asset base of approximately $196 million. The
continued growth in total assets and loans was generated almost
exclusively from deposits obtained from the Hall County market area.
The loan portfolio of $138 million as of year end is comprised of
commercial and industrial loans ($17 million), loans secured by real
estate ($107 million), and consumer and other loans ($14 million).
The Bank is not currently engaged in any nonbanking activities.
<PAGE>
MARKET AREA AND COMPETITION
The Bank competes primarily with ten other commercial banks,
NationsBank, N.A, Regions Bank, Georgia First Bank, Lanier National
Bank, Community Bank & Trust-Habersham, Premier Bank, Trust Company
Bank of Northeast Georgia, SouthTrust Bank, NBC Bank, FSB, and
Wachovia Bank, N.A. In addition, the Bank competes with other
financial institutions, including two credit unions. The banking
business is very competitive in the Gainesville, Hall County market.
The banking industry continues to experience increased competition for
deposits from brokerage firms and money market funds.
As a whole, the banking industry in Georgia is highly
competitive. The Bank competes with institutions which have much
greater financial resources than the Bank, and which may be able to
offer more services to their customers. In recent years, intense
market demands, economic pressures, and increased customer awareness
of products, services, and the availability of electronic services
have forced banks to diversify their services and become more cost
effective. The Bank faces strong competition in attracting and
retaining deposits and loans.
The most direct competition for deposits comes from other
commercial banks, savings banks, credit unions and issuers of
securities such as shares in money market funds. Interest rates,
convenience, availability of products and services, and marketing are
all significant factors in the Bank's competition for deposits.
Competition for loans comes from other commercial banks,
savings banks, insurance companies, consumer finance companies, credit
unions and other institutional lenders. The Bank competes for loan
originations through the interest rates, loan fees they charge,
efficiency in closing and handling of loans, and the overall quality
of service. Competition is affected by the general availability of
lendable funds, general and local economic conditions, current
interest rates, and other factors that are not readily predictable.
Management expects that competition will continue to increase
in the future due to the fully phased-in statewide branching laws that
became effective in 1998 and the entry of additional bank and nonbank
competitors.
LENDING ACTIVITIES
------------------
The Bank originates loans primarily secured by single family
real estate, residential construction, owner-occupied commercial
buildings, and other loans to small businesses and individuals. In
addition, loans are made to small- and medium-sized commercial
businesses, as well as to consumers for a variety of purposes.
The Bank originates secured and unsecured commercial and
consumer loans, principally to smaller business enterprises. The Bank
also lends to a limited number of residential contractors and
developers in the Hall County area.
The Bank's commercial lending includes loans to smaller
business ventures, credit lines for working capital and short-term
seasonal or inventory financing, as well as occasional letters of
credit. Commercial borrowers typically secure their loans with assets
<PAGE>
of the business as well as personal guaranties of their principals,
often secured by second mortgages on their personal residences.
The Bank provides commercial and consumer installment loans
to its customers. Such loans are typically of multiple-year duration,
secured by the property financed and, if not variable rate, bear
interest at a rate tied to the Bank's cost of funds of equivalent
maturity. Commercial installment loans generally finance commercial
equipment, while consumer installment loans typically finance
automobiles, consumer products, or home improvements.
Risks associated with loans made by the Bank include, but are
not limited to, the real estate market in Hall County, fraud,
deteriorating or non-existing collateral, general economic conditions,
and deteriorating customer financial conditions.
The Bank's Board of Directors establishes and periodically
reviews the Bank's lending policies and procedures. State banking
regulations provide that no secured loan relationship may exceed 25%
of the Bank's statutory capital and no unsecured loan relationship may
exceed 15% of the Bank's statutory capital, except in very limited
circumstances. The Bank occasionally sells participation interests in
loans to other lenders, primarily when a loan exceeds the Bank's legal
lending limits.
In addition, the Bank originates loans to small businesses
secured by real estate and other collateral, which loans are in part
(up to 75% of each loan) guaranteed by the U.S. Small Business
Administration ("SBA").
DEPOSITS
--------
Checking, savings, money market accounts, and other time
deposit accounts are the primary sources of funds for investing in
loans and securities. The Bank obtains most of its deposits from
individuals and businesses in its market area.
The Bank does not solicit new or maturing deposits by
offering depositors rates of interest on certificates of deposit or
money market accounts significantly above rates paid by other local
competitors. The Bank does not solicit brokered deposits.
INVESTMENT ACTIVITIES
---------------------
After establishing necessary cash reserves and funding loans,
the Bank invests its remaining liquid assets in securities allowed
under banking laws and regulations. The Bank invests primarily in
obligations of the United States or obligations guaranteed as to
principal and interest by the United States, other taxable securities
and in certain obligations of states and municipalities. The Bank
also invests excess funds in Federal funds with its correspondents and
primarily acts as a net seller of such funds. The sale of Federal
funds amounts to a short term loan from the Bank to another bank.
Risks associated with securities include, but are not limited to,
interest rate fluctuation, maturity, and concentration.
<PAGE>
ASSET/LIABILITY MANAGEMENT
--------------------------
It is the objective of the Bank to manage its assets and
liabilities to provide a satisfactory and consistent level of
profitability within the framework of established cash, loan,
investment, borrowing and capital policies. Certain officers of the
Bank are charged with the responsibility for developing and monitoring
policies and procedures that are designed to insure acceptable
composition of the asset/liability mix. It is the overall philosophy
of management to support asset growth primarily through growth of core
deposits, which include deposits of all categories from individuals
and businesses. Management of the Bank seeks to invest the largest
portion of the Bank's assets in loans.
The Bank's asset-liability mix is monitored on a periodic
basis with a report reflecting interest-sensitive assets and interest-
sensitive liabilities being prepared and presented to the Bank's Board
of Directors on a monthly basis. The objective of this policy is to
manage interest-sensitive assets and liabilities so as to minimize the
impact of substantial movements in interest rates on the Bank's
earnings.
EMPLOYEES
As of December 31, 1998, the Bank had 79 full-time equivalent
employees. The Bank is not a party to any collective bargaining
agreement and, in the opinion of management, the Bank enjoys
satisfactory relations with its employees.
SUPERVISION AND REGULATION
The following discussion sets forth the material elements of
the regulatory framework applicable to banks and provides certain
specific information related to the Company.
GENERAL
The Company is a bank holding company registered with the
Board of Governors of the Federal Reserve System (the "Federal
Reserve') and the Georgia Department of Banking and Finance (the
"Georgia Department") under the Bank Holding Company Act of 1956 ( the
"BHC Act") and the Georgia BHC Act, respectively. As such, the
Company is subject to the supervision, examination, and reporting
requirements of the BHC Act and the regulations of the Federal
Reserve, and the Georgia BHC Act.
The BHC Act requires every bank holding company to obtain the
prior approval of the Federal Reserve before: (i) it may acquire
direct or indirect ownership or control of any voting shares of any
bank if, after such acquisition, the bank holding company will
directly or indirectly own or control more than 5% of the voting
shares of the bank; (ii) it or any of its subsidiaries, other than a
bank, may acquire all or substantially all of the assets of any bank;
or (iii) it may merge or consolidate with any other bank holding
company.
The BHC Act further provides that the Federal Reserve may not
approve any transaction that would result in a monopoly or would be in
furtherance of any combination or conspiracy to monopolize or attempt
to monopolize the business of banking in any section of the United
States, or the effect of which may be substantially to lessen
competition or to tend to create a monopoly in any section of the
country, or that in any other manner would be in restraint of trade,
<PAGE>
unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience
and needs of the communities to be served. The Federal Reserve is
also required to consider the financial and managerial resources and
future prospects of the bank holding companies and banks involved and
the convenience and needs of the communities to be served. Consideration
of financial resources generally focuses on capital adequacy, and
consideration of convenience and needs issues generally focuses on the
parties' performance under the Community Reinvestment Act of 1977.
The BHC Act, as amended by the interstate banking provisions
of the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Banking Act"), which became effective on
September 29, 1995, repealed the prior statutory restrictions on
interstate acquisitions of banks by bank holding companies, such that
the Company and any other bank holding company located in Georgia, may
now acquire a bank located in any other state, and any bank holding
company located outside Georgia may lawfully acquire any Georgia-based
bank, regardless of state law to the contrary, in either case subject
to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides
that, as of June 1, 1997, national and state-chartered banks may
branch interstate through acquisitions of banks in other states.
In response to the Interstate Banking Act, the Georgia
General Assembly adopted the Georgia Interstate Banking Act which
became effective on July 1, 1995. The Georgia Interstate Banking Act
provides that (i) interstate acquisitions by institutions located in
Georgia will be permitted in states which also allow national
interstate acquisitions, and (ii) interstate acquisitions of
institutions located in Georgia will be permitted by institutions
located in states which allow national interstate acquisitions.
Additionally, on January 26, 1996, the Georgia General
Assembly adopted the Georgia Interstate Branching Act which permits
Georgia-based banks and bank holding companies owning or acquiring
banks outside of Georgia and all non-Georgia banks and bank holding
companies owning or acquiring banks in Georgia the right to merge any
lawfully acquired bank into an interstate branch network. The Georgia
Interstate Branching Act also allows banks to establish de novo
branches on a limited basis beginning July 1, 1996. Beginning July 1,
1998, the number of de novo branches which may be established was no
longer limited.
The BHC Act generally prohibits a bank holding company from
engaging in activities other than banking or managing or controlling
banks or other permissible subsidiaries and from acquiring or
retaining direct or indirect control of any company engaged in any
activities other than those activities determined by the Federal
Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a
particular activity is permissible, the Federal Reserve must consider
whether the performance of such an activity reasonably can be expected
to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency, that outweigh possible
adverse effects, such as undue concentration of resources, decreased
or unfair competition, conflicts of interest, or unsound banking
practices. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount
securities brokerage activities, performing certain data processing
services, acting as agent or broker in selling credit life insurance
and certain other types of insurance in connection with credit
transactions, and performing certain insurance underwriting activities
<PAGE>
all have been determined by the Federal Reserve to be permissible
activities of bank holding companies. The BHC Act does not place
territorial limitations on permissible non-banking activities of bank
holding companies. Despite prior approval, the Federal Reserve has
the power to order a bank holding company or its subsidiaries to
terminate any activity or to terminate its ownership or control of any
subsidiary when it has reasonable cause to believe that continuation
of such activity or such ownership or control constitutes a serious
risk to the financial safety, soundness, or stability of any bank
subsidiary of that bank holding company.
The Bank is a member of the Federal Deposit Insurance
Corporation ("FDIC"), and as such, its deposits are insured by the
FDIC to the maximum extent provided by law. The Bank is also subject
to numerous state and federal statutes and regulations that affect its
business, activities, and operations, and it is supervised and
examined by one or more state or federal bank regulatory agencies.
The Bank is subject to regulation, supervision, and
examination by the FDIC and the Georgia Department. The FDIC and the
Georgia Department regularly examine the operations of the Bank, and
are given authority to approve or disapprove mergers, consolidations,
the establishment of branches, and similar corporate actions. The
FDIC and the Georgia Department also have the power to prevent the
continuance or development of unsafe or unsound banking practices or
other violations of law.
PAYMENT OF DIVIDENDS
The Company is a legal entity separate and distinct from its
banking subsidiary. The principal source of cash flow of the Company,
including cash flow to pay dividends to its stockholders, is dividends
from the Bank. There are statutory and regulatory limitations on the
payment of dividends by the Bank to the Company, as well as by the
Company to its stockholders.
If, in the opinion of the federal banking regulators, a
depository institution under its jurisdiction is engaged in or is
about to engage in an unsafe or unsound practice (which, depending on
the financial condition of the depository institution, could include
the payment of dividends), such authority may require, after notice
and hearing, that such institution cease and desist from such
practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an
inadequate level would be an unsafe and unsound banking practice.
Under the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), a depository institution may not pay any dividend if
payment would cause it to become undercapitalized or if it already is
undercapitalized. See "--Prompt Corrective Action." Moreover, the
federal agencies have issued policy statements that provide that bank
holding companies and insured banks should generally only pay
dividends out of current operating earnings.
The payment of dividends by the Company and the Bank may also
be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines.
<PAGE>
CAPITAL ADEQUACY
The Company and the Bank are required to comply with the
capital adequacy standards established by the Federal Reserve in the
case of the Company, and the FDIC in the case of the Bank. There are
two basic measures of capital adequacy for bank holding companies that
have been promulgated by the Federal Reserve: a risk-based measure and
a leverage measure. All applicable capital standards must be
satisfied for a bank holding company to be considered in compliance.
The risk-based capital standards are designed to make
regulatory capital requirements more sensitive to differences in risk
profile among banks and bank holding companies, to account for off-
balance-sheet exposure, and to minimize disincentives for holding
liquid assets. Assets and off-balance-sheet items are assigned to
broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-
weighted assets and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based
Capital Ratio") of total capital ("Total Capital") to risk-weighted
assets (including certain off-balance-sheet items, such as standby
letters of credit) is 8%. At least half of Total Capital must be
comprised of common stock, undivided profits, minority interests in
the equity accounts of consolidated subsidiaries and noncumulative
perpetual preferred stock, less goodwill and certain other intangible
assets (''Tier 1 Capital''). The remainder may consist of subordinated
debt, other preferred stock, and a limited amount of loan loss reserves
("Tier 2 Capital"). At December 31, 1998, the Company's consolidated
Total Risk-Based Capital Ratio and its Tier 1 Risk-Based Capital Ratio
(i.e., the ratio of Tier 1 Capital to risk-weighted assets) were 11.76%
and 10.52%, respectively.
In addition, the Federal Reserve has established minimum
leverage ratio guidelines for bank holding companies. These
guidelines provide for a minimum ratio (the "Leverage Ratio") of Tier
1 Capital to average assets, less goodwill and certain other
intangible assets, of 3% for bank holding companies that meet certain
specified criteria, including those having the highest regulatory
rating. All other bank holding companies generally are required to
maintain a Leverage Ratio of at least 3%, plus an additional one or
two percent. The Company's Leverage Ratio at December 31, 1998 was
7.89%. The guidelines also provide that banks and bank holding
companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the
minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve has indicated that it will
consider a "tangible Tier 1 Capital Leverage Ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating
proposals for expansion or new activities.
The Bank is subject to risk-based and leverage capital
requirements adopted by the FDIC, which are substantially similar to
those adopted by the Federal Reserve for bank holding companies. The
Bank was in compliance with applicable minimum capital requirements as
of December 31, 1998. Neither the Company nor the Bank have been
advised by any federal banking agency of any specific minimum capital
ratio requirement applicable to it.
Failure to meet capital guidelines could subject a bank to a
variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a
<PAGE>
prohibition on the taking of brokered deposits, and certain other
restrictions on its business. As described below, substantial
additional restrictions can be imposed upon FDIC-insured depository
institutions that fail to meet applicable capital requirements. See
"--Prompt Corrective Action."
The federal bank regulators continue to indicate their desire
to raise capital requirements applicable to banking organizations
beyond their current levels. In this regard, the Federal Reserve and
the FDIC have, pursuant to FDICIA, recently adopted final regulations
requiring regulators to consider interest rate risk (when the interest
rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off balance-sheet position) in
the evaluation of a bank's capital adequacy. The bank regulatory
agencies have concurrently proposed a methodology for evaluating
interest rate risk which would require banks with excessive interest
rate risk exposure to hold additional amounts of capital against such
exposures.
SUPPORT OF SUBSIDIARY INSTITUTION
Under Federal Reserve policy, the Company is expected to act
as a source of financial strength for, and to commit resources to
support, the Bank. This support may be required at times when, absent
such Federal Reserve policy, the Company may not be inclined to
provide such support. In addition, any capital loans by a bank
holding company to its banking subsidiary are subordinate in right of
payment to deposits and to certain other indebtedness of such bank.
In the event of a bank holding company's bankruptcy, any commitment by
a bank holding company to a federal bank regulatory agency to maintain
the capital of a banking subsidiary will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of prompt corrective action to
resolve the problems of undercapitalized institutions. Under this
system, which became effective in December 1992, the federal banking
regulators are required to establish five capital categories (well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized) and to take certain
mandatory supervisory actions, and are authorized to take other
discretionary actions, with respect to institutions in the three
undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally,
subject to a narrow exception, FDICIA requires the banking regulator
to appoint a receiver or conservator for an institution that is
critically undercapitalized. The federal banking agencies have
specified by regulation the relevant capital level for each category.
Under the final agency rules implementing the prompt
corrective action provisions, an institution that (i) has a Total
Risk-Based Capital Ratio of 10% or greater, a Tier 1 Risk-Based
Capital Ratio of 6.0% or greater, and a Leverage Ratio of 5.0% or
greater and (ii) is not subject to any written agreement, order,
capital directive, or prompt corrective action directive issued by the
appropriate federal banking agency is deemed to be well capitalized.
An institution with a Total Risk-Based Capital Ratio of 8.0% or
greater, a Tier 1 Risk-Based Capital Ratio of 4.0% or greater, and a
Leverage Ratio of 4.0% or greater is considered to be adequately
capitalized. A depository institution that has a Total Risk-Based
Capital Ratio of less than 8.0%, a Tier 1 Risk-Based Capital Ratio of
less than 4.0%, or a Leverage Ratio of less than 4.0% is considered to
<PAGE>
be undercapitalized. A depository institution that has a Total Risk-
Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital
Ratio of less than 3.0%, or a Leverage Ratio of less than 3.0% is
considered to be significantly undercapitalized, and an institution
that has a tangible equity capital to assets ratio equal to or less
than 2.0% is deemed to be critically undercapitalized. For purposes
of the regulation, the term "tangible equity" includes core capital
elements counted as Tier 1 Capital for purposes of the risk-based
capital standards, plus the amount of outstanding cumulative perpetual
preferred stock (including related surplus), minus intangible assets
with certain exceptions. A depository institution may be deemed to be
in a capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory examination
rating.
An institution that is categorized as undercapitalized,
significantly undercapitalized, or critically undercapitalized is
required to submit an acceptable capital restoration plan to its
appropriate federal banking agency. Under FDICIA, a bank holding
company must guarantee that a subsidiary depository institution will
meet its capital restoration plan, subject to certain limitations.
The obligation of a controlling bank holding company under FDICIA to
fund a capital restoration plan is limited to the lesser of 5% of an
undercapitalized subsidiary's assets or the amount required to meet
regulatory capital requirements. An undercapitalized institution is
generally prohibited from increasing its average total assets, making
acquisitions, establishing any branches, or engaging in any new line
of business, except in accordance with an accepted capital restoration
plan or with the approval of the FDIC. In addition, the appropriate
federal banking regulator is given authority with respect to any
undercapitalized depository institution to take any of the actions it
is required to or may take with respect to a significantly
undercapitalized institution as described below if it determines "that
those actions are necessary to carry out the purpose" of FDICIA.
For those institutions that are significantly undercapitalized
or undercapitalized and either fail to submit an acceptable capital
restoration plan or fail to implement an approved capital restoration
plan, the appropriate federal banking agency must require the institution
to take one or more of the following actions: (i) sell enough shares,
including voting shares, to become adequately capitalized; (ii) merge
with (or be sold to) another institution (or holding company), but only
if grounds exist for appointing a conservator or receiver; (iii) restrict
certain transactions with banking affiliates as if the "sister bank"
exception to the requirements of Section 23A of the Federal Reserve Act
did not exist; (iv) otherwise restrict transactions with Bank or non-Bank
affiliates; (v) restrict interest rates that the institution pays on
deposits to "prevailing rates" in the institution's "region;" (vi)
restrict asset growth or reduce total assets; (vii) alter, reduce, or
terminate activities; (viii) hold a new election of directors; (ix)
dismiss any director or senior executive officer who held office for more
than 180 days immediately before the institution became undercapitalized,
provided that in requiring dismissal of a director or senior executive
officer, the regulator must comply with certain procedural requirements,
including the opportunity for an appeal in which the director or officer
will have the burden of proving his or her value to the institution; (x)
employ "qualified" senior executive officers; (xi) cease accepting
deposits from correspondent depository institutions; (xii) divest certain
nondepository affiliates which pose a danger to the institution; or (xiii)
be divested by a parent holding company. In addition, without the prior
approval of the appropriate federal banking regulator, a significantly
undercapitalized institution may not pay any bonus to any senior executive
officer or increase the rate of compensation for such an officer, without
regulatory approval.
<PAGE>
At December 31, 1998, the Bank had the requisite capital
levels to qualify as "well capitalized."
SAFETY AND SOUNDNESS STANDARDS
The FDIA, as amended by the FDICIA and the Riegle Community
Development and Regulatory Improvement Act of 1994, requires the
federal bank regulatory agencies to prescribe standards, by
regulations or guidelines, relating to internal controls, information
systems and internal audit systems, loan documentation, credit
underwriting, interest rate risk exposure, asset growth, asset
quality, earnings, stock valuation and compensation, fees and
benefits, and such other operational and managerial standards as the
agencies deem appropriate. The federal bank regulatory agencies
adopted, effective August 9, 1995, a set of guidelines prescribing
safety and soundness standards pursuant to FDICIA, as amended. The
guidelines establish general standards relating to internal controls
and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth and
compensation and fees and benefits. In general, the guidelines
require, among other things, appropriate systems and practices to
identify and manage the risks and exposures specified in the
guidelines. The guidelines prohibit excessive compensation as an
unsafe and unsound practice and describe compensation as excessive
when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director, or
principal shareholder. In addition, the agencies adopted regulations
that authorize, but do not require, an agency to order an institution
that has been given notice by an agency that it is not satisfying any
of such safety and soundness standards to submit a compliance plan.
If, after being so notified, an institution fails to submit an
acceptable compliance plan or fails in any material respect to
implement an acceptable compliance plan, the agency must issue an
order directing action to correct the deficiency and may issue an
order directing other actions of the types to which an
undercapitalized institution is subject under the "prompt corrective
action" provisions of FDICIA. See " Prompt Corrective Action." If an
institution fails to comply with such an order, the agency may seek to
enforce such order in judicial proceedings and to impose civil money
penalties. The federal regulatory agencies also proposed guidelines
for asset quality and earnings standards.
ITEM 2. PROPERTIES
The Bank's main office is owned jointly by the Bank and
Director Donald J. Carter. The three story building is located in
downtown Gainesville at the intersection of Jesse Jewell Parkway and
Race Street. The Bank occupies over two-thirds of the building, with
remaining space presently leased to other tenants. The Bank's main
office also has a drive-in automated teller machine.
The Bank has a branch banking facility in Oakwood, Georgia, a
Hall County town seven miles south of Gainesville. This branch also
has an automated teller machine.
The Bank has three branch locations in Gainesville, Georgia,
the first located in a leased shopping center facility at 2412 Old
Cornelia Highway, which is in a small community north of Gainesville,
the second located in a leased shopping center facility at 1210
Thompson Bridge Road, and the third located in a leased shopping
center facility at 475 Dawsonville Highway, all of which have an
automated teller machine.
<PAGE>
The Bank operates automated teller machines in a Gainesville-
based retail shopping center at 975 Dawsonville Road, at 6800 Aqualand
Marina, in Flowery Branch, Georgia and in a hospital atrium at 675
White Sulphur Road in Gainesville, Georgia.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property the
subject of, any material pending legal proceedings, other than
ordinary routine proceedings incidental to the business of the Bank,
nor to the knowledge of the management of the Company are any such
proceedings contemplated or threatened against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
(a) The common stock of the Company and its predecessor entity was
traded on the electronic bulletin board market under the symbol
"GVLG" from September 26, 1996 through January 5, 1999.
Effective January 5, 1999, the Company began listing their stock
on The NASDAQ Stock Market under the symbol "GBTB." Prior to
that date, the common stock was not traded on an established
trading market. The following table sets forth, for the
indicated periods, the high and low closing sale prices for the
Company's common stock, as reported on the electronic bulletin
board market. Historical stock prices have been adjusted to
reflect the two-for-one common stock split in the form of a
dividend declared July 14, 1997 and the five-for-four common
stock split in the form of a dividend declared August 29, 1998.
The sales prices indicated reflect inter-dealer prices, without
mark-up, mark-down or commission, and may not represent actual
transactions.
SALES PRICE
CALENDAR PERIOD LOW HIGH
----------------------------------------------
1997
First Quarter $ 8.70 $ 9.40
Second Quarter 9.00 9.50
Third Quarter 9.65 11.40
Fourth Quarter 11.40 16.00
1998
First Quarter $ 17.59 $ 18.80
Second Quarter 18.80 21.59
Third Quarter 18.80 21.59
Fourth Quarter 21.50 23.00
(b) As of March 11, 1999, there were approximately 569 holders of
record of the Company's common stock.
(c) The Company paid a $.16 and $.18 per share cash dividend on its
common stock for the years ended December 31, 1998 and 1997,
respectively. The Company anticipates paying a quarterly
dividend in the future. Any declaration and payment of dividends
will be based on the Company's earnings, economic conditions, and
the Board of Directors' evaluation of other relevant factors.
The Company's ability to pay dividends will also be dependent on
cash dividends paid to it by the Bank. The ability of the Bank
to pay dividends to the Company is restricted by applicable
regulatory requirements. See "Supervision and Regulation -
Payment of Dividends."
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The purpose of this discussion is to focus on information
about the Company's financial condition and results of operations
which is not otherwise apparent from the financial statements included
in this Annual Report. Reference should be made to those statements
and the selected financial data presented elsewhere in this report for
an understanding of the following discussion and analysis. Historical
results of operations and any trends which may appear, are not
necessarily indicative of the results to be expected in future years.
FORWARD-LOOKING STATEMENTS
This annual report contains certain forward-looking
statements which are based on certain assumptions and describe future
plans, strategies, and our expectations. These forward-looking
statements are generally identified by use of the words "believe,"
"expect," "intend," "anticipate," "estimate," "project," or similar
expressions. Our ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which
could have a material adverse effect on our operations include, but
are not limited to, changes in interest rates, general economic
conditions, legislation and regulation, monetary and fiscal policies
of the U.S. Government, including policies of the U.S. Treasury and
the Federal Reserve Board, the quality or composition of our loan or
investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in our market area and
accounting principles and guidelines. You should consider these risks
and uncertainties in evaluating forward-looking statements and should
not place undue reliance on such statements. We will not publicly
release the result of any revisions which may be made to any forward-
looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or
unanticipated events.
SUMMARY
During 1998 and 1997, the Company continued to experience
significant growth in interest-earning and total assets which was
funded by increases in deposits and the retention of net profits. The
Company had net income of approximately $1,673,000 and $1,703,000 for
the years ended December 31, 1998 and 1997, respectively, increasing
total equity to approximately $15,306,000 at December 31, 1998.
BALANCE SHEETS
Total assets of the Company increased approximately $23
million or 13.4% for the year ended December 31, 1998 compared to $41
million or 31.1% during 1997. The increase in total assets consists
primarily of an increase in interest-earning assets of $22.4 million
or 14.3% compared to an increase of $37.0 million or 30.8% during
1997.
<PAGE>
The Company's primary focus is to maximize earnings through
lending activities. Any excess funds are invested according to the
Company's investment policy. Total loans increased 14.0% or $17.0
million during the year ended December 31, 1998. This compares to an
increase of 30.2% or $28.0 million during 1997. The 1998 increase in
loans included a 15.5% increase in real estate loans, or $14.3
million, an increase in commercial loans of $1.0 million, and an
increase in consumer loans of $1.7 million. Securities and federal
funds sold increased $5.5 million during 1998 compared to an overall
increase during 1997 of $8.9 million. The continued growth in loans
and assets was consistent with management's expectations for 1998. As
of December 31, 1998 and 1997, the Company's loan-to-deposit ratio was
78%. The economy in Gainesville, and Georgia as a whole, continues to
be strong.
During 1998, total deposits grew by $20.8 million, or 13.4%.
This increase consists of an increase in time deposits of $4.0 million
or 4.2%, an increase in savings and interest-bearing deposits of $9.4
million or 21.8%, and an increase of $7.5 million or 41.8% in non-
interest bearing accounts. During 1997, the majority of the increase
was in higher yielding time deposits which increased $24.8 million.
The significant increase in time deposits in 1997 was due to more
competitive rates offered by the Company in 1997 and the movement of
deposits from regional banks in the Gainesville area. In 1996 and
1997, acquisitions of local community banks by regional banks
contributed to the significant growth in both deposits and loans. The
1998 growth in non-interest bearing demand, interest-bearing demand,
and savings accounts is related to the decreasing interest rates
offered on longer term deposit accounts.
The specific economic and credit risks associated with the
Company's loan portfolio, especially the real estate portfolio,
include, but are not limited to, a general downturn in the economy
which could affect unemployment rates in the Company's market area,
general real estate market deterioration, interest rate fluctuations,
deteriorated collateral, title defects, inaccurate appraisals, and
financial deterioration of borrowers. Construction and development
lending can also present other specific risks to the lender such as
whether developers can find builders to buy lots for home construction,
whether the builders can obtain financing for the construction,
whether the builders can sell the home to a buyer, and whether the
buyer can obtain permanent financing. Currently, real estate values
and employment trends in the Company's market area are stable with no
indications of a significant downturn in the general economy.
Additionally, the Company has risks associated with its loan portfolio
as it relates to the Year 2000 issue. (See Year 2000 Disclosures.)
The Company attempts to reduce these economic and credit risks not
only by adherence to loan to value guidelines, but also by
investigating the creditworthiness of the borrower and monitoring the
borrower's financial position. Also, the Company establishes and
periodically reviews its lending policies and procedures. State
banking regulations limit exposure by prohibiting secured loan
relationships that exceed 25% of the Bank's statutory capital and
unsecured loan relationships that exceed 15% of the Bank's statutory
capital.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management involves the matching of cash flow
requirements of customers who may be either depositors desiring to
withdraw funds or borrowers needing assurance that sufficient funds
will be available to meet their credit needs and the ability of the
Company to meet those needs. The Company seeks to meet liquidity
requirements primarily through management of short-term investments
(principally Federal funds sold), monthly amortizing loans, maturing
single payment loans, and maturities of prepayments and securities.
Also, the Company maintains relationships with correspondent banks
which could provide funds on short notice.
The liquidity and capital resources of the Company are
monitored on a periodic basis by management and state and Federal
regulatory authorities. At December 31, 1998, the Company's liquidity
ratio was 26.54% which was within the Company's target ratio of 25 to
30%. Management reviews liquidity on a periodic basis to monitor and
adjust liquidity as necessary. Management has the ability to adjust
liquidity by selling securities available-for-sale, selling
participations in loans generated by the Company and accessing
available funds through various borrowing arrangements. The
Company's short-term investments are adequate to cover any reasonably
anticipated immediate need for funds.
At December 31, 1998, the Company's capital to asset ratios
were considered adequate based on guidelines established by the
regulatory authorities. During 1998, the Company increased its
capital by retaining net earnings of approximately $1.3 million. The
unrealized gains on securities available-for-sale increased by $92,000
as a result of a continued improvement in the bond market combined
with investment strategies employed by the Company. At December 31,
1998, total capital of the Company amounted to approximately
$15,306,000 and is considered well-capitalized based on regulatory
requirements. At December 31, 1998, the Company did not have any
significant amounts of commitments of capital for future expansion.
Except for uncertainties related to the Year 2000 issue (see
Year 2000 Disclosures), management is not aware of any other known
trends, events or uncertainties that will have or that are reasonably
likely to have a material effect on its liquidity, capital resources,
or operations. Management is also not aware of any current
recommendations by the regulatory authorities which, if they were
implemented, would have such an effect.
EFFECTS OF INFLATION
The impact of inflation on banks differs from its impact on
non-financial institutions. Banks, as financial intermediaries, have
assets which are primarily monetary in nature and which tend to
fluctuate in concert with inflation. A bank can reduce the impact of
inflation if it can manage its rate sensitivity gap. This gap
represents the difference between rate sensitive assets and rate
sensitive liabilities. The Company, through its asset-liability
committee, attempts to structure the assets and liabilities and manage
the rate sensitivity gap, thereby seeking to minimize the potential
effects of inflation. For information on the management of the
Company's interest rate sensitive assets and liabilities, see the
"Asset/Liability Management" section.
<PAGE>
RESULTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1998
The Company's profitability is determined by its ability to
effectively manage interest income and expense, to minimize loan and
security losses, to generate noninterest income, and to control
operating expenses. Since interest rates are determined by market
forces and economic conditions beyond the control of the Company, the
Company's ability to generate net interest income is dependent upon
its ability to obtain an adequate net interest spread between the rate
paid on interest-bearing liabilities and the rate earned on interest-
earning assets. The net yield on average interest-earning assets, or
net interest margin, decreased from 4.91% in 1997 to 4.65% in 1998.
This 26 basis point decrease is attributable primarily to the decrease
in the interest earned on average interest-earning assets. Interest-
earning assets and interest-bearing liabilities grew $27.7 million and
$24.4 million, respectively, for the year ended December 31, 1998. In
1998, the average yield on interest-earning assets decreased from
9.61% in 1997 to 9.26% while the average yield on interest-bearing
liabilities decreased from 5.44% in 1997 to 5.32% in 1998. Although
interest-earning assets increased in 1998 more than $3.3 million than
interest-bearing liabilities, the yield on interest-earning assets
decreased by 35 basis points compared to only a decrease of 12 basis
points in interest-bearing liabilities. The spread between yields on
assets and rates paid on liabilities decreased by 23 basis points.
Net interest income increased by $928,000 to $7,735,000 in
1998. This is compared to an increase of $1,078,000 in 1997. The
increase in both years is directly related to the increase in
interest-earning assets. As shown in Table 1 and Table 2 which
follow, the change in net interest income for 1998 is primarily the
result of the increases in volume, net of a 35 basis point decrease in
the yield on interest-earning assets.
Provisions for loan losses increased by $30,000 during 1998
compared to an increase of $198,000 during 1997. The provision for
loan losses is the charge to operations which management feels is
necessary to fund the allowance for loan losses. This provision is
based on the growth of the loan portfolio, the amount of net charge-
offs incurred and the general economy as well as the local economy.
The allowance for loan loss was $1,773,000 or 1.28% of total loans at
December 31, 1998 compared to $1,433,000 or 1.18% of total loans at
December 31, 1997. The Company incurred net charge-offs of $38,000
and $61,000 for the years ended December 31, 1998 and 1997,
respectively. The percentage of net charge-offs to average loans
outstanding, .03% and .06%, respectively, is considered by management
as an acceptable level for both 1998 and 1997. Due to the
insignificant level of net charge-offs for the year ended December 31,
1998, the increased provision for loan losses in 1998 is primarily
attributable to the increased volume in loans combined with increases
in nonaccrual and past due loans of $90,000 and $227,000,
respectively. The Company's coverage ratio, the allowance for loan
loss as a percentage of nonaccrual loans, decreased during 1998 which
was the result of the increase in nonaccrual loans. Nonaccrual loans
were $93,000 at December 31, 1998 compared to $3,000 at December 31,
1997. The increase in non-accrual and past due loans is not
concentrated in any one type or group of borrowers. In most
instances, the collateral securing these loans will prevent any
significant losses. Based on management's evaluations, the allowance
for loan losses is adequate to absorb possible losses on existing
loans that may become uncollectible.
<PAGE>
Other income increased during 1998 by $547,000 or 57.6%
compared to an increase of $135,000 or 16.6% during 1997. The major
component of other income is service charges on deposit accounts which
increased only $15,000 during 1998 compared to an increase of $50,000
during 1997. Changes in service charge income are primarily due to
changes in the volume of deposit transaction accounts and changes in
the fee structure for these accounts. During 1998 and 1997, there was
both an increase in the volume of deposit transaction accounts due to
the opening of the new branches as well as an increase in NSF fees
charged by the Company. The two major components of other income in
1998 were increases of $168,000 and $247,000 in mortgage origination
fees and gain on sale of loans, respectively. The increase in
mortgage origination fees is due to the Company's development and
growth of the mortgage department coupled with the declining mortgage
rates in 1998. The gain on sale of loans is primarily the gains
recognized from the sale of small business loans during 1998. Other
operating income increased $132,000 during 1998 compared to $24,000
during 1997. The two largest increases were an increase of $42,000 in
trust fees and an increase in cash surrender value of life insurance
of $37,000. Trust services were first offered in 1997.
Other expenses of the Company increased $1.6 million or 33.4%
during 1998 compared to an increase of $1.1 million or 31.0% during
1997. The majority of the increase is due to an increase in salaries
and employee benefits of $741,000 or 27.2%. Base salaries increased
$592,000, related payroll taxes increased $41,000, and group insurance
increased $45,000 for the year ended December 31, 1998. As discussed
earlier, a new branch was opened during 1997, the trust department was
staffed in 1997, and mortgage department personnel have increased with
the level of business in 1998. Other changes include an increase in
equipment and occupancy expenses of $182,000 which is due to the
opening of two branches in the past two years.
Income tax expense decreased $133,000 from $886,000 in 1997
to $753,000 in 1998. The effective tax rate decreased to 31% in 1998
from 34% in 1997. The decrease in income taxes is due to a decrease
in operating income and an increase in non-taxable income.
Net income decreased slightly in 1998 by $30,000 as compared
to a decrease of $35,000 for the year ended December 31, 1997. The
return on average assets was .93% in 1998 compared to 1.14% in 1997.
The decrease in net income can be attributed to the opening of new
branches in 1997, shrinking interest margins, and costs related to the
formation of the holding company. Management does not believe this
trend will continue in 1999.
SELECTED FINANCIAL INFORMATION AND STATISTICAL DATA
The tables and schedules on the following pages set forth
certain financial information and statistical data with respect to:
the distribution of assets, liabilities and stockholders' equity;
interest rates and interest differentials; interest rate sensitivity
gap ratios; the investment portfolio; the loan portfolio; including
types of loans, maturities and sensitivities to changes in interest
rates and information on nonperforming loans; summary of the loan loss
experience and allowance for loan losses; types of deposits; and the
return on equity and assets.
<PAGE>
The following table sets forth the amount of the Company's
interest income or interest expense for each category of interest-
earning assets and interest-bearing liabilities and the average
interest yield/rate for total interest-earning assets and total
interest-bearing liabilities, net interest spread and net yield on
average interest-earning assets.
TABLE 1 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY INTEREST RATES AND INTEREST DIFFERENTIALS
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------
Average Income/ Yields/ Average Income/ Yields/
Balances <F1> Expense Rates Balances <F1> Expense Rates
-------- ------------------------------------- -------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Taxable securities 27,192 1,707 6.28 23,268 1,504 6.46
Nontaxable securities <F5> 2,902 130 4.48 1,218 58 4.76
Unrealized gains (losses)
on securities 159 - - (86) - -
Federal funds sold 10,601 569 5.37 6,048 327 5.41
Loans <F2> <F4> 125,769 13,006 10.34 108,203 11,449 10.58
Allowance for loan losses (1,644) - (1,271) -
Cash and due from banks 5,653 - 4,782 -
Other assets 9,216 - 7,420 -
----------------------------------------------------------------
Total 179,848 15,412 149,582 13,338
================================================================
Total interest-earning assets 166,464 9.26% 138,737 9.61%
=================================== ==============================
Noninterest-bearing demand 18,913 - - 14,615 - -
Interest-bearing demand & savings 46,513 1,643 3.53 34,845 1,243 3.57
Time 95,388 5,916 6.20 83,669 5,221 6.24
------------------------------- --------------------------
Total deposits 160,814 7,559 4.70 133,129 6,464 4.86
Borrowings 2,437 118 4.84 1,470 67 4.56
Other liabilities 2,111 - 1,873 -
Stockholders' equity <F3> 14,486 - 13,110 -
----------------------------------------------------------------------
Total 179,848 7,677 149,582 6,531
======================================================================
Total interest-bearing liabilities 144,338 5.32% 119,982 5.44%
=================================== ===============================
Net interest income - 7,735 - 6,807
================ =============
Net interest spread 3.94% 4.17%
==== ====
Net yield on average interest-earning assets 4.65% 4.91%
==== ====
</TABLE>
___________
[FN]
<F1> Average balances were determined using daily average balances.
<F2> Average balances of loans include nonaccrual loans and are net of
deferred interest and fees.
<F3> Average unrealized gains (losses) on securities available-for-sale, net
of tax, have been included in stockholders' equity at $94,000 and
$(54,000) for 1998 and 1997, respectively.
<F4> Interest and fees on loans include $1,146,000 and $976,000 of loan fee
income for the years ended December 31, 1998 and 1997, respectively.
<F5> Yields on nontaxable securities are not presented on a tax-equivalent
basis.
</FN>
<PAGE>
TABLE 2 - RATE AND VOLUME ANALYSIS
The following table describes the extent to which changes in
interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities have affected the Company's interest income and
expense during the year indicated. For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes
attributable to (1) change in volume (change in volume multiplied by old
rate); (2) change in rate (change in rate multiplied by old volume); and (3)
a combination of change in rate and change in volume. The changes in
interest income and interest expense attributable to both volume and rate
have been allocated proportionately to the change due to volume and the
change due to rate.
Year Ended December 31,
---------------------------
1998 to 1997
---------------------------
Increase (decrease)
due to change in
Rate Volume Total
-------- --------- --------
(Dollars in Thousands)
---------------------------
Income from interest-earning assets:
Interest and fees on loans $ (265) $ 1,822 $ 1,557
Interest on taxable securities (43) 246 203
Interest on nontaxable securities (3) 75 72
Interest on Federal funds sold (2) 244 242
----- ------ ------
Total interest income (313) 2,387 2,074
----- ------ ------
Expense from interest-bearing
liabilities:
Interest on interest-bearing demand
deposits and savings deposits (16) 416 400
Interest on time deposits (33) 728 695
Interest on other borrowings 4 47 51
----- ------ ------
Total interest expense (45) 1,191 1,146
----- ------ ------
Net interest income $ (268) $ 1,196 $ 928
===== ====== =====
ASSET/LIABILITY MANAGEMENT
The Company's objective is to manage assets and liabilities to
provide a satisfactory, consistent level of profitability within the
framework of established cash, loan, investment, borrowing and capital
policies. Certain officers are charged with the responsibility for
monitoring policies and procedures that are designed to ensure acceptable
composition of the asset/liability mix. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits
of all categories deposited by individuals, partnerships and corporations in
the Company's primary market area.
<PAGE>
The Company's asset/liability mix is monitored on a regular basis
and a report evaluating the interest rate sensitive assets and interest rate
sensitive liabilities is prepared and presented to the Board of Directors on
a quarterly basis. The objective of this policy is to monitor interest rate
sensitive assets and liabilities so as to minimize the impact of substantial
movements in interest rates on earnings. An asset or liability is
considered to be interest rate-sensitive if it will reprice or mature within
the time period analyzed, usually one year or less. The interest rate-
sensitivity gap is the difference between the interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice within such time
period. A gap is considered positive when the amount of interest rate-
sensitive assets exceeds the amount of interest rate-sensitive liabilities.
A gap is considered negative when the amount of interest rate-sensitive
liabilities exceeds the interest rate-sensitive assets. During a period of
rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in
net interest income. Conversely, during a period of falling interest rates,
a negative gap would tend to result in an increase in net interest income,
while a positive gap would tend to adversely affect net interest income. If
the Bank's assets and liabilities were equally flexible and moved
concurrently, the impact of any increase or decrease in interest rates on
net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an
accurate indicator of how net interest income will be affected by changes in
interest rates. Accordingly, the Company also evaluates how the repayment
of particular assets and liabilities is impacted by changes in interest
rates. Income associated with interest-earning assets and costs associated
with interest-bearing liabilities may not be affected uniformly by changes
in interest rates. In addition, the magnitude and duration of changes in
interest rates may have a significant impact on net interest income. For
example, although certain assets and liabilities may have similar maturities
or periods of repricing, they may react in different degrees to changes in
market interest rates. Interest rates on certain types of assets and
liabilities fluctuate in advance of changes in general market rates, while
interest rates on other types may lag behind changes in general market
rates. In addition, certain assets, such as adjustable rate mortgage loans,
have features (generally referred to as "interest rate caps and floors")
which limit the amount of changes in interest rates. Prepayment and early
withdrawal levels also could deviate significantly from those assumed in
calculating the interest rate gap. The ability of many borrowers to service
their debts also may decrease during periods of rising interest rates.
Changes in interest rates also affect the Company's liquidity
position. The Company currently prices deposits in response to market rates
and it is management's intention to continue this policy. If deposits are
not priced in response to market rates, a loss of deposits could occur which
would negatively affect the Company's liquidity position.
At December 31, 1998 the Company's cumulative one year interest rate
sensitivity gap ratio was 87%. The Company's targeted ratio is 80% to 120%
in this time horizon. This indicates that the Company's interest-earning
assets will reprice during this period at a rate slower than the Company's
interest-bearing liabilities.
<PAGE>
The following table sets forth the distribution of the repricing of
the Company's interest-earning assets and interest-bearing liabilities as of
December 31, 1998, the interest rate sensitivity gap (i.e., interest rate
sensitive assets less interest rate sensitive liabilities), the cumulative
interest rate sensitivity gap, the interest rate sensitivity gap ratio
(i.e., interest rate sensitive assets divided by interest rate sensitive
liabilities) and the cumulative interest rate sensitivity gap ratio.
The table also sets forth the time periods in which interest-earning
assets and interest-bearing liabilities will mature or may reprice in
accordance with their contractual terms. However, the table does not
necessarily indicate the impact of general interest rate movements on the
net interest margin since the repricing of various categories of assets and
liabilities is subject to competitive pressures and the needs of the
Company's customers. In addition, various assets and liabilities indicated
as repricing within the same period may in fact reprice at different times
within such period and at different rates.
<TABLE>
<CAPTION>
After
Three After
Months One Year
Within But But
Three Within Within After
Months One Year Five Years Five Years Total
---------- ---------- ------------- ------------ --------
(Dollars in Thousands)
---------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 254 $ $ $ $ 254
Federal funds sold 9,693 9,693
Securities 1,524 3,538 22,547 3,635 31,244
Loans 60,503 36,064 41,656 - 138,223
-------- ------- ------- ------- --------
Total interest earning assets 71,974 39,602 64,203 3,635 179,414
-------- ------- ------- ------- --------
Interest-bearing liabilities:
Interest-bearing demand 48,740 48,740
Savings 3,815 3,815
Time deposits 34,737 39,268 24,514 98,519
Other borrowings 2,212 52 154 2,418
-------- ------- ------- ------- --------
Total interest-bearing liabilities 89,504 39,320 24,668 - 153,492
-------- ------- ------- ------- --------
Interest rate sensitivity gap $ (17,530) $ 282 $ 39,535 $ 3,635 $ 25,922
======== ======= ======= ======= ========
Cumulative interest rate sensitivity gap $ (17,530) $ (17,248) $ 22,287 $ 25,922
======== ======= ======= =======
Interest rate sensitivity gap ratio 0.80 1.01 2.60 -
======== ======= ======= =======
Cumulative interest rate sensitivity gap ratio 0.08 0.87 1.15 1.17
======== ======= ======= =======
</TABLE>
<PAGE>
The Company actively manages the mix of asset and liability
maturities to control the effects of changes in the general level of
interest rates on net interest income. Except for its effect on the general
level of interest rates, inflation does not have a material impact on the
Company due to the rate variability and short-term maturities of its earning
assets. In particular, approximately 58% of the loan portfolio is comprised
of loans which have variable rate terms or mature within one year. Most
mortgage loans are made on a variable rate basis with rates being adjusted
every one to five years.
SECURITIES PORTFOLIO
The carrying value of securities at the dates indicated are as
follows:
December 31,
-----------------------
1998 1997
--------- ---------
(Dollars in Thousands)
-----------------------
U. S. Treasury and U. S. government agencies $ 23,691 $ 16,960
and corporations
Mortgage-backed securities 3,426 5,376
State and municipal securities 3,608 2,173
Equity securities <F1> 519 396
-------- --------
$ 31,244 $ 24,905
======== ========
[FN]
<F1> Equity securities consist of Federal Home Loan Bank stock. For
presentation purposes, the Federal Home Loan Bank stock is not included
in the maturity table below because it has no contractual maturity date.
</FN>
MATURITIES
The amounts of securities as of December 31, 1998 are shown in the
following table according to contractual maturities classified as; (1) one
year or less; (2) after one year through five years; (3) after five years
through ten years; and (4) after ten years.
U. S. Treasury
and U. S.
Government Agencies State and
and Corporations Municipal Securities
Yield Yield
Amount <F1> Amount <F1><F2>
-------- ------- ---------- --------------
(Dollars in Thousands)
-----------------------------------------------
MATURITY:
One year or less $ 1,361 6.12 % $ - - %
After one year through five 22,331 6.06 1,839 4.19
After five years through ten 2,400 6.16 1,769 4.93
After ten years 1,025 5.90 - -
------- ------
$ 27,117 6.07 % $ 3,608 4.55 %
======= ======
[FN]
<F1> Yields were computed using coupon interest rates, including discount
accretion and premium amortization. The weighted average yield for
each maturity range was computed using the carrying value of each
security in that range.
<F2> Yields on municipal securities are not stated on a tax-equivalent
basis.
</FN>
<PAGE>
LOAN PORTFOLIO
TYPES OF LOANS
Loans by type of collateral are presented below:
December 31,
----------------------
1998 1997
-----------------------
(Dollars in Thousands)
Commercial $ 16,880 $ 15,884
Real estate - construction 27,200 25,447
Real estate - mortgage <F1> 79,478 66,895
Consumer 12,935 10,934
Other 1,730 2,050
-------- --------
138,223 121,210
Less allowance for loan losses (1,773) (1,433)
-------- --------
Net loans $ 136,450 $ 119,777
-------- --------
<F1> Real estate-mortgage loans are net of $22,000 and $25,000, of deferred
loan fees for the years ended December 31, 1998 and 1997, respectively.
MATURITIES AND SENSITIVITIES TO CHANGES IN INTEREST RATES
Total loans as of December 31, 1998 are shown in the following table
according to repricing opportunities (1) one year or less, (2) after one
year through five years, and (3) after five years.
(Dollars in
Thousands)
-------------
Maturity:
One year or less $ 80,052
After one year through five years 50,975
After five years 7,196
---------
$ 138,223
=========
The following table summarizes loans at December 31, 1998 with the
due dates after one year for predetermined and floating or adjustable
interest rates.
(Dollars in
Thousands)
-------------
Predetermined interest rates $ 16,900
Floating or adjustable interest rates 41,271
---------
$ 58,171
=========
Records were not available to present the above two tables by
category and could not be reconstructed without undue burden or cost to the
Company.
<PAGE>
RISK ELEMENTS
The following table presents the aggregate of nonperforming loans
for the categories indicated.
December 31,
----------------------
1998 1997
---------- ----------
(Dollars in Thousands)
----------------------
Loans accounted for on a nonaccrual basis $ 93 $ 3
Installment loans and term loans contractually
Loans, the term of which have been
Loans now current about which there are
408 181
The reduction in interest income associated with nonaccrual loans as
of December 31, 1998 is as follows:
(ACTUAL DOLLARS)
Interest income that would have been recorded
on nonaccrual loans under original terms $ 20,615
========
Interest income that was recorded on $ 9,873
========
As of December 31, 1998 and 1997, management included nonaccrual
loans as impaired loans as determined by Financial Accounting Standards
Board Statement Numbers 114 and 118.
The Company's policy is to discontinue the accrual of interest
income when, in the opinion of management, collection of such interest
becomes doubtful. This status is determined when; (1) there is a
significant deterioration in the financial condition of the borrower and
full repayment of principal and interest is not expected; and (2) the
principal or interest is more than ninety days past due, unless the loan is
both well-secured and in the process of collection. Accrual of interest on
such loans is resumed when, in management's judgment, the collection of
interest and principal becomes probable. Loans classified for regulatory
purposes as loss, doubtful, substandard, or special mention that have not
<PAGE>
been included in the table above do not represent or result from trends or
uncertainties which management reasonably expects will materially impact
future operating results, liquidity, or capital resources. These classified
loans do not represent material credits about which management is aware and
which causes management to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms. In the event of non-
performance by the borrower, these loans have collateral pledged which would
prevent the recognition of substantial losses.
COMMITMENTS AND LINES OF CREDIT
The Company will, in the normal course of business, commit to extend
credit in the form of letters of credit or lines of credit. The amount of
outstanding loan commitments and letters of credit at December 31, 1998 and
1997 was $38,195,000 and $25,754,000, respectively. These commitments are
recorded in the financial statements when funds are disbursed or the
financial instruments become payable. The Company uses the same credit and
collateral policies for these off balance sheet commitments as it does for
financial instruments that are recorded in the financial statements.
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.
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes average loan balances for each year
determined using the daily average balances during the year; changes in the
allowance for loan losses arising from loans charged off and recoveries on
loans previously charged off; additions to the allowance which have been
charged to expense; and the ratio of net charge-offs during the year to
average loans.
<TABLE>
<CAPTION>
December 31,
---------------------------------
1998 1997
------------- ------------
(Dollars in Thousands)
---------------------------------
<S> <C> <C>
Average amount of loans outstanding $ 125,769 $ 108,203
======== =========
Balance of allowance for loan losses at beginning
of year $ 1,433 $ 1,146
-------- ---------
Loans charged off:
Real estate (39) -
Commercial (6) (37)
Installment (19) (48)
Credit cards (6) (3)
-------- ---------
(70) (88)
-------- ---------
Recoveries of loans previously charged off:
Real estate 8 -
Installment 13 26
Commercial 11 1
32 27
-------- ---------
Net loans charged off during the year (38) (61)
-------- ---------
Additions to allowance charged to expense during year 378 348
-------- ---------
Balance of allowance for loan losses at end of year $ 1,773 $ 1,433
======== =========
Ratio on net loans charged off during the year to average
loans outstanding 0.03% 0.06%
======== =========
</TABLE>
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is created by direct charges to
income. Losses on loans are charged against the allowance in the year
in which such loans, in management's opinion, become uncollectible.
Recoveries during the year are credited to this allowance. The
factors that influence management's judgment in determining the amount
charged to income are past loan loss experience, composition of the
loan portfolio, evaluation of trends and possible losses, current
economic conditions and other relevant factors. The Company's
allowance for loan losses was approximately $1,773,000 at December 31,
1998, representing 1.28% of total loans, compared with $1,433,000 at
December 31, 1997, which represented 1.18% of total loans. The
allowance for loan losses is evaluated and adjusted periodically based
on management's evaluation of current risk characteristics of the loan
portfolio, as well as the impact of prevailing and expected economic
business conditions. Management considers the allowance for loan
losses adequate to cover possible losses at December 31, 1998.
DEPOSITS
Average amounts of deposits and average rates paid thereon,
classified as to noninterest-bearing demand deposits, interest-bearing
demand and savings deposits and time deposits, are presented below. <F1>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997
------------------- -------------------
Amount Rate Amount Rate
---------- -------- ---------- --------
(Dollars in Thousands)
----------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 18,913 - % $ 14,615 - %
Interest-bearing demand and savings deposits 46,513 3.53 34,845 3.57
Time deposits 95,388 6.20 83,669 6.24
------- -------
Total deposits $ 160,81 $ 133,12
</TABLE>
[FN]
<F1> Average balances were determined using the daily average balances.
</FN>
The amounts of time certificates of deposit issued in amounts
of $100,000 or more as of December 31, 1998 are shown below by
category, which is based on time remaining until maturity or repricing
of (1) three months or less, (2) over three through twelve months, and
(3) over twelve months.
(Dollars in
Thousands)
------------
Three months or less $ 4,055
Over three through twelve months 11,198
Over twelve months 5,101
--------
Total $ 20,354
========
<PAGE>
RETURN ON EQUITY AND ASSETS
The following rate of return information for the periods
indicated is presented below.
Year Ended December
-----------------------
1998 1997
---------- -----------
Return on assets <F1> 0.93 % 1.14 %
Return on equity <F2> 11.55 12.99
Dividend payout ratio <F3> 21.33 22.22
Equity to assets ratio (4) 8.05 8.76
[FN]
<F1> Net income divided by average total assets.
<F2> Net income divided by average equity.
<F3> Dividends declared per share divided by diluted earnings per share.
<F4> Average equity divided by average total assets.
</FN>
CAPABILITY OF THE COMPANY'S PROCESSING SOFTWARE TO ACCOMMODATE THE
YEAR 2000
The Situation: As the end of this century draws near, there is
- -------------
worldwide concern that the year 2000 technology problems may wreak
havoc on global economies. No country, government, business or person
is immune from the potential effects of year 2000 problems. The year
2000 problem arose because many existing computer systems and software
programs use a two-digit year field. Because of this, some computers
will not properly recognize the turn of the century. A computer with
a two-digit year field may recognize the year 2000 as 1900. If not
corrected, many computer applications could fail or miscalculate data
creating erroneous results.
For a bank, year 2000 problems could be devastating if loan or deposit
interest accruals are not calculated properly. A year 2000 caused
system crash could result in a disruption of business, which in turn
could cause the bank to lose a significant portion of its customer
base. Either of these situations could result in material adverse
consequences for the bank.
To address the year 2000 problem, the Company formed a "Year 2000
Committee" made up of key employees and directors. This Committee has
been charged with the responsibility of assessing the problem and
overseeing corrective action, as well as testing the year 2000
readiness of all equipment, software and applications after upgrades
have been made.
Readiness: Critical systems, hardware and software have received
- ---------
priority attention. As of February 28, 1999, all critical systems
have been upgraded or replaced. The related software has been
upgraded to meet year 2000 standards and has been tested to ensure
proper functioning in a year 2000 environment. These critical systems
include the Bank's core bank processing hardware and software
and its automated new accounts and loan document preparation software
as well as its document retrieval system. The Bank has upgraded its
<PAGE>
personal computers with year 2000 compliant hardware and software to
bring this area up to year 2000 standards. Several other software
systems have been upgraded to be year 2000 compliant. The Company
believes that there are no remaining key information technology
systems to be upgraded. The Company has also evaluated its non-
information technology systems, which include microcontrollers and
other embedded computers, and notes no significant issues to date.
Since the Bank is heavily reliant on outside vendors for many services
such as electricity, phone service, water, gas, ATM processing, bond
accounting and bank related forms, the Bank has developed a year 2000
questionnaire to help it determine a vendors' state of year 2000
readiness. All critical vendors contacted by the Bank have responded.
Responses to date have indicated adequate readiness. No significant
weaknesses in a critical vendor have been discovered. Major borrowers
of the Bank also have been required to complete a questionnaire to
assess year 2000 readiness. Approximately 75% of such borrowers have
responded, and the Bank notes no significant issues to date.
Cost: After the Bank's assessment phase to determine the extent of
- ----
its year 2000 problem, the Board of Directors approved a budget in the
amount of $274,000 to address the year 2000 issue and to purchase new
equipment upgrades which included new item processing equipment. In
order to ensure that adequate funds are provided to resolve year 2000
issues, including those that may not be presently known, the Company's
year 2000 budget is subject to continuous review and amendment.
Management does not expect the cost of remediation to vary
significantly from the present budget, although there can be no
assurances in this regard.
As of February 28, 1999, the Company has incurred $270,000 in year
2000 expenditures. The capitalized expenditures included $243,000 for
hardware (the majority consisting of item processing equipment and new
personal computers) and $17,000 for software. Expensed items included
$8,000 to service providers for assessment and testing and
approximately $2,000 on customer awareness and education. No other
significant expenditures are expected.
The Company does not anticipate that the related overall costs will be
material to the financial condition of the Company for any single year
or quarter. The Company has not used any independent verification and
validation processes to assure the reliability of year 2000 cost
estimates.
Risks of the Bank's Year 2000 Issues: The Company believes that all
- ------------------------------------
significant remediations with respect to the Company's information
technology and non-information technology systems are complete.
However, no assurance can be given that the Company will not be
exposed to potential losses resulting from system problems associated
with the change in date. There can also be no assurance that the
Company's systems that have been designed to be year 2000 compliant
contain all of the necessary date code changes and that systems have
been correctly modified, or will be correctly modified in
contemplation of the year 2000.
In addition to year 2000 compliance in the Bank's internal
systems, the impact of year 2000 non-compliance by outside parties
with whom the Bank may transact business cannot be accurately gauged.
The year 2000 issue may have a material impact on the financial
condition of the Bank if borrowers of the Bank become insolvent and
are, therefore, unable to repay loans as they become due as a result
of the borrowers' year 2000 non-compliance.
<PAGE>
The Company is not aware of any critical third party
relationships whose year 2000 non-compliance could result in a
material adverse effect on the Company's results of operations,
liquidity and financial condition due to the date change.
The Bank's Contingency Plans: The Company believes that at worst,
- ----------------------------
the Company's computer software and hardware would not contain the
necessary date code change and, therefore, would cease operating or
malfunction when the date change occurs. In that case, the Company's
contingency plan contemplates conversion to a manual entry system.
Management of the Company believes that the Company would be able to
continue to operate in that manner without significant loss. However,
the Company believes that its computer software and hardware systems
are substantially year 2000 compliant.
If the "worst case scenario" includes extended loss of power
and telecommunications or did not provide for continued external
transaction processing and limited hours of operation, revenue will be
impacted by reduction in generation of service charges and other
product and service fees as well as reduced investment revenue due to
the inability to properly manage liquidity, although the Company
cannot quantify any such potential losses.
Long Term Projects: Year 2000 projects have not caused the Company to
- ------------------
defer other long term projects.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Income - Years Ended December
31, 1998 and 1997
Consolidated Statements of Comprehensive Income - Years
Ended December 31, 1998 and 1997
Consolidated Statements of Stockholders' Equity - Years
Ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows - Years Ended
December 31, 1998 and 1997
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The information set forth under the caption "Election of
Directors" and "Executive Officers" in the Proxy Statement used in
connection with the Company's 1999 Annual Shareholders Meeting is
incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive
Compensation" in the Proxy Statement used in connection with the
Company's 1999 Annual Shareholders Meeting is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement used in connection with the Company's 1999 Annual
Shareholders Meeting is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain
Transactions" in the Proxy Statement used in connection with the
Company's 1999 Annual Shareholders Meeting is incorporated herein by
reference.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON
FORM 8-K
(a) Contents:
1. Consolidated financial statements:
(a) GB&T Bancshares, Inc. and Subsidiary
(i) Consolidated Balance Sheets - December 31,
1998 and 1997
(ii) Consolidated Statements of Income - Years Ended
December 31,1998 and 1997
(iii) Consolidated Statements of Comprehensive Income -
Years Ended December 31, 1998 and 1997
(iv) Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1998 and 1997
(v) Consolidated Statements of Cash Flows - Years Ended
December 31, 1998 and 1997
(v) Notes to Consolidated Financial Statements
<PAGE>
2. Financial statement schedules:
All schedules are omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes.
(b) Reports of Form 8-K:
The Company did not file a report on Form 8-K during the
last quarter of 1998.
(c) Exhibits:
Exhibit
No. Description
------- ---------------------------------------------------------
3.1 Articles of Incorporation of the Registrant (incorporated
herein by reference to the Registrant's Registration
Statement on Form S-3, filed on September 24, 1998).
3.2 By-Laws of the Registrant (incorporated herein by
reference to the Registrant's Registration Statement on
Form S-3, filed on September 24, 1998).
4.1 See Exhibits 3.1 and 3.2 herein for provisions of the
Registrant's Articles of Incorporation and By-Laws which
define the rights of the holders of Common Stock of the
Registrant.
10.1 Dividend Reinvestment and Share Purchase Plan of the
Registrant (incorporated herein by reference to the
Registrant's Registration Statement on Form S-3, filed
on September 24, 1998).
21.1 Subsidiary of the Registrant.
23.1 Consent of Mauldin & Jenkins, LLC.
27.1 Financial Data Schedule (for SEC use only).
<PAGE>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1998
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
INDEPENDENT AUDITOR'S REPORT........................ 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets....................... 2
Consolidated statements of income................. 3
Consolidated statements of comprehensive income... 4
Consolidated statements of stockholders' equity... 5
Consolidated statements of cash flows............. 6 and 7
Notes to consolidated financial statements........ 8-32
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- ------------------------------------------------------------------------------
To the Board of Directors
GB&T Bancshares, Inc. and Subsidiary
Gainesville, Georgia
We have audited the accompanying consolidated balance sheets of GB&T
Bancshares, Inc. and subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company'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 audit 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of GB&T
Bancshares, Inc. and subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ MAULDIN & JENKINS, LLC.
Atlanta, Georgia
February 12, 1999
F-1
<PAGE>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
Assets 1998 1997
------------ ------------
Cash and due from banks $ 9,406,508 $ 9,087,972
Interest-bearing deposits in banks 254,060 338,665
Securities available-for-sale 31,244,047 24,904,865
Federal funds sold 9,693,000 10,525,000
Loans 138,223,283 121,210,035
Less allowance for loan losses 1,773,187 1,432,957
------------ ------------
Loans, net 136,450,096 119,777,078
------------ ------------
Premises and equipment 4,521,824 4,331,237
Other assets 4,592,051 4,033,257
------------ ------------
Total assets $196,161,586 $172,998,074
============ ============
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand $ 25,374,358 $ 17,892,024
Interest-bearing demand 48,739,521 40,174,853
Savings 3,814,887 2,979,325
Time, $100,000 and over 20,354,310 19,921,815
Other time 78,164,269 74,642,968
------------ ------------
Total deposits 176,447,345 155,610,985
Other borrowings 2,417,784 1,429,630
Other liabilities 1,990,794 2,156,516
------------ ------------
Total liabilities 180,855,923 159,197,131
------------ ------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $5; 10,000,000 shares
authorized, 2,099,148 and 1,676,160 shares
issued and outstanding, respectively 10,495,740 8,380,800
Capital surplus 64,559 2,002,750
Retained earnings 4,594,107 3,357,703
Accumulated other comprehensive income 151,257 59,690
------------ ------------
Total stockholders' equity 15,305,663 13,800,943
------------ ------------
Total liabilities and stockholders'
equity $196,161,586 $172,998,074
============ ============
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1998 1997
----------- -----------
Interest income
Loans $13,006,457 $11,449,287
Taxable securities 1,652,410 1,457,573
Nontaxable securities 129,773 57,724
Federal funds sold 568,761 327,279
Deposits in banks 54,876 46,156
----------- -----------
Total interest income $15,412,277 13,338,019
----------- -----------
Interest expense
Deposits 7,558,396 6,463,793
Other borrowings 118,361 67,108
----------- -----------
Total interest expense 7,676,757 6,530,901
----------- -----------
Net interest income 7,735,520 6,807,118
Provision for loan losses 378,000 348,000
----------- -----------
Net interest income after provision
for loan losses 7,357,520 6,459,118
----------- -----------
Other income
Service charges on deposit accounts 492,680 507,654
Other service charges and fees 22,525 22,023
Security transactions, net - (15,657)
Mortgage origination fees 304,754 137,200
Gain on sale of loans 276,001 29,255
Other operating income 400,009 268,347
----------- -----------
Total other income 1,495,969 948,822
----------- -----------
Other expense
Salaries and employee benefits 3,463,700 2,722,259
Equipment expenses 480,422 396,535
Occupancy expenses 461,764 363,262
Other operating expenses 2,022,151 1,337,091
----------- -----------
Total other expenses 6,428,037 4,819,147
----------- -----------
Income before income taxes 2,425,452 2,588,793
Income tax expense 752,517 885,500
----------- -----------
Net income $ 1,672,935 $ 1,703,293
=========== ===========
Basic earnings per common share $ 0.80 $ 0.81
=========== ===========
Diluted earnings per common share $ 0.75 0.81
=========== ===========
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net income $ 1,672,935 $ 1,703,293
----------- -----------
Other comprehensive income:
Unrealized gains on securities available-for-sale:
Unrealized holding gains arising during period,
net of tax of $56,122 and $68,694, respectively 91,567 112,079
Reclassification adjustment for losses realized
in net income, net of tax of $- and $5,950,
respectively - 9,707
----------- -----------
Other comprehensive income 91,567 121,786
----------- -----------
Comprehensive income $ 1,764,502 $ 1,825,079
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Total
------------------------ Capital Retained Comprehensive Stockholders'
Shares Par Value Surplus Earnings Income (Loss) Equity
---------- --------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 836,980 4,184,900 4,185,050 4,039,684 (62,096) 12,347,538
Net income - - - 1,703,293 - 1,703,293
Options exercised 2,100 10,500 3,100 - - 13,600
Transfer to capital surplus - - 2,000,000 (2,000,000) - -
Stock dividend 837,080 4,185,400 (4,185,400) - - -
Dividends declared,
$.18 per share - - - (385,274) - (385,274)
Other comprehensive income - - - - 121,786 121,786
--------- ----------- ---------- ---------- -------- -----------
Balance, December 31, 1997 1,676,160 8,380,800 2,002,750 3,357,703 59,690 13,800,943
Net income - - - 1,672,935 - 1,672,935
Options exercised 13 65 75 - - 140
Stock dividend 419,011 2,095,055 (2,002,750) (92,920) - (615)
Dividends reinvested 3,964 19,820 64,484 - - 84,304
Dividends declared,
$.16 per share - - - (343,611) - (343,611)
Other comprehensive income - - - - 91,567 91,567
--------- --------- --------- ----------- -------- -----------
Balance, December 31, 1998 2,099,148 $10,495,740 $ 64,559 $4,594,107 $151,257 $15,305,663
========= =========== ========= ========== ======== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
CONSOLDIATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,672,935 $ 1,703,293
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 411,359 324,226
Provision for loan losses 378,000 348,000
Provision for other real estate owned 289,000 -
Loss on sale of securities available-for-sale - 15,657
Loss on sale of other real estate owned 8,224 2,049
Deferred income taxes (246,827) (126,944)
Increase in interest receivable (55,285) (274,467)
Increase (decrease) in interest payable (208,447) 510,824
Other operating activities (297,339) (310,161)
------------ ------------
Net cash provided by operating activities 1,951,620 2,192,477
------------ ------------
INVESTING ACTIVITIES
Decrease in interest-bearing deposits in banks 84,606 36,501
Purchases of securities available-for-sale (21,551,745) (10,558,936)
Proceeds from maturities of securities
available-for-sale 14,460,252 6,267,593
Proceeds from sales of securities available-for-sale 900,000 3,282,109
Net (increase) decrease in Federal funds sold 832,000 (7,725,000)
Net increase in loans (17,783,403) (28,177,505)
Purchase of premises and equipment (601,946) (1,406,558)
Proceeds from sale of other real estate owned 462,421 5,184
------------ ------------
Net cash used in investing activities (23,197,815) (38,276,612)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 20,836,359 38,604,035
Net increase in other borrowings 988,154 553,500
Options exercised 140 13,600
Dividends reinvested 84,304 -
Dividends paid (344,226) (452,100)
------------ ------------
Net cash provided by financing activities 21,564,731 38,719,035
------------ ------------
</TABLE>
F-6
<PAGE>
GB&T BANCSHARES, INC.
AND SUBSIDIARY
CONSOLDIATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1998 1997
------------ -----------
Net increase in cash and due from banks $ 318,536 $ 2,634,900
Cash and due from banks at beginning of year 9,087,972 6,453,072
------------ -----------
Cash and due from banks at end of year $ 9,406,508 $ 9,087,972
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 7,885,204 $ 6,020,077
Income taxes $ 968,718 $ 1,146,220
NONCASH TRANSACTIONS
Unrealized gains on securities
available-for-sale $ (147,689) $ (196,430)
Principal balances of loans transferred
to other real estate $ 732,385 $ -
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
GB&T Bancshares, Inc. (the "Company") is a bank holding company whose
business is conducted by its wholly-owned subsidiary, Gainesville
Bank & Trust (the "Bank"). The Bank is a commercial bank located in
Gainesville, Hall County, Georgia with three branches located in
Gainesville, Georgia and one branch located in Oakwood, Georgia. The
Bank provides a full range of banking services to individual and
corporate customers in its primary market area of Hall County and
surrounding counties.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiary. Significant intercompany transactions
and accounts are eliminated in consolidation.
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 disclosures of contingent assets and liabilities at
the date of the consolidated 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
Cash on hand, cash items in process of collection and amounts due
from banks are included in cash and due from banks.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
Securities
Securities are classified based on management's intention on the date
of purchase. Securities which management has the intent and ability
to hold to maturity would be classified as held-to-maturity and
reported at amortized cost. All other securities are classified as
available-for-sale and carried at fair value with net unrealized
gains and losses included in stockholders' equity net of tax. Equity
securities without a readily determinable fair value are included in
securities available-for-sale and carried at cost.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities (Continued)
Interest and dividends on securities, including amortization of
premiums and accretion of discounts, are included in interest income.
Realized gains and losses from the sales of securities are determined
using the specific identification method.
Loans
Loans are carried at their 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.
Loan origination fees and costs incurred in origination of loans are
recognized at the time the loan is recorded. Because net origination
loan fees and costs are not material, the results of operations are
not materially different than the results which would be obtained by
accounting for loan fees and costs in accordance with generally
accepted accounting principles.
The allowance for loan losses is maintained at a level that
management believes to be adequate to absorb potential losses in the
loan portfolio. Management's determination of the adequacy of the
allowance is based on an evaluation of the portfolio, past loan loss
experience, current economic conditions, volume, growth, composition
of the loan portfolio, and other risks inherent in the portfolio.
This evaluation is inherently subjective as it requires material
estimates that are susceptible to significant change including the
amounts and timing of future cash flows expected to be received on
impaired loans. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowance for loan losses, and may require the Company to record
additions to the allowance based on their judgment about information
available to them at the time of their examinations.
The accrual of interest on loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. When accrual of interest is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
A loan is considered to be impaired when it is probable the Company
will be unable to collect all principal and interest payments due in
accordance with the terms of the loan agreement. Individually
identified impaired loans are measured based on the present value of
payments expected to be received, using the contractual loan rate as
the discount rate. Alternatively, measurement may be based on
observable market prices or, for loans that are solely dependent on
the collateral for repayment, measurement may be based on the fair
value of the collateral. If the recorded investment in the impaired
loan exceeds the measure of fair value, a valuation allowance is
established as a component of the allowance for loan losses. Changes
to the valuation allowance are recorded as a component of the
provision for loan losses.
Other Real Estate Owned
Other real estate owned represents properties acquired through
foreclosure. Other real estate owned 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 selling costs. Any write-down
to fair value at the time of transfer to other real estate owned is
charged to the allowance for loan losses. Subsequent gains or losses
on sale and any subsequent adjustments to the value are recorded in
current income from operations.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the straight-
line method over the estimated useful lives of the assets.
Sale of Loans
The Company originates and sells participations in certain loans.
Gains are recognized at the time the sale is consummated. The amount
of gain recognized on the sale of a specific loan is equal to the
percentage resulting from determining the fair value of the portion
of the loan sold relative to the fair value of the entire loan.
Losses are recognized at the time the loan is identified as held for
sale and the loan's carrying value exceeds its fair value.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Income tax expense consists of current and deferred taxes. Current
income tax provisions approximate taxes to be paid or refunded for
the applicable year. Deferred income tax assets and liabilities are
determined using the balance sheet method. Under this method, the
net deferred tax asset or liability is determined based on the tax
effects of the differences between the book and tax bases of the
various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
Recognition of deferred tax balance sheet amounts is based on
management's belief that it is more likely than not that the tax
benefit associated with certain temporary differences, tax operating
loss carryforwards and tax credits will be realized. A valuation
allowance would be recorded for those deferred tax items for which it
is more likely than not that realization would not occur.
The Company and the Bank file a consolidated income tax return. Each
entity provides for income taxes based on its contribution to income
taxes (benefits) of the consolidated group.
Earnings Per Common Share
Basic earnings per common share are computed by dividing net income
by the weighted-average number of shares of common stock outstanding.
Diluted earnings per share are computed by dividing net income by the
sum of the weighted-average number of shares of common stock
outstanding and potential common shares. Potential common shares
consist of stock options.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income
In 1998, the Company adopted Statement of Financial Standards
("SFAS") No. 130, "Reporting Comprehensive Income". This statement
establishes standards for reporting and display of comprehensive
income and its components in the financial statements. This
statement requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal
prominence with the other financial statements. The Company has
elected to report comprehensive income in a separate financial
statement titled "Consolidated Statements of Comprehensive Income".
SFAS No. 130 describes comprehensive income as the total of all
components of comprehensive income including net income. This
statement uses other comprehensive income to refer to revenues,
expenses, gains and losses that under generally accepted accounting
principles are included in comprehensive income but excluded from net
income. Currently, the Company's other comprehensive income consists
of items previously reported directly in equity under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
As required by SFAS No. 130, the financial statements for the prior
year have been reclassified to reflect application of the provisions
of this statement. The adoption of this statement did not affect the
Company's financial position, results of operations or cash flows.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement is required to be adopted for fiscal
years beginning after June 15, 1999. However, the statement permits
early adoption as of the beginning of any fiscal quarter after its
issuance. The Company expects to adopt this statement effective
January 1, 2000. SFAS No. 133 requires the Company to recognize all
derivatives as either assets or liabilities in the balance sheet at
fair value. For derivatives that are not designated as hedges, the
gain or loss must be recognized in earnings in the period of change.
For derivatives that are designated as hedges, changes in the fair
value of the hedged assets, liabilities, or firm commitments must be
recognized in earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings, depending on the
nature of the hedge. The ineffective portion of a derivative's
change in fair value must be recognized in earnings immediately.
Management has not yet determined what effect the adoption of SFAS
No. 133 will have on the Company's earnings or financial position.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Securities Available-for-Sale
December 31, 1998:
U. S. Government and agency
securities $23,559,084 $160,353 $(28,611) $23,690,826
State and municipal securities 3,512,190 96,111 (284) 3,608,017
Mortgage-backed securities 3,409,908 33,993 (17,597) 3,426,304
Equity securities 518,900 - - 518,900
----------- -------- -------- -----------
$31,000,082 $290,457 $(46,492) $31,244,047
=========== ======== ======== ===========
December 31, 1997:
U. S. Government and agency
securities $16,893,069 $ 76,988 $ (9,801) $16,960,256
State and municipal securities 2,139,005 34,476 (512) 2,172,969
Mortgage-backed securities 5,380,418 46,554 (51,432) 5,375,540
Equity securities 396,100 - - 396,100
----------- -------- -------- -----------
$24,808,592 $158,018 $(61,745) $24,904,865
=========== ======== ======== ===========
</TABLE>
The amortized cost and fair value of securities as of December 31, 1998
by contractual maturity are shown below. Maturities may differ from
contractual maturities of mortgage-backed securities because the
mortgages underlying the securities may be called or prepaid without
penalty. Therefore, these securities and equity securities are not
included in the maturity categories in the following summary.
<TABLE>
<CAPTION>
Securities Available-for-Sale
-----------------------------
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Due within one year $ 998,445 $ 1,007,500
Due from one year to five years 23,370,995 23,519,192
Due from five years to ten years 2,701,834 2,772,151
Mortgage-backed securities 3,409,908 3,426,304
Equity securities 518,900 518,900
----------- -----------
$31,000,082 $31,244,047
=========== ===========
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES (Continued)
Securities with a carrying value of $7,332,475 and $9,605,176 at
December 31, 1998 and 1997, respectively, were pledged to secure
public deposits and for other purposes.
The Company incurred gross losses of $15,657 on sales of securities
for the year ended December 31, 1997. There were no sales of
securities for the year ended December 31, 1998.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
December 31,
---------------------------
1998 1997
------------ ------------
Commercial $ 16,880,000 $ 15,884,000
Real estate - construction 27,200,000 25,447,000
Real estate - mortgage 79,500,000 66,920,000
Consumer 12,935,000 10,934,000
Other 1,730,166 2,049,703
------------ ------------
138,245,166 121,234,703
Unearned income (21,883) (24,668)
Allowance for loan losses (1,773,187) (1,432,957)
------------ ------------
Loans, net $136,450,096 $119,777,078
============ ============
Changes in the allowance for loan losses for the years ended December
31 are as follows:
1998 1997
---------- ----------
Balance, beginning of year $1,432,957 $1,146,284
Provision for loan losses 378,000 348,000
Loans charged off (69,015) (88,323)
Recoveries 31,245 26,996
---------- ----------
Balance, end of year $1,773,187 $1,432,957
========== ==========
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The total recorded investment in impaired loans was $92,804 and $3,000
at December 31, 1998 and 1997, respectively. There were no impaired
loans at December 31, 1998 or 1997 in which there had been a specific
reserve determined in accordance with generally accepted accounting
principles. The average recorded investment in impaired loans for 1998
and 1997 was $262,938 and $1,194, respectively. Interest income of
$9,873 was recognized on impaired loans for the year ended December
1998. No interest income was recognized on impaired loans for the year
ended 1997.
The Company has granted loans to certain related parties, including
executive officers, directors and their related entities. The interest
rates on these loans were substantially the same as rates prevailing at
the time of the transaction and repayment terms are customary for the
type of loan involved. Changes in related party loans for the year
ended December 31, 1998 are as follows:
Balance, beginning of year $ 3,634,485
Advances 2,535,601
Repayments (2,521,653)
Transactions due to change in related parties (4,130)
-----------
Balance, end of year $ 3,644,303
===========
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
Land $ 770,228 $ 770,228
Buildings 1,348,871 1,335,554
Leasehold improvements 1,698,040 1,529,370
Furniture and equipment 3,006,264 2,679,678
Computer installation/construction in progress 215,720 152,622
----------- -----------
7,039,123 6,467,452
Accumulated depreciation (2,517,299) (2,136,215)
----------- -----------
$ 4,521,824 $ 4,331,237
=========== ===========
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. PREMISES AND EQUIPMENT (Continued)
At December 31, 1998, the Company's 50% interest in the main office
banking facility with a carrying value (including land) of $1,714,284
was pledged to a bank to secure a $1,200,000 borrowing of a director
who is the owner of the remaining 50% interest in the building.
At December 31, 1998, in progress consisted of equipment related to a
new imaging system and network. Total estimated costs to complete the
imaging system and network were approximately $200,000. At December 31,
1997, in progress consisted of costs incurred in constructing a fifth
branch. Total estimated costs to complete the project were
approximately $150,000.
NOTE 5. DEPOSITS
Aggregate maturities of time deposits at December 31, 1998 are as
follows:
1999 $74,004,426
2000 19,085,820
2001 3,687,022
2002 1,741,311
-----------
$98,518,579
===========
NOTE 6. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
FHLB advance, interest payable semi-annually at 6.33%,
principal due in semi-annual instalments of $25,714.
Advance matures on November 13, 2002. Advances
are secured by securities with a carrying value of $505,155. $ 205,714 $ 257,143
Securities sold under repurchase agreements 1,234,984 362,200
Treasury, tax and loan note option account due on demand,
bearing interest equal to the 90 day Treasury bill rate. 977,086 810,287
---------- ----------
$2,417,784 $1,429,630
========== ==========
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. OTHER BORROWINGS (Continued)
Aggregate maturities required on FHLB advances at December 31, 1998
are as follows:
1999 $ 51,428
2000 51,428
2001 51,428
2002 51,430
--------
$205,714
========
NOTE 7. EMPLOYEE BENEFIT PLAN
Profit Sharing Plan
The Company has a 401(k) Employee Profit-Sharing Plan available to
all eligible employees, subject to certain minimum age and service
requirements. The contributions expensed were $69,154 and $56,590 for
the years ended December 31, 1998 and 1997, respectively.
Deferred Compensation Plan
The Company has a deferred compensation plan providing for death and
retirement benefits for certain officers. The estimated amounts to be
paid under the compensation plan are being funded through the purchase
of life insurance policies on the officers. Accrued deferred
compensation of $33,456 and $- is included in other liabilities as of
December 31, 1998 and 1997, respectively. Cash surrender values of
$1,680,562 and $1,604,459 on the insurance policies is included in
other assets at December 31, 1998 and 1997, respectively.
Dividend Reinvestment and Share Purchase Plan
In 1998, the Company adopted a dividend reinvestment and share purchase
plan. Under the plan, all holders of record of common stock are
eligible to participate in the plan. Participants in the plan may
direct to the plan administrator to invest cash dividends declared with
respect to all or any portion of the stock dividend. Participants may
also make optional cash payments which will be invested through the
plan. All cash dividends paid to the plan administrator are invested
within 30 days of cash dividend payment date. Cash dividends and
optional cash payments will be used to purchase common stock of the
Company in the open market, from newly-issued shares, from shares held
in treasury, in negotiated transactions, or in any combination of the
foregoing. The purchase price of the shares of common stock is based on
the average market price. All administrative costs are borne by the
Company. For the year ended December 31, 1998, 3,964 shares were
purchased under the plan.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. LEASES
The Company leases its main office banking facility under a
noncancelable operating lease agreement from 400 Church Street
Properties, a partnership that is 50% owned by the Bank and 50% owned
by a director. The lease has an initial lease term of 10 years with
four five-year renewal options.
The Company also leases its Thompson Bridge and East Hall branches
under noncancelable operating leases with an initial lease term of 5
years with three five year renewal options and its Dawsonville Highway
branch under a noncancelable operating lease with an initial term of 10
years with three five-year renewal options.
Rental expense under all operating leases amounted to $364,470 and
$309,298, for the years ended December 31, 1998 and 1997, respectively.
Future minimum lease payments on noncancelable operating leases are
summarized as follows:
1999 $248,289
2000 89,750
2001 80,688
2002 46,250
2003 52,320
Thereafter 219,399
--------
$736,696
========
NOTE 9. STOCK OPTIONS
The Company has a 1992 stock option plan for key employees. Option
prices reflect the fair market value of the Company's common stock on
the dates the options are granted. These options expire five years from
the grant date.
In 1997, the Board of Directors approved a stock option plan reserving
325,000 shares of common stock for the granting of options to
directors, officers, and employees. Option prices reflect the fair
market value of the Company's common stock on the dates the options are
granted. The options may be exercised over a period of ten years in
accordance with a ten year vesting schedule.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. STOCK OPTIONS (Continued)
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Number Price Number Price
-------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Under option, beginning of year 270,250 $10.38 10,000 $ 6.05
Granted - 264,250 10.58
Exercised (13) 10.80 (2,750) 4.94
Terminated (5,625) 9.02 (1,250) 10.80
------- -------
Under option, end of year 264,612 10.64 270,250 10.38
======= =======
<CAPTION>
Weighted- Weighted-
Range Average Average
of Exercise Remaining
Number Prices Price Contractual Life
-------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Under option, end of year 12,250 $6.40-9.00 $ 7.38 2.5
252,362 10.80 10.80 8.8
-------
264,612
=======
Exercisable, end of year 4,600 $6.40-9.00 6.94 2.1
2,524 10.80 10.80 8.8
--------
7,124
========
</TABLE>
As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company recognizes compensation cost for stock-
based employee compensation awards in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees". The Company
recognized no compensation cost for stock-based employee compensation
awards for the years ended December 31, 1998 and 1997. If the Company
had recognized compensation cost in accordance with SFAS No. 123, net
income and earnings per share would have been reduced as follows:
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. STOCK OPTIONS (Continued)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1998 1997
----------------------- -------------------------
Diluted Diluted
Earnings Earnings
Per Per
Net Income Share Net Income Share
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
As reported $1,672,935 $ 0.75 $1,703,293 $0.81
Stock-based compensation,
net of related tax effect (21,405) (0.01) (9,308) -
---------- ------ ---------- -----
As adjusted $1,651,530 $ 0.74 $1,693,985 $0.81
========== ====== ========== =====
</TABLE>
The per share weighted-average value of stock options granted during
1997 was $3.57 using the Black Scholes option pricing model and the
following assumptions:
<TABLE>
<CAPTION>
1997
------
<S> <C>
Risk-free interest rate 5.97%
Expected life of the options 10
Expected dividends (as a percent of the fair value of the stock) 1.40%
Volatility 12.96%
</TABLE>
NOTE 10. INCOME TAXES
The components of income tax expense are as follows:
Year Ended December 31,
-------------------------
1998 1997
---------- -----------
Current $ 999,344 $1,012,444
Deferred (246,827) (126,944)
--------- ----------
Income tax expense $ 752,517 $ 885,500
========= ==========
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. INCOME TAXES (Continued)
The Company's income tax expense differs from the amounts computed by
applying the Federal income tax statutory rates to income before
income taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1998 1997
------------------- ------------------
Amount Percent Amount Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $824,654 34 % $880,190 34 %
Tax-exempt interest (43,618) (2) (19,595) (1)
Disallowed interest 8,313 - 3,563 -
Life insurance (26,745) (1) (14,224) -
State income taxes 5,594 - 37,928 1
Other (15,681) - (2,362) -
-------- -- -------- --
Income tax expense $752,517 31 % $885,500 34 %
======== == ======== ==
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $593,575 $445,560
Other real estate write-down 141,568 21,248
Other 1,153 1,153
-------- --------
736,296 467,961
-------- --------
Deferred tax liabilities:
Depreciation 83,122 59,714
Accretion of discount on securities 5,531 7,431
Securities available-for-sale 92,706 36,584
-------- --------
181,359 103,729
-------- --------
Net deferred tax assets $554,937 $364,232
======== ========
</TABLE>
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. EARNINGS PER COMMON SHARE
Presented below is a summary of the components used to calculate basic
and diluted earnings per share for the years ended December 31, 1998
and 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Basic Earnings Per Share:
Weighted average common shares outstanding 2,095,661 2,093,489
========== ==========
Net income $1,672,935 $1,703,293
========== ==========
Basic earnings per share $ 0.80 $ 0.81
========== ==========
Diluted Earnings Per Share:
Weighted average common shares outstanding 2,095,661 2,093,489
Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market price for the year 127,937 4,896
---------- ----------
Total weighted average common shares and
common stock equivalents outstanding 2,223,598 2,098,385
========== ==========
Net income $1,672,935 $1,703,293
========== ==========
Diluted earnings per share $ 0.75 $ 0.81
========== ==========
</TABLE>
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into off-
balance-sheet financial instruments which are not reflected in the
financial statements. These financial instruments include commitments
to extend credit and standby letters of credit. Such financial
instruments are included in the financial statements when funds are
disbursed or the instruments become payable. These instruments involve,
to varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheet.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. A summary of the Company's commitments is
as follows:
December 31,
------------------------
1998 1997
----------- -----------
Commitments to extend credit $32,552,000 $21,098,000
Standby letters of credit 2,257,348 2,458,148
Credit card commitments 3,386,000 2,198,000
----------- -----------
$38,195,348 $25,754,148
=========== ===========
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many
of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The credit risk involved in issuing these financial
instruments is essentially the same as that involved in extending loans
to customers. The Company evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company 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.
Credit card commitments are granted on an unsecured basis.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loans to
customers. Collateral held varies as specified above and is required in
instances which the Company deems necessary.
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management, any liability
resulting from such proceedings would not have a material effect on the
Company's financial statements.
Year 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year.
Systems that do not properly recognize the year "2000" could generate
erroneous data or cause systems to fail. The Company is heavily
dependent on computer processing and telecommunication systems in the
daily conduct of business activities. In addition, the Company must
rely on intermediaries, vendors and customers to appropriately modify
their systems in order that all may continue normal operations and
operate without significant disruptions. The Company has conducted a
review of its computer systems to identify the systems that could be
affected by the Year 2000 issue. The Company presently believes that,
with modifications to its computer systems and conversions to new
systems, the Year 2000 issue will not pose significant operational
problems for the Company or have a material adverse effect on future
operating results. However, absolute assurance cannot be given that;
(1) the modifications and conversions will remedy all deficiencies, (2)
failure of any of the Company's systems will not have a material impact
on operations, or (3) failure of any other companies' systems with whom
the Company conducts business will not have a material impact on
operations.
NOTE 13. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential and consumer
loans to customers in Hall County and surrounding counties. The ability
of the majority of the Bank's customers to honor their contractual
obligations is dependent on the local and metropolitan Atlanta, Georgia
economies.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. CONCENTRATIONS OF CREDIT (Continued)
Seventy-seven percent of the Company's loan portfolio is concentrated
in loans secured by real estate. A substantial portion of these loans
are in the Company's primary market area. In addition, a substantial
portion of the other real estate owned is located in those same
markets. Accordingly, the ultimate collectibility of the Company's
loan portfolio and recovery of the carrying amount of other real
estate owned are susceptible to changes in market conditions in the
Company's market area. The other significant concentrations of credit
by type of loan are set forth in Note 3.
The Company, as a matter of policy, does not generally extend credit
to any single borrower or group of related borrowers in excess of 25%
of statutory capital, or approximately $2,596,000.
NOTE 14. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends
that may be declared without prior regulatory approval. At December
31, 1998, approximately $874,000 of retained earnings were available
for dividend declaration without regulatory approval.
The Company and the Bank are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must
meet specific capital guidelines that involve quantitative measures of
the assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company's and
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 Company and the Bank to maintain minimum amounts
and ratios of Total and Tier I capital to risk-weighted assets and of
Tier I capital to average assets. Management believes, as of December
31, 1998, the Company and the Bank meet all capital adequacy
requirements to which they are subject.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. REGULATORY MATTERS (Continued)
As of December 31, 1998, the most recent notification from the FDIC
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 following
table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
The Company and Bank's actual capital amounts and ratios are presented
in the following table.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------- ------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to Risk Weighted Assets):
Consolidated $16,928 11.76% $11,516 8% $14,394 10%
Bank $16,421 11.42% $11,505 8% $14,381 10%
Tier I Capital (to Risk Weighted Assets):
Consolidated $15,154 10.52% $ 5,762 4% $ 8,643 6%
Bank $14,648 10.19% $ 5,753 4% $ 8,629 6%
Tier I Capital (to Average Assets):
Consolidated $15,154 7.89% $ 7,683 4% $ 9,603 5%
Bank $14,648 7.65% $ 7,662 4% $ 9,578 5%
As of December 31, 1997:
Total Capital (to Risk Weighted Assets) $15,174 11.92% $10,178 8% $12,722 10%
Tier I Capital (to Risk Weighted Assets) $13,741 10.80% $ 5,089 4% $ 7,633 6%
Tier I Capital (to Average Assets) $13,741 8.25% $ 6,656 4% $ 8,320 5%
</TABLE>
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments. In
cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flow models. Those models
are significantly affected by the assumptions used, including the
discount rates 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. The use of different
methodologies may have a material effect on the estimated fair value
amounts. Also, the fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1998
and 1997. Such amounts have not been revalued for purposes of these
financial statements since those dates and, therefore, current
estimates of fair value may differ significantly from the amounts
presented herein.
Cash, Due From Banks, Interest-Bearing Deposits in Banks and Federal
Funds Sold:
The carrying amounts of cash, due from banks, interest-bearing
deposits in banks and Federal funds sold approximate their fair
value.
Securities:
Fair values for securities are based on available quoted market
prices. The carrying values of equity securities with no readily
determinable fair value approximate fair values.
Loans:
For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. For other loans, the fair values are estimated using
discounted cash flow models, using current market interest rates
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using
discounted cash flow models or based on the fair value of the
underlying collateral.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Deposits:
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair values.
Fair values for fixed-rate certificates of deposit are estimated
using discounted cash flow models, using current market interest
rates offered on certificates with similar remaining maturities.
Other Borrowings:
The fair values of the Company's fixed rate other borrowings are
estimated using discounted cash flow models based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amounts of all other variable rate
borrowings approximate their fair values.
Accrued Interest:
The carrying amounts of accrued interest approximate their fair
values.
Off-Balance Sheet Instruments:
Fair values of the Company's off-balance sheet financial instruments
are based on fees charged to enter into similar agreements. However,
commitments to extend credit and standby letters of credit do not
represent a significant value to the Company until such commitments
are funded. The Company has determined that these instruments do not
have a distinguishable fair value and no fair value has been
assigned.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The carrying value and estimated fair value of the Company's financial
instruments were as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks,
interest-bearing deposits in
banks and Federal funds
sold $ 19,353,568 $ 19,353,568 $ 19,951,637 $ 19,951,637
Securities 31,244,047 31,244,047 24,904,865 24,904,865
Loans 136,450,096 138,403,535 119,777,078 119,467,618
Accrued interest receivable 1,316,439 1,316,439 1,261,154 1,261,154
Financial liabilities:
Deposits 176,447,345 176,953,478 155,610,985 156,628,222
Other borrowings 2,417,784 2,420,969 1,429,630 1,432,471
Accrued interest payable 1,659,099 1,659,099 1,867,546 1,867,546
</TABLE>
NOTE 16. STOCK DIVIDEND
On July 14, 1997 and August 29, 1998, the Company effected a two-for-
one and a five-for-four stock split, respectively, both in the form of
a stock dividend. Stockholders of record as of July 25, 1997 and
August 31, 1998 received one additional share of common stock for
every share they owned and one additional share of common stock for
every four shares they owned on those dates, respectively. Share and
per share data for all periods presented herein have been adjusted to
give effect to both splits.
NOTE 17. BUSINESS COMBINATION
On April 24, 1998, GB&T Bancshares, Inc. acquired all of the
outstanding common stock of Gainesville Bank & Trust in exchange for
1,676,160 shares of $5 par value common stock. The acquisition has
been accounted for as a pooling of interests, and, accordingly, all
prior financial statements have been restated to reflect the
combination. Income of the subsidiary prior to acquisition on April
24, 1998 was $523,580, which was included in the consolidated
statement of income.
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 18. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of total
revenue are as follows:
December 31,
------------------
1998 1997
-------- --------
Advertising $195,904 $121,245
Stationery, forms, and supplies 157,209 174,115
NOTE 19. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheet,
statement of income and cash flows of GB&T Bancshares, Inc. as of and
for the period ended December 31, 1998:
CONDENSED BALANCE SHEET
1998
-----------
Assets
Cash $ 423,937
Investment in subsidiary 14,798,707
Other assets 83,019
-----------
Total assets $15,305,663
===========
Stockholders' equity $15,305,663
===========
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 19. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF INCOME
1998
----------
Income
Dividends from subsidiary $ 742,207
Expenses, other 122,643
Income before income tax benefit and equity
in undistributed income of subsidiary 619,564
Income tax benefit (46,604)
Income before equity in undistributed income
of subsidiary 666,168
Equity in undistributed income of subsidiary 483,187
Net income $1,149,355
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
1998
----------
OPERATING ACTIVITIES
Net income $1,149,355
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed income of subsidiary (483,187)
Amortization 6,426
Other operating activities (89,446)
Net cash provided by operating activities 583,148
FINANCING ACTIVITIES
Dividends paid (243,655)
Proceeds from issuance of common stock 140
Dividends reinvested 84,304
Net cash used in financing activities (159,211)
Net increase in cash 423,937
Cash at beginning of period -
Cash at end of year $ 423,937
F-32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GB&T BANCSHARES, INC.
/s/ Richard A. Hunt DATE 3/29/99
______________________________________
Richard A. Hunt, President, Chief
Executive Officer and Director
/s/ Gregory L. Hamby DATE 3/29/99
______________________________________
Gregory L. Hamby, Senior Vice President
and Senior Operations Officer
/s/ F. Abit Massey DATE 3/29/99
________________________________________
F. Abit Massey, Chairman and Director
________________________________________ DATE ____________________
Philip A. Wilheit, Vice-Chairman and
Director
/s/ Samuel L. Oliver
________________________________________ DATE 3/29/99
Samuel L. Oliver, Secretary and Director
________________________________________ DATE ____________________
Donald J. Carter, Director
/s/ J. Grady Coleman
________________________________________ DATE 3/29/99
J. Grady Coleman, Director
/s/ Dr. John W. Darden
________________________________________ DATE 3/29/99
Dr. John W. Darden, Director
<PAGE>
/s/ Bennie E. Hewett
________________________________________ DATE 3/29/99
Bennie E. Hewett, Director
_______________________________________ DATE ____________________
John E. Mansfield, Sr., Director
/s/ Alan A. Wayne
_______________________________________ DATE 3/29/99
Alan A. Wayne, Director
<PAGE>
Exhibit 21.1
SUBSIDIARY OF THE REGISTRANT
Gainesville Bank & Trust
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use of our report, dated February 12, 1999,
relating to the consolidated financial statements of GB&T Bancshares,Inc.
and subsidiary for the two years ended December 31, 1998, included in this
Annual Report on Form 10-KSB and incorporated by reference in the previously
filed Registration Statement of GB&T Bancshares, Inc. on Form S-3D (File
Number 333-674197).
/s/ Mauldin & Jenkins, LLc
Atlanta, Georgia
March 31, 1999
<PAGE>
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[CASH] 9,407
[INT-BEARING-DEPOSITS] 254
[FED-FUNDS-SOLD] 9,693
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 31,244
[INVESTMENTS-CARRYING] 0
[INVESTMENTS-MARKET] 0
[LOANS] 138,223
[ALLOWANCE] 1,773
[TOTAL-ASSETS] 196,161
[DEPOSITS] 176,447
[SHORT-TERM] 2,263
[LIABILITIES-OTHER] 1,991
[LONG-TERM] 154
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 10,496
[OTHER-SE] 4,810
[TOTAL-LIABILITIES-AND-EQUITY] 196,161
[INTEREST-LOAN] 13,006
[INTEREST-INVEST] 1,782
[INTEREST-OTHER] 624
[INTEREST-TOTAL] 15,412
[INTEREST-DEPOSIT] 7,558
[INTEREST-EXPENSE] 7,677
[INTEREST-INCOME-NET] 7,735
[LOAN-LOSSES] 378
[SECURITIES-GAINS] 0
[EXPENSE-OTHER] 6,428
[INCOME-PRETAX] 2,425
[INCOME-PRE-EXTRAORDINARY] 2,425
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 1,673
[EPS-BASIC] .80
[EPS-DILUTED] .75
[YIELD-ACTUAL] 4.65
[LOANS-NON] 93
[LOANS-PAST] 408
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 1,433
[CHARGE-OFFS] 69
[RECOVERIES] 31
[ALLOWANCE-CLOSE] 1,773
[ALLOWANCE-DOMESTIC] 1,773
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 1,773
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Mark One
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
---------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission File Number: 000-24203
GB&T Bancshares, Inc.
---------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Georgia 58-2400756
- ---------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
500 Jesse Jewell Parkway, S.E.
Gainesville, Georgia 30501
(Address of principal executive offices)
(770) 532-1212
(Issuer's telephone number)
N/A
------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes /X/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of November 1, 1999: 2,117,146 shares; $5 par value
Transitional Small Business Disclosure Format (Check One) Yes / / No /X/
<PAGE>
GB&T BANCSHARES, INC. AND SUBSIDIARY
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet - September 30, 1999....................................1
Consolidated Statements of Income and Comprehensive Income -
Three months ended September 30, 1999 and 1998 and Nine months
Ended September 30, 1999 and 1998 ..............................................2
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1999 and 1998.....................................................3
Notes to Consolidated Financial Statements.......................................4-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................7-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................................14
Signatures............................................................................15
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GB&T BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(Unaudited)
(Dollars in Thousands)
Assets
Cash and due from banks $ 10,274
Interest-bearing deposits in banks 302
Federal funds sold 2,845
Securities available-for-sale, at fair value 36,067
Loans 180,681
Less allowance for loan losses 2,043
---------
Loans, Net 178,638
---------
Premises and equipment 4,736
Other assets 4,935
=========
Total Assets $ 237,797
=========
Liabilities and Stockholders' Equity
Deposits
Demand $ 24,264
Interest-bearing demand 17,939
Savings 36,218
Time deposits 113,306
---------
Total deposits 191,727
Federal Home Loan Bank Advances 19,180
Other borrowings 8,223
Other liabilities 2,301
---------
Total liabilities 221,431
---------
Stockholders' Equity
Common Stock, par value $5; 10,000,000
shares authorized; 2,116,926 shares
issued and outstanding 10,585
Capital surplus 338
Retained earnings 5,831
Accumulated other comprehensive
loss, net of tax (388)
---------
Total stockholders' equity 16,366
---------
Total liabilities and stockholders' equity $ 237,797
=========
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
GB&T BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
(Dollars in Thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income
Loans 4,203 3,342 11,518 9,566
Taxable securities 483 446 1,377 1,253
Nontaxable securities 41 36 118 93
Federal funds sold 16 142 139 459
Interest-bearing deposits in banks 4 7 10 17
-------- -------- -------- --------
Total interest income 4,747 3,973 13,162 11,388
-------- -------- -------- --------
Interest expense
Deposits 2,016 1,934 5,746 5,639
Other borrowings 325 37 550 84
-------- -------- -------- --------
Total interest expense 2,341 1,971 6,296 5,723
-------- -------- -------- --------
Net interest income 2,406 2,002 6,866 5,665
Provision for loan losses 105 126 315 378
-------- -------- -------- --------
Net interest income after
provision for loan losses 2,301 1,876 6,551 5,287
-------- -------- -------- --------
Other income
Service charges on deposit accounts 164 147 493 432
Mortgage origination fees 50 64 184 251
Gain on sale of loans 22 46 56 197
Other operating income 112 86 351 249
-------- -------- -------- --------
Total other income 348 343 1,084 1,129
-------- -------- -------- --------
Other expenses
Salaries and other employee benefits 992 877 2,888 2,562
Occupancy expenses 123 121 370 368
Equipment expenses 174 144 468 419
Marketing expenses 42 59 149 158
Other operating expenses 416 351 1,340 1,047
-------- -------- -------- --------
Total other expenses 1,747 1,552 5,215 4,554
-------- -------- -------- --------
Income before income taxes 902 667 2,420 1,862
Income tax expense 297 213 793 602
-------- -------- -------- --------
Net Income 605 454 1,627 1,260
-------- -------- -------- --------
Other comprehensive income:
Unrealized gains (losses) on securities
available-for-sale arising during period, net of tax (161) 124 (539) 121
======== ======== ======== ========
Comprehensive income $ 444 $ 578 $ 1,088 $ 1,381
======== ======== ======== ========
Basic earnings per common share $ 0.29 $ 0.22 $ 0.77 $ 0.60
======== ======== ======== ========
Diluted earnings per common share $ 0.27 $ 0.21 $ 0.72 $ 0.57
======== ======== ======== ========
Cash dividends per common share $ 0.06 $ 0.06 $ 0.12 $ 0.10
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
GB&T BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,627 $ 1,260
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 325 312
Provision for loan losses 315 378
Other operating activities (570) (862)
-------- --------
Net cash provided by operating activities 1,697 1,088
-------- --------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (20,285) (16,134)
Proceeds from maturities of securities available-for-sale 15,460 9,137
Net (increase)decrease in interest-bearing deposits in banks (48) 85
Net (increase) decrease in Federal funds sold 6,848 (5,035)
Net increase in loans (42,503) (8,191)
Purchase of premises and equipment (539) (371)
-------- --------
Net cash used in investing activities (41,067) (20,509)
-------- --------
FINANCING ACTIVITIES
Net increase in deposits 15,280 16,668
Net increase (decrease) in FHLB advances 18,975 (25)
Net increase in other borrowings 6,010 1,923
Issuance of stock 362 --
Dividends paid (390) (217)
-------- --------
Net cash provided by financing activities 40,237 18,349
-------- --------
Net increase (decrease) in cash and due from banks 867 (1,072)
Cash and due from banks at beginning of period 9,407 9,088
======== ========
Cash and due from banks at end of period $ 10,274 $ 8,016
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GB&T BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial information included herein is
unaudited; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the three and nine month
periods ended September 30, 1999 are not necessarily
indicative of the results to be expected for the full year.
NOTE 2. CURRENT ACCOUNTING DEVELOPMENTS
In June of 1998 the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 133, " Accounting for Derivative Instruments and
Hedging Activities." The effective date of this statement has
been deferred by Statement of Financial Accounting Standards
(SFAS) No. 137, until fiscal years beginning after June 15,
2000. However, the statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The
Company expects to adopt this statement effective January 1,
2001. SFAS No. 133 requires the Company to recognize all
derivatives as either assets or liabilities in the balance
sheet at fair value. For derivatives that are not designated
as hedges, the gain or loss must be recognized in earnings in
the period of change. For derivatives that are designated as
hedges, changes in the fair value of the hedged assets,
liabilities, or firm commitments must be recognized in
earnings, depending on the nature of the hedge. The
ineffective portion of a derivative's change in fair value
must be recognized in earnings immediately. Management has
not yet determined what effect the adoption of SFAS No. 133
will have on the Company's earnings or financial position.
4
<PAGE>
NOTE 3. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income and
weighted-average shares outstanding used in determining basic
and diluted earnings per common share (EPS):
Three Months Ended September 30, 1999
----------------------------------------------
Net Weighted-
Income Average Per share
Shares Amount
----------- ----------------- ------------
Basic EPS $ 605,000 2,113,219 $ 0.29
=========
Effect of Dilutive Securities
Stock options -- 142,550
--------- ---------
Diluted EPS $ 605,000 2,255,769 $ 0.27
========= ========= =========
Three Months Ended September 30, 1998
----------------------------------------------
Net Weighted-
Income Average Per share
Shares Amount
----------- ----------------- ------------
Basic EPS $ 454,000 2,095,171 $ 0.22
=========
Effect of Dilutive Securities
Stock options - 104,478
---------- ---------
Diluted EPS $ 454,000 2,199,649 $ 0.21
========== ========= =========
Nine Months Ended September 30, 1999
----------------------------------------------
Net Weighted-
Income Average Per share
Shares Amount
----------- ----------------- ------------
Basic EPS $1,627,000 2,108,281 $ 0.77
==========
Effect of Dilutive Securities
Stock options - 150,959
---------- ----------
Diluted EPS $1,627,000 2,259,240 $ 0.72
========== ========== =========
Nine Months Ended September 30, 1998
----------------------------------------------
Net Weighted-
Income Average Per share
Shares Amount
----------- ----------------- ------------
Basic EPS $1,260,000 2,095,171 $ 0.60
========
Effect of Dilutive Securities
Stock options - 99,629
----------- ---------
Diluted EPS $1,260,000 2,194,800 $ 0.57
========== ========= ========
5
<PAGE>
NOTE 3. EARNINGS PER COMMON SHARE, (Continued)
GB&T Bancshares, Inc. declared a stock split in the form of a
stock dividend on August 29, 1998, paid on September 21, 1998
to stockholder's of record August 31, 1998. All per share
amounts have been restated to reflect the split.
NOTE 4 On October 14, 1999, GB&T Bancshares, Inc. signed an Agreement
and Plan of Reorganization with UB&T Financial Services
Corporation ("UB&T"). This agreement provides for the merger
of UB&T with and into GB&T, with GB&T being the surviving
corporation of the merger.
6
<PAGE>
GB&T BANCSHARES, INC. AND SUBSIDIARY
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the financial position and operating results of the
Company and its bank subsidiary, Gainesville Bank & Trust, during the periods
included in the accompanying consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This quarterly report contains certain forward-looking statements which
are based on certain assumptions and describe future plans, strategies, and our
expectations. These forward-looking statements are generally identified by use
of the words "believe," "expect," "intend," "anticipate," "estimate," "project,"
or similar expressions. Our ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse effect on our operations include, but are not limited to,
changes in interest rates, general economic conditions, legislation and
regulation, monetary and fiscal policies of the U.S. government, including
policies of the U.S. Treasury and the Federal Reserve Board, the quality or
composition of our loan or investment portfolios, demand for loan products,
deposit flows, competition, demand for financial services in our market area and
accounting principles and guidelines. You should consider these risks and
uncertainties in evaluating forward-looking statements and should not place
undue reliance on such statements. We will not publicly release the result of
any revisions which may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
FINANCIAL CONDITION
The Company's total assets increased $41,635,000 or 21.2%, for the nine months
ended September 30, 1999. Total loans increased by $42,458,000 or 30.7% for the
nine months ended September 30, 1999. The loan to deposit ratio as of September
30, 1999 was 94.24%, over the Company's target range of 75% to 80%, as compared
to 75.09% at September 30, 1998, reflecting continued strong loan demand. In
order to satisfy this growing loan demand, the Company obtained Federal Home
Loan Bank advances and utilized growth in repurchase agreements along with
growth in deposits. The increase in the Company's loan to deposit ratio over the
targeted range is also a result of an increase of approximately $19 million in
Federal Home Loan Bank advances. These advances allowed the Company to continue
to focus on growth in core deposits versus higher yielding certificates of
deposit. These strategies also allowed the Company to satisfy strong loan demand
while maintaining adequate liquidity. The Company continues to face increasing
competitive pressures in its growing deposit market. Total deposits increased by
$15,280,000 or 8.66%, for the nine months ended September 30, 1999. The
Company's overall growth is the result of an aggressive strategic growth plan.
LIQUIDITY
As of September 30, 1999, the Bank's liquidity ratio was 21.29% compared to
29.70% at September 30, 1998. This ratio exceeded the Bank's target ratio of
20%. Liquidity is measured by the ratio of net cash, Federal funds sold and
securities to net deposits and short-term liabilities. The decrease in the
liquidity ratio is related to the strong increase in loan demand since December
31, 1998. The Bank has lines of credit available to meet any unforeseen
liquidity needs. Also, the Bank has a relationship with the Federal Home Loan
Bank of Atlanta which provides funding for loan growth on an as needed basis.
7
<PAGE>
CAPITAL
The minimum capital requirements for banks and bank holding companies require a
leverage capital to total assets ratio of at least 3%, core capital to
risk-weighted assets ratio of at least 4% and total capital to risk-weighted
assets of at least 8%.
At September 30, 1999, the capital ratios at the Company and the Bank were
adequate based on regulatory minimum capital requirements. The actual capital
ratios of the Company are as follows:
Leverage capital ratio 7.23 %
Risk-based capital ratios:
Core capital 9.29 %
Total capital 10.42 %
8
<PAGE>
RESULTS OF OPERATIONS
Net interest income increased $404,000 or 20.2% for the three months ended
September 30, 1999 compared to the same period in 1998. The net increase
consists of an increase in interest income of $774,000 or 19.5% less an increase
in interest expense of $370,000 or 18.8% for the three month period. Net
interest income increased $1,201,000 or 21.2% for the nine months ended
September 30, 1999 compared to the same period in 1998. The net increase
consists of an increase in interest income of $1,774,000 or 15.6% less an
increase in interest expense of $573,000 or 10% for the nine month period. The
increase in interest income is due primarily to the growth in total
interest-earning assets of $43 million from September 30, 1998 to September 30,
1999. Total interest-bearing liabilities increased during the same period by $39
million. The net interest margin was 4.69% and 4.68% for the nine months ended
September 30, 1999 and 1998, respectively.
The Bank's provision for loan losses decreased by $21,000 or 17% during the
three months ended September 30, 1999 as compared to the same period in 1998.
The Bank's provision for loan losses decreased by $63,000 or 17% during the nine
months ended September 30, 1999 as compared to the same period in 1998. The
allowance for loan losses at September 30, 1999 was $2,043,000 or 1.13% of total
loans compared to 1.37% at September 30, 1998. Based on management's evaluation,
the allowance is adequate to absorb any potential loan losses at September 30,
1999.
The decrease in the provision for loan losses for the nine month period ended
September 30, 1999 as compared to 1998 is based on a strong economy, minimal
increases in net charge-offs and a decline in non-accrued and past due loans.
The analysis below indicates only a slight increase in net charge-offs in the
nine months ended September 30, 1999 as compared to the same period in 1998. The
allowance for loan losses is evaluated monthly and adjusted to reflect the risk
in the portfolio. The following table summarizes the allowance for loan losses
for the nine month periods ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(Dollars in Thousands)
-------------------------
<S> <C> <C>
Average amount of loans outstanding $ 159,038 $ 122,563
========= =========
Allowance for loan losses balance, beginning of period $ 1,773 $ 1,433
--------- ---------
Less charge-offs
Commercial loans (18) (42)
Consumer loans (38) (24)
Plus recoveries
Commercial loans
2 19
Consumer loans 9 10
--------- ---------
Net charge-offs (45) (37)
--------- ---------
Plus provision for loan losses 315 378
--------- ---------
Allowance for loan losses balance, end of period $ 2,043 $ 1,774
========= =========
Ratio of net charge-offs to average loans outstanding .03% .03%
========= =========
</TABLE>
9
<PAGE>
The following table is a summary of nonaccrual, past due and restructured debt.
The numbers indicate decreases of $250,000 in nonaccrual loans and decreases of
$225,000 in past due loans over 90 days. The decrease in nonaccrual was due to
payoffs on the nonaccrual loans. There are minimal or no losses anticipated on
nonaccrual or past due loans.
<TABLE>
<CAPTION>
September 30,1999
--------------------------------------------------------
Past Due
Nonaccural 90 Days Restructured
Loans Still Debt
Accruing
---------------- --------------- ------------------
(Dollars in Thousands)
--------------------------------------------------------
<S> <C> <C> <C>
Real estate loans $ - $ 61 $ -
Commercial loans 109 13 -
Consumer loans - 18 -
---------------- --------------- ------------------
Total $ 109 $ 92 $ -
================ =============== ==================
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
--------------------------------------------------------
Past Due
Nonaccural 90 Days Restructured
Loans Still Debt
Accruing
---------------- --------------- ------------------
(Dollars in Thousands)
--------------------------------------------------------
<S> <C> <C> <C>
Real estate loans $ 339 $ 317 $ -
Commercial loans - - -
Consumer loans 20 - -
---------------- --------------- ------------------
Total $ 359 $ 317 $ -
================ =============== ==================
</TABLE>
The Company's policy is to discontinue the accrual of interest income when, in
the opinion of management, collection of such interest becomes doubtful. This
status is determined when; (1) there is a significant deterioration in the
financial condition of the borrower and full repayment of principal and interest
is not expected; and (2) the principal or interest is more than 90 days past
due, unless the loan is both well-secured and in the process of collection.
Accrual of interest on such loans is resumed when, in management's judgment, the
collection of interest and principal becomes probable.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity or capital resources.
These classified loans do not represent material credits about which management
is aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with their loan repayment terms.
10
<PAGE>
Other income for the three months ended September 30, 1999 increased by $5,000
or 1.5% compared to the same period in 1998. Service charges increased $17,000
and other operating income increased by $26,000. These increases in other income
were offset by decreases in gain on sale of loans of $24,000, and mortgage
origination fees of $14,000. Other income for the nine months ended September
30, 1999 decreased by $45,000 or 4% compared to the same period in 1998. The
decrease in other income is primarily due to, decreases in gain on sale of loans
of $141,000 and decreases in mortgage origination fees of $67,000. The decline
in mortgage origination fees resulted from a decline in refinancing activity and
increases in interest rates. Service charges increased by $61,000, Trust fees
increased by $47,000 and other operating income increased by $55,000.
Other expenses increased by approximately $195,000 or 12.6% for the three months
ended September 30, 1999 compared to the same period in 1998. The increase is
due primarily to an increase in salaries and employee benefits of $115,000. The
increase in salaries and employee benefits is due to additional employees in the
loan area, in addition to normal increases. The remainder of the increase in
other expenses is not related to any one significant item, but includes normal
increases in operating expenses. Other expenses increased by approximately
$661,000 or 14.5% for the nine months ended September 30, 1999 compared to the
same period in 1998. The increase is due partially to an increase in salaries
and employee benefits of $326,000. The increase in salaries and employee
benefits is due to additional employees in the loan area, in addition to normal
increases. The remainder of the increase in other expenses is not related to any
one significant item, but includes normal increases in operating expenses.
Income tax expense increased by $84,000 for the three months ended September 30,
1999 compared to the three months ended September 30, 1998. Income tax expense
increased by $191,000 for the nine months ended September 30, 1999 compared to
the nine months ended September 30, 1998. The effective tax rate for the three
and nine month periods in 1999, was 33%, compared to 32% for the same periods in
1998.
Net income increased by $151,000 for the three months ended September 30, 1999
compared to the same period in 1998. Net income increased by $367,000 for the
nine months ended September 30, 1999 compared to the same period in 1998. The
increase in net income is attributable to growth in interest earning assets.
The Company is not aware of any other known trends, events or uncertainties,
other than the effect of events as described above, that will have or that are
reasonably likely to have a material effect on its liquidity, capital resources
or operations. The Company is also not aware of any current recommendations by
the regulatory authorities which, if they were implemented, would have such an
effect.
CAPABILITY OF THE COMPANY'S PROCESSING SOFTWARE TO ACCOMMODATE THE YEAR 2000
The Situation: As the end of this century draws near, there is worldwide concern
- -------------
that the year 2000 technology problems may wreak havoc on global economies. No
country, government, business or person is immune from the potential effects of
year 2000 problems. The year 2000 problem arose because many existing computer
systems and software programs use a two-digit year field. Because of this, some
computers will not properly recognize the turn of the century. A computer with a
two-digit year field may recognize the year 2000 as 1900. If not corrected, many
computer applications could fail or miscalculate data creating erroneous
results.
For a bank, year 2000 problems could be devastating if loan or deposit interest
accruals are not calculated properly. A year 2000 caused system crash could
result in a disruption of business, which in turn could cause the bank to lose a
significant portion of its customer base. Either of these situations could
result in material adverse consequences for the bank.
11
<PAGE>
To address the year 2000 problem, the Company formed a "Year 2000 Committee"
made up of key employees and directors. This Committee has been charged with the
responsibility of assessing the problem and overseeing corrective action, as
well as testing the year 2000 readiness of all equipment, software and
applications after upgrades have been made.
Readiness: Critical systems, hardware and software have received priority
- ---------
attention. As of September 30, 1999, all critical systems have been upgraded or
replaced. The related software has been upgraded to meet year 2000 standards and
has been tested to ensure proper functioning in a year 2000 environment. Upon
completion of testing the Company has identified no critical hardware or
software systems that are non-compliant. These critical systems include the
Company's core bank processing hardware and software and its automated new
accounts and loan document preparation hardware and software as well as its
document retrieval system. The Bank has upgraded its personal computers with
year 2000 compliant hardware and software to bring this area up to year 2000
standards. Several other software systems have been upgraded to be year 2000
compliant. Any new critical systems purchased will be tested for compliance. The
Company believes that there are no remaining key information technology systems
to be upgraded. The Company has also evaluated its non-information technology
systems, which include microcontrollers and other embedded computers, and notes
no significant issues to date.
Since the Bank is heavily reliant on outside vendors for many services such as
electricity, phone service, water, gas, ATM processing, bond accounting and bank
related forms, the Bank has developed a year 2000 questionnaire to help it
determine a vendors' state of year 2000 readiness. All critical vendors
contacted by the Bank have responded. Responses to date have indicated adequate
readiness. No significant weaknesses in a critical vendor have been discovered.
Major borrowers of the Bank also have been required to complete a questionnaire
to assess year 2000 readiness. Approximately 90% of such borrowers have
responded, and the Bank notes no significant issues to date.
Cost: After the Bank's assessment phase to determine the extent of its year 2000
- ----
problem, its Board of Directors approved a budget in the amount of $274,000 to
address the year 2000 issue and to purchase new equipment upgrades which
included new item processing equipment. In order to ensure adequate funds are
provided to resolve year 2000 issues, including those that may not be presently
known, the Company's year 2000 budget is subject to continuous review and
amendment. Management does not expect the cost of remediation to vary
significantly from the Company's present budget, although there can be no
assurances in this regard.
As of September 30, 1999, the Company has recognized $273,000 in year 2000
expenditures. The capitalized expenditures included $243,000 for hardware (the
majority being item processing equipment and new personal computers) and $17,000
for software. Expensed items included $8,000 to service providers for assessment
and testing and approximately $5,000 on customer awareness and education.
No other significant expenditures are expected.
The Company does not anticipate that the related overall costs will be material
to the financial condition of the Company for any single year or quarter. The
Company has not used any independent verification and validation processes to
assure the reliability of year 2000 cost estimates.
12
<PAGE>
Risks of the Bank's Year 2000 Issues: The Company believes that all significant
- ------------------------------------
remediations with respect to the Company's information technology and
non-information technology systems are complete. However, no assurance can be
given that the Company will not be exposed to potential losses resulting from
system problems associated with the change in date. There can also be no
assurance that the Company's systems that have been designed to be year 2000
compliant contain all of the necessary date code changes and that systems have
been correctly modified, or will be correctly modified in contemplation of the
year 2000.
In addition to year 2000 compliance in the Bank's internal systems, the impact
of year 2000 non-compliance by outside parties with whom the Bank may transact
business cannot be accurately gauged. The year 2000 issue may have a material
impact on the financial condition of the Bank if borrowers of the Bank become
insolvent and are, therefore, unable to repay loans as they become due as a
result of the borrowers' year 2000 non-compliance.
The Company is not aware of any critical third party relationships whose year
2000 non-compliance could result in a material adverse effect on the Company's
results of operations, liquidity and financial condition due to the date change.
The Bank's Contingency Plans: The Company believes that at worst, the Company's
- -----------------------------
computer software and hardware would not contain the necessary date code change
and, therefore, would cease operating or malfunction when the date change
occurs. In that case, the Company's contingency plan contemplates conversion to
a manual system. Management of the Company believes that the Company would be
able to continue to operate in that manner without significant loss. However,
the Company believes that its computer software and hardware systems are
substantially year 2000 compliant.
If the "worst case scenario" includes extended loss of power and
telecommunications or did not provide for continued external transaction
processing and limited hours of operation, revenue will be impacted by reduction
in generation of service charges and other product and service fees as well as
reduced investment revenue due to the inability to properly manage liquidity,
although the Company cannot quantify any such potential losses.
Long Term Projects: Year 2000 projects have not caused the Company to defer
- -------------------
other long term projects.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
None
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GB&T BANCSHARES, INC.
DATE: 11/13/99 BY: /s/ Richard A. Hunt
----------------------------------
Richard A. Hunt
President and Chief Executive
Officer
DATE: 11/13/99 BY: /s/ Gregory L. Hamby
----------------------------------
Gregory L. Hamby
Chief Financial Officer
<PAGE>
APPENDIX D
GEORGIA DISSENTER'S RIGHTS STATUTES
14-2-1301. DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenter's rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right when
and in the manner required by Code Sections 14-2-1320 through 14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under all
the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder. (Code 1981, ss. 14-2-1301, enacted by Ga. L. 1988, p. 1070, ss. 1;
Ga. L. 1993, p. 1231, ss. 16.)
14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent
from, and obtain payment of the fair value of his shares in the event of, any of
the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholders of the corporation is
required for the merger by Code Section 14-2-1103 or 14-2-1104
or the articles of incorporation and the shareholder is
entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its
parent under Code Section 14-2-1104;
<PAGE>
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required on
the sale or exchange pursuant to Code Section 14-2-1202, but not
including a sale pursuant to court order or a sale for cash pursuant to
a plan by which all or substantially all of the net proceeds of the
sale will be distributed to the shareholders within one year after the
date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund
for the redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with
similar voting rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to
be acquired for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares
of the class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting
or nonvoting shareholders are entitled to dissent and obtain payment
for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be
no right of dissent in favor of the holder of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at a meeting at which a plan of merger or share
exchange or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
<PAGE>
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of fractional
shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise. (Code 1981, ss.
14-2-1302, enacted by Ga. L. 1988, p. 1070, ss. 1; Ga. L.
1989, p. 946, ss. 58; Ga. L. 1999, p. 405, ss. 11.)
14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenter's rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenter's rights. The rights of a partial dissenter under this Code
section are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders. (Code 1981, ss.
14-2-1303, enacted by Ga. L. 1988, p. 1070, ss. 1.)
14-2-1320. NOTICE OF DISSENTER'S RIGHTS.
(a) If proposed corporate action creating dissenter's rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenter's
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenter's rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenter's rights that the
action was taken and send them the dissenter's notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken. (Code
1981, ss. 14-2-1320, enacted by Ga. L. 1988, p.
1070, ss. 1; Ga. L. 1993, p. 1231, ss. 17.)
14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenter's rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenter's rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article. (Code 1981, ss. 14-2-1321, enacted by Ga. L.
1988, p. 1070, ss. 1.)
<PAGE>
14-2-1322. DISSENTER'S NOTICE.
(a) If proposed corporate action creating dissenter's rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenter's notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenter's notice must be sent no later than ten days after
the corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after
the date the notice required in subsection (a) of this Code section is
delivered; and
(4) Be accompanied by a copy of this article. (Code 1981, ss.
14-2-1322, enacted by Ga. L. 1988, p. 1070, ss. 1.)
14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenter's notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in accordance
with the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares
under subsection (a) of this Code section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(c) A record shareholder who does not demand payment or deposit his
share certificates where required, each by the date set in the dissenter's
notice, is not entitled to payment for his shares under this article. (Code
1981, ss. 14-2-1323, enacted by Ga. L. 1988, p. 1070, ss. 1.)
14-2-1324. HARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under Code Section
14-2-1326.
(b) The person for whom dissenter's rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(Code 1981, ss. 14-2-1324, enacted by Ga. L. 1988, p. 1070, ss. 1.)
<PAGE>
14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of
the later of the date the proposed corporate action is taken or receipt of a
payment demand, the corporation shall by notice to each dissenter who complied
with Code Section 14-2-1323 offer to pay to such dissenter the amount the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity
for that year, and the latest available interim financial statements,
if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written
notice to the corporation within 30 days after the corporation's offer or is
deemed to have accepted such offer by failure to respond within said 30 days,
payment for his or her shares shall be made within 60 days after the making of
the offer or the taking of the proposed corporate action, whichever is later.
(Code 1981, ss. 14-2-1325, enacted by Ga. L. 1988, p. 1070, ss. 1; Ga. L. 1989,
p. 946, ss. 59; Ga. L. 1993, p. 1231, ss. 18.)
14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenter's notice under Code Section 14-2-1322 and repeat the payment demand
procedure. (Code 1981, ss. 14-2-1326, enacted by Ga. L. 1988, p. 1070, ss. 1;
Ga. L. 1990, p. 257, SS. 20.)
14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the
interest due is incorrectly calculated; or
<PAGE>
(2) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the
date set for demanding payment.
(b) A dissenter waives his or her right to demand payment under this
Code section and is deemed to have accepted the corporation's offer unless he or
she notifies the corporation of his or her demand in writing under subsection
(a) of this Code section within 30 days after the corporation offered payment
for his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth
in subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall
provide the information to the shareholder within ten days after
receipt of a written demand for the information; and
(2) The shareholder may at any time, subject to the limitations period
of Code Section 14-2-1332, notify the corporation of his own estimate
of the fair value of his shares and the amount of interest due and
demand payment of his estimate of the fair value of his shares and
interest due. (Code 1981, ss. 14-2-1327, enacted by Ga. L. 1988, p.
1070, ss. 1; Ga. L. 1989, p. 946, ss. 60; Ga. L. 1990, p. 257, SS. 21;
Ga. L. 1993, p. 1231, ss. 19.)
14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest. If the corporation does not commence the
proceeding within the 60 day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a
nonjury equitable valuation proceeding, in the superior court of the county
where a corporation's registered office is located. If the surviving corporation
is a foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by publication,
or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenter's rights
under this chapter.
<PAGE>
(e) Each dissenter made a party to the proceeding is entitled to
judgment for the amount which the court finds to be the fair value of his
shares, plus interest to the date of judgment. (Code 1981, ss. 14-2-1330,
enacted by Ga. L. 1988, p. 1070, ss. 1; Ga. L. 1989, p. 946, ss. 61; Ga. L.
1993, p. 1231, ss. 20.)
14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code Section
14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable;
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in
good faith with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited. (Code 1981, ss. 14-2-1331, enacted by
Ga. L. 1988, p. 1070, ss. 1.)
14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenter's rights shall be
brought more than three years after the corporate action was taken, regardless
of whether notice of the corporate action and of the right to dissent was given
by the corporation in compliance with the provisions of Code Section 14-2-1320
and Code Section 14-2-1322. (Code 1981, ss. 14-2-1332, enacted by Ga. L. 1988,
p. 1070, ss. 1.)
<PAGE>
APPENDIX E
OPINION OF T. STEPHEN JOHNSON & ASSOCIATES
December 15, 1999
Board of Directors
UB&T Financial Services Corporation
129 E. Elm Street
Rockmart, Georgia 30153
Dear Directors:
T. Stephen Johnson & Associates, Inc., Roswell, Georgia ("TSJ&A") has been asked
to render an opinion as to the fairness from a financial point of view of the
consideration to be received by the shareholders of UB&T Financial Services
Corporation ("UB&T") in connection with the proposed merger of UB&T with and
into GB&T Bancshares, Inc. ("GB&T"), pursuant to an Agreement and Plan of
Reorganization dated as of October 14, 1999 (the "Merger Agreement"). The Merger
Agreement states that UB&T shareholders will receive, for each share of UB&T
common stock they own, that multiple of a share of GB&T common stock equal to
$30.00 divided by a base period trading price equal to average daily last sale
price for GB&T common stock for the sixty consecutive calendar days preceding
the closing of the merger on which the GB&T shares were traded. However, if the
base period trading price is greater than $30.00 it will be $30.00 for the
purpose of the conversion, and if it is less than $18.00, the base period
trading price will be $18.00 for the purpose of conversion. GB&T trades on the
NASQAQ National Market under the ticker symbol, GBTB. GB&T last traded on
December 13, 1999 with a closing price of $21.625.
TSJ&A is an investment banking and consulting firm that specializes in the
valuation of closely-held corporations and provides fairness opinions as part of
its practice. Because of its prior experience in the appraisal of southeastern
financial institutions involved in mergers, it has developed an expertise in
fairness opinions related to the securities of southeastern financial
institutions. UB&T retained TSJ&A to serve as financial advisor to provide a
fairness opinion for which compensation will be received.
In performing its analysis, TSJ&A relied upon and assumed without independent
verification, the accuracy and completeness of all information provided to it.
TSJ&A has not performed any independent appraisal or evaluation of the assets of
UB&T or of GB&T or any of its subsidiaries. As such, TSJ&A does not express an
opinion as to the fair market value of UB&T. The opinion of financial fairness
expressed herein is necessarily based on market, economic and other relevant
considerations as they exist and can be evaluated as of December 8, 1999. UB&T
Financial Services Corporation December 15, 1999 Page 2
In arriving at its opinion, TSJ&A reviewed and analyzed audited and unaudited
financial information regarding UB&T and GB&T, the merger, the Merger Agreement,
a draft of SEC filings, as well as publicly available information and actual
comparable transactions.
The merger consideration to be received by UB&T Shareholders is based on the
defined Exchange Ratio for GB&T common shares. The value of the shares to be
received is the Average closing price during the last sixty calendar days of
GB&T common shares. During the sixty days from October 10, 1999 to December 8,
1999, GB&T traded on eight days with an average closing price of $20.00. Based
on this average closing price the transaction value would equal $30.00 per
<PAGE>
share. This transaction value equals 2.545 times September 30, 1999 book value
and 38.297 times last twelve months earnings per share. The purchase price was
calculated to equal 28.35 percent of assets and 35.56 percent of deposits as of
September 30, 1999.
TSJ&A reviewed the Merger as of November 8, 1999, for the purpose of determining
purchase premiums that could be used in comparing the Merger with other
announced transactions. TSJ&A reviewed the purchase premiums paid in all twelve
transactions that were announced since September 30,1998 involving selling
institutions with total assets less that $200 million, headquartered in Georgia.
A listing of these transactions is included with the Fairness Opinion. On
average, the comparable transactions reported an announced deal price to book
value of 2.5845 times, an announced deal price to earnings of 20.25 times, a
purchase as a percent of assets of 31.60 percent and a purchase price as a
percent of deposits of 35.04 percent. The Merger ranks well within the range of
the comparable transactions.
TSJ&A reviewed the historical dividend payouts at UB&T in an effort to equate
such payouts to the current dividend payout at GB&T. The UB&T shareholders
received $.25 per common share during 1999. Assuming the current GB&T dividend
payout of $0.065 per quarter or $0.26 per share, the UB&T shareholders would
receive the equivalent of $0.38 per current UB&T share, based on the Exchange
Ratio of 1.50 to 1.
Therefore, in consideration of the above, it is the opinion of TSJ&A that, based
on the structure of the Merger and the analyses that have been performed, the
consideration to be received by the shareholders of UB&T is fair from a
financial point of view.
Sincerely,
T. Stephen Johnson & Associates, Inc.
<PAGE>
PROXY
GB&T BANCSHARES, INC.
GAINESVILLE, GEORGIA
THIS PROXY IS SOLICITED BY GB&T'S BOARD OF DIRECTORS
WHEN THIS PROXY IS PROPERLY EXECUTED AND RETURNED, AND NOT REVOKED, THE
SHARES OF COMMON STOCK IT REPRESENTS WILL BE VOTED AT THE MEETING IN ACCORDANCE
WITH THE CHOICE SPECIFIED BELOW, AND IF NO CHOICE IS SPECIFIED, IT WILL BE VOTED
FOR APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION BETWEEN GB&T
BANCSHARES, INC. AND UB&T FINANCIAL SERVICES CORPORATION, DATED OCTOBER 14,
1999.
The undersigned shareholder of GB&T Bancshares, Inc. hereby appoints
Alan A. Wayne or Philap A. Wilheit, or either of them, with full power of
substitution to each, the proxies of the undersigned to vote, as designated
below, the shares of the undersigned at the special meeting of shareholders of
GB&T Bancshares, Inc. to be held on _________, 2000, and at any adjournments
thereof;
(a) PROPOSAL TO APPROVE THE ISSUANCE OF GB&T COMMON STOCK in connection
with the Agreement and Plan of Reorganization providing for the merger of UB&T
Financial Services Corporation with and into GB&T, pursuant to which GB&T will
issue sufficient shares of its common stock to convert each outstanding share of
common stock of UB&T Financial Services Corporation, subject to certain terms,
conditions, and adjustments as described in the merger agreement, into that
multiple of a share of GB&T common stock equal to $30.00 divided by the average
daily last sale prices for GB&T common stock for the 60 consecutive calendar
days preceding the closing of the merger, but in no event greater than $30,00 or
less than $18.00, and instead of the issuance of fractional shares of GB&T, GB&T
will pay cash in an amount equal to the fraction multiplied by $30.00.
FOR |_| AGAINST |_| ABSTAIN |_|
(b) IN ACCORDANCE WITH THEIR BEST JUDGMENT with respect to any other
matters which may properly come before the meeting and any adjournment thereof.
Please date and sign this Proxy exactly as your name appears below:
Dated: _______________ , 2000
[LABEL] ______________________________
______________________________
NOTE: When signing as attorney, trustee, administrator, executor, or guardian,
please give your full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. In the case of joint
tenants, each joint owner must sign.
<PAGE>
PROXY
UB&T FINANCIAL SERVICES CORPORATION
ROCKMART, GEORGIA
THIS PROXY IS SOLICITED BY UB&T'S BOARD OF DIRECTORS
WHEN THIS PROXY IS PROPERLY EXECUTED AND RETURNED, AND NOT REVOKED, THE
SHARES OF COMMON STOCK IT REPRESENTS WILL BE VOTED AT THE MEETING IN ACCORDANCE
WITH THE CHOICE SPECIFIED BELOW, AND IF NO CHOICE IS SPECIFIED, IT WILL BE VOTED
FOR APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION BETWEEN GB&T
BANCSHARES, INC. AND UB&T FINANCIAL SERVICES CORPORATION, DATED OCTOBER 14,
1999.
The undersigned shareholder of UB&T Financial Services Corporation
hereby appoints Dan Forsyth or J. Steven Walraven, or either of them, with full
power of substitution to each, the proxies of the undersigned to vote, as
designated below, the shares of the undersigned at the special meeting of
shareholders of UB&T Financial Services Corporation to be held on _________,
2000, and at any adjournments thereof;
(a) PROPOSAL TO APPROVE THE MERGER AGREEMENT, providing for the merger
of UB&T Financial Services Corporation with and into GB&T, pursuant to which
each outstanding share of common stock of UB&T Financial Services Corporation
will be converted, subject to certain terms, conditions, and adjustments as
described in the merger agreement, into that multiple of a share of GB&T common
stock equal to $30.00 divided by the average daily last sale prices for GB&T
common stock for the 60 consecutive calendar days preceding the closing of the
merger, but in no event greater than $30.00 or less than $18.00, and instead of
the issuance of fractional shares of GB&T, GB&T will pay cash in an amount equal
to the fraction multiplied by $30.00.
FOR |_| AGAINST |_| ABSTAIN |_|
(b) IN ACCORDANCE WITH THEIR BEST JUDGMENT with respect to any other
matters which may properly come before the meeting and any adjournment thereof.
<PAGE>
Please date and sign this Proxy exactly as your name appears below:
Dated: _______________ , 2000
[LABEL] ______________________________
______________________________
NOTE: When signing as attorney, trustee, administrator, executor, or guardian,
please give your full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. In the case of joint
tenants, each joint owner must sign.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
Where You Can Find More Information...............................................................................i
Incorporation of Certain Documents by Reference...................................................................i
A Warning about Forward-Looking Statements........................................................................i
Questions and Answers about the Merger..........................................................................iii
Summary ......................................................................................................... 5
The Companies............................................................................................5
The Terms of the Merger..................................................................................5
The Reasons Management of Both Companies Support the Merger..............................................6
The Special Meeting of Shareholders......................................................................6
Record Date..............................................................................................6
Vote Required............................................................................................6
Fairness Opinion to Shareholders of UB&T.................................................................6
Conditions, Termination, and Effective Date..............................................................7
Rights of Dissenting Shareholders........................................................................7
Federal Income Tax Consequences..........................................................................7
Accounting Treatment.....................................................................................7
Markets for Capital Stock................................................................................7
Dividends................................................................................................8
There are Some Differences in Shareholders'Rights Between UB&T and GB&T..................................9
Interests of Directors and Officers of UB&T in the Merger................................................9
Recent Developments of GB&T..............................................................................9
Recent Developments of UB&T..............................................................................9
Risk Factors......................................................................................................9
Comparative Share Data...........................................................................................12
Summary Consolidated Financial Information.......................................................................13
Selected Pro Forma Financial Data................................................................................16
Pro Forma Consolidated Financial Information.....................................................................17
The Proposed Merger..............................................................................................24
Background of and Reasons for the Merger................................................................24
The Agreement and Plan of Reorganization................................................................25
Required Shareholder Approval...........................................................................27
Expenses................................................................................................28
Fairness Opinion........................................................................................28
-i-
<PAGE>
Conduct of Business of UB&T Pending Closing.............................................................30
Interest of Management in the Transaction; Conduct of Business After the Merger.........................31
Comparison of the Rights of UB&T and GB&T Shareholders..................................................31
Accounting Treatment....................................................................................32
Resales of GB&T Stock by Directors and Officers of UB&T.................................................33
Regulatory Approvals....................................................................................33
Rights of Dissenting Shareholders.......................................................................33
Material Federal Income Tax Consequences of the Merger and Opinion of Tax Counsel.......................35
Information about UB&T Financial Services Corporation............................................................35
Description of Business.................................................................................35
Recent Developments.....................................................................................36
Competition.............................................................................................36
Voting Securities and Principal Shareholders............................................................36
Information About GB&T Bancshares, Inc...........................................................................38
Description of Business.................................................................................38
Recent Developments.....................................................................................38
Description of Securities...............................................................................38
Legal Opinions...................................................................................................38
Experts..........................................................................................................39
Other Matters....................................................................................................39
Appendices
Agreement and Plan of Reorganization.................................................................Appendix A
UB&T Financial Services Corporation Form 10-KSB for the year ended December 31, 1998, and
Form 10-QSB for the nine months ended September 30, 1999.............................................Appendix B
GB&T Bancshares, Inc. Form 10-KSB for the year ended December 31, 1998, and Form 10-QSB
for the nine months ended September 30, 1999.........................................................Appendix C
Georgia Dissenter's Rights Statutes (O.C.G.A. ss. 14-2-1301 et seq.).................................Appendix D
Opinion of T. Stephen Johnson & Associates...........................................................Appendix E
</TABLE>
-ii-
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Article Nine of GB&T's Bylaws, GB&T is required to indemnify and
hold harmless its directors, officers and agents against judgments, fines,
penalties, amounts paid in settlement, and expenses, including attorney's fees,
resulting from various types of legal actions or proceedings if the actions of
the party being indemnified meet the standards of conduct specified therein.
Determination concerning whether or not the applicable standard of conduct has
been met can be made by (a) a disinterested majority of the Board of Directors,
(b) independent legal counsel, or (c) an affirmative vote of a majority of
shares held by the shareholders. No indemnification may be made to or on behalf
of a corporate director, officer, employee or agent (a) in connection with a
proceeding by or in the right of the corporation in which such person was
adjudged liable to the corporation or (b) in connection with any other
proceeding in which such person was adjudged liable on the basis that personal
benefit was improperly received by him. As provided under Georgia law, the
liability of a director may not be eliminated or limited (a) for any
appropriation, in violation of his duties, of any business opportunity of GB&T,
(b) for acts or omissions which involve intentional misconduct or a knowing
violation of law, (c) for unlawful corporate distributions or (d) for any
transaction from which the director received an improper benefit.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
GB&T's directors and officers are insured against losses arising from
any claim against them as such for wrongful acts or omissions, subject to
certain limitations.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. DESCRIPTION OF EXHIBIT
2.1 -- Agreement and Plan of Reorganization by and between
GB&T Community Banks, Inc. and UB&T Financial
Services Corporation, dated as of October 14, 1999.
3.1 -- Articles of Incorporation of GB&T, dated August 14,
1997 (incorporated herein by reference from GB&T's
Registration Statement on Form S-3, filed on
September 24, 1998).
<PAGE>
3.2 -- Articles of Amendment of GB&T, dated July 8, 1998
(incorporated herein by reference from GB&T's
Registration Statement on Form S-3, filed on
September 24, 1998).
3.3 -- Bylaws of GB&T, as amended (incorporated herein by
reference from GB&T's Registration Statement on Form
S-3, filed on September 24, 1998).
4.1 -- See Exhibits 3.1 and 3.2 for provisions of Articles
of Incorporation and Bylaws, as amended, which
define the rights of the Shareholders.
4.2 -- Form of certificate for GB&T Common Stock.*
5 -- Opinion and Consent of Hulsey Oliver & Mahar.*
8 -- Opinion and Consent of Hulsey Oliver & Mahar as to
the federal income tax consequences to the merger.
10.1 -- Dividend Reinvestment and Share Purchase Plan of
GB&T (incorporated herein by reference from GB&T's
Registration Statement on Form S-3, filed on
September 24, 1998).
21 -- Subsidiaries of GB&T.
23.1 -- Consent of Mauldin & Jenkins LLC.
23.2 -- Consent of KPMG LLP.
23.3 -- Consent of T. Stephen Johnson & Associates, Inc.
23.4 -- Consent of Hulsey Oliver & Mahar (included as part
of Exhibits 5 and 8).
24 -- Power of Attorney (included on the Signature Page to
the Registration Statement).
- ---------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
<PAGE>
No financial statements schedules are required to be filed as part of
this Registration Statement.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(b) The undersigned registrant hereby undertakes that every prospectus
(i) that is filed pursuant to paragraph (a) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, GB&T BANCSHARES,
INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF GAINESVILLE, STATE OF
GEORGIA, ON DECEMBER 17, 1999.
GB&T BANCSHARES, INC.
By: /s/ Richard A. Hunt
----------------------------
Richard A. Hunt
President
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Richard A. Hunt and Gregory L. Hamby or
either of them, as attorney-in-fact, with each having the power of substitution,
for him in any and all capacities, to sign any amendments to this Registration
Statement on Form S-4 and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES INDICATED ON DECEMBER 17, 1999.
SIGNATURE TITLE
--------- -----
/s/ F. Abit Massey Chairman of the Board of Directors
- ----------------------------
F. Abit Massey
/s/ Richard A. Hunt President and Director (Principal Executive
- ---------------------------- Officer
Richard A. Hunt
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
/s/ Gregory L. Hamby Chief Financial Officer (Principal
- ---------------------------- Financial and Accounting Officer)
Gregory L. Hamby
/s/ Phillip A. Wilheit Vice Chairman and Director
- ----------------------------
Phillip A. Wilheit
/s/ Donald J. Carter Director
- ----------------------------
Donald J. Carter
/s/ J. Grady Coleman Director
- ----------------------------
J. Grady Coleman
/s/ Dr. John W. Darden Director
- ----------------------------
Dr. John W. Darden
/s/ Bernie E. Hewett Director
- ----------------------------
Bernie E. Hewett
/s/ John E. Mansfield, Sr. Director
- ----------------------------
John E. Mansfield, Sr
/s/ Samuel L. Oliver Director
- ----------------------------
Samuel L. Oliver
/s/ Alan A. Wayne Director
- ----------------------------
Alan A. Wayne
UB&T Financial Services Corporation
129 East Elm Street
Rockmart, Georgia 30153
Ladies and Gentlemen:
We have been requested to render our opinion expressed below in
connection with the proposed merger (the "Merger") of UB&T Financial Services
Corporation ("UB&T") with and into GB&T Bancshares, Inc. ("GB&T"), pursuant to
the terms and conditions of that certain Agreement and Plan of Reorganization
(the "Agreement"), dated October 14, 1999, by and between GB&T and UB&T
described in that certain Registration Statement on Form S-4 related to shares
of 712,038 common stock to be issued in connection with the merger of GB&T and
UB&T, to be filed by GB&T with the Securities and Exchange Commission (the
"Registration Statement"). Unless otherwise indicated, terms used herein shall
have the same meaning as defined in the Agreement.
In rendering our opinion, we have examined the Agreement and Plan of
Merger (the "Merger Agreement"), applicable law, regulations, rulings and
decisions. Our opinion is based upon our understanding and belief that the facts
set forth in the Registration Statement are true and correct.
Our opinions set forth below are subject to the following assumptions,
qualifications, and exceptions:
A. During the course of all of the foregoing examinations, we
have assumed (i) the genuineness of all signatures, (ii) the
authenticity of all documents submitted to us as originals, (iii) the
legal capacity of all individuals, (iv) the conformity to original
documents of all documents submitted to us as certified, conformed, or
photostatic copies, and (v) the authority of each person or persons who
executed any document on behalf of another person.
B. As to various factual matters that are material to our
opinions set forth herein, we have relied upon the factual
representations and warranties set forth in the Agreement and related
documents. We have not independently verified, nor do we assume any
responsibility for, the factual accuracy or completeness of any such
representations, warranties, statements, or certificates.
Based on and in reliance on the foregoing and the further
qualifications set forth below, and provided that the Merger is consummated in
accordance with the Merger Agreement, it is our opinion that:
(1) The merger of UB&T into GB&T and the issuance of shares of
712,038 Stock in connection therewith, as described in the
Merger Agreement, will constitute a tax-free reorganization
under Section 368(a)(1)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
(2) No gain or loss will be recognized by GB&T as a result of the
Merger.
(3) Except for the recognition of gain as required by Section 302
of the Code with respect to the receipt by holders of UB&T
Stock of cash in lieu of fractional shares of GB&T Stock, no
gain or loss will be recognized for Federal income tax
purposes by the holders of UB&T Stock upon the exchange of
such stock solely for GB&T Stock as a result of the Merger.
(4) The aggregate tax basis of the GB&T Stock received by a UB&T
shareholder pursuant to the Merger will be the same as the
aggregate tax basis of the shares of UB&T Stock exchanged
therefor, decreased by any portion of such tax basis allocated
to the fractional shares of GB&T Stock that are treated as
redeemed by the UB&T shareholder.
(5) The holding period of the shares of GB&T Stock received by a
UB&T shareholder as part of the Merger will include the
holding period of the shares of UB&T Stock exchanged therefor,
provided that the UB&T Stock is held as a capital asset on the
date of the consummation of the Merger.
In general, cash received by holders of UB&T Stock exercising their
dissenters' rights will be treated as amounts received from the sale of their
shares of UB&T Stock, and (provided that such UB&T Stock is a capital asset in
the hands of such shareholders) each such shareholder will recognize capital
gain or loss (short or long term, as appropriate) measured by the difference
between the sale price of such UB&T Stock and such shareholder's tax basis in
such UB&T Stock.
We express no opinion as to the following: (a) the tax consequences
that might be relevant to a particular holder of UB&T Stock who is subject to
special treatment under certain federal income tax laws, such as dealers in
securities, banks, insurance companies, tax-exempt organizations, non-United
States persons, persons who do not hold their UB&T Stock as "capital assets"
within the meaning of section 1221 of the Code, and persons who acquired their
UB&T Stock pursuant to the exercise of options or otherwise as compensation, or
(b) any consequences arising under the laws of any state, locality, or foreign
jurisdiction.
This letter is solely for the information and use of you and the
shareholders of UB&T and, except to the extent that such may be referred to in
the Registration Statement, it is not to be used, circulated, quoted, or
referred to for any other purpose or relied upon by any other person for
whatever reason without our prior written consent.
HULSEY, OLIVER & MAHAR, LLP
By:___________________________________
Partner
EXHIBIT 21
SUBSIDIARIES OF GB&T BANCSHARES, INC.
Subsidiary State of Organization
--------------------------------- --------------------------
Gainesville Bank & Trust Company, Georgia
Gainesville, Georgia
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Registration Statement on Form S-4 of our report, dated February 12, 1999,
relating to the consolidated financial statements of GB&T Bancshares, Inc. and
subsidiary for the two years ended December 31, 1998, contained in the annual
report on Form 10-KSB for the year ended December 31, 1998, and to the reference
to our Firm under the caption "Expert" in the Prospectus.
/s/ Mauldin & Jenkins, LLC
Atlanta, Georgia
December 20, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of our report, dated February 10, 1999, relating to the
consolidated financial statements of UB&T Financial Services Corporation and
subsidiary for the year ended December 31, 1998, contained in the annual report
on Form 10-KSB for the year ended December 31, 1998, and to the reference to our
Firm under the caption "Experts" in the Prospectus.
/s/ Mauldin & Jenkins, LLC
Atlanta, Georgia
December 20, 1999
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our report incorporated herein, and to the
reference to our Firm under the caption "Experts" in the Prospectus.
/s/ KPMG LLP
December 20, 1999
Atlanta, Georgia
EXHIBIT 23.4
CONSENT OF T. STEPHEN JOHNSON & ASSOCIATES, INC.
We consent to the use in this Registration Statement of GB&T Bancshares, Inc. on
Form S-4 of our opinion related to UB&T Financial Services Corporation included
in the Prospectus to such Registration Statement at Exhibit E and to the
reference to our firm in the Prospectus under the caption "DESCRIPTION OF
TRANSACTION-Opinion of UB&T's Financial Advisor."
T. Stephen Johnson & Associates, Inc.
/s/ T. Stephen Johnson & Associates, Inc.
December 15, 1999
